Just a Small Difference

What we had identified in yesterday’s post is a significant difference in our value proposition in terms of the amount of money that is returned to the owners of the producers. We have asserted and supported our value proposition provides $5.7 trillion in additional profits over what the bureaucrats are able to offer. The is over the next 25 years. What we have been able to establish is that our method of accounting at the property level is going to provide a return of the capital that is invested in the business in addition to those incremental profits. So in summary, over the next 25 year period. Assuming it is correct that $40 trillion were invested in the industry. And we don't know what share of that would be attributable to the North American marketplace. And if the current bureaucrats continued as they were they would provide an approximate $1 trillion in profits, I'm sure I'll be accused of creating a biased estimate. People, Ideas & Objects accounting methodology based on the decentralized production model would return $46.7 trillion to the owners of the producers. And the bureaucrats in their current configuration would provide $1 trillion.

The basis of the difference once again is the fact that we are using the cost of capital and overhead in the determination of what the cost of the property is. That no property will produce unless it can produce a profit. Imputing that the oil or gas revenues would need to be adequate to cover all of the costs. Fixed, variable, operational and capital. No matter what the type of cost it would be included in the calculation of what the property required in order to earn a profit. This would therefore remove the production from the marketplace that was being unprofitably produced. Leaving only profitable production in place, based on a complete accounting. Therefore removing a large percentage of the production profile of North America for oil, and most particularly gas. Imputing that much higher commodity prices would be required before the production from shale returned to the market. This would create the market conditions in which shale could be produced profitably. When you have a commodity that can be produced abundantly, this is the only reasonable methodology that will extract the industry from its current situation.

The fault for being in the situation that we are in is mostly attributable to the accounting firms that apply the SEC regulations of full cost accounting and successful efforts. Accountants have had a miserable life. From having their briefcases taken in grade school, to being bullied throughout high school. And some of the accountants that I know are still paying their lunch money to kindergarten bullies! For them to be cool and hip, the center of attention is something that is foreign to them. So when the producer wants to report high levels of profits by leaving the balance sheet bloated. All they have to do is flatter the partner at the accounting firm. As a result the industry ends up with a valuation on the books that is so unreasonable that it makes no sense. It also makes no sense to declare that these producers are profitable. What they really are is marginally cash flow positive. And that is all that they are. As a result of this, they are creating a dynamic which creates a production profile that is inconsistent with the commodity price.

It should be the objective of the producer to have their capital costs depleted fully in a three to four year time frame. From a business point of view there are many reasons to want to do this. We don’t need to go into them here. Full cost accounting and successful efforts define the limit of what can be capitalized, not what is reasonable from a business point of view. If after three to four years the property will achieve the point where it has returned all of its capital and will be able to earn a profit from that point forward. Or at least it should be able to. In the process however the commodity prices are high enough that the return on that investment can be adequate to provide a good return of the capital. Which is something that a ponzi scheme is consistently unable to achieve.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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.

Annual Report Season is Here!

This is the time of the year in which we can clearly identify who the bureaucrats are. They are the ones that are hiding under their desks while their phone rings constantly. This is the one time of the year that they need to stand up and be accountable for the mess they've caused. Questions about those skeletons that have been neatly packed and highly compressed in the closet can only lead to misery as far as they're concerned. If anyone of those skeletons is discovered the whole closet could explode due to the high numbers of them so tightly compressed. If only they could take their vacation now and come back after everything dies down.

We should expect to see some awful performances from the producers this season. Having both oil and gas prices so low was never a scenario that was considered. Shale based reserves have truly changed the dynamic in the industry. It is now an abundant industry with very high costs. I read in World Oil last week that the Saudi’s Opec representative commented on the following.

The world needs $40 trillion of oil investments in the next two decades to meet growing demand by emerging nations, al-Madi said. Demand will grow 1 MMbopd every year for the next 15 years to about 111 MMbopd, Nasser Al-Dossary, Saudi Arabia’s OPEC national representative, said at the same conference on Sunday.

