A New Direction

With all that is happening in the oil and gas industry. With the Preliminary Specification providing the solution to what ails the industry. With the development of the user community in its third year and growing. We are well positioned to provide this solution in a timely manner. The Preliminary Specification details “what” the software will do and “how” it will do it. Granted I am only setting out a vision of how the industry will operate when we adopt the Joint Operating Committee as the key organizational construct. What we need to do now is to make the shift in our focus to the “what” and “how” we are going to proceed with from this point. Therefore we are going to see a not so subtle shift in the message that this blog delivers. We will be talking more prospectively about the future of the project itself. How we will make this change take place.

The first thing I want to do is to reiterate our focus on the continued development of our user community. Nothing is going to happen until this community is fully developed and ready to begin the further development of the Preliminary Specification into the Detailed Specification. The user community members will be the people that put the details of what they need the system to do in order for them to do their jobs within the service provider organizations that they will eventually develop. It is these service providers that will be taking over from the current oil and gas bureaucrats and providing their services to the industry.

Virtualization is the key to our speed, agility and to our quality. The key to the success of our initiative is our user community. The need therefore is to have each member of the user community fully apprised to the details of the Preliminary Specification in its entirety. Once the Preliminary Specification is in the heads of all of the members of the user community, then there will be a base understanding of where everyone is at. Then the ability to communicate and perceive the different points of view of the many user community members will determine the appropriate directions and solutions. The outcome of this process will be the documentation that will be used by the software developers to develop the Detailed Specification and it will cover the needs of the industry, the service industry, the service providers and the dynamic, innovative, accountable and profitable oil and gas producer.

While that is going on we will be setting up the development environment necessary for the development of the software. The work will involve the establishment of a physical presence in both Houston, with a much smaller location in Calgary to deal with the Canadian aspects of the system. Then the hiring and procurement of the necessary resources to begin building the software. We will also be working with Oracle as they are fully one third of our budgeted costs. Aligning our organization to the Oracle suite of products that we will be using, and initializing those products in a run-time environment.

Once the user community is finished with writing the Detailed Specification their job will have only begun. They will then be sitting down face to face with our developers and ensuring that the full understanding of what they want and need is communicated to the developers and Oracle. No one is going to build the system for the user community like the user community can build it. Therefore this will be the critical hands on crafting of the solution. Where the rubber hits the road as they say. This will also be a time, and to some extent during the development of the Detailed Specification, where the user community will have full access to the Oracle run-time environment that we are establishing. This will consist of the Oracle 12c database, Java, Oracle Fusion Middleware and Oracle Fusion Applications environment that are the base of the People, Ideas & Objects software system. This will be accessed through Oracle’s cloud offering and will be available anywhere and at anytime. We will also be generating oil and gas related data for the users to understand the Oracle solutions. Enabling the user community to understand how the base of our system operates and what they will be building upon.

We have an exciting adventure ahead of us. As the old oil and gas industry crashes and burns the demand for our work to be completed will be strong. What we need to do is to get our heads into the Preliminary Specification and fully understand the vision of how the industry and producer needs to operate in the future. Then you must work to complete your application to join the user community and commence this process. As I indicated yesterday, things will be happening very fast in the oil and gas industry now. I think things will be happening even faster in People, Ideas & Objects.

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

No Posting Today

Lowest Level of Performance Attainable

What we see in the commodity prices is the rush of the producers to generate the money they need to pay the bills and the bank. We’re as little as two weeks away from the beginning of the second quarter reports which will show us some interesting trends in the industry. I have asserted here that bureaucrats have annually taken money from shareholders and banks to fuel the business. They then never accounted for those capital and overhead costs because they sit on the balance sheet for ever it would seem. This all under the prescribed method of the SEC. However, due to poor performance we have recently seen the banks and investors cut the bureaucrats off from their sources of cash. This has eliminated these normal operating funds from the industry. The industry was never profitable these past four decades because it never recognized all of its costs. The only cash flow it had was from the banks and investors.

The 2015 fiscal year was a wholesale disaster. Many companies were forced to write their capital assets down which caused them to incur substantial losses. $18 billion here, $23 billion there, the losses were earth shattering. Many experienced losses that were larger than the amount of money that they had raised during the lifetime of the company. Now the second quarter reports will reflect their status and financial condition within the industry. I didn’t see any financings of any material volume or amount. There were a number of property sales that may have enabled some of the producers to raise some cash. But other than that we are going to see an industry, that is reputed to be profitable at $50, not generate any cash and indeed not report any profits. This quarter will show what the industry is capable of doing on a stand alone basis. In an atmosphere where prices were “robust and improving” the bureaucrats should be hustling these reports out the door as quick as they can to prove to the world that they are everything that they say they are.

I don’t think so. What we will see is that these claims of being profitable at $48 are false. Those are the costs of royalties and operations. The cost of capital and overhead also need to be included in those calculations. In addition, the consistent decades long refusal to do an appropriate accounting of the costs by stating that the capital and overhead costs are “sunk costs.” Has left a legacy of bank and bond debt and shareholders that were used to fund those capital and overhead “sunk costs” which needs to be repaid. These legacy costs on top of the actual costs of production reach almost $200 / barrel in terms of the costs and cash commitments that these bureaucrats need in order to keep the lights on and say they are profitable.

Since the late 1970’s I’ve been in the industry and at no time during this time was there ever a focus on profits. It's always been on cash flow. Included in those cash flow numbers are the investments being made by the shareholders, annually, and the debt that the company is incurring. The engineers and geologists think this is the point. They are fooled by the SEC’s ridiculous accounting methodologies that have been in place since the late 1970’s that capitalize everything that is ever spent in an oil and gas company. As a result the geologists and engineers are reporting “profits” under this scenario despite what they did, how they performed or what they spent. You can not discern the success of a producer firm based on the financial statements that it produces. Performance has never been the essential ingredient of the oil and gas producer. The phenomenal oil and gas people are indistinguishable from the idiots.

You can run an industry on this basis for apparently 35 years and things will then begin to fall apart. At least that is how long these forces have taken to cause the destruction of the oil and gas industry. We saw a trend in the late 1980’s and 1990’s where producers just continued their uncontrolled pursuit of more production in the never ending decline of oil prices. This took almost two decades to clear. Now with shale we have a permanent oversupply scenario as a result of the prolific nature of these reservoirs. In both oil and gas. The only thing that stops the bureaucrats from bringing all of that oil and all of that gas on to the marketplace at once is the limited size of the investors pocketbook. There is no production discipline. There wasn’t any discipline in the 1980’s and 1990’s and there certainly isn’t any now.

What we will see in these second quarter reports is the extent of the cash crisis. Some producers will have disposed of assets to pay the bills and keep the lights on. The extent of the cash crisis will be ferocious. There is a large intermediate that completed a $1.3 billion stock offering at the beginning of the year. And sold some properties for a good price to build their cash balances in the first quarter. I was surprised to read that they were in the market again selling some of their Canadian midstream assets. This demand for cash was always fueled by the banks and investors in the past.

