Keeping Our Audience Tuned

Lets be clear, when the bureaucracy announces “Behemoth”, the bureaucracies yet unannounced competing product to the Preliminary Specification, the bureaucracy will set in motion its own demise. They however have no choice but to make that announcement. Their survival will therefore rest on their ability to ensure that “Behemoth,” and therefore all systems, fail. This strategy might even be implemented by the bureaucracy supporting People, Ideas & Objects Preliminary Specification in order to make it fail. So we need to be mindful of any support that we might receive from our friends the bureaucrats. Their control of the budget would be very effective in keeping us on life support, and then at critical times force us to scale back on key initiatives. Not something that we can contemplate or expect to achieve our goals with that kind of funding. That is why we have established the Revenue Model to set out the terms and conditions as to how the development needs to be undertaken.

With the projected costs of these developments being beyond the scope of anything that has been contemplated before. There will be those in the bureaucracy that will bark and yell. While the losses on the natural gas side of the business continue to mount. We provide the oil and gas producer with the most profitable means of oil and gas operations. And that is the driving motivation to support and complete the software developments that will be derived from the Preliminary Specification. Let the bureaucracy bark and yell and ultimately fade to black. This is an investment in how the business of the oil and gas business is run and managed.

The future of the industry and how it approaches the difficulties in the decades to come is to be addressed within this software development process. Setting out an organization of the industry that is a more natural way in which it operates, around the Joint Operating Committee. Moving towards this natural bias will orient the people and the organizations towards a more efficient and effective industry. This is what is necessary in order for the industry to approach the difficulties ahead. The first thing we need to do is to organize ourselves. Organize ourselves for success.

These are the aspects that are missing in the bureaucracies “plans” for “Behemoth”. There focus will be on their own survival, at the expense of everything else. I certainly can’t see the industry succeeding in the future with the bureaucracy in control. It is failing by all accounts today, but that is a matter of opinion, I guess. What I have tried to provide industry is a choice for it to deal with its future. One where innovation and profitability are cornerstones of a growing and dynamic industry. I am glad that I am here and able to offer the Preliminary Specification as that choice.

It is the things that I say and do that make logical sense for the industry to move towards. It also frightens the bureaucracy with its ultimate demise. Which is a good thing I think, and a lot of people seem to agree. The bureaucracy however hold the power in the industry and have not feared the consequences of demonstrating that power to me. It’s quiet now. But with the amount of money on the table and their existence being questioned they will be agitated soon. Don’t get me wrong I love the fight. I just don’t want to lose this audience who will be disappointed that there is a fight. This could be interesting for all concerned. So I would suggest that you stay tuned.

The Preliminary Specification provides the oil and gas producer with the most 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.

Not a Kumbaya Moment

Another aspect of the bureaucracies “Behemoth” that they should consider before they make its announcement is what is the fundamental justification for the project. If the Preliminary Specification provides the opportunity costs of $67 billion for the calendar year 2012. And that is the justification to develop “Behemoth” then how is “Behemoth” going to capture that value without the ability to use the IP that is inherent in the business model of the Preliminary Specification? If that value is not available to the bureaucracy why are they developing “Behemoth”? It’s questions like these that are best left unspoken.

Here we are striking at the heart of the very survival of the bureaucracy. They have no answer to the question as to where the value will be generated by “Behemoth”. They will be only conducting the exercise in order to appear to be generating value through the development of systems. This development being undertaken as a means to justify the bureaucracies very existence. For without the existence of the development of “Behemoth”, they stand naked in terms of a response and accountability to the business model in the Preliminary Specification. They must do something. And they must do something in terms of systems development. And their very existence depends on it.

Now we see why this will be a fight and not a kumbaya moment. With the Preliminary Specification the bureaucracy is all but eliminated. The power of the Internet is disintermediating this dinosaur from all industries as we speak. Oil and gas is not immune from this. And the instinct to want to persevere and prosper is also a characteristic that is common in the bureaucracy. The fact of the matter is its coming down to a point in time not of their choosing, very quickly and its at their doorstep.

I’m only too happy to be the one delivering the bad news. The bureaucracies ultimate demise will bring new value and prosperity throughout the oil and gas industry. A lot of their structure is configured around what I call the corporate model. The focus of the corporate model is the compliance and governance of the firm towards the SEC, tax, royalty and regulations of the corporate business. The idea or concern for the actual business of the business is not even a secondary concern for the bureaucracy. This is why the Preliminary Specification is a fundamentally stronger model for the innovative and profitable oil and gas producer. It moves the compliance and governance frameworks of the hierarchy into alignment with the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee. This alignment provides the producer and Joint Operating Committee with greater speed, innovativeness and accountability over the corporate model. In addition we see the opportunity costs it generates in terms of the value it can provide the industry.

The bureaucracy ignores the Joint Operating Committee in their corporate model and in their systems. And that will include “Behemoth” as well. They are operating on a different planet with different objectives and different plans to what the business of the oil and gas business needs and wants. The Preliminary Specification focuses the resources of the industry, and the service industries, on the needs of the business through the Joint Operating Committee. An innovative solution whose time has come and whose only impediment to its implementation is the same impediment that was there ten years ago, the bureaucracy and their self serving agenda.

The Preliminary Specification provides the oil and gas producer with the most 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.

Competing Based on Intellectual Property

One area that the bureaucracies “Behemoth” solution will be unable to compete with People, Ideas & Objects Preliminary Specification will be on the use of the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. They will have to find some other organizational construct in which to use to build into their systems. Using the Joint Operating Committee is part of my Intellectual Property (IP)and I certainly am not granting them any right to use any part of it. And that goes for all of the IP in the Preliminary Specification, the business model and anywhere else they may find it within the pages of this blog or elsewhere. This IP is the product of ten years of dedicated research, derived from twenty five years of oil and gas experience. If they want to compete with Behemoth, then I believe they need to begin with the process of the ten years of research. That’s ten years after they come up with an organizational construct. And remember there are no shortcuts in conducting your research.

So the starting line to this fight is a little staggered in my favor. I have been in the business of software development for oil and gas ERP systems for twenty two years. And I have seen their power in terms of what they can do through effective business models and software developments. The Preliminary Specification is a reflection of this. Intellectual Property is a key aspect of the strategy that People, Ideas & Objects used to undertake the research in the past decade. That was the manner in which value would be built over the long term. Not through hard assets, but through IP. We now have a competitive offering and will enforce these standards on our competitors.

When I first began developments in 1991 I have to admit it was a bit of the wild west in terms of IP. If you had anything of value it was taken, copied and used by everyone that could get their hands on it. Today it’s a fundamentally different situation. One in which IP is recognized as the building block of the new economy. One where IP is the cornerstone of some of the largest corporations in the world. The management of IP is as a result far more easier to assert than in 1991. The following are some of the administrative steps that we have taken to assure that our IP is recognized.

Everything is published on the web. Either through our blog or our wiki all of the research and material that has been written is available to be viewed. There you can see the genesis of the ideas of how the Preliminary Specification originated from the idea of using the Joint Operating Committee as the key organizational construct.

Secondly, since we were engaged in a protracted and unfriendly battle with the bureaucracy. This occurring throughout the decade we were conducting our research. And since they sponsored two initiatives to compromise our IP, we advised the CEO’s of the major’s, independents and a few other firms of our IP, its origins and the time frame in which it was developed. It was therefore inappropriate for them to proceed once provided with notice. We also advised the two research firms of our competing solutions which caused those projects to be terminated.

