Langlois on Chandler

I went through some of the earlier posts on this blog looking for a reference to Alfred Chandler’s comments about how the bureaucracy had failed before. It was through a couple of posts that I was able to pick up a couple of interesting quotes from Professor Richard Langlois who has made Chandler a key area of his study. I can remember those days doing the ten years of research that are codified in the Preliminary Specification. I nearly broke my brain, some may think I did. Whichever the case, the work is done and the product can build value for the industry, the people that work in the industry and society in general.

The references for today come from Professor Richard Langlois in his book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.” From it I summarize the process of how a different kind of failure could occur in the oil and gas industry today.

• Management have little to no stake in the producer firms. 
• If a crisis were to strike a firm, the management would resume elsewhere. 
• It is the investor and debt holders who would shoulder the costs.
• Management currently hold the reigns, and are mindful that their options may lay elsewhere. 
• Ownership, in the same fashion as the Merchants will need to start over. 
• Starting over begins with supporting People, Ideas & Objects, our user community and the service providers.
• Chandler noted that management have failed before. 
• During the great depression. 
• A time when government had to increase its involvement in the economy.
• Management may not see the more global picture, and therefore, may fail again.

Today there is a clear global picture. Shale based reserves have changed the dynamic in the industry. The global picture can be seen by everyone. What is unknown is why the producers don’t act to mitigate the overproduction in the commodity marketplace. I have asserted repeatedly that the ability for producers to know the actual costs of any property is unavailable to them. Therefore they can’t answer the question of which properties to shut-in. They also have to cover off the costs of their high overheads. Overheads of approximately 25% of revenues that would seem disproportionate at anything other than full production. So they produce. See if you can spot the similarity in what Professor Langlois notes here.

Indeed, traditional command-style economies, such as that of the former USSR, appear to be able only to mimic those tasks that market economies have performed before; they are unable to set up and execute original tasks. The [Soviet] system has been particularly effective when the central priorities involve catching up, for then the problems of knowing what to do, when and how to do it, and whether it was properly done, are solved by reference to a working model, by exploiting what Gerschenkron ... called the “advantage of backwardness.” ... Accompanying these advantages are shortcomings, inherent in the nature of the system. When the system pursues a few priority objectives, regardless of sacrifices or losses in lower priority areas, those ultimately responsible cannot know whether the success was worth achieving. The central authorities lack the information and physical capability to monitor all important costs—in particular opportunity costs—yet they are the only ones, given the logic of the system, with a true interest in knowing such costs. (Ericson, 1991, p. 21).

It is here that Langlois best describes the futility of our current pursuit of “best practices.” The inability to know the costs, and particularly the opportunity costs, is also a prevalent issue with the producers. These producers opportunity costs are our value proposition. The loss in value of the oil and gas commodity prices as a result of overproduction and the inability to do anything about it. So what can we do about it and how can things change. And it is on this point that I think history will provide us with the best answer.

The first, and most obvious, point is that it was an outside individual, not an organization, who was responsible for the reorganization of the industry. Lazonick is right in saying that genuine innovation involves reorganizing or planning (which may not be the same thing) the horizontal and vertical division of labor. But it was not in this case “organizational capabilities” that brought the reorganization about. It was an individual and not at all a “collective” vision, one that, however carefully thought out, was a cognitive leap beyond the existing paradigm. If SMH came to possess organizational capabilities, as it surely did, those capabilities were the result, not the cause, of the innovation. p. 46

I see this as a strong endorsement of this community to work within the Preliminary Specification and build out the software necessary to run the industry. This is how it has been done in the past and will be done in the future. I am not aware of any other ideas that exist in the marketplace today. Based on the amount of time that I had spent developing the Preliminary Specification, do we have the time to take any new ideas to the level that the Preliminary Specification exists today?

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. 

Third Friday Off

A Sad State of Affairs

Natural gas prices in the Marcellus region reached as low as $0.66 last week. A clear indication to anyone, that after almost six years of very low natural gas prices, bureaucrats won’t, can’t and will not ever change. The Marcellus region represents 28% of all of the natural gas that is produced in the U.S. What should also be clear to the people who are being laid off, the investors who were told that gas had value, and the service industry that is being forced to work for their meals is that they are not the concern of the bureaucrats. They quite obviously could care less. What is this mindset of a bureaucrat to produce at any price? Certainly there are hedges and other financial devices used by bureaucrats. However, look at the business, it is suffering from a small amount of overproduction that is causing massive price declines! Dumping product onto the market at $0.66 is what a fool would do.

What is needed is the change to the Preliminary Specifications decentralized production model. Enabling the price maker strategy. This is the only way in which the industry is going to get out of this difficulty. It may be radical surgery, but the cancer that is eating at the industry is certain to kill it. After six years of overproduction in natural gas. Where there is never any consideration that the industry is a price maker or a price taker. We find the producers dumping 28% of the natural gas. That’s 20 bcf per day on to the marketplace for as little as $0.66. What do we expect to happen in the future that will correct this situation? Why will this situation rectify itself? Why are we sitting around and writing in the quarterly reports “oh whoa is me?”

The plan is to wait until the reserves that the investors paid so dearly for are used up and dumped onto the market at $0.66. Then a gas shortage will occur and the bureaucrats will have their heyday once again where prices would skyrocket to who knows how high. This is called “rebalancing the market” by cutting capital expenditures. The most blunt instrument known to mankind. Its production that’s the problem, not the level of field activity. When natural gas prices skyrocket in this scenario. It will be “oh whoa is me” that the service industry is being greedy and lazy. That is both of them, because that’s all that will be left of the entire industry by then. And that they can’t find any engineers or geologists to run the industry. “Oh whoa is me.”

It’s almost a cycle. Predictable and automatic. The problem is the extremes are becoming more and more acute. Maybe I’m wrong but I don’t think we can have an industry that is this important to our society bouncing being the extremes of abundance and rationing. What we do know is the response to higher commodity prices will be muted due to the poor financial capabilities of the producers and their exceptional record with the investor class. As a result prices will go ever higher to the point where you’d be crazy not to be invested in oil and gas. This is when the bureaucrats can begin pouring the foundations for the west wing of their cabins. I wonder what I’ll be doing?

As a point of clarity. The other day we discussed how the surplus capacity costs of the producer weighs it down financially in the current high throughput production model. Citing the Nissan case as an example. Some people have asked why this doesn't apply in the People, Ideas & Objects Preliminary Specifications decentralized production model. It is because the costs of administration and accounting will have shifted from the oil and gas industry to the new sub-industry we call the service providers. It will be the service providers who will shoulder the administration and accounting costs of any shut in production. And will understand that at any time their revenue streams may be cut by 15% as a result of shut-in production. As a result they will be able to control those costs. This providing oil and gas producers with the capability to be able to control their administration and accounting costs without having to lay people off.

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. 

Growth vs. Profit

In the Preliminary Research Report which was published in August 2003 as a proposal to the oil and gas industry. I included the following.

