The Job Order System

It's a battle of ideas so far this week. I mentioned the Work Order and Job Order systems of the Preliminary Specification and how they enable the producer and Joint Operating Committee to implement the tacit knowledge of the producers within the Joint Operating Committees. I wanted to discuss these further and reflect on how they enable greater levels of innovation to be generated through the industry. We’ll discuss the Job Order today and the Work Order tomorrow.

The Job Order system is a means in which the Joint Operating Committee is able to document the command and control of their operations. Within the Preliminary Specification we resolve the demand for earth science and engineering resources, the talent that will be retiring in the next decade, and the demand of the sciences to expand based on a further specialization and division of labor. Hypothesising that these two elements will disable most producers ability to attain what is commonly known as “operator” status. The breadth and depth of these resources within one firm will require such scope and scale that their costs will no longer fit within the commercial environment.

We resolve this through the concept of pooling these technical resources through the Joint Operating Committee. As each producer within the partnership focuses on their specialized and key competitive advantages in the earth science and engineering capabilities. It will be necessary to pool the specializations of the producers in order to attain the “operator” status from many producers. Including producers who are not party to the Joint Operating Committee. Therefore a means of command and control over any operation within the Joint Operating Committee is going to be necessary from that Job Order system. A system that spans the organizations represented in the Joint Operating Committee.

In order to facilitate this there needs to be a command structure that is put in place over the technical resources that are dedicated to the Joint Operating Committee. Within the Preliminary Specification we call this the Military Command & Control Metaphor. A bad name I know but it will be up to the user community to come up with a better one. This will allow the technical resources to recognize a chain of command and to enable the designation of authority and other attributes necessary for the organization to function and document the activities within and throughout the operation.

Multi-lateral and Multi-frac wells are rather large and expensive operations. For that matter drilling a conventional well is a large risk for most producers. The need for operational control is not a nice to have, but a necessity. Innovation is not the counter to tight operational control. If anything you can’t have innovation in a free for all. The need to have integration of the oil and gas and service industries to the level discussed here in the Resource Marketplace module is a large and expensive undertaking. In terms of operational control the “Capabilities Interface” of the Research & Capabilities module provides a means to have everyone on the team operating from the same hymn sheet. Everyone knows what the plan is and everyone knows what everyone else is doing. Now we need a means in which to execute the plan. In the “Planning & Deployment Interface” as well as in some of the other interfaces, users will have access to the “Job Order System” of the People, Ideas & Objects application. This will provide the ability for a member of the operational team, with the operational authority as designated in the Military Command & Control Metaphor, to issue a Job Order to execute a certain operation. Simply nothing is done during any field operation without the Job Order being issued.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Our Price Maker Strategy

The overproduction in both the oil and gas market will continue for the following reasons. Bureaucracies don’t change, ever. Shale formations are prolific. Introducing the motivation to expand the value of the firm substantially by increasing shale exposure. And the accounting for the past 40 years has created a culture where the balance sheet stores the capital costs incurred forever. Leaving the revenues to never recognize the high costs of capital of the business, overstating the reported earnings, leading to overinvestment and overproduction. A trend that we saw play out for almost two decades in the 1980’s and 1990’s. Now People, Ideas & Objects have come up with the Preliminary Specification and its decentralized production model. These, in addition to many other attributes, provide the dynamic, innovative, accountable and profitable oil and gas producer with a price maker strategy. What is this, and how does it work.

Price maker is the economic definition of the marketplace for the oil and gas commodities. These commodities have been misunderstood by the producers to be price takers. That any production of theirs will not have a material effect on the price of the commodity, therefore the structure of all of the producers is to produce at 100% capacity. This is the high throughput production model which seeks to cover the high costs of their overhead with full production. Price makers will only produce volumes of production if the production is profitable. Applying these principles to the price taker marketplace of bottled water we find that no matter how much bottled water you produce the consumer will always pay approximately the same for the product. Whereas the oil and gas commodities prices have collapsed upwards of 70% and more on the basis of as little as 2% overproduction. Characteristics of a price maker. Oil and gas commodities are price makers and the Preliminary Specification corrects the industries misapplication of price taker. For further clarification of the technical requirements of price taker and price makers, see the economic definitions here.