We also advised the major developers SAP, Oracle etc. of our IP and that it was not in their interests to be involved in any developments that breached our IP. With their firms being derived from IP themselves it was something that they respected and understood.

To deal with the issues of the oil and gas industry we have the opportunity to work on the Preliminary Specification tomorrow, as in June 13, 2013. Or you could join the yet unannounced “Behemoth” project which would have at least a decade of research to undertake and be of some unknown form to the industry. A choice that has definite implications to the future of the oil and gas industry.

The Preliminary Specification provides the oil and gas producer with the most 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 In This Corner

Having been responsible for the 2012 opportunity costs of $67 billion. And being shown the way in which to resolve the natural gas pricing issues in the industry. The bureaucracy will need to show some resolve that they too are on the job. That is why they will put up the fight with People, Ideas & Objects and our Preliminary Specification. And we should expect that fight to be one in which their attempts will be to talk over us as the premier method that they take us on. It’s not that they will have a vision of what they are offering. It will be technologically focused, probably SAP derived, cloud computing solution. But there will be no mention of any of the business issues in the industry or discussion of how those issues are going to be dealt with. There will be no Preliminary Specification in which to turn to.

To go forward in 2013 and 2014 without any solution to the problems in the industry when the industry is experiencing such quantifiable and qualifiable difficulties would be irresponsible even for the bureaucracy. With the evidence of the Preliminary Specifications ability to resolve the issues in industry with Information Technology. The bureaucracy will assert an Information Technology based solution. Without any vision, specifics, details or ideas on how to solve the problems they are facing. They will commit vast resources to resolve those details and come up with the ideas necessary. The point is when they are called on to explain the losses in the natural gas side of the business, they will be able to say they have an Information Technology solution under development to resolve those issues. And hence buy themselves a few more years of salary and pension plan vesting.

But that’s not the real plan. The real plan is to show a concerted effort in making these systems, only to have them ultimately fail. That will be the fatal blow that is needed to deal with the likes of People, Ideas & Objects. A systems development failure that proves that these types of systems don’t work would set the bureaucracy in the driver seat for a few more decades of power. This could be so easily done the bureaucracy would be fools not to make this their premier strategy in dealing with People, Ideas & Objects. I would expect to see something being announced as early as the fall of 2013. We should also give it an appropriate code name to refer to it in the future. Let’s call it Behemoth.

And there will be other strategies used in addition to the bureaucracies Behemoth to fight us. Our primary appeal is to the investor of the oil and gas industry in terms of raising the funds for development. It will be here that the bureaucracy will focus their energies on attempting to disrupt our resources. It is the attention that we seek and are garnering from this constituency that has the double edge sword of concern for them. It raises the resources for us, and diminishes the perception of the incumbent and their current performance in the industry. They need to be very careful how they travel through this minefield as it is not something that they can easily defend in terms of their own record, or as to their purpose in disrupting our activities.

Ignoring People, Ideas & Objects and hoping it will go away hasn’t worked. And doesn’t look like it will work in the future. This strategy has seen us come up with a strong vision which is now the appropriate solution for the industry at the appropriate time. It’s time for the bureaucracy to rethink and redeploy on this strategy. It will be interesting to see what they come up with. I don’t think they're so dumb as to attack it. But you never know.

And what is all this talk of fighting about. Why wouldn’t the bureaucracy just adopt the Preliminary Specification and begin the developments right away. This last point is the fairy tale. With $67 billion per year on the table, a fight this will be.

The Preliminary Specification provides the oil and gas producer with the most 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.

A Solution Whose Time Has Come

Our last few posts have shown that the bureaucracy has failed. That they are leaderless and do not change. Particularly at the scale necessary to rectify the difficulties in the natural gas marketplace and other areas of the oil and gas business. And in a somewhat unrelated point we recently noted that there is an implied guarantee that People, Ideas & Objects will be capable of completing the Preliminary Specification once we commence developments. A solution whose time has come.

The difficulty, or impediment now to having these software developments take place is the speed at which the marketplace takes up the Preliminary Specification. This however is 2013 and not 1999. Now that the marketplace is ripening in terms of the issues becoming prevalent. Solutions will be sought out and those solutions that are available will be evaluated. And its not just the natural gas pricing issues that the Preliminary Specification resolves. Moving the compliance and governance frameworks of the hierarchy into alignment with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. Allows the producer firm and Joint Operating Committee to operate in a natural manner. Where speed, innovativeness and accountability are the result. Where all the issues in the industry can be approached with fresh and innovative solutions.

I see a point in time in the future where the full specification of the Preliminary Specification is operating within the industry. Things happen fast in the marketplace today and I think things will happen fast for us now. Something has to happen, an IT driven revolution is happening in every industry. It is desperately needed in the oil and gas sector. SAP doesn’t have a vision. And I am offering the vision that is provided in the Preliminary Specification. We know the bureaucracies choice is SAP and it is the dominant application in oil and gas today. And SAP is the bureaucracy. So the choice is rather stark with the future of the industry held in the balance of which IT application it uses. Who would have thought.

So I don’t see it as a matter of choice as to which system the industry will choose. It will be a bit of a struggle between the bureaucracy and their use of SAP vs the rest of the industry and the Preliminary Specification. One of them will win this conflict and be accepted as the ruling application in the oil and gas industry. It will be an interesting time. And not a fair fight. The bureaucracy have control of the budget and have used it to their benefit effectively in the past. You can expect that they will do so again. I would expect to see that they will prematurely announce victory. Along with a list of promotions and announcements designed to feign support and direction for an SAP application that will “solve” the industry problems.

And we’ll continue as we have since August of 2003. For that is when the idea of using the Joint Operating Committee came to me and we began this adventure. I see the battle lines being drawn by the bureaucracy. They have much to lose. If it’s a battle that they want it’s a battle they will get. So let the battle begin.

The Preliminary Specification provides the oil and gas producer with the most 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.

What is Failure?

We have been discussing the situation in the natural gas pricing marketplace and the response over the past few years of the bureaucracy. We have discussed the makeup of the marketplace and the nature of the shale gas formations prolific characteristics could keep the natural gas marketplace in a similar situation for the foreseeable future. We have discussed the nature of the losses that are being incurred by the bureaucracies and contrasted those to the changes in the Preliminary Specification and how it works to mitigate the $67 billion in 2012 opportunity costs. What would we therefore define as failure in the natural gas marketplace and when would it be determined?

Declaring that the bureaucracy has failed would be a significant claim. It would need to be able to be proven, both qualified and quantified. It would have to be asserted that the existing situation would persist and could not be mitigated as a result of the current administrations actions. The failure would have to have a material impact on the business. Failure would require the actions of others to step in to offset the financial impact of the failure. And failure would see the lack of planning and budgeting to offset any future failure. So lets determine if the bureaucracy has failed with respect to its management of the natural gas business.

Lets first look at the quantifiable aspects of the situation. In 2012 the opportunity costs were determined to be $67 billion. As it stands in 2013 the natural gas prices are generally higher than they were in 2012, however, its still only June and we are counting opportunity costs as there are losses on operations in almost all instances at the current prices. The present value of continued losses on operations over a ten year time period bring the value of a solution to this problem into the stratosphere. More value can be earned by solving this issue than can be generated by conducting any other operation in oil and gas today. So from a quantifiable point of view the operation of the natural gas business today, by the bureaucracy, is a failure.