The performance level in the industry is at the lowest attainable point on an industrial scale. We are talking daycare level of capabilities, not even kindergarten level. Expecting profitable operations to suddenly come from these bureaucrats is the foolish expectation that I would laugh at today. The lie that their profitable at $48 or whatever is going to be exposed as well. What I’m afraid of is that these next three to four weeks may be the most difficult for the innocent victims of the bureaucrats incompetence, the people. Payroll is due, that might be the first indication that things are not right. I’m going to call this next month oil and gas armageddon.

 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 Few Steps Closer

On June 29, 2016 Oracle Corporation announced that their Sparc S7 chip will be provided as part of their cloud computing offerings. This was on my wish list of things we would need from a technical point of view. Now we have that and it will be able to provide us with significant scope and scale that will make People, Ideas & Objects Preliminary Specification capable of achieving the success that we need it to be in the marketplace. This press release from Oracle will provide you with some of the details. The points regarding security would be what I would highlight. What I would also point out is that this would default us to the Solaris operating system, the Z file system and on chip database ROM. The kind of performance that we will need when we have an industry to concern ourselves with.

What is everyone waiting for? Bureaucrats have everything under control, prices are rising and the industry will be on its feet in a few short quarters. There seems to be some doubt about that. People don’t think that “things” are back to normal. No one is dancing in the streets here in Calgary, like they normally do during Stampede. It’s more of a brace yourself for impact kind of feeling. It’s not that I lust for the bad times but these make for positive news here at People, Ideas & Objects, our user community and service providers. The only way to undertake the wholesale changes that we are doing within the Preliminary Specification is on the basis of the absolute failure of the bureaucracy. They have permanently damaged the competitive structure of the industry. The producer organizations can not generate any surplus cash. If they do generate any cash they have bank, bond and shareholders obligations that were incurred over the past two decades. There is absolutely no upside for a new investor. I honestly couldn’t be happier that this project is one step closer as a result of the bureaucrats incompetence.

Never before in People, Ideas & Objects have we been this close to writing code. I can taste it. The investors in oil and gas have decided that they won’t be doing business with the current producers. Their cost structures are uncompetitive. The banks have also been advised by the Fed in the form of new guidelines on how to issue loans to oil and gas producers. The Fed was concerned with the rising level of oil & gas defaults and stated that banks need to change their methods of granting loans to now consider the ability of the producer to pay. It’s not too long that an industry can survive without the support of the investment and banking communities. The need for cash in the oil and gas industry is epic. We will see how desperate it is in the second quarter reports that will be published here in the next six weeks. There is a reason new wells are being drilled. It's a source of new cash and the drilling company doesn’t get paid for 60 - 90 days, if their really lucky.

And when it comes to providing these investors and bankers with a new industry opportunity. People, Ideas & Objects, our user community and service providers reset the competitive structure of the industry. Enabling them to invest today in the industry without the dilution from an existing producers bank and bond debt or shareholder structure. Allowing them to hold 100% of their new oil and gas properties investment title. Investors and bankers can both participate in purchasing properties and field activities. Have the current producers operate these properties for them in the short term, while we develop our system, the user community and service providers that will manage the property for them in the long term.

We are on the cusp of becoming “real.” I don’t know what will push us over but we’ll get there and soon. I would encourage you to continue to work on your user community application. It is a substantial business opportunity in this new sub-industry that we’re creating between the oil & gas and the Information Technology industries. This past year we have seen many significant developments that were necessary for People, Ideas & Objects our Preliminary Specification, the user community and service providers to come into being. Things happened quickly last year. I think that the speed at which we will be able to move from this point forward will surprise everyone. That is why it is important to get working on your application. We are in the right place at the right time. Things will be happening quickly now and promises to be an adventure for those that participate.

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 Not Collusion

I occasionally run into people who have some understanding of the Preliminary Specification and have determined that the price maker strategy amounts to collusion. I don’t know what the impetus for their thinking is but I find this frustrating. There is ten years of research in the Preliminary Specification. It took me over a year to write, and these people can come up with the conclusion that its collusion after reading the Preamble. Nonetheless the issue of whether the price maker strategy involves collusion or not can be addressed by clearly detailing why it's not. That is the purpose of this post.

The first thing we need to realize is that the oil and gas commodities exhibit characteristics that make them “price makers.” The industry operated by the bureaucrats assumes that these commodities are “price takers.” The differences are defined in the economic literature as follows.

Price maker

A price maker is 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. A price maker that is a firm within monopolistic competition 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, so in other words, as long as it's producing a profit.

Price taker

A price-taker is an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own. All economic participants are considered to be price-takers in a market of perfect competition, or one in which all companies sell an identical product, there are no barriers to entry or exit, every company has a relatively small market share, and all buyers have full information of the market. This holds true for producers and consumers of goods and services and for buyers and sellers in debt and equity markets.

Please note that marginal cost as defined by People, Ideas & Objects is taken over the long term. This perspective is consistent with the definition on Wikipedia and elsewhere that “In practice, this analysis is segregated into short and long-run cases, so that, over the longest run, all costs become marginal.” The issue that People, Ideas & Objects has with the bureaucracy is they preclude the cost of capital and overhead in all of their calculations over all perspectives. Leaving the investors to subsidize the consumers of their energy costs. Please review our Preamble for further clarification.

People, Ideas & Objects sees the oil and gas commodities as price makers in the following manner. You can’t put a petrochemical plant next to a hydro dam. You can’t lubricate your engine with electricity. You can’t carry nuclear power in a bucket or fuel your car with coal. Oil and gas have monopolistic competition in that it does not have substitutes. Water is a price taker.

In terms of price maker and the method that our decentralized production model works is that only oil and gas production that is profitable is produced. Those properties that are unable to produce profitably at the current commodity prices are shut-in until the commodity prices rise, or innovations increase the reserves, lower the costs or increase production. The important point that has to be made. And the point the people that I mentioned at the beginning of this post don’t seem to understand. Is People, Ideas & Objects price maker strategy is based on the individual decisions of each of the producers, based on an actual, factual accounting of the properties profitability. If that is collusion than the entire capitalist system is.

The definition of collusion is provided by Wikipedia. “In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market structure of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole. Cartels are a special case of explicit collusion. Collusion which is overt, on the other hand, is known as tacit collusion, and is legal.” All firms will be making the decisions of whether or not to produce at each and every property that they own. Those decisions will be made on the factual, actual accounting that provides the information for that decision. The decision is to make a profit, or if the property is shut-in to incur a null operation. The decision to avoid a loss of financial resources as a result of producing the property at a price that does not cover the marginal costs, in the long term perspective of marginal costs, is a rational business decision, not collusion.