Organizations require a new means of competitiveness for operating in the global economy. The standard operational strategies (focused on growth) are now limiting, and possibly exposing major societies to economic decline. It is this author’s opinion that growth should not be an objective, but is something that occurs as a result of doing the right things correctly.

Growth has been the guiding force behind most company's strategies since the time that I wrote that. Certainly everyone wants to get bigger, but how? In oil and gas you simply step on the treadmill and begin the process of meeting the production targets that you set out for yourself. It’s that simple, and that destructive. No one asks, what value are you providing? It's just an activity. There is no thought into how the process of being an oil and gas company will make money. You will annually stand up in front of the people who give you the money that you spent and state that you made your production targets. In a world where the SEC allows you to record the sum total of all of your oil and gas reserves, times today’s oil and gas prices as the asset value of the company. You will never be faced with the day of reckoning when you will have to account for the performance on the money you spent on capital to drill the wells and build production facilities. That is until the difficulties of the 2008 financial crisis and shale reserves conspire to make your life miserable.

Your production targets are throwing more fuel on the fire of overproduction. Not the solution to the problem, or building any value, commonly known as profits. Change is not the domain of the bureaucrats in any business or government. Technology is the great equalizer in terms of disrupting the status quo and flipping tables over at the wedding reception. And you know that I am truly sorry for having to be the one to do this. ;) Growth is providing no value for anyone anymore. We need to focus on the value that we can provide to society. The investors, service industry, people who work in the industry and the energy consumer. Which by the way all pay taxes. Under the current administration we are growing, however only the bureaucrats and consumers are happy.

It will be the domain of each and every user community member that we are providing the oil and gas producer with the most profitable means of oil and gas operations. This is the basis of how People, Ideas & Objects are different and how we will achieve the development and delivery of value to the stakeholders that are involved in this industry. If growth is profitable then growth will occur. Otherwise the situation will remain the same.

Apple is a company that I point too to show the differences in the concepts that I am making. They don’t do anything unless it's profitable. And yes, they are profitable. From imminent bankruptcy eighteen years ago to being the largest company in the world came about by focusing on the value of what they were doing. Why would you do anything else? And for example Apple’s market cap is in excess of $600 billion yet their capital assets are only $33.1 billion. If they were an oil and gas company they would have capital assets in excess of $1.8 trillion. And their capital asset balance is low because they move their capital assets off the balance sheet as quickly as they can to properly evaluate their performance and lower their taxable income. You will note that their balance sheet, as a result, is stuffed with $230 billion in cash. That would be the natural outcome of a high performance organization, wouldn’t it? Collecting capital assets on jumbo bloated balance sheets as it’s done in the oil and gas industry is a con game that’s coming home to roost. Trust me.

I know bureaucrats don’t want to listen to me discuss the issues in the manner that I do. I don’t care. We’ve had our good times over the past decade and I really enjoyed them. The party is over and I have to move on. The bureaucrats seem to be stuck forever in a world that started in 1950 and there is no hope for them. My appeal is to the people who invested that money with them. And generally they think I’m too kind.

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 Have a Plan!

“Wake the kids and call the neighbours.” That’s right the bureaucrats have a plan. As far as I can tell this is only on the natural gas side of the business, but we’ll see. After six years they decided to get off the couch and actually do something. Here’s how it goes. Natural gas deliverability in the U.S. has stalled at around 72 bcf / day. We have all heard that producers are still drilling natural gas wells however they are not completing them. Most of the wells are in shale reservoirs. This backlog of uncompleted wells is now estimated to contain approximately 18 bcf / day of potential deliverability. What the bureaucrats hope to do is to wait until the current deliverability begins to decline, draw down the storage volumes, and then put upward pressure on the price.

This is almost an admission that oil and gas producers are price makers! But not so quick. There are some significant holes in this plan and they will not succeed in making it work. The first issue is the discipline necessary to ensure that the most profitable production is produced, and only profitable production is produced. This discipline of course doesn’t exist. They are still in what I would call a “growth” based economy, not one that is motivated on profits. We’ll discuss that point tomorrow. For all we know the 18 bcf of deliverability is potentially the most profitable production out of all of the 90 bcf.

As soon as the natural gas prices begin to move up, what do you think the producers will begin to do? Rush to put their inventory into production. This is due to the fact that they have done nothing to their cost structures. All of their overhead that is necessary to produce that 18 bcf / day is currently being incurred. What they need is the decentralized production model which turns all of the costs of the producer into a variable cost. Then if the producer produces nothing, they have no costs. If they produce at 80% then they will have that level of costs incurred. What they currently have is an expanded capacity. Some of that expanded capacity is not utilized. Therefore the costs of that expanded capacity are not being covered at all. This is one of the key issues of the high throughput production model.

Back in the mid 1990’s Nissan decided it needed to position itself for a substantial increase in its market position. It therefore undertook a substantial expansion of its manufacturing capacity. It doubled its capacity in terms of the number of cars that it was able to produce in a few short years. There was a subsequent recession and they were forced to idle up to 50% of their plants. For the short time that those plants were offline, I recall it was less than two years, it almost bankrupted them. The costs to carry the additional idled capacity was too much. And the company was taken over by European car manufacturer Renault. Our friends the bureaucrats, by expanding the deliverability of the industry, and idling that deliverability have only increased their costs with no additional revenues to cover the overheads. The high throughput production model requires full production to cover off the high overheads. Idle capacity is one of the highest costs you can have in the high throughput production model. And a cost that doesn’t exist in the Preliminary Specifications decentralized production model.

I know I get the argument every time. Oil and gas producers have 5% of their revenues as overhead. And I ask, do they? Look seriously at any report and you will find that is not the case. Yes they are expensing 5% as their G&A. However most, that being 75 to 80% is being capitalized. Meaning that the actual overhead is upwards of 20 - 25% of revenues. It is these fixed costs that will not be incurred in the decentralized production model on any idled capacity. They will be variable costs based on the profitable production profile of the producer.

As producers find their cost structures expanding without any associated revenues. Unable to raise money from unhappy investors. Bank credit lines cut. Where will they turn to find a quick source of cash to finish out the end of the year? You earn two points if you said putting that idle capacity back on production. Without the discipline to produce only profitable production, something that bureaucrats don’t understand or appreciate, they will never have this plan succeed. To adopt the profitable discipline would require that they first catch the religion and deal with those bloated balance sheets. That’s when you’ll know we are beginning to see the end of oil and gas overproduction.

Maybe this plan from the bureaucrats was motivated out of desperation. A fear that they might lose their cozy spot on the couch. I’d like to think it was as a result of the work that we are doing here. That we’re having an impact in the marketplace and maybe showing the way for the producers through a very difficult time. The problem is you can’t tweak the high throughput production model with elements of the decentralized production model. You have to pick one and use it. There are no hybrids. So tell the kids to go back to bed and the neighbours to get out of your fridge. There’s no news here.

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. 

Canadian Thanksgiving

And a day off.

Oh Whoa is Me!

