A Business Based Solution

During this post I promise not to say the B word. You know the one that I am always blaming the downfall of the industry on. Doesn’t leave me with a lot of material left to deal with, but here’s a shot. People, Ideas & Objects, our user community and the service providers that those users will generate are all focused on the issues and opportunities that are present in the oil and gas industry. We are an Information Technology based company. However that is not the method that we use to solve the issues and present the opportunities in the industry. At least not exclusively. It is from the business side that we approach the industry.

There have been many technological solutions presented to the oil and gas industry in the past decades. Yet we still have the problems that are ever present in the marketplace. Technology is not the issue, it is a tool that can be used to help solve our difficulties, however it is not the tool that can solve anything on its own. When used in partnership with organizational change and a fundamental business understanding is when it becomes its most powerful. The Preliminary Specification relies on a high level of technological infrastructure. When we proceed with the development and deployment of the Preliminary Specification we will be putting these technologies to the test.

By selecting Oracle as our technological provider we are selecting the best technology in the marketplace. This is not even in question. Larry Ellison the founder of Oracle has the understanding of databases that clearly no one else does. He also has the power and control of Oracle to make their products superior in every way. Oracle is decades ahead of IBM, who I rate as second best. And the remainder of the marketplace is scattered with a variety of also rans. It will take the full power of the Oracle database to deal with the way we manage the oil and gas industry. I don’t know if the other vendors products would be able to handle the load that we are going to be placing on Oracle.

Our budget has set aside a significant portion, approximately one third of our costs, to Oracle. These are for the various licenses and cloud computing infrastructure that we will need in the development and early deployment of our applications. The bulk of the money that we are setting aside for Oracle is going to be for their developers. These are for a variety of purposes. First is to ensure that our team is up to speed on the latest Oracle technologies. Secondly is to ensure that there is a high level of technological transfer from Oracle to People, Ideas & Objects. Our team needs to be as good as Oracle’s in terms of their technological capabilities. And then we will need to be better than they are. Not a simple objective, or a reasonable one from an unreasonable man such as myself.

We have determined that we will be using Oracle Fusion Middleware and Oracle Fusion Applications as the base of the People, Ideas & Objects offering. These applications were developed from the ground up and were written in Java within the past decade. The first and only one to do so. Essentially the only modern applications to use the Java technologies as their base. Products such as SAP are legacy applications from the late 20th century and will need to be replaced, in my opinion, in the next decade. Replaced with new products based on object oriented programming languages.

We have a history with Oracle. Some of it not that pleasant from our point of view. Nonetheless I have rectified the manner in which we are approaching this development and we will not have the difficulties that we had with previous Oracle developments. That I can assure you. What we will have is a system that each and every oil and gas producer will have their administrative, accounting and operations managed successfully on. That’s a bold statement and a necessary one. Using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable producer demands this high levels of integration and usage. Each and every element of the industry and producer is affected by the change to using the Joint Operating Committee. We can’t just do half of the industry, half a producer or half of the scope and scale of our applications. Its our job to rebuild the industry in the manner that is necessary, and the Preliminary Specification and this technology deems that necessary. All that and no B words.

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. 

Choices the Bureaucrats Make

It is generally agreed that we have 1.7 million barrels of oil per day of overproduction. Causing a 70% decline in the price of oil. So, as a bureaucrat, of course you will sit and do nothing. Is it better to give up 2% of global production, or experience price declines that lead to losses of 70% of your revenue. Well we know the answer don’t we. The U.S. production is by far the most expensive production in the world. Yet we hear that some producers will still be profitable in some of the shale areas at $23.00 / barrel. Its times like these that people should learn to read financial statements. Understand what it means to be profitable, learn what break even and marginal mean. This terminology is not interchangeable and is well defined as to what it does mean. Right now no producer anywhere is making money. That I can assure you. Their financial statements may state that they are, but when you capitalize everything, any revenue turns profitable. That is the game that is being played in the industry today. Justifying their inaction because it continues to be profitable is how they continue on. Just don’t count the cash.