The next change we need to make is to the accounting for oil and gas. In order to determine if the Joint Operating Committee or property is profitable we are going to have to have a clear and concise accounting. We have as the basis for this the foundation of the Statement of Expenditures for capital costs, and the Statement of Expenditures for operations in the oil and gas industry. These are enhanced in the Preliminary Specification by the removal of overhead allowances and replaced with the actual overhead charges of the service providers that we will discuss in a moment. These service providers will be charging their actual overhead costs of accounting and administration to each Joint Operating Committee on a monthly basis. Therefore we will have a clear revenue, less royalty, operating cost, overhead and capital allocation to determine the profitability of the property. If it is profitable based on this detailed, actual cost accounting it will continue to produce.

The structure of the producer and the industry are changed in order to obtain the price maker strategy for each producer. The prototypical producer will be a stripped down version of the current organization. It will consist of the C class executives, earth science and engineering resources, landman, some legal and support staff. The remaining accounting, administrative, production administration, land administration and exploration administration resources are reallocated to the service providers that we mentioned before. The service providers are headed up by the user community members of the People, Ideas & Objects user community. They focus on one process and service the entire industry as their client base. Therefore if the property is unable to produce a profit, based on that detailed, actual accounting, the property is shut-in. The service providers therefore do not receive any information from our task and transfer network in which to work on that property. Therefore there will be no billing from any of the individual service providers. The Joint Operating Committee will therefore be recording a null operation. No revenue, royalty, operating costs or overheads. Some capital costs may be incurred during times when a property is shut-in. These null operations will replace the losses that are being incurred in the industry today and are diluting the profitable operations of the producer. These null operations will also stop the costs of the current losses having to be recovered from the existing reserves, in addition to all of the properties capital costs that exist today. They will remove the commodities production from the commodity marketplace allowing the marketplace to find the marginal costs, based on a detailed, actual accounting. And will raise the prices realized for the producer on the other profitable properties that they are producing.

The bureaucrats need to be in control of the industry. The Preliminary Specification disintermediates the bureaucrats in the manner that Uber eliminates the need for taxi commissions and taxi dispatchers. The Internet doesn’t exist, and will never exist in the bureaucrats world. So we must wait until they tire of beating me or retire from the scene. One way or the other the Preliminary Specification will be the method that the industry operates. Just don’t mention that to the bureaucrats.

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. 

Processes and Capabilities

Working to win the battle of ideas in these next few months we were recently discussing how the Preliminary Specification was built on the foundation of innovation. Using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable producer. Whereas People, Ideas & Objects aligns the compliance and governance frameworks of the hierarchy with the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee. Doing so provides the oil and gas producer with the speed, innovation, accountability and profitability that we seek in our organizations. How this is done is partially through the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. It is through these two modules that we manage two large processes within the producer firm and the Joint Operating Committee.

The first key process is the development and deployment of the innovations that are generated. What is unnecessary and should be avoided at all costs is each Joint Operating Committee field testing their own ideas on what to do to expand the sciences and the capabilities of the producers involved in the Joint Operating Committee. This would be redundant and lead to a disorganized mess in no time. Having anything of value generated would be happenstance. With the ability to deploy any innovation further within any of the producer organizations coming close to a lottery in terms of its probability of success. That is not how the industry can move forward constructively. The Research & Capabilities module enables the producer firm to structure a division of labor between those that will develop the research and innovations within the producer firm, and those that will implement and deploy the innovations within the Joint Operating Committees. This deployment is through the Knowledge & Learning module.