When we last went through a protracted downturn in the industry. It was as a result of low commodity prices. It seemed to last for decades and it had a significant effect on the people that worked in the industry. What really stands out in my memory though is the quarterly reports that were published by the producers during that time. “Oh Whoa is me!” From the front cover to the back. In every document the same things were said. “The gas bubble in the U.S.”, “the Saudi’s” that. It was obvious to me what the problem was and the producers only had to hold back some of their production in order to correct the market. When you mentioned this, they always said you go first. I think that the chronic complaining will resume in earnest this quarter with plenty of pain and misery to be distributed. As we have experienced, nothing changes in oil and gas.

One thing is different this time. The people I know are not in their thirties with small kids and mortgages living from day to day hoping not to be next on the chopping block. They are now in their late 50’s and early 60’s. And are eagerly waiting for the chopping block. This of course is good for them, however, I question the wisdom in watching so much experience walk out the door. My own kids are in their mid 20’s. Both with good educations. And I have to say they are experiencing a job market that is about is good as when I entered the oil and gas industry in 1977. The primary requirement being a heartbeat. Neither of them is in the upstream oil and gas sector. And none of their friends who were in petroleum engineering or geology found work upon graduation, and are working in other industries or are back in university. You do reap what you sew.

Some of the producers proudly point out to me that they are profitable at these current commodity prices. That all the field service industry providers and engineering consultants are offering to work at substantially reduced rates in order to keep the lights on and the business functioning. When I point out that they’ve never been profitable in the past ten years and that all of the costs on the balance sheet need to be accounted for. They state these are sunk costs and are not to be considered at this time. I would ask, when exactly do these sunk costs ever get considered? There is an attitude here in Calgary that the pain will be felt by other people. The investors who never see returns, the service industry that has to cannibalize itself to survive and for the people who work in the industry. And this is the way in oil and gas.

We’ve learned that this is the way that the industry does operate and no one has stood up to the producers and suggested that it’s wrong. Well I am stating that business as usual is wrong. The muddling along waiting for commodity prices to rise, so the party can begin in earnest again is foolish and irresponsible. You are price makers and there is a solution called the Preliminary Specification. The industry needs to be managed professionally. We have a job to do in the next 25 years and there is no way in which we are going to approach it from the base of the industry in the condition that it’s in. In the past couple of weeks I have published a number of posts that end with the words embrace it. These represent fundamental changes in the industry that need to be accommodated now. We have to start getting our act together so that we can deal with the difficulties that will be upon in as little as five or six years.

Where will the investment dollars come from when the investors have had enough of the abuse from this business. Where will the innovation come from when the field service industry providers are begging for their next meal. And who will provide for the day to day management of the industry when everyone who cares and understands about this business has moved on to their retirements. All because this is the way the business operates? And now we are about to hear a chorus of, “oh whoa is me?” If I sound frustrated raise your hand.

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 Value Proposition, Embrace It

We have fallen into a trading range on the oil and gas share prices prior to the second quarter reports. Nobody wants to take a position as to which way the industry is going to go before the news of the quarterly is out. Will this be the bottom? How bad will it be? Or are there more surprises in store for the beat up and abused oil and gas investor? It might be a good time to note that since oil prices began their fall last year to today. The loss in market value of the producers in terms of their stock prices is in excess of $700 billion. Not bad work considering they weren’t even trying. As we have asserted, producers could reclaim this value if they had a plan on how to retrace the oil and gas price declines and begin to constructively approach the next 25 years with a plan. A plan that doesn’t include shrugging of one's shoulders and silence. If only a plan such as that were to exist! Then the reclamation of that value and subsequent stronger footing of the industry would make them look like genius’.

But that’s not all. If you took the present value of the difference in oil and gas prices under the current administration policies of shrugging and silence. And employed the Preliminary Specification which includes as one of its many features, the price maker strategy. You would have on both oil and gas a differential that totals $5.7 trillion in incremental value. And those are pure profits. Already People, Ideas & Objects are up to $6.4 trillion in incremental value and we’re just getting started!

It is our argument that oil and gas producers have bloated balance sheets. Obscenely bloated. To the point where they essentially never recognize the capital costs of any of their operations. Their capital costs just sit on the balance sheets for eternity to pass. And everything that the producer touches is capitalized. And I mean everything. All of the staff in the buildings downtown. They’re included. The accountants and administrators too. Everybody. This is what the SEC calls full cost and successful efforts accounting and they introduced these methods in the 1970’s. Don’t be surprised if many producers still have capital costs from the 1970’s on the books. The issue is, with everything being capitalized, and nothing being recognized as a cost in the current year, other than a minor slice. These balance sheets have grown to ridiculous sizes and the year over year earnings that are reported by the producers are therefore highly overstated because they are not recognizing the appropriate costs.

This overstatement of earnings is so bad that they believe that as long as the producer has good cash flow, that’s all that is required. Not that this is a bad policy, it's just what they also believe in bankruptcy court of a client company in that state of disrepair. Included in those cash flow numbers of course is the annual stock offering to cover the costs of the operation. Are we beginning to see the circular referencing here? Now you have a generation of engineers and geologists who have been raised in this environment who are running the show. They don’t see the issue here as I do. This incineration of capital as an exercise has been one of the primary reasons for the overproduction in the industry. There is nothing stopping anyone from launching a successful oil and gas operation as long as they can talk a good game. That is until the overproduction that is triggered by shale formations.

If you agree with me to this point that the oil and gas producers are bloated with capital assets on the balance sheet we can continue with the determination of People, Ideas & Objects value proposition. These capital assets are sitting on the balance sheets of the producers and under the Preliminary Specification they will be moved to the income statement within a very short period of time. Recognizing the cumulative incineration that’s gone on in this industry over the past decades. How much of this capital remains, I don’t know but I’m going to estimate it at $5 trillion. In recognizing these costs we are able to shift them to either recognize the cumulative loss or generate high enough prices to return the capital to the shareholders. In the case of cumulative losses, they remain available for future profits to be offset and those funds to be returned to the shareholders also. The point is to get these costs off the balance sheet, let them flow to the income statement, where in the Preliminary Specification price maker strategy they will be accurately priced, and then the returns provided to the shareholders. Already we are up to $11.4 trillion.

Speaking of capital, the amount of work that needs to be done in the next 25 years is going to be substantially more than at any other period in the life of the industry. A given. Where this money comes from will have to be the investors. That is if we can convince them that the industry is a profitable place to invest. In order to do that we are going to have to give them a return of their capital and return on their investment. That means we are going to have to also quickly write off any future capital expenditures to the income statement in a timely manner. All of it within three years I would suggest. That way the return of capital to the investors can be done. And the earnings will also need to flow to them. If we are expected to spend $20 to $40 trillion in the next 25 years that makes our value proposition range from $31.4 to $51.4 trillion.

This will require higher commodity prices. Much higher prices. Consumers of oil and gas are going to have to live without the subsidy from the investment community from this point forward. They will have to pay the full cost of the oil and gas commodities and that can only happen in one way. And that is through the implementation of the People, Ideas & Objects Preliminary Specification, user community and service providers. Just curious, what are the bureaucrats offering 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. 

