The Three Horsemen

Members of our user community all share in People, Ideas & Objects concern for the capability of the oil and gas industry to meet society's needs in the mid to long term. The difficulties that the industry are entering into. Those that we detailed yesterday that include an investment community that has been abused by the bureaucrats, the bureaucrats themselves in all probability moving on to greener pastures when it becomes untenable for them and the commodity price declines. The industry's business model is flawed, incapable of addressing these three issues and these issues are more than what it can handle without losing much of its capacity and capabilities for the long term. This puts society and our way of life in jeopardy, and we are committed to ensuring that this does not happen.

We are doing this by providing an alternative business model for the industry to function. One whose focus is to provide the oil and gas producer with the most profitable means of oil and gas operations. By defining and supporting the producers with our software, based on the Preliminary Specification, our software development capability, the user community and our service providers. The Preliminary Specification is different. It avoids the corporate model that is in use in the industry today and uses the industry standard Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks of the oil and gas industry. By moving the compliance and governance frameworks from the hierarchy into alignment with the Joint Operating Committee we are able to achieve this new organizational performance.

By implementing the Preliminary Specification we address these three issues specifically. Looking at the prototypical producers in the People, Ideas & Objects et al business model. They will be stripped down versions of their current configuration. Consisting of the C class executives, the earth science and engineering resources, some land and legal, and support staff. The remainder of the administrative and accounting resources are reallocated to service providers who will focus on one process or subprocess and use the entire industry as their client base. It will be in this way that the service providers can use their competitive advantages of specialization and the division of labor, automation and have the computers working for us. The producers will also be able to focus on their competitive advantages of their earth science and engineering capabilities, and their land and asset base.

Our service providers will charge the Joint Operating Committee directly for their service fees for any of their services. Therefore the specific service provider who calculates royalties will charge the specific Joint Operating Committee the costs of processing their royalty calculations. Then the producer will receive a detailed set of financial statements for each Joint Operating Committee that includes the revenues, royalties, operating costs, depletion and the actual costs of the overhead necessary to produce the property. If the property is reporting that it is unprofitable the producers can shut it in and reduce their losses on operations. If a producer was producing 100,000 barrels per day with 20,000 of those being unprofitable. They could shut-in those 20,000 barrels and the producers profitability would rise substantially. That is because they would not be incurring the financial losses on the 20,000 barrels, and their overhead would have been reduced from a producer producing 100,000 barrels to a producer producing 80,000 barrels just as their royalties and operating costs have. This is achieved due to the fact that none of the activities in the Joint Operating Committees of a shut-in property will trigger any of the service providers to conduct any of their services for the months that the property is shut-in. Rendering no billings to come from the service providers and a null operation, no profit but also no loss to be incurred and reported by the Joint Operating Committee.

The Preliminary Specifications decentralized production model makes all of the producers costs variable. It will also reduce the amount of commodities in the marketplace, enabling the price maker strategy that we provide. If all producers only produce profitable properties then a reasonable and fair production allocation process has been implemented within the industry. The producer will also have a stable of 20,000 barrels per day in which they can apply their innovative earth science and engineering capabilities to increase their reserves, deliverability or reduce their costs and bring the production back on to profitable production.

This solves the three major issues that the industry faces in the mid to long run. It returns the industry to a business model, based on profitability, that the investors need to see in order for them to return and invest in the industry. It removes and replaces the bureaucrats with their self interested business model and wishes them well in their retirement. And it returns the oil and natural gas commodity marketplaces to the marginal cost necessary to fund the needs of the industry in the mid to long term. This is what we, People, Ideas & Objects, our user community, and service providers are working on. Join us and solve this critical and difficult situation with us.

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

Let's Move On, We Have a Job To Do

There should be little doubt in anyone’s mind that oil and gas is in serious jeopardy. We have been writing about the difficulties in the industry for the past number of years and offering our Preliminary Specification as the solution. The time is upon us for the investor class, or the bureaucrats themselves even, to act by funding our budget and proceeding with the changes to implement the Preliminary Specification, the decentralized production model and the price maker strategy. I have never seen or could have imagined the level of difficulties the industry is currently in. This next quarter will be very difficult. Leading to several years of devastation in the industry. Like the failure of the former Soviet Union's socialist ways, we may be seeing the parallel situation playing out in the bureaucracy of oil and gas. Nothing was produced in the USSR because everyone was in bread lines waiting to purchase bread. The situation in oil and gas is the opposite, no one can stop the overproduction because its someone elses fault. 1986 was a bad recession in oil and gas. I can remember the effect it had on the people that were “lucky” and didn't lose their jobs. This lingering effect took many years, and sometimes decades, for people to overcome the impact of the difficulties the industry faced then.

That is our history and what is presented as the way the business is. No one questions if it is valid in 2015. I say its BS and is unacceptable in this day and age that an industry relies on the barbaric tools of laying people off to deal with the business cycle. Particularly when the Preliminary Specification specifically deals with the issues of overproduction. What I suggest we need to do is look beyond our history and the bureaucrats status quo and see what is really happening to the industry as a result of the inactions of the powers that be. There will be bankruptcies. The people in New York who were bullish on oil and gas as little as three months ago are already licking their wounds today. Carlyle Group’s Claren Road Hedge Fund is facing significant redemptions (of up to 48% of the funds value) based on losses from investments in Greece and energy. This fund was valued at $11 billion just a few months ago and is now at $2 billion. October reviews of the producers reserves by the banks that have loaned money will be a nail biting exercise for bankers and producers alike. KKR owned Samson Resources will be filing for bankruptcy in September. Predictions of oil hitting $30 are common, as are the thinking that this will be a long term difficulty. We're not talking about natural gas prices today.

Taking these financial losses into context, the financial community has long memories. It was those that believed that the industry needed to be built out in the 1990’s that made the investments then. Thinking that their day would come when commodity prices rose in the early 2000’s soon found that the bureaucrats were in the trough feeding first, leaving the scraps to the investors. Now that prices are in a downward cycle, and shale has introduced a new dynamic, these bureaucrats couldn't care less. They have their lakefront cabins and pensions in place. What the investors have discovered about oil and gas is that there never was any room for them at the table, once they had invested their money that is. All they can do now is sit back and admire their oil and gas investments bloated balance sheets, full of assets that represent their investments which have not and may never show a hint of profit.

The point here is that the investment community will be hard pressed to invest in an industry that has been so poorly managed. Thousands of monkeys on typewriters came up with a better plan. Even though the investors had cut off most of the funding in the financial crisis, the bureaucrats found other ways to keep their money mills churning to keep themselves fat and happy. Its not just the commodity price decline that will be the issue that is played out in the industry in the next few years. It is the reputation of those that managed the industry in the past few decades. All the way back to 1986 will be in question, and the answer for the people who will be asking, will not be kind or in the favor of the bureaucrat.

