Who Are We Looking For?

The business opportunity that was defined in yesterday’s post will appeal to those that are of interest to People, Ideas & Objects. Those that are intimate with the details of a process and have the fundamental understanding of how the oil and gas industry operates in terms of its operations, administration and accounting. Those people that can define and support a process that includes the elements of the industry that need to be there, and those that the producers want to be there. People who have been working in the industry for upto a few decades and have risen through the ranks to include themselves in a variety of different roles and areas. These are the people that interest us.

Those that are entrepreneurs within the industry that are able to take the opportunity that we have defined here and run with it to its ultimate expression. This is how the industry will be remade in the vision that is the Preliminary Specification. Where people will act in the best interests of the profitability of their clients, the producer firms. Without profits in the producer firms there is nothing for the individuals or society in the long term. A losing industry such as we have today is a drag on our governments revenue streams and puts the jobs of many in jeopardy of loss, unnecessarily so. We also have a job to do in terms of ensuring that society is provided with the energy necessary to maintain our way of life. That doesn’t seem in jeopardy today. However it will be if the industry continues to lose money over the long term.

All very pious and grandiose claims. The alternative is that we really are here just to shop and keep up with the neighbors latest purchase. I prefer to think that we have better control of ourselves. The point is that this ecosystem will be valuable for the people that participate here in the user community. It is they who will be the ones that fulfill the user community vision. Who will have the power to influence the business models that the industry uses and how best the industry can earn its profits. That collective wisdom will be implemented through the software that is delivered from their efforts.

It is this kind of individual that holds the keys to the future of the industry. That should be clear through today’s post and throughout all of our discussions. And this is how they can transition from the position of where they are today to one in which they can be operating their own service provider in a few years. Where the scope and scale of their operation is a substantial organization that they have built from nothing with their own skills and talents. Something that provides them with a far better standard of living and satisfaction than what they may be enjoying today. And maybe its a partnership with some of the other users that they will meet along the way. Who knows, what is obvious however is that the industry is not performing and has no plans or vision in how it can.

This motivational speech will appeal to the person that we are interested in. It will also alienate the bureaucrats that feel it is inappropriate for the oil and gas industry. Thats because they think the Preliminary Specification is inappropriate for the industry. The bureaucrats have failed miserably. They are completely out of ideas as to how to change the situation in the industry. Prayers are not being answered this year because none were asked in the run up to the winter months. What do you do with an industry that has kept your family fed and housed for the past decades and now is not performing, has no plans or vision, no ideas and most importantly not even a prayer?

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

Copyright is the Glue That Hold Everything Together

The other day we noted that the service providers would have the exclusive rights to manage their process. That there would be no competition in terms of other firms providing the same processes management. The manner in which service providers compete is on the basis of specialization and the division of labor. The way that we ensure that no direct competition is generated for the service provider is that each service provider is licensed in terms of its access to the underlying Intellectual Property based on our copyright and of course by way of access to our software to manage the process. The copyright in this case also precludes others from operating within the service providers field of operation. There are many other ways that the copyright is used throughout the People, Ideas & Objects environment that makes up the Preliminary Specification, the user community and service providers. This post will touch on those areas and give a brief overview of the manner in which the copyright is used.

I am the beneficial owner of the copyright that defines the Preliminary Specification and the contents of this blog. These ideas form the Intellectual Property contained within this ecosystem. It is on the basis of the ownership of this IP that I am able to, eventually, raise the revenue from the producer firm to support our budget. Our budget includes the cost of our developers and pays for the time of the user community. Service provider revenues are sourced from the producers directly as the replacement to their current G&A costs. This is the flow of money in this ecosystem. It is important to establish this flow as it also details the flow of the ownership of the Intellectual Property.

The first thing that is necessary is to grant a license from myself to People, Ideas & Objects for them to prepare derivative works of the Preliminary Specification and the ideas contained here in this blog. This will be in the form of software code and will be, through the license, renounced back to me as I will be the one paying for the development of the software. The user community operates in the same manner. Since they are paid for their work, the Intellectual Property that is generated flows back to me and becomes part of the total IP consisting of software code and other input. This is important as each user community participant and developer are granted within the license the right to access and prepare derivative works from this Intellectual Property. What would be unworkable would be the entire community making IP claims to their contributions as their Intellectual Property and then having to cross license each others contributions. The method that we are using in this community allows access for those that are licensed to these developments all of the necessary access and use that they need to do their work.