And so it will continue. If you thought that the end would soon appear you have to look at the situation in the marketplace and ask yourself, how will it change? If everyone is profitable at whatever the price is, remember our discussion on “recycle costs,” there will never be any behavioral change. And even if there was a behavioral change these organizations could not change to become the dynamic, innovative, accountable and profitable producer that they would be under the Preliminary Specification. Organizations don’t change, but people do. And that is why we will be successful in our initiative to change the oil and gas industry. We are focused on developing the user community that will be the key lever to make the changes to the new organizational model in the Preliminary Specification, the Joint Operating Committee.

What the oil and gas producer will be configured as in this new environment will be fundamentally different than the manner in which they operate and are organized today. They will still be driven to grow their overall production numbers as they have before. The key difference will be that they must increase their profitable production numbers. Increasing your production is the easy part. Just look everyone is doing it. Increasing profitable production is hard, as we can see that no one is doing that. And what will stop the producer from producing unprofitable production in our new organizations? They simply will not be able to afford it. It drains the organization of the profits that were earned on other profitable properties. It also increases the costs of the reserves of the unprofitable property by the amount of the losses that need to be recovered from the future. Making it even more difficult to produce the property profitably. Investors who see producers who cheat and produce properties unprofitably will be dealt with by a general lack of confidence in their management and in their assets. Not something the producer wants to test.

Carrying unprofitable properties that have been shut-in will be less costly for the producer than what it is today. The configuration of the producer in the Preliminary Specification is stripped down to the C class executives, the earth science and engineering resources, some land and legal, and support staff. The administrative and accounting resources have been reorganized across the industry into service providers who are providing their services directly to the Joint Operating Committees. If there is no activity in the property, then there is nothing for the service providers to do and hence no billing from any of their service providers is sent to that Joint Operating Committee. As a result a null operation will be recorded in the months that the Joint Operating Committee is shut-in. These null operations will have the effect of neutralizing the downside risk of owning unprofitable properties. They can therefore be kept in a portfolio of shut-in properties where the focus of the producers innovations can seek to return them to profitable production.

These changes can not be made by the current bureaucracies. The accounting is not precise enough to know what is profitable and what is not! The overhead and administration costs in the industry are estimated by me to be approximately $18 / boe and most of these costs are capitalized by the producers. Today the Joint Operating Committees sees nothing of these actual costs. They are only charged for allowances which are woefully inadequate to capture the scope and scale of the true administrative and overhead burden. What we are talking about here is a complete new dynamic in terms of how the administrative and accounting of the industry is handled. Enabling the price maker strategy to be employed by all of the producers. This strategy is as simple as if the property is profitable it produces, otherwise it’s shut-in. In today’s environment there would be no profitable production, prices would therefore adjust quickly.

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. 

How We'll Rebuild the Service Industry

In a world where I can send you, in all likelihood a stranger to me, any amount of money in as little as two hours. Why does it take an oil and gas producer six months to pay someone in the service industry? Someone who they’ve done business with many times before, and someone who has always done a stellar job! Because that’s how long it takes for next year's financing to close! That’s a statement of fact, not a joke. The six months that it took for producers to pay the service industry in the good times was the punishment that the bureaucrats felt that they deserved. So it therefore became the norm to use six months as the general rule in how vendors were paid. That was in the good times. Now there is no money to pay them and the service industry is going to have to wait for the good times to return before they see any of the cash that they are owed today.

You may recall the days when the bureaucrats called the service industry representatives lazy and greedy because of the fees they were charging for their services. Those high fees are as a result of times like these. How many companies in the service industry will be able to withstand their customers not paying them for the work they’ve done. Not many. And those that do will be financially scarred for decades and unable to invest in their businesses as if it were a normal going concern. And what about the people who worked in the service industry? These people are also being forced to look for work in other areas and in other industries to feed their families.

So the next time that the producer wants to drill a well and there is not enough drillers in the marketplace. They better not ask why. And when they do find one, they best keep their mouths shut about the amount that the driller might charge for their day rate. It's the 21st century, yet we’re still subjected to the idiotic thinking of the bureaucrats that operate the oil and gas producers. The ones who piously looked down on the service industry and called them lazy and greedy not two years ago. It is a surreal world of the oil and gas bureaucrat. One snap of the finger and you can have anything that your heart desires, and at no cost apparently.