The bigger issue here of course is that the oil and gas industry is the most important industry in the world. It is the energy that fuels our society and how we maintain our civility. It sustains our way of life. With a disgruntled investor group, a complacent bureaucracy that will in all likelihood just quit when they are held to account and a commodity super cycle downswing all at the same time is more than what the industry can handle. We risk the ability to maintain our capacities and capabilities to meet the needs of society and our way of life in the mid to long term as a result of being in this difficult time. We need to be smart about this and overcome our history, our behaviors and begin the development of the industry that will fuel society and our way of life for the remainder of this century. We know, and there is no doubt about this, that the bureaucrats have proven themselves incapable, incompetent and undesirous of doing so. Lets move on, we have a job to do.

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

Vacation Has Arrived

"You're Gonna Need a Bigger Boat"

That’s what Police Chief Martin Brody said to his boat captain “Quint” in the 1974 movie Jaws. “You're gonna need a bigger boat.” I use that reference in terms of our budget. If we expect to conduct all of the things that we say we are going to do with just that budget, it won't be enough. We'll need significantly more money than what is currently defined in our budget. I agree with this point of view, and would provide the following information to show that there are other resources that will be available to make these changes effective.

First of all our budget addresses the software development and user community costs during the initial commercial release. Our budget is to build the Preliminary Specification in its initial form. There will be subsequent costs being incurred for software development and the user community in each of the years following the commercial release. In addition there will be costs involved in managing the application that have not been identified or addressed at this point. These costs will be covered through an assessment on the producers each calendar year. These costs will approximate the scale that they are in the initial commercial release. And that is $1 to $1.5 billion / year.

That addresses the needs of the software development and general support of the software. There are many other attributes of the business model of the Preliminary Specification that need to be addressed. The service providers are not included in any of the cost estimates in our budget. Our budget only covers the costs of the user community. The user community participant is the key individual that creates the service provider based on the work that the participant does during the initial phase of the software development. I consider this work to be part-time for the user community participant. The majority of their time will be consumed operating the service provider when we are operational. The service providers revenues are derived from the individual Joint Operating Committees that are charged for the administrative and accounting service charges for the month that they are conducting these services. It is anticipated that these service charges will replace the estimated $40 to $60 billion in annual G&A costs that the oil and gas producers incur today.

The user community participant therefore has two distinct revenue streams. One is from People, Ideas & Objects for the software development specific work that they do. These revenues will continue past the initial phase of software development and will be permanent in the user community participants business. The second source of revenue is from the ownership and operatorship of the service provider that is licensed to implement a specific process in the oil and gas industry. These two revenue streams are complimentary as the work in the service provider defines and supports the process that is part of the work that the user community participant will work to detail in a constant, iterative manner with our developers.

You can therefore see that there are other resources that are available to make the transition to the environment detailed in the Preliminary Specification. The user community participant, I assume, will also be interested in making investments of time and money in the development of their service providers. These will be done on their own accord. Our user community has been defined as a population of 3,000 individuals. With the full time needs of 600 man years per year being used by our development team. It would be difficult at this time to estimate the number of processes and activities that the service providers will be licensed to conduct on behalf of the industry. However 3,000 seems like a low number. Therefore based on simple mathematics and averages the annual revenues of a service provider would range in the area of $13.3 million to $20 million each. Remember we are replacing the administrative and accounting resources of the individual producers to create the administrative and accounting resources of the industry. These revenues are annual and would provide the user community participant with the majority of their earnings and their capital gains.

Its a different environment that we are creating here. That is a certainty. With these changes in place we are able to provide the decentralized production model to the profitable oil and gas producers. That will be the reason or justification for doing this. Turning the oil and gas industry into a price maker is the opportunity, these are the resources that we have to make that happen and the producers, with trillions of extra revenues in their pockets, will be grateful for it.

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

Motivation

How long can an industry continue without addressing an issue as serious as its profitability. We have seen natural gas producers such as Encana lose 90% of their market capitalization in just five short years. We are now less than one year into the decline of oil prices. It will therefore be as little as four more years until the value of the industry be will all but wiped out. The bureaucrats have been put on notice. Continuation down this road will be unsatisfactory. Waiting for prices to recover, or the muddling along strategy no longer works. Natural gas has shown that shale makes this an era of abundance. A business model that deals with this abundance is therefore needed in order to rid the industry of its price taker strategy and implement the price maker strategy of the decentralized production model of the Preliminary Specification. Everyone now knows this. How much longer will the bureaucrats hold on to their losing ways? And what will be the mechanism that is used to raise the budget for the Preliminary Specification in order to make these changes?

It is the competitive spirit that keeps the producers overproducing in the marketplace. The rush to secure acreage in the shale areas. The need to drill out that acreage in order to earn it. The need to produce in order to pay for the continuation of the financial treadmill. There is nothing wrong with this treadmill other than it's currently unprofitable. If only the producers would hold back their unprofitable production so that prices would cover the marginal costs. You first, says one producer to the other. There has to be a substantial and positive reason in which the producer would curtail production. Otherwise they're just shooting themselves in the foot.

With the decentralized production model the motivation for the producer to withhold production is to attain the most profitable means of oil and gas operations. Then only their profitable properties are produced and these are not offset by the losses of the unprofitable properties. Any shut-in properties report a null operation, no revenues, royalties, operating costs or overhead in the months they are shut-in. At the same time the reserves of these shut-in properties are saved for a time when they can be produced profitably. And the withholding of the marginal production removes it from the commodity marketplace. Increasing the commodities prices, and rendering your profitable properties that much more profitable. This is the motivation of the producer to make the necessary change to the Preliminary Specification.

Our calculations show that for the North American marketplace. For both oil and gas over the next 25 years. The present value of these changes is $5.7 trillion in incremental revenues. Plenty of motivation for the producers to consider the costs of our budget. However our claim is for $45.7 trillion in incremental value. That is because it is our opinion that oil and gas producers are vintage collectors of their assets on their balance sheets. Once an asset reaches a producer's balance sheet, it seems to stay their for eternity. Recognizing the costs of capital in the calculations of oil and gas prices, which we will do in terms of determining the profitability of a property. We'll therefore return the capital to the shareholders who are being so badly abused in this business. It will also generate the cash flows necessary to keep the service industry on an even keel. Not having to abuse the throttle of industry activity between its extremes of full and off. Allowing the service industry to develop in a natural manner. And for the people who work in the industry. They will be able to invest in their careers and not be subject to layoffs like untrained and unskilled laborers would be.

Planning is a management activity and responsibility. I have been promoting the Preliminary Specification and decentralized production model for many years now. The bureaucrats don't manage. They see a problem, they therefore lay people off. You can do that from the summer cabin. Its irresponsible and incompetent. They have to go.

