Record Production, Record Inventories Part II

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

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

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

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

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

Record Production, Record Inventories

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

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

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

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

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

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

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

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

No Posting Today

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

Change Doesn't Happen That Way

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

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

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

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

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

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

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

Gripping Again

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

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

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

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

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

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

"More" is the Calling of Bureaucrats and Drug Addicts

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

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

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

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

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

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

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

Proof That its Not Working

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

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

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

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

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

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

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

Some Market Capitalization Losses, So Far

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

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

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

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

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

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

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

Industries, Like Big Companies Need to be Designed

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

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

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

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

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

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

A Solution for the Oil and Gas Investor

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

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

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

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

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

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

A Conversation in the CEO's Office

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Time, Time, Ticking

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

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

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

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

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

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

To The Oil & Gas Investor

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

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

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

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

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

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

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

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

To The User Community Members

It is a bit of a change of our strategic position when we state that we will no longer work with the bureaucrats. Their choice to run the industry into the ground is something that we are going to watch from the sidelines and quite frankly enjoy with popcorn and refreshments. Their inability to work with us over the past decade was a choice that they made. They may wish to make a change and start to work with us to mitigate the damages that they are causing the industry. We however are not going to cooperate or participate in anyway. There are reasons for that and one of the primary reasons is the user community.

Making a clean break with the status quo helps in many ways. It helps you the user community participant the most. No longer will you need to consider the situation that exists today, or the concerns of how things are done today. Ours will be a clean slate approach where the optimal solution can be adopted. No compromises with the ways and means of the “thats how we did it in the past” or the “but we don't do it that way” type of arguments. Those won't stand and we can move on from those and formulate new processes and new positions for the oil and gas producers based on the most profitable means of oil and gas operations.

When we take the Joint Operating Committee and make it the key organizational construct of the dynamic, innovative and profitable oil and gas producer. We introduce conflicts and contradictions between it and the bureaucracy. If we try to reconcile these conflicts and contradictions then we are moving away from the purer sense of the opportunity of what is at hand here at People, Ideas & Objects. By stating we will not be working with the bureaucrats we have eliminated the conflicts and contradictions that we would otherwise have had to reconcile. Your job in designing and developing the Preliminary Specification into the software that you will use as service providers will be able to be developed quicker and more easily with a more consistent approach to the Joint Operating Committee. The natural, cultural ways and means of the oil and gas industry.

Its when we try to add humans to the mix that the problems come into play. And we will have those problems. What we won’t have is the problems of humans that are stratified in a hierarchy with their unnecessary rules and regulations that are necessary to make that entity function. I feel it is my job to remove as many of the obstruction from your path as I possibly can. In terms of obstructions, the bureaucrats and their way of life are the biggest obstructions known to man. That we can eliminate them is cause for celebration. Everyone should get up and quietly do a happy dance.

Declaration of the death of the bureaucracy may be seen, and may come to be, premature. It will be inevitable though. Our time is coming and our patience will be rewarded. We have shaved years off of our development time today, and 10,000 man years of frustration and heartache from our user community. Bureaucracies do not change and their ability to adapt to the current environment is well beyond what their cash and capital reserves will allow. The investors have been on strike for a long time. At least as long as 2008. Bureaucrats have been living off borrowed funds since then. Banks have not been loaning any money any more as they knew the game was fixed and they were the mark. That left the junk bond market as the only place to get funds. The primary source of funds of all healthy industries. Bureaucrats used $1.2 trillion of junk bonds in the past two years. Now that path is closed as well. Therefore they are left with the money they are able to earn in the marketplace. And they will produce as much as they can to try to generate as much cash as they can before they all go broke from low commodity prices. The ultimate example of circular thinking on a grand scale.

