Leadership From the User Community, Part IV

Independence is one of the attributes of the user community members that gives them the ability to maintain their leadership position. They are not dependent upon anyone in terms of what and how they do their jobs in this new oil and gas industry. They have the oil and gas producers as their clients. And they are committed to providing them with the most profitable means of oil and gas operations. How they are able to provide these services is upto the innovations and creative capabilities of the individuals that will be members of the user community. Ownership of the service provider that provides the software and service for that specific process will be theirs. This will generate the revenues from the producer firms that enable them to maintain that independence. They will also have a much smaller source of revenue directly from People, Ideas & Objects for any of the work that is done with our software developers.

This independence is necessary to enable them to fully explore the capabilities of their team. How to organize their offering in terms of automation, innovation, specialization and the division of labor to ensure the producers are given the appropriate service necessary to meet our profitability focus. And this will be a competitive environment with the other service providers and members of the user community. However not a competitive environment in the traditional manner that is used by the producers today. There will be no “me too” types of service providers enabled in the marketplace. Once the user community member is granted a license for the service to be offered to the industry, that will be an exclusive license and there will be no direct competition created for that specific process. Some exceptions in the production accounting areas will apply for geographic purposes, etc. The competitiveness comes about between the service providers and user community members by way of the manner in which specialization and the division of labor are used and implemented. How automation and innovations are accelerated and iterated upon throughout the community. These will be the competitive foundations that focus the user community and service providers.

The perspective of what a service provider involves themselves in terms of the oil and gas producers administrative and accounting domain will be rather limited in comparison to the work that is done today. The “jack of all trades, and master of none” demands of the current positions in all of the producers administrative and accounting fields will be gone. People will become very specialized in the types of work that they do. Understanding every aspect of the process and its implications. Applying this specialization across the entire industries data set, which would be your client base. This will bring about new and interesting perspectives on the work that is done. Thinking about the process and how to improve it constantly will be in the mind of the user community representatives. Their team will be comprised of various people who have different skill sets and are specialized in their own ways. It will be more about the science and art of process management than administrative and accounting in oil and gas.

So when we discuss change within the industry. We can see this involves change in everything and everyone. The business of oil and gas has been operated in the manner that it has since the 1950’s. Computers have been used to accelerate manual processes. Not the most efficient uses of computers, or of people. We need to focus on the things that people do well, the leadership, problem solving, decision making, creative, collaboration, research, generation of ideas, design, planning, thinking, innovating and negotiating. What we need the computers to do is what they are designed for. And that is the storing of data and process management. This is how we need to restructure the oil and gas industry and the leadership of the user community will be how we get there.

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. 

Leadership From the User Community, Part III

The capacity to deal with change at any level is what the user community provides over the status quo bureaucracy. This is the key differentiation between the two systems of organizations and the reason why we must move to the Preliminary Specification. The capacity to deal with the changes in the underlying oil and gas business has to be matched by the organizations that define and support the producers. What we have currently is a fundamental change in the business. Where shale has brought about a level of abundance in the commodities. And the business organizations are incapable of dealing with the situation. The old will die off, or we can be proactive and make the changes necessary and not have to experience the negative general effects of an energy shortage in society.

The President of Shell was interviewed by the BBC last week and commented that the oil prices have declined over 50% with as little as 1 or 2% over production. Welcome to the new oil and gas industry. This is basic economics which is usually learned in your first business economics course. The elasticity of supply and demand are unique to each product. An oversupply of Ford F150 trucks will not have any effect on their price. Supply and demand are considered inelastic. Whereas oil and gas are elastic and are subject to wide swings in prices as a result of small changes in supply or demand. What we need to do is to find the right prices necessary to fuel a profitable industry, which the Preliminary Specification decentralized production model provides. What is going to happen due to the bureaucracies inaction is that the industry is going to atrophy and supply will drop 2% below demand and the commodities prices will reach the moon. Not good for anyone, but the bureaucrats will be happy.

Is it appropriate that we have an industry as fundamentally important as energy is to the world economy. Being unnecessarily subject to the principles of economics that we learned hundreds of years ago? Are we incapable of accepting ideas that challenge the vested interests and bureaucrats who chose to do nothing and just accept our situation as the way things are? I believe there is a better way and that is the method that we have been discussing with the user community in the leadership position in terms of providing the necessary changes in the industry. Then when the business does change, in whatever permutation or combination that it does, the leaders within the user community will be able to make the changes necessary in the organization to accommodate the needed changes in the underlying business.