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

Profitability is the Issue

It is now clear to most everyone that oil and gas has a very serious problem. It's times like these that make it worthwhile to be able to provide a solution to the serious problems that our organizations face. And that is what our user community participants will have in hand by joining this user community. They will be the ones that develop the specific solution, based on the Preliminary Specification, that the industry needs to move forward in the 21st century. A solution that’s value proposition reflects the seriousness of the issues the industry faces. Providing real value to the work that is conducted here at People, Ideas & Objects, the user community and the service providers that will be created by the user community.

This won’t be the same oil and gas industry when we're finished. The producer itself will be much more flexible, capable and dynamic in their operations. Having offloaded all of their administrative and accounting processes to the service providers who in turn collectively provide the industry based administrative and accounting based capabilities. The producer can scale up or down their operation based on the profitability of their properties. This will immediately increase or decrease their administrative and accounting costs based on their production profile. There will never be the concern for developing the firm's administrative and accounting capabilities in line with the anticipated production profile. The administrative and accounting needs of the industry and each individual producer will be determined, managed and implemented by the user community and the service providers.

The producers will then be focused exclusively on developing their earth science and engineering capabilities, their land and asset base. These are the competitive advantages that provide the real value for the producer. You should quickly sell the stock of any producer who is claiming their administrative prowess as a competitive advantage. Compared to our service providers, the producers today have no scale in any of their administrative or accounting processes in which to apply the service providers competitive advantages of automation, specialization and the division of labor. The service providers global scope and scale of using the entire industry as their client base enables them to apply these tools in innovative and value creating ways for themselves and their clients, the oil and gas producers.

People, Ideas & Objects, our user community and the service providers claim is that we provide oil and gas producers with the most profitable means of oil and gas operations. Profitability is the issue that the industry is having. And no one can compete with our business model. For you to participate in the user community is your opportunity to enable this new environment to be established in the industry. Real, substantial work that will deliver so much value for our organizations, society and the people who work in this industry.

What we do know is technology is changing the face of business today. But it's not technology that is the main driver in these changes. It is the business model that is supported by IT that enables the changes to be made. And that is what we are doing. We have provided the user community with the power to affect change in the business model and Intellectual Property that makes up this environment. We are also providing them with the software development capabilities to implement those changes. It is the user community who are determining what is right and what is needed for the next great leap to come from the oil and gas industry. An entire new way of doing business.

I want it noted for the record here that at no time in this post did I mention the bureaucracy. I apparently can constrain myself from doing things to a certain extent.

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

We Have Options

One thing that became evident during this second quarter reporting season is that this downturn in oil and gas will not be resolved in the short term. If you read the earnings press release from Shell it's clear they are expecting difficulties for many years to come. The same can be said about the general tone of the discussion in the press about the industry. Recent discussion by Nouriel Roubini on Bloomberg was particularly dire. Nouriel is historically very accurate and doesn’t hedge his commentary. He is the only economist to have predicted the difficulties that occurred in the 2008 financial crisis. The point he made on Bloomberg is that shale based oil and gas will keep prices low for many years. He also says that there will be demand difficulties created by the decline in the Chinese economy. This doom and gloom scenario is what has been the concern of this blog for many years. I don't see it getting any better without fundamental changes in the way the industry is operated. Shale brings about a new era of abundance demanding that producers adopt the price maker strategy available from the decentralized production model of the Preliminary Specification.

These difficulties certainly don't have to be like this. The number of layoffs announced in the past week, although surprising, will become commonplace in short order. Layoffs make the bureaucrats feel even more important as fear can be instilled in anyone in very short order. That oil and gas treats its people like unskilled and uneducated labor when it faces some difficulty. Shows the breadth and depth of management thinking in the current bureaucrats. I have been arguing for years to have the price maker strategy of the decentralized production model implemented. If the bureaucrats would have begun what they should have they would be looking like intelligent, hard working and caring managers. It’s not only obvious that the industry will be faced with a significant decline for an extended period of time. It is becoming quite obvious to everyone that the bureaucrats just don't give a damn. Why concern yourself with the business when it's so easy to just lay people off when you screw up?

What to do in a situation where up is down and there are no side ways. We have all invested heavily in our careers and have the right to expect that we'll be rewarded for that. To be subject to layoffs and downturns at this time and in this place is despicable. I know that many people have had enough and expect to look elsewhere. We can only wish you well. For those of you, like me, that see the bigger picture and know that oil and gas is a critical element in the way our society functions. I think that People, Ideas & Objects has something for you. Our user community is the effective management of the industry in this new dynamic we are creating. It has the power to manage the industry through the user community participants ownership interest in a service provider. It is also empowered to make the changes to the Intellectual Property that makes up the software and services that this user community creates. It is how we remove and replace these bureaucrats for good.

In a way the bureaucrats are fighting for their own survival. They don't want any part of what we're doing and that has been the case since August 2003 when I first proposed these ideas. They knew then that I was bad news and they are still fighting to keep control for themselves. What is becoming clear to everyone concerned is that they are not doing their jobs. They are more interested in their own “take” and are managing for their retirement and potential exit from the industry. This is irresponsible, and they will get away with it. What we need to do is to work to prepare the solution defined in the Preliminary Specification and ensure that its funding is secured in a timely basis. And we are doing that.

If you were recently unemployed and have an interest in what we are doing have a look and see if there is something that you can do to help out while your between jobs. We have an immense amount of work to do and the fun has really only begun. I wish you all well in this terrible and unnecessary environment and look forward to the day we have this solution prepared.

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

No Posting Today

In recognition of Alberta's Civic Holiday.

Onward and Upward!

My hopes that maybe the bureaucrats would be held accountable for their actions have fallen to the wayside once again. It is clear that the ability for them to snow the investment community continues. And on the other hand, although our readership is impressive, we are not reaching enough of the people we need to in order to make a difference. We will however continue to build on what we have here and be the thorn in the bureaucrats side. The lack of oil and gas profitability will continue until such time as the Preliminary Specification is in place. Shale reservoirs ensure that this will be the case. There are a number of other issues that the industry refuses to face, such as yesterday’s discussion of the service industry and the potential decline in its capabilities as a result of the current actions of the bureaucrats. And of course none of the past problems, like the difficulty in transitioning the earth science and engineering brain trust from those that will be retiring soon, are being addressed. I hear that recent university graduates in these disciplines are quite good baristas. Check them out at the local Starbucks.

I get complaints from some people that they are unable to read this blog while at work. I can only assure them that it's not as a result of anything on our end. Some of the producers may be blocking access at the firewall. Which sounds familiar to me. Nonetheless it would be helpful to this cause if we could expand the readership by sending our url’s to others who may be of like mind. One caution is to ensure that you know they are not going to use it against you. We have a job to do and it is going to be done on the basis of everyone doing things that are done differently than the way we do them now.

