We Are on Trend Here Too

I have two articles today that show that we are on trend in terms of the implementation of our technological infrastructure. The articles are from McKinsey and from Forbes. Both speak directly to the type of activity that we are applying here at People, Ideas & Objects to the oil and gas industry.

The first is the Forbes article which was published on January 27, 2015 and is quoting Mark Hurd who is the CEO of Oracle. As you are aware we are using Oracle as our infrastructure provider and recently made the decision to use their cloud based offering to support our development environment, and the hosting of our software to the oil and gas industry. Here is how they think the market will develop in the next few years.

He said that Cloud applications will account for 50 to 60 percent of the total enterprise application market within 5 to 6 years because of advantages related to speed of development of new functionality, easier implementations and much, much easier upgrades.

This is not a significant revelation to anyone and I think he might be underestimating the size of the marketplace changes in that short period of time. The important element of the discussion in the Forbes article comes later when he talks about the unique requirements of cloud computing and what kind of approach that requires companies to take.

Steve Miranda, the Executive VP of Development at Oracle, said that because of these advantages, “It is not a question of ‘if,’ it is a question of ‘when,’ all new applications (from all enterprise vendors) will be delivered in the Cloud.”

Miranda made the point that to fully leverage all the advantages inherent in the Cloud, applications need to be rebuilt from scratch rather than just hosting existing applications.  In particular, the Oracle applications were rebuilt to: first of all, support frequent updates, through the use of more metadata; and secondly, to reduce the need for customization by building out Platform as a Service (PaaS) capabilities that allow extensions to the SaaS-based Cloud applications to be built and thus allow for protected upgrades.

Industry and producers need to rewrite their applications in the coming years “from scratch” in order to realize the value of the coming new technologies. At least that is how I interpret those statements. And I agree with the statement. The current crop won't do for the future. What better way to do that application rewrite than with a value proposition who’s present value is in the $5.7 trillion range.

I like to keep these posts down to small bite sized format. Have each day with something tangible for my readers to digest. Therefore to add the McKinsey article here would violate that need. So I'll be putting that up in Part II tomorrow.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Why is Our Budget so Large

In a world where there’s a $3.99 app for that. It seems odd that People, Ideas & Objects needs such a large budget in order to build the Preliminary Specification. Why not just an app on a phone and be done with it. If that were the case you would have the choice of 3 or 4 apps to choose from already. The difficulty is in the level of change that we introduce into the industry. The impact of that change and how it affects the people that work within the industry. The wholesale changes that we are making to the producer firm and the industry. And the need for these changes to be made in order for industry to function profitably in the future. This requires the level of commitment in terms of the financial resources detailed in our budget. However, this commitment is supported by the value proposition that is realized once we make these changes.

The change dynamic that we introduce is that the Preliminary Specification identifies and supports the industry standard Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer. When we do this within our system, everything within the industry is affected by this change. Not one element of the producer or the industry is unaffected by moving from the current corporate model to the Joint Operating Committee. It therefore invokes the need for a complete review of all aspects, the interactions and systems that are used by the producer firm, service and oil & gas industries. People, Ideas & Objects becomes an operating system for the industry. That is a very appropriate description of what the Preliminary Specification does.

At the same time we are only moving the compliance and governance frameworks of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee. This is the paperwork that consumes the bureaucracies time and energy today. Once we have attained this alignment within the People, Ideas & Objects software the producer and the industry will realize a speed, innovativeness, accountability and profitability over the current situation. It is those frameworks of the Joint Operating Committee that are the foundation of the industry and it those frameworks that none of the current ERP systems identify or support. It is the result of our research that we were able to determine “what” and “how” a producer and industry would operate, that People, Ideas & Objects can bring you this offering. This is the cornerstone of our Intellectual Property and available only here.

Others may be able to determine other ways in which to organize the producer firm and the oil and gas industry. If so they can spend the time and energy that I have spent in developing People, Ideas & Objects Preliminary Specification. This multi-decade investment will pay off when the industry funds the initial development costs through Intellectual Property royalties to myself, and corporate profits for the firm. These are the costs of business in the 21st century. These Intellectual Property costs are also contrary to what the industry has been willing to pay for in the past. However, they have a choice, to continue on with their losing ways or realize the value proposition that we offer by funding our budget.

Therefore it is change on a wholesale level throughout the industry and Intellectual Property which are the real costs that make our budget the high cost that it is. There is nothing that can be done about either element of these budget categories and I'm sure it will cause much discussion and pain for the bureaucrats to ever have to fund this. In the mean time we can just keep score with the amount of money they are losing, the loss in their market capitalization and their loss of hope for the future. Its important to remember that bureaucracies never change. It is impossible for them to do so. That is why we are appealing to the oil and gas investor to direct their producers to fund People, Ideas & Objects so that they can remove the bureaucracy and replace it with the Preliminary Specification, our user community and service providers.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Some Issues Past and Present

Over the past number of weeks I have suggested that the volume of discussion regarding the profitability situation in oil and gas is rather poor. That there is very little in terms of the issue and certainly no one is discussing any solutions to the problem other than idling rigs. Which of course did a world of good and has ceased the decline in natural gas prices over the past five years. One thing you should note about this lack of discussion. Is that the bureaucracy has not offered any criticism of People, Ideas & Objects Preliminary Specification. You would think that a system that was unable to solve a problem or be unable to function would be riddled with holes from the criticisms of those that were challenged by that system. It would seem to me that there is no discussion as there is no criticism of the People, Ideas & Objects Preliminary Specification that they can offer. I wonder why that is?

One thing that can be stated for certain is that I have been at this for a long time. It’ll be 24 years in May 2015. Each of these years has been a great adventure. The turning point for me to start this firm was in May of 1991 I was doing an audit at Imperial Oil and suddenly I saw an opportunity that was so obvious, so possible and so complete that I had to take the chance to make that opportunity real. It really has been an attempt by myself to communicate that vision of what I saw in May of 1991 and make it real.

Another turning point came when I had to find a topic for my thesis for my MBA. Thinking that it would have to have something to do with this business I thought hard about what it was that was so different in that vision of 1991 that is different from today’s industry. And it was the use of the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer. I therefore wrote my thesis on that basis and set up the hypothesis for a long term research project. If the Joint Operating Committee was the key organizational construct of the dynamic, innovative and profitable oil and gas producer. “What” would it look like, “how” would it function, and “how” and “what” would the industry operate? That was May 2004 and this research could be done in a couple of quick sprints and that would be that.

The final edited version of the Preliminary Specification was published on December 20, 2013. That was only eight years and seven months. So a quick sprint is the equivalent of four years and three and one half months. The key was we now had a product. One that solved the administrative, accounting and operational issues and opportunities of the industry now and for the future. One that provides the industry with a dynamic, innovative and profitable footing for its long term health, and for society and individuals too. What was personally so difficult was the work was hard. The hardest work I could have ever imagined. A million things didn't work. And what made it harder was the fact that I was run out of town when I published the May 2004 Preliminary Research Report which was my master’s thesis. This told the bureaucracy I was gunning for them and they fired the first of many shots from then on. So although I don't pretend to hide my dislike of the bureaucracy here, it is personal. This could have been a lot easier.