Intellectual Property is King, Embrace It

Throughout the development of the Preliminary Specification, the user community and everything to do with People, Ideas & Objects. Intellectual Property has been a key element of our competitive advantage. Everyone who works within this environment will be licensed, or work for someone who is licensed to use this Intellectual Property. This in turn will secure their employment and business prospects on a go forward basis. We live in a world where the only worthwhile asset to have is Intellectual Property. We’re not there yet, but are we ever close. Now is the time to secure your future in terms of this new and exciting business environment that we live in. This can be done in oil and gas by joining our user community.

The Preliminary Specification states that it is one thing to own the oil and gas assets. Which the producers do today. What is also necessary is to have access to the Intellectual Property and software that makes the oil and gas asset profitable. To be honest this is why People, Ideas & Objects has not been funded yet. Our Intellectual Property is the eight hundred pound gorilla in the room. When I had the difficulties that I had with Oracle in 1997 it was inconceivable to me that I would lose the work that we had done. I owned the Intellectual Property. What I didn’t realize was it was the wild west in terms of how Intellectual Property was dealt with in business and there was nothing that could be done. Today you can look at any situation in any industry and see the origins of the product coming from many years of Intellectual Property development. That is the one big difficult aspect of Intellectual Property. It takes a lot of time, you have to be right and it costs a lot of money.

It’s no longer the wild west. There were many times in which the bureaucrats worked together to try and take the Intellectual Property that is the Preliminary Specification. The most recent was last year through Ernst & Young and Oxford Institute for Energy Studies. There have been so many attempts, they probably are beginning to realize that this fight is over. What should be particularly galling is that I originally approached the industry on the basis of establishing a research firm based on developing the IP with their resources. Which would have made the IP thiers. They said they didn’t work with small research firms.

Continued argument about this a futile exercise. Many years ago I sent an email to all the CEO’s in the industry. Stating that they should not use my IP. I am reiterating that statement here and now. Don’t use my IP. Think about the implications of this. Your CEO is a law abiding citizen who operates a lawful corporation. If you trick your CEO into using my IP, your company is mine. If you spend the money with another software developer to build the system anyway, it will never see the light of day. So you have two choices, that old standby you love to use every minute of the day. Do nothing. Or work with the guy who screams at the bureaucrats five times a day.

Today Intellectual Property is the basis of any industry, and it is a fool who thinks otherwise. There are a lot of foolish bureaucrats in oil and gas. They would rather be unprofitable than accept the Preliminary Specification and the implications that they lose the power and control of the industry. We’ll see how long they can hold out. As I mentioned the establishment of IP in industries has been made. We, as of last week, began the movement to the next phase of the development of IP in the business world. IP as a competitive weapon.

Other than Steve Jobs who understood Intellectual Property better than anyone and developed the largest software company in the world. The next individual in terms of their understanding of IP has to be Larry Ellison of Oracle. And he has stepped up his game in this area. What we are seeing are the small changes and minor tweaks to the availability and methods of management of the Java programming language. It would be my guess it will be removed from the enterprise marketplace in its entirety. And be very limited in any of the other markets. Oracle feels that Java is a cornerstone of their competitiveness and are not satisfied that it is available to their competition. Therefore if only Oracle and Oracle customers, such as us, are able to use Java in the development of applications, then competitors will need to use something else. And to be quite frank there is nothing else.

The Supreme Court would not hear Google’s request for an appeal of their litigation with Oracle. We haven’t heard if Google paid the many billions of dollars in penalties or if they have a license to use Java, yet. The moral of the story is, I think, don’t buy an Android phone. It may not be working very soon. I also think Oracle is using the Federal Government to remove Android from the marketplace. We’ll see.

This is the world that we are going to be operating in in the very near future. Well actually this is happening as we speak. So brush up on what IP is and begin ensuring yourself what it is that is required in the future to secure your commercial and employment opportunities. We have many here at People, Ideas & Objects. The only requirement is, and it is a stiff requirement, that no bureaucrats need apply.

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 Bigger Issue

With those revised 2,551 tcf of natural gas reserves you are guaranteed of never being able to produce them profitably while in the hands of the bureaucrats. What we have is almost six years of unprofitable production in the natural gas business. Yet the exploitation of shale has been such a game changer. It still has provided us with such an endowment of natural gas reserves in that very short period of time. What will be happening now, as we have discussed on this blog in the past few weeks, is the investors and the people who work within the industry will try their hands in other industries. They’ve had enough of the business model of losing money and working long hours between occasional layoffs. Then what we will see is the slow decline and depreciation of the capacities and capabilities of the natural gas industry. And people will ask themselves, with so many resources, can no one make any money at this? Apparently not.

Just as the former Soviet Union’s method of organization was unable to provide for that society. And people would stop work in order to line up at the bakery to get some bread so they had at least had something to eat. While all production on everything else stopped because everyone was hungry. The current bureaucracies in the western world, our “advanced economies,” can no longer provide value in the same manner they’ve done for the past 50 years. They are too slow, too incapable and too self interested to bother to make the changes in the business that are necessary. At what point will the bureaucrats act? We see in many industries that change can be made easily, like taxi’s and bed & breakfasts which have been provided with innovative applications that can be accessed on your phone. However, Uber and AirBnB are in the fight of their lives with every taxi commission, city council, hotel association and visitor bureau in the world. These bureaucrats know when their franchise is in jeopardy. And will fight hard to keep it. Too bad they couldn’t put a little effort into making their business more profitable or consumer oriented.

And People, Ideas & Objects can just put together an iPhone app that runs the oil and gas industry too. It of course isn’t that easy. Oil and gas isn’t a taxi. It needs a bit more work. There are two ways in which we can make the changes which we desire. That at this point People, Ideas & Objects secures its funding and we continue with our development and reorganization of the industry. Or, the industry fails fundamentally in its primary function of providing adequate levels of energy to society's needs. This latter method is the route I think we have collectively chosen to go down. And I think that everyone agrees that that is a mistake that can probably not be fixed. A Humpty Dumpty kind of situation where all the King's horses and all the King's men... I wonder if it will be King Charles or King William?

As I have stated before, there is no Fed in the oil and gas business that can flood the market with production if required. There is no quantitative easing that will get us through if something does go wrong. We are stuck with what the bureaucrats give us. And they certainly have earned every right to be entitled haven’t they?

I can certainly paint a dire picture of what we are faced with. However, we have a highly unprofitable industry with no future. One where the next 25 years we will be faced with our most technical, financial and business difficulties, and a time when we should show that we are up to that challenge. As it stands, how we approach that future is going to be based on how we dealt with the past. And these bureaucrats have a bad record of providing little value outside of their own personal take. This needs to be considered. It also needs to be considered that Information Technologies are revolutionizing many industries as we speak. What we saw in the late 1990’s was the beginning of the trend. But with all trends people overestimate the short term and underestimate the long term impact of the change. It is for these reasons that we need to act. And soon, there is much work to do.