What about the quantifiable aspects. Are there plans in place to deal with the situation and remedy the losses to fix the issue. Can the issue be fixed. As we detailed yesterday if the producer shuts-in production, their overheads are fixed, which lead to larger losses on their operations. In a competitive capital environment they feel the best situation is to produce at capacity, and hence limit their losses. What they are in fact doing is saturating the natural gas marketplace, but that is a situation that they claim they have no control over. So the situation continues with the production at capacity and no plans to deal with the losses that continue. That is except to continue to hope for a cold winter. A fundamental failure to act in its own best interests.

Expecting others to step in to offset the losses is inherent in the bureaucracies mindset. Discussion about cash flow and operating profits divorce themselves from accountability towards their performance in terms of the capital invested. Capital was invested yesterday and is not relevant to today’s performance, so we have left it out in our current discussion, they will say. This is a dishonest and corrupt discussion that shows the state of affairs in the industry and is designed to avoid the discussion of the real issues. Losing money. What they hope to achieve by doing this is to fool prospective investors that they are a good investment so they can live off their capital for a little while longer. Kind of like a ponzi scheme. Expecting others to step in to cover for your failures is a clear sign or indication of that failure.

It is clear from these points then that we have proven, from both a quantifiable and qualifiable basis that the bureaucracy in the natural gas business has failed. Will continue to fail and has no plans or capability to stop failing. There is no question that at this point in time, we can say the bureaucracy has failed.

The Preliminary Specification provides the oil and gas producer with the most 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.

Bureaucracies Don't Change

When it comes to transitioning from the current corporate model to the business model defined in the Preliminary Specification. One thing we do know for certain is that bureaucracies don’t change and they are leaderless. Expecting a solution to the current natural gas pricing situation from the bureaucracies will leave people disappointed and losing money. We are entering our third year of depressed natural gas prices and the bureaucracy have not even identified it as an issue. They are more interested in the point in time when their pensions are fully vested. The fact that the changes proposed in the Preliminary Specification would have increased profits in 2012 by $67 billion seems to inspire little more than a guilty shrug from the bureaucrats.

People, Ideas & Objects have a solution to the natural gas pricing difficulties that are currently being experienced, and those that are in the future. The Preliminary Specification enables the producer to remove the marginal production from the marketplace until prices rise to the point where they will provide an appropriate return. During the time that the property is shut-in, no losses on those operations are incurred due to the fact that all production and overhead costs are variable and based on whether there is production.

The Preliminary Specification uses the decentralized production model to ensure that all costs are variable. By reducing the profitable and innovative oil and gas producer to the C class, earth science and engineering, some support and legal resources. With the remainder of the traditional resources deployed in service providers who are focused on a process, or part of a process, across the industry. These service providers are then able to provide the traditional production and overhead costs and services directly to the Joint Operating Committee. Then if the property is shut-in for the month none of the charges for overhead or production are incurred or charged to the Joint Operating Committee.

When none of the charges are incurred for production and operations to the Joint Operating Committee then no loss on operations is incurred. Only the costs of capital are uncovered during times when production is shut-in. Losses, which are being incurred in today’s marketplace, have to be added to the reserves costs to be made up for with even higher prices in the future. By shutting in the property, under the Preliminary Specification, the producer is minimizing their losses and saving the reserves for when the prices will provide a return.

In the current environment if the bureaucracy did have the sense to shut-in production to remove the excess production from the natural gas marketplace. They would still have to deal with the staff levels they have. No changes to the current staffing would happen in the current high throughput production model that is employed today. Therefore incurring higher losses on operations as a result of any shut-in production. Is it any wonder why producers produce at capacity.

It could be argued, and it is partially correct that in this process of moving from the high throughput production to the decentralized production model. The oil and gas industry is moving the burden of controlling their overhead costs from their own administration to that of the service providers. That is true and the service providers will have to ensure that they are providing the lowest costs services to the Joint Operating Committees that employ them. However, the service providers will also have the capability to deal with those costs in a far better manner than the producers will have been able to deal with them.

The use of software automation, specialization and division of labor are all able to be used more effectively by the service provider than by the producer. Using the industry as their client base they are able to specialize and divide the labor across a larger scope and scale of processes. And with a dedicated software development capability provided by People, Ideas & Objects they will be able to continually evolve their service offerings based on the software changes they desire.

The Preliminary Specification provides the oil and gas producer with the most 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.

A Guarantee

The Preliminary Specification presents a business model to the oil and gas industry that provide for profitable and innovative oil and gas operations. In our Preamble to the specification we detail the six key attributes of how it provides this profitability and innovativeness. These are the foundations of the eleven module software application that will define and support the oil and gas producer and Joint Operating Committee’s operations. These attributes are what the industry should be focused on and they can only be attained, in this the 21st century, by first defining and building software that supports the organizations that supports the attributes. Without the software to define the organizational foundations and attributes, nothing will happen otherwise.

Specialization and an enhanced division of labor are the means in which economies expand. Without the ability to further specialize the economy and the organization will stagnate. It is the source of real value generation. However we have a problem that is presented to us by the use of software. Without the changes first being defined and supported in the software, no further specialization or division of labor can spontaneously occur. Therefore we have to predetermine the changes that we desire, build them into the software and release them into the organization. This is the nature of our organizations today.

People, Ideas & Objects in addition to providing the Preliminary Specification provide a software development capability that is focused on the changes that producers and Joint Operating Committees want to see in their organizations. Our Revenue Model is designed to focus our organizations around the changing needs of the industry. A fundamentally different focus to that of our competitors with a fundamentally more competitive value proposition.

Key among the attributes of our value proposition is our claim that we provide the most profitable means of oil and gas operations. Our claim is validated by our business model noted in the Preamble. It is our way of asserting that we can deliver the Preliminary Specification and its derivative software and software development capability to the marketplace. Oil and gas producers can see the business model and know that its value is material to their business. And they know that they can only attain that value through the software that defines and supports their organizations. It is therefore incumbent on them to ensure that that software is developed, built and delivered to them in the manner that their organizations require. That is how People, Ideas & Objects can guarantee that once we begin the developments of the Preliminary Specification we will complete them. It is in everyone’s interest to do so.

Except maybe the bureaucracy. We may not have seen the end to their tactics. I would expect them to put up a few more good fights, they have a lot at stake. I would suggest they look to the future and ask where they fit-in in any scenario. Times have changed and the writing is on the wall. It’s time to go. Although I am certain they will need more encouragement, the investor class has a particular issue with the way that oil and gas is operated at the current time. Our appeal to the investors continues and the transition is beginning, so lets stay focused on these points.

I am certainly looking forward to the transition. There is nothing more exciting than seeing a sleepy industry focused on muddling along turn itself into a dynamic, profitable and innovative industry. Just in time for when the real demand for energy strains the ability of the industry to meet it demands. We live in exciting times and we have much to do.

The Preliminary Specification provides the oil and gas producer with the most 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.

Bureaucracies or Information Technology Management

Without a plan to deal with any declines in the natural gas prices you can be certain there will be losses in 2013 that will be equal to those in 2012. Losing money has no impact on the mindset of the bureaucracy. Other than the need to provide excuses during the financial reporting season, the fact that they are incurring losses concerns them little. If you listen carefully, you’ll also hear very little in terms of how the low natural gas prices are being raised as an issue by these people. They truly couldn’t be happier and more self satisfied than they are today.