The bureaucrats might be concerned that I will quit my pursuit of this project. Why when we’re just a few quick sprints away from completion. Compared to the early days, life is just a breeze. There was so much missing in 1991, like the Internet and the Information Technologies that we are using now. Fully mature technologies that weren't even thought of back then. This vision from 1991 only became technically practical in the past five years or sooner! The issue for the bureaucrats is that the only impediment to our future is them. And we have overcome much larger difficulties in these past 24 years.

Nonetheless our friends the bureaucrats have destroyed the business so fundamentally it makes this work more valuable. Did I ever mention that we have a value proposition in the trillions of dollars. Run it yourself. Take the present value at current rates of an annuity of $350 billion and you come up with around $5.7 trillion that industry can earn by using the Preliminary Specification through to 2040. But don't tell the bureaucracy, that will only upset them.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Scaling Up and Down a Producers Productive Capabilities

There are few solutions being discussed in the oil and gas industry regarding the commodity prices. This week we have had a look at what the shale based reserves unique characteristics are. And spoke about the motivation of the producer to involve themselves in increasing their levels of shale based reserves. When shale based wells are drilled the producer is rewarded with substantial reserves to increase the value of their firm for their shareholders. The downside is the commodity markets continue to be flooded with more production that collapses the prices producers receive on those reserves. The motivation to increase their reserves will continue to persuade producers to keep drilling no matter what the commodity prices are. What is needed is a method of production allocation of those reserves to ensure that only those properties that can be produced profitably are put on production. That way commodity prices will find their marginal cost and lead to a healthier industry.

With People, Ideas & Objects Preliminary Specification high levels of drilling activity will be undertaken. When producers shut-in production they will have an inventory of shut-in properties in which to focus their innovative energies to bring their costs down, increase their underlying reserves or increase their production throughput. Then when they achieve one of those objectives they will be able to return the property to profitable production and increase their daily deliverability. This is how a producer needs to operate. And with the decentralized production model the producer will be profitable at any level of their capacity. Whether they are at 50%, 80% or 100% of their capacity, as long as they hold to the principle of only producing profitable properties they will have a profitable operation. Unlike today where at 100% capacity, all producers are creating massive, systemic and terminal losses with a business model that has ceased to function.

The People, Ideas & Objects Preliminary Specifications decentralized production model functions in a manner that is consistent with the characteristics of the shale based reserves. If shale exists in the marketplace, with its unique dynamics, a new business model must provide a means for the producers to use. The decentralized production model gives the producers this business model by reorganizing the producer firm and the industry resources in a way that enables the producer to operate profitably at less than 100% capacity. By reducing the prototypical producer to the C class executives, the earth science and engineering resources, some land and legal, and support staff. The remaining and quite sizable administrative and accounting resources are reallocated to service providers who focus on one individual process and have the entire industry as their client base. They then bill for their services, based on activity, to the individual Joint Operating Committee. Making the administrative and accounting resources an industry wide capability that is a variable cost to each Joint Operating Committee.

As a producer operates their properties based on the profitability of the production. Those that are located in the shut-in inventory are not billed anything from the service providers for any administrative or accounting costs. Since those properties are idle they are not creating the work for the service providers and as a result, no work and no billing is generated for any of the service providers for that month the property is shut-in. The property will record a null operation, no profits but also no losses. Only the costs of capital involved in bringing the property from the shut-in inventory back into production will be incurred. This relieves the burden of what producers are doing today by producing at capacity. Producing profitable properties and unprofitable properties which wipe out the profits of the firm.

The ability to scale up and down the producers level of capacity at anytime based on the commodity prices is something that will be necessary for every producer to assess each month on each property. If the commodity prices are unable to support the property, then it should be shut-in the following month until either prices recover, or the property has some innovation that brings it back to profitability. And when we calculate the properties costs in the Preliminary Specification it will be the actual costs. Not an estimate based on what an analyst thinks the margin is in the general area of operations. It will be the actual revenues, less royalties, less operations and include the administrative and accounting costs. The full costs of the property in terms of what it costs to produce. A fundamental shift from what is done today. Ask a producer what the specific costs are for a property down to the actual administrative and accounting costs and you'll get a deer in the headlights kind of stare back. Not one producer anywhere in the industry can answer that question. And that is kind of sad, isn't it? I'm sure they'll respond to you saying that their administrative and accounting costs are not that significant. And you can ask them what the “total” G&A that was capitalized last year. Then that deer just can’t jump out of the way fast enough.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Why Don't Bureaucrats Do Something?

As an investor in the oil and gas industry. I would be concerned with the level of discussion occurring in the marketplace. That there is generally little to nothing being discussed anywhere regarding the business of oil and gas. There are a lot of talking heads that impart their understanding of what is going on. And it is clear from their recommendations and analysis that they have no clue how the oil and gas industry operates. They seem to be chirping what they heard some other analyst heard from another analyst. What is disappointing about this discussion from an investor point of view is that now is the time in which the bureaucrats have to be on their best behavior. Leading up to the annual report and annual general meeting season is the time when the investors do have some influence over the bureaucrats in terms of what is going to happen in the future. Once the annual general meeting is over. The bureaucrats can implement operating procedure number one and ignore anything from the outside. That is until about this time next year.

Since there is no discussion about the situation in oil and gas there is not going to be any changes made in the producer firms as a result of the losses that are being incurred from the low oil and gas prices. A continuation of the status quo will be the end result and maybe some wholesale layoffs will be announced just to make it look good for the historical record. A sad state of affairs in my opinion. What is needed is change in the business model of the producers or we'll see more of these losses and eventually, what I think will happen, the moving on of the bureaucracy to greener pasture in other industries, or wholesale volumes of retirements. When was the last time a bureaucrat stuck around to take a licken and push through the pain of the destruction they caused?

The effect that this leaves People, Ideas & Objects in terms of funding its budget is that it is “sol” for another year or more. The ability to foresee our project being pushed through by the bureaucracy doesn’t exist. It has to be done by someone with a vested interest. The investors are the only ones with that interest as they are being sacrificed in this environment. They are the ones whose heads are on the line. I don't expect them to put their own money into People, Ideas & Objects but to have them influence their producer firms to fund us. This can only happen when they have some influence over the bureaucracy. And that time is generally late January to late April. However there has to be a level of discussion ongoing in the marketplace about the scope of the problem and the need for a new solution before we can hope to be funded. And we are no where near that level of discussion that there is even an issue in the marketplace! Its a dead zone. Everybody must have so much money that no one ever has to care anymore.