The business model of using other peoples money is at the end of its road. They've destroyed both commodity markets, all the credit markets and the investors faith, what else is there. They never knew how to produce a real profit. Only accounting profits based on full cost accounting where everything, including royalties apparently (remember PennWest), are capitalized. If you gave five people ten million dollars each. Where only one was a brilliant geologist who found nothing but oil and gas. And four people who knew nothing about oil and gas. When you came back a year later and looked at their financial statements they would all look the same. You would not be able to tell who was the superstar geologist from the financial statements. What kind of accounting is that? I digress. The point is that the business model was never sustainable and the day in which its reckoning is upon us. The Saudis know it, I know it, and a few more people are beginning to realize it each and every day.

People, Ideas & Objects provide a viable alternative for which we can rebuild the industry. One where we provide the producer with the most dynamic, innovative and profitable means of oil and gas operations. The user community is our focus and the key to our quality. With this decision to ignore the bureaucracy we are able to move faster with less constraints. And for that reason alone its a good decision.

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

Pick Your Fights Carefully

And that is what I have done. That is, that is what I hope I have done. Picked this fight carefully. The fight I'm talking about is with the oil and gas bureaucracy. A few weeks ago I stated that I will not work with them and that is the position that we have taken here at People, Ideas & Objects. We've picked the fight that we want to have. And we intend to win this fight to ensure that we provide the oil and gas producers with the most profitable means of oil and gas operations. And the user community remains the primary and only focus of our software development efforts today and always in the future.

Oil and gas commodity prices might be causing the bureaucrats backs to bend a bit towards working with us. I hope I've made it clear to them that they should keep a good stiff posture and ride their business model to the grave. I'm giving them no option in which to change. Its a position that we are taking that makes the oil and gas investors choice as stark as is possible. The bureaucrats and their losing ways or People, Ideas & Objects with their dedication to providing the oil and gas producers with the most profitable means of oil and gas operations. We will not be compromising with the bureaucrats to bail them out of a situation of their making. Its their bed let them lie in it.

I don’t expect that the future holds much promise for the oil and gas producers as they are currently configured. I see a series of events being triggered from these low oil and gas prices that will make the organizational performance of these firms continue to degrade permanently. First we will see the losses that prices will create. The inevitable layoffs and reorganizations that will provide no relief to the issues. The bankruptcy of a large percentage of the industry due to their binging on credit the past number of years. The concern that this will raise in the banking sector as to the viability of the oil and gas industry. Which will lead to the demand for payment of the outstanding debts at the major banks as a credit crisis is felt in oil and gas, and not the banking industry this time.

Of course the investors who are treated with such respect and concern for their investments throughout this process will be standing there looking for some scalps. By this time the bureaucrats will have hightailed it out of oil and gas and will be establishing themselves in the next great employment opportunity, whatever industry that may be. The destruction that will be left in the wake of this price collapse, that could have been dealt with by now, if only, will be one for the history books. Liz Ann Sonders who we have quoted here before thinks this is the end of the commodity super cycle. The investors should consider what the bureaucrats provided them during this commodity super cycle. I'll remind them. Nothing, absolutely nothing. They would have been better off participating in the commodity exchanges.

Or maybe I'm wrong and the sun will shine tomorrow and the natural gas price will triple with the migration of the Monarch Butterfly. Bureaucrats will be seen as the effective solution over technology throughout government and industry. And countries like Russia and Belarus will be seen as the prototypes for harmony and efficiency.

This is a fight that we can win. They have a losing hand and little to nothing to augment their position. We have speed, dynamism, innovation and profitability to offer the oil and gas investor. And a pile of future profits the size of the U.S. Federal Reserve. We don't need the bureaucrats, we don't want them and they provide no value to us, our users or the oil and gas investors. Its time to cut any possible ties to them and establish the first blow by stating their on their own. Don't look to us to bail you out. And don’t think to touch any of our Intellectual Property, again. Its not for your use or purchase. Its time to sink or swim and there are no life rafts, preservers or help from us. Goodbye!