The user community participant is also a key member of each individual service provider. And therefore they have the rights through a specific license to manage a specific process. This license is an end user license that governs the use of the software. It is in the service providers where the user community participants will earn the majority of their capital appreciation and earnings. The user community participant also earns money for their time and effort with our developers, however building a service provider organization provides them with the opportunity to build real long term value for themselves.

It is the nature of Intellectual Property that the oil and gas industry has ignored for the better part of this century. And as a result they have lost large portions of it to initiatives such as People, Ideas & Objects. It will be the case in this century that you will need Intellectual Property in some form in order to do your work. You will have to own it outright. You will have to have a license in which to access some IP, such as the user community participant and their service provider firms. Or you will have to have access to it through your employer, such as a service provider. One of these methods will be the only way in which you will be able to work in whatever industry you choose to work in. That of course is my opinion. And we already see this happening with the proliferation of end user license agreements, etc.

One of the reasons for the Intellectual Property becoming so prevalent in the future is its ability to hold communities together. In our case it is the glue that enables the user community to do their work. That authorizes their management of the process. And precludes those from working against the interests of those that have contributed to this community and therefore have earned some rights and capabilities that are a part of the communities offering. One of the things that the bureaucrats were notorious for was to take the Intellectual Property and capabilities of a service based firm and freely pass these among their competition and sponsor several “me-to” competitors. That’s not going to happen in this environment. You will be protected as a user community member by the license that is granted to you in the process of joining the user community and contributing. It is important to note not everyone will be granted a license and only user community participants in good standing will be able to establish service providers. Since the service providers are a new sub-industry there will be large numbers of these formed. The population of user community participants in the budget have been specified at 3,000. Recall that we expect that service providers will be taking the load of the G&A of the industry which we estimate to be a large portion of the current $40 to 60 billion in G&A costs of the North American producers. Taking a rough average then, a service provider would generate $10 million per year in revenues.

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

The Service Providers Role

With the combination of the Preliminary Specification and the service providers. People can see the difference in the way that business will be conducted in the oil and gas industry. Administration and accounting will be handled by the service providers on a global industry wide basis. No longer will the oil and gas producer be constrained by their administrative and accounting capabilities affecting their growth or profitability. Having the service providers operating in the manner we noted yesterday makes these costs variable in nature. Allowing the producer to shut-in unprofitable production and therefore reduce the royalties, operating costs and overhead on the property and the firm overall. Enabling the producer to select their production profile based on the profitability of their production ensures that they, as a producer, will always be profitable. And their ability to scale up their production is immediate by accessing the administrative and accounting capabilities that support any new production through the industry based capabilities of the service providers.

Getting these concepts into the minds of the future user community participants is critical to the success of People, Ideas & Objects Preliminary Specification. We are not rebuilding the existing systems that are so deficient in providing value to the oil and gas producer. The entire configuration of the industry, where the service providers are separate from the producers. And focused on one individual process of the producers business. Demands a different perspective and point of view of how the industry operates and the systems that are built by the user community.

Our objective in making these changes is to provide the flexibility in the producers deliverability and production profile, and to allow them to focus on their key competitive advantages of their earth science and engineering capabilities, and their land and asset base. The service providers on the other hand are handling the administrative or accounting process that is theirs. They own the process and are solely responsible for the management of it on behalf of the industry. Their process is their competitive advantage. And with that they have the people to manage the process, the capabilities to make changes to both the process and the software itself through their participation in the user community. This is the critical point of failure where the quality of systems usually fail. The producer currently has no one to turn to who has ownership of the issue. The service provider, who contains the user community participant, has the power through the user community vision to enable the changes to be made. They will have the people to deal with the producers issues.