Our friends the bureaucrats also seem to be relying on a low interest rate environment to maintain the false economy that exists and which they seem to prosper in. Without the demands of an alternative investment that pays 7 or 8% for sitting on your money. The bureaucrats know there is nowhere else that you can invest. Therefore your stuck with their poor performance as the best that there is. What the investors in Encana have realized with the 90% decline in that shares price. Is that there is a potential loss that can occur as a result of sticking with the producers.

And I was thinking more about Encana since their quarterly report. They've lost 90% of their share value due to the fact that they were an almost 100% natural gas producer. They recently acquired an oil producer to offset this exposure. The point is that the natural gas market has been down for more than five years. Shale gas has destroyed the pricing of that commodity for these past five or more years. Maybe it takes five years for the effects of these poor prices to have the types of share price declines that Encana has experienced. If so, and with oil being down for almost one year, we have four more years before the entire industry loses the 90% of their market cap. A reasonable assumption.

I don't see anyway out of the oil and gas industries difficulties without the Preliminary Specification being put in place. And it will take a few years to do that. But then I am biased the bureaucrats would assert. The issues are bad today. And there are many issues that were unaddressed in the recent past that still need to be addressed but have been forgotten. And there are many difficulties in the very near future that I can see. What we do know is the “muddle along strategy,” which has poorly served this business for so long, will still be ineffective. All of these issues are challenging the capacity and capabilities of the industry, and therefore our way of life. And therefore should be considered by the bureaucrats in that context. It is however late July and their cabin’s are in their prime season at this time of year. People, Ideas & Objects have a tiger by the tail, as they say. And therefore we will live to fight another day.

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

"Implementing Effective Cost Control"

Another casualty of the downturn in oil and gas is the service industry. Just as the people who work directly for the producers, the service industry are dependent on oil and gas producers for their revenues. Oil and gas being a primary industry receives their revenues from the oil and gas sales. These oil and gas sales represent more than just the money that the bureaucrats are entitled to. It has been the experience of the past decade, when prices where higher, that these same bureaucrats were calling the service industry as being lazy and greedy for the prices that they charged to conduct field operations. Not realizing the difficulties these bureaucrats impose on the service industry by cutting field operations to the core one year, while the next two years doubling, tripling or quadrupling their capital expenditure programs. Feast or famine is how they have to deal with this in the service industry and that is how they have learned to survive in this environment dictated by the bureaucrats.

It’s 2015, is this the appropriate manner in which to operate the oil and gas industry? How is it that the service industry is able to innovate and provide for the ability to develop the technologies that producers are so dependent upon? Technologies such as horizontal drilling, multi-stage fracing, or to pick just one company Packers Plus. Based on the history of Packers Plus and my own here at People, Ideas & Objects. The declaration of war against the bureaucrats in oil and gas is a necessity. You really are treated like garbage if you have an idea. That’s because ideas belong to the oil and gas industry. In the bureaucrats mind that is. For you to secure an idea outside of the “legitimate” areas of ownership leads to punishment until one side in your war wins. This is how the industry is operated, surely no one believes the producers are actively working hand in hand with the service industry to develop new products and innovations? That’s a hollywood fiction.

It was Encana, the large Canadian natural gas producer that was calling the service industry lazy and greedy when prices were high. That was back when Encana’s stock was in the $90 range. With the recent announcement of their losses in their second quarter report. Their stock is performing well at around $7.50 but all of this decline has been attributable to the 1,400 people that they've laid off and the fact that the service industry is greedy and lazy. A company that has lost 90% of its market cap is a real life zombie. Two more years and they will be in receivership, with their assets picked away at by crow’s looking for a deal.

The fact is the service industry needs to be able to rely on the oil and gas industry for their revenues. In order for the service industry to perform in the best interests of the oil and gas industry, those revenues need to be stable and secure. The fact that oil and gas is a primary industry means that the responsibility for this falls on them. After all they are wholly dependent on the service industry and you do reap what you sow. This is the manner that the Preliminary Specification deals with the difficulties that we face in the future. The Research & Capabilities and Resource Marketplace modules provide for this environment to be created and managed. Is it so unreasonable, in this day and age. To expect that the producers will control themselves and not overproduce. By implementing the Preliminary Specifications decentralized production model they can do this. And make the prices that are necessary to support both industries in an appropriate manner.

As it stands now, with this downturn, people are leaving oil and gas and the related service industry for good. They've seen the character of the bureaucrats before and know that this downturn will be no different. What will be different is their actions. Instead of waiting for the next upturn. They're going to take what they may have been able to secure and are moving on to some other more secure industry. This is happening wholesale in the service industry, and to the people who work in oil and gas. Many of which I know are burnt to the core. Add on top of this the fact that the bureaucrats, when faced with the results of their own stupidity, always hightail it to greener pastures and you have to ask yourself. What and who are left?

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

Administrative Nightmares

Ask a bureaucrat why they haven't shut-in the unprofitable production these days and you’ll see the thousand mile stare followed by a frustrated and angry response that you don’t know what you’re talking about. Its the question that needs to be asked and the honest answer from the bureaucrats is they don't have a clue which properties are profitable. Their entire operation, from an accounting point of view, is a giant fudge factory. They employ the accounting and administrative people to conduct the necessary activities on behalf of the “joint account,” or what is commonly referred to as the accounts of the Joint Operating Committee. And because there are partners in most of those “joint accounts” they are authorized to charge for overhead on percentages of capital spent, a number of fixed dollars per producing well per month and a few other ways. It is generally agreed that none of these overhead charges make up for the real costs to account and administer a property. They are estimates based on best guesses that have been in place since, I think the 1950’s.

There is no consideration in these overhead charges for natural gas operations or oil operations. Anyone who knows the business will understand the complexity and difficulty involved in natural gas, from an administrative and accounting basis, is an order of magnitude more complex than oil. These overhead estimates are also the same irrespective of the volume of production from the well. What bureaucrats want you to believe in this quarterly report season is that the costs to carry the people on the payroll have been the source of their difficulties. Laying these people off will be the natural resolution to their difficulties. My argument here is all a moot point the bureaucrats will state. As the people in head office, the accountants and administrators, costs are capitalized anyway. Which is very true, so why lay them off. Could it be that you're just looking for a scapegoat?

The point of this post is to document the difficulty in determining the profitability of an oil and gas property under the present systems. Producers can determine the revenues, royalties and operating costs of the property and use that as the basis of determining what is providing some contribution to the margins. But these calculations are unable to determine the costs to administer and account for these properties and they never include the costs of capital that was incurred to explore and develop the property. Those are what are called sunk costs in the business. It is these sunk costs and the overhead that can be widely variable between properties and producers in determining a Joint Operating Committees profitability. That is, when and if they could ever be calculated properly by the producer.

