Our Oil and Gas White Paper, Part XVII

Accounting Voucher

We now shift our attention to the Accounting Voucher module. The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. Both being accounting modules, it is natural that they have high levels of integration. The Accounting Voucher is unique in that it brings to the producer the ability to design transactions and the Material Balance Report. These are not innovations that the producer will use to become more innovative but are provided to ensure that the innovative producers processes are actively defined and supported through out the People, Ideas & Objects application modules. When the business is a science, as it is in oil and gas, it is in the producers interest to remain open and flexible in both its scientific and business approach. The Accounting Voucher and Partnership Accounting modules provide that organizational flexibility. The manner in which these two modules operate is the Accounting Voucher captures the transactions. Partnership Accounting reports on the transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process that is familiar and traditional in the accounting world. A Joint Operating Committee will have many Accounting Vouchers each month.

We’ve noted in the summary of the Partnership Accounting module how the Work Order enabled producers to form and participate in working groups. Providing a flexibility in participating and accounting for these working groups. This flexibility is what is being sought after in the rest of the producer firm and Joint Operating Committee from both of these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to a producers innovation as much as the Research & Capabilities or Knowledge & Learning modules do.

The People, Ideas & Objects Accounting Voucher Module will provide the means for the application to “manage the disparate inter-dependencies of modularity theory and Transaction Cost Economics.” That is a summary application of Professor Baldwin's comments and theories. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the People, Ideas & Objects Preliminary Specification. What this means is that it's necessary for people to cease, by way of automation, in just processing and recording transactions and move toward the definition and design of transactions to optimize the business of the producer and Joint Operating Committees performance. Designing transactions is best described in the Preliminary Specification as coordinating the marketplace.

As a result of the pooling concept that is a basic assumption that was developed for People, Ideas & Objects Preliminary Specification. Some of the Accounting Vouchers will be open to charges from multiple producers represented in the Joint Operating Committees that a producer firm is a participant in. The revenue, capital and operations of each of the Joint Operating Committees accounts are open to the direct debit and credit charges of all of the participants in the Joint Operating Committee. The pooling concept has been developed as a replacement to the “operator” designation that currently exists. This is a necessity as a result of the ability for each producer, as a properties designated operator, to have the just-in-time capabilities available for all the properties they operate, demand that they have a surplus capacity, or as we describe them as unused and unusable earth science and engineering capabilities and capacity. The ability to pool these critical resources from participating producers of the Joint Operating Committee enables each producer to use specialization and the division of labor to expand the industries capabilities and throughput capacity and releases these hoarded unused and unusable capabilities. This pooling concept also implies that some producers will provide resources to the property in disproportionate amounts to their working interests. Therefore any over or under participation is equalized monthly through the Work Order system that enables these charges to be made. All producers need to contribute the skills, knowledge, experience and ideas that they have in an innovative oil and gas industry. Therefore each of these producers needs to have the ability to charge their earth science and engineering capabilities to the joint account. Opening a secondary revenue stream for all producers, the deployment of their earth science and engineering capabilities to the Joint Operating Committees they participate in and to other producers who may need their specialized capabilities. All charges are subject to the AFE or Work Orders budget requirements and cost control remains the domain of the producers participating in the Joint Operating Committees.

Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs. It is People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated or constrained by the administrative ease in which the producer operates. The same can be stated for the Material Balance Report. If the producer is confident that the deal that was conceived is accurately captured in the Accounting Voucher. And the operation is therefore reporting a substantial, actual profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Oil and Gas White Paper, Part XVI

Partnership Accounting

The Partnership Accounting module is a pure “accounting” module from the traditional sense, however, I think there are many attributes and concepts in this module that make it unique and of interest to everyone in the industry. The standard list of output from an accounting system is provided and this is standard fare for any software provider in oil and gas. Our user community will provide the details, data, reporting and process management that they demand from a system. As we see in the Partnership Accounting module the difference in the People, Ideas & Objects software application is substantial in that the Joint Operating Committee is managed as the partnership that it is. Each Joint Operating Committee will be provided with full financial statements, complete with depletion calculations and actual overhead, not estimates, in order to evaluate its performance to ensure that only profitable production is produced everywhere and always. It also recognizes that the costs of the property for each of the producers within a Joint Operating Committee are as unique as the strategies that are employed by those producers.

When we talk about the scope of operations that will be managed under the Partnership Accounting module I would say that it includes everything in upstream oil and gas. Simply the cut-off would be the inlet to any refinery. Let me be more specific about that from the point of view of geography and type of operation managed by the People, Ideas & Objects application. If we look at the North American oil and gas infrastructure we see a variety of oil and gas installations designed to serve both producers and consumers of oil and gas. Wells, gathering systems, gas plants, pipelines, storage facilities etc. At each point along these systems there may be additional deliveries of product, or sales of product or products inventoried. What seems to be an obvious and simple business becomes incredibly complex when it's realized that each asset may be owned by a Joint Operating Committee itself and hold product on behalf of the owners of other Joint Operating Committees. This summary glosses over the incredible complexity of this business when the volume of transactions that occur in these businesses make it an important part of the oil and gas operations.

