An Alternative Asset Capitalization Policy

I have been critical of the method of asset capitalization used in oil and gas. Arguing that the balance sheets of the producers are bloated with assets that are never recognized as costs in the production process. I have also never offered an alternative to the current methods and one that would be more in line with what the investment communities needs and what they would prefer to see from the producers. My point of view is there is no redeeming quality in a producer who capitalizes everything under the sun. And that is what the current SEC inspired full cost and successful efforts methods permit as the accounting treatment for recording of assets. What these methodologies do is enable the amount of the assets of the producers to expand to the limit of the reserve base times the current commodity price. Or, the probable entire future revenue of the producer. A significant value that represents the producers capitalized overhead and every and all field activity.

The alternative that I would suggest is simply that any controllable equipment be capitalized based on its vintage. This would better reflect what the assets of the producers are. The assets that are controllable are those that can be physically identified, separable and reused. Well heads, tubing, downhold pumps, pump jacks etc. What wouldn’t be capitalized in this is the intangible work that is done. The drilling, cementing, casing, fracing etc. These costs would be expensed as they are unrecoverable.

Now most people will bring in the argument that the property is worth so much more than its uncontrollable equipment. I say lets hope so. The fact that the property is worth more is a reflection of the market, and we are talking about the book value of the assets of the firm. When we are talking about the book value of the firm we are also determining the method of the profits and other attributes of the producers. Lets not confuse book value with market value like the SEC and public accounting firms have.

By letting the costs of the intangibles flow to the income statement in the current period, as our methodology would do. The producer will be profitable / unprofitable based on their level of activity. They are going to need higher levels of revenue in order to participate in the exploration and development process when it has an immediate hit to earnings. And with the decentralized production model enabling the price maker strategy, higher prices and higher revenues is what producers will have. Astute readers will realize that the producer will have few assets and probable losses and invoke the going concern questions from the public accountants. Certainly those that are unable to produce any value through development of their drilling and completion activities. These producers who can not generate value will be subject to immediate harsh criticism. This will be in sharp contrast to the party just beginning under the current methodology. Those that can’t build value will have difficulty with this methodology. I also think the motivation to overproduce in oil and natural gas will also be rectified.

The question is therefore what is the purpose of the current methodology of bloated balance sheets? Building up the costs of the assets on the books based on every conceivable cost within the producer. Allocating all of those costs to the reserves that are established. And then, only recognizing the asset costs of the reserves that are produced in the current year. It hides a lot of fudge. No costs are being recognized so everyone is making big profits. Allegedly. Yet they also have no cash. Perpetually having to beg, borrow and steal to keep afloat. Show me another industry where the book value is so consistent with or exceeds the market value of the firm. There is none. Companies like Apple have $750 billion market caps and $20 billion in assets. The difference has been expensed to offset the revenues and earnings. That’s what a mature business does. Recognizes its costs and gets rid of them. In oil and gas they collect their costs like they're ancient artifacts, only to be relinquished in the next millennia.

There is very good news in changing this accounting methodology when the Preliminary Specification is implemented. The capital costs of the past number of years and decades. That are sitting on the balance sheets of the producers. Will be moved to the income statements based on the above noted procedure. This will enable the investors to capture these values in after tax dollars. Recall that this altered methodology works hand in hand with the decentralized production model. Ensuring that no production is produced unprofitably. Making the producers price makers. Therefore recognizing that these past costs will need to be factored into the prices needed to make the producers profitable. This change in methodology will also convert these bloated balance sheets into healthy bank balances in the producer firms.

I'm sure thats another trillion or two of value added to our value proposition in comparison to the status quo bureaucracy.

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. 

Bureaucrats Win!

...the battle that is, the war however rages on. I needed that break. It became clear that the bureaucrats were successful in pulling the wool over everyone’s eyes for another fiscal year and surviving the “accountability test” these past few months. No need to approach the development of new systems and organizational methods, all is well, the bureaucrats were put on record as stating. And that is exactly what they will be expected to show for this fiscal year as it progresses. I wish them the best of luck with that. The facts still remain that their business is in a tragic state and they are doing exactly nothing about it. Other than developing and implementing their personal plans to maximize their gains, expand the cabin and smooth their exit.

I’m willing to concede that we lost this battle, however the war still needs to be fought. The book value of the producers is so bloated by the asset costs of the properties that the producers don't recognize any of the real costs of capital in the calculations of profits. In a normal business their retained earnings would be as bloated as their assets were. In the case of oil and gas producers they don't have any retained earnings and their bloated assets are therefore offset by investor money and debt. As long as the bureaucrat has a source of capital to continue their escapades they will continue on building their elaborate cabins in the mountains. The problem they have is that they have been living off junk bonds as their source of capital and there isn't any readily apparent form of capital after that. The bureaucrats ability to win these battles is diminishing quickly. The time for them to exit may soon be upon them.

Much of what I read and heard in the business market about the situation in oil and gas this past half year was a well orchestrated discussion of how the business would be in the future. We'll talk more about these points on Wednesday of this week. Let's assume for the moment that what I am stating is true. That producers put a shine on the business that is not consistent with the facts. At the same time I was “selling my book,” that change was needed in order to deal with some serious issues. I don't think, that is to say, it should not be assumed by the bureaucrat that this sales job of theirs necessarily won over the powers that be. There are two opposing points of view on how to manage the industry. I think it is reasonable to state that People, Ideas & Objects Preliminary Specification and the bureaucrats “corporate model” are both being evaluated in the current market. One of the key differences between the two alternative models in the industry is that I can back my model up.

Recently OPEC met and resolved to continue with their status quo. If you dig down deep into their logic, for them to cut production requires them to determine which customers to tell to take a hike. Once a customer is forced to change their oil supplier it is nearly impossible for them to make the change back again. Why would that customer change? Therefore OPEC is doing what is in the best interests of their customers and ensuring that they keep those customers for as long as they can. Sounds like a pretty good strategy for OPEC to pursue. What is the shale producers strategy? We'll be discussing this more in the weeks and months to come. Other than deceiving their shareholders and bondholders, it is to lose money. Which is a pretty bad strategy. In oil you have 5 million barrels of shale production dictating the price of 93 million barrels of oil because you have some bureaucrats who are more interested in building out the cabin. In other words they just don't give a damn.

Let the evaluation of these alternative business models begin. Both methods have put their ideas and strategies on record. Just make sure that when you are evaluating these methods you are getting the truth from the protagonists. And be careful, there’s been a lot of fudge coming from one side.

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. 