To avoid collusion bureaucrats would have us believe that they are operating the industry within the law today. Losses of catastrophic proportions displacing the financial resources of each and every producer over the long term is normal business for the bureaucrat. To establish their cost structures and legacy commitments of shareholder distributions, bank and bond debt payments that push them outside of any viable future oil and gas price scenario is considered reasonable for the oil and gas bureaucrat, as long as they don’t collude.

What people need to do is to begin reading and thinking about what it is the oil and gas producers are doing. We see the prices starting to motivate some producers to move back into the field for more drilling. We will most certainly test the lows in both of the commodities in a very short period of time. Shale is the issue. The reserves are prolific and the deliverability will overwhelm the market if there is no production discipline within the industry. The only way that production discipline is going to come about is through the adoption of the Preliminary Specification our decentralized production model, based on the price maker strategy.

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. 

Recipe for Disaster

While I was away I noted that the news was interesting from a number of different points of view. First the U.S. now has the largest proven oil reserves in the world. Shale is prolific in terms of its deliverability and the reserves that are held. This is significant news that should put the idea of energy independence in the minds of the energy producers and politicians. Natural gas reserves have been as substantial for many years due to the initial focus on natural gas in the shale areas. There is only one way in which the industry will enable the North American continent to be energy independent. That is if it's profitable and it is efficient. The continent produces all of its own gas, the need to substantially increase our oil production will not occur from the current base of the industry's structure. The only way in which the industry will attain full energy independence is to adopt the Preliminary Specification with its decentralized production model and price maker strategy.

The second interesting piece of news is that with the moderate increase in oil prices over the past six months. Shale drillers are back drilling again. It’s what they do. They can’t, won’t and will not ever change. The need for cash when the investors and banks have cut you off is at a critical stage. And the only source of cash for the bureaucrats is production. That we have detailed that producers costs and commitments total over $200 / barrel is not the issue. Once again those are “sunk costs.” What we will see as a result of the recent increases in both oil and natural gas prices is a rush of new production that will cause prices to fall back to their lows.

The market psychology will not be favourable for the bureaucrats when that happens. They have little credibility now and if they destroy the prices again then they will have provided the ammunition for their removal from the scene. Those that can, will be looking for alternatives to remove the bureaucracy and find something that’ll work. Something like People, Ideas & Objects Preliminary Specification, our user community and service providers. Did anyone else note that the Saudi’s were keen to note that they were no longer employing their “strategy” that had the effect of “depressing prices.” I think they said that because they don’t like being accused of being the ones responsible for low oil prices. The Saudi’s have now removed themselves from the marketplace as a variable that might lead to lower prices. And that if lower prices were to occur in the future, then the only culprit would be the North American shale based producers.

Natural gas prices have also increased to almost $3.00 on the basis of higher electricity demand. It is believed that current record storage volumes will be mitigated as soon as the winter season, leaving natural gas prices to resume somewhat normal pricing dynamics. This is what passes for rational thinking in the bureaucrats minds. It’s hot outside, demand must be high, all our problems are solved. The issue of overproduction has not been addressed. A method of production discipline has not been instituted in the industry, shale deliverability and reserves continue to grow substantially, nor have any of the investors or bankers demand for cash been addressed. But yes it certainly is hot.

These new U.S. oil reserves, in combination with the natural gas reserves, will never be produced profitably in the hands of these bureaucrats. They don’t care! They are entitled and will continue to operate the industry as they see fit. No one is going to remove them from the scene. Certainly no bank is going to be able to take over the administration of an oil and gas firm because of a loans poor performance. And certainly no bank is going to be able to handle the entire industries administration on that basis. The investors may be gone but the proceeds from the sale of oil and gas will still meet payroll and really what more is there to concern one’s self with?

When we look at what society needs in terms of its energy for the next 25 years we know we will not be able to count on these people for what is required. We should best begin now to learn how to allocate and apportion the diminishing production to the various countries that it’s needed and then send out the ration coupons for the people to use. It all could’ve been so much different. Remember how when the former Soviet Union collapsed. People were all lined up at the bakery waiting for bread. No one was working because they were all hungry. It’s this kind of dismal future that always ends up at the end of an entitled 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. 

U.S. Independence Day

No posting today.

Please note I am taking the rest of this week off for a working vacation. Will resume posting on July 11, 2016.

Canada Day

No posting today.

Just the Facts

The individual decisions of each oil and gas producer, based on an actual accounting of the profitability of the property, will determine if the property produces. That is how the oil and gas industry needs to deal with the low commodity price situation that it finds itself in. Shale based reserves will always overwhelm the oil and gas commodity market with flush production and deliverability that are driven by its prolific nature. Production discipline based on profitability can only be achieved through the reorganization of the industry and the producer based on the Preliminary Specifications decentralized production model. Enabling the price maker strategy that’ll return the producer and industry to profitability.

Those changes to the producer firm and to the industry at large are being undertaken at this time. Creative destruction has destroyed the competitive structure of the North American producer. With costs that include the legacy capital spending, and ignoring of those capital costs of the industry, now reflected in large balances of bank and bond debt, and substantial stock distributions. Feeding the legacy of these historical costs is for foolish investors with the inability to read financial statements. Banks too have changed the basis of new loans. Eliminating the hope of ever raising any new capital from any source. This is the legacy of treating investors as “sunk costs.” They too one day can treat you as a “sunk cost.”

Cash flow numbers that were stated by the producers in the good times, and in the bad, always included the amount that was raised by financing. Stating that you had “cash flow” when in fact you really only had financing are two different things. Profits are what an industry operates on and the concept is completely foreign to the bureaucrats who operate the industry. Creative destruction is removing these individuals and the products of their efforts from the marketplace as we speak. They are the walking dead.

The new oil and gas industry is what People, Ideas & Objects is promoting in our Preliminary Specification. It is how the industry adopts that old time religion of profits and begins anew. It is how the industry can grow to the size that it needs too to meet the needs of the energy consumers. It is how people can be provided with an uninterrupted career development where they can make a difference. It’s how investors can invest in the oil and gas industry with the understanding that choosing the right earth scientists and engineers will make the key difference in their return on investment. That there would not be the case for these long periods of commodity price declines that are so disruptive and destructive to the industry.

I will be taking the`next week off from writing and focusing on some things that have been developing here at People, Ideas & Objects. See you on the 11th of July.

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. 

Bank Regulators Get Wise

Bank regulators in the United States have become concerned with the level of bad loans in the oil and gas industry. As a result they’ve issued new guidelines to banks on a new procedure of how to issue loans to oil and gas producers. What they now recommend is that the loan be granted on the basis of the producers ability to pay, as opposed to the underlying reserves. This is a fundamental shift in the way that banking is done in oil and gas. I could never understand the criteria that banks used to grant loans to oil and gas producers. They’ll never lend any money to other industries or individuals on such a liberal basis as they did in oil and gas. If they did they would have taken an individual's potential lifetime earnings and used that as the basis of the loan. I think what this shows is that the banks were hoodwinked by the SEC’s accounting methodology of essentially capitalizing everything. Enabling a bureaucrat to leverage their spending orgy with excessive levels of debt. Its taken this long for banks to learn their involvement in this fiasco. It was their money, emphasis on was.