Critical to controlling this business is the “Material Balance Report” which is a key part of the Partnership Accounting module of the Preliminary Specification. It is the central document that so much of the subsequent process activity is based upon. It acquires from the source documents the volume, contract or spot price, allocations and other data for the Joint Operating Committee and its integrity can not be questioned. If someone is to be charged for storage of butane for example, or if someone is to be charged a marketing fee for delivery of product to a customer. Or simply if a sale of a raw gas stream is deemed to have occurred at the wellhead. The Material Balance Report captures these transactions and initiates the flow of documents that need to be generated. Once this data is captured the automation of these processes can begin. It is the scope of the Partnership Accounting module that captures all of these data and activities for all of these North American facilities as its purpose. Each Material Balance Report must balance, and each reports inputs and outputs balance to other Material Balance Reports. The key to the Material Balance Report is that it provides a means to ensure that the volumes and prices etc. that are reported are factual. Which is the necessary requirement for much of the subsequent process automation, which includes any amendments.

Reviewing the Partnership Accounting module further will provide an understanding for the reasons why we are taking such a broad scope of operations into considerations. It would be an understatement to state that the Material Balance Report has been poorly served by IT. To approach it from a global perspective that includes production operations, accounting and the other areas that depend on this information would be “ideal,” however, the complexity of the business has always been in the way. The budget and engineering of software has never been available to approach the type of problem that this area presents. It exists now with the Preliminary Specification and People, Ideas & Objects. And I think that the Partnership Accounting and Accounting Voucher modules of the Preliminary Specification provides the vision of how this engineering solution solves this problem.

We also introduce the “Work Order” in the Partnership Accounting module. The “Work Order” enables producer firms to participate in informal and ad-hoc working groups to conduct studies and research. These informal groups are able to be established and formed without the traditional accounting nightmare that they’ve normally created, that are an impediment to their formation. An innovative oil and gas industry needs to have these studies and research working groups form and develop on an exponential scale in order to expand the overall science of the industry. The “Work Order” is also an internal cost control mechanism that producers and Joint Operating Committees can rely on to manage the costs, and recovery of those costs, of the producers internal earth science and engineering resources being charged directly to the Joint Operating Committees.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Oil and Gas White Paper, Part XV

Financial Marketplace

With many of the world's financial markets continuing to be illiquid and nervous about certain situations. The capital and debt markets have been very negative towards the oil and gas industry with many of the independents being shut out of those markets. The rise of the Asian Joint Venture, particularly in the LNG business, is a direct result of the inability to raise any money in the traditional capital markets. I would expect to see further fall out as the Euro / Brexit situation which seems to be far from resolved, the U.S. is deeply indebted and Canada recently achieving the most indebted citizens in the world. All of these will be demanding a lot of capital with only the quasi-government groups in Asia holding any significant amount of capital to invest.

The primary feature of the Financial Marketplace module is the recognition that there are competing interests and motivations in the industry in attempting to get things done. With different strategies and priorities being deployed by different partners within a Joint Operating Committee, is it any wonder that the financing of a project can ever fall into place. What the Financial Marketplace module proposes is that instead of the property being funded by several individual producer bankers or investors, each taking a working interest share claim against the firm. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the Joint Operating Committee. Aligning the bank and investment financing of the dynamic, innovative, accountable and profitable oil and gas producers with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, strategic, innovation, compliance and governance frameworks.

Today that may or may not be an objective or opportunity worth considering by the existing producers. However, I think that the freedom of having the attributes of the Financial Marketplace module still reside within the oil and gas market, and possibly even more as a result of the financial crisis of 2008, the destruction of natural gas prices in 2010, the beginning of the destruction of oil prices in 2016 and the oil and gas investors strike that continues since then. The demand for capital in a capital intensive industry will continue to be strong, and its supply will continue to be tight. There has been a serious cash and working capital crisis in the industry over the past three years as a result of the investors withdrawal. Making the situation the producers face untenable and most certain to lead to further wholesale destruction of all involved.