It is the toolkit that is provided through People, Ideas & Objects that makes the user community capable of implementing the changes that are needed. With the full power of the Intellectual Property under their control they can make whatever changes are necessary to their process or functions through their work in the community and with the People, Ideas & Objects software development team. How do the bureaucrats make changes in the organization to accommodate changes in the business? Who has the authority to make the changes in the software today? This power and control over the Intellectual Property is the dynamic solution to the current muddle along strategy.

The third tool that is unique to the People, Ideas & Objects user community is the fact that the service providers are owned and operated by the user community members. They are therefore the ones on the front line in the industry providing the software and services to the oil and gas producers. They are the ones who see and can understand the need for the changes in the IP and software first. What needs to be changed and how that change needs to be implemented most efficiently in the software and the service they provide. They will be the most effective and efficient in terms of ensuring that the oil and gas producers are provided with the most profitable means of oil and gas operations on every day the Preliminary Specification is operational. That is the difference between the old and new ways of doing things and why we need to change.

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. 

Leadership From the User Community, Part II

Last Friday’s post documented the background of how the leadership within the industry, in terms of how it approaches its opportunities and difficulties, will be handled by the user community of People, Ideas & Objects. Today we are going to expand on this by introducing an article that is written by Don Tapscott and addresses the point of where leadership comes from in the, dare I say it, new economy, or as he now calls it “democratic capitalism.” The article is entitled “Great Leaders Don’t Have Followers: They Collaborate.” He has been around for many decades discussing the impact of Information Technology on business. I find this article of his to be particularly on point in terms of where I see the user community providing the leadership in the oil and gas industry.

Leadership vs. management, what’s the difference?  And why do we need to change?

As Peter Drucker said years ago, stable times require excellence and good management. As we transition to a new age, our organizations need more; they need leadership. So managers shouldn’t just manage. Today they need to lead and think of themselves primarily as leaders rather than just managers. 

And how is that leadership configured? Who fulfills the leadership role in this new business environment?

My approach to leadership is collaborative. This approach is the antithesis of the old-style, brilliant visionary, take-charge, rally-the-troops type. In the past, Winston Churchill, Thomas Watson, and Lee Iacocca embodied the single dominant leader. Today, the leader is a collective, networked, virtual force and no longer necessarily embodied in a single individual.

1. Collaborative Leadership Means Leading for Learning

What we need in oil and gas is to have the capabilities of the user community employ new tools to deal with the changes that inevitably occur in oil and gas. These new tools include the power of the Intellectual Property that make up the Preliminary Specification and its derivative works. And the software development capabilities of the People, Ideas & Objects dedicated developers. The user community will also have in their toolkit control over the service providers who operate the administrative and accounting functions on behalf of the oil and gas producers. It is in this way the user community can achieve this collaborative leadership.

Increasingly, the only sustainable competitive advantage has become an organization’s ability to overcome what management author Peter Senge calls its “organizational learning disabilities,” and to grow and change with the times.

The days when a great leader at the top could learn for the entire organization are gone. As Senge points out, “in an increasingly dynamic, interdependent and unpredictable world, it is simply no longer possible for anyone to 'figure it all out at the top.'” For Senge, “leaders are designers, stewards, and teachers. They are responsible for building organizations where people continually expand their capacities to understand complexity, clarify vision, and improve shared mental models — that is, they are responsible for learning.”

2. Collaborative Leadership is Collective Leadership

There is too much for any one individual to take on in terms of the scope and scale of the difficulties and opportunities. Each member of the user community needs to be specialized in their domain of understanding. Responsible for one process and all that is associated with it. Providing leadership for that process throughout the industry with state of the art capabilities, understanding and knowledge.

The intellectual power generated through networking minds for collective vision will far surpass the intellectual prowess of even the smartest, loudest boss. Equally important, strategies developed collectively have an infinitely higher probability of actually being implemented. Collective thinking leads to collective action.

3. Collaborative Leadership Is Your Personal Opportunity

This is the basis of the user community offering at People, Ideas & Objects. The personal opportunity to participate directly in the new oil and gas industry as a member of the user community which includes your ownership in a related service provider. The G&A costs of the oil and gas producers are being shifted away from the internal resources of the producer to the service providers. A substantial revenue opportunity awaits these service providers. The user community also has the budgeted revenues that are paid by People, Ideas & Objects for their contributions towards their software development efforts.