And That's the Way It Is

One of the problems that I have is that at night when I turn off the lights I glow radioactive. People know that I am associated with this 24 year legacy, and for good or bad, don’t want to be seen with something that is for all intents and purposes, bad for their career. So it is a dark green luminous radioactive discharge that I give off that repels people from wanting to be associated with this project, or me. Today is different, like every stopped watch my time has come. The problem is that I have no reach within the oil and gas industry in which I can leverage the strength of these ideas and raise our budget. This is good news for the bureaucracy. Being on the outside for so long has left me with no inside access.

I desperately want to build this software. There is very little that I can do to take it any closer than what it is today without our budget being secured. So how we get to that point, and when, is something that is unknown and unknowable by me at this time. I’m on the outside. And maybe it is that I have a flawed understanding of the situation in the oil and gas industry. That everything really is ok. And that the bureaucracy will have things well in hand in short order. That muddling it through will work out one more time. And maybe the Preliminary Specification is just too radical and too extensive of surgery to undertake in any industry at anytime. I think the answer to all of these questions are out of the hands of any one individual. And fate will be what determines the outcome of our efforts. I've provided a choice.

And I'll be satisfied with that. It is these past 24 years that I would not trade for anything. If you don’t look upon these as an adventure then you probably couldn't survive them. It has been an adventure. And I have survived. I look forward to what the future holds. I think I'll be taking a bit of time off. I will return June 22, 2015.

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 Call to Action

It was during these past 24 years that we have been able to conceive of a better way in which to operate the oil and gas industry. Something that would enable the dynamic, innovative and profitable oil and gas producer to deal with the issue and opportunities of the 21st century. In August 2003 we developed the use of the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. By aligning the compliance and governance frameworks of the hierarchy with the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee. We achieve a speed, innovativeness, accountability and profitability in the oil and gas producer. It is within the administrative and accounting domains that we realized this was valid. However we soon learned that it also applied within the operational domain.

Upon the realization of the value that developing software for the Joint Operating Committee provided the oil and gas industry. We then embarked on a “quick sprint” of research to determine what the industry and the producer would look like if we adopted the Joint Operating Committee as the key organizational construct. Developing the “what” and “how” things would need to be in order to operate the industry and the producer with all of the frameworks aligned. This research was completed in December 2013 with the edited publication of the Preliminary Specification. So much for quick sprints! Of note and interest is it is these two attributes of our offering that the industry does not have to go through, the development of a new method and the research of how that method would work. I would suggest they would need to spend as much time as I have in order to develop an alternative to the Preliminary Specification. The full 24 years. If they have that much time and money available then they certainly have every right to do their own thing. However, People, Ideas & Objects are offering an effective short cut in time. I also started this in 1991 on the basis that I knew something was not working in the industry. It took me until August of 2003 to discover the solution is the Joint Operating Committee and then ten years of research to figure it all out. The Preliminary Specification exists, and it functions. Now that they see the problems they should congratulate themselves. Now those industry representatives can take the time and effort to find other alternatives, or, raise the budget for these developments, either way just leave my family out of it. Your in-direct approach only demeans you further.

The Preliminary Specification now needs to be developed. Like the San Francisco bridge it's expensive. But it also builds value as it solves the issues in the marketplace today. And those that will arise in the future. With all of the Joint Operating Committees frameworks in alignment with the compliance and governance frameworks. With the user community defining the needs of the software. With People, Ideas & Objects providing the software development capability. The industry will be able to have their issues resolved in a timely manner. Big issues and little issues. Making small and large changes. It won't matter, the ways and means of the industry will be accommodated in a timely fashion.

The bureaucracy have begun their migration to the retirement cabin. That the bureaucrats would leave their post when the industry issues are so prevalent is something that we have been stating, based on our research, for many years. It has now begun, and on the one hand the scope of the problems in the oil and gas producers are so big, there is no ambition that will overcome them. It is time to remove and replace the bureaucracy. However, the clock is ticking. The bureaucrats are leaving and that means they are putting the industry in greater jeopardy. Action on having our budget funded is necessary. I don't know who, and I don't know where but someone has to step up quickly and fund these developments.

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. 

Remember Its Cut and Run

It’s coming up to almost one year since the pressure on oil prices began. Natural gas prices look to me like an absolute disaster will be detonated some time this summer. This due to the storage facilities filling to capacity. The bureaucrats were therefore artful in getting through another annual report season. The time to cut your losses from the oil and gas industry is now. Those individuals at Cenovus last week were the first, but maybe they were the smartest of all of the bureaucrats. Remember, it’s cut and run. Metaphorically get out of town before the problems are so big that they come looking for scalps. In an industry that has been flushing trillions of dollars down the toilet. Using first the investors money and then when that dried up, shifting to junk bonds to fuel their deception. There will be hell to pay for those standing around looking conspicuous. Remember I place the focus of the cause of this issue on the SEC and the accounting firms for their accounting policies that don't recognize the cost of capital or overhead in the operations of oil and gas producers. The fact that the bureaucracy new better is a moot point, after all what did you expect, they're bureaucrats!

What to do, who to turn to? As I have mentioned here on several occasions I have been at this for over 24 years now. And I will be at this for another 24 years. I have the solution in the Preliminary Specification. And I will develop the software derived from the Preliminary Specification and lead the user community in its development and its creation of the sub-industry of service providers. The bureaucrats want and need to capitulate, I want the job. Fund my budget and let me get the job done. What do you have to lose. Well actually a lot. Trillions of dollars in fact. Keeping these self interested bureaucrats in power any longer is counter to the best interests of everyone. The sooner we can have the Preliminary Specification, the user community and service providers established the better. And all that is required at this point is for our budget to be funded.

I foresee a lot of pain to be experienced in the oil and gas sector. Approximately equivalent to what the banking sector saw in 2008. This is a disaster. The opportunity is therefore to fund us and let us get on with our job. And then wait until the fire sale of oil and gas properties begins. Big properties, little properties, producing properties, non-producing properties, profitable and unprofitable properties. Then when we have the Preliminary Specification, the user community and service providers operational you can have those acquired properties operated for you on the basis that we guarantee you the most profitable means of oil and gas operations. And that is how this transition to the new oil and gas environment will occur.

If you think otherwise. That an organization methodology conceived of in the 1920’s, built on technologies available in the 1980’s and with a bureaucracy that has ossified since the 1990’s. That an organization of that pedigree in this market has a chance. Then your choice is made up and I can do nothing to convince you otherwise. I found this quote about the times that we find ourselves in today. Its from Tom Goodwin of Havas Media.

Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.

But maybe, just maybe oil and gas is immune to these types of forces. And the bureaucracy will succeed in fooling some new source of unknown capital. Beyond the junk bond market that is. That will line up to invest in a business that can’t stop overproducing or recognize any of its costs. And we can all just sing kumbaya and drink penakolada’s. If so, then you can count me out.

