User Community Developments, Part I

The overall objectives of the user community are very simple. They will become the state-of-the-art providers of leadership and capabilities in terms of oil and gas administration and accounting in North America. Now we face the hard work that is associated with that objective, and that of course would be building the user community. We are not just looking for quantity, we estimate that there will be a population of approximately 3,000 members. We are looking for the quality necessary to meet our objective and provide the oil and gas producers with the most profitable means of oil and gas operations. As the permanent replacement to the producer based capability for administration and accounting with an industry based administrative and accounting capability.

If we look at the competitive advantages that the user community member will have then we may be able to get a better understanding of what will be involved. When we add in the service provider organization that the user community member owns and operates. Understanding the work the user community member will do with the People, Ideas & Objects software developers will help the competitive advantages become clearer. I’ll list them here and then we’ll discuss them briefly over the next few days. There are of course specialization and the division of labor as the service provider will manage one administrative or accounting process and use the entire oil and gas industry as their client base. Automation of that process will be a constant and iterative development through the user community members access to the People, Ideas & Objects software developers, and their understanding of that process through the user community members direct ownership of the service provider. Innovation and technical excellence based on the administrative and accounting experience they have. Users will be able to iterate constantly and develop their process to become more efficient, but also provide better information to their clients, the oil and gas producers. It is our stated purpose to flip the current relationship that we have with computers. Instead of us working for them, we are going to have the computers working for us. Lastly quality is going to be the overall guiding principle in what we do in terms of the services for the producers. Our value proposition makes it worthwhile for the producers to use our software and services. Lower cost software and services is not the issue or the objective, quality business model development and ensuring the producers are provided with the most profitable means of oil and gas operations is more important than low cost software and service. After all the bureaucrats currently have many of the lower cost software and services today. These attributes are what make up the competitive advantages of the People, Ideas & Objects user community / service provider.

Looking at the individual components of the user communities competitive advantage we’ll review the first item on the list and the part about flipping the relationship with computers. Specialization and the division of labor is the only means in which economic development has ever been achieved. The difference between the economies size in the year 1800 and today is 100% attributable to the application of specialization and the division of labor. Therefore in order that the oil and gas industry can develop further, expand its output, grow efficiently and profitably is through the application of specialization and the division of labor. It’s here too that we can bring in the work of computers and have them do the storage and processing which is their specialty. Essentially a revised division of labor between people and computers. And people can focus on their capabilities which include leadership, problem solving, determining what’s relevant, creativity, collaboration, research, idea generation, design, planning, thinking, negotiating, compromising, innovating, financing to name just a few. These are the areas we need to be focused on and stop moving data from one system to another and other redundant computer related tasks. With each user community member and service provider focusing on one process, they are specializing at a much higher level than what is available now or is ever going to be possible within any producer firm today. Therefore the amount of work they’ll be able to do will be substantially more efficient than what it is today and will continue to provide an enhanced and developing value proposition for the oil and gas industry.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Presidents Day and Alberta Family Day

Some Comments on our User Community

I am concerned with the level of thinking that I’m seeing within the oil and gas industry these days. First people in general have been badly beat up by the downturn in the industry. Many have lost their jobs and if they still have jobs they know they’re hanging from a thread. A similar experience that we all went through in the late 1980’s and 1990’s. Everyone arrives early to work and leaves late, brings a lunch packed from home while they eat at their desk each and every day. It’s a poor existence for those who have invested so much in their careers to have to fear for them constantly. However, the level of discussion of this downturn is very cheery and is painting a rosy picture of the future for the industry. What I would call unproductive navel gazing. Looking at the fairy tale possibilities, ignoring the facts of the business, ignoring the investors and the performance of the producers. This is not going to get us where we need to be going. Although I put this down to the chronic lack of leadership within the industry, new leaders are forming now in the People, Ideas & Objects user community.

We’ll be spending more time discussing our user community and its development in the next few months. This is our priority and has been since the publication of the Preliminary Specification in December 2013. As with anything worthwhile the early years are very slow and almost negligible gains are made. We consider these past four years our investment stage. What we’ll be discussing is filling out the understanding of what the user community involves, the role that users have in our development, exploring industries opportunities and the leadership in resolving industry issues. These are the things that we’ll be depending on from our users. And how these people will be able to make the effective changes that are so necessary in the industry.

The issue that the oil and gas industry faces is essentially the bureaucratic status quo. The inability to change to meet the needs of the marketplace has hampered the industry for many decades. Investors are representing a dissatisfaction with their current strike. If bureaucrats believe that talking about rosy outcomes and fairy tale opportunities. Will have the investors rushing back then they should really consider a different line of work. Investors find the topics and quality of discussion in the industry to be horrifying. Some objective critical thinking is what would be constructive at times such as this. That the industry is not undertaking any serious thought to the future shows that this form of organizational structure is tired, worn out and expired. It truly is our fault for not believing the bureaucrats when they’ve been telling us so clearly and coherently these past few decades. Change is not a nice to have, but is in high demand in order to deal with all of this as soon as possible, otherwise this unnecessary pain and suffering will continue.

Those people that are of similar mindset within the industry need to be preparing their application to our user community. That way the industry and producer changes that are required can be undertaken by them. They will be the future leadership of the industry when it comes to the changes in the underlying oil and gas business. Changes that will demand further development, or the creation of new business models for the Preliminary Specification, these will be initiated and developed by the user community. Our user community has the tools and power necessary to exercise that level of change within the industry. The user communities power is acquired through the user community vision of People, Ideas & Objects which grants the user community two unique elements that make it capable of undertaking these types of changes. First our developers are deaf, dumb and blind to everyone and everything other than the user community. We only seek and take instruction from the user community. If a producer desires certain functionality or requirements then they’ll be able to source that through communications with the user community. Secondly the user community has de facto control of the Intellectual Property that makes up the Preliminary Specification and its derivative works. Only they can make the changes to the underlying Intellectual Property, and instruct our developers on how to develop it. Therefore anyone who needs to make a change regarding the accounting and administration in oil and gas can seek out the user community in order to have their changes made. Only the user community has the means in which to do so. Which is far better than today’s situation. Ask yourself, who in the bureaucracy do you contact in order to get the changes you need today?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Structural Innovation in the Preliminary Specification

Sometime last week we had discussed the two business models contained within the Preliminary Specification. (You may want to revisit that post entitled “Two Business Models?) In that discussion we mentioned the Work Order system that is the method that is used to capture the time, activity and property that individuals within the oil and gas producers will be working on. That Work Order system has other features that I thought I would discuss today. Although the capturing of time, activity and property was developed to assist in the generation of the second business model, other aspects were also developed to enhance the innovative capabilities of the producer and industry. The Preliminary Specification provides the value proposition that we’ve discussed here many times. It also establishes the producer firm and the industry on an innovative foundation. Much of the research that was completed in this area is based on the work of both Professor Giovanni Dosi and Professor Richard Langlois. The difficulty in moving to the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable producer is that everything and everyone is affected by that change. Nothing is the same in a system that is designed for the Joint Operating Committee in comparison to the standard corporate model. That is why such extensive research was necessary, to solve the issues of the producer and industry, and determine what, how and why the industry and producer had to operate and function when using the Joint Operating Committee.