One conclusion that can be drawn from this trend is that leadership for transformation is your opportunity, not just an opportunity for your CEO, or your boss, but your opportunity. Each of us has a choice to participate actively in transformation, to observe passively, or to resist. If you act, you can shape your future, even if you’re not a member of the senior management group.

At root, it’s a question of taking control of your destiny for a new age. No less a philosopher than rock singer Meatloaf has advice on why we need to take charge of our lives: “There is only one thing that will take away everything you’ve ever wanted — fear.” Mahatma Gandhi was even more specific when he said, “We must be the change we wish to see in the world.”

To generate powerful collective action, embrace collaborative leadership by understanding that it involves growing and learning along with others, your opinion will never be the only one that matters, and it’s your personal opportunity.

We need to set the industry on the basis on a new paradigm. One which provides the oil and gas producer with the most profitable means of oil and gas operations. It will be in this way the oil and gas industry will be able to fuel society for the remainder of this century. It's a great time to be in oil and gas.

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. 

Leadership From the User Community, Part I

Oil and gas prices are clearly responding to all of the initiatives that the bureaucrats put forward this past week, month, year. Is it just me or does this eerie quiet just about deafen you? What we do know is change is hard. And what we have learned since I published the Preliminary Research Report in May 2004 is that change can only be made by instituting the needed changes in the software that the organization uses, first. We are dependent as organizations on the software that defines and supports the organizational structure. Any attempts to change the way things are done, without first changing the software is going to fail. This is in that research report that I published in May 2004 that the bureaucrats have twisted the logic of, and used for their own benefit. What they concluded is that if they never changed the software then they would never be challenged for their positions in oil and gas. It would seem therefore that both of us are correct.

So much for the thought that maybe the bureaucrats will come around and conduct themselves constructively. I’ve seen too much of their behaviour in the past ten years to know that they have a comfortable life and are not interested in discussing it any further. Who it is that will ultimately step forward and fund our budget is unknown to me at this time. Passive investment is also the name of the game. If you're unhappy with the performance of the oil and gas stocks then you sell out of them. Still there are the institutional oil and gas investors who have built the industry. I’m sure they're as impressed as I am with the bureaucrats.

We have a situation where change is necessary in the oil and gas industry. If we had the Preliminary Specification operational in the industry, I think we would have a framework where the issues and opportunities of the day could be addressed. Key to those issues and opportunities being addressed are the software development capabilities of People, Ideas & Objects and, most importantly the user community. These tools can be used to define the changes that need to be made to the industry when and if the time comes. By having these tools, the oil and gas producers will not find themselves “muddling along” for decades while things eventually turn around.

Then we will have an industry with the appropriate posture no matter what the situation that comes about. Today we could provide the producers with the price maker strategy. Tomorrow who knows what situation will be created as a result of the innovations and creations that the earth science and engineering people come up with. It’s clear that the sciences have become more advanced than the business can handle. Shale as a technology is not commercially viable at this time, that is until a price maker strategy is put in place, therefore why is the business pursuing it in the manner that it is? Clearly things are not working the way they should.

The user community will be the key to the ability of the industry to address the issues and opportunities that are presented to it. They will be able to provide the leadership to address the requirements of the business. Tuesday we’ll have the second installment of this series and it will detail how the user community will fill that critical leadership role in the industry.

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. 

Its Our Users

We resume our discussion about those things that we can change. People, Ideas & Objects focus is on our user community. Users are the source of our software quality. It would be futile to approach the problems that we face without the user in full control of the developments of their software. And that is what we are doing with People, Ideas & Objects. Review of our user community vision shows that it is in fact the user community who have the power to build the software that they need to operate the industry. As user community members, you will be the quality of the software and have the power to do what is necessary to make it a fact.

What is it that you as a user member will be doing within the community? Let's assume for a moment that you have been involved in the industry in various aspects around the Material Balance Report for the past ten years. This is one of the key areas of the Preliminary Specification and the foundation of most of the automation that is derived from the production process. Your understanding of these processes and requirements is what has to be captured in the software to ultimately support your work in this area. You know what is important and what is noise. What the critical areas of concern are. Working with other members of the user community you will document what the industries requirements are. Determine ways in which these can be done better with the tools that you have at your disposal. Tools such as the software development capabilities of People, Ideas & Objects. And then design the various processes and interfaces that are necessary to undertake all of the tasks and requirements.