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. 

It's a Confidence Game

Last week we briefly discussed the levels of intervention by governments in the banking business. There are estimates that over $22 trillion in support has been used in various quantitative easing programs and other forms of fed policy interventions. You would think that after almost seven years the problems that caused the great recession in 2008 would have passed by now. Why is there a continued high level of government involvement in the financial industry? I think that the confidence of the average person in the financial marketplace was shaken to the point where there was question to the viability of that marketplace. Were my investments safe? I can recall many people liquidating their portfolios and not trusting the integrity of the system itself. Restoring the confidence of the people in the viability of the system is the effect that the fed governor and their European and Japanese counterparts are trying to achieve.

We also hop in the car for a cross country trip every once in a while. Expect to fly to wherever as soon as possible. And see the seasons change with little thought to how we’ll keep warm and dry during the winter. We are confident people. And it is this confidence that provides us with the ability to experience high levels of Gross Domestic Product on an individual basis. Our quality of life is very good. And unlike in the banking industry nothing could happen to shake that confidence and put in jeopardy our way of life. Maybe it's in our nature to realize the downfall of our ways and means before we begin to appreciate them. That to solve problems proactively is unnecessary and subject to the whims of the ridiculous. I could certainly agree with that.

If it takes at least seven years and $22 trillion to fix the confidence in the banking system. And it doesn't seem that we are that close to declaring victory there. How long would it take if people lost confidence in the ability to rely on the oil and gas industry if those capabilities were suddenly removed and put into question. Would people be able to just carry on? Reduce their demands and proceed as they were? In California in the 1970’s we saw the successful implementation of gas rationing throughout that state. In a novel implementation, those with even numbered license plates were allowed gas on alternate days to those with odd numbered license plates. And except for the lines that were very long at the gas pumps, and the fact that those pumps were emptied relatively quickly each day, the rationing was a screaming success!

We should give a thought to our friends the bureaucrats in this scenario as well. What will the likelihood of abundant marine fuel be at the cabin? We saw last Wednesday half of Cenovus’ leadership team announced their retirement. Now I ask you, who would have thought that that might happen? Wholesale losses of the leadership team! Bureaucrats don't abandon ship when the going gets tough! I think we should expect to see the rush to the doors begin in earnest now. Who really wants to stick around and clean this mess up? If you note in the Cenovus press release there really are no replacements. No one to replace the Executive VP and COO of the firm. A coveted prize of the energy bureaucrat.

And those bureaucrats that are not ready to retire will be seeking their fortunes in other industries. You really can't quantify the level of inertia that is needed to overcome the bureaucracy in these producers and make the necessary changes. It saps the energy out of even the most ambitious. And that is why we need to start with a blank slate. Something like the Preliminary Specification where people can begin building the future of the industry so that we can confidently move forward in society.

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. 

I Know, It's Ridiculous!

We have now entered the phase in which the bureaucracy have become untouchable. Annual report and annual general meeting season are over. Accountability is no more. As I mentioned the other day, thoughts move to the cabin and the pension benefits that will be earned over the next nine months of relative stress free living. Has anyone noticed that the level of discussion in the industry regarding the situation that it's in is non-existent! And isn't it odd that the “strength” in oil and gas prices seems to have abated. What to do? I guess one could join the crowded highways and enjoy the summer months with the bureaucrats. Or, depending on your point of view. That is if you agree with the points that I have made here before. And you are an investor in oil and gas, or are a potential user community participant there is much that we can do while the brain trust parties the summer away.

It is ridiculous to expect that our budget will be funded. Just as it is ridiculous to think that the bureaucrats will change and fix the problems in the industry. And just as ridiculous to think that the ridiculous tens of trillions of dollars of our value proposition will come about without the Preliminary Specification. And so here we sit and wait for that one unhappy individual that realizes that as ridiculous as all this is. Someone has to pull the trigger and fund these developments before it's too late. Too late being the bureaucracy find the pension benefits too healthy and the cabin too comfortable to bother with accounting for their actions three months of the year and retire. Then there will be no one and nothing in which to operate the industry. But that is a ridiculous assertion.

All of this doesn't seem too ridiculous to me. There are a large number of people who read these words each and every day. Some may be doing it for entertainment, others may agree with the ridiculous nature of the problem. In most cases they may be living with the difficulties in the oil and gas producers and know that there is a better way and see how the Preliminary Specification can help to solve those issues. They also know that their careers are not going anywhere with the status quo and are stuck in an unchanging environment that is unhealthy for all concerned. It is these people that the Preliminary Specification appeals to. And it is these people that I see as the potential market for the user community participant.

The banking crisis that we experienced in 2008 was evident to everyone, everywhere for many years. Watching house prices rise to levels that no sane person would want to participate in. Having mortgages for those houses being issued to people without full time work, or liar loans as they were called, and then having those mortgages “securitized” and sold to “willing” investors was a bad business model. Then they took it the level of creating synthetic derivatives of mortgages. And thats when people really began to make money. Anyway we all know the history and the fact that the banks are still not able to stand on their own without massive, unprecedented fed stimulus. Which has become about as normal as the summertime commute to the cabin.

The business model of the oil and gas producer is no longer functioning to provide any value to anyone. Except the bureaucrats. They need to keep full production to ensure that they can cover their salary, benefits, pensions and perks. Outside of that who cares what happens to the industry. The problem is that there is no fed to flood the market with deliverability if the oil and gas industry fails in the manner that the banks did in 2008. There is no “adult” supervision. There is only the energy that we depend on for everything that we are. But then again, in a very big way, that too is ridiculous.

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. 

Our Solution Part XX

We have quickly gone through some of the highlights of the Preliminary Specification in this series called “Our Solution.” All of these blog posts can be aggregated by using the blog label PS-Solution. There are many other attributes of the Preliminary Specification. This list may best represent the attributes that I find are the most valuable to the oil and gas industry. The purpose in preparing this summary is to provide you with a better understanding of the Preliminary Specification and to encourage you to read the entire specification. I know it is rather long and people don't generally have an interest in the areas outside of their domain of knowledge. It is however somewhat necessary to get an understanding of the total specification to help you better understand how your domain fits within the bigger picture. At 175,000 words in the Preliminary Specification I know I am asking a lot however it will provide for a better user in the long run.

It may seem that we are several million light years away from becoming the manner in which the oil and gas industry operates. Now with annual report and annual general meeting season over. The ability to hold the bureaucrats accountable for their actions has once again ceased to be possible. Their window of opportunity to enjoy the cabin and count the value of their pensions provides a never ending level of satisfaction. This however does nothing for the profitability of the industry or deal with any of the issues that are certainly pressing. It is a “business as usual” situation in the oil and gas industry today. The looming financial disaster that the bureaucrats have engineered is well within sight of everyone in the industry. And their exit strategy from the industry at that time is well planned.