The Preliminary Specification is designed to eliminate this boom bust cycle in the oil and gas, and service industries. First by implementing the price maker strategy the producers will be able to bank on secure earnings. And it will be because of those earnings that they can turn to innovation in the field service industries. Where they can develop the resources and capabilities that are necessary to support the oil and gas industry. Through the Resource Marketplace and Research & Capabilities modules the capabilities and development of the service industry is front and centre in the mindset of the innovative producer. This is what we should have been doing two years ago when the bureaucrats were calling people names, investing in the service industry to expand its capabilities. We’ll have a lot more difficulty in attempting to resurrect the capabilities that we’re going to need from the service industry in the future as a result of the bureaucrats actions today.

Its really frustrating to watch the industry being destroyed in the manner that it is. I also find it surprising the amount of sympathy that the press gives these bureaucrats in terms of the dilemma that they’re in. They’re the ones that have caused this disaster and they’re getting the sympathy! It won’t be too long before the press starts to realize the rebalancing story that is being told is the same as the story that was told last year and the year before that. And that it doesn’t work. Then they might begin to ask questions as to why they would continue to produce when it costs their cash and destroys the business. What fool would do such a thing?

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 Presidents Day and Alberta's Family Day holidays.

Don't Shoot the Messenger

As each week passes the destruction of the industry becomes more significant. This week was particularly dire for a number of the senior intermediates. I would have thought that they had greater staying power than what they are displaying this past week. Could it be that I have underestimated the difficulties? Give them a few more months and they will be empty shells of their former selves. The scope and scale of the devastation that is occurring at this time can not be underestimated. Producers believed their own convoluted financial statements that showed their legacy of overspending provided them with “strong balance sheets.” The problem is that no one let these capital costs flow to the income statement where they could evaluate the performance of the bureaucrats, and as such, they also believed they were making money because no capital costs were ever recognized. The fact of the matter is that even in the good times the producers were not making any money because they have never accurately accounted for their capital costs. These spend fests went to die on the balance sheet where they still reside, and today, as they did in years past, provide no value to the producer. If they would have let the capital costs flow to the income statement, these capital costs would have returned abundant cash to a healthy profitable producer. Cash that they could have used today. What we have now is an industry with sky high assets on the balance sheets, supported by debt, and no liquid resources, anywhere.

This shortage of cash is not a minor issue. It is the only issue for the foreseeable future. As it is stated by, and what I am hearing from the bureaucrats, the oil and gas production is covering the cash costs of operations. It is however not covering the costs of administration and overhead, or the payments for the money they took from investors and banks. The overhead and administration costs are not relevant to this calculation, I hear the bureaucrats state. It is too when the paychecks have to be written for all the staff. These paychecks, and the rest of the overhead, like lights and rent, have been calculated by me to approximate $18 / barrel. That’s why no one is going to be paying any dividends. Therefore your production is currently costing you approximately $15 / barrel in cold hard cash to produce! Sorry investors you just don’t count.

This is the logic that has overcome the industry since 1977 when the SEC instituted either Full Cost or Successful Efforts accounting as the methods to be followed. Everyone has been raised by the “capitalize everything” and never “recognize any depletion” attitude in the industry. I’ve been told a billion times, its cash flow stupid. And I have always responded that earnings are more important. And the bureaucrats have laughed at me for that as well. They felt as long as they could sell a property for multiples of what it cost, who needs profits? This game continued on and more competitors entered into the market seeking the “opportunities” to make “spectacular” money. Eventually with all the fools rushing in, the industry was overbuilt and the over investment lead to overproduction. Why don’t they sell a property today if they need cash! The problem is they can’t, there is no market. You could buy PennWest for $330 million. That’s 60,000 barrels per day, or $5,500.00 per barrel. Such a deal! But there is that debt, and you’d have to support that cash drain, maybe not such a good deal. And certainly not the market that PennWest thought would exist to sell assets into.

If you listen carefully the bureaucrats state there is a need for the market to rebalance only 1.7 million barrels. Imputing that the total oversupply is just the 1.7 million barrels. But it's not, that’s the overproduction per day. The amount in inventory is closer to a billion barrels of excess storage. To draw that down so that prices can recover means that we have to lose 3.4 million barrels of oil production per day for approximately 2 years. Then the prices will rebalance. We are a long way from that. Sorry investors it will be a while before you see any money.