On Monday we saw Private Equity slam the door in the face of the producers by using the Joint Operating Committee as their vehicle to invest in the oil and gas industry. Now the banks are being “asked” by way of guidelines from regulators not to loan money on the basis of the reserves of the producers. Both of these funding doors are closing quickly and bureaucrats will be hard pressed to fund any part of their organization. With either debt or equity. The lesson is that the good old days are over for the bureaucrats.

In the Preliminary Specification we have the Financial Marketplace module that sets out a different basis of funding the oil and gas industry. One that deals with using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. Leaving the current corporate model behind. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Using this in the Financial Marketplace module aligns the compliance and governance frameworks with the financial framework of the Joint Operating Committee. Providing a new and innovative way in which to finance and manage oil and gas properties. One without bureaucrats, and is heavily dependent on the Information Technologies that have become ever present in the past decades in banking. Review of the Financial Marketplace module will provide you with an understanding of the synergies that People, Ideas & Objects, our user community and service providers are developing with the financial aspects of oil and gas.

When reading the Financial Marketplace module you will come away with the understanding of how much larger the transaction volume will be in that module. Just as in the entire Preliminary Specification, the volume of transactions that will occur in our system vs. what would occur with the same production and activity volume today would be exponentially larger. This is for a variety of reasons that can be gleaned from a comprehensive review of the Preliminary Specification. Therefore keeping the bureaucracy is an impossibility. And who would want them anyway. The need to expand them to meet the expanded throughput of transactions would make the world an unsafe place. We have computers now, which is one of the things that we do at People, Ideas & Objects is to make sure that the computers do the work that computers are good at, and make sure the people are doing the work that they are good at. The need for paper pushing bureaucrats doesn’t exist in too many places in the world today. I say we get rid of them here too. Which is what we do and let the people do the leadership, problem solving, decision making, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, innovating. And let's not forget financing.

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. 

We Are the Change

Things are happening quickly now. The faith that our existing producers will be the ones that lead us for the next 25 years doesn’t exist. Change is being forced upon them by those that were betrayed most by the bureaucrats. The oil and gas investor. I’m not soliciting sympathy for them, they wear the big boy pants and can deal with their own difficulties. What we need to concern ourselves with is the long term commercial viability of the oil and gas industry. That consumers have an abundant supply of oil and gas to ensure that we are able to achieve the highest possible levels of our standard of living. This can only happen with a prosperous and profitable oil and gas industry.

The speed in which things will happen now will be exhilarating. Change, when it starts, doesn’t wait for the unprepared. As a potential user community member I trust that you’ve been working to make the necessary changes in your life and have been working on making your application to the user community. We are looking for a large number, approximately 3,000 people, in order to make the Preliminary Specification all that it can be. And to ensure that the user community members are subsequently able to develop the service provider organizations that will provide our software and their services to this new oil and gas industry.

One area that I will stress in the application process is the understanding of the Preliminary Specification. If someone comes to me and I ask them questions about the Preliminary Specification and they are unable to answer them. This may preclude them from joining the user community. I know it's a long, boring and difficult read. It’s important that we’re all singing from the same hymn sheet. The dynamic of the changes introduced by using the Joint Operating Committee are substantial. These must be intimately understood by everyone. Although you will be working in the area where your strengths are, knowing how that fits in the larger picture is necessary.

When we move to using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. We see that everything in the industry is changed. That is the reason for the Preliminary Specifications scope and scale. Even I was surprised when Private Equity adopted the use of the Joint Operating Committee to facilitate the transition in ownership of the industry. Well of course it would be. It’s common sense once someone say’s it for the first time. That’s the world that we’re heading into. The full scope of the changes that we’re able to implement are not fully appreciated at this point. And that is why People, Ideas & Objects Preliminary Specification has to be user community based software developments. Having 3,000 people participate in the development will ensure that we capture many of these dynamic changes that are the common sense use of the Joint Operating Committee in the oil and gas industry. This demands that each user community member to have studied the Preliminary Specification extensively.

If you haven’t started your application for user community participation I would suggest you begin soon. Being prepared will be your best strategy as we move through this fundamental change in the industry. And understand the nature of the role the user community will be occupying in oil and gas. This will be part of the process in terms of what will be expected of you and your application to the user community.

Given where we’re at today, and where we’re headed, the journey promises to be one of the most interesting in the history of the oil and gas industry. We have a lot of things to do and there is only one outcome as a result of all of this. Thanks to our friends the bureaucrats we must succeed and do it in a timely manner.

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. 

Brilliant!

I have seen the future of the oil and gas industry. And that future begins today. I’m using the Must-Read label of this blog so that users can aggregate these types of posts, this entry will be part of that. The following is the strategy and tactics that’ll be employed by the existing oil and gas producers, and the ones that will be formed to remove and replace the existing oil and gas firms and their bureaucracies. I have been working on the implementation of our technologies and the means in which we do this difficult task. These strategy and tactics clarify how we will enable the transition in ownership of the industry from the producers who are constrained by the bureaucrats, to the dynamic, innovative, accountable and profitable oil and gas producers.

The news that triggered this blog post came out in the middle of last week. It was from Ernst & Young and is entitled “Capitalizing on opportunities: Private equity investments in oil and gas.” Which state that Private Equity firms have almost $1 trillion in investment that they’re prepared to invest in oil and gas. In a derivative article from WorldOil we have “Private equity set to unleash trillion dollar warchest, EY survey finds.” It is in this article that we find the key piece of evidence in which we can base the future of the oil and gas industries tactics and strategy. They note;

Deal Structures

Due to the debt burden of many PE-backed oil and gas companies, creative capital structures are on the rise. Of the 71% of respondents exploring new capital structures, 62% cite joint ventures (JVs) and drillcos and 59% cite contingent pricing as the most popular options.

Michael Rogers, EY global deputy private equity leader, said, "As oil and gas companies try to raise capital and reduce debt amid the lower-for-longer price outlook, exploring new capital structures and strategies has become almost mandatory for investors. PE-backed companies are looking to joint ventures to help them cut costs"

This is how I see the industry operating and the deployment of the People, Ideas & Objects Preliminary Specification, user community and service providers. For the bureaucrats in the existing producers who have permanent uncompetitive costs and capital structures. In the interim you will be called upon to manage these “Joint Ventures.” For our purpose here, we will subsequently call these Joint Operating Committees to bring clarity to the concept. Bureaucrats will manage the Joint Operating Committee as they do in the normal course of business. Private Equity will be a non-operated working interest participant and bureaucrats will operate these properties on their behalf. This relieves Private Equity of the immediate need and responsibility to manage the day to day. Under the current environment bureaucrats will charge the Joint Operating Committees with the Petroleum Accounting Societies overhead allowances. Private Equity’s investment in Joint Operating Committees on this basis can therefore begin today. These investments and operations will continue for the remaining time in which the Preliminary Specification is not operational.