The future also requires that we’re able to provide for the markets demands for energy, demanding even more capital than before. This therefore demands that new capital structures will be necessary to lead to the overall performance of the producer and the Joint Operating Committees they participate in. We need to get our heads around this energy demand situation and start to deal with a solution. Muddling through just seems to be too much of a risk. Therefore creating a physical financial marketplace based on profitability, performance and throughput is necessary in order to realize this future. And profitability today, every day and everywhere throughout the industry during this time. Oil and gas is a mature industry, expectations that “building balance sheets,” whatever that means, and capabilities has to shift to real, tangible and actual profitability. It is estimated that the capital demands for energy over the next 25 years will require investments of $20 to $40 trillion. Based on today’s producers actions and behaviors we can see that their assumption is that the oil and gas investor will continue to provide those resources. This being a continuation of their currently employed business model that capitalizes every possible cost down to the receptionists Post-it-Notes and subsequently recognizes them over several decades. The producers current business model and assumptions of it continuing are unreasonable. What will be needed will be for the producers to turn their capital over on a basis that is competitive with other industries and what the capital markets demand there. That means they’ll need to recognize their capital costs on a very short time horizon in order to recover that previously invested cash as possibly the only source of cash for future capital investments. Having investors endlessly pay every bill while producers achieve no performance compared to what capital markets provide investors elsewhere, is over. What we seek to prove in the Financial Marketplace module, is that through its use we can provide the innovative oil and gas producer and the Joint Operating Committee with the ability to ensure that their capital structures are more efficient than what can be attained in any other system. My criticisms of the management are that the velocity at which the management operates is too slow, its innovativeness is non-existent, profitability has been non-existent for over four decades and cash is only ever incinerated, never returned. In the physical financial marketplace the pace of activity will need to accelerate in order to address these issues and our future. I think we have identified and addressed the associated issues and opportunities with these changes in the Financial Marketplace module of the Preliminary Specification.

A note about the “Marketplace Interface” that is a critical component of the Resource, Petroleum Lease and Financial Marketplace modules. The “Marketplace Interface” is a virtual representation that the user has of each of the marketplace modules. It uses avatars where firms and producers establish a virtual representation of their firms offerings. This provides a means in which people have to conduct their business virtually as well as through the traditional means. The avatars are supported through the People, Ideas & Objects ERP system that provides them with the ability to conduct any and all operations that they’re able to conduct in any of the Preliminary Specification modules. It is the ultimate collaborative interface. The following video is a demonstration of the technology by the project owners Project Wonderland. (Please review the video below.)

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Oil and Gas White Paper, Part XIV

Petroleum Lease Marketplace

The Petroleum Lease Marketplace is I think the most interesting marketplace module as its objective is to replicate virtually what the physical oil and gas marketplace is. Which of course begins with Petroleum Leases. When we’re replicating the physical oil and gas marketplace, the Petroleum Lease is the source document that is the common denominator of all activity and ownership within the industry. This is also one of the critical components of the producers key competitive advantages that include their land and asset base, and their earth science and engineering capabilities. As such it should be considered a producer facing module as its primary role. The Joint Operating Committee will also have a use for the Petroleum Lease Marketplace, however, their land position may be somewhat static for long periods of time. This is the opposite of the Resource Marketplace module which should be considered more of a Joint Operating Committee facing module where the markets resources are acquired. Any physical oil and gas asset will be attached to some lease, agreement, rights or concession granting the holders the rights and privileges of ownership, lease or rental. These are the things that are contained within a marketplace. They are what are purchased and sold, bargained and traded for, they are the things that people are recruited to provide services for. Generally a marketplace is a dynamic and evolving commercially oriented hub of activity. That is what we are replicating in the Petroleum Lease Marketplace.

When we look at the types of work that are carried out in the Petroleum Lease Marketplace we see a large group of administrators working within different areas of a producer firm. Whether it be the Land or Legal department, Production or Exploration Operations staff or Accounting people; all of these groups have an interest in the information, people, assets, documents, processes and functionality contained within the Petroleum Lease Marketplace. The primary concern of the people in these groups is the information and data contained within the module. its accuracy, access, and use by those within their firm, but also within the Joint Operating Committees that their firm have interests in. Some of this data will be similar to the data that is held by their firms partners, and much of this data will have been generated in a cooperative and collaborative manner by those partnerships.

One of the greatest opportunities that we have in developing this system is to address the division of labor and specialization. To take these people’s work and to reorganize it across the industry, so that it is focused on the needs of the producer and Joint Operating Committee and very specialized in terms of the tasks that they conduct. To apply those skills across the entire industry, a geographical region, or some other classification. Which is something that could provide significant increases in oil and gas industry productivity, overall cost savings and value. That is to say that an individual would work at an individual process that is billed to 1,000 Joint Operating Committees that might represent 100 oil and gas producers within a specific region that focuses on Shale and is geographically constrained. Specialization and the division of labor are determined by identifying and filling “gaps.” The natural process of gap filling in today’s business environment is now constrained due to the strict and unchanging structures that are imposed by today’s ERP systems. In order to make changes, to fill gaps, the producers will need the software development capabilities, user community and service providers to make the changes in the software first, then the changes in the organization can follow. These are what People, Ideas & Objects Preliminary Specification provide.

The types of documents and the associated processes that are managed within the Petroleum Lease Marketplace are somewhat self-evident. (Recall we are including Land, Legal, Production Admin, Exploration Admin, Accounting and Others in the classifications.) Most of them are created in collaboration with the participants of the Joint Operating Committee and include: Authority for Expenditures (AFE"s), Capital Budgeting (Firm and JOC), Construction Ownership and Operating Agreements, Mail Ballots, Daily Drilling Reports, management of the lease bidding process, Lease Bonus, Lease Rental, Lease Taxes, Areas of Mutual Interest are some of the forms, processes and attributes of the Petroleum Lease Marketplace module. A more detailed specification will be the result of our user communities contribution and commitments.