The environment or specification that you will be working in will be within the service providers that you will either own yourself or jointly with other members of the user community. These service providers will replace the administrative and accounting resources of the producers and therefore will be the way in which you design the new processes for this new organizational structure. Your service provider organization might be managing a very small part of the actual Material Balance Report. However, you will be doing it on behalf of the entire industry. Therefore new ways of looking at the data and information contained within that mountain of data will be provided to you. These insights could lead to further process developments of the software as time passes. Specialization, the division of labor and automation are the tools that you will use as the key competitive advantages of your service provider. They will also be what you consider in terms of the overall design of the software as a member of the user community.

In addition to the understanding that the user community members have of the oil and gas industry. People, Ideas & Objects have specified that a strong understanding of the Information Technologies be present. Noting that you should have a strong understanding of Java, relational databases through the relational model and other technologies. Access to the software code will be part of your day to day activities. The access is through a number of IDE’s (Integrated Development Environments). These will be read only. However, you will be making suggestions on code changes and submitting them to the software development team to be committed to the code base. These IDE’s will include NetBeans and JDeveloper. Both are Oracle products, NetBeans being an open source derivative of Sun Microsystems development environment. There are other IDE’s in the market however we will not be using those. Download one and have a look at these tools to get a feel for what the state of art is like in this area. I don’t want you to feel overwhelmed though, they are much simpler than they appear.

You know the oil and gas business. You have a strong aptitude in the IT areas. You're ready to fill the gap between the knowledge of the business of the oil and gas business, and the Information Technology world. This intersection has to be breached in order to fulfill the opportunity that we have in front of us. That comes down to our developers and to our users. If this seems like a thrilling challenge, and it is, then you should join us.

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. 

In Summary

These next two months we’ll see the difficulties in oil and gas manifest themselves in three events that will set back even the healthiest producer. The first is the natural gas price will be affected by the filling to capacity of the continent's natural gas storage. The EIA was even subtly hinting at this possibility earlier in September. Once the storage hits capacity there will be no place for the surplus gas to go. Expect pricing to be affected adversely. Second the quarterly report will need to be prepared. There are no more hedges providing cover for the low commodity prices. They all expired toward the end of the last quarter. The full scope of the difficulties in the industry will be on display as a result. Expect to see some financial surprises from the majority of the producers. The question will be asked by most, if things were this bad, why didn’t you shut-in production? And lastly, the banks will be completing their review of their loans to the producers. Banks being risk adverse will be wanting to stop the hemorrhaging by ceasing all lending, recalling any outstanding lines of credit and secure any obvious risks through seizure of the property.

Producers need to change their underlying business model from the high throughput production model to the Preliminary Specifications decentralized production model, our user community and the service providers. In that way they can employ the price maker strategy to deal with the abundance brought about by the shale reservoirs. People, Ideas & Objects needs its budget funded in order for the commencement of this new business model to be implemented within the industry. Then the industry can anticipate that the value proposition that we provide will be delivered over the next 25 years.

There is a do nothing bureaucracy that is in place in the industry that refuses to do anything in the face of such devastation to the value, and capabilities of this industry. They therefore put our way of life in jeopardy by standing by and doing nothing. This muddle along strategy has worked for them in the past and they expect that it will continue to work for them. I think we are seeing that their strategy is failing and needs to be replaced by active management of the industry. We have had a year of poor oil prices. Five years of poor natural gas prices. Both commodities unable to provide the producer with positive margins. And with shale reservoirs not much of a chance of any relief. Yet they continue to produce unprofitably. And there is no discussion outside of this blog regarding any of the issues, the solutions or what should be done. There is a lot of commentary from the press and the analyst community but they don’t necessarily fully understand the industry and are only able to grab a headline or two in terms of being accurate. It is miraculous to me that these bureaucrats will pass through this time without saying or doing anything, or being held to account for anything.

It's a comfortable position to be in if all you do is the same thing day in and day out. Nothing ever expected of you, or you having to do anything. These bureaucrats have ceased to act based on market signals such as the price of the commodities that they produce. As time passes things age and deteriorate, are not built or replaced. Then the commodities become in short supply and the prices rise. We have no assurance that the investors have any confidence in the industry or the bureaucrats. We also have no assurance that the bureaucrats will begin to start responding to market signals such as high commodity prices. Instead, understanding their dilemma of a tenuous hold on their position within the company, they might just continue to do nothing and pocket the cash earned from higher prices.