Take for example the natural gas prices which have been depressed for the same reasons for the past six years. The Marcellus area is lucky to receive a natural gas price of $1.25 at any time in that region, the most prolific shale area. Recently the EIA reported that production in the Marcellus region was up! Rebalancing is a myth in the shale era.

When you have a destructive mechanism such as this, built within the DNA of the producer organizations and the industry itself, you will always have these difficulties. The shortage of cash is horrendous at this time. The balance sheets of the producers never had any working capital even in the good days. They always ran on high levels of negative working capital and now they’re producing significant negative gross margins. Meaning you can’t expect the service industry to extend you much more credit. And that means if there is any cash in the industry it is being tossed on the fire. What does an industry do with no cash? We are going to find out in as little as two, but no more than five months.

Expect to see a slew of bad news after the close of markets today. Everyone will want to get the bad news out before the weekend and have everyone forget about it by Monday morning. Chapter 6.2.1 of the bureaucrats 2016 handbook.

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. 

Creative Destruction and our User Community

Anyone expecting the bureaucrats to make the necessary changes within their organizations. To deal with the overproduction issues of today will be waiting a long time. The Preliminary Specification is such a fundamental change to the producer firm. Moving it from a price taker to a price maker. In order to do this we will be making changes to every element in the industry. The point here is that organizations don’t change, however, people do. The way that we are making this change is that we are using the forces of creative destruction to break down the bureaucracies. And building the user community as the replacement.

We should send a thank you note to the bureaucrats for following our script so closely. The forces of creative destruction are evident throughout the history of our western based economies. When things become too inefficient and incapable, new solutions rise to replace them. Overproduction will continue until such time as the Preliminary Specification is operational in the oil and gas industry. It is what has been done in natural gas for six years now and in oil for two years. Do we see any response to this overproduction? It was recently stated that there were globally 100,000 barrels per day of oil shut-in during 2015. That is the level of response our friends the bureaucrats can achieve to the overproduction dilemma.

Muddling along is the operating strategy of all producers in any situation involving a crisis. That is the only thing that can be done. The producer firm is a deliberate building of organizational capabilities designed to operate oil and gas facilities based in some geographical region. That is their sole purpose. These organizational capabilities are unique to the formations that they produce and explore. The accounting and administrative capabilities are developed to support an organization in the regulatory, tax and compliance environment that the corporate organization exists within. And that is their domain. To determine if a Joint Operating Committee is profitable, in absolute 100% accurate accounting terms is impossible. Most of the administrative and accounting costs are capitalized and the Joint Operating Committee is charged with overhead allowances based on industry accepted principles. All that bureaucrats know is if the property is generating cash. They only find out that they're not profitable when they publish corporate level financial statements.

And so they continue because they do not have the appropriate information and cannot make the appropriate decisions as to which property is and isn’t profitable. The decision itself, the operational decision making authority resides with the Joint Operating Committee, and even if the operator decided to shut-in an unprofitable property it would have to be put to a vote at the Joint Operating Committee. This conflict doesn’t occur because the systems and procedures within the oil and gas producer do not recognize the Joint Operating Committee or its legal, financial, operational decision making, cultural, communication, strategic or innovation frameworks. It only recognizes the corporate frameworks of compliance and governance of the tax, regulatory and the SEC requirements. Recall what we are doing in the Preliminary Specification is we are taking the compliance and governance of the hierarchy and aligning it with the seven frameworks of the Joint Operating Committee. This alignment provides us with the speed, innovativeness, accountability and profitability that we seek in our in our oil and gas producers.

How we get to the point where People, Ideas & Objects is funded and the user community begins the development of the software defined as the Preliminary Specification is unknown at this time. What we do know is the producers that exist today are not going to be around for much longer. Slowly each and everyone of them will continue to lose so much money that they can no longer continue as viable going concerns. Cash is becoming a significant issue in the marketplace today. This is accelerating the demise of many producers and will make the transition to our user community that much quicker. How we get there is going to be an interesting journey. There’s plenty of room for everyone to join in our user community at this time. It's not that organizations won’t change, it's that they can’t. The people who join our user community will be the ones who are making the change in the 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. 