The other key process that is managed in these two modules is the removal of a major conflict that exists within each oil and gas producer. That is an organization must either move the knowledge and capabilities to where the decision rights exist, or alternatively move the decision rights to where the knowledge and capabilities reside. In oil and gas the producer designated as operator has the knowledge and capabilities to operate the properties. They however do not have the decision rights. Those decision rights are held by the Joint Operating Committee in the operational decision making framework. These are defined by agreement at the beginning of the project and are voted on by the representatives of each producer at the Joint Operating Committee. To remove this conflict we can either move these decision rights to the operator. In which they would have de facto control of the property. Or we can move the knowledge and capabilities to where the decision rights reside. In the Preliminary Specifications Research & Capabilities and Knowledge & Learning modules we enable the process to move the knowledge and capabilities of the producers to be available to the Joint Operating Committee.

Finally I want to revisit the question that we answer in great detail in the Preliminary Specification. And that is, what are capabilities? We have a variety of excellent academic definitions of the capabilities of a firm which include the following. Quotes are from Professor Richard Langlois “Transaction Costs in Real Time.”

‘Routines,’ write Nelson and Winter (1982, p.124), ‘are the skills of an organization.’ p. 106

What we capture in the Research & Capabilities and Knowledge & Learning modules is the explicit knowledge of the organization. The tacit knowledge can not be captured, however is deployed through our Work Order and Job Order systems.

Such tacit knowledge is fundamentally empirical: it is gained through imitation and repetition not through conscious analysis or explicit instruction. This certainly does not mean that humans are incapable of innovation; but it does mean that there are limits to what conscious attention can accomplish. It is only because much of life is a matter of tacit knowledge and unconscious rules that conscious attention can produce as much as it does. p. 106

Much knowledge - including, importantly, much knowledge about production - is tacit and can be acquired only through a time-consuming process of learning by doing. Moreover, knowledge about production is often essentially distributed knowledge: that is to say, knowledge that is only mobilized in the context of carrying out a multi-person productive task, that is not possessed by any single agent, and that normally requires some sort of qualitative coordination - for example, through direction and command - for its efficient use. p. 359

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organizations probably begins with Edith Penrose (1959), who suggested viewing the firm as a ‘pool of resources.’ Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources. Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied ‘how to’ knowledge useful for particular classes of activities. pp. 105 - 106.

Professor Carliss Baldwin provides us with a further definition of capabilities as “knowledge beget capabilities, and capabilities beget action.” Lastly Professor Richardson also notes that capabilities are the “knowledge, experience and skills.” (1972, p. 88) I would note that People, Ideas & Objects have added “ideas” to that to read “knowledge, experience, skills and ideas.”

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'd This Happen

As I write this it’s unknown what the outcome of the meeting of Opec members is. The outcome is irrelevant to People, Ideas & Objects, our user community and service providers. We will continue to harp away at the issues that we see in the industry until the Preliminary Specification is adopted. I would also suggest that the outcome of the meeting is irrelevant to the North American oil and gas producer. If Opec should decide to reduce production and prices doubled, we would only be back at this same situation as today in as little as two years. The systemic overproduction of oil and gas in North America has not been resolved. It hasn’t even been discussed or raised as a concern in the industry. It is a non-issue as far as the bureaucrats are concerned. All of this is Opec’s fault.

To the issue of the day and how we ended up in this situation where oil and gas production is so far in excess of what the market can handle. Even in natural gas, which I guess would be Opec’s fault as well. I see two components driving the overproduction, the accounting policies of the SEC, and the muddle along strategy of the industry. These two conspire to ensure that systemic overproduction in the industry is obtained at shareholder and investor expense. And that nothing will be done about it, other than sitting around and waiting for the “market to rebalance.” We saw this in the late 1980’s and the 1990’s in oil. When overproduction caused the prices to be depressed and incapable of providing returns to the shareholders. I thought at that time if we could fix this method of operations in oil and gas, we could have a healthy industry in both oil and gas at all times. That is the Preliminary Specification and what I did not know until well into this century is that the bureaucracy are incapable of action and generally protective of their turf. That only bureaucrats make money in a downturn which is the only concern in the industry.