In Professor Giovanni Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” he notes the following three factors involved in the development of innovation.

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

• Capabilities and stimuli generated with each firm and within the industry in which they compete. 

• Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc. 

• Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.) 

The innovative oil and gas producer relies on their competitive advantages of their land and asset base, and their earth science and engineering capabilities. The Petroleum Lease Marketplace is the module that provides the producer and Joint Operating Committee with the tools to build and manage their land and asset base. But there’s more, using the “Marketplace Interface” and the service providers that support the innovative producers and Joint Operating Committees. The Petroleum Lease Marketplace provides the producer with the competitive advantages that are necessary to compete in the 21st century.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Oil and Gas White Paper, Part XIII

Resource Marketplace

What we set out to accomplish in the Resource Marketplace module is captured in this quotation from one of the primary sources of our research. Professor Richard N. Langlois and Professor Giovanni Dosi were both extensive resources for the research that was conducted in the development of the Preliminary Specification. In this quote from Professor Langlois we learn the direction that we are headed.

[I]t seems to me that we cannot hope to construct an adequate theory of industrial organization and in particular to answer our question about the division of labour between firm and market, unless the elements of organization, knowledge, experience and skills are brought back to the foreground of our vision (Richardson 1972, p. 888).

To deal effectively with the resource marketplace in oil and gas, the producer will need tools to effectively engage with the suppliers and others for the resources they need. The Resource Marketplace Module provides a window on the “Resource Marketplace” for Joint Operating Committees (JOC) and producers. Anything of value that is contracted between “actors” in the oil and gas, service, service provider, software and user community generated businesses will be found, contracted, managed, transacted and developed through this module. It's simply a virtual representation of these marketplaces. Therefore the negotiation, determination of available resources, determination of transaction costs, contract execution, effective software tools to monitor and verify compliance to the contract with the full support of the accounting system of an ERP system are all part of the Resource Marketplace module and its interfaces to other modules of the Preliminary Specification.

Similar interfaces will be provided for use by the service industries. Transactions have two parties, the efficiencies of the producers would inherently include the efficiencies to the service provider. Since we are an accounting system, then certainly offering similar services to the suppliers would only make sense. It is not just producers in the Resource Marketplace. Key to the efficiencies in the Resource Marketplace are the mitigation of transaction cost friction. Friction on both sides of the transaction, due to the fact that transaction costs in the Resource Marketplace are costs that will ultimately be borne initially by the Joint Operating Committee and eventually by the producer itself.

Contained within this virtual marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in the actual marketplace that exists today. The scope and size of the Resource Marketplace will accommodate the needs of Exxonmobil and their $250 billion annual operating costs down to the single entrepreneur starting out in the oil and gas business. To preclude any group, profession, organization, or person from the Resource Marketplace would limit the value available to the industry. To call this just a Human Resource Marketplace would be incorrect because it would limit the participants in the market. Whatever service, product or solution is provided to the energy industry, from either individuals, those employed by producers or Joint Operating Committees, or companies providing services to the producers. This should include Schlumberger and anyone directly or indirectly employed in the energy industry. Therefore acquiring as Professor Langlois suggest’s “the elements of organization, knowledge, experience and skills.”

It is the use of the Joint Operating Committee and the “Marketplace Interface” by the Resource Marketplace that provides the value to the innovative oil and gas producer. Enabling the service industry to grow thick markets for their products and services. Where a diversity of offerings from new competitors, with new products or innovations on the products provided by existing suppliers. Producers have a role in defining and supporting a dynamic, competitive and healthy service industry. However, before that happens, the need for the software that is defined here in the Resource Marketplace has to be built for the producer, the Joint Operating Committee and the service sector to support these markets. From Professor Richard Langlois paper “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups.”

The second hypothesis, which has resonances at least as far back as Gerschenkron’s famous “backwardness” thesis (Gerschenkron 1962), is that the way an economy responds to the problems of coordinating economic development depends not only on its own institutions and capabilities but also on institutions and capabilities elsewhere. It depends not only on an economy’s own history but on the history of other economies as well. The force of this observation is that an economy at the frontier of economic development (however we care to define that) is likely to respond to the coordination problem differently than an economy lagging behind that frontier. Specifically, an economy at the frontier is arguably more likely to rely on decentralized modes of coordination. This is so because uncertainty is greater at the frontier — uncertainty about technology, organizational form, market direction. p. 18

The division of labor and specialization play a large role in the Resource Marketplace as well. By outsourcing many of the administrative functions from the producer firm to specialized service providers who provide the People, Ideas & Objects software and process management to the producer firms. The producer firm is able to focus on those core competitive advantages of their land and asset base, and their earth science and engineering capabilities. Having the land, accounting, production and other administrative functions sourced through the Resource Marketplace by specialized service providers.