Task List for the User Community

As a group, the user community has some specific tasks that need to be completed in the first iteration of our development. These apply only to our initial development and will change once the software is operational in the marketplace. If we look at these tasks from a global perspective we are taking the Oracle Fusion Applications, applying the vision of the Preliminary Specification, developing and integrating that across the industry. In terms of technical risk, I assess the project as moderate, we are using proven technologies on a very large scope and scale. The vision within the Preliminary Specification is comprehensive and has the benefit of unifying the user community in the appropriate direction for successful implementation.

The first step in this initial development phase is therefore to implement the model that is the Preliminary Specification. This vision provides the broad outline of what and how the applications need in order to operate. The details of how each individual's work needs to be handled is the work of the user community to fill in, define and ensure that our developers provide you with the systems that you want and need. For example, if you are working in an area where the Material Balance Report is part of the domain of your work. You will collaborate with others to determine what is required, ensure that it is correct and iteratively develop the functions and processes that will be managed by the software and the service providers. In many ways we are capturing the manner in which the industry operates today from an operational, administrative and accounting manner and redefining it around the Joint Operating Committee and the vision of the Preliminary Specification.

What we don’t need in this first iteration is to have any innovation completed by the user community on the business models contained within the Preliminary Specification. What exists today in the vision works in terms of its global perspective. It may appear that in some small area it might be better to change an element of the model to accommodate some other condition. What we will not know is if this change will upset the global perspective and put the overall vision out of sync in terms of its operational capabilities. The first iteration is not a time in which to innovate on the business models of the Preliminary Specification.

What we can do, and what brings about the greatest value from the model is exploring and implementing the interactions and implications of our model. When we move to the Joint Operating Committee as the key organizational construct of the producer. We are changing every aspect of the oil and gas producer, the industry and service industry. Not much is unchanged in terms of the effects of implementing the Preliminary Specification. The interactions and implications are where the dramatic value is generated for the various stakeholders in our targeted market. It is here that I expect to see the value of the model to be in the forefront of the user communities search for delivering on that value in the first iteration of the development.

Once we have the software fully operational in the marketplace then we will be able to innovate on the model, and determine further interactions and implications within the various domains of our operation. We are focused on providing the oil and gas industry with a dynamic, innovative, accountable and profitable oil and gas producer. This requires that constant change be part of the user community and service providers. People, Ideas & Objects Revenue Model is structured to generate revenues based on changes within the industry. That is the dynamic that keeps this community moving forward. Software has the effect of becoming concrete to an organization. Turning it into an unchangeable beast. If an organization needs to change, it is the software that needs to change first. And in order for the software to change, the user community has to be the ones that make the changes through the mechanisms they have to affect that change. And in People, Ideas & Objects that is our user community vision.

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 If the Bureaucrats Win?

You may have been distracted the previous time that I noted our value proposition. People, Ideas & Objects, our user community and service providers provide the oil and gas industry with $45.7 trillion in incremental value over the next 25 years. We also have the added feature of putting the industry back on a profitable footing. Enabling it to reclaim much of the greater than $1 trillion in lost market capitalization over this past year. But today I think we can add to these small industry incentives to act to implement the Preliminary Specification. By adding the losses that the producers are incurring during the 2015 fiscal year to the list of things that would not otherwise happen if the Preliminary Specification existed. Some may think that this is a simple double counting of the value proposition, I as you can imagine, beg to differ.

These losses represent the incineration of the capital that the bureaucrats were entrusted with. They could have used the Preliminary Specification to ensure that they are providing their shareholders with the most profitable means of oil and gas operations. However, they are not doing that and have instead chosen to destroy the industry. I see these as two separate and distinct acts. Both as a result of the deliberate carelessness that our friends the bureaucrats are becoming known for, but the losses are different than the value proposition. They are, dare I say, like the loss in market capitalization, more real.

If we calculate the losses of the producers that have been reported as of last Friday we find that the total comes to $8.043 billion for the fourth quarter of 2015. Not bad for three months work. And that is just eight producers. Anyone notice that the amount that these eight producers have lost is higher than our budget? I guess no one will be giving us any grief about our budget anymore. After all if you're willing to lose this kind of money in a quarter, you surely would not mind spending it in productive ways.