The first use of the Work Order system is relatively straightforward. Everyone working within the producer firm, or as a consultant ensures that their time is fully captured within the Work Order system. That any and all projects have been duly authorized and have the budget to be able to have their time charged to them. Other charges may also be for overhead items that are exclusively for the producer that the individual works for. With the second business model requiring specialization and the division of labor of the earth science and engineering capabilities to be distributed across producers in the Joint Operating Committee and industry. The ability of other producers to charge to these projects as required is necessary and a feature of the Preliminary Specification. That way the on-demand capabilities from other producers or consultants can be charged to the appropriate Joint Operating Committee facilitating the ease of aggregating these necessary specialized capabilities. The Work Order system also passes on the costs of these resources to the Joint Operating Committee and recognizes the revenues for the use of the producers earth science and engineering resources as the second business model denotes.

In this first example of the Work Order system we showed the manner in which charges could be made for an AFE or lease code of an existing property. What we learned through our research was that the industry needed to undertake substantially more studies and general research than what is found today. The problem with these is that they’re an administrative nightmare due to the nature of the contributions. Some producers pay cash, others supply people, others bring other resources and the ideas that are generated are extremely valuable for all of those producers. Except the accounting nightmare continues for what seems decades. The Preliminary Specifications Work Order system therefore has the capability in which to deal with ad-hoc organizational groupings such as a one off research or study. Each producer is able to contribute to the Work Order their agreed contribution and net take away. This is done in the manner that is similar to the clearing that is done in the AFE and lease, however there is no established legal agreement or lease that has established the mechanism to clear these accounts. Only the agreement of the participants in the research or study. The interface to the Work Order system is how the agreement is captured in the system and can be tested to ensure it meets the understanding of what the producers expect. If it doesn’t meet the expectations, changes can be made through the interface until such time as it is approved by the participants, and as a result, they’ll know that the follow on charges will be handled appropriately based on the agreement as captured in the interface.

In order for the industry to become truly innovative, several magnitudes of increase need to be made in the number of these research studies. They will become a foundational aspect of the industry from an innovation point of view. When a producer removes a property from active production due to a lack of profitability. That is when they should actively look at innovative actions to increase the reserves, reduce the costs or expand the revenues. And return the property as quickly as possible to the producers inventory of profitable production. That’s what it means to be a dynamic, innovative, accountable and profitable oil and gas producer.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Failure is Not an Option

Remember back during the financial crisis how Chrysler and GM had inventories that swelled well past the usable parking space of the world. Caught by the classic pincer movement of customers vehicles being recalled for non-payment and no new customers to purchase any new vehicles because the banks were spooked by their foolish behaviour in the past number of decades. Seems bureaucrats always take decades to let things get to a crisis before they act. Car companies were unable to run fast enough to hit the switch to shut-down their production lines. Interesting why they were never charged with collusion for stopping production? There is a similar situation in oil and gas today. Now by keeping everything in full production and watching the inventories grow one might draw the conclusion to the same kind of issues that GM and Chrysler experienced in 2008. However in oil and gas, bureaucrats can divert the proceeds of the oil production back into their pockets and motivate themselves to keep the circus operating for one more month. This is the fundamental difference between an industry that is labor intensive and needs a government bailout, and an industry that is capital intensive and is left to its own devices.

And who knows maybe all the oil and gas in storage will be needed as a result of the booming economy. That is the thing with the bureaucrats, they can always think of something down the road that would be better than today. Never manage the business for the situation at hand. There never has been any need to change, no one is going to act against them. Only the blogger with the ugliest websites on the Internet have caught on to their act. Which leads me to believe this downturn in commodity prices will be particularly dire for all concerned. There’s nothing in the producers cupboards anymore. They’ve been squeezing every nickel until it screams and there isn’t much left to fight the good fight with.

Everyone within the industry knows the extent of the damage from low oil and gas prices. Damage that is and has been incurred unnecessarily. Why are we accepting this level of performance? A rebuilding of the industry is what the Preliminary Specification contemplates, based on profitability, brick by brick and stick by stick. This requires everyone in the industry to get involved in this change and do some very hard work. The bureaucrats will need to bow out gracefully, the user community needs to form and define specifically what it is they need in the details of the Preliminary Specification. They’ll also need to establish their service provider operations. There is no need to list everything, without the focus of everyone on building the Preliminary Specification we will not be able to generate our value proposition. We’ll all need to think and act.

This should start with a plan and a budget for each individual that is looking to participate. These can form part of your application for user community participation. Our budget sets our task at 5,000 man years when we combine our developers, the user community participation and Oracle hours together. Coincidentally, 4,117 man years is a the amount of labor that one barrel of oil offsets. Therefore it would take as little as 1.2 barrels of oil to complete the Preliminary Specification if it was strictly a labor operation that we could mechanically automate.

We have seen the attention spans of the producers swing 180 degrees many times over the past decade. What we know for certain is that their attention is transient and brief. We may capture it in this current downturn in pricing. We know that would only be temporary. What we can not have is these short attention spans cutting off our funding if we were to proceed on a pay-as-you-go basis. If we stopped development for a short period of time we would never be able to restart the initiative. Therefore we need to have the total of our financial resource requirements upfront in order to secure the commitments of the producers, the people who are committing to the user community and anyone else that needs to be involved. If we went through on a pay-as-you-go basis I wouldn’t trust that the bureaucrats were not just setting us up for failure by subsequently “temporarily” pausing the initiative. Our job is not something that can be fooled with, our focus must be complete and uncompromised by the day to day of where our next meal will be coming from.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Collusion, Collusion, Collusion

Collusion is the word on the street in oil and gas and may have been the most effective argument in defeating support for People, Ideas & Objects Preliminary Specification. The problem is that collusion is now being seen in every aspect of the oil and gas industry and the forces of political correctness seem to have found a new talking point. Collusion here, collusion there it doesn’t seem to stop! Even arguing that producers working together on a property is collusion. For People, Ideas & Objects our price maker strategy converts the producers of today into dynamic, innovative, accountable and profitable producers. We do this by ensuring that none of their oil and gas is produced unprofitably. That is not collusion, it’s business, which is what every business in the world does. Manage their inventory levels by controlling their production. A price maker will only bring on new production if it is profitable. Otherwise why would you dilute your profits with unprofitable production? Collusion is the current excuse to do nothing and only reflects the extent of knowledge and understanding that is present in the industry is not just poor, but abysmal.