How do accounting policies of the SEC cause systemic overproduction? By capitalizing everything that is ever spent by the oil and gas producer on to the balance sheet under property, plant and equipment. The balance sheets of these producers bloat year after year as a result of their enhanced spending binges of investor cash. Making them appear to the untrained eye to be well capitalized and healthy. Whereas to the critical eye they are nothing but testimony to the bureaucratic spend fest, and if these statements were fairly stated would reflect highly leveraged organizations. Conversely, realizing only small portions of the property, plant and equipment costs each year as depletion on the income statement has the effect of overstating the earnings of the producer. After two years in the industry you wouldn’t know if the financial statements you're holding are from the company run by the greatest oil man of all time or the village idiot. These overstated earnings make it appear that oil and gas in North America is a good business to put investor money. Therefore it flows into the hands of those that have achieved ever greater status at spending velocity. This money goes to find more oil and gas, and as a result, all of the oil and gas production is immediately put on the market. Eventually overproduction occurs as it did in the 1980’s and 1990’s, and today. Only today we have the high cost shale formations that flood the market with the commodity much faster and makes the industry overproduction more obvious.

Producers have been raised to believe that the annual capital issuance is a given in the business. They don’t understand that if they let the property, plant and equipment costs flow to the depletion account on the income statement they would have a clearer accounting of the situation. They would also be earning less. Or I would suggest they would begin to report the correct amount of earnings. As more and more of the assets flowed to the income statement the cash that was tied up in the investment of the property, plant and equipment would be released back into the organization. Enabling the producer to self finance its exploration and development. As a result there should be no need for annual stock offerings to meet the capital budget each year. Having the capital budget financed through the organization. By not doing this in the past, the oil and gas producers have trapped all the value of the shareholders investments in the properties they own. And are therefore subsidizing the consumers of energy by not generating adequate revenues to offset all of the actual costs and earn appropriate profits. Or in other words oil and gas prices need to be higher in order for the North American producers to be classified as a viable business. This is the way things have been managed  since 1978 and what seems like the way the business is done is culturally ingrained. It is fundamentally wrong and leads to periods of time such as we have today.

The second attribute being the muddling along strategy of the producers. Which is really a capitulation of any active involvement or analysis of the business. It is what it is. And shoot the guy who says anything different such as the treatment that I’ve received.

It should be noted that the discussion last month of a supply freeze from Opec had a remarkable effect on the prices of the commodity. It’s almost like it was exhibiting a price maker characteristic. If only someone would have thought of that and developed a means in which the oil and gas producers could use a price maker strategy in North America. Until then we’ll have to live with the price maker strategy of the decentralized production model of the Preliminary Specification. I do find it comical the number of people who were declaring that the overproduction issues in oil and gas were over. Just like that, without any fundamental change to any fact, they were able to deem that the entire industry was going to be sunshine and rainbows starting this week.

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. 

You Reap What You Sow

This Sunday is the day that all the Opec countries have agreed to meet to discuss production freezes. I don’t expect too much to come from the meeting but we may be surprised. With the state of financial affairs in the North American producers, taking the pressure off of the high cost producers would be bad timing for Opec at this point. After all, the countries that are meeting are still making money. It's the shale producers who are not, and that was the point of Opec’s strategy, to cause North American producers pain and have them adopt the swing producer role in the global markets for oil. The difficulty is that you can’t tell the North American producer this. You have to force them out of business first. Then when they put themselves back together, maybe they’ll adopt the Preliminary Specification and the swing producer role.

The price of oil certainly has behaved as if something good was going to come out of the meeting. And maybe it knows something that we don’t. If it does the bureaucrats have won a reprieve and will be able to keep their lofty positions in the industry for a while longer. If there is no agreement then the price of oil is going to drop precipitously next week and the failure of the bureaucrats will be fully exposed. Is this the best they have? Hoping that the markets are turning upward on the basis of chatter out of Opec? I think the people who had the faith that these bureaucrats had good governance of their investments will begin to think twice about this.