I have a great deal of difficulty understanding why any of this is acceptable. There is no bureaucrat that seems too concerned about the situation. Is it that the bureaucrats are frozen in fear, or is it that they don’t care? They’re all singing from the same hymn sheet and stating that the market will rebalance. Let's give them the benefit of the doubt and assume that happens. They’ll then need to work off the huge balances of oil in storage that has built up in the world. Rebalance that! But nothing effective is done other than to get the press off their backs! Sure they changed the oil export restrictions, but how has that worked out? I think they just stare out the window dreaming these dumb ideas up. This is the muddle along strategy in its finest hour. Shrug your shoulders and assume that nothing can be done and go on doing the paper shuffling thing that they do. Hoping that nothing bad happens to you. Absolutely brilliant!

The Preliminary Specification is designed to make the industry dynamic, innovative, accountable and profitable. None of which it currently is and never has been while I’ve worked in it. The current business model was developed in the 1920’s and has had no changes to it since. In the dynamic, fast changing world we live in, we end up with a bureaucracy that is so out of tune with the times that it can’t even defend itself. Are we to expect that we’ll keep this in place for the foreseeable future. Will this be the way that the industry is managed in 2025, 2040?

Why would anyone give more money to these bureaucrats to lose. The industry has had no response to natural gas for six years. No response to oil for two. Is anyone else seeing a trend? What do we think will happen tomorrow or ten years with this bunch? That is exactly what the bureaucrats want. To ride this through with no expectations of performance and then to resume normal operations where investors line up for the next round of fleecing. Then the bureaucrats will be so established and permanent that we’ll never be able to get rid of them. I say if we don’t toss them out in this current environment, and soon, we’ll end up paying for it for a long time.

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 News Here

We should be building the oil and gas industry to address the needs of society in the next 25 years. Instead we’re hunkering down hoping that our most recent paycheck wasn’t our last. Here we are with all the intelligence and technology in the world to deal with our difficulties. And we can’t overcome the inertia of the organizational methods that were established in the 1920’s. I’ve provided so much comedic relief to the bureaucrats over this past decade. It's good to know they’ll at least have the thought that they knew better. It’s pretty obvious now, as it was in the 1980’s and 1990’s, that the lack of production discipline is with us as long as the bureaucrats exist. The news is here we sit, no change in the status of this initiative, other than the bureaucrats don’t laugh anymore. They can’t, won’t and will not ever change. We apparently have to completely destroy the industry before they're convinced they're wrong.

As far as I’m concerned the damage to the industry has and will be extreme. We have only begun to see the pain that we will need to endure. Sitting around hoping for higher prices and stating that the market will rebalance itself is sticking our heads in the sand. It appears to me that every producer is hurting except for Exxon. I think half of the industry will end up in bankruptcy. And the people who make this industry work will have had enough. What we’re talking about here is a generational time frame in order to rectify the damages being done now. I haven’t seen the rush to the door by the bureaucrats yet, but trust me that is coming, and they’ll take that aspect of the industries capabilities with them as well. Leaving us with that hole to fill on top of everything else.

We have, and will have, work to do. I have budgeted 5,000 man years of effort necessary to put out the first iteration of the Preliminary Specification. This is going to be very hard work to do and will demand a lot from the people who are involved. I guess the point is why do this hard work, disrupt the entire industry in the process, if it's not necessary. Just let the market rebalance itself as it always has. And that is the decision that is made. Muddle along and do nothing, let the forces of stupidity take hold and the good times will resume.

I don’t see that happening this time. First of all you need cash to buy the time to get there. We’re in February and there is less and less cash each day that passes. Getting there also assumes that the prolific nature of shale is somehow eliminated. That overproduction, which is systemic, unforgiving and destructive will be solved in the long term. Which it won’t and we’ll be back here at $30 for oil and $2 for gas in no time, assuming rebalancing does raise prices. Hope does spring eternal.

I can see the tombstones of some of the walking dead already. These are the firms that are no longer going to be with us. Give it a year and no one will remember them. Chesapeake, Encana, PennWest, Pengrowth and Bonavista. A lot of Canadian names in that bunch but all of them are trading at less than 10% of their all time highs. Which reflects a complete capitulation and lack of any faith in the managements or assets capabilities to be able to return to a viable company. Zombies.