We should all be surprised by that $40 trillion number. However it must have some credibility. That’s an average of $2 trillion per year which seems within the ballpark. It is also a global number. What it would be for the North American market is unknown. The point is there is an important question that needs to be asked to the bureaucrats who are under the desk, if only they would answer the phone. What is the vision, plan and idea for earning a profit on those investments? And what kind of return are you providing the industry now? Now you understand fully why they hide.

The answer is this is an industry that operates on gross margin. Bureaucrats don't consider the cost of capital in determining the cost of business. That’s probably not the right thing to say. Its truthful but it sounds stupid. As we have discussed before the past investments of the industry sit on the balance sheets of the producers. Bloating them out of all sense of proportion to their revenue streams. With the amount of depletion that is recognized, the income statements in the past few years have looked OK, but as I said we only work on gross margins, or cash flow as we call it in oil and gas. And with the low cost of our head office being such a small percentage of our revenue you'll see we run a tight ship. Just don't ask about how much of the head office staff that we have capitalized to that already bloated balance sheet.

So here’s the deal the bureaucrats will say, trust us, we’ll make you money…

Doing some simple math in terms of the $40 trillion investment should shock the average bureaucrat in believing there is a capital cost associated with the oil and gas business. A simple allocation of the $40 trillion over the 111 million barrels per day for the 20 year period brings in a whopping $65.82 / barrel in additional capital for each and every barrel. Not bad for a product that sells for $50. However if you look only at the incremental production and allocate those costs over those 15 million barrels. It comes to $487.06 in capital costs per barrel. Maybe I'm beginning to see the light as to why the bureaucrats preclude any capital costs in the calculation of their profits.

And of course People, Ideas & Objects, our Preliminary Specification, the user community and service providers are different. We include the costs of capital and overhead in the determination of profits at the property level. Then if the property is profitable it will be produced. Otherwise it will sit in the shut-in inventory where the engineers and geologists can apply all of their innovative thinking to make the property profitable. This is our plan, our vision, our idea and how we provide an incremental $5.7 trillion in profits in that approximate time period. Real profits after that $40 trillion has been returned to the investors. Not profits that are declared with the $40 trillion in investments still sitting on the balance sheet.

Oil and gas is a failing industry. Bureaucrats will fail to meet the market expectations described here. They will fail to provide a business case for the investments to be made. And they will fail in providing answers to the critical questions that are going to be asked here this month and next in what is commonly referred to as annual report season. And if the bureaucrats can get to mid-May they will have made it through another year where they can continue to incinerate more capital and maybe even think about expanding that boat launch after all.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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. 

Who Are We Looking For?

The business opportunity that was defined in yesterday’s post will appeal to those that are of interest to People, Ideas & Objects. Those that are intimate with the details of a process and have the fundamental understanding of how the oil and gas industry operates in terms of its operations, administration and accounting. Those people that can define and support a process that includes the elements of the industry that need to be there, and those that the producers want to be there. People who have been working in the industry for upto a few decades and have risen through the ranks to include themselves in a variety of different roles and areas. These are the people that interest us.

Those that are entrepreneurs within the industry that are able to take the opportunity that we have defined here and run with it to its ultimate expression. This is how the industry will be remade in the vision that is the Preliminary Specification. Where people will act in the best interests of the profitability of their clients, the producer firms. Without profits in the producer firms there is nothing for the individuals or society in the long term. A losing industry such as we have today is a drag on our governments revenue streams and puts the jobs of many in jeopardy of loss, unnecessarily so. We also have a job to do in terms of ensuring that society is provided with the energy necessary to maintain our way of life. That doesn’t seem in jeopardy today. However it will be if the industry continues to lose money over the long term.

All very pious and grandiose claims. The alternative is that we really are here just to shop and keep up with the neighbors latest purchase. I prefer to think that we have better control of ourselves. The point is that this ecosystem will be valuable for the people that participate here in the user community. It is they who will be the ones that fulfill the user community vision. Who will have the power to influence the business models that the industry uses and how best the industry can earn its profits. That collective wisdom will be implemented through the software that is delivered from their efforts.