Therefore from our point of view this should be good news. However, I can't think of a more disastrous situation. The last time the bureaucracy cut and run, it was the government that had to step in to mitigate the situation. I personally think there is enough government involvement in business today, we don’t need more. When the bureaucracy does cut and run the capacities and capabilities of the industry will take a decided step downwards. This is not what we should have to experience. The bureaucracy should responsibly deal with their exit by putting their replacement in place and manage the industry until such time as they are not needed. Then again who said we live in a perfect world.

It is our responsibility therefore to be prepared to take over from the bureaucracy when they do decide to leave. We are working on having our budget provided to us in the January 2017 time frame. Until that time we are working on our key priority of developing the user community. It is the user communities development that is the difficult and time consuming element of our solution. It is also something that we can do without the benefit of our budget in place. I have therefore made it our priority in terms of our activities for the next number of years.

In terms of priority of your time and energy during this time. As a prospective user community participant. The understanding of the Preliminary Specification in its entirety, helps significantly in terms of understanding why some things need to be the way they are. Your understanding of how the user community fits within the industry, its role and significance. Particularly the power they hold in terms of change and enabling the dynamic, innovative and profitable oil and gas producer. Also the user communities participant in terms of their role in the service providers that will be developed to provide the administrative and accounting services to the oil and gas producers. It is this model that is fundamentally different than what exists today. We will be changing the makeup of the industry and it is the user community that is at the heart of the industry. These are significant business opportunities for those that can see their way into the manner in which the industry will operate. Both as a user community participant and as a service provider. It is that these two roles are filled by the key individual who is the user community participant and the principle behind the service provider.

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. 

Our Solution Part XIX

One of the more controversial elements of the Preliminary Specification is the Marketplace Interface. It is here that we are introducing and developing a new interface in which the users in oil and gas will interact, transact, collaborate, agree, and associate themselves with other users, companies, producers, leaseholders, service providers, service industry representatives, banks and governments. The Marketplace Interface is a single interface that is accessible through the Petroleum Lease, Resource and Financial Marketplace modules. The Marketplace Interface will enable you to extend your domain of influence beyond the physical presence that is a current constraint to your working environment. It is an enhancement to the current means of communication through telephones, email, tweets, meetings etc. Avatars of individuals within the Marketplace Interface will enable these interactions in real time from any distance and provide the full power of an ERP system to support the transactions, interactions and collaborations that could occur.

Pretty silly, I know. Until you realize that you can’t get everyone to the meeting until next Wednesday at 3:00. And to do so will cause you to disrupt yours and others schedules significantly. If only there was a way to get everyone together right now so that we can decide on this critical point… Certainly telephones are not going to provide the documentary value and group participation of a meeting. The Marketplace Interface, operating within the three marketplace modules of the Preliminary Specification, combines elements of both meetings and telephones. The ability to have them quickly, documented and with the full participation of the necessary individuals will be the capabilities brought about by this new interface.

Everyone is tired of the extensive number of meetings that they need to attend daily or weekly. If only they could attend some of them virtually, which is what they would be able to do with the Marketplace Interface. Cutting down on the time in meetings, which would allow for, wait for it, more meetings! Which is going to be one of the consequences of implementing the Preliminary Specification in the dynamic, innovative and profitable oil and gas producers. With high levels of automation in the transaction areas being conducted by the service providers. Their use of specialization, the division of labor and automation as their key competitive advantage we have stated here many times before that the types of work that people will be doing is going to change. We will be conducting different tasks that include leadership, issue resolution, creative, collaboration, research, ideas, design, planning, thinking, and generally making the computers work for us. Or in other words, many more meetings.

If we believe that our work will continue to remain the same in terms of how we interact with people then I think we are going to need a lot more people. Either that or new methods of communication are going to be needed. The endless meetings will need to end. Maybe some of the attendees can instead review a video replay of the Marketplace Interface recording at twice the speed. Other methods of communication are going to be needed to be introduced into the way that we work if we are going to do the work of the humans and leave the work that is better suited to the computers, to the computers. Our volumes of work will increase. The types of work will change. And the importance of that work will also increase.

An ERP system that doesn’t introduce a new means in which to deal with these issues and opportunities is not doing its job. It is providing for yesterday’s ERP system needs. Our work is changing and the types of interfaces that we will use also needs to be changing. The Marketplace Interface is one of the opportunities that we will be using in the Preliminary Specification. It is based on the Open Wonderland framework developed by the former Sun Microsystems. Here is a video of the technology.

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. 

Our Solution Part XVIII

In addition to a number of Joint Operating Committees. The dynamic, innovative and profitable oil and gas producer will operate in a number of marketplaces within the oil and gas industry. The Preliminary Specification has three marketplace modules, the Petroleum Lease, Resource and Financial Marketplace modules. It is within these modules that the Preliminary Specification virtually replicates those markets.

Without a P&NG Lease, or a concession there is no title or ownership to the oil and gas that is produced. It is the marketplace of P&NG Leases that the North American oil and gas producer seeks to earn their profits by applying their earth science and engineering capabilities as competitive advantages. P&NG Leases can be bought and sold, traded, swapped, developed into a Joint Venture, pooled as some of the many possibilities within the North American marketplace. The constraints on a producer's creativity, of how they approach the business, is limited by the laws of Canada and the United States, and their earth science and engineering capabilities. The Petroleum Lease Marketplace will reflect the available opportunities that exist in the oil and gas market space. And also provide the means in which to manage those assets consistent with effective and efficient business practices.

To facilitate that creativity and business need the Preliminary Specifications Petroleum Lease Marketplace will need to accurately emulate that physical market space and all of its characteristics. So that the dynamic, innovative and profitable oil and gas producer can address the entire oil and gas market space and seek out their role within the industry. If it is to post some land, or bid. Buy some established production or pool an interest in a promising area. They will have the interfaces within the module to provide for the ability to participate in those markets.

The second marketplace module seeks to replicate what we have called the Resource Marketplace. This consists of the marketplace of human resources, service providers, service industry representatives and producers. The products and services that are made available to the dynamic, innovative and profitable oil and gas producer. Within this module producers will be able to find the interfaces to enable the engagement of the resources to conduct any and all activities within the industry. It is through this module that the producer will interact with the service providers. Which in turn enables the decentralized production model to be implemented as the business model for the industry. And therefore it is here that the flexibility in the producer's production deliverability is enabled. Automation of the processes between producers and others is an underlying assumption regarding the transactions that occur in the module.