Throw the bums out. Why give them the opportunity to screw it up any worse. Oil and gas is too important of an industry to fool around like this. Unlike the financial community we have no Fed that can flood the market with the commodities if something serious does happen. Let's get the budget for the Preliminary Specification funded and begin the replacement of this muddle along strategy with active management of the industry.

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. 

Where's the Outrage

We have focused on the situation in oil and gas and most particularly its difficulties. As I pointed out the responsibility for this downturn in the industry is fully attributable to the bureaucrats that run the industry. Shale formations have brought about a new dynamic of abundance of the resources. There has been no response to this change in the underlying business. With these bureaucrats being unresponsive to market signals. When prices do go up, what's to say they just don’t sit on the production they have and just pocket the booty? The attributes of one’s character can help to determine what their future actions will be. Therefore, since this is the past character of the bureaucrats, you can take it to the bank that they will use any increase in the price of the commodities to line their own pockets. Leaving the industry to perish and decay as we’ve discussed earlier.

The question I guess we have to ask ourselves then is there anything that these bureaucrats are going to be able to say and do that will convince the investors, any investor, to invest in the oil and gas industry in the next, 5, 10, 15 years? Investors have been on strike, more or less, since 2008. Alternative means to fund the industry have been used since the financial crisis to finance the shale boom. It could be argued that the junk bond market is no longer available. The attitude of the oil and gas investor is consistent with mine, I would think. A general disheartening of the bureaucrats in power. A lack of faith in their capabilities, trust and integrity.

Since the financial crisis governments have taken great steps to intervene in the monetary markets with their over the top stimulus measures. Instituting a zero bound interest rate policy has removed any integrity or discipline in the financial markets anywhere in the world. These oil and gas bureaucrats have had the luxury of being compared to the performance of other industries that are about as capable, trustworthy and of low integrity. Performance has not been the concern of anyone in any industry. It has been about survival, dividends and stock buybacks.

Global market volatility is rising as the world prepares to move away from the zero bound interest rates. That means the oil and gas industry will be expected to perform in order to obtain any investment from anywhere. Compete when interest rates on bonds are paying good returns. Compete when other industries can provide real returns on investment. It was easy for the bureaucrats to get away with the low performance and slack attitude during this zero bound interest rate period. Now it will be expected of them to compete.

I don’t think they care. If interest rates do go up it will affect the value of their stock and that might impair some of their compensation. But not materially. What can be counted on is when oil and gas prices do go down from an abundance of production, they will inevitably go up. That time could come quickly and they, the bureaucrats, would be able to enjoy the lifestyle they grew to enjoy as recent as one year ago. The trick will be not to fall into the same difficulty again by spending on drilling which would lead to overproduction and commodity price declines. If we don’t respond to market signals now, we certainly won’t begin to respond to market signals then, they will say.

All of these ingredients are in place. We are subjecting ourselves to an uncaring and unaccountable group of self interested people who feel they are entitled. Why would they change this situation? Put yourself in their shoes, it's not a bad situation to find yourself in, and who has the wherewithal to do anything about it?

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. 

History Repeats Itself

“The history of every civilization teaches us that those who do not find new means to respond to new challenges will perish or decay.” President Lyndon Johnson 

I’ve read Roberta A. Caro’s four books on Lyndon B. Johnson. These books represent a lifetime of research and detail in the man who became the President of the United States. You will know everything about Lyndon B. Johnson when you have read all four books. There is a fifth that is being written at this time, Caro is uncertain, at 79 years of age, if it will be finished. Knowing Lyndon Johnson through these books I’m not pleased that I find myself quoting him here. However it is such an appropriate quote to the time and situation that we find ourselves in.

Oil and gas has more to do with the quality of our lives than any other “thing” that I can think of. We put in jeopardy that way, that quality of life, when we ignore the challenges that the industry currently finds itself in. It is our history that we are doomed to repeat. The difficulty is that we are travelling at a much higher altitude with much higher velocity than at anytime in our history. I would suggest that the decay will be short lived. Perishing would come quickly.

Maybe I’m being too melodramatic. Industries have transitioned in ways that have appeared seamless to the average consumer. Which is true, no one remembers or even really cares when the record store manager lost his job. The technology was there to provide you with the music that you wanted and you were finally able to use it the way you always knew you should. Our problem with the oil and gas industry is the technology we need to use is right there in front of us. It just doesn’t fit on an iPhone and work within just one app. We need the software development capability and user community to ensure that the software meets our needs and the services to support the software. A big budgetary obstacle that stands in our way.