It is this kind of individual that holds the keys to the future of the industry. That should be clear through today’s post and throughout all of our discussions. And this is how they can transition from the position of where they are today to one in which they can be operating their own service provider in a few years. Where the scope and scale of their operation is a substantial organization that they have built from nothing with their own skills and talents. Something that provides them with a far better standard of living and satisfaction than what they may be enjoying today. And maybe its a partnership with some of the other users that they will meet along the way. Who knows, what is obvious however is that the industry is not performing and has no plans or vision in how it can.

This motivational speech will appeal to the person that we are interested in. It will also alienate the bureaucrats that feel it is inappropriate for the oil and gas industry. Thats because they think the Preliminary Specification is inappropriate for the industry. The bureaucrats have failed miserably. They are completely out of ideas as to how to change the situation in the industry. Prayers are not being answered this year because none were asked in the run up to the winter months. What do you do with an industry that has kept your family fed and housed for the past decades and now is not performing, has no plans or vision, no ideas and most importantly not even a prayer?

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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. 

Copyright is the Glue That Hold Everything Together

The other day we noted that the service providers would have the exclusive rights to manage their process. That there would be no competition in terms of other firms providing the same processes management. The manner in which service providers compete is on the basis of specialization and the division of labor. The way that we ensure that no direct competition is generated for the service provider is that each service provider is licensed in terms of its access to the underlying Intellectual Property based on our copyright and of course by way of access to our software to manage the process. The copyright in this case also precludes others from operating within the service providers field of operation. There are many other ways that the copyright is used throughout the People, Ideas & Objects environment that makes up the Preliminary Specification, the user community and service providers. This post will touch on those areas and give a brief overview of the manner in which the copyright is used.

I am the beneficial owner of the copyright that defines the Preliminary Specification and the contents of this blog. These ideas form the Intellectual Property contained within this ecosystem. It is on the basis of the ownership of this IP that I am able to, eventually, raise the revenue from the producer firm to support our budget. Our budget includes the cost of our developers and pays for the time of the user community. Service provider revenues are sourced from the producers directly as the replacement to their current G&A costs. This is the flow of money in this ecosystem. It is important to establish this flow as it also details the flow of the ownership of the Intellectual Property.

The first thing that is necessary is to grant a license from myself to People, Ideas & Objects for them to prepare derivative works of the Preliminary Specification and the ideas contained here in this blog. This will be in the form of software code and will be, through the license, renounced back to me as I will be the one paying for the development of the software. The user community operates in the same manner. Since they are paid for their work, the Intellectual Property that is generated flows back to me and becomes part of the total IP consisting of software code and other input. This is important as each user community participant and developer are granted within the license the right to access and prepare derivative works from this Intellectual Property. What would be unworkable would be the entire community making IP claims to their contributions as their Intellectual Property and then having to cross license each others contributions. The method that we are using in this community allows access for those that are licensed to these developments all of the necessary access and use that they need to do their work.

The user community participant is also a key member of each individual service provider. And therefore they have the rights through a specific license to manage a specific process. This license is an end user license that governs the use of the software. It is in the service providers where the user community participants will earn the majority of their capital appreciation and earnings. The user community participant also earns money for their time and effort with our developers, however building a service provider organization provides them with the opportunity to build real long term value for themselves.

It is the nature of Intellectual Property that the oil and gas industry has ignored for the better part of this century. And as a result they have lost large portions of it to initiatives such as People, Ideas & Objects. It will be the case in this century that you will need Intellectual Property in some form in order to do your work. You will have to own it outright. You will have to have a license in which to access some IP, such as the user community participant and their service provider firms. Or you will have to have access to it through your employer, such as a service provider. One of these methods will be the only way in which you will be able to work in whatever industry you choose to work in. That of course is my opinion. And we already see this happening with the proliferation of end user license agreements, etc.