We have further evidence of the lack of any business thought or understanding being applied in the industry as we see the commodity prices receding once again as a result of chronic overproduction. How many producers stated unequivocally when OPEC implemented their production sharing agreement that “this time was different” and “this time we have discipline.” I’ve argued that there is a systemic, deep, unaddressed and unresolved problem in the industry that is being ignored, primarily because the bureaucrats get away with it. The Preliminary Specifications decentralized production models price maker strategy is designed to solve the problem, however as with all new technological implementations it disintermediates the marketplace and trashes the useless bureaucracy to the scrap heap of history. The bureaucracy fight back with everything they can and what they are mouthing today is not “market rebalancing” but “collusion” as an effective deterrent to action.

Meanwhile back at the ranch. OPEC et al take one million and a half barrels per day off the market which has proven very effective in dealing with low oil prices. North American producers, who are starved of cash, find that flush oil production from new wells is too much to give up in terms of cash. Particularly when you don’t have to pay anyone for eighteen months. Therefore we see the rapid increase in U.S. oil production which hit 10.251 million barrels per day last week. Up from 8.692 million barrels per day in November 2016 when OPEC implemented their production sharing agreement. That’s a difference of 1.559 million barrels per day. I don’t think OPEC has been truly appreciated here. They’ve done two things that I can see. Conceded market share to North American producers. And provided a lesson in inventory management of commodities that are subject to the economic principles of price makers. What I don’t see is OPEC’s market discipline continuing.

At the same time the active rig count has moved from 580 in November 2016 to 975 last week. An increase of 29 rigs over the prior week. We can see how this time is not so different and that the producers once again have no discipline, as they claimed they did not so long ago. Does anyone see a pattern here? If you do, see if you can match it to the pattern that was evident between 1986 and 2002? I can assure you it’s the same. There is no control of oneself. There is no business sense. There is nothing but deployment or curtailment of the spending machine that is otherwise known as the oil and gas producer. Purely based on the trajectory of the commodity price. If it’s an upward trajectory, spend, etc. Nothing more. It is the same thinking that considers anything else collusion. Needless to say with the decline of oil below $60 and natural gas below $2.60 we’ll see an eventual decline in the rig count. I would suggest it will be a significant amount of time before we see this level of commodity price or drilling activity again. Since the rig count has almost doubled over the past 15 months. Does that mean the increase in production will be twice as much as it was before the OPEC production sharing agreement was implemented, or 3 million barrels per day? The time it takes to bring production on is not coincidental with the price increase. It lags the price changes by almost a year. And if the market was overwhelmed by shale oil production in November 2016, which prompted the OPEC production sharing agreement, what will the increase in North American production be like for the next 12 months, and what will the price be at this time next year?

The only solution to this clearly evident pattern. A pattern in which the alleged “good” years in oil from 2009 to 2014 were diluted by the disastrous natural gas collapse. Therefore since 1986 oil and gas have been able to count 2003 to 2008 as the “good” years. Five years in these past thirty two years, what more do the investors, society or anyone expect? We also know that those “good” years were very prosperous for the bureaucrats. In fact more prosperous than for anyone else. Options and bonuses took up pretty much all of those “good” years spoils. The only solution is the People, Ideas & Objects Preliminary Specification. Evidence of this is the treatment that we’ve received at the hands of these bureaucrats since 2003. We are the only threat to their franchise. They see no issue in the market today. They see no issue in their performance over the past 32 years. All they have to do is keep coming up with a good excuse every once in a while, like collusion is going to be for 2018, and that seems to do the trick.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Another Problem!

The markets are sending signals that the days of government intervention may be over. Zero interest rate policies can not continue in an environment where inflation is not only possible and probable, but likely. Not only the Fed but other institutions will have to act, the markets are signalling that interest rates are on the move. We discussed the effect of higher interest rates on the producers last Monday. Repricing of risk will take the froth off of the stock prices and the higher interest rates on overextended producers will be issues the bureaucrats will not be able to deal with. As we noted the producers are not overextended on their “well defended” balance sheets. Until you realize their property, plant and equipment is substantially overstated by the unrecognized costs of past production. Therefore what appears as a reasonable debt load is in fact, excessive.

It’s been almost a generation of people who’ve never experienced the joys of a high interest rate environment. The period up until now has been very deceptive as the higher the level of inactivity and passivity that is applied within the organization, the greater the rewards seemed to have been. If you did nothing, it didn’t matter, as in time the issue was overwhelmed by the higher value of the overall assets. Buying and holding was the only strategy and from that everyone learned it was the key to success. Buy on the dips and hold through the ups and downs. That has become the way in which business has been managed since 2003, the time that the U.S. government 10 year bond dipped and remained well below 5%.

What I think we can now look forward to is a return of a competitive market environment. One in which the producer firms in the oil and gas industry will have to live by their wits and perform or get left behind. An environment where I don’t think many recall and few have the background in which to understand. The point of the matter is that as an investor, if I can purchase a U.S. government bond that guarantees me 5% why would I invest in anything that doesn’t provide that or better on a competitive basis with equal risk? An oil and gas producer is going to have to provide, if they’re to succeed, a return to the investor of 10% in order to compete and maintain their stock price. If they can’t they’ll be quickly forgotten and investors will move on. During this zero interest rate period disgruntled shareholders have been offered U.S. government bond rates that averaged 2%, no reason to sell the producers. With the speed and ruthlessness of these new types of markets shareholders will be unable to consider any point of view other than the fact that the 10% was not reached. Tell me of an oil and gas producer that is able to meet those demands in the current industry. If you find one then I’ll ask you to recalculate their earnings on the basis of a more reasonable capitalization and depletion methodology. One that would at least generate cash and seeks to compete in the capital markets of 2018.

Coincidental with this era in which the buy and hold strategy has been so successful. I’ve been pounding the pavement trying to get a decision to proceed with the development of the Preliminary Specification or its earlier versions. As I said indecision and inaction have been the most successful tactics in this market and considering the decline in the commodity prices we should have seen many producers having difficulties hanging on as far back as the 2008 financial crisis. It’s only been since 2016 when the investors became wise to the game of backfilling the cash demands of the producers for the past four decades did they stop investing. Even this investor strike has not caused any of the producers to face their demise or make any decisions to rectify the situation. I am suggesting this easy business environment is moving along as we speak. Only to be replaced by a somewhat normal environment where only the strong will survive and prosper.