It didn’t have to be this way. Disintermediation is a trend that is shaping industries across the business landscape. Technology with organizational changes are building substantial value propositions, as do we, and are the reasons that companies are moving in that direction. Why didn’t the oil and gas industry? What is the unique characteristic that caused them to oppose this initiative from the start and refuse to consider it? I don’t think we’ll ever know. But one thing is for sure, the opportunity in oil and gas is on this side of the fence. This post may seem dire, but I think I’m telling it like it is, it really is pretty sunny over here on this side.

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. 

Securitization

Securitization invokes the 2008 financial crisis with thoughts of mortgages being purchased from banks, parsed based on their credit rating, and repackaged as investments on Wall Street. Add in some sloppy accounting and poor legal work, some innovative ideas like synthetic credit derivative obligations, then you can see how a good idea can become the source of a banking crisis. Securitization, I think, has a role in the revised oil and gas industry. It could be a source of capital that is necessary to develop the industry in the future. If working interest ownership positions within various Joint Operating Committees were repackaged as securitized investments and bought and sold on exchanges. Then some of the capital necessary to fund the next leg of the industry might be available.

My concern is that the industry thinks that they’ll wait to rebalance the market. Like they’ve done so many times before. That low commodity prices are a natural part of the cycle that has to be worked through. You take the good with the bad and after all the screaming you make some money. I ask who is going to loan or invest money to anyone who has this attitude in the 21st century. If you feel that this is a good place to put your money go down and invest in an oil and gas company today. The bureaucrats in these companies are deluded to think that their vision is going to attract anything but flies. And we should make sure that these industry bureaucrats are shown the curb for thinking that this would be acceptable.

We went through the latter part of the 1980’s and the better part of the 1990’s listening to the oil and gas bureaucrat say “oh whoa is me, commodity prices will recover soon.” We’re hearing it again, and if we don’t do something about these dead beats we’ll be hearing about it in ten years from now. Just when did this become acceptable. That is all that we will ever hear if we accept this behavior today. “The market will rebalance and all will be well.” Investors are being destroyed. People’s careers are being destroyed along with their lives. The service industry, where the entrepreneurial and innovative talent in the industry exists is being destroyed. And the best that can be suggested is “the market will rebalance itself.” I think we should call an end to the muddle along strategy right here and right now.

The damage that is being done in this business is not something that’ll be fixed in the short term. The investors will not be lining up to give the people who are running this ship aground another turn at the wheel. They’re spitting mad. And they want scalps. Once they get those scalps they’ll lick their wounds for some time before they’ll venture into oil and gas again. Same with the people who are being laid off. “It was good while it lasted, but maybe we’d be better off shifting into something else” they’re thinking. The capabilities of what and how the industry does was it does can only take a big step downward in a scenario such as this. Thank your bureaucrat for all of this fun and excitement.

To the point about securitization of oil and gas properties. The Financial Marketplace module discusses this point as one of the elements of how the industry is funded in the future. This is enabled in the Preliminary Specification through the service providers detailing their work at the Joint Operating Committee level for the administrative and accounting costs. Each Joint Operating Committee will have the actual overhead costs to administer the property each month. Add these detailed overhead costs to the detailed royalty and operating costs and you have all of the Joint Operating Committees actual costs in their entirety being recognized. Actual detailed accounting each month! With the capital costs of the well known, the property can then prepare audit-able financial statements for any Joint Operating Committee for any month of the year.

Therefore the net profits of the Joint Operating Committee are something that can be calculated and determined accurately every month for every property. With the reserves data, working interests in these properties could be securitized and the producer able to generate additional capital through the process. One other aspect of the way in which the Financial Marketplace module of the Preliminary Specification is different is that due to the way the accounting is done in Preliminary Specification, the operator and the working interest owners overhead costs will be the same on a working interest basis. The operator will no longer be carrying the significant administrative and accounting resources and costs necessary to operate the properties on behalf of the Joint Operating Committees. And they will not be forced to capitalize these costs in order to hide them. The actual costs incurred by the service providers will be distributed based on the working interest distribution to all the working interest owners on an equal share basis. And this is why the producers will use the service providers for their administrative and accounting needs. Otherwise they’ll be footing the bill for their administrators and accountants to the full extent, as they do now.

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.