Lastly there is the Financial Marketplace module. With the level of activity increasing in the dynamic, innovative and profitable oil and gas producer. The need to have its financial capabilities increase their velocity and throughput are necessary. As well, the alignment of the financial framework of the Joint Operating Committee to the compliance and governance framework is achieved in the Financial Marketplace module. Opening up the producer to new avenues of financing and greater capabilities in terms of their overall financial performance.

I'm really struggling to articulate the abstract definition of what these marketplace modules mean within the Preliminary Specification. These hold a special role in the software and will provide new ways in which the producers participate in these market spaces. As I stated in the beginning of this post; the dynamic, innovative and profitable oil and gas producer has an interest in many Joint Operating Committees and these three marketplaces.

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

No Posting Today

In recognition of the U.S. Memorial Day holiday.

No Posting Today

Bureaucrats can look forward to another day's pay and one day's vesting in their pensions. 

Our Solution Part XVII

The conflicted bureaucracy that are operating in the oil and gas industry have a fundamental belief in a theory known as spontaneous order. It is an economic principle that essentially states that markets will create the solution when it is required. Spontaneous order has worked in the economy on many occasions and could be argued that it is the competitive response to a company's offering. I think things have changed. Information Technology in organizations is the metaphorical cement that locks the elements of the organization in a permanent, unchangeable situation. The capacity and capability to change the organization is dependent on the capacity and capability to change the software first and foremost. Without the ability to change the software, none of the elements of the organization are going to change. Spontaneous order is therefore rendered inert in the digital economy.

Which is fine as far as the bureaucrats are concerned. Leaving the status quo organization in place is therefore simple. Don't change any of the software and the bureaucrats can retire fat and happy. This may also be one of the key reasons that there is little growth in the advanced economies. Everyone is dissatisfied with the level of economic growth these days, however, have they asked what a bureaucrat really thinks of this.

The alternative to spontaneous order is the hideous sounding central planning. Which is what had been done in the former communist countries with little success. Even the Chinese successfully abandoned this method of organization. There has to be a middle ground and I think that the Preliminary Specification, our user community and service providers offer that middle ground. First by providing the dynamic, innovative and profitable oil and gas producers with a software development capability. Secondly by establishing the user community vision to enable the needs of the producers, the industry in general, the service industry and all the users with the means in which to change the Preliminary Specification.

An analogy to our current situation in oil and gas would follow along the lines of this. If we had a donut shop that made its own donuts. Where the manager continued to purchase new equipment that was faster and more productive. And he kept all of his machines producing all of the time. The parking lot would be full of stale donuts and there would be no customers. This for all intents and purposes is the oil and gas industry today. No one can impress upon the donut shop manager, or in the oil and gas industries case our friends the bureaucracy, that they are wrong and need to change their ways. It is because the donut shop manager has a vested ownership interest in the donut machine manufacturer, or in the bureaucracies case, their cabin and personal fortune.

Review of the user community vision shows the user community is endowed with the power and capabilities to solve issues and enable opportunities for the dynamic, innovative and profitable oil and gas producer. As a replacement to the current conflicted bureaucracy. In the current industry no one can point to anyone who has the power to deal with the overproduction issue. In our user community the users will be able to see the opportunity, organize the resources to make the changes to the software and the service providers and enable the value to be earned by the oil and gas producers.

Everyone can see the issues in the oil and gas industry. Yet no one can currently do anything about them. The only solution being offered is the Preliminary Specification, our user community and the service providers. At some point the realization that the only solution being offered is probably the right one will be accepted. Particularly when the value proposition of that solution is valued in the tens of trillions of dollars.

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. 

An Operating System for the Industry

Maybe one of the best ways to describe the Preliminary Specification, the user community and service providers is that it is an operating system for the industry. One in which the producer, no matter their size, can manage their interests in any and all oil and gas properties. An operating system that provides the producer with the opportunity to implement whichever strategy they believe to be the most effective. Based on the most advanced earth science and engineering capabilities that are available from the partnership making up the Joint Operating Committee. How this will work is through the interactions, transactions and collaborations between the people and the electronic devices they use. Everyone knows that we can have these types of applications. Those that are readily available for consumers that use these devices. Why are they not available for the oil and gas industry? Its simple, we need to organize ourselves, our data and processes to enable these new types of devices and applications. We need to build the operating system for the industry in order for this vision to take hold.

Certainly everyone can access their files and work from anywhere there is an Internet connection today. We've all been able to do this for years. That is not where we need to go, nor is it what I want to discuss today. What we need to do is to begin to provide the oil and gas producers with the ability and capabilities to conduct their business securely, anytime, anywhere and on any device. A means in which producers would be able to work together, indirectly, to better manage their interests. Based on information and data that is accurate and reliable. And to have the capability to make the business decisions, at the Joint Operating Committee level, that need to be made.

It is this new way of operation brought about by the Preliminary Specification, the user community and service providers that the producers will be able to attain the most profitable means of oil and gas operations. Today everyone knows what the problem is. Overproduction. Everyone knows the solution. Shut-in the unprofitable properties. Yet none of the producers are able to do so due to the inability to know which properties are a financial drain, and they can not be the first in the marketplace to voluntarily reduce their production profile. If, with the Preliminary Specification, all the producers know that their production is profitable. And any that isn’t profitable has been shut-in. Then they know their profits will be the highest they can attain as a result. They will also know that all producers will operate in the same fashion as that is the most profitable means of oil and gas operations. There is no collusion over prices. There is only the self interest of the producers at the Joint Operating Committee making the decision to produce or not in their own best interests.

Making clear business decisions based on accurate and reliable information and data is not the method in which the oil and gas industry operates today! Overhead and capital are ignored as costs so they don't have to account for them. Bureaucrats let these costs accumulate on the balance sheet for eternity. That way they can justify producing everything they own no matter how much it might really cost. Its the modern version of the shell game.

With the Preliminary Specification our user community and service providers in place the industry would operate in a more rational manner. We use the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer. In doing so we align the compliance and governance frameworks of the hierarchy with the legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks of the Joint Operating Committee. This alignment is the beginning of the Preliminary Specification. From there we are able to take the issues and opportunities of the industry and deal with them effectively. And not just in the administrative and accounting domains, but also in the operational domain.

Time will tell if the commodity prices are in the early stages of a recovery. I’m on the record stating this is not the case as the bureaucrats can’t change their means of operations. They will continue to overproduce. I am also on record as stating that the current accounting is bogus. That the ability and capability of these allegedly profitable producers to fund their negative margins and unprofitable operations is limited. Particularly in an environment where the investors are not investing, and now the bond holders are not investing. The only real place for a producer to get their hands on some cash is to produce! And around we go again. It is the definition of insanity.