It will be the service providers process that is the source of their competitive advantage. And it will be on the basis of specialization and the division of labor that they are able to compete. Taking the data set of the industry and being responsible for it for that process is a completely different basis in which to look at the industry. It is also the only reasonable approach here in the 21st century. Having each producer develop the administrative and accounting capabilities to support their organization is a constraint and is the primary reason that so many producers are losing money. The scope and scale of the actual overhead of the producer is not that significant, however it is large enough that it requires them to continue producing in the current environment. With all the staff on their payroll they need to keep operating all of their properties to continue paying everyone. The shale revolution is declaring this business model is out of step with the needs of the industry. The bureaucrats won’t listen and continue on despite putting their firms in jeopardy. Change is desperately needed.

What we as individuals need to do is to think of the ways that the service providers will work in this new environment. That is the way that we need to go about building these new processes. First in the software itself with People, Ideas & Objects Preliminary Specification. Remember software identifies and supports the organizational constructs. That will enable the changes to be made in the organizations. Then with the user community participants developing the service providers themselves the changes needed in the industry can be implemented with the software, the process and the people operating in the manner that makes the oil and gas producer the most profitable that they can be.

It will be on the competitive basis that the service provider will use specialization and the division of labor. These will be their key tools in assisting the oil and gas producers. However, people will also need to think what the division of labor between computers and people will be. We need to stop doing the work that is best left to the computers. And begin the far more exciting work of leadership, unstructured problem solving, decisions, creative work, collaboration, research, ideas, design, planning, thinking and making the computers work for us, instead of us working for them.

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

What's a Service Provider?

Keeping with the theme of a quick review, I now want to discuss the role of the service providers. And how the user communities involvement makes them important elements of this software development environment and the means in which the producers processes are managed. If we assume for a moment that the population of user community participants is the 3,000 people that we have determined in our budget. We can see that the user is not necessarily employed full time with the development team. This is a reasonable assumption as the time necessary to evaluate, communicate, test and deliver the software from the development team is a collaborative exercise. And within the People, Ideas & Objects community the users are also the principles behind the service providers who provide the administrative and accounting services to the oil and gas producers.

Under the decentralized production model the prototypical producer is reduced to the C class executives, the earth science and engineering resources, some land and legal, and support staff. The remainder of the administrative and accounting resources are reallocated to service providers who focus on one process and have the industry as their client base. This enables them to use the principles of specialization and the division of labor to enhance the service providers offering on a continually improving basis. If a service provider was determining the eligible capital for gas cost allowance, and that would be all that they did, they could apply their focus to the best way in which to approach the industry wide data set that they and all service providers were responsible for. The principle of the service providers, who are also members of the user community, will have the influence in the software development to make the changes to the Preliminary Specification and its derivative works, and enact any desired changes.

With the movement of the administrative and accounting resources from the producers to the service providers. It will also shift the payments for those administrative and accounting costs from the producers staff to the service providers. We believe these payments will make up a large percentage of the North American industries $40 to 60 billion in G&A costs that are incurred today. Therefore the service providers will have these revenues generated as a fee for service rendered during each month there is activity. Therefore if the property is shut-in during a month, due to the producers inability to produce a profit, then the service providers would not have any tasks for that property and no service provider fees would be billed. Otherwise the billing of a service fee to each Joint Operating Committee will be undertaken each month there is production.

These process fees leave the service provider with the financial resources to support the services that are needed by the producers. It also makes up the other portion of the user community participants full year work requirement. Some of their time with the software development team working to build / enhance the software they use at their service provider. And the rest of their time incurred in managing the service provider which they own and operate. It is the user community participant that we will be looking to to establish these service providers. Since none of these service providers currently exist, all of them will need to be developed from this initiative.

Competition between the service providers will be unique. Since they are licensees of People, Ideas & Objects they will have exclusive rights to the domain that they provide their service in. They have no risk that a new service provider will come along and poach their clients for the service that they provide. The manner that they will compete with the other service providers will be in the areas of specialization and the division of labor. Establishing new concepts and methods on which to enhance their offerings and reduce their costs to their clients, the oil and gas producers.

It is in this way that the producer is able to focus on their key competitive advantages of their earth science and engineering capabilities and their land and asset base. By accessing an administrative and accounting capability that is variable, and industry based as opposed to something that has to be developed in-house within each producer firm. The decentralized production model enables the producer to become a price maker in the oil and gas commodity markets and obtain a flexible production footprint based on the profitability of the properties.