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. 

Price Maker, Embrace It

The Oil and Gas Journal reported last week that natural gas reserves in the United States now stand at 2,515 tcf. That is a number that is just beyond comprehension. At current consumption rates that is almost 100 years of natural gas supply. It is also a number that I can assure you that every joule of energy contained within those reserves will be produced unprofitably by our good friends the bureaucrats. They don’t care! Moving these reserves onto the marketplace as soon as possible will be their job and they will do it with other people’s money in an unaccountable fashion. As we stated last week. With the hamster in the Kentucky derby, what is it exactly that we're asking this industry to do in the next 25 years?

With People, Ideas & Objects Preliminary Specifications implementation of our decentralized production model. We enable the oil and gas producer to use the price maker strategy. When you're finished reading this post you’ll wonder why it is we haven’t been using the price maker strategy since the beginning of the industry. And for that I have no idea, I wasn’t there. The definition of price maker is provided by investopedia and is as follows.

A monopoly or a firm within monopolistic competition that has the power to influence the price it charges as the good it produces does not have perfect substitutes.

People who drive Tesla’s may want to tell us that there is competition for the gas they put in the car. Soon they'll realize there really isn’t any competition for the oil and gas products that we produce in the industry. Think of the attributes of the commodities of oil and gas and you will soon realize there is no competition for either product. There are other products that produce energy, but they do not compete. You can’t put a nuclear reactor in a car, etc. You can’t lubricate anything with coal, etc. Here is more on the price maker position.

A monopoly is a price maker as it holds a large amount of power over the price it charges.

A price maker is a firm within monopolistic competition which produces goods that are differentiated in some way from its competitors' products. This kind of price maker is also a profit-maximizer as it will increase output only as long as its marginal revenue is greater than its marginal cost, in other words, as long as it's producing a profit.

Therefore the innovative oil and gas producer needs to have the People, Ideas & Objects Preliminary Specifications decentralized production model operational in the industry in order to implement the price maker strategy. It will be in that way that they can be assured that we are meeting our focus of providing the oil and gas producer with the most profitable means of oil and gas operations.

Standard operating procedure in the industry today is to take the prices that are given. To produce as much as you can to cover off the overheads necessary to run the organization. This is referred to as the high throughput production model. This price taker strategy is defined in investopedia as.

A firm that can alter its rate of production and sales without significantly affecting the market price of its product.

This use of the price taker strategy in the industry is incorrect and a falsehood that the bureaucrats want everyone to believe because it is easier for them to manage as if it were valid. It is however, as the Shell president said a few weeks ago, that the price of oil has declined over 50% on the basis of only 1 to 2% overproduction! This is not what a price taker is doing. The huge swings in prices prove that the oil and gas producers are price makers. What is needed therefore is a means in which to allocate production amongst the producers within the industry on a fair and equitable basis. And the only manner that meets those requirements is to ensure that all production is profitable. To do that we need to get rid of these lazy and uncaring bureaucrats who won’t, can’t and will never do anything about the state of affairs in the industry. And implement the Preliminary Specification. If you think this is ridiculous that an industry can’t even get something so basic as to whether or not it's a price maker or taker correctly, you're not alone.

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 Do Horses Have to do With it?

It has been one heck of a good week. For years I have been of the opinion that I have to keep my candle lit, and my powder dry. This week I started using some of our powder. I invite you to enjoy the fireworks. I am someone who is oriented towards action. I am a fighter, and I look forward to this next year's battles and war. I have been wanting to build the systems defined in the Preliminary Specification for almost 25 years now. And that is closer than at any time before. I think that the situation in the oil and gas industry provides us, the user community and the People, Ideas & Objects software developers with the opportunity to make a real difference in the performance of the industry over the next quarter century. That can have monumental benefits to our way of life and standard of living. Real significant work of tangible value.

This week has seen me rage at the bureaucracy. Something that I do to contrast the differences between our Preliminary Specification and the status quo. We are entering a phase where the difficulties are evident that action is needed to be taken. Evident to everyone within the industry that this is an unsustainable and particularly dire situation. But that is not the difficult problem. As we have discussed the investors have been abused in this industry for a number of decades due to the manner in which the SEC dicates the capitalization of assets. There is also the manner in which the people who work in the industry are abused. They are tossed on the street as soon as there is any problem being faced by the producer. The remaining people are expected to “pick up the slack.” It seems like we are still picking up the slack from the layoffs that occurred in the 1980’s.

An industry can’t be operated for the long term on short term thinking. And oil and gas has been operated on the basis of short term thinking. The third element that makes these actions all necessary is the natural decline curve of the oil and gas reservoirs. They are steep and unforgiving. A producer is the proverbial hamster in a wheel. This is what causes most of that short term thinking. If we take the decline curve into consideration at this point in time, on an industry wide basis. And understand the demands of the consumers of oil and gas in the next 25 years. We have more work than we could ever imagine. Not a time when the investors are considering writing off their investments in oil and gas and checking out technology. And the people in the industry checking out the tourist industry in Florida.

We are so poorly prepared for what is ahead. If you look critically at any producer firm. And in my opinion, the hamster is aged, running a marathon a day, at a sprinter's speed with nothing to eat. An impossible situation. We need oil prices that are at least twice what they are to meet the costs. And natural gas prices need to be at least three times as much just to cover their costs. I would suggest they need substantially higher prices than that. Consumers like to belittle the high prices of energy. They have so little regard for the value that they gain from the products that we provide that they have no respect for them.

I’ve developed a saying in my professional life that you should never expect a mouse to run like a horse. What I have seen is many people get promoted into positions that they are never going to be able fill and you know it’s going to fail. Right now we have an exhausted half dead hamster being loaded into the gates for the start of the Kentucky derby. All our money is bet on him winning the race, and really we know we’re doomed, but also know that damned hamster will run the best race of his life. He’ll just be run over as the horses come around the track again. What do we expect?

We need to prepare for that race in the Kentucky derby as a real thoroughbred. An industry that is in tip top shape and capable of taking on the challenges that face us in the next quarter century. We need to start from the ground up. With a new organizational construct, the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. An industry based on the Preliminary Specification, the user community and service providers. It will be in that way the producers will be able to approach the expectations of running like a horse in the most difficult race we have before us.

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.

Speaking of Personal Best Interests

If the bureaucrats were smart. I know, I expect too much. They would want to extend their run at the helm of the producers. Then they could keep their personal circus going for a while longer. Not a bad idea, but how? Funding the development of the Preliminary Specification. That of course meets my personal best interest but I can assure them that they will also be able to keep their show going for a while longer. Here’s how. They can say they are doing something to remedy the situation in the marketplace! Action! Just what is required to pass through the next quarter and year end reporting process and solve the problem.