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. 

Status Update

As difficult as our task appears to be, we are making progress in terms of spreading our message throughout the North American oil and gas industry. People can see the Preliminary Specification and understand its logic. Most importantly they can see how they will be able to fit into the revised oil and gas industry. What is difficult for many people to appreciate is the scope and scale of change that we have to exercise to enable the Preliminary Specification, the user community and service providers. It is my opinion that the bureaucracy is a method of organization that has ceased to build value in all industries. It is why we are no longer growing. Just as the former Soviet Union found that their system of organization could no longer function, the bureaucrats need to understand that their days are numbered in this the 21st century.

It is our focus on developing the user community for the next 18 months. At which time we should be able to shift into the development of the Preliminary Specification. This assumes that we are successful in convincing “someone” to fund our budget and proceed with these developments. It may appear that we are a significant distance from having our budget funded, however, watch and learn. The real priority right now is the development of the user community as this enables us to lose nothing in terms of time. If we had our budget now, we would be doing the same things, developing the user community. It is the critical qualitative difference in our software offering and will be the method in which the oil and gas industry solves its issues.

Oil and natural gas prices have shown some strength in the past month. The bureaucrats are thinking all is well and they dodged the bullet, so to speak. Others outside of the industry may be thinking the same thing. Why then would it be necessary to conduct such radical surgery as implementing the Preliminary Specification if everything is on the road to renewal. To me commodity prices are displaying characteristics of a classic dead cat bounce. Last week the EIA announced that natural gas storage levels are 65% higher than they were last year. One look at the production profile of the United States and it is clear that the storage capacity for natural gas will be reached this summer / fall injection period. Taking 100 to 110 bcf per week of demand out of the market, suddenly, will cause the natural gas prices to take a further step downward on a semi-permanent basis. And as for oil, there is no good news anywhere that can support $60.00 prices.

What needs to happen is a method in which producers can allocate production based on profitability. Only the Preliminary Specification provides our decentralized production model. The bureaucrats are conflicted against themselves by having to produce everything they can to offset their overheads. To determine which properties are profitable is impossible for each and every producer on each and every property. They use estimates of what the overhead at the property is and these are based on best guesses from the 1960’s. The actual overhead of the producer is capitalized into the ballooning asset base. Therefore to determine the actual cost of a property, forget it. The only number they can provide is the gross margin. And as long as the gross margin is positive then they will produce. However, don't be surprised if, in the future, the margins do turn negative.

Hope springs eternal. So the saying goes. The alternative is that the bureaucrats face the reality that they have failed and begin dealing with the consequences. Not something that anyone wants to see. So we assume that things will be alright when the commodity prices rise to these levels. We need to extract our emotions from the work that we have ahead of us. And focus on the job that we need to do. A very difficult and hard type of work in building the Preliminary Specification, the user community and service providers. Alternatively we will see the continued failure of the industry leading to the breakdown of its capabilities and capacities. Who knows, we might have to go there before anything happens with People, Ideas & Objects budget being funded. And we're prepared for that too.

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

No Posting Today

Taking the day off in recognition of the Canadian Victoria Day Holiday.

No Posting Today

Making it an extra long weekend. 

Oil and Gas Pricing

With the Preliminary Specification, our user community and the service provider's operational in the oil and gas industry. Pricing of the commodities of oil and gas will be different than what is currently occurring in today’s marketplace. People, Ideas & Objects provide oil and gas producers with the most profitable means of oil and gas operations. On the issue of pricing we ensure this profitability through two key differences in the way we operate the industry. The first is we enable the producer to use the “price maker” strategy of our decentralized production model. Secondly we include all of the costs of production in the determination of the commodity prices. Capital, royalties, operating and overhead. Not just the royalties and operating costs to calculate the margins as is done today. It is these differences that enable us to make the claim that we provide over $45 trillion (thats correct with a T) in incremental value with our value proposition over the next 25 years. This post will detail how we earn that difference.

There are a number of fundamental changes that occur when the Preliminary Specification is implemented into the industry. The producer firm is organized to focus on their competitive advantages of their earth science and engineering capabilities, and their land and asset base. We do this by stripping out the administrative and accounting resources of the producer firm and establishing service providers who are focused on a single process and use the entire industry as their client base. The service providers are in turn able to focus on their competitive advantages of specialization, the division of labor, automation and making the computers work for us, as opposed to the other way around. This reorganization of the industry opens up many opportunities and enhancements to the way that the producer operates through the Preliminary Specification. The decentralized production model is one area where our value proposition is affected greatly.

With this industry configuration in place, it provides the ability for each property to determine the actual cost of operations. The costs will include the capital, royalty, operations and overhead that is incurred in that property. Overheads are incurred by the Joint Operating Committee, not the producer firm. The overhead is incurred by the service providers who will conduct their services when they receive an activity from the property that starts their work, and subsequently issues their billing. For example, when there is production, the revenue accounting service provider will conduct their process in accordance with the needs of the producer, and then issue their billing to the Joint Operating Committee for revenue accounting services for that property. If the property is shut-in, then none of the service providers are receiving any information from the “task and transfer” network and no work is conducted by any of the service providers. Creating a null operation; no operating costs, royalties or overhead are incurred during times when a property is shut-in. Only the cost of capital is uncovered. This increases the overall profit of the producer as it is assumed that the only reason the property was shut-in was that it was not producing a profit.

If each producer produced only profitable properties in this manner then they would only have properties that were profitable. ;) Their shut-in inventory would provide them with ample opportunities to innovate in an attempt to bring those properties back into production. On an industry wide basis the marginal cost of production would be determined. And the commodities prices would find their equilibrium. In the case of natural gas this would be at least double and maybe triple the price of natural gas in North America. On oil it would have a significant impact as well. This would not only make the producer profitable in the current environment, it would reduce their capital costs of the property by reducing the amount of losses that have to be recovered tomorrow on properties that are losing money today. We have valued this price making capability from our decentralized production model at $5.7 trillion over the next 25 years in our value proposition.

The other critical aspect of our Preliminary Specification that provides the dynamic, innovative and profitable oil and gas producer with our significant value proposition is the manner in which we calculate the costs of the property. It is our assertion that the producers are being misguided by the SEC and accounting firms in their use of full cost and successful efforts. They are essentially bloating the balance sheets of all producers by implementing these accounting policies. Even with these poor prices the producers are able to report profits on operations because they include none of the costs of capital in their calculations. In determining prices we will use a more appropriate means to recognize the cost of capital in the pricing mechanisms used by producers. Then they will be able to capture these values in their price making strategies and recover their costs of capital for their investors.

