My Argument, Part XXXIII
We use two simple tools in which to ensure that the industry implements production discipline through adoption of the Preliminary Specification. The first is greed and the second one is greed. People, Ideas & Objects provide oil and gas producers with the most profitable means of oil and gas operations. Maybe you’ve heard of our value proposition. If a producer is faced with full production at 100,000 barrels which generates a loss of $2 per barrel, or producing 80,000 barrels which produces a profit of $5 per barrel, what is in their best interest? With the decentralized production model the producer is able to scale up and down their production profile based on the price of the commodities and the cost of each individual property. If the property can’t make a profit at the current price it is shut-in until such time it can be reworked and put back into profitable production. The costs of the producer at 100,000 boe / day are different than what the costs are at 80,000 barrels per day. What the Preliminary Specifications decentralized production model has done is turned all of the producers costs into variable costs. Including actual overhead.
If the price of the commodity should drop precipitously to the point where only 10,000 boe / day is profitable then the producer changes their production profile on that basis. Yet they remain profitable due to the fact that their royalties, operations and overhead costs have all dropped to zero on the shut-in production and only incur those costs on 10,000 boe / day.
The second simple tool that we use in motivating the producer to shut-in their unprofitable production and obtain the production discipline that is necessary in the North American marketplace is as follows. Earnings are what drive the value of the shares of the producers. The better the earnings, the better the stock’s performance and the happier the investors. Happy investors means they would issue new capital and raise the money to expand their profitable operations. If a producer today were to begin offering profitable operations to their shareholders. In a marketplace riddled with financial carcasses from overproduction and oversupply do you think they would have a future?
There certainly will be violators of the production discipline of only producing profitable production. The motivation to cheat is well documented through the difficulties that OPEC experienced in the 1980’s and 1990’s. However, those producers may have higher revenue streams as a result of cheating, their actual profits will be lower than if they shut-in their unprofitable production. There profitable properties are being diluted by their unprofitable properties. As producers operations are today. Leading them to perform poorly in front of their shareholders and the market in general. These types of producers will be clearly evident in the marketplace. Their financial statements will be inconsistent with those of the rest of the industry. Whereas an industry that has attained production discipline will have each and every producer producing profitable production. The difficulty or the challenge in the industry, as it is today, is to increase your production profile over last year. In the future it will be necessary to increase it profitably. That won’t be a feature of spending money like a drunken sailor, and as a result, the pretenders will be weeded out by the contenders.
The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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.