We used to be able to rely on what the economists called “spontaneous order.” The economy would act dynamically as people and companies would automatically fill in the gaps left between various companies offerings. These gaps, in the past, could be filled by entrepreneurs who were able to see and configure solutions out of their own financial resources and provide these products and services to their community. Now it's a global economy and software demands that it be the first item to be delivered into the marketplace. This is why Apple, a software company, is so successful. Now not only do we have to understand the global scope, the software nuances, but also undertake the battle of the vested interests who are entrenched in the old ways.

I hope I’m wrong about all of this. I think the speed of events, if left unaddressed, will accelerate exponentially. The momentum will move against us and we’ll never get the upper hand again. We stand on the shoulders of many brilliant people and pay no respect to the things that they have brought us. The fact of the matter is that there are 5,000 man hours of labor in every barrel of oil. If we allow the industry to proceed in the manner that it is, it will certainly decay. Who will volunteer to give up the first barrel of oil. The economy that consumes the most oil is also the most powerful economy. That has traditionally been the United States. Therefore it would seem reasonable that they were the first to give up that first barrel. I don’t think so either.

Clearly the market forces are not working. Oil and gas producers have not responded to natural gas prices in over five years. And oil is following down that same path. What we have are self interested bureaucracies. Just as the former Soviet Union was unable to respond to any market, we currently are not much better. If we are not responding to market signals when there is an abundance of oil, should we now assume there would be a response by these bureaucrats to any market signal denoting a shortage? I don’t think so. After all it would only provide them with more cash which they can then divert to the various forms of compensation that they have so richly provided themselves. These are the facts of an uncaring and unaccountable oil and gas industry.

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. 

Swing Producer, Embrace It

Earlier this week Russia and Opec were unable to come to an understanding regarding production cutbacks and broke off talks. It would almost seem like the Saudi’s were serious about maintaining their market share! Recall this is their stated position regarding their continued overproduction. Once they lose the customer, by cutting their production, they’ll never get them back. They feel that the U.S. shale producers, which are the high cost producers in the oil and gas industry. Are the ones who need to assume the role of swing producer. Opec feels they will produce at full production at all times. And the high cost production, or North American production, will fill in to meet the market demand as required. This will enable the swing producer, us, to maintain the prices that will ensure we earn a profit. The high cost shale producers can ensure that the commodities prices are high enough to earn them the profits they need, and Opec who is the low cost producer despite what you might hear otherwise in the North American press, will be profitable as well.

There is a lot of resistance to this logic in the North American oil and gas, and financial communities. Whether it is that they are being dictated to from Opec, or its perceived as a secondary role to be a swing producer, I couldn’t tell. With the devastation that is happening in the North American oil and gas industry, is it wise to continue to argue the point? Why not just accept that the position the industry needs to take is the one of swing producer. After all it's not just oil that is in need of a production allocation methodology. Natural gas is far further along the business decline created by the abundance of shale reservoirs. The current high throughput production model that the industry operates on is bankrupting the entire industry.

For society to rely on an abundant energy supply to make it through this century we are going to need a healthy and profitable oil and gas industry. We haven’t had that for many years, or even decades. What we have is a very sick industry that can’t and won’t change to accommodate the realities on the ground. The industry has appeared healthy for the past decade due to the accounting methodology used to capitalize everything under the sun. This has bloated the balance sheet of all of the producers and recognized almost none of the real costs of exploration and production on the income statements. Inflating the earnings of those producers at the same time. As a result you have what people thought were healthy balance sheets with abundant assets. But that’s all you had. No cash, no working capital or anything else. The industry was never profitable and always relied on other people’s money.

In order for the industry to become healthy, dynamic, innovative, accountable and profitable they need to adopt the Preliminary Specification, our user community and the service providers. By doing so they will be able to employ the decentralized production model as a replacement to the high throughput production model and begin to allocate production within the industry based on profitability. If the property is profitable, it will be produced. And by profitable we will take into consideration the actual costs of capital for that property. If it isn’t profitable then it will sit in the producers shut-in inventory and be subject to their innovative earth science and engineering capabilities that are designed to expand the properties reserve base, increase its production or reduce its costs and return the property to profitable production.

