Our Solution Part XVIII

In addition to a number of Joint Operating Committees. The dynamic, innovative and profitable oil and gas producer will operate in a number of marketplaces within the oil and gas industry. The Preliminary Specification has three marketplace modules, the Petroleum Lease, Resource and Financial Marketplace modules. It is within these modules that the Preliminary Specification virtually replicates those markets.

Without a P&NG Lease, or a concession there is no title or ownership to the oil and gas that is produced. It is the marketplace of P&NG Leases that the North American oil and gas producer seeks to earn their profits by applying their earth science and engineering capabilities as competitive advantages. P&NG Leases can be bought and sold, traded, swapped, developed into a Joint Venture, pooled as some of the many possibilities within the North American marketplace. The constraints on a producer's creativity, of how they approach the business, is limited by the laws of Canada and the United States, and their earth science and engineering capabilities. The Petroleum Lease Marketplace will reflect the available opportunities that exist in the oil and gas market space. And also provide the means in which to manage those assets consistent with effective and efficient business practices.

To facilitate that creativity and business need the Preliminary Specifications Petroleum Lease Marketplace will need to accurately emulate that physical market space and all of its characteristics. So that the dynamic, innovative and profitable oil and gas producer can address the entire oil and gas market space and seek out their role within the industry. If it is to post some land, or bid. Buy some established production or pool an interest in a promising area. They will have the interfaces within the module to provide for the ability to participate in those markets.

The second marketplace module seeks to replicate what we have called the Resource Marketplace. This consists of the marketplace of human resources, service providers, service industry representatives and producers. The products and services that are made available to the dynamic, innovative and profitable oil and gas producer. Within this module producers will be able to find the interfaces to enable the engagement of the resources to conduct any and all activities within the industry. It is through this module that the producer will interact with the service providers. Which in turn enables the decentralized production model to be implemented as the business model for the industry. And therefore it is here that the flexibility in the producer's production deliverability is enabled. Automation of the processes between producers and others is an underlying assumption regarding the transactions that occur in the module.

Lastly there is the Financial Marketplace module. With the level of activity increasing in the dynamic, innovative and profitable oil and gas producer. The need to have its financial capabilities increase their velocity and throughput are necessary. As well, the alignment of the financial framework of the Joint Operating Committee to the compliance and governance framework is achieved in the Financial Marketplace module. Opening up the producer to new avenues of financing and greater capabilities in terms of their overall financial performance.

I'm really struggling to articulate the abstract definition of what these marketplace modules mean within the Preliminary Specification. These hold a special role in the software and will provide new ways in which the producers participate in these market spaces. As I stated in the beginning of this post; the dynamic, innovative and profitable oil and gas producer has an interest in many Joint Operating Committees and these three marketplaces.

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. 

No Posting Today

In recognition of the U.S. Memorial Day holiday.

No Posting Today

Bureaucrats can look forward to another day's pay and one day's vesting in their pensions. 

Our Solution Part XVII

The conflicted bureaucracy that are operating in the oil and gas industry have a fundamental belief in a theory known as spontaneous order. It is an economic principle that essentially states that markets will create the solution when it is required. Spontaneous order has worked in the economy on many occasions and could be argued that it is the competitive response to a company's offering. I think things have changed. Information Technology in organizations is the metaphorical cement that locks the elements of the organization in a permanent, unchangeable situation. The capacity and capability to change the organization is dependent on the capacity and capability to change the software first and foremost. Without the ability to change the software, none of the elements of the organization are going to change. Spontaneous order is therefore rendered inert in the digital economy.

Which is fine as far as the bureaucrats are concerned. Leaving the status quo organization in place is therefore simple. Don't change any of the software and the bureaucrats can retire fat and happy. This may also be one of the key reasons that there is little growth in the advanced economies. Everyone is dissatisfied with the level of economic growth these days, however, have they asked what a bureaucrat really thinks of this.