We’ve discussed before the difficulties that we are going to have if they try to pass through this reporting season, starting with this very difficult third quarter, without addressing the state of affairs in the industry. The situation is dire. The worst the industry has ever faced before. And there are no discussions, plans or ideas being debated anywhere on how to resolve the problem. Day by day our community grows larger and it is inevitable that at some point we are “discovered” by the marketplace and then what. The bureaucrats deny that they were aware of the Preliminary Specification? They need to remember the times that they hired other firms to steal the Intellectual Property that makes up the Preliminary Specification. That those attempts leave residual claims in the marketplace that provide evidence of the attempts by the bureaucrats.

I, unlike Mrs. Clinton, am not about to go deleting emails at this point. These are too valuable. The point is there is a record that exists regarding the Preliminary Specification in the marketplace. Although not mainstream, it is known. Attempts to state that they were unaware of the ability to implement a price maker strategy isn’t going to sell for too much longer. And unlike Mrs. Clinton, these bureaucrats may not be able to lie like a sidewalk, particularly about a previous lie. Speaking of honesty, what personal best interests were assured to the investors when they took their money? Just asking.

The tone of my argument has taken on a rather nasty perspective. And that is when I started writing this blog ten years ago. Lately I find I’ve found my voice. If you’re a bureaucrat and find this unkind I suggest you don’t pick up the phone in the next six months. The Internet has enabled people to voice their concerns with those that hold power in society. Nothing wrong with holding the power in society, as far as anyone is concerned, you just need to be accountable. There is some accounting that needs to be done in the oil and gas industry. Just as John Boehner thinks he can hang on for the next month or so, our friends the bureaucrats will see the hostility that exists in the marketplace. They’ll want to return to this blog for some civil treatment.

I can’t decide which would be the more appropriate at this point in time. Would it be a salty or sweet snack? I'm glad I have a front row seat. This is going to be one heck of a good show. I don’t think that we have seen anything of the scope and scale that we are about to see. The 2008 financial crisis was no fun because it scared everyone half to death that the paper they were thinking was useful might become redundant. Spooky. This one is going to gouge the bureaucrats from their most comfortable positions in the industry. That is what I would suggest, unless that is they’re smart, and proactive.

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 Have Made Money

To understand what’s in store for oil prices we have the situation in natural gas to show us the way. For almost six years the bureaucrats flooded the marketplace with unprofitable natural gas production. Losing progressively more money each fiscal year as they went along. The response was to cut capital expenditures to balance the markets supply and demand. Each of those six years cuts to the annual budget were made. Natural gas is now at $2.50 and costs many times that to produce. In areas like the Marcellus shale they are lucky to get a $1.30 for their production. You have to remember that the bureaucrats are paid out of the money that comes in from general revenues. So they can’t cut off the hand that feeds. And who cares what natural gas prices are, there is nothing that the bureaucrats can do about them. So they state. Has anyone noticed the level of discussion in the industry about its current situation is a little frightening?

We discussed the decline in natural gas prices that will happen as a result of the continental storage filling to capacity in the next few weeks. We have some more news that should hit the natural gas prices here immediately. It would seem that all of the international LNG contracts are priced based on a factor of oil prices. With oil prices down, it doesn’t make economic sense to ship LNG from North America. The cost to purchase the gas, liquify it, ship it and return it to a gas is beyond the price in the destination countries. This is what I mean when I state that the bureaucrats are not taking care of business and as a result we risk losing the capacities and capabilities of the industry from a societal point of view. The investors who were committed to building the LNG facilities were told they would be making money. But just as in all things oil and gas, only bureaucrats make money.

This drop in demand from the LNG facilities, and inability to make any money will push natural gas prices lower yet. Making the industry more difficult to turn around. If it has been six years in natural gas, that means we have five more years in the oil side of the business before we see this kind of destruction. And with these bureaucrats, their sense of urgency, you know we’ll get there. In the future getting the investors to follow the industry is going to be next to impossible when all they did was lose their shirt. All I see is devastation. An infrastructure that doesn’t provide any value for anyone. A history of losing money for years on end in terms of the shale technologies impact. All of that natural gas has gone to waste in the form of a large subsidy to the consumers at the expense of the investment community. No plans, no ideas or worries from the people who manage the industry. Just carry on losing.

When the bureaucrats ran me out of the industry for my ideas. They knew what the implications where if we implemented them. The elimination of the bureaucracy. They laughed and enjoyed themselves in their turning the screws and making my life miserable. Sure is funny now isn’t it. They’ll have to live with the fact that they had made the decision not to go with my ideas more than eleven years ago. If they would have, the industry would have had the price maker strategy implemented and oil and gas prices would be profitable for all of the oil and gas production. However, now they do have their cabins and boats to keep them company. So there is that.

No doubt all the silence is attributable to the plans that are being made for the mass layoffs that will be announced around Christmas. The investors are not going to want to invest in a business that never pays. People are never going to want to come back into an industry that when it finds itself in difficulty it lays people off like it was 1920. They’ll move on to bigger and better things. Something more reliable. And so the seeds of the destruction of the industry are being sewn by these selfish, corrupt bureaucrats who had the chance to do the right thing. It only conflicted with their personal best interests.

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 Money Being Made Here

Any idiot can spend, just give them the money. And that is what we have in oil and gas. A bureaucracy that can spend. Commodity prices are up, increase spending by 200%. Commodity prices are down, reduce spending by 10%. Commodity prices are up once again, double spending again. If you're an engineer or geologist with oil flowing where their should be blood. Forget it. You're nobody in a world of bureaucrats with checkbooks and contacts in New York. How can you compete in a world where there is no differentiation between the things that are done? Everyone just spends, drills and reports profits. Miss your projected deliverability targets however, and you’ll find yourself in the ash heap of history. Those are the rules.

The problem is that none of the production, at any point in time, has been profitable if you consider the actual costs. Production needs to include the capital that was used in the drilling, equipping, and production facilities. And would also need to consider the costs of all of the overhead of those people and offices. These costs are never counted because they are capitalized and only the smallest sliver of them is ever recognized in any one year. When bureaucrats verbally state if they are profitable or not they are not subject to any regulatory requirement of what a profit is. So they state the “netback” which is the revenue less royalty less operating costs number that never ceases to amaze and confuse.

So commodity prices have fallen as a result of the mismanagement and inherent unprofitable overproduction by the bureaucrats. This shell game is going to be exposed here for what it is in the financial reports of the producers in the next few months. What we need to focus on is the state of affairs of the industry today. The trajectory it's on. Where the investors are in terms of their thinking about the industry. What needs to happen to ensure that society maintains its standard of living in an uninterrupted manner. And mostly importantly, what trajectory is the industry needing to be on? There are many things to be done.

I know that today’s and yesterday’s discussion may have left some people behind in terms of the value that the industry has generated. They point to the fact that properties sell for far greater amounts than the costs. And that their cousin Vinny made a killing in the stock market. Both are true statements. But stock markets should not be confused with earnings in an industry. And we are talking about accounting, not market values of properties. The difference is that the accounting is the basis of valuation and profits of the management of the firm. If the basis is skewed, which I am suggesting that oil and gas is skewed by capitalizing everything and recognizing very little of the capitalized costs. You then skew the basis of the company's earnings. An oil and gas company only needs a few drops of oil in order to report an annual profit. This is not the reality of the situation that is occurring in the industry.