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

Budgetary Changes

One of the things that I did during the time that I was off was I took a sharp pencil to the proposed organizational makeup of People, Ideas & Objects. To see if there was any way that we could make the organization perform better in the future to meet the needs of the user community and the oil and gas industry. What a difference. The question that I asked myself is if we were such big believers in cloud computing why were we not implementing these technologies within our own organization at every turn. To date we have implemented them and have benefited greatly from them. One look at our budget however and you can see that we took the mindset that was very typical of the 20th century bureaucrat. We had allocated $200 million to build our own cloud computing facility to host the People, Ideas & Objects application when it was complete. The question was, was this the appropriate direction?

This questioning also involved our software development environment. Many services are springing up that provide the horsepower necessary to host a software development environment that would meet the needs of a development environment that People, Ideas & Objects requires. What we would need is an excessive amount of computing power for those times in which we would build elements of the application. Oracle is now one of these firms offering these software development hosting services. This removes a significant amount of capital from our development budget but it also reduces our organizational overhead in many ways. We don't have to concern ourselves with the minutiae of keeping servers up and running and backing up everything as many times as possible. These services will be provided to us by using Oracle services. Providing us with lower costs, easier administration but most importantly the speed of our development team will be enhanced and our focus sharpened.

Offering our application in a cloud computing configuration to the dynamic, innovative and profitable oil and gas producer was always the consideration. Under the decentralized production model, when we move the administrative and accounting resources to the service providers, why would we leave the IT staff at the oil and gas producer? We wouldn’t. The point is instead of providing that service ourselves by buying Oracle hardware and running it ourselves, we will be purchasing Oracle cloud computing services to run our application on their servers and deliver our applications in that manner. The oil and gas producers won't know the difference. Other than the fact that Oracle will have sizably larger facilities and therefore much higher performance than what we would have been able to provide. We will save the $200 million in capital that we allocated to build the facility. Reduce our overhead and organizational complexity by the costs of maintaining that facility. And most importantly again pick up a factor of speed in which we are able to deliver our product to the marketplace, and sharpen our focus. We are not currently hardware experts. We were going to have to become hardware experts. Now we have Oracle, who are hardware experts, now we don't have to be hardware experts. Speed to deliver the application in terms of time of this type is an important point. We may have been able to deliver the world’s best application and failed to deliver it due to our inability to get the hardware right. This is a critical change in our makeup, our strategy, organization and time to deliver. It also reduces substantially our technical risk.

And look at that change in our budget. Some might think that reduces our budget by $400 million! And some would be wrong. I have reallocated these funds across the Oracle budget categories to enhance the work that they will be doing for us. This is in order to recognize the cost of the rental of the computer time for the cloud computing services of the development environment and application delivery. A $100 million boost to the Oracle Developers category to shore up the number of people we are able to access from the mother ship. And an overall loosening of the budget constraints of the other categories. What we are approaching in the oil and gas industry is unique and necessary. Our success is critical to the success of the profitable oil and gas producer. Our value proposition dictates that this money won't be missed. Therefore we are deploying it to the areas that will increase the probability of our success.

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

The Product Owner in our Leadership Team Part III

We have been discussing the Product Owner position in detail this past week. This position is a key part of our leadership team that we are currently recruiting. If you have an interest in the Product Owner position for one of our modules or technologies please contact me below. In the last post we discussed the Leader and Team Player attributes of the position. Today we continue with several other attributes of the Product Owner. Quotations are from the book “Agile Product Management with Scrum: Creating Products that Customers Love” by Roman Pichler.

People, Ideas & Objects state that we are filling a “gap” between the oil and gas, and Information Technology industries. Creating a sub-industry where nothing exists today. This “gap” exists as the technologies have become too specialized and as a result technology firms are unable to fully understand the needs of its customers, the oil and gas firms. What we are doing in filling this “gap” is providing a means of communication between the oil and gas and Information Technology industries so that they operate more effectively. In the book Roman Pichler states that the Product Owner is an effective communicator and negotiator that operates to “communicate with and aligns different parties, including customers, users, development and engineering, marketing, sales, service, operations, and management. The Product Owner is the voice of the customer, communicating customer needs and requirements and bridging the gap between ‘the suits’ and ‘the techies.’” It is this role as communicator and negotiator that we are placing so much emphasis on the Product Owner role within our leadership team of the user community.