The alternative to spontaneous order is the hideous sounding central planning. Which is what had been done in the former communist countries with little success. Even the Chinese successfully abandoned this method of organization. There has to be a middle ground and I think that the Preliminary Specification, our user community and service providers offer that middle ground. First by providing the dynamic, innovative and profitable oil and gas producers with a software development capability. Secondly by establishing the user community vision to enable the needs of the producers, the industry in general, the service industry and all the users with the means in which to change the Preliminary Specification.

An analogy to our current situation in oil and gas would follow along the lines of this. If we had a donut shop that made its own donuts. Where the manager continued to purchase new equipment that was faster and more productive. And he kept all of his machines producing all of the time. The parking lot would be full of stale donuts and there would be no customers. This for all intents and purposes is the oil and gas industry today. No one can impress upon the donut shop manager, or in the oil and gas industries case our friends the bureaucracy, that they are wrong and need to change their ways. It is because the donut shop manager has a vested ownership interest in the donut machine manufacturer, or in the bureaucracies case, their cabin and personal fortune.

Review of the user community vision shows the user community is endowed with the power and capabilities to solve issues and enable opportunities for the dynamic, innovative and profitable oil and gas producer. As a replacement to the current conflicted bureaucracy. In the current industry no one can point to anyone who has the power to deal with the overproduction issue. In our user community the users will be able to see the opportunity, organize the resources to make the changes to the software and the service providers and enable the value to be earned by the oil and gas producers.

Everyone can see the issues in the oil and gas industry. Yet no one can currently do anything about them. The only solution being offered is the Preliminary Specification, our user community and the service providers. At some point the realization that the only solution being offered is probably the right one will be accepted. Particularly when the value proposition of that solution is valued in the tens of trillions of dollars.

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. 

An Operating System for the Industry

Maybe one of the best ways to describe the Preliminary Specification, the user community and service providers is that it is an operating system for the industry. One in which the producer, no matter their size, can manage their interests in any and all oil and gas properties. An operating system that provides the producer with the opportunity to implement whichever strategy they believe to be the most effective. Based on the most advanced earth science and engineering capabilities that are available from the partnership making up the Joint Operating Committee. How this will work is through the interactions, transactions and collaborations between the people and the electronic devices they use. Everyone knows that we can have these types of applications. Those that are readily available for consumers that use these devices. Why are they not available for the oil and gas industry? Its simple, we need to organize ourselves, our data and processes to enable these new types of devices and applications. We need to build the operating system for the industry in order for this vision to take hold.

Certainly everyone can access their files and work from anywhere there is an Internet connection today. We've all been able to do this for years. That is not where we need to go, nor is it what I want to discuss today. What we need to do is to begin to provide the oil and gas producers with the ability and capabilities to conduct their business securely, anytime, anywhere and on any device. A means in which producers would be able to work together, indirectly, to better manage their interests. Based on information and data that is accurate and reliable. And to have the capability to make the business decisions, at the Joint Operating Committee level, that need to be made.

It is this new way of operation brought about by the Preliminary Specification, the user community and service providers that the producers will be able to attain the most profitable means of oil and gas operations. Today everyone knows what the problem is. Overproduction. Everyone knows the solution. Shut-in the unprofitable properties. Yet none of the producers are able to do so due to the inability to know which properties are a financial drain, and they can not be the first in the marketplace to voluntarily reduce their production profile. If, with the Preliminary Specification, all the producers know that their production is profitable. And any that isn’t profitable has been shut-in. Then they know their profits will be the highest they can attain as a result. They will also know that all producers will operate in the same fashion as that is the most profitable means of oil and gas operations. There is no collusion over prices. There is only the self interest of the producers at the Joint Operating Committee making the decision to produce or not in their own best interests.

Making clear business decisions based on accurate and reliable information and data is not the method in which the oil and gas industry operates today! Overhead and capital are ignored as costs so they don't have to account for them. Bureaucrats let these costs accumulate on the balance sheet for eternity. That way they can justify producing everything they own no matter how much it might really cost. Its the modern version of the shell game.