Offsetting these bloated balance sheets is the other side of the issue. Yes they are balanced by the overstated earnings of the producers. But here’s the catch, the producers have not been reporting very good earnings! In light of the fact of the distortions on the balance sheets they should have been reporting windfall profits. This goes to show you how much more valuable the commodities are than what they are being sold for. The other offsetting element to the bloated balance sheets is the amount of equity they have been able to generate from the markets. Which has been substantial. However the largest offsetting element is the debt these firms are carrying. In most cases, large debts based on the reserves, those same reserves used to value the company in the accounting. These bank loans and debt instruments make the producers highly levered.

Back in the 1980’s I did a stint in Touche Ross’ bankruptcy practice. This was during the last time oil and gas producers were going bankrupt. I was surprised by all of the trustees and judges were of the opinion that if the firm had good cash flow then it would be restructured as a viable going concern. Since the SEC and accounting firms implemented full cost accounting practices in the late 1970’s, that’s all I’ve heard about in the oil and gas industry. It has good cash flow. I don’t think this similarity is all that coincidental.

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. 

Who's Making Money?

Clearly no one is. And that has been our assertion here at People, Ideas & Objects for many years. Capitalizing everything that moves in an oil and gas company leads to high asset balances, low cost operations and overhead, and high profits. Doing this over the life of the organization leaves assets on the balance sheet from the beginning of time, an overstatement of the value of the producer and overstatement of the producers earnings. When you add in low commodity prices from natural gas for the past 5 - 6 years these losses on those properties could be hidden by the higher priced commodity operations in oil. Now with oil being in decline as well, there is no hiding the losses that will be stated in this third quarter of 2015. Producers have bloated their balance sheets to the full value of all of their future revenues. Which is ridiculous. But when they were recorded at the previous commodity price highs and now need to be “impaired” to reflect current commodity pricing realities. The write downs in oil and gas that will begin this quarter, and must be reported this fiscal year, are going to be spectacular. The full scope of how much of a scam oil and gas has been will be on display.

Oil and gas always lived on OPM, or other people’s money. Have a capital budget? Better have a stock offering to go with it. Those were the good days. Just dilute your existing shareholders on an annual basis and eliminate any hope of them earning their share of the company's earnings. Now as the tide has begun to go out, as they say, we’ll see who has been swimming naked. Look at any producer today and you’ll see a firm with property, plant and equipment that is so much higher than their revenues. So much higher than the market capitalization of the producer. So much higher than anything that could ever be justified. Remember it is potentially as high as the highest prices ever attained in the marketplace times the reserves that are able to be produced. Or, all of the future revenues of the producer. And this is what has kept the stocks so high. It hasn’t been based on earnings. The value of the producers has been based on the balance sheet which justified the stock's performance and the annual stock offering. This has been a modified Ponzi scheme. Modified in the sense that in a Ponzi scheme there is money that goes out.

So here we are with a situation where the powers that be have hoodwinked the investors on an industry wide basis for decades. Who’s responsible? I’ve pointed to the SEC and the public accounting firms and will continue to suggest that they are the ones that implemented these ridiculous rules and audited to them. Most of the producers are run by engineers and geologists. They don’t understand what it is that I am talking about here. They think they pass their annual audit and therefore everything is fine. They don’t understand the nuance of valuations or accounting. Spending is not the development of value. The industry has been on a spending spree for decades and the chickens are coming home to roost.

We are starting to see the effect of this situation becoming the norm. PennWest is trading at about $0.50, formerly at about $9.00 in 2014 and $20.00 earlier. Encana is at $6.98 formerly at about $90.00. Everyone is down about 50% in the past year. The cracks have been showing for a while. There are a few high profile bankruptcies in the states. This third quarter will show a few who have been frolicking in the nude. And the annual report will show that all of the producers have been. How did this happen? How could this have happened?

A better question is what are we going to do about it. I think investments in oil and gas will be all but lost based on a lack of confidence in the numbers. If the bureaucrats have their way that’s not a bad thing. They will still manage the carcasses. What we need to do is to start building the industry on the basis that is focused on providing the oil and gas producer with the most profitable means of oil and gas operations. And in that way we can forget about this nightmare and move on.

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. 

Third Friday Off

Leadership From the User Community, Part IV

Independence is one of the attributes of the user community members that gives them the ability to maintain their leadership position. They are not dependent upon anyone in terms of what and how they do their jobs in this new oil and gas industry. They have the oil and gas producers as their clients. And they are committed to providing them with the most profitable means of oil and gas operations. How they are able to provide these services is upto the innovations and creative capabilities of the individuals that will be members of the user community. Ownership of the service provider that provides the software and service for that specific process will be theirs. This will generate the revenues from the producer firms that enable them to maintain that independence. They will also have a much smaller source of revenue directly from People, Ideas & Objects for any of the work that is done with our software developers.

This independence is necessary to enable them to fully explore the capabilities of their team. How to organize their offering in terms of automation, innovation, specialization and the division of labor to ensure the producers are given the appropriate service necessary to meet our profitability focus. And this will be a competitive environment with the other service providers and members of the user community. However not a competitive environment in the traditional manner that is used by the producers today. There will be no “me too” types of service providers enabled in the marketplace. Once the user community member is granted a license for the service to be offered to the industry, that will be an exclusive license and there will be no direct competition created for that specific process. Some exceptions in the production accounting areas will apply for geographic purposes, etc. The competitiveness comes about between the service providers and user community members by way of the manner in which specialization and the division of labor are used and implemented. How automation and innovations are accelerated and iterated upon throughout the community. These will be the competitive foundations that focus the user community and service providers.

The perspective of what a service provider involves themselves in terms of the oil and gas producers administrative and accounting domain will be rather limited in comparison to the work that is done today. The “jack of all trades, and master of none” demands of the current positions in all of the producers administrative and accounting fields will be gone. People will become very specialized in the types of work that they do. Understanding every aspect of the process and its implications. Applying this specialization across the entire industries data set, which would be your client base. This will bring about new and interesting perspectives on the work that is done. Thinking about the process and how to improve it constantly will be in the mind of the user community representatives. Their team will be comprised of various people who have different skill sets and are specialized in their own ways. It will be more about the science and art of process management than administrative and accounting in oil and gas.

So when we discuss change within the industry. We can see this involves change in everything and everyone. The business of oil and gas has been operated in the manner that it has since the 1950’s. Computers have been used to accelerate manual processes. Not the most efficient uses of computers, or of people. We need to focus on the things that people do well, the leadership, problem solving, decision making, creative, collaboration, research, generation of ideas, design, planning, thinking, innovating and negotiating. What we need the computers to do is what they are designed for. And that is the storing of data and process management. This is how we need to restructure the oil and gas industry and the leadership of the user community will be how we get there.

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. 