Additionally Private Equity will be able to immediately and directly participate in the purchase of working interests based on properties that are sold from the existing producers. These will form the basis of the Private Equity holdings and will augmented by the new drilling and completions that are done through the Joint Operating Committees that they establish with other producers. It should be noted that during this initial phase of the transition the Preliminary Specifications price maker strategy will not be implemented or operational. Which is a temporary strategic advantage to Private Equity. Their past investments in oil and gas are currently “sunk costs.” Buying properties at top dollar is not in Private Equities interest. Without the price maker strategy, commodities will remain low until People, Ideas & Objects price maker strategies are operational. Facilitating a time in which the “ownership” of the industry is transferred to Private Equity at “reasonable” prices. It is assumed here that the Joint Operating Committees and the purchased properties of Private Equity will be held 100% in terms of the interest in the properties that Private Equity will have title to. There will be no dilution of Private Equities interest by other equity interest holders or debt from this trillion dollar investment in the first phase of the industry transition. Earning 100% of the unencumbered properties title is contrary to what would happen if Private Equity invested in the existing producers.

People, Ideas & Objects budget will be funded by Private Equity. It will be their best investment in terms of our ability to deliver our value proposition to them. It will also provide them with the administrative and accounting capabilities, which will be industry based in the Preliminary Specification, to be conducted for them. There will be no need for them to spend the time and effort necessary to develop the capabilities to administer and conduct any accounting. The existing producers will do that for them in the beginning phase, and People, Ideas & Objects, our user community and service providers will step in with our industry wide administrative and accounting capabilities when we are operational.

People, Ideas & Objects, our user community and service providers are committed to providing oil and gas producers with the most profitable means of oil and gas operations. I was laughed at for years for stating this. Laughed at by the bureaucrats. Their inability to understand that an industry needs to produce profits, real profits is a necessity, which has lead to their downfall and now they are being transitioned out. They’ve only proven that they’re not committed to anything but their own self interests.

One final note about the earth science and engineering resources of the existing producers. Your future is with Private Equity. The competitive advantages of the dynamic, innovative, accountable and profitable oil and gas producer are their earth science and engineering capabilities, and their land and asset base. You are the current custodians of those capabilities and assets and are assumed to be keeping them safe and will do what is necessary to ensure the industries deliverability is all that it can be. The future of your current employer is limited in its viability and Private Equity will be here for the foreseeable future. Govern yourself accordingly.

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. 

Absolutely Uncompetitive

Bureaucrats should be proud of their accomplishment in destroying the oil and gas industry. Has anyone seen any of them leave the industry in shame with their heads bowed? They don’t care! As long as the money keeps coming in twice a month their lives are fine. Embarrassed? No, proud and feeling quite rejuvenated now that they’ve established that there is nothing that anyone can do about them. They’re permanent, there are no threats to their administration anywhere and at anytime. For the past thirteen years I have fought them and they’ve done nothing to mitigate the issues that are ever present. They knew what was going to happen. The fact that they did nothing about it, and continue to do nothing about it proves that they knew all along.

Commodity prices will only rise from this point forward. That is the only conclusion that the bureaucrats can be operating from. They feel giddy and are set to continue with their personal goals based on the steady uninterrupted cash flow from their jobs. I guess shale too has been eliminated from the scene as it was the precursor to the price declines. They may feel as if they have the upper hand at this time, however, nothing has been resolved and the same old issues are ever present.

We need to remember that these bureaucrats exist in the private business environment. They are not government bureaucrats who are established for life. They are subjected to the forces of the market. Although the bureaucrats may think they have the upper hand, that can only be maintained if they are the lowest cost producer. Which maybe they are? And if so they will remain established for as long as they feel the need and are comfortable. We should all aspire to be oil and gas bureaucrats. Do nothing and get paid well for it.

Creative destruction is going to wipe these people from their perches very quickly. At $200 / barrel in terms of the current producers cost of production. These values are obtained when we add in the cost of capital to produce with the cost of operations, royalties and overhead we come in at around $100 / barrel. Then we need to include, not so much a cost but a commitment to the past legacy of spending and ignoring that spending like it didn’t matter. These costs which are represented in the large balances of bank and bond debt obligations. And also in terms of the huge number of outstanding shares. Add up to make the producer firm very distasteful to any prospective banker or investor. Bureaucrats can’t hide their financial statements from prospective investors.

As we indicated yesterday our good friends the bureaucrats will try to live with a somewhat quasi informal administration by their banks. Bank’s will keep a tight reign on the producer ensuring that all surplus cash is put against any of their outstanding loans. The key though is that the payroll will be paid, and that is the only concern to the fat and happy bureaucrats. When your revenue is $50 and your costs are $200 you're not viable but that’s the bank's problem. Bureaucrats get paid first!

What’s that saying about the best laid plans of mice and men? The false narrative has been that the producers are profitable at $48 / barrel. We are closing out the second quarter with the financial reports due out in the next two months. We’ll see who can stick by those claims. Anyone heard of any financing lately? I wonder why the investors aren’t biting? Maybe it’s like I said all along. You can’t go on for decades kidding yourself that your investors investment is a sunk cost. And expect the investors and bankers not to notice. What generally happens, eventually, is that the investors and bankers see the bureaucrats as a sunk cost.

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 Go It Alone Strategy

Making payroll is the key to the survivability of the North American oil and gas producer. These are the aspirations of the bureaucrats who are in charge and providing us with their strong leadership. If they stick their head in the sand, everything is ok. No bank, or should I say “the banks” won’t take over the industry if everyone is in such a mess. They’ll have to leave it to the current management to operate. Anything and everything that is surplus to payroll, based on the oil and gas price, will be taken by the banks and that is how the industry will operate. Sounds like a plan to me. Seems to be the one in place at the present time. Let's call this their “go it alone strategy.” No support from the investors or banks, but then no accountability either.

Eventually oil and gas prices will reflect the shortages created by the willful destruction of the asset base. And then consumers will be forced to pay the piper. The key to this strategy will be to ensure that the bureaucrats stock options are reinstated on the basis of any dilution that might occur. This will become the number one issue in oil and gas. This could also be an opportunity to establish a greater percentage of the producer that the bureaucrats will undoubtedly have earned as a result of turning around the company. “Rebalancing the markets” finest hour.

What else could be going on. People, Ideas & Objects haven’t heard anything directly from any of the producers. Its as if the worst possible industry news has been distributed to everyone of concern and there’s no more bad news that could ever be issued. And the bureaucrats were never challenged! They cruised through! Not a peep about their efforts to turn the market around other than their narrative which they collectively stuck too. The worst case scenario of the industry's failure has occurred, they survived and are still in control.