Just because the industry is reporting accounting profits and stock traders are claiming to have made money, does not mean that oil and gas is a healthy industry. There is a difference between the two of these domains. The business of making money in oil and gas has been fundamentally flawed since the accountants implemented their accounting voodoo many years ago. Never recognizing the full cost of capital in a business is foolish and the investors in the business itself have been made to pay as a result. Until we include a capital allocation, on a reasonable basis, in determining the commodities pricing, this business will not be able to provide an investor with a return on their investment. It is stated that the industry requires $40 trillion in investment in the next 20 years. Where is this money coming from when all you have are accounting profits. With producers sitting on big, fat, bloated balance sheets holding onto capital costs that never see the income statement. Sure I’ll volunteer my capital, let me put my money down, where do I sign up. With the Preliminary Specifications decentralized production model. The capital costs are considered and included in determining the commodity prices. Therefore the capital is being returned to the investors in the long term. The other $40 trillion in our value proposition. Today the bureaucrats say the investments are a sunk cost, and they don't consider sunk costs in their decisions. I suggest we don't consider bureaucrats in ours.

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. 

Our Solution Part XVI

“Plurality should not be assumed without necessity.” Occam's Razor which simply states that the simple solution is the right one. Those reading the Preliminary Specification may find the 175,000 words anything but a simple solution. However those with a sizable amount of oil and gas experience know that using the Joint Operating Committee in the manner that we are provides a very simple and elegant solution. It is the way that the industry is structured. Around partnerships that mitigate risk and enable the pooling of assets. The Joint Operating Committee is the organization that the industry operates under. Yet none of the ERP systems that exist today recognize this. They define what we call the corporate model. How does the corporation manage their compliance and governance requirements. SAP doesn't even know that partners exist! They work around this “anomaly” in their software. What is needed is an industry specific development of the software to meet the unique needs of the oil and gas producer, the Joint Operating Committee and the industry.

The need to have the software developed for these needs is only the beginning. The changes that occur within the business. The developments of concepts that will occur in a dynamic, innovative and profitable oil and gas producer need to be accommodated as well. That is why the People, Ideas & Objects software development capability is a permanent addition to the toolkit of the industry. Included within that toolkit is a user community and a number of service providers that not only define the software, but also run the industry administrative and accounting operations. It is under this basis that we are able to bring the Joint Operating Committee, the natural form of organization to the industry, and our business models to the producer. These businesses enable the dynamic, innovative and profitable producer to reap the benefits of our significant multi-trillion dollar value proposition. One that provides the producer with price maker strategies. That define the full cost of the exploration and production process in determining what those prices should be.

The next 25 years is going to be different for the industry. Investors may not be around to continue to “build” the industry. As a mature industry they may expect that they finally begin to see a return on their investment. The chronic overproduction and bloated balance sheets that the bureaucracy are providing today don’t impress anyone in the investment community. Debt or equity investors. They can see the performance of the industry over the past fifteen years and know they would have been better off investing in just the commodity. The bureaucracy provides no value increase beyond the increase in the commodity prices. And I would argue that they have destroyed significant capital in the past fifteen years. A business model that provides no upside over the commodity price increase is not a business. Its a failure that is complete in every sense of the word.

And there is nothing being discussed from the bureaucrats in regards to the size and scope of the problems that they are dealing with. Absolutely nothing. The only issue they are concerned with is getting through the annual report and annual general meeting season so that they can resume their personal plans of planning their retirement. They know they sit on top of a failed state and will do nothing to fix it. Their plan is to escape when the troubles become too obvious and too difficult to hide. Leaving the industry in even worse condition than what they are currently managing it to be in. This is not their concern because no one will be able to state specifically that it is their fault. They were just bureaucrats.

Some might ask if shale reservoirs are financially viable? Not in the current business model, managed by the bureaucrats. And bureaucracies don’t change. We offer a business model and form of management that deals with the nuances of shale and makes it viable. Shale is a necessity. With 55% of the natural gas production now coming from shale. And a large percentage of oil coming from shale. There is no turning back now. That however doesn't mean that we have to produce shale at a loss.

The number of times that I have been told that what we are doing can't be done is probably historic at this point. Our current “impossible-to-do” is harnessing enough disgruntled oil and gas investors to start with the funding of our budget. It might work, or we might figure out a better way to raise our budget. One way or the other we'll get our budget funded. What I do know is there is a problem that exists in the industry and I think the Preliminary Specification and decentralized production model is the solution.

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. 

Our Solution Part XV

Yesterday we stated that there had to be more consideration given towards the service industry in terms of the work that is done for the oil and gas producers. During the good times the bureaucrats are frequently expressing their dissatisfaction about the costs and availability of the service industry resources. During the downturn in the industry these same bureaucrats think of none of the consequences of slashing their budgets and ceasing all field operations. The flow of people into and out of the fields can cause severe traffic jams in the most remote areas. Bureaucrats need to begin to think a little more clearly at the real cost of turning the taps on and off in this manner. Calling out the service industry as leeches on their revenue streams doesn’t help to endear the service industry to the key role they provide.

After all if not for Packers Plus and coil tubing, to name a few, there would be no innovation in the oil and gas industry. Many of the bureaucrats are claiming that they are innovating at a tremendous rate at this point in time. The fact of the matter is that they are only conducting operations at lower day rates than they were when the rigs were fully contracted. The real innovations came years ago by these service industry providers who begged and pleaded for the bureaucrats to try their ideas, for free, to get an understanding of what could be done with coiled tubing, or what Packers Plus was providing. The ideas that started in the field were ignored and laughed at by the bureaucrats for many years, possibly a decade, before they were finally accepted by that rarified being, the oil and gas bureaucrat. You can also be certain that most of these people were funding their ideas themselves and found that most of their ideas eventually ended up in their competitor's shop as a result of a “technology transfer” that was hosted by these oil and gas industry bureaucats.

So why would someone fight these bureaucrats for decades to have their technology eventually adopted in the industry. Only to have their technology copied by their customer when it is accepted. And to generally be treated like a virus for the rest of the time? I can only speak for myself, and that is, we have a job to do. Without oil and gas, as a society, we are in a real mess. So we do the job that we are able to do, irrespective of the bureaucrats. The fact of the matter is it’s a very hostile environment. On the service industry side it's become work to rule. Collect your check and that’s it. I don't see anything positive being developed out of the service industry in the next decade. And the same would go for the bureaucrats. This is not how the industry should operate, particularly at a critical time such as now.