The role of the service provider in providing the producer firms with the individual process management is a critical one in the People, Ideas & Objects environment. They will be the ones who are defining and designing the process in its optimal configuration to determine the most efficient method of dealing with the industries needs. They will be the ones, as members of the user community, who will work with the People, Ideas & Objects software development team in determining what those software systems will look like and what is required. And then they will provide the software solution and the people necessary to make the producer firm obtain the most profitable means of oil and gas operations.

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

Recruitng Our Leadership Team

Another element of our focus on the user community is our recruitment of the 30 or so members of the user communities leadership team. Ideally we are hoping to have the leadership team in place prior to the commencement of software developments in January 2017. This might be possible, however it is not a critical component to our progress. The leadership team will support the user community, most particularly in their early developmental years. We have previously defined the positions within the leadership team. And this post will seek to revisit what those positions are and what is expected of them.

What I feel are the most important positions are the position of Product Owner. If I didn't already have a role in this development I would most definitely be after one of these Product Owner positions. There may be as many as 20 of these positions available in the People, Ideas & Objects development. One for each of the modules of the Preliminary Specification and additional Product Owners for the data models, user interface, etc and for example.

These are senior positions within the development team. They represent the user community within the software developer team and are their representative on the ground in the development. They are well versed in the business topic of the module that they represent and understand the software development process. They are able to troubleshoot any difficulties in terms of the miscommunication between the developers and user community and ensure that the user community understands their deadlines and commitments. Product quality is the effect that the Product Owner can make in terms of their contribution.

We have also established a Board of Directors for the leadership team of the user community. They will assume the typical role of directors in a corporate environment and will therefore provide the strategic vision and leadership of the user community. They will also be responsible for approving the annual budget that is necessary to fulfill that vision and leadership. All of the funding for the user community is sourced through People, Ideas & Objects and therefore these budgets will be prepared and submitted for funding by the leadership team. People, Ideas & Objects as the licensee of the Intellectual Property raises the necessary funds for both the user community and the software developers on an annual basis.

The last positions of the leadership team are the C class executives. A CEO, CFO, COO will need to be secured in order to manage an organization of this size, scope and scale being undertaken. I mentioned before that I will be taking the Chairman's and CEO's role. If we are able to secure people prior to our January 2017 commencement date that would be ideal. We would have no resources to compensate them at that time, however there would be compensation beyond January 2017. More is expected of the leadership team and this is typical of what is required in a startup position.

I can't stress enough the importance that I feel regarding the users involvement in these software developments. We have all seen the types of systems that are developed when the user is excluded from the development. And that will not happen here. We are committed for the next 21 months to be focused on the development of the user community and the leadership team. This will be on top of the work that we have done in the past 15 months. This is the hard work of getting the ideas into the minds of the overall oil and gas industry and creating an interest in developing and participating in a new solution. One based on the Preliminary Specification as our guide to provide the oil and gas producers with the most profitable means of oil and gas operations. If you share in this objective and believe that the industry needs to turn away from its bureaucratic, losing ways. Then have a look at what we have here. I'm sure you'll find something that interests you.

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

Accounting At the Property Level

Last week we noted the determination of profits in oil and gas was subject to different methodologies in terms of how the firms assets were depleted and hence earnings were reported. I suggested that producers had bloated balance sheets as a result of capitalizing all of the activities in the field. And this bloating was enhanced further by the slow process of depletion when using the reserve base as the method of depleting those assets. Overall this having the effect of over reporting profits for the industry. I also suggested that this was systemic, large and unreasonable. Today I want to continue with the accounting theme and look at the individual properties of the producer. And why the producer is unable to determine which properties are not producing a profit.

The main culprit is overhead. The producer has no ability to determine what the overhead of a property is. Many might consider this to be an immaterial amount, however, when you consider what the gross G&A of a producer is, you'll see that the amounts become material to the determination of the properties profitability. The other aspect is the amount is hidden and only recognized as an overhead allowance that is chargeable to the joint account. These allowances are too small to recognize the real costs associated with the overhead of the property. Therefore the property is over reporting their profits. And the majority of the G&A that is reported on the Income Statement is only the net, after capitalization of the majority of the overhead occurs.