Which brings up the question who will that be? I say it won’t be this bunch. You can start a business off and pursue two generally different strategies. Establish profitability immediately or build the business and then shift to profitability. The current producers chose to do the build then shift to profitability model. The problem with the companies who chose to pursue the building of the business and then shift to profitability approach is that the profitability never comes. You can’t change the stripes on a tiger and you can’t make an unprofitable company profitable. Some have tried but they’ll all eventually fail. Profitability is not the same thing as spending money. Spending money is the easy part. Making a business profitable is the difficult part. Currently we have an industry of spenders who were “building the business” for the past four decades with cheap and easy money acquired through the publication of specious accounting reports. The last 15 years have been in this zero interest rate, anything goes environment. Are these the producers that are going to be able to get the industry moving forward again? You have my answer.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

"These Are Not the Prices We're Looking For"

With all due respect to Obi-Wan-Kenobi. It appears based on the early fourth quarter reports of the oil and gas producers that the rise in oil prices over the past year have been inadequate to deal with their shortfall in profitability. Although many are reporting full year profitability on the basis of tax benefits, the underlying businesses are still losing money. In some cases it's hard to tell the difference between 2017 and 2016. The latter being the worst year in oil and gas history. We should thank the Saudis and OPEC for their work in raising the price of oil in 2017. We should also thank them for the lesson that oil and gas commodities are subject to the principles of price makers and not price takers, which is what the North American producers assume them to be. The increase in North American shale production shows that the lessons may have been taught, but the producers were in the back of the class watching YouTube videos instead of taking notes. What I guess we’ve all learned is that none of the bureaucrats running the oil and gas producers care about what’s going on.

I am impressed with the attention being paid by the investors in this oil and gas crisis. I was told recently that producers now understand fully that they can no longer dilute their investors. The investor strike appears to be continuing and therefore does not show any signs of abating. We’ve also learned that the cash flow remains strong enough to support enough field activity to continue to overwhelm the commodities inventories. The only thing that producers can do now is implement the Preliminary Specification and have the price maker strategy operational. Which would enable legitimately profitable production to capture the costs of past production, that has been so accurately captured and recorded in property, plant and equipment. Use that cash flow to fund whatever capital expenditures are needed, pay down the bank loans and return the capital to the shareholders. Doesn’t sound as exciting as doing what you want for four decades with endless free money, but to everyone, there is an end.

Our calculations show that producers require $131 in order to obtain that real, legitimate profitability. That would dictate a natural gas price of approximately $22 on a six to one basis. I don’t make the rules and I’m certainly not the one that spent all of that money. By recognizing that these costs of past production are being accounted for the producers would have a flush of cash provided for the foreseeable future. A characteristic of a mature industry. Until then producers can run around and say that it costs $15 to produce from the Permian. Which either shows they don’t understand their business or their lying.

Its difficult to see and understand the issue that the Preliminary Specification is designed to resolve. Our solutions roots are in the 1986 to 2002 period where producers continued to lose money, did nothing about it, and relied on investors to backfill their cash shortfall. Sixteen years where only the bureaucrats made out like bandits. As then we will always pass between these phases of price increases and decreases. Never attaining a price necessary to cover the cost of oil and gas exploration and production. When prices increase, greed overtakes the fear that built up when the prices declined. It is a vicious cycle that will not end until such time as the Preliminary Specification is implemented. It will never stop now that shale exists. It doesn’t matter what the producers do or don’t do. Until each producer recognizes individually that the issue lays with their unprofitable overproduction and oversupply we are stuck here. It’s not just the other producers fault. We’ve been in this situation for ten years so far with natural gas. Three years in oil and no material change in the outlook. And no action other than to wait for “markets to rebalance” which never rebalance, ever. It is not something that they do and outside of oil and gas the term doesn’t even exist. Markets do one thing and only one thing. They provide information in the form of price. If you can produce profitably at that price you produce, otherwise for whatever reason would you produce?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Two Business Models?

In yesterday’s post I noted that there were two business models contained within the Preliminary Specification. The first model is the decentralized production model that we’ve discussed here frequently. It includes the price maker strategy and relies on the reorganization of the oil and gas industry and producers to include the user community and service providers. The second business model of the producer is a second source of revenue that the producer generates based on their engineering and earth science capabilities and resources. Both of these business models are critical to the future profitability of the oil and gas producers. And both require substantial changes to the mindset of those people who work within the industry.

Briefly the decentralized production model enables producers to shut-in any unprofitable production and therefore increase their profitability by only producing profitable properties. No longer will their profitable properties be diluted by their unprofitable ones. We do this by reallocating the accounting and administrative resources of the producers into service providers who specialize on one process and use the entire oil and gas industry as their client base. Specialization and the division of labors finest hour. That way when a property is shut-in no information is generated or transferred through our task and transfer system to the service provider to process. Therefore no activities will be invoked by the service providers and no invoice will be presented to that Joint Operating Committee while it’s shut-in. Creating a null operation, no profit but also no loss. Enabling the producer to maximize their profitability, save their reserves for a time when they can be produced profitably, not have to carry the additional costs of subsequent years losses on those reserves and remove the marginal production from the commodity markets, raising commodity prices to the level necessary to cover the total cost of oil and gas exploration and production on a reasonable accounting basis.

The industry is currently configured to have operators and non-operators of Joint Operating Committees. This requires the producer to have the capabilities and capacities necessary to deal with any and all contingencies across their asset base. Therefore, within the producer, there is a surplus capacity built-in to deal with these contingencies. Creating an unused and unusable surplus capacity across the industry. As the sciences continue to expand the demands to increase specialization and expand the division of labor will be necessary. Particularly if the industry is going to expand its production throughput to attain energy independence on the continent. At some point, in the very near future, the diversity and depth of these demands on producers capabilities will further erode their profitability. No producer will be able to afford the full cost of the highly specialized earth science and engineering capability. Therefore we believe, each producer will need to specialize in specific areas and rely on other producers to fill in, either through the Joint Operating Committee, or as another producer, to augment the capabilities that are demanded by the property. The Preliminary Specification facilitates this specialization between producers throughout the industry. These features are captured in the Resource Marketplace, Partnership Accounting, Accounting Voucher, Research & Capabilities and Knowledge & Learning modules.