Of course I've been in this situation before. And when the s*$% does hit the fan is when people turn to me and say “lets see what you've got.” Expecting me to roll a fully tested industry wide ERP system that is ready to go. I've made it clear that the budget needs to be funded. And that budget will go to the development of the system, user community and service providers. With the scope of that budget it is fair to impute that it will take some time in order to implement these plans and build these requirements. We do have several years of hard work ahead of us. Of course we all understand this. This is business. All businesses have budgets and plans and proceed on that basis. Businesses also have revenues to ensure that those plans are enabled. People, Ideas & Objects have never had the support of the bureaucrats. They see the end of their franchise in the Preliminary Specification, therefore we have never had revenues. So don't ask me what I’ve got expecting me to have much more than what is on display.

Then I'm sure we'll be funded in an appropriate time frame that provides us with the opportunity to solve the industry issues in a timely fashion. I'm just not certain that this is the year or the time. I could be wrong, but there doesn't seem to be anyone too worried about the state of affairs in the oil and gas business these days. Its like the bureaucrats don't care! Which is interesting don't you think? If the apocalypse does occur, they’ll just leave, but to do something productive to stop that from happening is beyond their scope of interest.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Record Production, Record Inventories Part II

The impressive nature of yesterday’s natural gas production from shale gas reserves showed the prolific capabilities of these formations. Growing from almost nothing to 55% of the U.S. natural gas production in less than a decade is impressive. Today’s graph is no less impressive. It shows the history of U.S. oil production and the impact that shale (tight oil) based oil production is having in the U.S. See any similarities? I frequently point out that People, Ideas & Objects should be considered in light of the fact that the industry needs a new business model in which to operate for the next quarter century. One that deals with today’s issues and opportunities. That includes the new technologies like the Internet to disintermediate the bureaucracy. I think however there is a compelling argument that there is a need to have control over the power of these shale based formations as the one priority of the industry for today. Here is the graph of oil production from econbrowser.com

It won’t take long for the oil production from shale to emulate yesterday’s graph of the natural gas side of the business. How many more years before the tight oil production is 55% of the productive capacity of the United States? Certainly we have seen producers reduce their capital expenditure programs, and the number of rigs that are being used is down. However, these are very blunt tools that have limited effect. It is safe to assume that the same tools were applied to the natural gas business in the past five years and still the productive capabilities of shale gas grew to 55% of the deliverability of the U.S. What is needed is a new business model. One that eliminates the bureaucracy. That allocates production based on the profitability of the property. And uses the Internet and Joint Operating Committee as the replacement organizing mechanisms to the bureaucrats.

The prolific nature of these formation exposed on a go forwards basis for the next 25 years, the lifetime of People, Ideas & Objects in its current form. Will provide for energy independence. However the destruction to the commodity markets will also bankrupt everything in sight. A need to incorporate a new business model into the industry should be obvious. This isn't being discussed by the bureaucrats. They only want to continue on in the same fashion as before, albeit with a smaller workload in terms of their capital expenditures. If they were to work on People, Ideas & Objects that would require significant effort on their behalf and only accelerate their retirement plans. All unnecessary and extreme in their opinion.

What we have seen in these last two blog posts is that shale brings a new dynamic to the industry. At the same time the search for shale is the real prize. Most producers who aggressively approach that side of the business can soon book 2 tcf of gas or more. The equivalent of the lottery. So although they may say they're reducing their capital expenditure programs, the search for larger reserve bases continues. That will never end and is a healthy market response. What is needed is a method of production allocation. The way the producers are organized, the high throughput production model, is incapable of dealing with anything other than production at capacity. What is required is a new model that enables production at any level of productive capacity based on the profitability of the production. Just as People, Ideas & Objects Preliminary Specifications decentralized production model does. Then and only then will the power of the shale reserves be of any value, and the industry can return to its “commercial” roots.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Record Production, Record Inventories

These attributes, record production and inventories, may not be fact at this time. Let there be no doubt in anyone’s mind that these are where we are heading in the North American marketplace. The destruction of the industry is unfortunately the net result of this abundance and there is nothing anyone can do to stop these bureaucracies from this destiny. If there was it would be reasonable to assume that it would have happened by this time. For five years the natural gas price has been depressed, collapsed or significantly below what anyone needs to make a profit. Yet the United States is now the largest natural gas producer. We have experienced seven months of depressed oil prices and the U.S. is the largest producer of oil. The fact that there are not record inventories is the result of plus or minus a week or two of production in storage of each commodity.

The nature of shale reserves brings a new dynamic to the oil and gas industry. One that demands a new business model is employed. One that allocates production amongst the producers based on reasonable and fair basis. A basis of production allocation that can be verified, and those producers that don't abide by the methodology can be disciplined by the marketplace. This production allocation methodology is contained within People, Ideas & Objects Preliminary Specification and we call it the decentralized production model. We will discuss that more later in this post. What I want to do is impress upon you the scope of the difficulties that are presented by the shale reserves and the need to allocate production.

The graph below is from the Energy Information Agency and is entitled the “Monthly dry shale gas production.” This is for the U.S. shale gas reservoirs and shows the history of the production from these reservoirs. We can see that in 2008 there was a little over 5 bcf per day of dry shale gas production in the U.S. And today there is almost 40 bcf per day of dry shale gas production. The U.S. produces around 72 bcf per day of natural gas. Shale therefore is making up approximately 55% of the U.S. supply in as little as six years.

In a decentralized industry where decisions are made based on the best interests of the producer. The ability to coordinate and allocate production between these producers does not exist, and will never exist in the current “high throughput production model” that the bureaucracy employs. No methodology will provide the means in which all producers will be satisfied with the decisions as to who is allowed to produce. Hence, what we end up with is every producer concerned with only their own production, and other producers are not their concern. This worked well when the resources were scarce. In an age of abundance like shale it leads to the destruction of the commodity market prices.

What People, Ideas & Objects Preliminary Specifications decentralized production model does is enable a methodology of production allocation based on the profitability of the oil or gas asset. If the property can be produced profitably based on the current commodity price, then it should be produced. If it can not produce a profit, it should be placed in the inventory of shut-in properties. Any producer that cheats, will be incurring losses and can be dealt with by the investment marketplace in a manner that is consistent with the losses that they are incurring. By removing the unprofitable production from the marketplace the commodity price will move towards its marginal cost. Then the industry will have a basis in which to make rational decisions in terms of its capital investments. The losses that would have been incurred in the current environment, which have to be added to the cost of the reserves, in order to calculate an adjusted cost base, will no longer have to be incurred in our proposed environment. The producer will either incur null operations on their shut-in properties or profits on their producing properties. With shut-in properties the producers will record higher levels of profits than with the unprofitable properties producing. And have higher revenues as a result of having higher overall commodity prices.