If you look at most annual reports you will find a determination of the netback prices showing that the producer is providing positive margins on their operations. And they are. However you can also see that these calculations only include the costs of royalties and production costs. And they are averages. Included in those averages are a few properties that are wiping out all of the profits of the producer. If you include the actual gross overheads and a reasonable depletion based on, lets say the decline curve, you will find that not every property within the producers portfolio will continue to report a profit. This is only reasonable. It is People, Ideas & Objects suggestion through use of the Preliminary Specification that the producer shut-in those properties that are unable to produce a profit, based on an actual accounting of the properties costs.

This can’t be done with the current bureaucratic systems and procedures. They are using accounting policies that were designed in the 1960’s that were involved in the introduction of computers. They are stuck with allowances and estimates, accruals and a whole lotta fudge to make their systems work. To get an accurate accounting of the costs of the property would require them to reorganize the industry around different parameters. Much like what our decentralized production model does.

And the focus that we provide the producer brings two new elements in terms of increasing their profits. One is the focus on specialization and the division of labor. Two economic principles that have been responsible for all of the economic growth that we have realized since the 1790’s. The ability to focus on these principles does not currently exist due to the fact that each producer needs to build the administrative and accounting capabilities within their organizations. And there is no current opportunity for them to share in these capabilities with other producers. When each producer has to be Sarbanes Oxley compliant, each producer has to hire Sarbanes Oxley compliance people. Therefore the administrative and accounting requirements of the producer firm are a constraint and limit to the speed and capacity to grow. With the Preliminary Specifications development of an industry wide administrative and accounting capability, these speed and capacity to grow constraints are removed and the issues do not arise. By having a Sarbanes Oxley compliant service provider specializing in the legislation and providing their services across the industry.

The second element that we provide is for the producer to be a price maker in the oil and gas commodity markets. As we noted above, the ability to shut-in production at the property, when available across the industry will provide the following advantages.

• The producer actually increases their profitability by reducing their production. 
• Under the decentralized production model there will be no overhead incurred by the producer on shut-in production. Overhead becomes a variable cost based on production.
• The commodity prices will rise as there will be less product on the market. 
• And the overall cost to produce will remain lower due to the fact that you won't be adding the losses of the property as additional costs to be earned in the future. 

The fact that Exxon is borrowing money to fund their negative cash flow. And it is expected that $100 billion will be needed to fund the negative cash flow of the shale formations. People, Ideas & Objects rational story about determining profits and acting on the outcomes makes sense to me. The bureaucrats are too conflicted to be involved in our software developments. We eliminate them from the scene. And the investors are cutting and running. Looks to me like an industry that has to experience the phenomenon of creative destruction in order to make the changes to the Preliminary Specification.

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

Back To Our Priority and Focus

Our planned diversion away from our focus on the user community ended late last week when we realized that the oil and gas investor was too passive to involve themselves in People, Ideas & Objects. They are employing a cut and run strategy away from oil and gas and from the look of most stocks, who can blame them. One of our favorites, in that we mentioned them here late last year is Penn West Petroleum. They had the misfortune of having to restate their financials for a number of quarters based on the fact that they had previously capitalized royalties. Anyway, at the time their stock was as high as $10.19 last year with a market cap of approximately $5.1 billion. Last week the stock touched $1.30 with a market cap of $650 million. Thats a loss of $4.5 billion, or 88%. I have held to a principle in the stock market that if a company loses half of its value in an “event,” then that company can effectively be seen as dead. There is no return for a firm that has taken a hit of that calibre to its stock. The event that has hit Penn West of course is the decline in oil prices and there does not seem to be the resources or capabilities, as far as the market is concerned, for Penn West to survive. I wonder how many other half dead producers there are out there. It is clear to me that we are involved in a disintermediation of the oil and gas business based on the creative destruction of the current infrastructure.