With the Preliminary Specification our user community and service providers in place the industry would operate in a more rational manner. We use the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer. In doing so we align the compliance and governance frameworks of the hierarchy with the legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks of the Joint Operating Committee. This alignment is the beginning of the Preliminary Specification. From there we are able to take the issues and opportunities of the industry and deal with them effectively. And not just in the administrative and accounting domains, but also in the operational domain.

Time will tell if the commodity prices are in the early stages of a recovery. I’m on the record stating this is not the case as the bureaucrats can’t change their means of operations. They will continue to overproduce. I am also on record as stating that the current accounting is bogus. That the ability and capability of these allegedly profitable producers to fund their negative margins and unprofitable operations is limited. Particularly in an environment where the investors are not investing, and now the bond holders are not investing. The only real place for a producer to get their hands on some cash is to produce! And around we go again. It is the definition of insanity.

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. 

Status Update

As difficult as our task appears to be, we are making progress in terms of spreading our message throughout the North American oil and gas industry. People can see the Preliminary Specification and understand its logic. Most importantly they can see how they will be able to fit into the revised oil and gas industry. What is difficult for many people to appreciate is the scope and scale of change that we have to exercise to enable the Preliminary Specification, the user community and service providers. It is my opinion that the bureaucracy is a method of organization that has ceased to build value in all industries. It is why we are no longer growing. Just as the former Soviet Union found that their system of organization could no longer function, the bureaucrats need to understand that their days are numbered in this the 21st century.

It is our focus on developing the user community for the next 18 months. At which time we should be able to shift into the development of the Preliminary Specification. This assumes that we are successful in convincing “someone” to fund our budget and proceed with these developments. It may appear that we are a significant distance from having our budget funded, however, watch and learn. The real priority right now is the development of the user community as this enables us to lose nothing in terms of time. If we had our budget now, we would be doing the same things, developing the user community. It is the critical qualitative difference in our software offering and will be the method in which the oil and gas industry solves its issues.

Oil and natural gas prices have shown some strength in the past month. The bureaucrats are thinking all is well and they dodged the bullet, so to speak. Others outside of the industry may be thinking the same thing. Why then would it be necessary to conduct such radical surgery as implementing the Preliminary Specification if everything is on the road to renewal. To me commodity prices are displaying characteristics of a classic dead cat bounce. Last week the EIA announced that natural gas storage levels are 65% higher than they were last year. One look at the production profile of the United States and it is clear that the storage capacity for natural gas will be reached this summer / fall injection period. Taking 100 to 110 bcf per week of demand out of the market, suddenly, will cause the natural gas prices to take a further step downward on a semi-permanent basis. And as for oil, there is no good news anywhere that can support $60.00 prices.

What needs to happen is a method in which producers can allocate production based on profitability. Only the Preliminary Specification provides our decentralized production model. The bureaucrats are conflicted against themselves by having to produce everything they can to offset their overheads. To determine which properties are profitable is impossible for each and every producer on each and every property. They use estimates of what the overhead at the property is and these are based on best guesses from the 1960’s. The actual overhead of the producer is capitalized into the ballooning asset base. Therefore to determine the actual cost of a property, forget it. The only number they can provide is the gross margin. And as long as the gross margin is positive then they will produce. However, don't be surprised if, in the future, the margins do turn negative.

Hope springs eternal. So the saying goes. The alternative is that the bureaucrats face the reality that they have failed and begin dealing with the consequences. Not something that anyone wants to see. So we assume that things will be alright when the commodity prices rise to these levels. We need to extract our emotions from the work that we have ahead of us. And focus on the job that we need to do. A very difficult and hard type of work in building the Preliminary Specification, the user community and service providers. Alternatively we will see the continued failure of the industry leading to the breakdown of its capabilities and capacities. Who knows, we might have to go there before anything happens with People, Ideas & Objects budget being funded. And we're prepared for that too.

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. 

No Posting Today

Taking the day off in recognition of the Canadian Victoria Day Holiday.

No Posting Today

Making it an extra long weekend. 