This is no way to run a business. What makes anything that is happening in the natural gas business acceptable. Hope? We’ve had three years of that. The structure of the industry is now in a situation where the natural gas prices appear to look like they will remain low for the foreseeable future. Is that the hope of the industry, that it will continue to generate losses for the foreseeable future? This is not too different from the manner that the business has operated in the past but there have been some fundamental changes. And the bureaucracy has not recognized or accepted these changes. Key among these is the prolific nature of the shale gas reserves. Bringing a new dynamic to the natural gas business. One in which the supply of natural gas can overwhelm markets.

It is imperative that the natural gas producer change their operating strategy from one that produces at capacity to one that produces above the marginal cost. Then and only then will the industry take the steps to responsibly manage the resource. Continuing to produce at losses for much longer will only destroy the industry, leading to shortages in the natural gas commodity, leading to much higher prices, causing distortions in investment and an eventual collapse in prices once again. Producing at the marginal cost will help to mitigate the broad swings in pricing and help the industry to grow and prosper in an appropriate manner.

It is reasonable to assume based on the actions of the bureaucracy that until the People, Ideas & Objects Preliminary Specification is built and operational within the industry. The $67 billion in annual opportunity costs will be incurred each and every year by the bureaucracy. A bureaucracy that refuses to even recognize this as an issue. One that has vilified me for my efforts in asserting the Preliminary Specification as a solution to the problems of the industry. One that shows that the bureaucracy is at the heart of all of the issues.

It comes down to the same old conflict that is being played out in every industry. Will the bureaucracy win or the Information Technologies that replace and provide alternatives to the bureaucracies. The battle is being fought everywhere and the economy is on shaky ground because the bureaucracy is only interested in its survival. It truly doesn’t care about value. The force for self preservation is stronger than the idea that they do the right thing. Whereas the Internet is providing solutions to the way that business had been done for the last century. Ways that are more efficient and effective. Providing business models, like what the Preliminary Specification provides the oil and gas producer, that bring a dynamic, innovative and profitable nature to the business.

The Preliminary Specification provides the oil and gas producer with the most 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.

Focusing on the Business of the Oil and Gas Business

Having a plan to deal with the nature of the natural gas business is a necessary capability for the oil and gas industry. With the prolific nature of the shale gas reservoirs it will be mandatory that the oil and gas producer has the capability to shut-in a field on a temporary basis, as the natural gas price declines dictate. With such high throughput deliverability from these fields, losses will accumulate quickly, and the impact on natural gas prices will be affected by actions taken by the producers. Exposing trillions of cubic feet to the marketplace too quickly will have adverse effects that do not benefit oil and gas producers. The days when the industry produced at capacity are a thing of the past, in my opinion. Marginal cost will drive what is produced.

Production discipline will need to be enforced through the industry. Those producers that continue to produce at a loss will be doing so at their own detriment and it would be assumed that they would be treated harshly by the investment community. Losing money when there is no reason to do so would be frowned upon and that producer would find it harder to operate as a viable going concern. Or one would think so. The North American natural gas business will be in somewhat of a supply surplus situation for the foreseeable future. Producing this gas at a loss is unnecessary and unwarranted.

While the properties are shut-in while the natural gas prices are low is the time in which producers should review their capabilities in the Knowledge & Learning module to determine what they can do to lower the marginal costs of their properties. Innovation in terms applying further investment to increase production, enhance reserves, lower costs or increase revenues will help to bring the property back on production sooner. This will be the area where the competitive aspects of the Joint Operating Committee are seen and applied to the property.

This is the business of the oil and gas business. The Joint Operating Committee. The bureaucracy has been concerned and focused on the tax, royalty and SEC requirements of the corporate model and have forgotten, ignored and missed the business of the business or the partnership represented by the Joint Operating Committee. People, Ideas & Objects is the only software application that can recognize the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. By aligning the legal, financial, operational decision making, cultural, communication, innovative and strategic frameworks of the Joint Operating Committee with the compliance and governance frameworks of the hierarchy we achieve a speed, innovativeness and accountability in our organizations. Then we can deal with the business of the business and have the compliance and governance as a result of the decisions made in the business, not have the compliance and governance drive the business. Bureaucrats are so focused on what is required to meet the next iteration of regulations that they have lost sight of what the business is. We need to change this around and move the focus to the business and put the plan for that business in place. And stop losing money.

This requires that we adopt the People, Ideas & Objects Preliminary Specification. The eleven modules identify and support the Joint Operating Committee as the key organizational construct. It establishes three key marketplaces that provide for the oil and gas industry. The Resource, Petroleum Lease and Financial Marketplace modules each are designed to create robust markets for the producer to source what they need in the human resource and service industry, petroleum lease and financial markets. Other modules fulfill the full scope of an ERP application for the oil and gas producer and Joint Operating Committee. People, Ideas & Objects application modules are based on Oracle Fusion Middleware technologies and use Oracle Fusion ERP applications as the base functionality.

The Preliminary Specification provides the oil and gas producer with the most 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.

A Plan to Deal With the Natural Gas Business

We have now ended what is the financial season in oil and gas. A time when the past years performance is reviewed, the years budgets are approved, audits are conducted, the annual report is issued to shareholders and the annual general meeting has been taken care of. So what’s the plan for the natural gas prices in terms of removing the marginal production off of the marketplace. Or alternatively, how will the bureaucracy deal with the losses that were incurred on the natural gas side of the business. We had calculated that the Preliminary Specification would contribute $67 billion in additional profits in 2012 if it were operational. Most of this was from natural gas pricing. So what’s the plan to stem the loss of this value in 2013. Anyone, Anyone.

Once again the bureaucracy has no plan. It is proposed however, that Christmas 2013 will be very cold and other delusions. How is this a business. Its not its daycare where the bureaucracy receive a warm office, a salary, retirement and other benefits while they participate. Without any challenge to the existing status quo you can be sure there will be no activity that is undertaken to change the afternoon nap. Another year will pass much like last year and hope will rise with the inevitable rising natural gas prices as the temperatures dip in November. It’s the bureaucrats perfect dream.

The only problem of course is the inevitable downturn in prices that begin around this time of the year and continue on until November. This is where the majority of the money is lost during the year. And the remainder of the year's operations are not good enough to earn any money either so they can’t alleviate these losses. Losing money is nothing to a bureaucrat. There is always more capital that can be found if needed to keep the daycare afloat. If not, there are other daycares in which to participate.

What is needed is the adoption of People, Ideas & Objects Preliminary Specification. Through a variety of interfaces the partnership representing the Joint Operating Committee is able to make the operational decision to suspend production when it reaches its marginal costs. Therefore mitigating the downside losses of any operations due to low natural gas prices. These losses are mitigated due to the fact that no production or overhead expenses are incurred during times when the production is shut-in. This is done through the Preliminary Specifications use of the decentralized production model.

What the decentralized production model does is reduce the producer to a small footprint of their current operations. Consisting of the C class executives, earth science and engineering resources, some support staff and legal resources. The remainder of the resources are reorganized into service providers who are organized around processes that have the entire industry as their client base. These service providers conduct their operations for their clients and bill for their services directly to the Joint Operating Committee. So for royalties there will be a charge for royalties and a charge for the royalty accounting directly to the Joint Operating Committee.