The decentralized production model does this by stripping down the prototypical producer to their C class executives, their earth science and engineering resources, some land, legal and support staff. The remainder of the administrative and support staff are reallocated to service providers who focus on one process and service the entire industry as their client base. Specialization and the division of labor will be the keys to the service providers profitability and competitive advantage. When a property is producing, the associated costs of administration and accounting will be billed by the service provider to the appropriate Joint Operating Committee. If the property is shut-in then the service providers charge isn't incurred as their is no activity at that property to create the administrative or accounting work. Therefore the property incurs a null operation, only the costs of capital are incurred during times when production is shut-in. It will be the service providers who will carry the administrative and accounting costs of the industry during any shut-in production activity. For the first time giving the producers real cost control over their administrative and accounting costs. On the other hand the service providers will know at any time that their annual revenues may be reduced by 10 - 15% and are able to budget for these possible revenue shortfalls in their annual budgets.

Looking at the graph above the first candidate to be shut-in would be the Marcellus properties. These are highly unprofitable and need to be stopped. Due to pipeline constraints in this area production receives sub $2.00 natural gas prices. If the 15 bcf / day Marcellus production were taken off the market, the natural gas price would be around $30.00 tomorrow. Something for the bureaucrats to think about. But don't expect it to happen, it makes too much sense and as hard as they try, they just aren't configured to do it. This decentralized production model works for both oil and gas and we'll look at the oil situation tomorrow. What we will also discuss is the extrapolation of these shale based properties productive capacity forward into the future. Anyone agree we need a new business model?

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

No Posting Today

In recognition of Alberta's Family Day holiday and President's day in the U.S.

Change Doesn't Happen That Way

To set out and deliberately construct the oil and gas industry in the vision of the Preliminary Specification is what is required to ensure its long term success. This type of change however, where we go about making wholesale changes to the structure of the industry, hasn't been done before. Usually changes are made gradually and organically as they’re required. I would argue that last point. Nothing really has changed in terms of the structured hierarchy since the 1920’s. As much as there have been reorganizations, the same general concepts are still in play. And we still rely on elements of that structure in some areas within the Preliminary Specification. However, the movement of the administrative and accounting functions from their development within each producer, building their own in house capabilities to a reliance on the industry wide capabilities of the service providers. And the recognition of the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer, are just two of the key changes in the Preliminary Specification. And they will need to be changed deliberately through the development of this software.

What we also do is recognize this new innovation called the Internet as a means to organize people. Dropping the bureaucracy from its role as the glue that holds organizations together is something that the Internet does much better. This type of change has taken place in many industries already. Steve Jobs of Apple did it with computers, music, telephones, entertainment and a few other industries. All of these changes were deliberate, with Information Technology, and many companies and people were displaced. To be replaced by new and innovative products and companies that grew to fill the void that those that could not understand the new dynamic.

Does the Preliminary Specification introduce a new dynamic to the oil and gas industry? According to our value proposition it does. When we can provide trillions of dollars in value to the industry then we are introducing a new dynamic. Our efforts have been to have this new dynamic, the decentralized production model, adopted in the industry since 2010. The time when natural gas prices collapsed. What is also clear is that this new dynamic is unable to be understood by the marketplace as the natural gas prices are almost at their lowest level of the past five years. And oil prices are now reflecting similar trajectories to the natural gas prices. Sometimes you can't teach an old dog new tricks.

Sometimes you have to put the old dog down. And its time we put this old bureaucracy down. If you have a yearning for its younger days when it performed well, like the 1960’s. Then there is nothing here for you. However if you are looking forward to 2040 and what we will do in the industry in the next 25 years. Shoot the hound and lets get on with the job at hand.

When that is out of the way we will finally be able to address the issues and opportunities that the oil and gas industry has in this next quarter century. The area of focus that I think we should be concerned about. To start, it would be wise to have an organizational structure that accurately replicates the culture of the industry and is consistent with the way in which it works. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. If we take the compliance and governance of the hierarchy and align it to the Joint Operating Committee we will achieve a speed, innovativeness, accountability and profitability for the next quarter of a century.

We will also have an administrative, accounting and operational framework that is dynamic and capable of dealing with the issues and opportunities that arise in the industry. So that when “things” happen in the industry we can respond to them and leave this strategy of muddling along with the dead dog bureaucrats.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Gripping Again

As I had mentioned a few days ago. In a previous life I was an auditor. What I learned about myself in doing that job was that I was a professional gripper. This is a skill that I realized was of value and has provided me with insight throughout my career. Now I’m not a miserable person except when there are bureaucrats around. Usually I am positive and have an optimistic point of view. But then it starts, and I don't really notice it, I begin to gripe about something that is under my skin and only after a period of time do I realize that I have been gripping about something. What I have learned about this skill is that this is the time for me to pay attention. That something is needing my attention, that there is a problem that needs to be solved and its just below the surface. Something that is not readily obvious.

Now I have been gripping about the bureaucracy for many years in this blog. And that is not what I am talking about here today. I have been focused for the last couple of weeks specifically on the bureaucracy as there is something that is particularly concerning to me that has not been realized or expressed here before. And that is, where does this all lead? Lets assume for a minute that People, Ideas & Objects Preliminary Specification is not available in the marketplace. That the bureaucracy is the only alternative for the industry to proceed with the administration of the industry. If we also assume that we are at the beginnings of a failure of the industry in the next few years. One in which the producers can not stop the overproduction, and hence the losses. A given in my opinion and one that will play out in frustration over the next few years. One in which the bureaucrats will inevitably leave the administration of the industry to seek greener pastures in other industries. What happens to society if then the oil and gas industries capabilities are diminished to the point where they are unable to meet the needs of society.

We currently stand on the shoulders of giants, as the saying goes. To move from where we are to the next level of organizational capabilities is assumed to be a gradual transition towards it. The Preliminary Specification is very probably that next level and the gradual transition to it from where we are today is impossible. The level of change introduced is dramatic. Maybe our next transition has to be made in such a dramatic fashion as to leave the legacy constraints behind. It would appear to me that these legacy constraints are the ones responsible for keeping us in a holding pattern for the last number of years. Unable to break out of the status quo and expand on the capabilities that have been built before. For us to make the necessary changes to move to the next level of performance requires us to deliberately design and implement the next level of organizational performance. To assume that “spontaneous order” will generate new value from the sophisticated level that we currently enjoy is too far of a stretch for me to believe. One would assume “spontaneous order” would see producers shut-in unprofitable production when the commodity prices decline.

What is the cost of not making this deliberate act of change to the oil and gas industry. We can quantify the value proposition for the bureaucrats, investors and people within the industry. Who frankly believe that things will change in the behaviour of the producers and all will be ok again very soon. But what about the costs to society and individuals who depend on oil and gas for their daily needs. And what if their needs are disrupted as a result of a lack of oil or gas is made available to them due to a long term unprofitable, failing industry. People depend on energy for so many aspects of their life that they would be severely disrupted if energy was not provided to them in the manner that they were accustomed. Would the bureaucracy be held accountable for that? What if they weren't around?