Oil and Gas Pricing

With the Preliminary Specification, our user community and the service provider's operational in the oil and gas industry. Pricing of the commodities of oil and gas will be different than what is currently occurring in today’s marketplace. People, Ideas & Objects provide oil and gas producers with the most profitable means of oil and gas operations. On the issue of pricing we ensure this profitability through two key differences in the way we operate the industry. The first is we enable the producer to use the “price maker” strategy of our decentralized production model. Secondly we include all of the costs of production in the determination of the commodity prices. Capital, royalties, operating and overhead. Not just the royalties and operating costs to calculate the margins as is done today. It is these differences that enable us to make the claim that we provide over $45 trillion (thats correct with a T) in incremental value with our value proposition over the next 25 years. This post will detail how we earn that difference.

There are a number of fundamental changes that occur when the Preliminary Specification is implemented into the industry. The producer firm is organized to focus on their competitive advantages of their earth science and engineering capabilities, and their land and asset base. We do this by stripping out the administrative and accounting resources of the producer firm and establishing service providers who are focused on a single process and use the entire industry as their client base. The service providers are in turn able to focus on their competitive advantages of specialization, the division of labor, automation and making the computers work for us, as opposed to the other way around. This reorganization of the industry opens up many opportunities and enhancements to the way that the producer operates through the Preliminary Specification. The decentralized production model is one area where our value proposition is affected greatly.

With this industry configuration in place, it provides the ability for each property to determine the actual cost of operations. The costs will include the capital, royalty, operations and overhead that is incurred in that property. Overheads are incurred by the Joint Operating Committee, not the producer firm. The overhead is incurred by the service providers who will conduct their services when they receive an activity from the property that starts their work, and subsequently issues their billing. For example, when there is production, the revenue accounting service provider will conduct their process in accordance with the needs of the producer, and then issue their billing to the Joint Operating Committee for revenue accounting services for that property. If the property is shut-in, then none of the service providers are receiving any information from the “task and transfer” network and no work is conducted by any of the service providers. Creating a null operation; no operating costs, royalties or overhead are incurred during times when a property is shut-in. Only the cost of capital is uncovered. This increases the overall profit of the producer as it is assumed that the only reason the property was shut-in was that it was not producing a profit.

If each producer produced only profitable properties in this manner then they would only have properties that were profitable. ;) Their shut-in inventory would provide them with ample opportunities to innovate in an attempt to bring those properties back into production. On an industry wide basis the marginal cost of production would be determined. And the commodities prices would find their equilibrium. In the case of natural gas this would be at least double and maybe triple the price of natural gas in North America. On oil it would have a significant impact as well. This would not only make the producer profitable in the current environment, it would reduce their capital costs of the property by reducing the amount of losses that have to be recovered tomorrow on properties that are losing money today. We have valued this price making capability from our decentralized production model at $5.7 trillion over the next 25 years in our value proposition.

The other critical aspect of our Preliminary Specification that provides the dynamic, innovative and profitable oil and gas producer with our significant value proposition is the manner in which we calculate the costs of the property. It is our assertion that the producers are being misguided by the SEC and accounting firms in their use of full cost and successful efforts. They are essentially bloating the balance sheets of all producers by implementing these accounting policies. Even with these poor prices the producers are able to report profits on operations because they include none of the costs of capital in their calculations. In determining prices we will use a more appropriate means to recognize the cost of capital in the pricing mechanisms used by producers. Then they will be able to capture these values in their price making strategies and recover their costs of capital for their investors.