Anyway our priority and our focus is the user community and its involvement in providing the oil and gas producer with the most profitable means of oil and gas operations. We need to refocus on this priority as this is our means of being involved in the development of our product the Preliminary Specification. If we had our budget in the bank today, our priority and focus would be on the development of the user community and therefore we are not wasting any time now as a result of being unable to fund our budget. The ability of our message to be broadcast across the industry exists due to the capabilities of the Internet. And the ability of like minded people to communicate and collaborate exists when our budget funding does come into play. For now spreading the word and thinking about how the Preliminary Specification impacts your areas of the oil and gas industry are things that we can and should be doing. This gives us the time to be creative and put some energy, and the necessary quality of time that is needed for a high quality user community based product to be developed. Rebuilding the industry from the ruins that are starting to show, and as noted above, is very exciting from this side of the fence.

Most producers are now starting to make cuts to their staff. Such that staff were the problem that caused the profitability issues the producers are facing. We have been hounding the producers for over a decade about the work that we are doing here. Trust me the failure of the industry is the bureaucrats fault. They have provided less value to their shareholders than if the investors had put their money in the commodity markets. A sad commentary on the performance of the industry over the past ten to fifteen years. Those that are being let go from the producers should find hope that they can be seen as valuable again by joining this community and being part of this revolution. Thats a good word for what we are doing here.

To have the Preliminary Specification operating in the oil and gas industry would provide a lot of value for everyone involved. Those that participate in the user community are the main benefactors and will hold a special seat in the way that the revitalized oil and gas industry operates. Through our user community vision it is the user who has control of the business model that is contained within the software that operates the industry. If there is need for a change in the business model it is the user community that has the power to make those changes. It won’t need to ask anyone for permission or consent. And the user community will have the software development capabilities of People, Ideas & Objects available to implement those changes when they are required. This is a new way of running an industry. One that if you read the current business literature, is becoming somewhat the prototypical organization of the future.

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

A Revelation in how our Budget is Funded

A few days ago we asked if we could afford failure. Failure in the oil and gas industry itself. Now I want to ask it in terms of People, Ideas & Objects and the development of the Preliminary Specification. Clearly we are engaged in a battle with the powers that be, the bureaucracy who hold little regard for us. And that makes our task difficult in terms of succeeding when you are in a protracted battle with your customer. However, our appeal, based on our value proposition, has been to address our message to those that are directly affected by the difficulties in the industry, the oil and gas investor. And it is here that we have specifically addressed 386 blog posts. The time has come to evaluate that approach, and ask if its reasonable at this point to assess this as a failure. Clearly the investor, and board of directors who represent them, are too detached from their investment in order to make any fundamental change. It is for them a passive investment. It is therefore fair to assume that our appeals have fallen on deaf ears. Our ability to cobble together a coalition of like minds in this area and fund our budget is a non-starter. And we need an alternative means in order to address our budget needs.

What we have is a value proposition that is in the trillions of dollars. What is needed to achieve this value is the software necessary to identify and support the organization to realize that value. Our budget is the key to establishing that organization. The organization consisting of People, Ideas & Objects, our user community and the service providers. These service providers will have the $40 to 60 billion in overhead that is incurred by the industry today, as the source of their revenue stream for tomorrow. Identified and controlled by the software that they participate in developing. The oil and gas industry generates several trillion per year in terms of its revenues with North America being a large subset of that.

How does disintermediation work? We certainly have identified the needs of the user community and service providers as necessary to make up the changes within the industry. Changes to enable the Preliminary Specification. However is that enough change in order to ensure that society's energy needs are met in the long term? Certainly we have identified the bureaucracy as a redundant form of organization within the People, Ideas & Objects ecosystem. However, is it appropriate to ask if the passive investor model of ownership of the oil and gas industry is also past its usable life? If they too are uninterested in the long term of their investment. And are willingly walking away from those investments. Who are we to argue?

What we therefore need to do is to identify new candidates for interested parties willing to disintermediate the oil and gas industry. In other industries that have been disintermediated the shareholders and directors of the “old” industries did stand by and watched as their investments were fundamentally destroyed. This is the model that fits in every example that I can see. The value of Apple has assumed the value of the industries that they disintermediated. Where are the shareholders in those “old” businesses and industries today?