Leadership From the User Community, Part III

The capacity to deal with change at any level is what the user community provides over the status quo bureaucracy. This is the key differentiation between the two systems of organizations and the reason why we must move to the Preliminary Specification. The capacity to deal with the changes in the underlying oil and gas business has to be matched by the organizations that define and support the producers. What we have currently is a fundamental change in the business. Where shale has brought about a level of abundance in the commodities. And the business organizations are incapable of dealing with the situation. The old will die off, or we can be proactive and make the changes necessary and not have to experience the negative general effects of an energy shortage in society.

The President of Shell was interviewed by the BBC last week and commented that the oil prices have declined over 50% with as little as 1 or 2% over production. Welcome to the new oil and gas industry. This is basic economics which is usually learned in your first business economics course. The elasticity of supply and demand are unique to each product. An oversupply of Ford F150 trucks will not have any effect on their price. Supply and demand are considered inelastic. Whereas oil and gas are elastic and are subject to wide swings in prices as a result of small changes in supply or demand. What we need to do is to find the right prices necessary to fuel a profitable industry, which the Preliminary Specification decentralized production model provides. What is going to happen due to the bureaucracies inaction is that the industry is going to atrophy and supply will drop 2% below demand and the commodities prices will reach the moon. Not good for anyone, but the bureaucrats will be happy.

Is it appropriate that we have an industry as fundamentally important as energy is to the world economy. Being unnecessarily subject to the principles of economics that we learned hundreds of years ago? Are we incapable of accepting ideas that challenge the vested interests and bureaucrats who chose to do nothing and just accept our situation as the way things are? I believe there is a better way and that is the method that we have been discussing with the user community in the leadership position in terms of providing the necessary changes in the industry. Then when the business does change, in whatever permutation or combination that it does, the leaders within the user community will be able to make the changes necessary in the organization to accommodate the needed changes in the underlying business.

It is the toolkit that is provided through People, Ideas & Objects that makes the user community capable of implementing the changes that are needed. With the full power of the Intellectual Property under their control they can make whatever changes are necessary to their process or functions through their work in the community and with the People, Ideas & Objects software development team. How do the bureaucrats make changes in the organization to accommodate changes in the business? Who has the authority to make the changes in the software today? This power and control over the Intellectual Property is the dynamic solution to the current muddle along strategy.

The third tool that is unique to the People, Ideas & Objects user community is the fact that the service providers are owned and operated by the user community members. They are therefore the ones on the front line in the industry providing the software and services to the oil and gas producers. They are the ones who see and can understand the need for the changes in the IP and software first. What needs to be changed and how that change needs to be implemented most efficiently in the software and the service they provide. They will be the most effective and efficient in terms of ensuring that the oil and gas producers are provided with the most profitable means of oil and gas operations on every day the Preliminary Specification is operational. That is the difference between the old and new ways of doing things and why we need to change.

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. 

Leadership From the User Community, Part II

Last Friday’s post documented the background of how the leadership within the industry, in terms of how it approaches its opportunities and difficulties, will be handled by the user community of People, Ideas & Objects. Today we are going to expand on this by introducing an article that is written by Don Tapscott and addresses the point of where leadership comes from in the, dare I say it, new economy, or as he now calls it “democratic capitalism.” The article is entitled “Great Leaders Don’t Have Followers: They Collaborate.” He has been around for many decades discussing the impact of Information Technology on business. I find this article of his to be particularly on point in terms of where I see the user community providing the leadership in the oil and gas industry.

Leadership vs. management, what’s the difference?  And why do we need to change?

As Peter Drucker said years ago, stable times require excellence and good management. As we transition to a new age, our organizations need more; they need leadership. So managers shouldn’t just manage. Today they need to lead and think of themselves primarily as leaders rather than just managers. 

And how is that leadership configured? Who fulfills the leadership role in this new business environment?

My approach to leadership is collaborative. This approach is the antithesis of the old-style, brilliant visionary, take-charge, rally-the-troops type. In the past, Winston Churchill, Thomas Watson, and Lee Iacocca embodied the single dominant leader. Today, the leader is a collective, networked, virtual force and no longer necessarily embodied in a single individual.

1. Collaborative Leadership Means Leading for Learning

What we need in oil and gas is to have the capabilities of the user community employ new tools to deal with the changes that inevitably occur in oil and gas. These new tools include the power of the Intellectual Property that make up the Preliminary Specification and its derivative works. And the software development capabilities of the People, Ideas & Objects dedicated developers. The user community will also have in their toolkit control over the service providers who operate the administrative and accounting functions on behalf of the oil and gas producers. It is in this way the user community can achieve this collaborative leadership.

Increasingly, the only sustainable competitive advantage has become an organization’s ability to overcome what management author Peter Senge calls its “organizational learning disabilities,” and to grow and change with the times.

The days when a great leader at the top could learn for the entire organization are gone. As Senge points out, “in an increasingly dynamic, interdependent and unpredictable world, it is simply no longer possible for anyone to 'figure it all out at the top.'” For Senge, “leaders are designers, stewards, and teachers. They are responsible for building organizations where people continually expand their capacities to understand complexity, clarify vision, and improve shared mental models — that is, they are responsible for learning.”

2. Collaborative Leadership is Collective Leadership

There is too much for any one individual to take on in terms of the scope and scale of the difficulties and opportunities. Each member of the user community needs to be specialized in their domain of understanding. Responsible for one process and all that is associated with it. Providing leadership for that process throughout the industry with state of the art capabilities, understanding and knowledge.

The intellectual power generated through networking minds for collective vision will far surpass the intellectual prowess of even the smartest, loudest boss. Equally important, strategies developed collectively have an infinitely higher probability of actually being implemented. Collective thinking leads to collective action.

3. Collaborative Leadership Is Your Personal Opportunity

This is the basis of the user community offering at People, Ideas & Objects. The personal opportunity to participate directly in the new oil and gas industry as a member of the user community which includes your ownership in a related service provider. The G&A costs of the oil and gas producers are being shifted away from the internal resources of the producer to the service providers. A substantial revenue opportunity awaits these service providers. The user community also has the budgeted revenues that are paid by People, Ideas & Objects for their contributions towards their software development efforts.

One conclusion that can be drawn from this trend is that leadership for transformation is your opportunity, not just an opportunity for your CEO, or your boss, but your opportunity. Each of us has a choice to participate actively in transformation, to observe passively, or to resist. If you act, you can shape your future, even if you’re not a member of the senior management group.

At root, it’s a question of taking control of your destiny for a new age. No less a philosopher than rock singer Meatloaf has advice on why we need to take charge of our lives: “There is only one thing that will take away everything you’ve ever wanted — fear.” Mahatma Gandhi was even more specific when he said, “We must be the change we wish to see in the world.”

To generate powerful collective action, embrace collaborative leadership by understanding that it involves growing and learning along with others, your opinion will never be the only one that matters, and it’s your personal opportunity.

We need to set the industry on the basis on a new paradigm. One which provides the oil and gas producer with the most profitable means of oil and gas operations. It will be in this way the oil and gas industry will be able to fuel society for the remainder of this century. It's a great time to be in oil and gas.

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.