To account for the administrative and accounting costs on a property basis has never been conceived of before. The necessary armies of accountants, with very sharp pencils, would be thick and deep. Therefore the need for overhead allowances has been the most practical application to deal with the way to administer oil and gas. That was the case in the 1950’s and 1960’s and has been continued throughout the last 50 to 60 years. However, we have these computers now and if we organized ourselves around the possibility of using them to do the things that they do well, and have the people do the things that people do well. We could determine with exact detail on a monthly basis each well's performance in terms of revenues, royalties, operations and exact accounting and administration costs, and just for fun I'll throw in the fact that we can determine what a reasonable person would determine the costs of capital was for the month as well.

By having our service providers replace the accounting and administrative resources of the producers. They will use their staff, who are the reallocated administrative and accounting resources from the producers, and our software to provide the administration and accounting of a specific process on behalf of the entire industry. It will be in that way that they can charge for their services to each Joint Operating Committee, or well, the exact costs of what they incurred to process that Joint Operating Committees specific administrative or accounting process. If the well wasn’t on production then none of the service providers would have done any work and none of the service providers would have issued an invoice to any of the Joint Operating Committees for any accounting or administrative work. That way if the well wasn't earning a profit the producers could shut it in and wait until such time as the commodity prices rose to the point where they could make a profit, or alternatively they could put that Joint Operating Committee in their inventory of engineering and geological workovers and try to innovate to bring it back to profitability sooner.

The way that the industry is currently structured is to accommodate the world as it exists in the 1950’s. Computers are around today but the organization and methods are still stuck in the 1950’s. The Preliminary Specification will change this by providing full income statement and balance sheet reporting for each individual Joint Operating Committee and well. We need to make these changes in the Preliminary Specification in order to provide the dynamic, innovative and profitable oil and gas producer with the most profitable means of oil and gas operations.

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

The Probable Scenario

If we fast forward three years to the year 2018. We find that this oil and gas price decline / overproduction has passed and all is well in oil and gas! The bureaucrats are congratulating themselves with handsome bonuses for surviving what may have been the most difficult period in the industry. Things could not look better. Restructuring of the junk bond market has made ample investment capital available and those drilling locations have been dusted off and negotiations for drilling rigs have begun. Bureaucrats are on the record in their last quarterly report that their production profile will be 15% higher than what it is currently.

What did you expect? A change in the methodology, strategy, operations or attitude of the bureaucrat? I was on record for this past year that they can't, won't and will not change their ways. This was in contrast to the constant barrage of news and information that the industries production profile would decrease and pricing would recover. I suggested it would never recover, and for proof just look at natural gas. Suggesting, in our scenario above, that in three years oil prices will recover to the point where drilling plans will be dusted off and drilling rigs will be contracted was the most optimistic that I could possibly be about the current situation. I give this scenario around 3% probability of becoming reality in 2018. More likely we will see the court's full with bankruptcy claims of the producers, their banks and the junk bond investors.

Oil and gas has a problem and it’s primarily the bureaucrats. However there are secondary elements to it as well. Shale being the biggest of the secondary elements. It is very expensive. It is prolific. Its flush production overwhelms the commodity marketplace. And is for all intents and purposes a non-commercial exercise. But is it? Today the U.S. derives 58% of its natural gas from shale. And for oil it's at least 25%. The moral of the story is we are junkies and we are hooked on the most expensive stuff their is.

The fact of the matter is that the next leg down in this industries destruction will not be on the oil side. Natural gas volumes in storage will be filled to capacity upwards of a month before the fall demand begins. That will take upwards of 14 bcf / day, or almost 20%, of the U.S. demand off of the market during that time. Where oh where will the producers put it? Expect our friends the bureaucrats to do the most intelligent and constructive thing that is humanly possible at that time. Remember, they don't care about the business so they will say this a temporary situation or an anomaly. Or you could short natural gas futures contracts.

We come back to this. The producer need a means in which to allocate production. The only reasonable and fair methodology is on the basis of profitability. If the property is profitable, then it produces. Otherwise it remains shut-in where the reserves can be held until such time that it can be produced profitably, it removes the marginal production from the commodity marketplace which increases prices and ensures that the producer only produces profitable properties and doesn’t have those profits diluted by having to cover unprofitable properties. The only way that this will happen is if the industry adopts the Preliminary Specifications decentralized production model. This can be done by funding our budget.

BP’s earnings will be released today. It will set the tone for the industry in terms of earnings reports for the producers. Expect to see those magic profits we've talked about here before, maybe for the last time. Hedges will have expired and lower overall prices will become evident in the next quarter's report. Bloated balance sheets will need to be addressed by then as well. What will be interesting about today’s quarterlies is that these companies will have to be honest about their future projections. This could trigger some big blow downs in the stocks of the producers. Also expect to hear the keywords “implement cost controls” from many producers. These are the three magic words that show investors you're focused on their interests. These three words have been able to save some otherwise dismal companies from facing the music this quarterly report season.

Things are happening quickly now for the oil and gas producer. As I stated we are at the end of the beginning of maybe the worst era in oil and gas. And it is all the bureaucrats fault. This situation is all avoidable and fixable. I have been “harping” about this and promoting the Preliminary Specification for many years. Years in which the pain being experienced by everyone could have otherwise been resolved and avoided. Instead thank your bureaucrat, and listen to them carefully in the conference calls and see if you can hear the waves from the lake where their calling in from.

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

Never Means Never

Oil, and to a lesser extent, natural gas prices are suffering from the market’s surprise that “more” oil or gas haven’t been removed from the production profile. North American production being up over one half million barrels is confounding the marketplace. If you've been reading this blog for the last year or more, I've been suggesting that this would happen. The bureaucrats can't, won't and will never change. They also don’t care. I found this interesting quote that provides some understanding of why this happens and some insight into the future direction of the oil and gas bureaucrat. It’s from Henry Kissinger who states.

When enough bureaucratic prestige has been invested in a policy, it is easier to see it fail than to abandon it. 

We also have this “never means never” dilemma facing the raising of our budget. The bureaucrats fight us at every opportunity that they can. Their actions against us are subtle and more oriented to my frustration level than anything else. You see the difficulties in other technology companies having their products implemented in the marketplace. Uber is being aggressively pursued by the New York Mayor. Hillary Clinton has commented that she’s not a fan. The vested interests that are aligned against those with alternative business models have difficult protracted battles ahead of them. Our ability to raise our budget is something that on most days seems to slip further away. Unlike Uber we can’t be operated as an app on someones phone. We have a much broader scope and scale that needs to be developed in order to provide the solutions that the market needs. We do however provide a substantial value proposition once we've developed those application modules of the Preliminary Specification. And that is the choice, a profitable industry with our solution, or continued financial destruction with the status quo.