I think this is the bigger issue that has been motivating my gripping in the past number of weeks. We have a job to do that is more than just what we do. We provide a product that is a significant contributor to the way that we live our lives. If we put that in jeopardy, which is what I am suggesting the bureaucracy is doing, then we are not doing our jobs.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

"More" is the Calling of Bureaucrats and Drug Addicts

“I want you to slash your staff in half and double your productivity.” This is the type of thinking of the bureaucrat. More with less. Its that simple to run an oil and gas producer. When that is achieved do it again. “More” is the calling of bureaucrats and drug addicts. It all comes down to a simple matter of pushing your staff for “more.” You have a job to do, it has to get done and the number of staff you have is fixed. Last month they produced x, this month you need y, they'll just have to produce “more.” This is the life of a bureaucrat. Its all about the numbers that make up the domain of their existence in their business life. Outside of this there only exists future domains that one could seek to conquer. The planning and execution of this expansion will take many years and much effort to ensure that the opportunity is presented, until then we will have to produce “more.”

Whether you're in administration, accounting or the sciences the behaviours become the same. Stratifying people in layers has the effect of classifying them into their own class system. There are the people who get the things done, or the drones, the executives, the many layers of management and supervisors. Each respecting those above and belittling the ones below. These activities and formalities begin to take up a large part of the day when everyone has to recognize and administer this social class system.

In the future the tasks of the drones will be taken up by the computers. Alleviating the mind numbing work that has to be done by half of the staff. As a result this will free up all of the staff to do other things. The kind of work that will be done in the future will be fundamentally different than what is done today by the self interested, conflicted bureaucracies. The types of jobs we will be doing will be leadership, problem solving, acquiring and processing new information, being creative, collaboration, research, idea generation, design and planning. The kinds of work that are not suited for computers. This is how the industry will become dynamic and leave the muddling along strategy behind. This position of letting things work themselves out is incapable of dealing with the industry issues and opportunities. There is too much at stake. We need to take a proactive approach and that means we have to work to actively manage the industry.

In order to make this transition we have to deliberately go about making the change. Developing the systems that will do the types of processing that will offload the types of work that are being done now by half of the staff of the oil and gas producer. And unnecessarily so. So that people can get to the work that needs to be done to ensure that the industry provides the energy for the next century and provides it profitably. Just because we did things like this in 1950 doesn't mean that we have to do it like this in 2015, or 2040. The only way we will change is to do it deliberately, it won't happen with the current bureaucracy in place protecting its turf.

Whether we get the funding for the People, Ideas & Objects Preliminary Specification in the current downturn of oil and natural gas prices is questionable. The need to experience pain by the average oil and gas investor is apparently quite strong. We are taking the long term perspective of providing the solution for the next 25 years. When you place our solution in comparison to the bureaucracy for that length of time, it becomes more evident for the need for action. Therefore we have the short term call to action with the pain from the low commodity prices. And the obvious common sense of how you run an industry in 2040. When you consider the bureaucracy vs. the Internet that common sense falls into focus.

What is the bureaucracy offering? What I see is total failure. That however is just one mans opinion. I don't see anything positive being offered. In an era of disintermediation of all industries by the Internet I guess it's reasonable to assume that the oil and gas industries bureaucracy will survive throughout the 21st century and prosper! The difficult question remains as to how we make this transition so the bureaucracy is removed.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Proof That its Not Working

Check those quarterly results! Some producers are still reporting profits! Of course none of these reports include any of the annual performance criteria. Where the write downs of assets are included in the performance of the producer. These will come along during annual report season. And those aren't really relevant because those are “sunk costs.” Meaning of course the money that was invested in the producer in the past has been “sunk” into the producer and is irretrievable. And by the way, the bureaucracy wants to know if you'll fund this years capital program?

This is because you know they can make money at $70.00 per barrel, scratch that, $60.00 per barrel, no scratch that, $50.00 a barrel, no scratch that too, $40.00 a barrel. Where the price goes the bureaucracy will follow. And if the investors, who seem to be willing to give the bureaucracy the benefit of the doubt in this environment of low oil prices, want any proof that the bureaucracy are incapable of dealing with this problem. Just look at how they have dealt with the decline in natural gas prices over the past five years. See any parallels that could convince you that these bureaucrats are unable to deal with these issues?

I can certainly understand the investors point of view. The industry is in a bit of a pickle but it will get itself out. I would ask them how? What solutions are being discussed about the problems. Certainly everyone is scaling back on their capital budgets. Does that necessarily mean that they will be drilling less? Or does that mean they will be paying 75% as much to drill a well? Beating up on the drilling operators. I think that you will find that the latter ensures that they are able to keep their plans in place and continue as if nothing has happened. On with the unprofitable production, we have more investors to fleece, as the bureaucrats chant in rhythm.

You have confused yourself with people who care. Why would a bureaucrat concern themselves with your business or an investor's return? It provides them with their living of course, that is for certain, but what exactly are you going to do about it? You have no options! Its stick with them or what exactly? As we pointed out to you yesterday. Its you the investor who have lost the $423 billion in market capitalization, not the bureaucracy. Their fine, and thanks for asking. Their just happy that you have more money that you are apparently willing to lose.

People, Ideas & Objects can sympathize because we have been on the other end of the bureaucracies abuse for more than a decade as well. Ours is an opportunity to the investor community that provides an option to remove and replace the bureaucracy from the oil and gas industry. That’s why they don’t like us. We are a serious threat of the kind that every industry is experiencing today. The old bureaucracy vs. the Internet in terms of how an industry operates. Time is on our side and they are just biding their time until they do cut and run. After all what’s in it in for them in the long run?

What we need is the support of the oil and gas investors who have had enough of these bureaucrats to fund our budget. This will provide these investors with the alternatives that are needed to operate their oil and gas assets. Our value proposition is that we provide oil and gas producers with the most profitable means of oil and gas operations. And we value that proposition in the trillions of dollars due to the fact that we provide the industry with the capability to be price makers. Something that is necessary as a result of the prolific nature of the shale based reserves. So if you believe there has to be a better way than what the bureaucrats are offering, take a look at our Preliminary Specification, our user community and service providers. Maybe then you'll feel safe to invest in oil and gas again.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Some Market Capitalization Losses, So Far

I crunched some numbers, as the squints would say. On how much money has been lost in the past half year from the decline in oil prices. Calculating just the decline in market capitalization of the top ten oil and gas producers from their market high in 2014 to the end of January 2015. The list includes Exxon, BP, Shell, Chevron, Total, Conoco, Apache, Anadarko, Suncor and Occidental. These 10 producers experienced $423 billion in market capitalization declines in that period. That is exactly 105.75 times People, Ideas & Objects budget requirements. And that is just for the top ten! Exxon's market capitalization losses were in the $80 billion ballpark. I'd hate to think what has to happen to make those guys get out of bed.