With this change in the administrative function of the producer firms we are able to transition from the “high throughput production” model to the “decentralized production” model where production and overhead costs more accurately match revenues. As a result we are able to initiate pricing related production decisions that better manage the producers oil and gas reserves, ensuring profitability everywhere and always. What this means is with the service providers focused on their process, such as production accounting, they will be engaged by the Joint Operating Committee not the producer. When the decision is made to temporarily suspend production, the associated costs of production accounting and other accounting, administrative and overhead costs will not be incurred. Moving from a reliance on the producers fixed administrative and accounting capabilities to the industries variable administrative and accounting capabilities. The Preliminary Specification turns all of the producers cost variable, based on production. Please see the Preamble for further definition of the decentralized production model. Lastly I would point out the Resource Marketplace module is an active participant, as is the Petroleum Lease and Financial Marketplace modules, in the “Marketplace Interface” which will be discussed further in the other Marketplace modules of the Preliminary Specification.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Oil and Gas White Paper, Part XII

    A quick note about software

All of these components of our competitive advantage require the software known as the Preliminary Specification to be built and operational. As we’ve learned in the Preliminary Research Report (2004), software defines and supports the organization. What we also learned at that time was the producers response to that knowledge was they would not change their software, and hence, there would not be a threat to the manner in which they managed the oil and gas producers. This has been the policy of the producers since that time and they’ve been able to ensure that they’ve been handsomely compensated at the expense of everyone else in society. We believe the current bureaucracies within the producers are only riding out the last few minutes of their prosperity before they exit. That would be consistent with the history of organizations going back to the 1930’s. Without the software to run the industry and producer firms profitably, as described in the Preliminary Specification, it will not happen. We have declared the economic concept of spontaneous order null and void as a result of the role that software occupies organizations in the 21st century. In order to change the organization you must change the software first. Otherwise any attempted changes will only see the organization regress back to the way that the existing software manages the organization. This provides further support for the defined software development capabilities that People, Ideas & Objects are offering with our user community who hold the power and control necessary to make changes to the software and services used in oil and gas. Without these oil and gas will remain stagnant.

Hosting of the People, Ideas & Objects Preliminary Specification applications and modules, and Oracle modules, will be via cloud computing architectures. This provides a more cost effective solution to the industries needs as the budget requirement for hardware and support will be on an as used basis. We will also have the resources and capabilities to meet the producers demands of our software during month-end closing etc. In addition throughout this sub-industry that we’re creating between the Information Technology firms and the producers. We will be using Google’s Apps for your Domain based applications and collaborative environment. These enable us to be far more flexible and productive in the tasks that we need to undertake.

These are a summary of the six aspects of our competitive offering for the oil and gas industry. They are structured to provide the producer and industry with a profitable operating base in which to approach the 21st century. However, what we know is that by using the Joint Operating Committee, the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. We enable our software to approach and undertake the administrative, accounting and operational issues that the industry faces today and for the future.

Security & Access Control

What we have with using the Joint Operating Committee (JOC) as the key organizational construct of the innovative oil and gas producer. Is the interactions of many producers and suppliers who are involved in the day to day commercial and strategic concerns of a Joint Operating Committee. What we need to concern ourselves within the Security & Access Control module is that the right people have the right access to the right information and data with the right authority at the right time and at the right place.

Throughout the Preliminary Specification we discuss one of the premier issues of the oil and gas industry. That being the demand of the earth science and engineering effort is increasing with each barrel produced. This is best represented in the steep escalation of exploration and production costs involved in oil and gas. At the same time the critical earth science and engineering resources are somewhat fixed and are difficult to expand in the short to medium term. Add to that, an anticipated retirement of this brain trust in the next twenty years, the depression we are in is stalling the careers of recent university graduates, the expected production profile of the North American continent and the problem becomes of critical concern.

There are few short term solutions to the short fall in geologists and engineers over the next twenty years. It takes the better part of that time to train them to operate in the industry. What we do know are several “things” that are being applied in the People, Ideas & Objects Preliminary Specification. Key to a number of concepts application are what we call the Military Command & Control Metaphor. Which is a method developed in the Security & Access Control module of imposing command and control over any and all Joint Operating Committees, working groups, producer firms or organizations the producer may need to add structure to.

The concept of specialization and division of labor is well known as a principle of economics that brings about greater amounts of economic productivity from the same volume of resources. Given that the volume of earth science and engineering resources are known for the foreseeable future, specialization and the division of labor will provide us with a tangible means in which to deal with the productivity of the oil and gas industry. In today’s marketplace to approach a heightened level of specialization and division of labor, particularly from a scope and scale point of view, without the use of software to define and support it would be downright foolish.

The pooling concept is the solution to the current desire that each producer firm acquires the earth science and engineering capabilities necessary to deal with all the needs of their “operated” properties. This creates unneeded “just-in-time” capabilities for these scarce scientific resources. When each producer within the industry pursues this same strategy substantial redundancies are built into the industries capabilities. Redundancies that are left unused and unusable. What is proposed through the People, Ideas & Objects software application modules is that the producers operational strategy avoids and eliminates the “operator” concept and begins pooling technical resources through the partnership represented in the Joint Operating Committee. That way the redundancies that would have been present in the industry can be made available to the producers and used by the producers through an advanced specialization and division of labor.