This provides the opportunity for the producer, should they decide to shut-in the marginal property, to not incur, in this instance, the royalty or the royalty accounting charges for the months when the property is shut-in. And that would be the case for any of the other overhead items that are being managed by the service providers. No production, no production or overhead charges and hence no losses on operations and the natural gas prices will have limited downside during the summer or other times when the market is well supplied.

In short a plan to deal with the nature of the natural gas business. One in which we need to adopt the Preliminary Specification as the method of operations for the oil and gas industry. The Preliminary Specification provides the oil and gas producer with the most 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.

Critical Resource Shortages

Speaking of the qualifying aspects of the Preliminary Specification. There is also the ability in which the producer firm is able to better manage their earth science and engineering resources. What is known is that there is a general shortage of geologists and engineers in the marketplace today. What is also known is that the demands for these skills will be growing and the numbers of retirements will exceed the number of new recruits. A solution to this issue is a necessary part of any ERP system and one has been included in People, Ideas & Objects Preliminary Specification. One that relies on the toolset of specialization and the division of labor as keys to solving these problems.

The key issue is that each producer firm in the current corporate model is having to build just-in-time earth science and engineering capabilities for each and every contingency that their firm may be faced with. This overbuilding of capabilities within each producer, on an industry wide basis, creates unused and unusable capacity in these critical resources. Taking this strategy into the future, where it would be expected that further specialization of these resources would require more specialized skills. And would demand that each producer bring on more resources to meet the just-in-time requirements of the corporate model. The scope and scale of their earth science and engineering operations would become such a burden as to be inoperable and unprofitable.

What is needed is a simpler solution that provides for that specialization and a division of labor to ensure that the needs of the industry are met. Using the division of labor in an effective way can help to mitigate the demand issues of these resources. Organizing these resources in different ways will increase their productivity and alleviate the critical resource constraints. The specialization arise at the producer level. That is each producer will specialize in an area of earth science and engineering disciplines that they have a distinct advantage. This advantage will then be pooled with the other members of the Joint Operating Committee, and with their specializations, it will be determined within the Knowledge & Learning module what areas of the operations they have the appropriate specializations for. Any deficiencies can be made up through the marketplace either through other producers or service providers offering the capabilities that are needed by that Joint Operating Committee.

This pooling concept releases the unused and unusable capabilities and resources that are locked in by the current corporate model to the marketplace. There they will be made available to be reorganized on a specialization basis within each producer. Having service providers handling some of the common processes on a industry wide basis will also help to increase productivity and reduce the demand for these key resources.

For several hundred years specialization and the division of labor were naturally occurring activities in the marketplace. Then software became a big part of our lives and ERP systems have locked our organizations into concrete. Disabling the organizations ability to develop specializations and further define increases in the division of labor. People, Ideas & Objects provides the Preliminary Specification and a software development capability designed to support specialization and the division of labor so that our organizations can evolve again. Without this software development capability the current corporate model is as broken as the former Soviet Union’s. Everyone complaining about shortages, and nothing being done about it.

The Preliminary Specification provides the oil and gas producer with the most 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.

Qualifying the Preliminary Specification

We have been discussing the quantifiable aspects of the Preliminary Specification in the last number of posts. The opportunity costs of $67 billion for the 2012 calendar year are hard not to discuss. But there is more. The qualifying aspects of the Preliminary Specification are as significant as well. People, Ideas & Objects usually highlight these in three categories as the speed, innovativeness and accountability of the oil and gas producer.

By removing the ways and means of the bureaucracy. By orienting the industry and the producer towards the natural and cultural ways of the industry, the Joint Operating Committee. We attain a speed in our organizations that is substantially quicker than that of the current bureaucratic corporate model. By recognizing the Joint Operating Committee as the key organizational construct that it is and then building systems that define and support that organizational construct People, Ideas & Objects Preliminary Specification provides a speed in the operations of the oil and gas producer and the Joint Operating Committees it participates in.

The Preliminary Specification is built around innovation. Using the research of Professor Giovanni Dosi we have determined what is necessary and required for a producer and industry to be innovative and have included those elements within the Preliminary Specification. The emphasis on capabilities, their development and deployment are critical to a science based business. The inclusion of marketplaces within the specification help to broaden the focus to the service industry. All of these activities come together in the two modules designed to deal with innovation. For the producer there is the Research & Capabilities module and for the Joint Operating Committee there is the Knowledge & Learning module.

As we know the Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. What the Preliminary Specification does is move the compliance and governance framework from the hierarchy into alignment with the seven frameworks of the Joint Operating Committee. By aligning operational decision making with compliance the result is accountability. If you dare to ask who is accountable for the decisions in the bureaucracy today you’ll probably get a blank look. When operational decisions and compliance are separated as they are today, accountability is muddled and no one knows who’s responsible for the failure, and maybe more importantly, the success. Having compliance as a framework in alignment with the operational decision making framework will ensure that accountability is maintained and enforced. No more muddling about and the people who are responsible for the success in your firm can finally be identified and better utilized.

These are just highlights of some of the qualifying aspects of the Preliminary Specification. Adding them to the discussion of the quantifiable opportunity costs rounds out the discussion. The business model that the Preliminary Specification defines and supports in its eleven module specification orients the industry to its natural ways and means, the Joint Operating Committee.

The Preliminary Specification provides the oil and gas producer with the most 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.

Another Critique of the Bureaucracy

Granted the current upturn in natural gas prices are as a result of a technical market analysts call that prices would go higher. Anyone who listens to technical market analysts will be familiar with their 50 day and 200 day moving averages, their anomalies and phenomena that they continually predict. The interesting thing about technical market analysts is that they never speak about the history of their calls accuracy or the fact that markets, at times, are stable. Hanging ones hat on the technical markets analysts is a big step up in terms of the bureaucracies faith in the natural gas markets. Seeing that it is May it is a long way away to be praying for a cold winter.

Management of the business of the oil and gas business comes with some pretty slim opportunities these days. This is why the opportunity costs for 2012 between the status quo and the Preliminary Specification were $67 billion in additional profits. The bureaucracy has lost all manner of even thinking of what to do. They are leaderless and unable to construct a solution to a problem regarding the natural gas price situation. People, Ideas & Objects Preliminary Specification deals specifically with that problem, and a whole host of other issues. It also eliminates the bureaucracy from the industry and therefore they are not making that phone call to solve the natural gas problem. Such is the game of politics.

The investors are disenchanted with the performance of the industry. They see the losses that are being incurred on the natural gas side of the business and ask themselves, what if? They also ask themselves how are they going to economically produce those trillions of cubic feet they’ve discovered recently. They are heavily invested in a business that is uneconomic, non-performing and with a management that could care less. A management that is focused on “cash flow” which enables them to pay the bills. Bills which include on a priority basis their salary and pensions.

The investors see this discussion of cash flow and the related discussion of the write down of assets being regarded by management as not pertinent to the real performance of the firm. You should really look at cash flow or operating profits the bureaucrats will say. In a world where capital is free and requires no return. Where investors are dupes who can be fleeced of their money repeatedly and abused often, then yes look at only cash flow and operating profits. For the real money and the real capital will continue to look at the net profits and the real performance of these firms and hold them to perform against what they have invested. Anything less than that doesn’t pass grade school.