One of the reasons for the Intellectual Property becoming so prevalent in the future is its ability to hold communities together. In our case it is the glue that enables the user community to do their work. That authorizes their management of the process. And precludes those from working against the interests of those that have contributed to this community and therefore have earned some rights and capabilities that are a part of the communities offering. One of the things that the bureaucrats were notorious for was to take the Intellectual Property and capabilities of a service based firm and freely pass these among their competition and sponsor several “me-to” competitors. That’s not going to happen in this environment. You will be protected as a user community member by the license that is granted to you in the process of joining the user community and contributing. It is important to note not everyone will be granted a license and only user community participants in good standing will be able to establish service providers. Since the service providers are a new sub-industry there will be large numbers of these formed. The population of user community participants in the budget have been specified at 3,000. Recall that we expect that service providers will be taking the load of the G&A of the industry which we estimate to be a large portion of the current $40 to 60 billion in G&A costs of the North American producers. Taking a rough average then, a service provider would generate $10 million per year in revenues.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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 Service Providers Role

With the combination of the Preliminary Specification and the service providers. People can see the difference in the way that business will be conducted in the oil and gas industry. Administration and accounting will be handled by the service providers on a global industry wide basis. No longer will the oil and gas producer be constrained by their administrative and accounting capabilities affecting their growth or profitability. Having the service providers operating in the manner we noted yesterday makes these costs variable in nature. Allowing the producer to shut-in unprofitable production and therefore reduce the royalties, operating costs and overhead on the property and the firm overall. Enabling the producer to select their production profile based on the profitability of their production ensures that they, as a producer, will always be profitable. And their ability to scale up their production is immediate by accessing the administrative and accounting capabilities that support any new production through the industry based capabilities of the service providers.

Getting these concepts into the minds of the future user community participants is critical to the success of People, Ideas & Objects Preliminary Specification. We are not rebuilding the existing systems that are so deficient in providing value to the oil and gas producer. The entire configuration of the industry, where the service providers are separate from the producers. And focused on one individual process of the producers business. Demands a different perspective and point of view of how the industry operates and the systems that are built by the user community.

Our objective in making these changes is to provide the flexibility in the producers deliverability and production profile, and to allow them to focus on their key competitive advantages of their earth science and engineering capabilities, and their land and asset base. The service providers on the other hand are handling the administrative or accounting process that is theirs. They own the process and are solely responsible for the management of it on behalf of the industry. Their process is their competitive advantage. And with that they have the people to manage the process, the capabilities to make changes to both the process and the software itself through their participation in the user community. This is the critical point of failure where the quality of systems usually fail. The producer currently has no one to turn to who has ownership of the issue. The service provider, who contains the user community participant, has the power through the user community vision to enable the changes to be made. They will have the people to deal with the producers issues.

It will be the service providers process that is the source of their competitive advantage. And it will be on the basis of specialization and the division of labor that they are able to compete. Taking the data set of the industry and being responsible for it for that process is a completely different basis in which to look at the industry. It is also the only reasonable approach here in the 21st century. Having each producer develop the administrative and accounting capabilities to support their organization is a constraint and is the primary reason that so many producers are losing money. The scope and scale of the actual overhead of the producer is not that significant, however it is large enough that it requires them to continue producing in the current environment. With all the staff on their payroll they need to keep operating all of their properties to continue paying everyone. The shale revolution is declaring this business model is out of step with the needs of the industry. The bureaucrats won’t listen and continue on despite putting their firms in jeopardy. Change is desperately needed.

What we as individuals need to do is to think of the ways that the service providers will work in this new environment. That is the way that we need to go about building these new processes. First in the software itself with People, Ideas & Objects Preliminary Specification. Remember software identifies and supports the organizational constructs. That will enable the changes to be made in the organizations. Then with the user community participants developing the service providers themselves the changes needed in the industry can be implemented with the software, the process and the people operating in the manner that makes the oil and gas producer the most profitable that they can be.

It will be on the competitive basis that the service provider will use specialization and the division of labor. These will be their key tools in assisting the oil and gas producers. However, people will also need to think what the division of labor between computers and people will be. We need to stop doing the work that is best left to the computers. And begin the far more exciting work of leadership, unstructured problem solving, decisions, creative work, collaboration, research, ideas, design, planning, thinking and making the computers work for us, instead of us working for them.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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. 

What's a Service Provider?