No one will be able to touch the bureaucrats now. They are invincible! Who’s going to be able to do anything about the situation? “That blogger that doesn’t like bureaucrats? What’s he up to, all talk and no action.” This attitude would be counting the number of chickens one has, prior to the hatching of any eggs. Users need to stay tuned and committed for a while longer. It certainly seems to be the darkest hours for the development of the Preliminary Specification. And this strategy of the bureaucrats does seem to be successful in getting the upper hand. But with all things, time and ideas don’t necessarily operate in the best interest of the bureaucrats. And those are the two commodities that we have in abundance.

No one is going to aspire to the bureaucrats vision of the same. It’s future is limited and unproductive. We have a job to do in the industry and need to start working towards that today. What happens in the next 25 years is in the hands of the user community that is being organized here at People, Ideas & Objects. The bureaucrats have now proven that they will not being doing anything. It is therefore up to us to do it then. And that begins with you. Your participation in the user community is the beginning of our efforts to build the software that is needed in the industry. We’ll implement that software within the industry. Build the service providers that provide the administrative, accounting and software delivery to the oil and gas producers. And then operate the industry from an administrative and accounting point of view with these service providers. The replacement and elimination of these bureaucrats.

This bureaucratic malaise is the issue that the Preliminary Specification solves. The current oil and gas industries administration is the problem, and to I’m sure everyone’s surprise, they will not do anything to resolve it. They sat for almost two decades like this in the 1980’s and 1990’s. This is nirvana for the oil and gas bureaucrat. With $25.7 to $45.7 trillion in damages to the industry about to be occur in the next 25 years. These damages being in addition to what has already happened in the past few years. Our budget is the deal of the millennium. But more than that these bureaucrats can’t, won’t and will not ever do anything. Today you have more proof of that than you did last year. And next year you’ll have more proof if that is what is required. The future is in our hands. We need to take it, and make it ours. That is what we need to do. Otherwise we will waste away in this bureaucratic malaise that is only going to continue until we put it out of its misery.

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 Just a Flesh Wound"

Was one of the Black Night’s arguments in Monty Python’s Holy Grail. This comes to mind as we listen to the narrative of the bureaucrats in oil and gas. Natural gas storage has crossed the 3 tcf level as of June 10, 2016. Something that doesn’t usually occur until late August or early September. Three months early! Last year we came very close to filling the natural gas storage facilities but did not cross that point. Natural gas prices reacted poorly to the situation nonetheless. We are 633 bcf ahead of last years storage levels at this point of the year. The probability that we do fill the storage is close to being a given. The natural gas prices will react poorly at that time. However, for some reason these prices have increased almost 50% from their lows of a few months ago. This is on the anticipation of a hot summer with high demand for electricity. This summer price increase has not been evident in any of the prior years, I question why it would be this year with the storage being so high.

Natural gas is in its sixth year of market rebalancing. The EIA reports that production is fairly constant at 72.9 bcf / day. This number is becoming a constant in the universe. Those that are buying the “market rebalancing” fairly tale should look to the natural gas market to see how truly effective it is. There is no production discipline in the bureaucrats. They may be deliberately letting their assets atrophy under the guise of “market rebalancing.” There are however just as many other producers who are finding new properties to put on the market to offset those assets that are atrophying. This is what passes for intelligence in oil and gas. Why not, as People, Ideas & Objects our user community and service providers suggest that producers only produce profitably? Then nothing is deliberately wasted and everything of a limited resource builds value.

The fact of the matter is there is nothing that’ll stop these bureaucrats from destroying the industry. They don’t care. If they did this wouldn’t be happening. Where is the sense of urgency that something’s wrong? Who’s got an idea on how to fix this? Where do we go from here? Don’t ask a bureaucrat because just like the Black Night everything is fine. There has been a train wreck. A ship wreck. A natural disaster in their industries financial and operational performance. And these people have continued on as if nothing mattered or anything has affected them. It’s utterly amazing.

It’s evident to me now that the narrative of “market rebalancing.” And the myth that producers are profitable at $48 oil prices. Is designed to convince the bureaucrats themselves that all is well. They need to hear these comforting words. They were never meant for public distribution, they are intended to keep the people within the industry from being concerned about their situation. My interactions in downtown Calgary couldn’t be more relaxing and entertaining. It’s like an old folks home. No one hurrying to do anything. No one talking about business. It’s just a passive existence with a paycheck I guess. As long as the oil and gas prices are high enough to meet payroll there really is nothing to worry about.

We see a larger war waging in the western world at this time. The Brits are tired of the decree coming down from the European Union. They will probably vote to leave tomorrow. They are describing it in terms of their 1776. Donald Trump is representing the concern that people have with the size and uncontrolled nature of government today. Uber, an app that everyone loves, still battles the bureaucracy everywhere there are people. And I have been punished for 12 years for standing up to the bureaucracy in oil and gas. It’s the 21st century and Information Technology eliminates the bureaucracies through far more effective and efficient means of organization and processes. It’s only a matter of time until the bureaucrats are eliminated from the scene. But they will never accept that, not until everything is destroyed first.

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'm Impressed!

On two occasions this past week, I’ve watched on Bloomberg, and seen a report from Deloitte & Touche regarding the capital structures of the oil and gas industry. It would seem the narrative in the industry is changing from what a producer can produce oil for at this very minute. To one that considers all of the costs of the business in the context of the future. Very impressive. Deloitte even went so far as to state that the industry would have a $2 trillion cash shortfall over the next five years. I would like to point out that our value proposition of $25.7 to $45.7 trillion includes this value. It however includes all of the $4 trillion of capital Deloitte notes will need to be spent in the industry, and will hence be returned to the investors under our business model. Bloomberg and Deloittes calculations include the costs of the current operations, capital costs, the debt obligations and dividends that may be expected by the shareholders in determining any shortfall. Excellent work people, keep it up.

The history of the industry has to be taken into consideration. The producers had their hands in the investors pockets “building the business” over the past number of decades. Each and every year feeding at the trough for more capital from the investors. Never recognizing these costs of capital in any of their annual reports to the shareholders. Stating they were “sunk costs.” We still need to deal with this phoney baloney accounting methodology that capitalizes everything for ever. It’s ridiculous and has, as I have stated here many times, led to overproduction of oil and gas in North America. Many of these assets still sit on the balance sheet, however there is no capital structure supporting them. It's all been wiped out by losses and what’s left is all debt. Now “market rebalancing” has starved the production profile into a semi-permanent state of decline that will require massive capital expenditures to turn around, even more capital to achieve growth and so on. Where can I as an investor line up?