The bureaucracy are in control of the industry today for that there is no doubt. They are doing what they wish and how they want to do it with little regard to performance or accountability. We saw in 2012 a few of the CEO’s get bounced from their seats in the surprising retirements the day of the announcements. But that doesn’t solve the problem. The investors need something more, something that attacks the DNA of the bureaucracy and roots them out at the place they live. Something like People, Ideas & Objects Preliminary Specification. But then I am biased.

The Preliminary Specification provides the oil and gas producer with the most 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.

People vs. Computers

In yesterday’s post we discussed the shifting of the cost control from the producer firms to the service providers on the various overhead costs incurred in oil and gas operations. Within that discussion was the role of software automation as one of the means to control those costs. Some may think or believe that that diminishes the role that people will have in the administration of the oil and gas producer, and that computers will be relied upon to a greater extent than they are currently. And I suggest that we certainly hope so.

One of the areas that People, Ideas & Objects Preliminary Specification deals with is the division of labor between the people and the computers. Leaving the mundane storage, processing and process management tasks to the computers and freeing the people to pursue the higher end tasks that will grow in the future to take a larger percentage of our time. If we don’t begin to deal with this division of labor in a more appropriate manner, then we are going to be left with the lower level tasks of the mundane and be swamped with the trivial and obscure. This is a choice that we have to make, and I think it is a conscious choice where we make the handoff to the systems for their management of greater volumes of work to free ourselves for the difficult work ahead.

And we can see that the marketplace needs these skills already and the ability for the people to fill them is limited due to the mundane aspects of the business slowing us down. The type of skills that are needed are leadership, thinking, research, innovation, the creative aspects of the business, developments of the earth science and engineering aspects of the business, collaboration and many others. The only way these are going to be enabled is that the business of the business is being taken care of in a way that is efficient and effective.

Now some may argue that all is fine and would take offense to many of the points that are made in this blog. I don’t see it that way when you put the future of the industry into context. Examples of the manner in which the natural gas business is currently handled are indicative of an inability to change, of an inability to respond to markets. We have seen industry after industry disintermediated as a result of technology. I would suggest that People, Ideas & Objects is disintermediating the oil and gas industry with the Preliminary Specification. We have seen what happens to those that try to stand in the way of the technology that is disintermediating an industry. I think our appeal to the investors of the oil and gas industry, based on the opportunity costs presented by the Preliminary Specifications business model are compelling.

And there’s value in moving to this new business model / future. With the calculated opportunity costs of an additional $67 billion of profits for North American producers. Bringing their profits for 2012 to $213 billion makes this transition not an exercise for the purpose of technology. It is for the business. To make the business more profitable and efficient and effective for all concerned. What will the situation be like in 2020, or in 2030. Will the bureaucracy still be flat footed in its response to another dip in commodity prices? Or will we have the wisdom to take control of our future and deal with it in an appropriate manner.

The Preliminary Specification provides the oil and gas producer with the most 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.

The Shifting Costs to the Service Provider

When we look at a scenario such as the one that we listed yesterday. Where the need to shut-in production for the summer months was necessary to mitigate the losses on the property. One might argue that the costs or the burden is being shifted from the oil and gas producers to the service providers who provide the royalty administration and other services to the industry. This post discusses that point and shows that in a dynamic and profitable industry, these costs need to be variable and the service providers remain flexible to the demands of the producers.

First of all lets put the situation in some context. The amount of production that needs to be shut-in throughout the year may be as little as 10%. Operating at full capacity 100% of the time is the anomaly. Service providers will need to plan for this in their budgets and govern themselves accordingly. Savings can come from the ability to organize themselves in a more efficient and effective manner based on the tools of software automation, specialization and the division of labor.

By specializing on the process across the oil and gas industry the service provider will be able to leverage these benefits over a broad scope and scale. Subtle improvements to productivity and effectiveness will generate substantial benefits to the industry when applied to the client base of the service provider. The further division of labor will provide these improvements but they will also enhance the quality of the service.

What People, Ideas & Objects provides with the Preliminary Specification is a software development capability. When industry uses this capability to enhance the software, such as through its service providers expanded specialization and division of labor. It enables the innovation and dynamic nature of the earth science and engineering capabilities within it. The business of the business of the oil and gas industry can be an enabler or a constraint to the science of the business, with the Preliminary Specification it is designed to be an enabler.

In the past when someone wanted to change part of an ERP system, well they’ve learned better not to ask. The systems have become concrete that have locked the organization in a status that is unmovable and inflexible. In order to change an organization you must first of all change the software that defines and supports the organization. With People, Ideas & Objects we provide a software development capability for this purpose.

In the service provider example we have been discussing if they wanted to make a change to the software it can be easily accommodated for a variety of reasons. First of there will probably be one or maybe a small number of service providers of the software that calculate royalties for producers. Specializing in the Railroad Commission of Texas would, I think, be a single vendor pursuit. Therefore to make the change you are only changing one installation. Secondly, you are making the change for the entire user base. Therefore the efforts will be of value to all those that deem some value from the service provider and the People, Ideas & Objects services. There would be no need to go around and make changes to hundreds of installations and train staff within each producer company. To make these changes People, Ideas & Objects focus would be on the service provider. And since the service provider originated the requested change, the demand for training will be diminished.

So yes, there is a shift of the costs of overhead from the producers to the service providers. However, the service providers are able to deal with those costs. They have at their disposal a variety of tools to deal with these costs and a means in which to control them.

The Preliminary Specification provides the oil and gas producer with the most 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.

Seasonal Earnings in Oil and Gas Properties

What if natural gas prices remain somewhat marginal in North America for the next few years? Will the bureaucracy continue to produce at capacity irrespective of the impact to the producers earnings potential? I think after 2012 we know the answer to that question. The bureaucracy doesn’t care whether the shareholders make a competitive return on their investment, just that they make a return. As long as the bureaucracies salary and retirements are maintained for another year, that’s the big issue as far as anyone should be concerned about. So if the natural gas prices should dip below the marginal costs for three or four months of the year, each and every year, that’s just something that the shareholders will have to learn to live with. That’s the nature of the business the bureaucracy will say. And I say that we know otherwise.

It is highly probable that the summer season will continue to see natural gas prices dip below the marginal costs for most producers. Should this mean that producers continue to take that price or should they begin to take steps to make the price more in line with what they need to maintain their business. I think they should become price maker’s and leave the role of price takers behind. That is what they could do by adopting the Preliminary Specification and building the systems that support the Joint Operating Committee.

Lets look at a likely scenario that a property produced the same volume each month of the year. During eight months of that year the profit was $0.50 / mcf. And for four months the price dipped due to market dynamics and the property lost $0.50 / mcf. At the end of the year, at full capacity, this property only returned a profit for essentially four months as it took an additional four months to eliminate the losses incurred in the four months when prices were low. Now if the Preliminary Specification was available to be used by the producer, the four months where the prices were low would actually be shut-in and those losses would not have been incurred. Therefore the property actually produced a profit for the full eight month period as there were no losses that had to be offset.

This scenario of price volatility is highly likely. Producing at capacity throughout the year will be looked upon as an anomaly in a few years time. The reason it’s done today is to offset the high overhead costs in the “high throughput production” model employed by the bureaucracy. No matter what the volume of production, the overhead that is incurred remains the same high value, no matter what. This model has met the end of the road in terms of its practicality and purposefulness. There are no more efficiencies that can be obtained from the model. They were all obtained in 1966. It requires a producer to be proficient and specialized in every aspect of administrative minutiae and yet unable to realize or use that knowledge other than to their own small sample of administrative tasks. This is replicated hundreds of times in the offices next door without any benefit or value being generated for anyone other than the bureaucracies and the pension plan managers.