The real key to our future and the quality of our product is our user community. We continue to focus on its development over the next few years as we await developments on our budget. The question I guess is how much pain can the oil and gas investor handle. The user community will never commit to us in the volumes necessary until such time as the financial resources are secured. We can however communicate with the larger community and get the word out about what it is that we are doing. Have the people in oil and gas understand the process and methods we are using to solve the issues in the industry. Have them informally prepare themselves for the day when we do finally receive our budget and then they can join the community. This is highly constructive work that we are doing today and the audience that we are reaching is growing and is substantial. Without the Internet this would have taken an immense effort and a reasonable budget to accomplish. Today that is not the case. And we can continue to do this for the foreseeable future and make this all happen. I'm not surprised that I am not the only dissatisfied person in oil and gas, I am however surprised at the enthusiasm of our targeted user community. This is doable.

One thought that I continue to speculate on and maybe the oil and gas investors can think more about. Is regarding the raising of our budget needs. Imagine what would happen to a producer's stock if they funded their share of People, Ideas & Objects budget. What would happen if the investment community put pressure on the board of directors of a producer to forward their share of our costs. Understanding the impact of the Preliminary Specification, the going concern concept and the efficient market hypothesis. Would that producers market capitalization then reflect the value of the producer as if they were operational on the Preliminary Specification on a proforma basis. The theory is put into practice every day. And if the bureaucrats were smart, they could maybe earn an extra year or two of quiet vesting of their pensions while we were busy doing our work. Think about that.

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

The Asset Swagger

In oil and gas assets are things that you collect on your balance sheet. The more that you have the bigger the swagger that you can carry off as you walk down the street. These are the governing principles in oil and gas. Shale properties are pursued by bureaucrats because they are consistent with the governing principles of the industry. They are costly, leading to higher balance sheets. Have steep decline curves, which lead to less and less recognition of any depletion of those assets in subsequent years. They are the perfect asset to pursue.

I'm paraphrasing here but I think this is the general operating procedure and logic being employed by the bureaucrats. It seems to be the only logical reason why we are doing what we are doing. At the end of the year the firm will be so much bigger because we blew so much investor money that they'll be impressed. So the bureaucrat thinks. Now that’s performance.

I have argued here on many occasions my difficulties with the capitalization policies used in oil and gas. The SEC dictates that either full cost or successful efforts define the maximum amount that a producer can record as their assets. Either method bloats the balance sheet by including everything under the sun as an asset on the balance sheet. But what accounting firms and bureaucrats don't seem to understand is that the SEC defines the outer limit. Any reasonable business person would look at the balance sheet of a producer and state that it is overstated, or more appropriately, bloated. When did reasonable lose its application to assets in oil and gas? I think it was around 1978.

Assets are not collectables, they are costs that need to flow to the income statement. For a healthy firm and industry, the sooner the better. There is no reason for an industry to be carrying the last two decades of capital expenditures on its balance sheet. The only reason that you would do so is to make the bureaucrats look like they're “performing.” Sure the producers have been reporting profits, but if you never recognize the cost of capital, in a capital intensive industry, you're going to report profits. Note too however, these profits as a result are of the paper variety. If these profits were real, the producers would be flush with cash. Almost no producer has positive working capital. An industry that operates on negative working capital! And they provide no return to their investors, in general. Clearly the overproduction has been endemic for decades fueled by the deception of a profitable industry.

This is a fine critique but what are the alternatives. There are two things that we will be doing in the Preliminary Specification. First is we will be including the cost of capital and actual overhead into the calculations of prices necessary for the Joint Operating Committee to earn a profit. These price calculations will be done on each and every property and well in the industry. They will be accurate and timely. On the basis of these calculations the producers will then be able to determine if the Joint Operating Committee can be produced in the current commodity price environment. If it can produce a profit, then it will produce, otherwise it will be shut-in.

The second element of our policies is that we will employ a different capitalization policy. One that recognizes the costs of exploration and development in a more timely fashion. What is generally considered controllable equipment in the industry, pump jacks, tubing, wellheads, etc will be capitalized. The uncontrollable, and more specifically the intangibles like drilling day work, cementing, logging and fishing will be expensed in the current period. Irrespective of the results of the well. This change in policy will be consistent with the SEC requirements as it does not overstate the assets of the firm.

What these two policies will do is draw down the bloated balance sheets of the producers. Retiring these bloated asset costs and having them recognized for the costs of the business that they are. There would be no more fooling ourselves that producers are profitable. We would need substantially higher prices in order to achieve this profitability. A mechanism, the decentralized production model, is provided in the Preliminary Specification to bring prices to the level where they are covering the costs of the industry. This capitalization policy would also return the capital to the investors who have invested in the industry in good faith over the past decades. That is because the oil and gas industry is a capital intensive industry and oil and gas exploration and development is expensive. Giving the commodities away cheaply as we are doing now is only bankrupting the industry and leading to any number of bad decisions by industry and consumers. This is foolishness and it has to stop.

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

The Vested Pensions Business

We are nearing the end of the beginning of this oil and gas crisis. I have seen many downturns in my 38 years in the business. I remember the decline in oil prices in the 1980’s being the worst. It lasted for a long time and had an affect on people’s thinking about the industry for a generation. This is not a downturn like anything that I have seen before. This is the first crisis that has occurred in oil and gas. One that is particularly difficult because it could have been avoided with action from the current installed bureaucrats. What is clear by their behaviour in the past. Is that they can't, won't and will not do anything to correct the situation. It was their expectation that they would ride out another year telecommuting from their cabins at the lake. It's time to cut and run on these bureaucrats, they will never sort this out. It was clear to them that they had this scam running for another year, at least. The problem is the industry is deteriorating under the bureaucrats feet and it should be obvious to everyone by now that they just don't care. Its pensions, fully vested pensions, that’s the business to be in.

Our solution to the issues in the industry have been summarily rejected by the bureaucrats. It is clear when you read the Preliminary Specification that they are relics of the past century and have been dispatched to the history books in the process of implementing our solution. Which interferes with the business of vested pensions. Our solution requires significant changes to be made to the industry. With the level of distress that I see being generated in the near future. Our changes will be able to be implemented. In a normal environment we would have to compete with the status quo environment. With all hell breaking loose, people will be looking for alternatives. That makes our job much easier than having to compete with people who are comfortable in their lives and competent in their jobs.

The prototypical producer in the environment where the Preliminary Specification is operational. Will be a stripped down version of its current configuration. Consisting of the C class executives, the earth science and engineering resources, some land, legal and support staff. The administrative and accounting resources of the producer will be reorganized to service providers who are focused on a process or subprocess and will use the entire oil and gas industry as their client base. It will be in this way that we move from the producers administrative and accounting based capabilities to an industry based administrative and accounting based capability. By doing so we render all overhead from these administrative and accounting costs to be variable in nature, as opposed to their fixed nature as they are today.