Keeping with the theme of a quick review, I now want to discuss the role of the service providers. And how the user communities involvement makes them important elements of this software development environment and the means in which the producers processes are managed. If we assume for a moment that the population of user community participants is the 3,000 people that we have determined in our budget. We can see that the user is not necessarily employed full time with the development team. This is a reasonable assumption as the time necessary to evaluate, communicate, test and deliver the software from the development team is a collaborative exercise. And within the People, Ideas & Objects community the users are also the principles behind the service providers who provide the administrative and accounting services to the oil and gas producers.

Under the decentralized production model the prototypical producer is reduced to the C class executives, the earth science and engineering resources, some land and legal, and support staff. The remainder of the administrative and accounting resources are reallocated to service providers who focus on one process and have the industry as their client base. This enables them to use the principles of specialization and the division of labor to enhance the service providers offering on a continually improving basis. If a service provider was determining the eligible capital for gas cost allowance, and that would be all that they did, they could apply their focus to the best way in which to approach the industry wide data set that they and all service providers were responsible for. The principle of the service providers, who are also members of the user community, will have the influence in the software development to make the changes to the Preliminary Specification and its derivative works, and enact any desired changes.

With the movement of the administrative and accounting resources from the producers to the service providers. It will also shift the payments for those administrative and accounting costs from the producers staff to the service providers. We believe these payments will make up a large percentage of the North American industries $40 to 60 billion in G&A costs that are incurred today. Therefore the service providers will have these revenues generated as a fee for service rendered during each month there is activity. Therefore if the property is shut-in during a month, due to the producers inability to produce a profit, then the service providers would not have any tasks for that property and no service provider fees would be billed. Otherwise the billing of a service fee to each Joint Operating Committee will be undertaken each month there is production.

These process fees leave the service provider with the financial resources to support the services that are needed by the producers. It also makes up the other portion of the user community participants full year work requirement. Some of their time with the software development team working to build / enhance the software they use at their service provider. And the rest of their time incurred in managing the service provider which they own and operate. It is the user community participant that we will be looking to to establish these service providers. Since none of these service providers currently exist, all of them will need to be developed from this initiative.

Competition between the service providers will be unique. Since they are licensees of People, Ideas & Objects they will have exclusive rights to the domain that they provide their service in. They have no risk that a new service provider will come along and poach their clients for the service that they provide. The manner that they will compete with the other service providers will be in the areas of specialization and the division of labor. Establishing new concepts and methods on which to enhance their offerings and reduce their costs to their clients, the oil and gas producers.

It is in this way that the producer is able to focus on their key competitive advantages of their earth science and engineering capabilities and their land and asset base. By accessing an administrative and accounting capability that is variable, and industry based as opposed to something that has to be developed in-house within each producer firm. The decentralized production model enables the producer to become a price maker in the oil and gas commodity markets and obtain a flexible production footprint based on the profitability of the properties.

The role of the service provider in providing the producer firms with the individual process management is a critical one in the People, Ideas & Objects environment. They will be the ones who are defining and designing the process in its optimal configuration to determine the most efficient method of dealing with the industries needs. They will be the ones, as members of the user community, who will work with the People, Ideas & Objects software development team in determining what those software systems will look like and what is required. And then they will provide the software solution and the people necessary to make the producer firm obtain the most profitable means of oil and gas operations.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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. 

Recruitng Our Leadership Team

Another element of our focus on the user community is our recruitment of the 30 or so members of the user communities leadership team. Ideally we are hoping to have the leadership team in place prior to the commencement of software developments in January 2017. This might be possible, however it is not a critical component to our progress. The leadership team will support the user community, most particularly in their early developmental years. We have previously defined the positions within the leadership team. And this post will seek to revisit what those positions are and what is expected of them.

What I feel are the most important positions are the position of Product Owner. If I didn't already have a role in this development I would most definitely be after one of these Product Owner positions. There may be as many as 20 of these positions available in the People, Ideas & Objects development. One for each of the modules of the Preliminary Specification and additional Product Owners for the data models, user interface, etc and for example.