The Preliminary Specification would have the specialization and division of labor develop from that point in 1966. Take for example a service provider who would specialize on one jurisdictions royalty administration. Have unique and specialized knowledge of the legislation that is the Railroad Commission of Texas they could provide their services to the many producers and hundreds of Joint Operating Committees that would subscribe to that administrative process. Having their royalty administration handled in this way would provide assurance that it was the lowest possible royalty under the legislation due to the heightened specialization of the service provider. And the administrative efficiencies provided by the division of labor the service provider could employ by applying their services across the process which was used across the industry. The added feature would be that during those four months that the property was shut-in in the scenario mentioned above. The service fee for royalty administration for the Joint Operating Committee would not be billed as their was no royalty to be processed. The same situation would be for all of the service providers that were providing services to the innovative and profitable oil and gas producers.

The Preliminary Specification provides the oil and gas producer with the most 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.

Revisiting Natural Gas Prices

The natural gas prices have recently been showing some strength. This strength will diminish the opportunity costs that the Preliminary Specification would have provided to the industry for 2013. The bureaucracy will use the decline in opportunity costs to assert that there is no need for change and that the status quo will provide adequate earnings to the shareholders of the producer firms. That may be the case for 2013, however what about the future of the business. Will the bureaucracy be able to meet the next challenge? Or will their flat footed approach to the natural gas prices be repeated again and again over the next few years? I think the answer to these questions are obvious and the approach, or the solution to them should be obvious.

With the prolific nature of the shale gas reserves. That is with multi-lateral fracing exposing large areas of the formation to production at the same time. Each shale gas well’s production profile is as handsome as one could imagine. Bringing on large volumes of gas to the market at any time will have an impact on the natural gas marketplace and the natural gas producers need to have a solution for this new problem. For if everyone with conventional and unconventional production produces at capacity, which is the common mode of operation in the industry, the natural gas prices will remain depressed. What is needed is for a method to remove the marginal production from the marketplace at any and all times. Even during times, such as now, when the prices are looking somewhat promising.

The Preliminary Specification provides the innovative and profitable oil and gas producer with the ability and capability to remove their marginal production from the marketplace. The Joint Operating Committee is the key organizational construct of the Preliminary Specification and the innovative and profitable oil and gas producer. It is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Through a variety of interfaces contained within the Preliminary Specification members of the Joint Operating Committee are able to execute the operational decision to suspend production when the marginal threshold has been reached.

These decisions are made with the understanding that incurring losses on operations are contrary to good industry practices and damage the expected return on the reserves of the property. Producing at a loss is contrary to good industry practice because it causes natural gas prices, or oil prices, to decline further than they otherwise would. And the losses on operations are added to the reserves costs making the return on investment poorer and requiring the property to perform at a higher metric than what it was in order to offset the additional costs of those losses. By suspending production before the losses are incurred, mitigates the downside of the price decreases, and through use of the Preliminary Specifications “decentralized production model,” only the costs of capital are uncovered during the time the properties production is suspended.

The decentralized production model reduces the innovative and productive oil and gas producer to a smaller footprint in terms of its staff. Consisting of primarily the earth science and engineering resources, the C class executives, some legal and support staff the producer is a highly focused and science oriented producer. The remainder of the staff are reorganized across the industry on a specialization and division of labor that is focused on each individual process. Therefore a Royalty Accountant is able to specialize on one jurisdiction of royalties and apply their knowledge to a process that is specialized across the industry. The billing for their services is charged directly to the Joint Operating Committee that the royalty is attributable. The same would be for the Production Accountant who may have specialized within a local region where they and a few gas plants are located. Further there may be Revenue Accountant who specializes in butane revenues. Each of these individuals working for processes that would involve dozens of producers and hundreds of Joint Operating Committees.

The advantage of this methodology is that the producer is not carrying any of these overheads at any time. The Joint Operating Committee is being billed for the direct costs associated with the overhead item. With the specialization and division of labor focused on the process, the costs will be reduced to the lowest possible costs attainable. The real advantage is when the producers decide within the Joint Operating Committee to suspend production. None of the charges for Production, Revenue or Royalty Accounting will be incurred when production is suspended. And no charges will be made to the Joint Operating Committee during times when the property is suspended. And that would also apply for any of the other production and overhead costs that would not be incurred during a period of production suspension. Leaving the property in a state where the losses on operations would not be incurred, and the downside in prices would be mitigated.

The Preliminary Specification provides the oil and gas producer with the most 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.

Conclusion to the Knowledge & Learning Module

As with the Research & Capabilities module, I am very satisfied with the content of the Knowledge & Learning module. It is through this module that we are moving the knowledge to where the decision rights reside, the Joint Operating Committee. In the latter part of the modules specification we take the opportunity to isolate and berate the management of the current oil and gas companies. The bureaucracy have a unique characteristic that is easily identified and criticized. I for one am only happy to be the one that offers up the discussion. But the larger point of discussion is the war that rages between the bureaucracy that exists in every industry and the Information Technologies as represented by the Internet. As I have stated I’ve placed my bet on who will win this war, as I would suggest everyone else should determine which side they are on.

The role of software in society is becoming more pronounced. We are still in the beginning stages of what can be done. For an industry such as oil and gas to continue on without the software development capabilities that People, Ideas & Objects is proposing, and the organizational structure focused on the Joint Operating Committee, the prospects look dim. It is our claim that we provide the oil and gas producer with the most profitable means of oil and gas production. And we do. First by providing our software through the most cost effective manner. That is charging our subscriber base for the costs of developments once. And secondly, that in order to attain a higher level of economic output requires that the industry employ higher levels of specialization and division of labor. In order to organize that specialization and division of labor requires the use of the software specified in the Preliminary Specification. There is no other means in which to organize a higher level of specialization and division of labor. The bureaucracy is tapped out. Therefore our claim is valid.

When it comes to undertaking a large project such as People, Ideas & Objects Preliminary Specification. And we have costed the total software development project in the area of $1 to 2 billion in its first commercial release. Is the need to maintain a sense of urgency for the people involved through to the end of the project. As we know, most of the people will remain motivated as long as the money keeps flowing. So how do we ensure that the money keeps flowing? It is through the fact that we provide the most profitable means of oil and gas production that we can motivate the producers to maintain their sense of urgency in keeping this project funded and moving forward to its conclusion. Their alternative is the bureaucracy and we see how well they’re doing. In the future it may not be enough to own the oil and gas asset. It will also be required to access the software that makes the oil and gas asset profitable, that is the importance of software in tomorrow’s society.

People, Ideas & Objects is derivative of Professor Paul Romer’s “New Growth Theory." That is that economic growth is the result of People, Ideas and Things. We just exchanged “things” with “objects” as we are object based software developers. I highly recommend reading his interview on “New Growth Theory” it will provide you with a good understanding of the theory and how it pertains to the Preliminary Specification. It states that we need to structure the right institutions. “This new theory says technological change comes about if you have the right institutions.” Oil and gas being of course one of the most technical of all industries.

Within the Knowledge & Learning module we have the capabilities of the producer firms that are participants in the Joint Operating Committee. Each capability contains the knowledge, skills, experience and ideas of the people who are part of that producer firm and the service industry representatives. As we have learned “knowledge begets capability, and capability begets action." Quotes are from Professor Richard Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.”

