A Prayer for Natural Gas Prices
How the oil and gas industry continues in the 21st century has to be as a dynamic and innovative industry. What it is today is the furthest thing from that. And it is paying a large price for that lack of leadership. We have calculated the opportunity costs for 2012 at $94 billion when we compare the status quo to what is possible with the Preliminary Specification. Making the investment in People, Ideas & Objects one of the highest return investments that the industry could make. This is the power of software and why the industry has to begin to respect the capabilities of the technologies when combined with innovative business models.
The Preliminary Specification solves the natural gas pricing problem by removing the marginal production from the marketplace. 15% of the production in the 2012 scenario that provides for the opportunity costs. Producers are able to remove the marginal production from the market without the associated losses on other operations, or the losses on the shut-in properties. And they are able to keep the shut-in reserves for a time when the prices return to the point where they can be produced at a profit. Additionally the production that is removed from the marketplace helps to reduce the downside in natural gas prices and normalize the marketplace in terms of supply and demand.
It does this with two fundamental mechanisms that are unique to the Preliminary Specification. One is the manner in which the overhead or the resources of the industry are organized. And secondly on how the costs of the resources are allocated when the production is shut-in. The first element is how the resources are organized in the industry. The oil and gas producer is a stripped down version of itself that consists of the c class executives, the earth science and engineering resources with some legal and admin support staff. The remainder of the resources of the producer are reorganized into service providers who are focused on a process or sub-process that uses the entire industry as their client base. Then they can use the tools of specialization and the division of labor to provide the most efficient and effective service in terms of lease rental payment, production, revenue and royalty accounting, etc. When the service provider provides their service they then bill the Joint Operating Committee a fee for their service.
If the property has been determined to be marginal at the current prices it is shut-in until prices rise. The associated costs of production and overhead are all stopped. There will be no charges from any of the service providers to the Joint Operating Committees for the months where there is no production for production, revenue and royalty accounting, etc. Thus enabling the property to be subject only to the cost of capital during times of shut-in production. The cost control for the production, revenue and royalty accounting is with the service providers and they can budget on an annual basis that they will experience an approximate 10 - 15% production decline at anytime. Therefore the ability of the producers to remove any amount of excess production from the marketplace at any time would exist without the associated losses in operations. This would alleviate the downswing in pricing that is currently being experienced and allow the shale gas reserves to be produced at a profit.
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.