Just because the industry is reporting accounting profits and stock traders are claiming to have made money, does not mean that oil and gas is a healthy industry. There is a difference between the two of these domains. The business of making money in oil and gas has been fundamentally flawed since the accountants implemented their accounting voodoo many years ago. Never recognizing the full cost of capital in a business is foolish and the investors in the business itself have been made to pay as a result. Until we include a capital allocation, on a reasonable basis, in determining the commodities pricing, this business will not be able to provide an investor with a return on their investment. It is stated that the industry requires $40 trillion in investment in the next 20 years. Where is this money coming from when all you have are accounting profits. With producers sitting on big, fat, bloated balance sheets holding onto capital costs that never see the income statement. Sure I’ll volunteer my capital, let me put my money down, where do I sign up. With the Preliminary Specifications decentralized production model. The capital costs are considered and included in determining the commodity prices. Therefore the capital is being returned to the investors in the long term. The other $40 trillion in our value proposition. Today the bureaucrats say the investments are a sunk cost, and they don't consider sunk costs in their decisions. I suggest we don't consider bureaucrats in ours.

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. 

Our Solution Part XVI

“Plurality should not be assumed without necessity.” Occam's Razor which simply states that the simple solution is the right one. Those reading the Preliminary Specification may find the 175,000 words anything but a simple solution. However those with a sizable amount of oil and gas experience know that using the Joint Operating Committee in the manner that we are provides a very simple and elegant solution. It is the way that the industry is structured. Around partnerships that mitigate risk and enable the pooling of assets. The Joint Operating Committee is the organization that the industry operates under. Yet none of the ERP systems that exist today recognize this. They define what we call the corporate model. How does the corporation manage their compliance and governance requirements. SAP doesn't even know that partners exist! They work around this “anomaly” in their software. What is needed is an industry specific development of the software to meet the unique needs of the oil and gas producer, the Joint Operating Committee and the industry.

The need to have the software developed for these needs is only the beginning. The changes that occur within the business. The developments of concepts that will occur in a dynamic, innovative and profitable oil and gas producer need to be accommodated as well. That is why the People, Ideas & Objects software development capability is a permanent addition to the toolkit of the industry. Included within that toolkit is a user community and a number of service providers that not only define the software, but also run the industry administrative and accounting operations. It is under this basis that we are able to bring the Joint Operating Committee, the natural form of organization to the industry, and our business models to the producer. These businesses enable the dynamic, innovative and profitable producer to reap the benefits of our significant multi-trillion dollar value proposition. One that provides the producer with price maker strategies. That define the full cost of the exploration and production process in determining what those prices should be.

The next 25 years is going to be different for the industry. Investors may not be around to continue to “build” the industry. As a mature industry they may expect that they finally begin to see a return on their investment. The chronic overproduction and bloated balance sheets that the bureaucracy are providing today don’t impress anyone in the investment community. Debt or equity investors. They can see the performance of the industry over the past fifteen years and know they would have been better off investing in just the commodity. The bureaucracy provides no value increase beyond the increase in the commodity prices. And I would argue that they have destroyed significant capital in the past fifteen years. A business model that provides no upside over the commodity price increase is not a business. Its a failure that is complete in every sense of the word.

And there is nothing being discussed from the bureaucrats in regards to the size and scope of the problems that they are dealing with. Absolutely nothing. The only issue they are concerned with is getting through the annual report and annual general meeting season so that they can resume their personal plans of planning their retirement. They know they sit on top of a failed state and will do nothing to fix it. Their plan is to escape when the troubles become too obvious and too difficult to hide. Leaving the industry in even worse condition than what they are currently managing it to be in. This is not their concern because no one will be able to state specifically that it is their fault. They were just bureaucrats.

Some might ask if shale reservoirs are financially viable? Not in the current business model, managed by the bureaucrats. And bureaucracies don’t change. We offer a business model and form of management that deals with the nuances of shale and makes it viable. Shale is a necessity. With 55% of the natural gas production now coming from shale. And a large percentage of oil coming from shale. There is no turning back now. That however doesn't mean that we have to produce shale at a loss.

The number of times that I have been told that what we are doing can't be done is probably historic at this point. Our current “impossible-to-do” is harnessing enough disgruntled oil and gas investors to start with the funding of our budget. It might work, or we might figure out a better way to raise our budget. One way or the other we'll get our budget funded. What I do know is there is a problem that exists in the industry and I think the Preliminary Specification and decentralized production model is the solution.

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.