Which leads us to the logical conclusion that we have for who we can approach to fund the disintermediation of the oil and gas industry. We can not only provide them with the upside in terms of our value proposition. A means in which to operate the industry in the most innovative, dynamic, profitable and successful manner. But also the disintermediation of the existing producers revenue stream which are being willingly given up by the investors and shareholders of the current producers. Who are the natural candidates for this approach? Two off the top of my head are Apple and Oracle.

So here is the revised plan for our development. We are sticking with the January 2017 software development start date. And user community developments are our priority for the period of time up to that point and always. However we will be actively looking to people who are interested in disintermediating the industry as sources for our budget. Passive investment is something that came into play when the merchant organizations became too big to manage by the founder. Disintermediation is a means of exercising the value away from the uninterested passive investors.

What disintermediation has proven time and again is that Information Technology is disrupting current business models. Its only now that I am realizing that one fundamental business model that is being disrupted is the passive investor model. Action is the last thing that comes to the mind of the investor in terms of what to do with their poor performing stock. The first thing they do is sell it. The trick will be not to hold any oil and gas stocks when the pain is realized in the marketplace. Not to involve yourself in fixing things. Therefore our plan will be implemented immediately with a return to our focus on the development of our user community come Monday. Over time we will figure out the funding requirements and ensure that society's energy needs are met in the long term.

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

My Oil and Gas Overvalued Hypothesis

The book value of a firms assets are not particularly relevant to the day to day operation of the business. Particularly when the business is a public company with shares traded on an exchange. The market value of those shares will provide the real value of the company based on the markets perception of its value. The book value is what concerns the accountants and is of relatively little concern other than it has significant impact on the firms profitability. And that is determined in the matter of how the assets of the firm are depreciated or depleted in the oil and gas industries case. It is my hypothesis that the oil and gas industry is carrying excessive asset values on their books. These are a result of the SEC’s requirements to follow either successful efforts or full cost accounting requirements in the determination of those assets. This overvaluation of assets. Which I suggest is systemic, large and unreasonable. Leads to material overstatement of profits in the reporting of producers earnings. These are the differences between what I claim the industry, on a wholesale basis, is losing money, vs. the average producer continuing to report earnings in this low commodity price environment.

If producers were to recognize a reasonable depletion of their capital costs. A method that is closer to what a traditional business would use. Their depletion expense for each year would be higher than what is currently reported. By assigning all of the costs involved in the producers capital costs to the asset base of the producer, this inflates the assets on the high side. Traditional businesses who are involved in elements of research are required to expense all research expenses incurred in the current period. Any unsuccessful operations would also be expensed in the current period, however that is not the case in oil and gas. The other aspect of oil and gas capital costs that causes them to bloat the balance sheet and over report earnings is the fact that the capital costs are deducted across the reserves base. In many cases the reserves base is continually expanded from year to year. And the reserve life index of the firm in most cases exceeds a decade. Leaving the situation where most producers are deducting far less than 10% of their assets within a reporting year. This seems inconsistent when the costs to maintain that reserve base and deliverability can and does usually cost upwards of 30% of the asset value of the firm on an annual basis. This would appear to me to determine that the capital costs of the producer should be depleted over a three year term.

Clearly this overvaluation is the SEC’s fault and the accountants at the audit firms accept this thinking as it makes them feel cool and hip in the eyes of the engineers and geologists of the producer firms. Something that they are not generally known for. The problem is that the engineers and geologists are not trained in the accounting requirements and are unaware of the distortions within the balance sheet and income statements that they are producing. They think their activities which are building the firm and its profits are moving the firm in the right direction. Whereas a more conservative evaluation of their asset base would instill a more conservative use of their discretionary cash flow and earnings. If there were any. The net effect of a more conservative depletion methodology would be a more focused industry. In my opinion.

What we have now is the fire alarm ringing and producers running about spending money on the shale based plays that are the place to be. Expanding their productive capacities, building their asset bases and destroying the commodity marketplaces. The continuation of these activities in the face of such losses is not evident to them. Even though they are having to finance their negative cash flows, which on an industry wide basis are projected to be negative $100 billion just for shale. A ludicrous and incoherent manner in which to run an industry.