What these concepts require therefore is what the Security & Access Control module is designed to provide. The system must provide the right access to the right person at the right time and the right place with the right authority to the right information. With the Military Command & Control Metaphor there will also be the manner in which the technical, and all the resources that have been pooled from the producers, interact with an appropriate governance and chain of command within a Joint Operating Committee that spans many producers.

Oracle’s products provide a strong layer of mission critical capabilities in the Security & Access Control module. Although this comes with additional costs, I am certain that no one will argue with the quality and secure knowledge that these products bring. I also am proud that I maintain the two ugliest websites in this blog and our wiki. This is for two reasons the first being, I’ve provided a solution to what I see as the issues to oil and gas without any support from the producers. On the contrary it has been a protracted and ugly fight since August of 2003. If the best ideas are being expressed on the ugliest websites I hope the bureaucrats are adequately humiliated. Secondly these sites are both hosted by Google. Which provides me with a technical infrastructure that is more or less impenetrable from a security point of view. Our websites are not generally allowed past the producers firewalls but they also are not subject to any denial of service attacks or malicious behavior. As far as I’m aware we have a 100% up time record. By using Oracle and Google in the configuration for the sub-industry and also the delivery of our products we gain the same kind of advantages from a security and access control point of view.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Oil and Gas White Paper, Part XI

   4) Innovation for Profits

As the fourth element of our competitive advantage of providing the innovative oil and gas producer with the most profitable means of oil and gas operations. We focus on innovation as the way in which to enhance the profitable nature of the producer and to ensure that the consumers cost of energy is as low as it can be. Innovation for profit, particularly from the science basis of the business, is the successful perspective for the 21st century oil and gas producer. It is within the DNA of the Preliminary Specification how the processes of innovation are identified and supported that enhance the ability of the innovative and profitable oil and gas producer. From Professor Giovanni Dosi.

In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.

With an inventory of oil and gas assets that are non producing. The dynamic, innovative, accountable and profitable oil and gas producer will have readily available properties to focus their innovations on.

    5) Lower Costs of Exploration & Development

The oil and gas industry needs a dynamic, innovative, accountable and profitable service industry in order for it to be dynamic, innovative, accountable and profitable. In the brief moment that we’ve had “good times” in the industry, producer firms accused the service industry of being greedy and lazy due to the high field costs that were being experienced. Today the service industry has had their activity levels slashed and their accounts receivable extended for up to 18 months by the producers. A situation that puts their organization, unnecessarily, in jeopardy. There is substantial conflict between what is required and what exists. The Preliminary Specification works to mitigate this conflict by addressing the issue of how the producer firm deals with the generation and management of ideas in the service industry. Currently the producers ignore and abuse the rights and ideas developed by the vendors that they use. And as time has passed, the number of companies that have initiated new products, services and competition have dwindled. Leading to the situation where the producers have a limited number of very large service industry participants who have the pricing power on their side during the alleged “good times.”

It is through the Preliminary Specification that the producers begin to respect, sponsor and support the ideas generated by the service industry. Oil and gas producers do not compete on the basis of drill bit manufacturing technologies. It is on the basis of the respect by producers of the service industries Intellectual Property that will enable service industry representatives to respond with new and innovative products, services and competition. Through a variety of interfaces in the Resource Marketplace and Research & Capabilities modules the producers are able to participate and lead the creation of new and better products and services by clearly expressing their needs and allowing the service industry to respond.

When the oil and gas industry has a dynamic, innovative, accountable and profitable service industry supporting the oil and gas industry then the profitability of the oil and gas producer will be enhanced, further contrasting People, Ideas & Objects business model to what the current bureaucracies may be using today.

    6) Earth Science and Engineering Resources

The Preliminary Specification recognizes and supports the dynamic, innovative, accountable and profitable oil and gas producers competitive advantages of their land and asset base, and their earth science and engineering capabilities. It is through the use of innovation, specialization and the division of labor that we leverage the earth science and engineering resources of the producer firm. As with the fourth and fifth point above, investments in innovation are undertaken with the express intent to return a profit. Innovation on the sciences of oil and gas are part of the producers competitive advantages and are therefore the express purpose of the modules within the People, Ideas & Objects Preliminary Specification.

In terms of specialization and the division of labor, the producer firm must approach the issue of the pending limited base of earth science and engineering resources. Pending due to the retirement of the brain trust of the industry, the lack of new hires from the universities, the expected throughput increases in North America and the ever increasing demand of geology and engineering with each incremental barrel produced. People, Ideas & Objects have developed the pooling concept to eliminate the unused and unusable surplus capacity of these resources that are trapped within the silo’s of each bureaucracy. In addition we have used specialization to reorganize certain skills within these professions to service providers who can specialize in the specific skills. It is with the pooling, specialization and division of labor that the demand for engineers and geologists will be more manageable. This organizational structure is identified and supported throughout the Preliminary Specification.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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

Our Oil and Gas White Paper, Part X

This post reflects my approach to writing this paper, and the difficulties that I’m making for myself. The randomness of the order and presentation to this point is not necessarily what it will be in the final edited position paper. There is significant material that needs to be included in this paper. And the means in which the full scope of this material is not necessarily top of mind when it’s written. The following number of posts is a rewrite of the Preliminary Specifications Executive Summary. I will also be rewriting the Abstract and Preamble during this process.