People, Ideas & Objects value proposition is in the region of $45.7 trillion over the next 25 years. It is comprised of the capital that will be invested in the business and returned to the investors over the next 25 years. It is also comprised of the capital that has been invested in the business, that is sitting on all of those balance sheets and will therefore be returned to the investors in the form of dividends. And lastly it reflects the increase in revenues and profits due to the fact that the marginal production will be removed from the commodity marketplace. Increasing the commodity prices. Saving the reserves of the producer for a day when they can be produced profitably. And increasing the producers profitability by ensuring that only profitable operations are produced. Therefore even if the producer has to shut-in half their production, they will still be more profitable using the Preliminary Specifications decentralized production model.

Adopting the swing producer role in the global oil and gas industry should at least be a survival instinct. However, these bureaucrats, it would seem, are hell bent on destruction. As long as they don’t have to work too hard, as is the case today, everything is fine. We are at the beginning stages of this decline. A decline that can not be sustained for very long by these producers based on their poor financial health. This quarter will identify those who the downturn are affecting the most with the trifecta of difficulties being faced by the producers. Those being the bank reviews, the natural gas storage and the third quarter report conspiring to break the story that “all is well.”

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 Olive Branch, Part III

The last two blog posts have painted a rather dire situation transpiring in the oil and gas industry this quarter. The assumption could be made that we make it through this period without too much disruption. Let's assume that for just a minute. We’ve heard nothing from the bureaucrats regarding these difficulties. And we have that trifecta of issues which we identified that include the bank reviews, the natural gas storage and third quarter report. Which do play out as they are scheduled to do. We would then face the year end process and the reporting of the past year. Maybe the markets will turn around and be positive for a change. Maybe all that has happened will be solved through the muddling along of the producers. And maybe things will get better in 2016.

As far as the bureaucrats were concerned they were going to phone-it-in from the cabin over the summer months and return to business as usual in September. But as we have detailed here, things are not as they had planned. The other aspect of this past summer is the fact that they did blow past their personal budget for what they thought they would be spending on the cabin renovation and that new boat. The fact is that the whole state of affairs of their personal budget needs a bit of tightening and it is not in the condition where it's able to sustain the chosen life of retirement, yet. They need to be working for a few more years in order to crystallize those retirement plans. What these bureaucrats will soon realize is that if, and we can debate the probabilities, but if the confidence in the industries management is lost then these bureaucrats will be out of a job. And it will be difficult for them to find their type of work in other industries as long as they carry that albatross of oil and gas experience on their resumes. No one will be interested in picking up these, fill in the blanks here.

Continuing on with our assumption that all is fine. That the banks didn’t seize any of the company’s properties during their review. That the global market changes, based on the need to accommodate higher interest rates. That natural gas prices will be enough to still pay the overhead. And after all Opec is scheduled to meet in December and maybe just maybe it’ll be a cold winter. Hope springs eternal. The ability to sustain a few more years of employment in oil and gas will be easy. Just the same as before.

You can debate who is the crazier one in the various scenarios that have played out in the last three days. Is it me with the dire consequences of the last five years coming to fruition and demanding attention in the third quarter? Or is it the do nothing bureaucrats expecting to cruise through another quarter or two, or even a few more years, phoning it in as it were with no expectation that change will be forced upon them.

I think this is a crisis. A crisis in confidence in the bureaucrats that run the industry. Similar in scope to the financial crisis in 2008. The difference of course is that the government has to step in when people become concerned that there is no integrity or value contained in the “paper” financial systems. Without it the whole shebang falls apart. A crisis in confidence in the oil and gas industry will be a really bad thing for the bureaucrats, but not much else. They will be out, permanently. The lot of them. Maybe not today, or even this next year. But it will be a wholesale change in the people who are running the show.

So maybe I’m being dramatic and over the top. Or I’ve got myself too far ahead of the game. I however have a record on this blog over the past ten years that is actively critical of the bureaucrats and their self serving and unprofitable manner in which they have operated the industry. My prospects, and those of the user community and service providers look good. If the bureaucrats do survive and thrive for another year that’s fine. Then we’ll be here pointing out the differences in how we’ll do things. This olive branch is provided as a means to secure our budget and accelerate our time to market. It has a high probability of not working, but we’ll keep trying. And one day we will replace these bureaucrats, just as every other industry is being disintermediated, and that day is much sooner than we can predict.

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.