With the administrative and accounting costs taking on the variable characteristic very little of the producers costs will remain fixed. Rent, lights, power etc for the head office but those will be for a smaller configuration than what they are now. The majority of their current overhead, the people and their associated costs, will be variable in nature in the following manner. With the service providers they will operate based on the activity they receive from the Preliminary Specifications task and transfer network. If a well is on production, then production is reported and the service providers that are required within those processes, revenue accounting, paying royalties, production allocations, etc are involved in those tasks. They will conduct their activities and issue a billing for the administrative and accounting activities they conducted to the Joint Operating Committee. Not the producer. If there was no production, none of the service providers will receive anything from the task and transfer network and therefore no activity will be incurred by the service providers and no billing to the Joint Operating Committee.

The producer will, as a result of this, know with better clarity than they do now, exactly what their profits are for any specific Joint Operating Committee. An allocation of capital, revenues, operating costs, royalties and actual overheads incurred by the service providers will give them a precise accounting. It will be on the basis of this accounting that if the property is not producing a profit. A profit that also considers the costs of capital and actual overheads. Then the property would be shut-in or suspended until such time as the commodity prices would provide profitable operations. While shut-in, nothing will be generated from the property to trigger any of the administrative and accounting service providers to conduct any of their activities in the task and transfer network. Therefore creating a null operation, no profit, but most importantly no loss either. Only the cost of capital is uncovered during times of shut-in production.

As a result of our decentralized production model. The producer saves these reserves for a time when they can be produced profitably. The commodity marketplace supply is reduced by the marginal production, leading to higher prices. And the producers report higher profits on lower production profiles. Profitable properties are not having to make up for unprofitable ones. This industry based organizational structure is what is required to deal with the abundance of the high cost, highly prolific shale based reservoirs. Dumping overproduction onto the marketplace just doesn't seem to be working. Unless, you're in the fully vested pension business that is.

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

Its the Bureaucrats Fault

Needless to say I see the situation in the industry to be rather dire. The capacity for producers to continue on in the manner that they are will be able to be assessed as soon as the second quarter reports have been digested. These will be published in the next two weeks and many will start to show the seriousness of the issues in oil and gas. Bureaucrats were granted a pass a few months ago. During annual report and annual general meeting season they said they had the situation well in hand. This was on the basis of their reports being based on derivative income and no one questioning their capitalization policies. We have learned since then that most of their hedges have been expiring. And just last week Morgan Stanley was questioning why producers were not writing down more of their shale based assets. The situation, as represented just two months ago, may not be in hand in May of 2016. It is therefore time to revisit the decision of leaving the bureaucrats in power from now until May 2016 when we know that things are not as they were represented. Remember misrepresentation is fraud.

But then again maybe the producers will report record profitability this quarter. The point is I think people are watching and the fact that the bureaucrats are doing absolutely nothing about the business of the oil and gas business is very disconcerting. They were going to leave it alone for the remainder of the 2015 calendar year and just earn another years salary, bonus and vesting of their pensions. After all that is all that matters. It is irresponsible what is going on and they should be held accountable for their actions. This is a serious matter. The oil and gas industry is not the candy business. They have a duty to fulfill and this current era of unprofitability will lead to declines in capacity and capabilities.

The bureaucrats will never make the necessary changes to deal with the issues in the industry. They never have had the capacity to implement change. Muddling along has been the strategic operating procedure that has worked in every instance before. And maybe it will work again. Or we can develop the systems in the Preliminary Specification, organize the user community and service providers and structure the industry in a manner that deals with these issues today, and whatever issues and opportunities come our way in the future.

The Preliminary Specification provides the producer with the capability to implement the “price maker” strategy. Simply they do not produce any property that can’t be produced profitably. By suspending unprofitable production they save those reserves for a time when the commodity prices are higher and the property can be produced profitably. They reduce marginal production from the commodity marketplace leading to higher commodity prices. They are able to be the most profitable that they can be at lower production profiles. The profitable properties are not having to carry the unprofitable ones. This logic is contrasted to the high cost, low price, overproduction the producers are involved in today.

The bureaucrats can’t change to this simple idea in their current configuration. They employ the high throughput production model which requires full production at all times in order to cover the significant overhead costs. And of course we know where the most significant elements of the overhead costs are, the bureaucrats. So there'll be no more discussion of this point.

We can provide this change by implementing the Preliminary Specification which uses our decentralized production model. We'll discuss the model and our implementation more tomorrow but for today lets point out that the second quarter reports will be out soon. They should be the justification for action. That all is not well in oil and gas. Something needs to be done. And I guess you know what I would recommend.

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

The Issue

The issue in oil and gas is that it is unprofitable. There have been changes in the industry in the past decades that remain unaddressed by the current bureaucracy who operate the industry. These changes, which include the move away from the scarcity of the resource base, to an abundance of the commodities in North America. Require new business models in which the oil and gas industry can operate. The bureaucracy will have none of it, and refuse to make any changes to their existing business model. They are fine with the status quo, as the structure of the industry serves their personal interests. Outside of the personal interests of the bureaucracy, no value is realized by anyone. Profits are the source of an industry's health. Other than paper profits that are derived by never recognizing the capital costs incurred in the exploration and production process. The industry is as unprofitable as an industry could conceivably be. Surviving on other people’s money for the past decade. A never ending downward slide in the quality of the capital that has been sourced by the industry has occurred since 2008. Relying mostly on junk bonds these past few years, this avenue may too be closed to them as the junk bond markets fall into distress as a result of the quality of their investments in oil and gas.

As a result of this lack of profitability governments are short changed on their tax base, investors realize no share in earnings and no upside in their investments, staff are cut and the service sector has their revenues slashed or are faced with cannibalizing their assets. Only the bureaucrats are happy. The changes that are occurring in the industry as a result of the shale discoveries are what makes all the difficulties ever present. The over production as a result of the shale discoveries will continue for as long as there are shale reserves. In natural gas that is best measured in centuries. At the same time the costs of these reserves are amongst the highest of any form of oil and gas resource. High costs, low prices and overproduction would lead most people to adjust their business model. The self interested bureaucrats have no motivation or desire to make any changes. They are fine, thank you.

We discussed the difficulties that the industry was having and how the bureaucrats needed to make the changes by adopting People, Ideas & Objects Preliminary Specification. It contains the decentralized production model that enables the “price maker” strategy for the oil and gas industry. Producers will suspend production that can not be produced profitably. A simple idea but one that can not be implemented in the current bureaucrats business model. What is needed is the budget to build the Preliminary Specification and for development of the user community. And at the same time have our service providers develop alongside of these. This change would solve the problems, for that there is consensus. There is consensus that this change will eliminate the need and the desire for the bureaucracy as well. Hence why no money has been forwarded to People, Ideas & Objects.