The Preliminary Specification is a twelve module ERP (Enterprise Resource Planning) software system designed for the dynamic, innovative, accountable and profitable oil and gas producer. It uses as its key organizational focus the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the industry. By moving the compliance and governance of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve a speed, innovativeness, accountability and profitability that is necessary for at least the next twenty five years.

Keep in mind while reviewing the Preliminary Specification that it is People, Ideas & Objects claim that we provide the oil and gas producer, as our competitive advantage, the most profitable means of oil and gas operations. And we do this in the following six fundamental ways.

    1) Our Value Proposition

The Preliminary Specification provides the most profitable means of oil and gas operations. We have quantified the value of the difference between our system and the status quo at $25.7 to $45.7 trillion over the next 25 years. These are as a result of the ability of producers to avoid any losses on operations by knowing precisely which properties are losing money and which ones are profitable. Something quite remarkably they are unable to determine today. Then they’ll be able to shut-in any losing properties leading to the dynamic that is discussed below in item 3.

    2) Specialization and the Division of Labor

If we review the Preliminary Specification there is a defined restructuring of the industry that takes place throughout the modules. The oil and gas producer is a stripped down version of itself that has the C class executives, earth science and engineering resources, land, legal, and minor support staff. And that’s it. The rest of the administrative and accounting resources of the producers are reallocated and provided by service providers. And each of these service providers are focused on one process, or one element of a process using the industry as its client base. So for example there would be one lease rental payment processor that handles all of the industries lease rental payments. Where the cost of the lease rental payment, and the billing for the lease payment service provider is billed directly to the appropriate Joint Operating Committee, not the individual producer. We are moving from the reliance on producers fixed administrative and accounting capabilities to a reliance on the industries variable administrative and accounting capabilities.

The advantages of moving to a system and methodology such as this is its lower cost and efficiency. The costs associated with the lease payment processor would be a small percentage of what is incurred by the industry today. By focusing on the most efficient way to process lease rental payments, and only lease rental payments, the service provider would become specialized and reduce the time and effort in administering these tasks to a small component of the costs incurred today. Around 1776, in Adam Smith’s pin factory, his research yielded a 240 fold increase in productivity from the changes that he made in the process of making pins. Having the lease rental payment process, and most particularly the administrative and accounting processes of the oil and gas industry subject to this type of analysis, complete with a software development capability as proposed by People, Ideas & Objects, similar results in productivity would be attained. All economic growth since the late 1700’s can be attributed to enhanced organization through specialization and the division of labor. Society today requires software to define and support any enhanced version of specialization and division of labor. People, Ideas & Objects software and our software development capabilities are critical capabilities for the oil and gas industries performance and future growth.

    3) Capability to Remove the Marginal Production and Become Price Makers

With the high costs associated with exploration and production, and particularly shale, it’s no surprise that producers are reporting losses on operations. What is surprising is that producers have done nothing to mitigate the chronic and systemic overproduction that has caused the decline in oil and natural gas prices. The reason for this chronic overproduction is the producers have to generate the revenues to cover the overheads they incur in what is called the “high throughput production” model they employ. This model has the overhead costs of the producer firm being incurred whether there is production or not, and as a result, it makes their operation a high cost operation, even at full production. At lower production volumes it skews their earnings and their overhead costs appear out of place.

In the Preliminary Specification we have employed the “decentralized production” model. As we mentioned in the second point above, the service provider charges for their services directly to the Joint Operating Committee the costs of their accounting or administrative service. If the property is shut-in due to low deliverability, high costs or other reason then there is no charge incurred for the overhead item by any of the individual service providers as they’ve conducted no work on that property, and neither the producer or the Joint Operating Committee are incurring any of the accounting or administrative overhead during times of shut-in production. Therefore the only costs that are not covered during times of shut-in production are the costs of capital. The producer can therefore shut-in unprofitable production based on an accurate, detailed accounting and attain their highest level of corporate profitability by not having their losing properties diluting their profitable ones. They can save those reserves for a time when they can be produced profitably. Those reserves will not have to carry the incremental costs of subsequent monthly losses that need to be recovered in the future. And finally, by keeping that unprofitable production off the market those commodities will find their true marginal costs.

If producers across the industry follow this process then oil and gas prices would not have the significant declines that we’ve experienced in the last number of years. If the downswing in oil and natural gas prices were averted by way of a reduction in unprofitable production volumes, the total revenues and profits of the industry would provide for profitable operations everywhere and always. People, Ideas & Objects believe we have a responsibility to use oil and gas resources effectively, and that implies that we at least produce them profitably from an appropriate accounting basis. Producer bureaucrats claim this is collusion and have used that as an excuse to lose effective control of the financial, operational and political frameworks of the industry. They will not listen to the fact that making effective, independent business decisions based on actual, factual accounting that determines profitability is not collusion. As a result they have destroyed the industry and are unable to provide an alternative strategy or plan to deal with the issues and opportunities they face.