Indeed, the job of the entrepreneur is precisely to introduce new knowledge. The “Circular Flow of Economic Life” is a state in which knowledge is not changing. Economic growth occurs at the hands of entrepreneurs, who bring into the system knowledge that is qualitatively new – knowledge not contained in the existing economic configuration. p. 27

Here we begin to see the role that people take in the makeup of the oil and gas industry. And to sum it up is to state that it is everything. One also needs to consider the role of computers in these “actions” and that it amounts to not very much. People, Ideas & Objects divides the jobs between what people do well, the thinking, generation of ideas, leadership, collaborating, deciding and learning and leaves the memory and processing to the computers.

There has to be a mechanism by which new knowledge enters the system. And that mechanism cannot be rational calculation, for as David Hume (1978, p. 164) long ago observed, “no kind of reasoning can give rise to a new idea.” p. 27

There is much to be done in the industry and a lot of it involves blazing new trails. The hard work is what the people will need to be involved in doing. The challenges and opportunities are of historical significance and will require the dedication of a lot of people.

What has been done already has the sharp-edged reality of all things which we have seen and experienced; the new is only the figment of our imagination. Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. p. 27

The Preliminary Specification provides the oil and gas producer with the most 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.

Industrial Structure in the Innovative Producer

If we go back to the previous modules we recall the discussion around moving from the “high throughput production” model to the “decentralized production” model that was being conducted in the Preliminary Specification. Essentially the “decentralized production” model has all of the costs, production and overhead, matching the revenues. So when there was no production, there would be no costs associated with any shut-in production.

The “high throughput production” model has the overhead costs of the producer as fixed. These costs remain fixed despite the volume of production and are difficult to adjust to any change in the underlying business. The “high throughput production” model is something that the bureaucracy can do. It is their means of managing and is how they are able to provide value in the organization. That “high throughput production” is incapable of providing value today is a matter of the time and place that we find ourselves in. Using the “high throughput production” model requires the bureaucracy to summarily ignore the Joint Operating Committee as the key organizational construct of the oil and gas industry. It can not do both, “high throughput production” requires the designation of operatorship be granted to one partner for control over the property.

Industrial structure is really about two interrelated but conceptually distinct systems: the technology of production and the organizational structure that directs production. These systems jointly must solve the problem of value: how to deliver the most utility to ultimate consumers at the lowest cost. Industrial structure is an evolutionary design problem. It is also a continually changing problem, one continually posed in new ways by factors like population, real income, and the changing technology of production and transaction. It was one of the founding insights of transaction-cost economics that the technological system does not fully determine the organizational system (Williamson 1975). Organizations — governance structures — bring with them their own costs, which need to be taken into account. But technology clearly affects organization. This is essentially Chandler’s claim. The large-scale, high-throughput technology of the nineteenth century “required” vertical integration and conscious managerial attention. In order to explicate this claim, we need to explore the nature of the evolutionary design problem that industrial structure must solve. p. 50

With the Preliminary Specifications adoption of the “decentralized production” model and the recognition of, and technical support of the Joint Operating Committee. The elements of change are in place. It is the culture of the industry to use the Joint Operating Committee, it is an industry that is based on partnerships and the closer we move to that culture the greater alignment (speed, innovation, and accountability) we will achieve. This next quote should be read twice with either the hierarchy or the Joint Operating Committee in mind.

And there are certainly examples of this. But it is also possible that a structure of organization can persist because of “path dependence.” A structure can be self-reinforcing in ways that make it difficult to switch to other structures. For example, the nature of learning within a vertically integrated structure may reinforce integration, since learning about how to make that structure work may be favored over learning about alternative structures. A structure may also persist simply because the environment in which it operates is not rigorous enough to demand change. And organizations can sometimes influence their environments — by soliciting government regulation, for instance — in ways that reduce competitive rigors. p. 58

This discussion elevates the importance of the Research & Capabilities and Knowledge & Learning modules in defining how the industry operates. These modules remove the task of how the industry is operated from the hands of the bureaucracy and moves the operations to the Joint Operating Committee. It is therefore a critical module.

Over time, two things happen: (a) markets get thicker and (b) the urgency of buffering levels off and then begins to decline. In part, urgency of buffering declines because technological change begins to lower the minimum efficient scale of production. But it also declines because improvements in coordination technology — whether applied within a firm or across firms — lower the cost (and therefore the urgency) of buffering. p. 78

The Preliminary Specification provides the oil and gas producer with the most 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.

Markets Replacing Management

We see with the decline in the natural gas prices that management are not attuned to the market or the “price” system. Management are more familiar when they have control of everything and it operates as it should. Well unfortunately for them the scope of their authority is not as a broad as it once may have been. What other areas has the market been sending price signals that the management refuse to hear? We can only imagine. The fact of the matter is that the oil and gas producer and the Joint Operating Committee need to be attuned to the marketplace in order to better understand the business. They also need to have better Information Technologies so that they can know that they are not making any money on any natural gas that sells below $5.00. We can in the last item of this next quote learn that management's lack of hearing is symptomatic of their species. Quotations are from Professor Richard Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy."

As Chandler tells us on the first page of The Visible Hand, two characteristics set the managerial corporation apart from earlier modes: (1) it is overseen by salaried professionals rather than by owners, and (2) it comprises multiple units or stages of production each of which could in principle have stood on its own as a separate organization. The last characteristic is really the essential one. In the large corporation, management supersedes the price system as a method of coordinating stages of production. p. 8

It is then within management’s character to not listen to the market. When natural gas prices hit $2.15 just ignore these signals and keep producing. That’s the solution. That Deer in the headlights look about the earnings is intended to solicit sympathy. It is Professor Langlois thesis that the Visible Hand of management is being replaced by the Vanishing Hand of the marketplace. I would suggest in oil and gas the transition hasn’t happened fast enough.

The question, then, is clear: why did managerial coordination supersede the price system? Why did “managerial capitalism” supersede “market capitalism” in many important sectors of the American economy beginning in the late nineteenth century? p. 9

In this next quote Professor Langlois percolates the entire essence of what is necessary for the oil and gas industry to grow and prosper. It is these elements that we have captured in the Research & Capabilities and Knowledge & Learning module of the Preliminary Specification.

Economic growth is fundamentally about the emergence of new economic opportunities. The problem of organization is that of bringing existing capabilities to bear on new opportunities or of creating the necessary new capabilities. Thus, one of the principal determinants of the observed form of organization is the character of the opportunity – the innovation – involved. The second critical factor is the existing structure of relevant capabilities, including both the substantive content of those capabilities and the organizational structure under which they are deployed in the economy. p. 13

It seems so simple now. When an earth scientist or engineer can deploy a capability with the ease of calling a play, as in our football analogy, to the opportunity that has presented itself. Economic growth is the result. Having a listing of the capabilities that are available from the participating producers of the Joint Operating Committee. Accessible within the Knowledge & Learning module provides for its own economic opportunity as well. Seeing that producer x has developed a new capability to conduct y operation may motivate that Joint Operating Committee to deploy the capability and enhance its production.

Replacing managerial capitalism with market capitalism is exactly what the oil and gas industry needs. By adopting the Preliminary Specification, and having access to the Research & Capabilities and Knowledge & Learning modules, producers and Joint Operating Committees will be able to make this transition.

The Preliminary Specification provides the oil and gas producer with the most 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.