What is needed is the Resource Marketplace module of the Preliminary Specification. Within this and the Research & Capabilities module are a variety of interfaces in which the oil and gas producers and service industry representative can collaborate on future needs and desires of the producers. Respect for the Intellectual Property that is generated from the ideas that are raised is also provided in the module. No more will the bureaucrats be able to wash the ideas and innovations of individuals and service providers in the great ether of industry based knowledge. There has to be respect for the ideas that are developed in order for people to want to invest in them. If they continually see their customer poaching their ideas and handing them to their competitors. We will continue to see a hostile and unproductive relationship. Now we all know this is done in the field and in head offices of the oil and gas producers. And it has to stop. The victims of this “theft” is the producers themselves in that they are denied the prosperous and abundant marketplace of service industry innovations.

Review of the Resource Marketplace module of the Preliminary Specification provides the means in which to develop this prosperous and abundant marketplace. It is also where I place the blame for the breakdown in this relationship solely on the bureaucrats. Its what they do, blame others and cut costs in the short term. And as I said it has to stop if we are going to solve the problems that we will have to in the next 25 years in dealing with society's demands for energy.

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. 

Career Risk for the User

Members of our user community have exposure to significant career risk as a result of being associated with People, Ideas & Objects. The bureaucrats have identified this project as being counter to their best interests. That is because we are working diligently to remove the bureaucrats from the landscape in the oil and gas industry. Therefore anyone who would be clearly identified as being associated with this project would be subject to the same warm and fuzzy feeling that I get each day from our good friends. Therefore the people who are associated with this project are kept confidential and are not exposed for any reason. Their career risk is significant and not something that can be mitigated. The bureaucrats, like elephants, have long memories.

This is also the key reason that our budget needs to be funded in its entirety. No one is going to commit to the level of career risk necessary to make this project viable without a viable going concern in which to move to. Since the only way that People, Ideas & Objects can be a viable going concern is to have the software developed, the user community developed and the service providers organized. The budget to bring those resources into being is necessary before we will be able to solicit the numbers and quality of user community participation to make this project a viable going concern. Classic issue in a modern manifestation.

To expect that people would volunteer for a project such as this is something that the bureaucrats would expect. They sit on a primary industry where the revenues are generated from oil and gas. And look down their nose at everyone of the tertiary industries that depend on the oil and gas industry for their revenues. What the producers need to begin to realize is that the ability for them to generate the oil and gas revenues depends on the members of the tertiary industries. Their behavior of turning on and off the tertiary industries revenue stream when oil and gas prices are up or down is a detriment to their own best interests. When prices were high they complained bitterly that the service industry was lazy and too expensive. Now with the prices being low they can't cut the flow of funds to the service industry fast enough. What will be the bureaucrats complaint next time oil and gas prices are high and people don’t want to work in the cyclical oil and gas industry? You really do reap what you sow.

The bureaucrats also have the attention span of the current quarter’s financial performance. Our project unfortunately spans a few of those quarters and therefore will be subject to the wandering minds of the bureaucrats. If we proceed on a pay as you go basis, once we are in full software development mode, the bureaucrats attention will no doubt turn to other “more pressing issues” and cut the funding to this development. Our ability to recover from a funding cut and resume developments would never exist. Its different when you have a physical asset like a drilling rig as the asset that you can idle for a few months. Our asset is our user community and software developers. Their Intellectual Property. Once this is stalled, it can not be restarted in my opinion. Therefore we must have the entire budget funded before their is any development work done.

The point about the boom / bust cycle and its impact on the service industry is something that we address in the Resource Marketplace module of the Preliminary Specification. There has to be a means in which the service industry can rely on the oil and gas industry to fund them. This method of turning off and on the taps is causing too many difficulties in terms of the service industries ability and capabilities that the oil and gas producers need. A dynamic, profitable and innovative producer needs to have the service industry innovating at the speed at which they are innovating. It doesn’t help to come up with the next great earth science innovation when all the rigs are idled, or, when all the rigs are contracted and you can't find a qualified crew. Tomorrow we will discuss the Resource Marketplace module in more detail in our “Our Solution” series.

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. 

Change is in the Air

We see that there is an aptitude and an appetite for change in people’s acceptance of the status quo. The Progressive Conservative party in Alberta is no more. With the former Premier, Jim Prentice quitting the cabinet, quitting the leadership of the party and quitting his just elected seat in the legislature. No one will ever vote for a Progressive Conservative candidate again. Thankfully we have the Wild Rose Party which is the upstart that will probably form the next government. People had to vote for the socialist New Democrats as they were the only other choice they could vote for, and get rid of the bureaucracy. I find the change dynamic parallels to what we are doing here in People, Ideas & Objects with our Preliminary Specification to be very strong. People are looking for better ways in which to be governed, better ways in which to be organized in their businesses and their careers. We might just be timely in our approach to the market!

We've also seen the devastation that low oil and natural gas prices have done to the income statements of the producers. Many are reporting losses, however, everyone is definitely feeling the effect. If producers only provide the upside from the increases in the commodity prices, why take the risks of investing in them at all. Why not just buy the commodities on the commodity exchanges and trade those instead. If you think the bureaucracy is there to build value beyond the increase in the commodity prices. You have the past fifteen years to convince you otherwise. Our suggestion is, that the book value of the producers are significantly bloated for no other purpose than to support high debt levels. This bloating of the asset value of the producers also allows them to report higher earnings than what would otherwise be possible.

With the Preliminary Specifications decentralized production model we are able to calculate the appropriate costs of capital in determining the total costs of each property. As we have documented here before the bureaucrats are calculating the margins on their properties and leaving out the overhead costs and the cost of capital in determining their properties overall costs. This miscalculates the prices needed to produce the commodities. Leaving the producers reporting some profits, however with large asset balances on the balance sheet with little or no cash or working capital being generated. With the Preliminary Specification adding the costs of overhead and capital into the properties costs, and pricing mechanism the producer will be able to earn the cash flow required to return the investors their investments and an element of profit as well. This is how we are able to provide the industry and oil and gas producers with the most profitable means of oil and gas operations.

Oil prices rallied this week for some unknown reason. I think it was on the basis of hope that the U.S. shale producers were soon to see their production decline. As I have stated before, the natural gas side of the business will show us the way in terms of what we can expect the oil deliverability from shale will be. And that is continued production increases and overproduction. The bureaucrats are using the high throughput production model. Which requires full production at all times to offset the high overhead costs of their operations. There is nothing but full throttle production as the means of operations. And for the bureaucrats to discern what is profitable and what is not has never been necessary or possible in the industry before. This current method of industry organization needs to change to the decentralized production model. Where every property is subject to the determination of the full costs of operations and if those costs can be covered profitably by the current commodity price it will continue production. If the prices don't cover the costs then the property can be shut-in until the prices rise to the point where they do cover all of the costs and provide for a profit. And if the producer has an inventory of shut-in properties they will be more profitable than they would be under the current high throughput production model.

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.