These losses in market capitalization are the initial quantification of the value proposition that People, Ideas & Objects have been promoting here for the past number of years. The value we provide, the increase in revenue due to the price maker strategy we enable for all producers. Is approximately equivalent to the profit increase in the producers. All of the costs, except for the incremental royalties, are already being incurred. The increases in revenues that would arise from the price maker strategy are therefore free money. We employ the economic principle of elasticity of supply and demand. It may only require a choking back of 10% of production capability to realize a 100% increase in the price of the commodity. The bureaucracy only knows one mode of operation. And that is on. There is no other means of operation. It is full throttle all day, all the time. They have no capability or comprehension of any other means of operations.

When I ran these calculations many of these firms appeared to have lost fully one third of their value. It appears to me that the other two thirds is in just as much jeopardy as the first third. As we should recall under any North American law, the creditors have first priority in any court ordered breakup. That seems a bit radical to put forward, however natural gas is well below $3.00. Oil is mid $40.00 but we are assured that shale producers can now make money at $30.00. Funny how their costs kept falling in line with the prices! And I am not questioning the integrity of their claims that they can produce shale at $30.00. I am only pointing out the strangeness, or maybe the luck of the bureaucracy to have found the silver bullets in terms of cost reductions in shale formations. The fact of the matter is I really have difficulty being lied to.

The fact of the matter is these firms are in financial jeopardy. They have lost a third of their value in the past six months. They have no plans, no strategy, no vision and no discussion regarding the situation that they are in. They are losing money at a phenomenal pace. They have been cut off from the investment community, the banks and even the junk bond community and the smartest thing the bureaucrats can think to do is to continually lie about the state of operations and how much money they can make off shale oil. And I'm the crazy one for suggesting an alternative means of oil and gas operations!

The industry could have saved the losses that all the producers have incurred in the last six months if they only had invested in People, Ideas & Objects. That is an investment return that is real. Not some mythic “we can make money at $30.00 bs.” What we do however is we eliminate the bureaucrats. There is nothing for them to do in the People, Ideas & Objects Preliminary Specification and we have made no special accommodations for them. We have deemed them redundant and eliminated them because they are useless and to be honest more dangerous to have around. Its best when they aren't around so we kept them out. And that is why they have not made the investment in People, Ideas & Objects. They are highly conflicted. It is therefore up to the investors to act in their own best interest by supporting People, Ideas & Objects by getting the funds for this project, our user community and service providers. And then we will offer the alternative to the bureaucracy, and eliminate them from the landscape and build a dynamic, innovative and profitable oil and gas industry from what will probably be the ruins left by these corrupt, self interested, fools.

It used to be that there was speculation of damage to the industry by a crazy blogger with some ideas about the Joint Operating Committee. Then the business model came into view on how the industry could be provided with most profitable means of oil and gas operations. Then we formulated a value proposition in the trillions of dollars. Now we have quantifiable evidence of the fact that the industry is being run into the ground. I don't think there is a future with these bureaucrats. I am certainly biased, but that doesn't make me wrong.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Industries, Like Big Companies Need to be Designed

In a previous life I had an audit firm that operated in the oil and gas industry from 1986 to 1994. We provided services for a variety of different clients conducting audits, and had various accounting responsibilities. My biggest client during that time was the Alberta Government who provided me with approximately 9,000 hours of audit contracts. The work that we were conducting was the review of gas royalty submissions by producers on behalf of the government. It was fascinating and interesting work that was extremely valuable to the people of the province of Alberta. Maybe not so much to those who I classify as my victims, the producer firms.

I spent almost all of those 9,000 hours at Texaco Canada and Imperial Oil. It was also a time in which John Paul Getty was saying sweet nothings into the ears of many people down in the states. If you recall he said “sold” to Pennzoil one minute, then “sold” to Texaco the next. Texaco refused to accept that Pennzoil was the winner in the Getty Oil Sweepstakes and proceeded with the acquisition. Pennzoil sued. Inevitably Pennzoil won, in a Texas court, where Texaco had no understanding that they had to post the full award that Pennzoil had won, $5 billion, in order to appeal. Texaco Canada was therefore sold to Imperial Oil in order to raise the money to appeal the verdict in the Pennzoil case. Making it that I essentially spent my entire time at Imperial Oil. Which is Exxon’s Canadian subsidiary and at the time Canada’s largest producer.

Texaco had to be purchased by Imperial. They complemented the Imperial assets so well that they could not have asked for a better opportunity. It was towards the end of this time that I had spent at Imperial. A time in which I had reviewed all of the properties in Canada in detail. Seen some of their field operations. That I had a level of detail and understanding that few people would have ever acquired. I knew every property and its purpose in the corporate strategy. I also knew from a very high level the purpose that each and every molecule of oil and gas was providing to the bottom line of the firm. After this time, in what appeared to most people to be a mashup of assets. Was a symphony of brilliance and achievement that was a deliberate and methodical building by the wise hand of one or two people. Granted in many ways they had an unlimited budget in which to source their needs from. The design and implementation of their vision was astounding. It was a true work of art that could not be seen without the effort of at least 6,000 hours in my opinion. And some very high level access to agreements, documents and plans.

The point I want to make here today is that these things “producers” and “industries” are not happenstance. In the time that I reviewed Imperial it was the result of many decades of building. Since that time it has been selectively sold off and refocused as a heavy oil producer. It is no where near the producer it used to be. That I can tell. And I would say the same for the industry. The 1990’s were a brutal time for the oil and gas industry. Survival was the reward for excellent management. In the 21st century the partying began with higher commodity prices and the bureaucracy have been inebriated or hung over with their bonuses, stock options and power. The results are being clearly displayed in today’s performance, and in the next few years with losses on operations that will make everyone look for the scalps of those responsible. Everyone would have been better off investing in the commodity marketplaces instead of the stock markets. The bureaucrats have added no value anywhere, and at no time. They have incinerated the capital that has been provided to them and should be held accountable for that. If you believe that things will improve, there is no stopping you. You can believe the moon is made of green cheese as well. Neither is true. The bureaucracy have fundamentally destroyed the oil and gas industry. The only thing left for them to do is for them to leave the scene with their booty intact.

As we stand here with this disaster in our hands today. What do we do for tomorrow. We should begin by looking towards the long term. The next sprint for the industry will end in 2040. That is the time frame that we should consider, the next 25 years. What our first step should be is our means of organization for those 25 years. We need to begin the rebuilding process that those that were responsible for building up Imperial in the 1960’s, 70’s and 80’s were able to conduct. That begins with the People, Ideas & Objects Preliminary Specification, our user community and the service providers. If we leave it to “happenstance” we can see what will happen. Just more of what we have been getting here the last few years.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

A Solution for the Oil and Gas Investor

Hope has to be fading from the oil and gas producers brain trust. Its getting closer to the end of winter, natural gas prices are reflecting a new dynamic. One that shows the commodity market is well supplied even during its high demand season. What’s in store for the natural gas producer when the summer season arrives and the storage caverns are full. Clearly there is a substantial cost in not praying for a cold winter. On the oil side the transition in the Saudi Royal Family was as seamless and error free as could have been executed. The hope that there might be a change in policy as a result of a change in administration is now dashed with a restatement of their commitment to hold market share. Their stated objective of hurting the oil and gas creditors and that marketplace will be the next shoe to drop in the financial marketplace. Defaults in the $1.7 trillion of oil and gas junk bonds will have an effect in the greater market.