Clearly the bureaucrats are unable to change. But the incentives and the requirements of being in business are being distorted by a methodology of accounting that doesn’t recognize the real cost of the business. Until a new business model, the Preliminary Specification, and the user community and service providers are able to provide the industry with these kinds of appropriate accountings the industry will be run in this distorted manner. Remember the SEC defines the upper limit of what can be recorded as assets. That doesn't necessarily mean that everything has to be reported as an asset or that the upper limit has to be reached. In an industry that expects to spend the money the oil and gas industry does in the future. Estimates vary and range in the many trillions of dollars over the mid-term. Its important to put those costs in the proper context. Are they assets, or should they be written off in an appropriate time table. One that leads to systemic, large and unreasonable industry wide losses.

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

Can We Afford Failure?

In most businesses or industries the results of the bureaucracies failures occur with little to no interest from the general public or other concerns. The demise of the record store, Nokia or Blockbuster Video is met with a shrug or a general lack of concern about a way of life that has past. In other industries such as banking, intervention by governments to ensure that the systems that maintain the daily economic requirements of our way of life are maintained is now commonplace. These banking interventions are into their seventh year and there doesn't seem to be any clear direction of a return to normal operations any time soon. Which category does the oil and gas industry fall under. Is it something that we can ignore and idly watch itself destroy its value and capabilities over time. To the point where it can no longer provide for the needs of its customers. Is that the point where wind and solar, tidal and nuclear energy will magically be capable of replacing “dirty” oil and gas? Can we rely on the radical environmentalists to show us the errors of our ways? Or is it something that we should be cautious of and ensure that the capabilities and capacities of the industry are maintained for the need of society? Altruistic questions, but maybe they should be asked.

In mid February I noted the effect of shale based reserves on the oil and gas production markets. These were reflected in the following two graphs. (Sources eia.gov and econbrowser.com)

Note the prolific nature and characteristics of the shale based reserves on deliverability. They have literal hockey stick implications to the continents productive capacity. Here is an updated version of the econbrowser.com graph for the month of February.

Notice any trend from the one that was published in November 2014? This productive capacity increase occurred during a time when the producers announced there would be an approximate one third drop in capital expenditures for the calendar year 2015. Although it might be too early to tell, the announcement itself certainly didn't have an effect on the increases in production. It remained on its upward trajectory. And I think it is reasonable to assume that the actual decline in capital spending will have the same effect. The current motivation for the producer, any producer, to achieve those increases in productive capacity will not cut those shale based capital programs. Why would they? The bureaucrats focus will be on reducing the costs associated with drilling, completion, equipping and operations. Also the overhead in the head office will have to be rationalized further in order to ensure that the producer becomes profitable. If that will ever be possible in this pricing environment.

That is the logic that is the state of affairs in the oil and gas industry. What the bureaucrats are being educated on today is the elasticity of supply and demand of the commodity markets. Their ability to reduce costs to produce a profit will never be achieved because of the effect of continued overproduction in the market. Now this isn't news to anyone is it. However, we see the industry stuck in a business model that it can’t, won’t, will never and does not change. Its demise and eventual destruction of its capabilities would therefore be a follow on process.

Bureaucracies don't change. People do however. And that is why we need to move to a new business model. The Preliminary Specification with its decentralized production model provides a solution to this overproduction by allocating production between producers based on profitability. If the property can be produced profitably based on the current commodity price then it will be produced. Otherwise it remains shut-in. But to do that we have to make some serious changes to the industry and they won’t be made by the bureaucrats. They fight change, like they fight People, Ideas & Objects Preliminary Specification, our user community and the service providers.

Therefore to answer the bigger question of whether we should be concerned about the demise of the oil and gas industry. I suggest that we should. Like banking, oil and gas provides us with everything that makes up our modern lives. Without it we are reduced to prehistoric capabilities. Not a pleasant thought. Should we just wait and leave this up to the bureaucrats to determine the outcome. Or should we act and ensure that the industry continues on in a healthy and prosperous manner for all concerned. I know which side of the fence I’m on.

And just as it was evident that the U.S. housing market was not a place to put your money. The oil and gas industries difficulties are plain for everyone to see. The fact that the U.S. housing crisis stewed for decades probably shows how long we'll have to wait for someone to act in our oil and gas interests. However, we need to remember there is no “Fed” to flood the market with deliverability when things do fall apart.

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