It will be a fool that invests in an entity that requires this rehabilitation. Defined by Deloitte as the $2 trillion cash shortage. Even Deloitte recognizes that the prices realized are not going to be over $55 per barrel in the next five years. Investors, according to the Bloomberg analyst, will be making critical choices as to who to invest in. I think the choice is academic. These carcases are toast. Run by bureaucrats who are unwilling to recognize the issues and deceitful about their operations only makes me want to double my bet that they will never turn these ships around. How? The more a rational person analyses the oil and gas industry the faster they run away. If you put your money in, you’ll at best get an extremely small percentage of the company's already deep and wide investor pool of issued stock. Any alleged earnings won’t be supported by cash that’ll be distributed. And even if there was, it would be diluted by those yuge balances of bank and bond debt. Makes the valuations in Silicon Valley look rational and exciting!

Investors interested in oil and gas are going to want to see a commitment to profits. Bureaucrats don’t understand the concept. People, Ideas & Objects, our user community and the service providers are configured to provide the oil and gas producer with the most profitable means of oil and gas operations. That is our competitive advantage. It’s what we’ve been talking about for 12 years now. A decade or so of having the bureaucrats laugh at us “that no one cares about profits, stupid.” We also provide the organization in which the investors can start a new dynamic, innovative, accountable and profitable oil and gas producer with 100% of the equity and no debt. One with the full scope of administrative and accounting capabilities available to them if they have a production profile of 1 bbl of oil per day or 3 million. This industry based administrative and accounting capability, when our service providers are built, will be available to them immediately and on demand.

Buying properties from existing producers that have been willfully damaged by “market rebalancing” will be the opportunity for these investors to poach from these carcases. The ones the investors are now considering their “sunk costs.” With the People, Ideas & Objects Preliminary Specification, our user community and the service providers we are able to implement the price maker strategy and remove the marginal production from the commodity market and have the oil and gas prices reach their marginal costs. For the bureaucrats “marginal costs” include the cost of capital, operating costs, royalties and overhead a.k.a. all of the costs. Oil and gas is a business, not a piggy bank you can raid at your leisure, too bad you never understood that.

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 Task and Transfer Network

Within the Preliminary Specification we have what we’re calling our Task & Transfer Network. Although there is not a lot of detail contained in the Preliminary Specification it is a simple concept to understand and implement. As producers conduct commercial activities this information is captured in the Task & Transfer Network. Production data is captured, aggregated with all the other production data in the industry and distributed to the appropriate production accounting, revenue accounting and royalty accounting service providers etc. This enables the specialization and division of labor between the service providers. For example, possibly there will be a service provider who reviews just the drilling day work for payment. Ensuring that it is consistent with tour reports etc, and other methods of verification. Then that service provider will generate their invoice for their services based on the information that they receive from the Task & Transfer Network.

I can see the bureaucrats squirming and wincing in their seats. Their concern is the security of the information that they have and the proprietary nature of that data. They are in no way going to allow their data to be processed in this fashion. Have I ever mentioned our $25.7 to $45.7 trillion value proposition? I think I must have at some point along the way. Continue on with the way these bureaucrats are doing things and we will all be out of business. We also have the Security & Access Control module of the Preliminary Specification. If that is incapable of meeting your needs then you’re not getting the point of having user community based software developments. Use the user community to ensure that the security of the Task & Transfer Network is at the level that ensures compliance to all the regulations and ensures that no unauthorized access is enabled.

What a service provider is going to be faced with is a constant flow of data from the Task & Transfer Network. It will be the service providers work that will be able to take that data and process it in the most effective way for the oil and gas industry. Specializing on one process may sound like a redundant and boring approach to accounting and administration. However, if you put your mind to the task you can become quite creative in developing the tools to make the process cost effective, innovative and high quality for the industry. And that is just in the first iteration of the Preliminary Specification. Over the life of the system the process management would evolve in ways that we can’t imagine at this point. The science of data, statistics and information would come into play in a serious way and become part of the value proposition of the service provider, and would also begin to form the basis of competition between service providers.

If there was no production from a property, then no information is delivered through the Task & Transfer Network, no processing conducted and no service providers invoices sent. The decentralized production model is implemented and the producers have the price maker strategy operational on the North American continent. This is how all of the producers costs become variable based on production. Taking the data down to its simplest form, aggregating like data and processing it on a specialized basis by those who have the people and the software development capabilities in hand to deal with the issues and opportunities they see their producer clients having. That is how we reorganize the industry and ensure that we provide the oil and gas producer with the most profitable means of oil and gas operations.

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

Third Friday Off

No posting today.

How Our Users Make the Difference

It is our user community members and their service provider organizations that provide the key differences in enabling the producers to achieve the most profitable means of oil and gas operations. They’re the critical infrastructure necessary to enable change in the oil and gas marketplace. They’re the source of quality in the producer firm and the industry. And they enable the dynamic implementation of business models such as the decentralized production model. When a change is needed in the industry today, who do you turn to? In the future there will be no question as to who you will turn too. The user community member that is responsible for that area and has the capabilities to implement the changes on behalf of the producer and industry. They’ll have the power and control over the Intellectual Property that is the operational understanding of the industry. The derivative of the Preliminary Specification. It is theirs to do with as they believe is in the best interests of the producer and industry. The People, Ideas & Objects software developers will only ever look to the user community for what software it is that they will develop.

What we have learned is that software, and ERP software particularly, defines and supports an organization. In order to implement any change it is therefore necessary to make the change in the software first, otherwise the people will regress back to the old ways which are defined and supported by the old software. Bureaucrats have interpreted our breakthrough in this area as; securing their position in the organization by never changing the software. The user community member who is also the principle in the service provider sits in the new sub-industry that we are building. Working with the industries producers to ensure they are the most profitable they can be. Understanding their issues and opportunities. And, having the People, Ideas & Objects software development capability on hand to make the changes that they see necessary to fulfil their requirements of keeping their clients the most profitable that they can be.

Quality is a difficult aspect of an offering to define. Speed has to be an element of quality. Having things done right the first time as well. Affordability also has to be part of a quality offering. Recall that the configuration of the service providers are what provide our price maker strategy possible in the industry. Achieving the lowest cost possible but missing out on opportunities such as the price maker strategy would be foolhardy. The value that we provide the industry is so much more than just an efficient and effective cost. We are able to leverage the value that the oil and gas industry generates by making changes in the business models that we have the power to control. It is here where we become affordable. The service providers are a cost of doing business that is already incurred in the oil and gas industry. The $45 to $65 billion in G&A costs will be transferred and become the revenue streams of the service providers. When you compare the annual cost of the service providers over their value proposition of $25.7 to $45.7 trillion over the next 25 years, it’s a profitable value proposition for the producers.

Now we come to the decentralized production model of the Preliminary Specification. It is the reason that we have configured the service providers in the manner that we have. By restructuring them on this basis we will have done two fundamentally important things. First we will have moved the administrative and accounting capabilities from each individual producer, where they are replicated, redundant and unshareable; to an industry based administrative and accounting capability. Secondly we will have made all of the producers administrative and accounting costs variable, based on production. If a property is shut-in then all of the costs of the producer, except for capital, will not be incurred. The burden for the administrative and accounting cost control has shifted, if there ever was any cost control, to the service providers. Who at anytime might experience a drop of 10% in their revenue. The 10% being the amount of production that might have to be shut-in to maintain oil and gas prices. A budget-able contingency that can easily be handled by the service providers.