Now I have called this point in time on several occasions. And since I’m writing about the possibility again it would seem that I was wrong before and may be again. I think that my timing has been off but my message is accurate. I do find the timing of this meeting to be rather opportune in terms of leveraging the bad news to the investors of the North American oil and gas producer. It is as little as a week or two away from the earnings release of the first quarter financial reports of 2016. Followed quickly by the annual shareholders meeting. Now I don’t expect anything to come about as a result of these meetings. We have gone through several years of poor performance and nothing has happened so far. Why would it happen this year. This is however the one time of the year where the bureaucrats do have to be accountable to their shareholders and face them directly.

Those bureaucrats that do survive the annual meeting will be treated with the nine months or so of bliss that they’ve always enjoyed in this industry. It's the rest of the year in which they can do as they please, and that’s why they’re probably still around. It’s not that they do anything during these nine months, it’s actually that they do nothing, and as a result nothing changes. We could see some more layoffs and certainly a lot more losses but those are other people’s problems right now. There is the east wing of the cabin to concern the bureaucrats with now.

The banks have all but shut down the last financial spigot into the industry. The cash necessary to produce no longer exists and therefore a heavier reliance on the service industry to extend terms on their services will be demanded. Extending credit on receivables over several years is very common in most industries, the bureaucrats will state. Anything to make payroll. We saw a number of equity and bond issues in the beginning of 2016. Oddly enough, none since. Maybe the investors don’t see the benefit of investing in oil and gas anymore. Left to their own devices the bureaucrats will need to get the cabin ship shape in record time. With all the labor that has been laid off in oil and gas, finding good qualified labor to build that east wing of the cabin should be no difficulty.

Everything for them is looking like a pleasant summer after all. Just need to get past the pesky shareholders in a couple of weeks and we’re home free. All the bureaucrat has to do is stay at the cabin for the entire summer and wait until their paychecks bounce and then submit their resignations. Pensions will kick in and that will be that. A job well done.

It was Opec that was the one that was going to be hurting as a result of Saudi Arabia servicing their clientele as their priority. Leaving the swing producer role to others. They and the other Opec countries are not draining cash to produce. Their countries may have costs that are causing them to draw down their reserves, but if you want to include the U.S. debt and deficit in what the producers need to cover as their costs then we’ll need a bigger boat. Optimism in the face of such a looming disaster is comical to me. What the oil and gas industry needs is a plan to deal with its overproduction for the long term. The Preliminary Specification does that and needs to be adopted. It should also be understood that we have years of work ahead of us! I can’t just flip a switch. As I said many times I have received no support whatsoever from the oil and gas producers. And we have 5,000 man years of work to do.

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. 

Just the Facts Ma'am

No one wants to get into a knock down, drag out battle. Well I do, and I will be taking it to the bureaucrats. Those in the oil and gas industry that know that something is wrong don’t necessarily want to get involved in a fight. Which is fine, they can enjoy the show and be entertained by the events and actions that take place here at People, Ideas & Objects. We aim to please. I certainly don’t expect anyone to pick any side in this argument. There is no need for that. I only ask that people look at the facts of what we’re fighting over. The Preliminary Specification, and whether it should be the manner in which to operate the industry. Something interesting happened at the beginning of the year. Our logs show that people have shifted from looking at the Preamble, Abstract and Executive Summary to digging in deep to the Preliminary Specifications individual modules. Good news for us.

I’ve had the benefit of seeing what people think of my writing. When the people in oil and gas are confronted with mandatory participation in a consultants meeting that suggests putting a doodad on your desk to indicate your busy, as innovative. They know that high priced consultancy is earning its big dollars and will be back next year with something just as innovative. And then I come along and ask people to read 175,000 words, or two textbooks worth of text, about my ideas. There is a stark response by the people who have put that effort in. In most cases it's printed, indexed, highlighted, penciled over, dog eared and completely worn out. It has been this way since my first publication in 1996. People are starving for something that solves their problems. And when they see it, they want it. We’re not many in terms of numbers yet, but we will be, and when we are, we’ll be rabid. For that I can guarantee.