Information Technology is providing the means for many changes in many industries. The disintermediation of many industries has occurred, is ongoing and eventually will affect all industries. Oil and gas is not immune. However, I would suggest that the oil and gas instance is acute as a result of the unaddressed changes that have recently shaped the industry. It is a financial basket case. It will not survive for long in the manner that it is being operated. It is also the most important industry in terms of our advanced societies survival. A robust and healthy, or profitable oil and gas industry is necessary for the continuation of our species.

If we secured our budget today, we have many years of work ahead of us. Don't expect “instant” miracles from us. We have a significant undertaking to accomplish and that takes time. More time than the industry has money? Probably. It will be a difficult transition.

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

User Community Business Opportunity Part III

Members of the user community are business professionals in the oil and gas industry. Operating primarily in the domains of administration and accounting. You and your team from the service provider that you own and operate will provide the oil and gas industry with the management of their process that is your exclusive domain. Although there is no direct competition for the process you manage. There is significant indirect competition from all of the other members of the user community and the service providers that they own and control. The competition comes in the form of the means of automation, the manner in which work is divided between computers and people, how the division of labor is implemented in the service provider and the level of specialization they are able to achieve in the processes they manage. This is the competitive environment that you will compete in. You won't be faced with someone who shows up one day, taking your ideas, and establishing a similar service at half the price. The “me to” types of competitors are unable to provide any value or profitability to the oil and gas producers. Their focus is on the cost of the service and the oil and gas producers will not become more competitive based on the lower costs of the user community and service providers.

The simple fact that we won't license anyone to operate in your domain or in the process that you manage is the way that you can be assured that your focus remains on the competition at the higher level attributes that I mentioned. And without a license the people that may want to infringe on your territory will be unable to access the software needed to manage the process on behalf of the oil and gas producers. With the decentralized production model, the industry configuration of the user community and service providers enables the price maker strategy for the producers. This is the source of the majority of the value that is earned by the producers. There is also significant potential value to be earned through the user community and service providers applying their toolkit of a software development capability, further automation of the process, specialization and the division of labor. To have this focus distracted by having to compete in the short term on the price of the service, because someone wandered into your domain, can't, won't and will not happen with the licensing of the Intellectual Property that is the basis of this community.

One of the things that we are doing by establishing this community is we are in essence setting up a sub-industry. A sub-industry that resides between the technological industry and the oil and gas industry itself. Specialization and the division of labor evolve by way of filling gaps. There is a gap between the technology firms and the oil and gas producers. They don't speak each others language or understand one another's needs. SAP thinks producers should get closer to their customers. After 38 years in oil and gas I don't think I've ever met a customer of an oil and gas producer. Its this type of disconnect that we are resolving by establishing People, Ideas & Objects, our software development capability, the user community and service providers to fill the gap between oil and gas producers with the technological firms. We are focused on providing the oil and gas producers with the most profitable means of oil and gas operations. Which means we are business professionals first and foremost.

There is therefore a secondary requirement that the user community and service providers need to have as part of their toolkit. They need to understand the technologies that they are using at a very high level. It is highly probable that the user community participant will be, at times, entering the code base to make changes. This probably won’t go beyond XML however, to edit XML you need to understand the rest. Now nothing will immediately be changed as a result of the user community participants code changes. All changes by everyone will have to be processed by a committer on the People, Ideas & Objects software development team. There will be a process in place. In order to have this capability, of editing XML, the user community participant is going to have to know XML, Java and relational theory as well as most of the people who work in the technologically based companies. Oracle is a big part of our solution and they own most of these technologies. Therefore to collaborate with them is a necessary part of your role as well. To relay what the business needs are in the technology.

That is why we have asked that the user community participant have the background in technology that we are asking. If you don't have the understanding of those technologies there is time at this point to get them. Many universities offer courses in these areas and I highly recommend that people take the time to learn these technologies. I think know it will be a necessity when we get to where we're going.

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

User Community Business Opportunity Part II

People who are interested in becoming participants in our user community need to assess the risks that we described in yesterday’s post. Those risks include the high probability that People, Ideas & Objects may not obtain its funding. In order to assess this probability a potential user should make an assessment of the situation in oil and gas today. Are the producers earning the profits that they report? And is the situation of chronic and systemic overproduction sustainable? What will be the outcome of a continuation down this road? The people who may be interested in the Preliminary Specification as an alternative need to read the document to determine whether it is a viable solution. And if it is, assess if it is the means in which to resolve the industries difficulties. Are the calculations of the value proposition between the two different business models as stark as the $45.7 trillion reflects?

This is a difficult assessment that needs to be made by each potential participant in the user community. I am putting out a vision of the industry based on what I think the issues are and how I think they should be solved. I expect that people who are going to participate in this software development, the user community and service provider, need to fully understand what it is we are doing and how we are going to do it. Organizing this will need to have many people on the ground knowing where to turn and how to get to the final destination. There won't be much hand holding, if at all. We will need people who are fully apprised of the direction we are moving and believing that what we are doing is in the best interests of society, the industry, producers, the Joint Operating Committees, the service industry and the people who are involved in oil and gas. Being fully informed and having an opinion as to our future is necessary for each of us to move forward.

This is not your traditional software development. Usually the decision is made to implement SAP, the “experts” come in and spend a few months talking nothing but acronyms, and then someone says we'll need some users. Its at that point the budget is breached and the software is turned on and the user is expected to figure out the new applications in isolation. At People, Ideas & Objects we are spending as much time as we need to develop this user community. Providing them with a comprehensive vision of how the industry should operate through the Preliminary Specification. Empowering them through the licensing of the Intellectual Property throughout the lifecycle of the applications. And ensuring that they are the ones that remain in control of the business models and critical aspects of the applications. This is very different software for a very different industry structure with a very different outcome. Providing the oil and gas producer with the most profitable means of oil and gas operations.

Until we are granted the funds we need to develop this software and support the user community. It is important that we continue to keep those that are interested in the user community as confidential and secure as possible. The bureaucrats would love nothing more than to punish people for their participation here. So they're always on the look out for anyone who would be so unwise as to volunteer their name. It will not be me who speaks their name in any way and for that you can be sure.

People have complained about the onerous process of making application to become a user community participant. Yes it is onerous. That is due to the significance of the role you will be taking in the process of changing the industry. The quality of people that we are looking for. And the difficulty in organizing these developments and the need for this information to help in the logistics of this development. The more we know about you the better we are able to make the appropriate assessments and the better we can place you in the appropriate areas. I know these take time, but time is what we have while we wait for the frustration level of the investors, or whoever will fund us, and give up on the bureaucrats. Contrary to what we are used to doing in oil and gas today, we are focusing on the long term solutions for the industry.

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