Therefore within the Preliminary Specification we have developed a Work Order system that captures the time and place that the producers resources are deployed to. The Work Order will collect and aggregate the time that was spent for the property and provide the appropriate billing to the appropriate Joint Operating Committee each month. Therefore these resources are generating a source of revenue that is not being captured currently. As the industry begins trading on these individual producers capabilities they can become highly specialized and divide the labor between the producer firms. This will save the industry from further profit erosion and recapture much of the profit that is lost today when each and every producer is building unused and unusable capabilities and capacities within their organizations.

There is one further consideration that must be taken into account. That is the brain trust that is alleged to be retiring from the industry in the next decade. This may create a shortfall in the critical engineering and earth science areas. These shortfalls may be aggravated by the current downturn as few people are entering the earth science and engineering faculties in the universities. This alone may become a critical issue as it will be many years of demand and high wages to generate the demand that initiates people to make the investment of their time in these professions. It is therefore highly probable that the industry does not have the level of these critical competitive resources available to them in the very near future. The bureaucrats may want to leave this until it becomes a critical issue, after all it would be in their best interests, People, Ideas & Objects tend to see things and act differently.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Vision With Action Can Change the World

The argument is that the scope and scale of People, Ideas & Objects, our user community and service providers is too large or impossible. I’m reminded of the quote by Nelson Mandela “It always seems impossible until it’s done.” And it certainly looks that way when you first grasp the changes that are necessary to the oil and gas industry and producer firms to make the Preliminary Specification operational. Moving from the corporate accounting focus to the Joint Operating Committee demands that everything changes. Nothing and no one is unchanged as a result of the movement of the compliance and governance framework of today’s hierarchies to the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. This change is what provides for the speed, innovativeness and profitability that we desire in the producer firms and industry.

The Preliminary Specification is the codification of the research that was undertaken to determine the “what, how and why” that needs to change to make the Joint Operating Committee functional and operational in the industry. The eleven modules sketch out a workable framework in which two business models are developed for the dynamic, innovative, accountable and profitable oil and gas producer. It is this framework that the user community and service providers will build upon by detailing exactly what they need in the software they’ll use to account for and administer the oil and gas producers. No one will confuse the scope and scale of this effort with the level of difficulty and dedication it will require to resolve. Just as everything in the oil and gas producers changes as a result of using the Joint Operating Committee, no one is immune from the changes in their field of work. Administration, accounting, geology and engineering will all be modified to accommodate the implementation of the Preliminary Specification. The more involved you are from the start of these changes, the better off you’ll be in the long run.

Is all of this necessary? That’s a decision that everyone has to make on their own. My belief is that the current business model of the producers has failed and will ultimately fail catastrophically. There is no opportunity in my opinion to make changes to the current business model that will mitigate these difficulties and bring about the value proposition that we’ve detailed for the Preliminary Specification. We can see the deterioration of the industry to the point where it has and provides no value to anyone other than the bureaucrats. The sum total of the installed base of industry assets is worthless as it demands a cash infusion each and every year to operate. The cost to society so far has been tragic with no remedial actions taken by any producer firm for the past ten years of this downturn. What would compel the industry to act? I don’t believe there’s anything that will instill the need to act. The bureaucrats are fine and they appreciate your concern for their welfare.

Information Technology is disintermediating every industry as we speak. New business models are being introduced that create a new dynamic and greater value proposition for those concerned. Business models which include society as a whole as the stakeholders. Why would oil and gas be immune to these forces. The ability of the producers to hold on in such a desperate situation for such a long period of time is due to the unique nature of the business. As a capital intensive industry it provides a strong return of that capital each and every year. That capital is being diverted, now and in the past, to support a self satisfied bureaucracy. Therefore this situation will continue for some time if the bureaucrats are left to their own devices. They are self interested and unmotivated to kill their golden goose. People, Ideas & Objects have proposed a compelling business case for the transformation of the industry and producer firms. This is not an Information Technology exercise designed to install the latest version of a new operating system or other technology. This is a business focused initiative with a value proposition defined for all of society.

I’m reminded of the quote that I put in the budget for the Preliminary Specification.

Vision without action is merely a dream. Action without vision just passes the time. Vision with action can change the world. 

Joel A. Barker

What are you doing?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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.

Bit's of Scraps Here and There

I am pleased with the presentation that People, Ideas & Objects is able to make on this blog. We have what has to be the ugliest website on the Internet. Since late 2005 when I began writing about using the Joint Operating Committee as the key organizational construct to solve the producers issues, there has been no major changes to the website in any way. The graphics and style are the same as it was in December 2005. It’s been throughout this period that we’ve not received any support in any form from the producers. On the contrary, I have been treated with the repeated beatings with the baseball bats out by the dumpsters, attempts to circumvent our Intellectual Property and a general lack of respect. Which I hope I’ve been able to return this good will in equal measure and give as good as I get. I’d also like to think that I’ve been able to do some valuable work here in the research and presentation of the Preliminary Specification. Our wiki be the other unappealing website. All in the attempt to resolve the issues that the bureaucrats have made so prevalent in so many people's lives. Therefore I have no plans in which to make any changes to these sites anytime in the future. And truly hope the bureaucrats are as humiliated as I hope them to be. Where their solutions to their issues and opportunities are being resolved without their support on the ugliest websites in the universe.

The 10 year U.S. bond closed at 2.83% on Friday. Waking the markets to the very real possibility of substantially higher interest rates and the repricing of all assets. This has the potential to take the “lofty” out of the oil and gas producers stock prices and bringing them down to reality. Not only would it reprice the stock for the investor, higher interest rates would increase interest costs. Our argument is that producers are heavily indebted as a result of recording every cost as a capital asset. As those assets have grown, so has the appetite to borrow money against those capital assets. Not many producers appear over indebted at this time. However, if you consider the bloated nature of property, plant and equipment you should ask yourself if these organizations can sustain an increase in interest costs.

There were two difficulties in the Initial Coin Offering market that occured last month. These will ultimately delay our ability to source any funding, however over the long term, I believe these to be positive developments that will work to improve this financing vehicle for us. The first was the theft of $530 million U.S. in Japan from coin holders accounts. Thefts have been an issue, particularly during the process of the Initial Coin Offering. Steps are being taken to resolve these issues and remedies should begin to make this less of an occurence in the latter part of 2018.

The second issue was the stepping in of regulators to shutdown an ICO seeking $1 billion under false conditions. $600 million had been raised when the SEC stepped in and is seeking to force the return of the investors money. The following comments were made by the SEC Chairman.

In December, SEC Chairman Jay Clayton had harsh words for ICOs after the agency shut down an offering. Clayton said in a blog post that despite claims of not being subject to regulation, many of the digital coins were in fact securities and thus subject to the agency’s authority.

I believe that initial coin offerings – whether they represent offerings of securities or not – can be effective ways for entrepreneurs and others to raise funding, including for innovative projects, he said.