The other interesting aspect of my writing. Is that we are establishing a sub-industry between oil and gas and the Information Technology industry. If you take that same Preliminary Specification to the people in Information Technology and ask them to read it. They would read it, glaze over and shrug. They have no understanding whatsoever of anything within my writing that is of value. It’s kindling for them. And that is why we need to sit between the oil and gas, and technology industries. To communicate and provide an understanding between the two. Because the two don’t understand each other right now and a lot of time, money and effort is being wasted on both sides by hard working people.

There has been a divide between the IT people and the rest of the world since its inception. I’m not of the opinion that this can continue in the manner that we have for the past number of decades. Something has to change. And that change is the development of the sub-industry that is People, Ideas & Objects, our user community and service providers. We are the hybrid of the two industries and the means in which the two communicate and achieve their goals and objectives. People who are selected within our communities are those that have their experience in the oil and gas industry. That is our primary concern in terms of understanding. We need to know the oil and gas industry and know it well. I have also set out that our people within the user community be educated in the Information Technologies to a certain level. These are specified in the user community vision.

Everyone can use an iPad, a smartphone and a computer today. We need people who can look into the source code of People, Ideas & Objects and feel comfortable there. If that’s not you today, then you need to get there through the courses that are recommended in the user community vision. I can assure you that you will never have the access necessary to change the source code. You will however need to understand what is happening in that code and understand the fundamental concepts underlying those technologies. This is important to the quality of our product. That the implications of the technology be understood when we are finding that things are not as they maybe should be.

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. 

That Was Quick!

My outreach to the powers that be landed with a thump yesterday. There will be no acceptance of the olive branch that I extended on Monday. I thought with the state of affairs in the industry it might be time to get to work. It’s not. I guess when you beak off about the bureaucracies lack of action, to put it as mildly as I can, for many years, you become known for that. The word hostile comes to mind. I seem to have bent some noses out of shape, and not just a few. If you were responsible for running the industry into the ground would you be happy to be called out on it? The thing is I’m only too happy to be the one to have taken this fight to the bureaucrats and held them accountable for their lack of action. We have a significant issue in the industry. It needs to be fixed. If we don’t fix it, it will lead to serious consequences. If some people find me offensive, well actually a lot of people apparently, that means I’m doing my job. This fight isn’t over, and maybe it's just beginning.

The situation is that “market rebalancing” will work and the industry will get back to its normal course, the bureaucrats want us to believe. That is the mood throughout the industry and the investment community. They are bending over backwards at this time to give the bureaucrats every opportunity to remedy the situation. At the same time the bureaucrats are showing that the cupboard is bare in terms of resolving anything. No ideas, plans or actions. This is setting the stage for a fundamental betrayal that the investment community will realize when the bureaucrats “market rebalancing” can’t, won’t and will not ever work. April 17, 2016 is Sunday, that’s when everyone meets to discuss production freezes. There’ll be no action as a result of that meeting and oil prices will decline on Monday. Does anyone think the Saudi’s are going to blink now that they have all the pressure on North American producers?

What I have done is got ahead of myself in thinking that the story about “market rebalancing” had run its course and that the investor's patience had run out. Therefore we’ll have to wait for these events to occur. Being persona non grata in the industry is liberating. I know any attempts at further outreach would be futile and to be honest it contradicts my nature. I much prefer the fight I think we are about to enter. This is going to be a classic and I suggest popcorn and refreshments. The bureaucrats think the situation that we are in will resolve itself as it has so many times before. If they muddle through they’ll get to the good times. I see this as the end of the manner in which the structured hierarchy is capable of generating value in today’s economy. Disintermediation is transforming the organizational structures of all industries around the Internet. Maybe the oil and gas industry is immune, no one knows.