Who will be the ones to invest in the oil and gas producers in the years to come? The oil and gas investor had declared they were unsatisfied and went on strike in 2008. The banks and credit markets were balking as a result of 2008 as well. Leaving only the junk bond and cash flows as the sole sources of financing of any oil and gas capital investment. With the declines in commodity prices, the ability to fund investment with cash flows no longer exists. The junk bond marketplace is now aware that they are the mark and that will cause them to cease funding the producers. Therefore, suddenly the oil and gas producers will find that they have few options in the next six months. As normal operations demand cash just to operate.

These next six to nine months maybe the darkest days that have ever been faced in the oil and gas industry. Certainly that I have experienced in my 38 years of working in the industry. Banks will be taking over the weakest of the industry and will attempt to flip them quickly out of their portfolio. The need for banks to be involved in the oil and gas business is about as logical as they need to be holding synthetic CDO’s at this time. Not going to happen. This will be the time for the investors to begin to rebuild their portfolios from the remnants of the firms that were once theirs. They will repurchase them at fire sale prices and recapitalize them on the basis of some new investments. These investments will be made with the expressed intent of firing the bureaucracy. It is after all they who brought the industry to these dark ages.

This is where the People, Ideas & Objects Preliminary Specification, our user community and the service providers will provide the alternative means of oil and gas operations. One in which we provide the oil and gas producers with the most profitable means of oil and gas operations. But that is not going to happen until we are funded to the full extent of our budget. We are expecting to be capitalized at the $4 billion level as the costs, time and deliverables will all be “expected” in a scenario such as we are discussing here. And this can’t be a pay as you go situation either. I don’t need our organization being subject to funding disruptions at critical times when the stakes are as critical as they are. We have a job to do, lets get it done. Our failure, on top of the failure of the industry, is not something that we want to contemplate.

Our time frame is dictated by the events on the ground. The Saudis seem to think that their situation will be rectified in the next three years. Add a few more years for bank, legal and administrative processes and our time requirements come into focus. The natural gas situation will not be remedied in that time frame, in my opinion. The only remedy I think that will correct that marketplace is that producers begin to remove the unprofitable production from the marketplace. Which imputes that People, Ideas & Objects is operational in the marketplace. When you have fundamentally destroyed the pricing structure from 6 to 1 on oil  to 20 to 1, you need to physically take control of the market again. That will take a new dynamic in order to recreate the old structure.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

A Conversation in the CEO's Office

If we had the opportunity to listen in on a conversation that may be taking place between the CEO and the CFO of the oil and gas producers. The topic of discussion would be the financial statements that have been in the process of being prepared over the past month. These will have to be reported for the 2014 calendar year in a matter of weeks and the situation is rather dire due to the losses generated from the decline in oil prices, and the continued losses on natural gas. This conversation is designed to reflect the biases in the industry and why we are in the situation we are in.

CEO: So what you're saying is if we publish these financial statements. The losses that are reported will trigger certain covenants in our banking agreements and requirements with our bondholders. 

CFO: In addition our cash flows are negative, and at these prices, we will run out of operating capital in the second half of 2015. I recommend we shut-in these properties representing 30% of our production profile to ensure that we maintain a positive cash flow for the remainder of 2015.

CEO: No we are not going to shut-in any production. We’ve worked to hard and too long to bring the company to this level of production. I don't understand why you don’t appreciate the work that has been undertaken here. Let the other producers shut-in their production. 

I also don’t understand why we have to take such a large write down. Our assets are just as good as they were in 2013. Writing off half of our assets in one year seems extreme to me. 

CFO: Its a requirement based on the prices that were realized at the end of the year. The reserves valued at the lower prices dictate the value of the company. Lower prices equals lower value. 

CEO: You’ll note that these are accounting losses and don’t affect our cash position in the announcement, right. 

CFO: We’re limited in what we can say, but I’ll see what we can do. 

CEO: And get those bankers in line. They can’t put all the producers out of business at the same time. 

And that will be the end of the discussion regarding the financial statements and strategic changes made at the oil and gas producers. Nothing. Carry on with the status quo. The one aspect of this that should be obvious is that the production profile of the firm is a technical achievement that the engineers are very proud of. And they should be. The amount of work and effort that goes into the discovery and production of one barrel of oil or gas is phenomenal. The CEO knows this. And as is typical in the oil and gas industry, the industry is operated by engineers who have limited understanding of the accounting side of the oil and gas business.

That’s not to say they are uneducated. Most have MBA’s and are able to develop strategy and implement plans and create successful operations. However their accounting understanding in oil and gas is distorted by the requirement that companies follow the Full Cost Accounting requirements dictated by the Securities and Exchange Commission. These requirements have become so polluted as to be the issue responsible for the significant write downs that we will be seeing. When everything that an oil and gas producer does is capitalized it inflates the assets of the firm to fill the void of the value of the reserves times the price of the commodity. A value that has no basis in cost or the accounting world. Secondly with everything being capitalized, little is left to be expensed so that the firm shows revenues and small costs. Or high profitability. But oil and gas hasn’t been “highly” profitable. Thats correct, however they have been using a metric that creates “easy” profitability and high asset valuations.

These high valuations and easy profits have distorted the engineers view of their own performance. It encourages them to think that they are doing better than they truly are. If you took their performance on a purely cost basis, such as successful efforts, where only successful operations are capitalized and anything unsuccessful is expensed. It imputes a more conservative frame of mind due to the lower asset value and lower profits. This however would be closer to what a traditional accounting function would replicate in other industries. What full cost accounting attempts to do is determine what a market capitalization is for the oil and gas producer. Which is not what an accounting policy should be doing. For example Apple has a market capitalization of $646 billion and a book value of $111 billion. Investors are wise enough to know what the difference is. In oil and gas the disparity between market and book is not that significant as the assets are inflated by capitalizing everything in the firm.

The accountants responsible for these accounting policies want to ensure the engineers that they are cool, hip and “with it.” So they have bought into an accounting methodology that distorts the thinking of those that are not fully trained in accounting. That do not have a conservative point of view of performance. Therefore an engineer without these perspectives sees his assets building, his profits soaring and thinks they're doing everything right. When in reality the accounting is not reflective of the performance of the firm. And the CEO is being deceived. Leading to the kind of conversation that we noted above. And to the inevitable over production that we are seeing in the commodity markets.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

Time, Time, Ticking

And that is what I did on my Christmas vacation, Mrs Herman. All joking aside I was busy doing a review of the project from stem to stern in terms of what could be done to improve the time and speed of our delivery. As you could see I was not too concerned about our cost. We can always justify our cost if our value proposition is being met. The existing business model of the bureaucracy provides us with a baseline for our value proposition. Cost isn't the issue, it will be the time that we take to deliver our product to the market. If the bureaucracy. Scratch that. When the bureaucracy fails there will need to be an alternative in the marketplace as quickly as possible. We will need to be there before (ideally) anyone realizes there has been a wholesale failure. As it stands today that is the opportunity we currently have in hand.