However, any such activity that involves an offering of securities must be accompanied by the important disclosures, processes and other investor protections that our securities laws require.

What is clear is that large amounts of money are now being raised and managed by these coin offerings. Creating a new source of capital for innovative projects. This is consistent with my thinking that coin offerings will grow to be capable of funding People, Ideas & Objects development budget. With the appropriate SEC regulations and bug fixes we will be able to offer our Permission Rights.

If interest rates doubled in the next year, that could put the oil and gas producers in serious jeopardy. Adding a second serious issue to the pile of unaddressed issues. Their capacity to raise equity at today’s high valuations is not generally possible. At a lower valuation, which in this scenario may be half of today’s stock’s price, there will be more investors angry with the performance of the stock and wanting to get out. Raising money may be twice as hard. It might be prudent for the oil and gas producer to consider that the amount of capital sitting in property, plant and equipment is the source of their cash for the foreseeable future. Assuming of course that they can process these bloated balances out profitably through their use of the Preliminary Specifications decentralized production models price maker strategy. Which can be easily done by buying our coin offering, which would provide them with the full value of our value proposition, sounds like a good investment to me.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Capacity to Spend and Degrade Deliverability

When natural gas prices crossed the $3.60 barrier last month I thought for sure the producers had it within their power to fix this overproduction problem for good.😏 After all it’s been ten years that these prices have been depressed and the natural gas producers could use some luck and finally get a break! Then on January 30 a drop to $3.14 and all the hopes and dreams of so many bureaucrats evaporated. Only to realize a further 7% drop the next day followed by another 5%. With an increase of two natural gas rigs the market felt that maybe that was too much and took it that, once again, the oil and gas spenders were on the march. The capacity to spend money isn’t that highly valued in the business community. Producers should understand that the real value investors are looking for is the capacity to earn profits. Which is light years more difficult to attain than spending money.

Chesapeake laid off 400 people last week. Which means earnings season is upon us with the first of our sample of 23 companies reporting last Friday. The need to appear active by reducing the headcount always looks good just before a bad earnings report. We’ll have our usual summary of the state of affairs in oil and gas when everyone has issued their financial statements. It’s just that it doesn’t seem to matter as much this time. No one seems to be believing what the producers are saying about their business. Commodity prices rise and the producers are out spending as fast as they can once again. We’ve seen this movie several times now and know how it ends. It will be fatal again for all those that depend on a healthy and profitable oil and gas industry. The only people who never seem to be affected by these downturns or general malaise are the bureaucrats and their Ferrari dealers.

Of course what I’ve prescribed in the Preliminary Specification is nothing but painful, hard, difficult work for those involved in the industry. Some might argue that our budget is an impediment to overcome too. I think that our value proposition of $668 billion for 2017 alone, and each of the next 25 years is where the real costs are, in bureaucratic inaction. The bureaucrats may be searching for that 15 minute solution that they believe will resolve their trillion dollar issues. And there is always the possibility that they will find it. I’m not so foolish as to suggest that these issues can be resolved easily or with a fist full of dollars. If this overproduction and oversupply issue is not currently the biggest issue in the history of the oil and gas industry, then I am not aware of what greater peril could be faced by the producers. As a bureaucrat it’s easy, in a capital intensive industry, where your investments are returned to you constantly, to make up the cash flow necessary to keep yourself happy, the lights on and rent paid. There is however so much more that the oil and gas industry has a responsibility to.

We documented the obligations that our $668 billion / year value proposition is responsible for and to whom. The royalty holders, Federal and State income taxes, the service industry representatives who are so critical to the success of the oil and gas industry, and the people who work in oil and gas who are made to suffer unnecessarily under this self interested bureaucratic regime. These stakeholders are all having difficulty financially and otherwise, and unnecessarily so as a result of the inability of the oil and gas producers to act. Producers who spend money as the core of their business strategy have an inward looking perspective where the rest of the industry is of little or no concern. It’s a simple matter of determining what the cash balance is at the beginning of the day and be sure to have that spent by the end of the day. Repeat for each working day. So when the commodity inventories bloat and the prices collapse it’s obvious to everyone that these events have nothing to do with that producer. They are innocent of any involvement or responsibility. When others, such as People, Ideas & Objects makes recommendations such as the Preliminary Specification, it is these internally focused spending machines that work to ensure that no one recognizes that any issue exists and do everything to silence those that upset the status quo.

This situation has been the day to day operation of the oil and gas industry for the past decade. Nothing has been done to resolve any issue whatsoever. Stories and fables have been told as to what the producers were doing to resolve the situation throughout those last ten years. Clearly nothing has been effective. Producers have created the phenomena of “market rebalancing” to reflect the activities they “undertook.” This term reflects their inaction, and desire to let the productive capacity of the industry degrade to the point where it “balances” again. Deliberate destruction. Brilliant! Usually when commodity prices rose during these past ten years my audience on this blog would fade noticeably. Only to return when the commodity prices collapsed again. This time seems to be different in that the commodity prices are up, yet so is my audience. I’ve also noticed in the past that when prices rose the producers stock price rose. And when prices were declining this led to the decline in their stock prices. Now stock prices just go down based on any direction the commodities are moving. It just seems to me that no one is listening to the producers anymore. We’ve seen this movie so many times and there is so much destruction, why are we believing those who choose to do nothing about it?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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

Oh, and Cash Flow Too

We have been focusing on the implications of the capitalization policies of the oil and gas producers. We know that oil and gas producers, by capitalizing as much as they possibly can, overstate their earnings and the size of capital assets on the balance sheet of the enterprise. We also discussed how the overinvestment in the industry is one of the largest costs that an enterprise can incur. And by far the largest cost that any producer or industry can incur is the deployment of that overinvestment, or the over capacity being deployed in continued production. Causing inventories to swell and pricing power to be lost within that industry. These are the lessons that should have been learned by the oil and gas producers in the past ten years since the financial crisis. A time when the shale gas volumes began to erode the natural gas prices. What other distortions and costs are the results of the systemic accounting distortions the producers report. We’ve spoke about cash flow, however that was a while ago. I think it is worthwhile to review that discussion and reiterate what it is that People, Ideas & Objects believe to be a more appropriate capitalization policy for the oil and gas industry. 

It isn’t doing the oil and gas producer or industry anything productive to have their capital assets accumulate and be recognized in the manner that they are today. On the contrary it is beneficial for them to recognize their costs in a more timely manner to ensure that they are deploying their capital more efficiently. Bloating their balance sheets has enabled the overinvestment and overcapacity to build over time. If the producers were recognizing their costs, which today are predominately capital in nature, on a more timely basis they could avoid these distortions and eliminate these hidden costs that are detrimental to the performance and productivity of the industry. They would also return their capital investments to the firm in the form of cash, assuming they sold their products profitably.