Cash is going to be the determining factor. When Uber replaces taxi’s in the cities it operates in it's not because the taxi’s were broke and not a viable going concern. They had their taxi commissions ensuring that everything was tilted their way to ensure a prosperous industry. What Uber provides is a better system to get from point a to b. Oil and gas producers are not in the situation where they’re viable. As much as their bloated balance sheets might tell them so. Cash is so tight, and this will be so evident in the first quarter reports of 2016 that producers will be unable to continue for long in the current fashion. Overproduction is killing the commodity prices and they can’t stop producing because if they did, the cost to carry their overhead would put them under right away. That’s why in the Preliminary Specifications decentralized production model we convert the producers fixed costs to variable, based on production. Then if they shut-in production due to non-profitability their costs on that property go to zero. All of their costs.

Like any junkie, more is all the bureaucrat wants and shale delivers the hit. Flush production from shale field operations will continue to keep the continents deliverability high as a result. The overproduction is systemic in the oil and gas industry as a result of the “capitalization of all of the costs” theory of accounting of the SEC. Adding shale to the overproduction issue only increases the difficulties in the industry. We’ll have a financial catastrophe on our hands in as little as six months. Then, as is happening now in the service industry, our capabilities to function at the level that we are will begin to diminish permanently. The point is we have to get to that level before they’ll accept their medicine and implement the Preliminary Specification. Until that time I’ll remain persona non grata and do what I can here. There’s a problem out there, somebody needs to point it out. I’m just too happy to be the one.

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. 

Pooling Technical Resources in the Joint Operating Committee

Continuing with the presentation of our side in this battle of ideas. We have discussed the level of capital expenditures in the oil and gas industry that are necessary for the next 25 years. The amount of work that needs to be done is believed to be the greatest volume that the industry has ever faced. I have read that the amount of that investments total is $20 to $40 trillion. These values have formed part of our value proposition as they have to be part of the returns that investors expect to see in the future. Arguing that in today’s oil and gas industry these would otherwise remain on the bloated balance sheets for decades on end, never being returned to the investors. Nonetheless, whatever the amount of effort that will be undertaken it’s going to be significant. Therefore the scientific basis of the industry will be relied on heavily to ensure that consumers demands are met.

Innovation will therefore need to be a foundation of the industry, if the consumer is to be satisfied. The Preliminary Specification is designed around innovation and is a critical element of the software that we are building. In the Preliminary Research Report we asked if the scope and understanding of the process of innovation can be reduced to a quantifiable and replicable process? The answer was yes it can. Innovation is very much an engineering process. Then during our ten years of research we determined what is necessary within the industry and the producer in order to facilitate that innovation. Innovation must have the appropriate structures to enable it. These elements have been included in the Preliminary Specification.

As we look forward to the next 25 years it is clear that the industry will need to increase its throughput in order to deal with the demands for its products. Looking at the manner in which producers are organized today and expecting them to do more on the basis of the same structure would be foolhardy. The need to reorganize them in order to achieve further specialization and division of labor would be necessary to expand that throughput. And to deal with the issues of the retirement of the earth science and engineering brain trust that is advancing in age. At the same time the demands of the sciences scope and scale will increase the footprint of a producer's need to achieve what is known as “operator” status. Putting that ideal of “operator” in jeopardy as a commercial operation. Therefore the need to collaborate with the partners in the Joint Operating Committee to pool their disparate resources in the sciences and engineering capabilities to achieve the needs of the property is necessary. A system such as that would have to be purpose built, and is included in the Preliminary Specification.

The producer therefore becomes an entity with two distinctive sources of revenue. Oil and gas production will be the primary revenue source. And the secondary being the use of their enhanced and highly specialized capabilities that are provided not only to the Joint Operating Committees they have an interest in, but also to producers they have otherwise no other relationship with. Providing their capabilities to other producers who are seeking to attain the full scope of what is required to ensure what is necessary to conduct safe and successful operations. The Preliminary Specification includes these in the Research & Capabilities and Knowledge & Learning modules. The billing and capture of these costs and revenues between these parties to ensure that the focus remains on each producer's own unique competitive advantages and their innovative development are handled in the Partnership Accounting module. The producers competitive advantages being the unique and specialized earth science and engineering capabilities they have. And their land and asset base.