The next two attributes that an effective Product Owner requires are to be empowered and committed. The ability to present new projects for development, and the ability to cancel poorly performing ones are necessary for the continuous improvement of the modules. The Product Owner also needs to have budgetary control of the module they are responsible for. These attributes impute a senior level of responsibility, especially considering the size of the user community budget for each module. Therefore an executive level of commitment is expected in return and as the book states “A successful Product Owner is confident, enthusiastic, energetic, and trustworthy.”

The physical location of the Product Owners matters. Our development team will be based in Houston. Therefore the Product Owners will be based in Houston. The need to have the Product Owners interact with the development team for their individual modules on a regular basis is a necessity. And this requirement would mean a minimum of two days per week. The offices of the Product Owners and user community resources will be located with the development team, therefore this will not be an issue.

Another key role in the development team is what is called the ScrumMaster. “The ScrumMaster supports the Product Owner and the development team, protects the team and the process, and intervenes appropriately when required to ensure that the pace of work is sustainable, that the team stays healthy and motivated, and that no technical debt is incurred.” And “The Product Owner is primarily responsible for the “what” -- creating the right product. The ScrumMaster is primarily responsible for the “how” -- using Scrum the right way. Only when the right product is created with the right process is enduring success achieved.”

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

Not Your Normal Business Operation

The number of times that I've thought that this project should be funded and proceed is beyond my capacity to count. What we have in our value proposition is evidence that the bureaucracy will never act, ever. It is reasonable to assume at this stage that producers are paying capital derived in some form in order to produce oil and gas. That is to say the industry is generating negative cash flows. Their argument of course is that the commodity prices could be just as far on the beneficial side of industry. And of course their correct, when you sit and wait for events to happen to you there are good and bad things that can happen. That however doesn’t mitigate the losses that they are incurring currently. I think what they, the bureaucrats, have to look at is how seriously they have put their firms and the industry in North America in jeopardy of significant failure. And unnecessarily so.

What we propose in the Preliminary Specification, the user community and our service providers is a radically different way in which to operate the industry. One that has a value proposition that is approximately $350 billion greater than the bureaucrats for 2015. The cost of doing this is incidental in terms of the value that is generated. However the cost is still $4 billion and we are a start up. The chances of that happening on a sunny day are approximately one in one zillion years. The thing is its not very sunny in oil and gas and the way that the industry is headed seems to be one of those times when action needs to be taken.

Now I could say that I could do this for $5 and some of the bureaucrats would find that attractive because they would know that it would be impossible. And hence they get to stay in power a little longer and we would be destined to fail. Or I can choose to be open about what the costs are and expect that the situation be evaluated on the cold hard facts of the situation. I’m not the one who is bringing the problem to the investors, we are the ones that are bringing the solution.

We are most certainly thankful for the situation in the commodity marketplace today. It makes our job much easier. And this situation may come and go over the next few years as producers muddle along. The appearance of shale gas on the market is the guarantee that we will have pricing issues for the next 40 years if the bureaucrats are kept in place. The nature of the reserves bring a new dynamic and characteristic that the bureaucrats have proven themselves to be unable to deal with. Without the decentralized production model as provided by People, Ideas & Objects et al there is no alternative to the price maker strategy. And we are protected by copyright.

To make the decision to proceed with People, Ideas & Objects et al would be something unique, one of a kind decision and dependent on the situation. Its not subject to the normal business rules of what a business does and how it generates its business. We are adversaries of the people we want to replace, our current customers! However, if I were failing in such a wholesale manner as the bureaucracy is today, I would hope that there was someone holding me to account. And in that sense the market seems to be working. However, on a much larger scale than what we have seen in the last hundred years.

Information Technology is providing us with opportunities to conduct our business in different ways. The thing that is stopping us from making these changes is the way that we do things today. The problem is that its not only getting in the way its also dragging us down and we need to break away from it as quickly as we can. People, Ideas & Objects seems radical but its also what we need right now.

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