If People, Ideas & Objects method of capitalization was implemented the overcapacity and the loss of pricing power, in terms of costs, would disappear and as a result the performance and productivity throughout the industry would increase. Our policies would include a review of the producers capital to determine which expenditures were made for the purpose of maintaining the production profile and which expenditures were made to expand the production profile. Designating those that maintain the production profile as operations irrespective of the type of expenditure, drilling, completion or equipping. We would also review the type of expenditures that were made. The intangibles would be expensed in the current period for all drilling and completion. Only those physical assets with serial numbers and secondary markets would be classified as capital assets. This is a fundamental rethinking of the capitalization of the oil and gas producer. One in which few expenditures ever hit the balance sheet and most costs flow directly to the income statement in the current period. With the price maker strategy an accurate costing of the product is attainable to ensure that the costs of oil and gas exploration and production are accurately passed onto the consumer. And capital is returned to the producer for reuse in the form of cash.

Cash flow under the current bureaucrats methodology is therefore substantially overstated. If everything is capitalized then nothing is deducted in the current period of operations and therefore cash flow is high. The valuation of the oil and gas producer will therefore be high as well as a result of the markets assessing them at approximately six times cash flow. Therefore this change in the capitalization policies would have a detrimental effect to the valuation of the oil and gas producer. That is it would be detrimental if the change in capitalization wasn’t made with the implementation of the price maker strategy at the same time. The price maker strategy would ensure that all production everywhere and always is profitable which would imply that “appropriate” cash flow was maintained.

The point of this exercise is to ensure that the producer is recognizing their costs and passing those to the consumer on a timely basis. This does one thing very clearly. It shifts the burden for these costs from the oil and gas investor to the oil and gas consumer. It will be the consumer that is paying the full cost of the oil and gas they consume. There will be no more subsidy to the consumer as a result of the capital investment made by the investors sitting on the balance sheets of the producers for decades hiding the actual cost of oil and gas from the consumer. Turning over the capital of a producer today is measured in the number of ice ages they’ve passed through. Which is ridiculous. The need to have this capital returned as quickly as possible is a key to the dynamic, innovative, accountable and profitable oil and gas producer. No other industry has their hand out for more capital to be spent every year. Usually there is an IPO and further distributions as a result of some business combination or merger and acquisitions. Carrying and backfilling the producers cash needs each and every year is a fools game that was facilitated by the oil and gas bureaucrats deception. Which they did by issuing specious balance sheets, growing profits and cash flow statements that we can now see in retrospect never existed in reality. Now the only deception is the bureaucrats thinking they can still run the same scam for a few more years before they retire. I could be wrong but I don’t think investors are falling for it.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Another Teachable Moment

One of the most costly aspects of business that an enterprise can incur is the cost of surplus capacity. It is the cost of capital that has been unproductively deployed. The only thing more costly than surplus capacity is if the enterprise continues to employ that surplus capacity and incurs inventory bloat leading to price declines. Luckily we have this problem in oil and gas for the past four decades and therefore this becomes what they call a teachable moment. This assumes that any bureaucrats are reading this blog which is highly improbable. Let's assume for a moment that oil and gas production needs to be scaled back by 15% in order to maintain the prices that are profitable and the market finds its equilibrium at those prices. A 15% reduction in all of the costs of the industry is not going to happen. The capital cost, which is the point regarding surplus capacity, is substantial and was unnecessarily incurred as the market doesn’t exist for that 15% surplus capacity of oil and gas. That shut-in production in terms of its capital cost is the cost that the producers have to carry as a result of overbuilding their capacities. The situation we have today, which in a capital intensive industry is particularly acute.

That we don’t notice this cost is as a result of the fact that the surplus capacity is producing at all times. Leading to the overproduction situation that has slaughtered commodity prices. The cost of this is adequately represented in our value proposition which we calculated at only $668 billion for 2017. If the capital employed by the industry is $1,620 billion then 15% is again only $243 billion. One of the most amazing aspects of these two costs is that these have been pointed out to the bureaucrats consistently, with the appropriate solution on this website, for many years now. Probably better than a decade in fact. Yet nothing has been done about the surplus overproduction, the oversupply or the over capacity. What has been done has been a successive series of attempts to deal with the individual who keeps writing about these issues.

We however should give full credit to the bureaucrats for their ability to snow the media with their claim of being innovative throughout 2017. Claiming that they had reduced their costs of capital by innovating on the method of drilling and completion. This stretch of the imagination has to win the grand prize of them all. There is no doubt that the producers were able to generate concensions from the service providers to have their wells drilled cheaper. However to suggest that this was a reason for the reduction in their overall costs is hideous. A producer may have about 5% of their wells in progress in any one year. The other 95% are completed and the costs for those are historical. You can’t do anything about the historical cost of what you paid for your car, and they can’t do anything about the historical cost they paid for a well two or ten years ago. What they did do in order to make it appear they were “innovative” was reduced the amount of depletion per barrel being recognized in 2017. The only thing that surprises me here is the ability of all the producers to sing from the same hymn sheet! The question is, when all the bureaucrats act in the same manner to deceive their shareholders, is that collusion?

And of course the bureaucrats were busy throughout the year cutting the number of pencils, Post-it-Notes and people they used in their organizations. These were the costs that occupied the little minds of the bureaucrats. Meanwhile they let the two largest costs that an organization can ever face let loose on the industry to reap their destruction. It’s almost like they didn’t understand where their money was going or their costs were! I’m sure they’ll figure it out soon. Acting to change the situation will however never be done as that requires action and that is something that hasn’t been seen in the industry for many decades.

Is it still the myth of “market rebalancing,” a phenomenon known only to oil and gas, and no other business, or economist in the world? Or has the oil price increase been attributable to the volume of oil that the Saudis and OPEC removed from the market with their production sharing agreement. I’m certain the bureaucrats would never accept that Middle East interests would have anything to teach them. It’s much like the Preliminary Specification, logic is difficult for them to comprehend. It's also so much easier to just mouth the words “market rebalancing” then deal with their two largest costs.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Profitable Production is not Collusion

When People, Ideas & Objects introduced the Preliminary Specifications decentralized production models price maker strategy. The oil and gas producers believed we had become the antichrist. Our price maker strategy was the last thing that they would ever consider. I was so surprised at the response that this idea had generated. As a result what we learned from this over the top response was that the price maker strategy was the solution to the issue at hand. If the bureaucrats didn’t believe in managing the supply by only producing profitable production, then they were the cause of the boom and bust cycle in the industry. I have to say that since that time we have come along way from the knee jerk reaction of the bureaucrats. To where the man on the street can see, and has ample evidence that both the commodities of oil and gas are subject to the principles of price makers. That the Saudis and OPEC have taught us a valuable lesson by implementing their production sharing agreement.