These are senior positions within the development team. They represent the user community within the software developer team and are their representative on the ground in the development. They are well versed in the business topic of the module that they represent and understand the software development process. They are able to troubleshoot any difficulties in terms of the miscommunication between the developers and user community and ensure that the user community understands their deadlines and commitments. Product quality is the effect that the Product Owner can make in terms of their contribution.

We have also established a Board of Directors for the leadership team of the user community. They will assume the typical role of directors in a corporate environment and will therefore provide the strategic vision and leadership of the user community. They will also be responsible for approving the annual budget that is necessary to fulfill that vision and leadership. All of the funding for the user community is sourced through People, Ideas & Objects and therefore these budgets will be prepared and submitted for funding by the leadership team. People, Ideas & Objects as the licensee of the Intellectual Property raises the necessary funds for both the user community and the software developers on an annual basis.

The last positions of the leadership team are the C class executives. A CEO, CFO, COO will need to be secured in order to manage an organization of this size, scope and scale being undertaken. I mentioned before that I will be taking the Chairman's and CEO's role. If we are able to secure people prior to our January 2017 commencement date that would be ideal. We would have no resources to compensate them at that time, however there would be compensation beyond January 2017. More is expected of the leadership team and this is typical of what is required in a startup position.

I can't stress enough the importance that I feel regarding the users involvement in these software developments. We have all seen the types of systems that are developed when the user is excluded from the development. And that will not happen here. We are committed for the next 21 months to be focused on the development of the user community and the leadership team. This will be on top of the work that we have done in the past 15 months. This is the hard work of getting the ideas into the minds of the overall oil and gas industry and creating an interest in developing and participating in a new solution. One based on the Preliminary Specification as our guide to provide the oil and gas producers with the most profitable means of oil and gas operations. If you share in this objective and believe that the industry needs to turn away from its bureaucratic, losing ways. Then have a look at what we have here. I'm sure you'll find something that interests you.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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. 

Accounting At the Property Level

Last week we noted the determination of profits in oil and gas was subject to different methodologies in terms of how the firms assets were depleted and hence earnings were reported. I suggested that producers had bloated balance sheets as a result of capitalizing all of the activities in the field. And this bloating was enhanced further by the slow process of depletion when using the reserve base as the method of depleting those assets. Overall this having the effect of over reporting profits for the industry. I also suggested that this was systemic, large and unreasonable. Today I want to continue with the accounting theme and look at the individual properties of the producer. And why the producer is unable to determine which properties are not producing a profit.

The main culprit is overhead. The producer has no ability to determine what the overhead of a property is. Many might consider this to be an immaterial amount, however, when you consider what the gross G&A of a producer is, you'll see that the amounts become material to the determination of the properties profitability. The other aspect is the amount is hidden and only recognized as an overhead allowance that is chargeable to the joint account. These allowances are too small to recognize the real costs associated with the overhead of the property. Therefore the property is over reporting their profits. And the majority of the G&A that is reported on the Income Statement is only the net, after capitalization of the majority of the overhead occurs.

If you look at most annual reports you will find a determination of the netback prices showing that the producer is providing positive margins on their operations. And they are. However you can also see that these calculations only include the costs of royalties and production costs. And they are averages. Included in those averages are a few properties that are wiping out all of the profits of the producer. If you include the actual gross overheads and a reasonable depletion based on, lets say the decline curve, you will find that not every property within the producers portfolio will continue to report a profit. This is only reasonable. It is People, Ideas & Objects suggestion through use of the Preliminary Specification that the producer shut-in those properties that are unable to produce a profit, based on an actual accounting of the properties costs.

This can’t be done with the current bureaucratic systems and procedures. They are using accounting policies that were designed in the 1960’s that were involved in the introduction of computers. They are stuck with allowances and estimates, accruals and a whole lotta fudge to make their systems work. To get an accurate accounting of the costs of the property would require them to reorganize the industry around different parameters. Much like what our decentralized production model does.