In terms of making the People, Ideas & Objects organization faster and lighter, 2015’s version seems remarkably nimble and flexible. The decisions that I announced to you of the cloud computing infrastructure for the development environment and deployment to the industry may not seem that significant to you at this time. From my point of view they are significant. I was able to cross off many boxes within our organization that don’t have to be filled now. A number of them were very senior positions. Our costs in terms of time, effort and the most important commodity energy. Are saved for our primary concern, our user community. We can keep our focus more clearly on our target without the distraction of tedious physical constraints of hardware issues.

And when we go to deploy our application to the producers through our service providers. Both of those communities will experience higher levels of hardware performance as a result of Oracles significant investment in the cloud. Something that we would never have been able to match. And something that we are able to attain by simply flipping a switch. Again without the significant deployment of capital, people, physical effort and energy to setup a facility that we might have ended up failing at in the end. The decision to go to the cloud in both the development environment and our deployment were decisions that I had to consciously make. I had always personally had the vision of the physical machinery within our own domain of control and never questioned it. The speed and lightness that this decision has made on our delivery could make the difference between our ultimate success or failure and may be responsible for reducing up to a full year in terms of our delivery time.

The other major decision that was announced. I made many decisions that I did not announce, some where the impact is too minimal or of little consequence to you. The other decision was to ignore the bureaucracy. As I stated to the investors and users the impact on them is significant. The impact on People, Ideas & Objects is sizable in terms of the time that will be required for us to deliver our product into the marketplace. This too may take a full year off our delivery time. But more importantly, as I stated, it may be responsible for removing 10,000 man years of frustration and heartache from the user community in having to deal with the compromises and contradictions of dealing with the bureaucrats. What could be more valuable?

Accelerating our speed to market will be a pressure that we all will begin to feel soon. It should be something that all members of the user community should ignore and disregard. It is beyond what can be dealt with in your day to day efforts. What is important is the quality of your efforts in making sure that the oil and gas producers attain the most profitable means of oil and gas operations. I’ll take care of the time of delivery issues and how we can make sure our efforts are more efficient. Its decisions like these that can save years, frustrations and heartache that are far more effective than what you can do to “speed up” your work. You can only affect quality. And by feeling the pressure to deliver sooner you’re going to affect your quality negatively. So don't concern yourself with speed and be assured that whatever can be done about the time to delivery is being done on your behalf.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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. 

To The Oil & Gas Investor

As an oil and gas investor you may have some difficulties with People, Ideas & Objects. That we understand. Let me try to explain. The first issue that is of concern is the budget that we have proposed. It is significant and includes elements that may be controversial in that they involve payments of royalties for Intellectual Property and healthy margins. The royalties on the Intellectual Property that I have developed over the past decades is how I am compensated for the work that I have done. This work is how the value in our value proposition is generated and is the basis that its equity is assessed. The firms profits are a feature of any commercial software developer. I would expect that after many decades of effort you would realize that I think now is the time in which I should collect payment for my efforts. I am therefore establishing these criteria for the Intellectual Property and the profitability of People, Ideas & Objects. It is an alternative we propose in replacement to the current bureaucracy. It provides for a profitable oil and gas industry and is therefore a reasonable proposal.

Bureaucrats will never change. Until you put in place a system that replaces the current bureaucracy you will continue to receive news of record oil production in the U.S. as of January 2015. There is a well established history here. Even after five years of financial losses in Natural Gas there is record production in that commodity. They will continue to destroy the commodity markets until such time as someone such as yourself takes the keys to industry away from them. It is almost like they don’t care, isn't it? People, Ideas & Objects are providing you with a tool in which to manage your oil and gas assets once you have taken control of those assets. But the software needs to be developed first. We have kept our powder dry and our candle lit for the day in which we can begin developments and take the responsibility away from the bureaucracy. If you can't see the end of the oil and gas industry at this point, then I can’t help you.

Recently Goldman Sachs suggested that there needed to be maximum pain to be realized in the oil and gas marketplace before a turnaround would happen. The BBC was quoted as saying that the creditors of the oil and gas companies were the targets of the Saudis actions. They, the ones who loaned the shale producers the money to drill, are the ones who have to be taught that the oil and gas producers are too high of a credit risk. If its the creditors they're trying to teach a lesson that means that you, the investor have been eliminated from the landscape.

What is it that you expect to come from the situation as it stands today? What possibly positive outcome is the result of today’s oil and gas industry? I can not see a viable industry in the North American marketplace under the current management and their strategy. Their inability to produce profitably will continue as long as someone else’s money is on offer. We clearly see that everyone is on to the game and its about to be seen as the ponzi scheme that it has been. If you were a bureaucrat and you knew where all the skeletons in the industry were, what would you do? Would you stick around? Or would you have been harvesting what you could for the past few years while the going was good and make sure that the exit plan was well in place? And don't act so surprised at the thought.

What this situation requires is action. I think it has required action since the financial crisis of 2008. Which I think was a warning that our system of organization wasn’t working. Just as the former Soviet Union’s system of organization wasn’t working. We complain that there’s no growth. Bureaucracies are finished, they can no longer provide for the needs of society and the writing of that should have become more and more evident to those that are operating in the investor class. New models are needed for the oil and gas industry to deal with the issues and opportunities that it faces. The way that it is organized and the manner in which people interact can't be on the basis of hierarchies and stuffing paper into printers. There are better ways and they have been detailed here in the Preliminary Specification with our user community, and the service providers. Someone recently referenced the term “Network Society” as the direction society was moving towards. That’s where we are heading. We just need your money.

And we can wait, certainly there is nothing urgent calling us to action that brings us to a life or death situation. Unlike what the oil and gas industry is facing. We'll be here in the years to come no matter the state of the industry. But understand it will take time to develop our solution. We have received none of the industries resources from the bureaucrats. We were weaned off of oil and gas when we first came up with the idea of using the Joint Operating Committee in August of 2003. As it was clear then the bureaucracy had to get rid of us, because if you use the Joint Operating Committee it is pretty clear that you don't need a bureaucracy. That would have been the time, if I were a bureaucrat, that I would have started planning for the escape from the industry when everything inevitably fell apart.

Its easy to write this dissertation off as one looney tunes rantings. I would agree. But I would also take a good close look around this earnings season and tell me how things will improve from here. How will this ship right itself? When will the captain jump ship? And how shallow is the water? Are People, Ideas & Objects offering you the opportunity to shift the makeup of the oil and gas industry in a manner that enables you to control the industry more effectively? If so then you'll need to contact me and we can go from there.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable 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.