 The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Oil and Gas White Paper, Part IX

Service providers are independent and are not concerned if its Exxon or a startup that is the owner of the property that they’re billing for their services. Understanding that the service providers will be limited to the data elements that will be necessary for them to manage the process they’re responsible for, it is doubtful they’ll know which client it is they’re charging when they issue their billing to a Joint Operating Committee. Their concern is the efficient and effective management of the process that they’re exclusively responsible for. If a producer does have an issue with their service they’ll know who to contact, the user community member that heads up that service provider. That member of the user community will have the power and the tools necessary to deal with the issues and opportunities that the industry may have as a result of any changes or defects in the software or process the service provider manages. As we always say in today’s current software environment, who do you go to see when your current software solution is not as it should be?

Consolidation within the industry is a symptom of creative destruction. Startup oil and gas producers have been extinct for many years now. Another symptom. We see Anadarko throwing in the towel and many of their fellow intermediates believing, hoping, and anticipating, that they may be the next intermediate to be poached. Shell, BP, Exxon and Chevron will survive because that is what they do. That doesn’t make them efficient. If Exxon undertook the development of a system to provide the industry with ERP applications would Shell, BP or Chevron be interested? Of course not and the same would go for any of them. It is the independence of this sub-industry that People, Ideas & Objects are creating and their independent approach to the technical aspects of the accounting and administration of oil and gas that makes it useable by each and every producer no matter what their size or configuration. Startups won’t care that Exxon uses it and has, as a result of their production profile, paid the majority of the software development costs through our coin holders levy. The independent nature of our “sub-industry” is an attribute that all producers, that is the ones that will still be around, will appreciate when our coin holders have funded the Preliminary Specification.

The giddy nature of the producers during AGM’s is something we’ve seen each year. We’ve also seen strong stock performances, particularly in 2019 due to the high price of oil and what I suggest is the previously dedicated allocation of stock buybacks. We’ll know which one of these attributes is responsible for this bullish activity when the second quarter of 2019 is reported. The global oil price may be high but natural gas prices are not. In fact differentials in North America are creating continental oil and gas prices that are truly shocking. For the producers shares to rise on the basis of oil and gas prices would assume that the producers are realizing global prices and we know that is a false assumption. Differential are also not a short term trend as it is implied when the producers do nothing about them or to even recognize them. A few weeks ago in the Permian natural gas prices dropped to their all time low of $5.95. That’s correct negative $5.95. Paying people that much to take your gas is a viable solution to what ails the industry. It is also understood that within the Permian and North Dakota there are 1.5 bcf of gas that is being flared on a daily basis. That’s enough gas to fuel all of Texas’ residential requirements. So yes, your producer firms are on the job and yes, it is almost 100% certain that any bullish share activity is attributable to the one buyer authorized to purchase their own shares.

Chevron purchased Anadarko in order to increase its footprint in the Permian. They expect to increase their production profile there to 900,000 boe / day. So yes we now know that the lessons of the oil and gas investors have been fully heard, understood, comprehended and implemented. Nothing of the sort, the purchase of Anadarko disproves that in a myriad of ways. First Anadarko has lifetime earnings of $910 million based on the specious reporting conducted throughout the industry. If you took our recommendation of the pro forma adjustment of what the real earnings situation would be, our adjustment is to correct for the unrecognized capital costs of past production by moving 65% from property, plant and equipment to depletion, we believe these are the unrecognized capital costs of past production and are not assets, Anadarko would then have a pro forma, cumulative, lifetime adjustment in the amount of $17.7 billion. An amount that is twice as much as their current shareholders equity of $8.5 billion. Therefore they have a lifetime retained loss of $9.2 billion, after all the investors money was destroyed. This is what you paid $33 billion for? The fact is the industry is valued based on reserves. The purpose of the industries activity is to create reserves. Profitability is unknown, unheard of and irrelevant to the producers. Its all about cash flow of which Anadarko had $6 billion in 2018. Earnings will come after all the reserves are built out and the properties are all engineering marvels that make it on to the cover of Scientific American. No these losses are culturally ingrained and are the results of the methods the industry operates on and have been in place since the late 1970’s. No one in power today understands the situation is in crisis, otherwise why would they spend $33 billion? In order for bureaucrats to make the necessary changes to deal with the losses they don’t see or realize are happening, these necessary changes will never come about as a result of the culture and organizational stagnation that exists. They just don’t understand and for the industry to make the transition is counter to the bureaucrats best interest. Creative destruction is therefore the only solution. What we are experiencing in Chevron’s acquisition of Anadarko is an understanding between the bureaucrats who manage these producers, that the value will be based on reserves. That way the ponzi schemes can continue to report that they’re generating value. Why else would you spend $33 billion?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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.