And the focus that we provide the producer brings two new elements in terms of increasing their profits. One is the focus on specialization and the division of labor. Two economic principles that have been responsible for all of the economic growth that we have realized since the 1790’s. The ability to focus on these principles does not currently exist due to the fact that each producer needs to build the administrative and accounting capabilities within their organizations. And there is no current opportunity for them to share in these capabilities with other producers. When each producer has to be Sarbanes Oxley compliant, each producer has to hire Sarbanes Oxley compliance people. Therefore the administrative and accounting requirements of the producer firm are a constraint and limit to the speed and capacity to grow. With the Preliminary Specifications development of an industry wide administrative and accounting capability, these speed and capacity to grow constraints are removed and the issues do not arise. By having a Sarbanes Oxley compliant service provider specializing in the legislation and providing their services across the industry.

The second element that we provide is for the producer to be a price maker in the oil and gas commodity markets. As we noted above, the ability to shut-in production at the property, when available across the industry will provide the following advantages.

• The producer actually increases their profitability by reducing their production. 
• Under the decentralized production model there will be no overhead incurred by the producer on shut-in production. Overhead becomes a variable cost based on production.
• The commodity prices will rise as there will be less product on the market. 
• And the overall cost to produce will remain lower due to the fact that you won't be adding the losses of the property as additional costs to be earned in the future. 

The fact that Exxon is borrowing money to fund their negative cash flow. And it is expected that $100 billion will be needed to fund the negative cash flow of the shale formations. People, Ideas & Objects rational story about determining profits and acting on the outcomes makes sense to me. The bureaucrats are too conflicted to be involved in our software developments. We eliminate them from the scene. And the investors are cutting and running. Looks to me like an industry that has to experience the phenomenon of creative destruction in order to make the changes to the Preliminary Specification.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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. 

Back To Our Priority and Focus

Our planned diversion away from our focus on the user community ended late last week when we realized that the oil and gas investor was too passive to involve themselves in People, Ideas & Objects. They are employing a cut and run strategy away from oil and gas and from the look of most stocks, who can blame them. One of our favorites, in that we mentioned them here late last year is Penn West Petroleum. They had the misfortune of having to restate their financials for a number of quarters based on the fact that they had previously capitalized royalties. Anyway, at the time their stock was as high as $10.19 last year with a market cap of approximately $5.1 billion. Last week the stock touched $1.30 with a market cap of $650 million. Thats a loss of $4.5 billion, or 88%. I have held to a principle in the stock market that if a company loses half of its value in an “event,” then that company can effectively be seen as dead. There is no return for a firm that has taken a hit of that calibre to its stock. The event that has hit Penn West of course is the decline in oil prices and there does not seem to be the resources or capabilities, as far as the market is concerned, for Penn West to survive. I wonder how many other half dead producers there are out there. It is clear to me that we are involved in a disintermediation of the oil and gas business based on the creative destruction of the current infrastructure.

Anyway our priority and our focus is the user community and its involvement in providing the oil and gas producer with the most profitable means of oil and gas operations. We need to refocus on this priority as this is our means of being involved in the development of our product the Preliminary Specification. If we had our budget in the bank today, our priority and focus would be on the development of the user community and therefore we are not wasting any time now as a result of being unable to fund our budget. The ability of our message to be broadcast across the industry exists due to the capabilities of the Internet. And the ability of like minded people to communicate and collaborate exists when our budget funding does come into play. For now spreading the word and thinking about how the Preliminary Specification impacts your areas of the oil and gas industry are things that we can and should be doing. This gives us the time to be creative and put some energy, and the necessary quality of time that is needed for a high quality user community based product to be developed. Rebuilding the industry from the ruins that are starting to show, and as noted above, is very exciting from this side of the fence.

Most producers are now starting to make cuts to their staff. Such that staff were the problem that caused the profitability issues the producers are facing. We have been hounding the producers for over a decade about the work that we are doing here. Trust me the failure of the industry is the bureaucrats fault. They have provided less value to their shareholders than if the investors had put their money in the commodity markets. A sad commentary on the performance of the industry over the past ten to fifteen years. Those that are being let go from the producers should find hope that they can be seen as valuable again by joining this community and being part of this revolution. Thats a good word for what we are doing here.