We are not implementing any method of collusion between the oil and gas producers to raise prices. We are seeking to find the marginal price by ensuring that all oil and gas production in North America is produced profitably everywhere and always. If it is not profitable then the property will be shut-in until such time as the producer is able to innovate on the costs, the production or reserves and return the property back to profitability and production. While any property is shut-in, as a result of the reorganization of the industry and producer that is undertaken by implementing the Preliminary Specification, it will incur a null operation. No profit, but also no loss. If only producing profitably is collusion then the “market” system is a means in which to collude. A ridiculous assertion and one the bureaucrats should be embarrassed to have considered and still supporting today.

Why don’t the bureaucrats implement the price maker strategy today and forget about the Preliminary Specification? Simply they can’t. They certainly know what the revenue, royalties, operating and capital costs are for each property. The difficulty is that all of the overhead that is incurred by the company is captured in the corporate overhead accounts. These are subsequently cleared by a large percentage, maybe 80% on average, to capital in the property, plant and equipment account. As a result only overhead allowances are charged to the individual properties. These overhead allowances distort the costs of the properties and no one knows the real costs to administer and account for a property. These distortions occur in two primary ways. Operators of properties are incurring all of the overhead on behalf of the non-operators who only pay their share of the allowances. And natural gas may be 5 - 6 times as difficult to administer and account for than oil.

Overhead allowance enable the properties to show a relatively equal amount of overhead being incurred at each property by each producer. The facts however as to how much overhead is incurred at the property are unknown and under the current systems unknowable. These overhead allowances overstate the profitability of the property and do not recognize the actual costs of operations. The actual costs of overhead are capitalized and appear immaterial, however, when determining what produces and what would be shut-in, the fudging of the numbers at this scale is unacceptable. It leads to the situation, somewhat like today, where every producer claims all their properties are profitable all the time. Hence the policies of capitalizing overhead and interest.

People, Ideas & Objects Preliminary Specification corrects these distortions by reallocating the administrative and accounting resources of the producers into service providers headed up by members of our user community. The service provider will focus on one process and have the entire oil and gas industry as their client base. Using specialization and the division of labor, automation, innovation based on administrative and accounting expertise and having the computers work for us as their competitive advantages. Then if the property produces the service providers will receive that data through our task and transfer network. Complete the work that is needed for that property and then generate an invoice for the services that were provided to the individual Joint Operating Committee. If the property doesn’t produce then no data will be sent through the task and transfer network and as a result no work will be conducted by the service providers and no invoices will be generated. Creating the null operation for shut-in properties. It will be in this way too, that the producers will be able to focus on their unique competitive advantages of their land and asset base, and their earth science and engineering capabilities.

By implementing the Preliminary Specifications decentralized production models price maker strategy across the industry. We eliminate the overproduction that is created through the need to ensure that all of the overhead is covered. The Preliminary Specification converts the producers fixed overhead into the industries variable overhead based on production. And by doing so the producers will no longer have their unprofitable properties dilute their profitable properties. Save their reserves for the time when they can be produced profitably and ensure that they do not have to carry the additional costs of successive years losses to be earned in subsequent years. And the commodity markets will find their marginal price when the unprofitable production is removed from the commodity markets. This is how businesses operate. You don’t see GM overproducing continually. When demand is expected to decrease, they scale back production before their inventories bloat. It is constant throughout business and is not collusion. Oil and gas producers have used this lame excuse long enough, it's time to operate the oil and gas industry as a business and not as the bureaucrats piggy bank. OPEC has taught them a lesson about price maker, it's time for the industry to implement it.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Has to be the Users

Since the time we published the Preliminary Specification in December 2013. People, Ideas & Objects have focused on the development of our user community. They are our customers as they’re the ones who will be using the software through their service provider organizations. They will be the ones that are defining and developing the solutions that they need to conduct the administrative and accounting functions for the oil and gas industry. Providing them with the most profitable means of oil and gas operations.

The value of the Preliminary Specification is not just the idea of using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable producer. People, Ideas & Objects subsequently completed ten years of research into what the industry and producer would look like if we adopted the Joint Operating Committee. The outcome of that research is codified in the Preliminary Specification. Therefore user community members are not only getting the benefit of the idea of using the Joint Operating Committee but also the research that went into ensuring the idea was functional, fully tested and usable. Building from the foundation of this idea and research will be the work of the user community that I am expecting will begin sometime in 2018.

It is our user community vision that has control over the Intellectual Property and the derivative works that they prepare. At no time will People, Ideas & Objects developers look to, or take direction from anyone other than the user community. They’re our sole provider of understanding and direction with respect to the applications that we build. Producers will engage with the user community in order to have their issues and opportunities dealt with and developed. It is these two critical components that make up our user community vision. The user community controls the Intellectual Property that make up the applications and People, Ideas & Objects will only look to the user community for any developments. It is in this way that the user community has the power and authority to make the changes in the industry that are, and will be necessary.

What we can not have is the situation that the producers have created in the ERP space today. Where most of the time nothing happens in terms of developments of the software applications and the software vendors that do operate are being led by the small change that falls out of pockets of the producers. These software developers have become effectively blind sleeping walking agents of whomever will feed them. Bureaucrats have learned that software seals their fate and therefore any changes to something like the Preliminary Specification would render them redundant. The bureaucrats can no longer determine the method and means in which the software and developments are undertaken in oil and gas. If the Preliminary Specification has the value proposition we’ve discussed here today, what will it be in the future? How will that value proposition be generated and when? It will be the user community that determines where that additional value is available and generate it throughout the industry through changes in the software that they’ll develop. Which is what our user community vision enables, the power, authority and control to do so. Providing the oil and gas producer with the most profitable means of oil and gas operations is not a fixed destination. We will iterate on the software that we produce based on the ideas and thinking that the user community determines is the best direction of the oil and gas industry. This will be the key role of the user community. Continuous value added profitability for the oil and gas industry.

This is where People, Ideas & Objects Revenue Model comes in to play. The coin holders that we’ll be sourcing our budget from to build the Preliminary Specification will be earning their 33% share of the value proposition through their permission rights. These revenues will support the payment of a variety of costs, of which the cost of the software is one. Included in the cost of the software is the user community. People, Ideas & Objects as the licensee of the Intellectual Property will collect these funds and distribute the user communities share.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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.