This is only some of the innovative aspects included in the Preliminary Specification. We’ll discuss more of them as we proceed through the battle of ideas. Without the software that defines and enables the capabilities discussed here they won’t happen. Especially when the coordination across the industry is necessary. Spontaneous order, an economic phenomenon which we had come to rely on to deal with the development of our organizations and industries has been short circuited by the nature of software. In today’s society without the capabilities of People, Ideas & Objects software development, user community and service providers the industry will remain as it is today until we deliberately set about to change it by adopting the Preliminary Specification and maintaining the software development capabilities for the long term.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

An Olive Branch

One of the most effective tools that the bureaucrats have used against People, Ideas & Objects is their lack of support. It's difficult, if not impossible to move an initiative forward without the support of the targeted market actively supporting it. As a result we have been rendered to the limited resources of myself. Progress may have seemed slow, however we were able to publish the Preliminary Specification in December 2013. Since then we have had a good battle with the bureaucrats. And now the oil and gas marketplace has deteriorated due to overproduction to the point where it is now the material issue facing every individual and every producer in the industry. Nothing is going to happen in oil and gas until this is resolved. As we’ve watched the oil price deteriorate this last week, acknowledgment that something needs to be done is beginning to form in people’s minds. That there is no plan to deal with this issue and “market rebalancing” is not working. We are at the beginning of the loss of faith in the people who manage the industry.

One thing I learned about myself in the 1980’s and 1990’s is that I am a fighter. That I like to fight, mostly about the issues, and I’m pretty good at it. Taking this initiative from the idea of using the Joint Operating Committee in August 2003 to today has required a good fight. The fight however has just begun. And just as much as the day I started I can’t wait to start building this system. We have catered our appeal to the members of the investment community and the people in the industry who have been adversely affected by the overproduction. I want to add to that group the bureaucrats we have challenged over the past number of years. They’re going to need a fighter in their corner in order to make this transition happen, and they’ll need the Preliminary Specification.

Supporting People, Ideas & Objects Preliminary Specification will create an alternate method of operating the industry. One that renders the current one obsolete. We have room for the people who are the movers and shakers in the industry. Those in the administrative, accounting and operational areas. We have no openings whatsoever for bureaucrats in terms of the type of work that is done today. Based on what the current projections of the number of producers headed to bankruptcy court, there may be limited opportunities where they are now. From my point of view, People, Ideas & Objects “possible” is better than the current “nothing” in my books. And that is what is being offered today.

We have 5,000 man years of work ahead of us. Everyone in the industry is going to have to be focused on this initiative to make it successful. Even those bureaucrats who may be precluded from the situation in the future. Everyone will have a role to fulfill and a job to do. This is not going to be easy. But nothing worthwhile is.

To say that this has been a difficult battle would underestimate the time and effort that went into it. Which leads me to the question why have I spent the past 25 years doing this. In terms of cost there is nothing more that could be assessed that hasn’t been put in. Every day I wake up with this idea in my mind and every night it’s still there. Developing the Preliminary Specification was ten years of research. Taking the Joint Operating Committee and determining a business model that was viable for the producer and the industry. Detailing the system requirements for a system that meets the producer, Joint Operating Committee and industries needs. And that today is the Preliminary Specification. It seems simple now, however, it was very long hard work.

I take it on faith that there is a plan for all of us. I’m just doing my part, and in reality I enjoyed the intensity and reality of the journey that this initiative delivered. There needs to be a community spirit and a larger group of people involved now in order to make it real. The only way that is going to happen is with the cash resources of the producers. The bureaucrats have traditionally stood in our way. I’m extending an olive branch to them here today to try and take this to the next level.

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.

Third Friday Off