To have the Preliminary Specification operating in the oil and gas industry would provide a lot of value for everyone involved. Those that participate in the user community are the main benefactors and will hold a special seat in the way that the revitalized oil and gas industry operates. Through our user community vision it is the user who has control of the business model that is contained within the software that operates the industry. If there is need for a change in the business model it is the user community that has the power to make those changes. It won’t need to ask anyone for permission or consent. And the user community will have the software development capabilities of People, Ideas & Objects available to implement those changes when they are required. This is a new way of running an industry. One that if you read the current business literature, is becoming somewhat the prototypical organization of the future.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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 Revelation in how our Budget is Funded

A few days ago we asked if we could afford failure. Failure in the oil and gas industry itself. Now I want to ask it in terms of People, Ideas & Objects and the development of the Preliminary Specification. Clearly we are engaged in a battle with the powers that be, the bureaucracy who hold little regard for us. And that makes our task difficult in terms of succeeding when you are in a protracted battle with your customer. However, our appeal, based on our value proposition, has been to address our message to those that are directly affected by the difficulties in the industry, the oil and gas investor. And it is here that we have specifically addressed 386 blog posts. The time has come to evaluate that approach, and ask if its reasonable at this point to assess this as a failure. Clearly the investor, and board of directors who represent them, are too detached from their investment in order to make any fundamental change. It is for them a passive investment. It is therefore fair to assume that our appeals have fallen on deaf ears. Our ability to cobble together a coalition of like minds in this area and fund our budget is a non-starter. And we need an alternative means in order to address our budget needs.

What we have is a value proposition that is in the trillions of dollars. What is needed to achieve this value is the software necessary to identify and support the organization to realize that value. Our budget is the key to establishing that organization. The organization consisting of People, Ideas & Objects, our user community and the service providers. These service providers will have the $40 to 60 billion in overhead that is incurred by the industry today, as the source of their revenue stream for tomorrow. Identified and controlled by the software that they participate in developing. The oil and gas industry generates several trillion per year in terms of its revenues with North America being a large subset of that.

How does disintermediation work? We certainly have identified the needs of the user community and service providers as necessary to make up the changes within the industry. Changes to enable the Preliminary Specification. However is that enough change in order to ensure that society's energy needs are met in the long term? Certainly we have identified the bureaucracy as a redundant form of organization within the People, Ideas & Objects ecosystem. However, is it appropriate to ask if the passive investor model of ownership of the oil and gas industry is also past its usable life? If they too are uninterested in the long term of their investment. And are willingly walking away from those investments. Who are we to argue?

What we therefore need to do is to identify new candidates for interested parties willing to disintermediate the oil and gas industry. In other industries that have been disintermediated the shareholders and directors of the “old” industries did stand by and watched as their investments were fundamentally destroyed. This is the model that fits in every example that I can see. The value of Apple has assumed the value of the industries that they disintermediated. Where are the shareholders in those “old” businesses and industries today?

Which leads us to the logical conclusion that we have for who we can approach to fund the disintermediation of the oil and gas industry. We can not only provide them with the upside in terms of our value proposition. A means in which to operate the industry in the most innovative, dynamic, profitable and successful manner. But also the disintermediation of the existing producers revenue stream which are being willingly given up by the investors and shareholders of the current producers. Who are the natural candidates for this approach? Two off the top of my head are Apple and Oracle.

So here is the revised plan for our development. We are sticking with the January 2017 software development start date. And user community developments are our priority for the period of time up to that point and always. However we will be actively looking to people who are interested in disintermediating the industry as sources for our budget. Passive investment is something that came into play when the merchant organizations became too big to manage by the founder. Disintermediation is a means of exercising the value away from the uninterested passive investors.

What disintermediation has proven time and again is that Information Technology is disrupting current business models. Its only now that I am realizing that one fundamental business model that is being disrupted is the passive investor model. Action is the last thing that comes to the mind of the investor in terms of what to do with their poor performing stock. The first thing they do is sell it. The trick will be not to hold any oil and gas stocks when the pain is realized in the marketplace. Not to involve yourself in fixing things. Therefore our plan will be implemented immediately with a return to our focus on the development of our user community come Monday. Over time we will figure out the funding requirements and ensure that society's energy needs are met in the long term.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful 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.