It is this kind of flexibility and capability that the dynamic, innovative, accountable and profitable oil and gas producer needs. They have enough to focus on with their competitive advantages of their earth science and engineering capabilities, and land and asset base. Constructing an administrative and accounting organization, which is exactly like each of their neighbors is destroying their profitability. If they had any, that is.

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 Business Opportunity

More than anything the People, Ideas & Objects user community is a business opportunity for those that work in the administrative and accounting fields of the oil and gas industry. We are developing and creating a new sub-industry that includes People, Ideas & Objects software developers, our user community and their service providers. It is these people who are working to provide the oil and gas producers with the most profitable means of oil and gas operations. That is their purpose and their focus. Turning the industry around from a bureaucratic slog to a dynamic, innovative, accountable and profitable industry.

The business opportunity comes from the fact that the members of the user community will be independent business people with their own going concerns and two distinct revenue streams. The first will be the fees that are earned when they are resident or are working on the software with the People, Ideas & Objects developers. Working to make the software that they want and need. These user community fees are paid by People, Ideas & Objects and are detailed in our budget. Our budget only deals with the initial phase of the Preliminary Specification. What it will take to implement the software in its first commercial release. The user community member should assume that this revenue stream would continue far off into the future.

We are expecting that we will need to have 3,000 members of the user community in order to acquire the full understanding of the manner in which the oil and gas industry operates. We also expect that at any time 600 of these users will be working directly with our developers. So although this is a cornerstone of the business opportunity for the user community member, these revenues are only for their part-time efforts.

Each of the user community member will be focused on one area within the Preliminary Specification. And will focus and specialize on one process within that area of understanding. The competitive advantage of the user community member is their division of labor, specialization, automation of business process, quality and innovation. This process that they manage will be theirs where the license granted by People, Ideas & Objects gives them exclusive rights to that process. Competition between service providers and users is not on the basis of cost where one steps on another's functional or process domain. It is through their ownership and control of the service provider organization that they will manage the process on behalf of the oil and gas industry. Competing on the basis of specialization and the division of labor, etc. It is in the service provider organization that the second revenue stream of the user community member will be derived. They will have the salary, bonus, dividends and capital gains they earn from their ownership of their own service provider firm.

How big a service provider would need to be in order to manage a process on behalf of the industry is the question that no one can answer at this time. They would be of a moderate size considering they would be replacing the $45 to $65 billion in administrative and accounting costs that are being incurred in the industry today. It would be reasonable therefore to estimate that the service provider's revenues may be in the range of $10 to $30 million per year. This should therefore be considered a substantial business opportunity.

If we are undertaking the replacement of the accounting and administration of the industry. These numbers come into focus. Who knows maybe the bureaucracy will change into the dynamic, innovative, accountable and profitable organizations that we seek! With the costs and prior bank and investor commitments in excess of $200 / barrel, however, with organizations that are stale and choking on paper, there may not be too many investors that are interested in supporting that old model of organization.

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 Not a Price War!

I did not catch the name of the individual that I saw the other day on Bloomberg. He had an energy consulting company, had at least 40 years experience and a PhD from Stanford. Certainly well qualified, but I fundamentally disagree with his position that we are in a price war with the Saudi’s and Opec. He said that when you’re in a price war you have to produce at your marginal costs. The marginal costs of some of the shale reservoirs, he stated, was as low as $10 and the Middle East was even lower. Noting that he thought oil prices might bottom around there. This is yesterday’s thinking. What the bureaucrats use for their excuse to do nothing. And how we find ourselves in a devastated industry where investors are used as ammunition to fuel an unnecessary war.

Oil and gas commodities fit the textbook description of what qualifies for “Price Maker.” This entire oil and natural gas depression has been brought about as a result of a small percentage of over production. Maybe 1 to 2%. Which has led to price decreases from their long term highs that are in the region of 70% on oil and 90% on gas. My math is pretty good, and I can tell that this is a losing proposition. All that would be needed would be to curtail a small amount of production in order to reclaim all of that lost pricing. This is also one of the key characteristics of a price maker. Where does the thinking come from that has producers continuing to produce oil and gas at a financial loss, yet they think that those actions don't impact prices? Bureaucratic sloth I would suggest.

The strategy that the Saudi’s have adopted is fair and reasonable. It has however changed from their position as the swing producer role which they occupied until recently. They feel that it is the North American producers who need to fill the swing producer role. The swing producer role involves removing production from the marketplace to ensure that it remains balanced. The Saudi’s changed their position as it was apparent the North American shale based producers, who are also the higher cost producers, were forcing them to curtail too much production to balance the market. Saudi Arabia was having to give up its customers in order to do so. Eventually, under the Saudi swing producer scenario they would have had no customers and no production. Therefore they changed their strategy to a fix production level and committed to their customers that they will provide their needs reliably. It is a sound business strategy. It is not a declaration of war.

We should note too that bureaucratic sloth is evident in the natural gas marketplace where the Saudi’s and Opec don’t exist. Natural gas has displayed these overproduction characteristics for the past six years. Who is responsible for that markets overproduction? I would suggest it’s the same people. The issue the bureaucrats will not deal with is shale based reservoirs. Recently the Energy Information Agency noted the Mancos shale formation in Colorado has been defined as 4,000 ft of pay. They have adjusted their 2003 evaluation of 1.6 tcf of gas to its current evaluation of 66 tcf of gas. What the bureaucrats will now do will be to ensure that the necessary steps are taken to get this natural gas onto the commodities marketplace so that it too can be fairly priced along with the other 2,500 tcf of gas that is sloshing around the continent. Producing everything that exists, irrespective of the financial implications is madness. Especially when the Preliminary Specifications decentralized production model employs the price maker strategy that would make all production profitable.

It’s odd that during these times I have been screaming myself hoarse that these commodities are price makers. And that the Preliminary Specification deals specifically with that issue in the industry. The issue that I generate in the process of bringing my solution to the marketplace is that I, like so many Information Technology based solutions in the marketplace today, disintermediate the bureaucracy. Bureaucrats are toast once the Preliminary Specification is in place. And they know that. So for them to consider the thought that they would eliminate themselves from the marketplace is comical to them. Why else would they ignore our $25.7 to $45.7 trillion value proposition over the next 25 years. We need the investors who have been used and abused by these bureaucrats to turn the tables and oust these bureaucrats by supporting the Preliminary Specification.

The bureaucrats can hire all the consulting firms and all the PhD’s in North America to go on Bloomberg and be the talking heads for them. Engage in nuclear warfare on their behalf and ensure that the issues and opportunities of the industry are obscured and unaddressed for another decade. This may be a test for how collectively stupid the western world has become. If “this” is acceptable and allowed to continue.

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.