Innovation and the Production Profile
With the Preliminary Specifications decentralized production models price maker strategy all of the producers costs become variable. With the service providers charging the fees for their services directly to the Joint Operating Committee based on the activity at the property. If there is no production none of the data that triggers the service providers to conduct their processes are generated and hence no work is conducted and no billing is issued. No revenues, royalties, operating costs or overhead are incurred as a result at the property which therefore incurs a null operation. No profit but also no loss. We’ll get to the depletion of the specific property in a minute. While in the producers inventory of shut-in properties these unprofitable properties will become the innovative focus and priority of the earth science and engineering capabilities of the producers. Enabling the property to either increase its throughput, reduce its costs or expand its reserves which will return it to profitable operation. These innovations will coincidentally reduce the marginal cost of the commodities that are produced by the industry providing the lowest, profitable prices possible to the consumer.
Throughout our discussion, People, Ideas & Objects have suggested that the Preliminary Specification will employ an accelerated depletion schedule. Retiring the capital costs incurred by the property within the subsequent 30 month period. Therefore each month there would be an equal charge for the retirement of that capital on each property to account for. Note this would be a unique calculation for each producer, and the depletion of the capital costs is not a charge to the Joint Operating Committee. Taking 1/30 of the initial capital costs as depletion would be made each month that there was production. During those months that there was no production, as a result of being shut-in, there has been no depletion of the reserves, therefore it is reasonable for the producer to account for no depletion that month either. Making all of the producers cost at that Joint Operating Committee variable. Subject to the producer firm fitting their total of property, plant and equipment under their ceiling test. Which in theory would not become an issue due to the fact that none of the unprofitable reserves were produced and are still supporting their capital costs in terms of qualification under the ceiling test. Note too, that the most competitive producers would have eliminated the majority of their property, plant and equipment account due to producing at the higher percentage of their production profile.
Therefore the focus on the key competitive advantages of the dynamic, innovative, accountable and profitable producer are what will make them the most profitable and prosperous. Those competitive advantages are simply their earth science and engineering capabilities, and their land and asset base. Nothing more and nothing less. Administration and accounting are not the competitive advantage of any of the producers and by moving these resources out of the producers into the independent service providers provides the conversion of all of the costs of the producers properties into variable costs based on production. Making it profitable for the producer to shut-in those properties that are not profitable as a result of too low of commodity prices. Enabling them to save those shut-in reserves for a time when they can be produced profitably. Not subsequently having those unprofitable properties having to perform higher in order to offset the losses that would have been incurred if they were produced unprofitably. Increasing the producers overall profitability as a result of the losses that would have otherwise been incurred no longer diluting their profitable properties. And lastly, enabling the commodity markets to find the marginal costs each month based on the market response of each producer making the independent decisions to produce or not based on each individual properties accounting information of its profitability.
This is an important role for innovation to take in the profitability of the producer firm and the properties that are owned. It is also an important role for which the consumer will realize the lowest possible commodity prices that will sustain and allow the oil and gas industry to prosper. If the demands for capital range in the $20 to $40 trillion for the next 25 years the question has to be asked who will provide those resources? It is this methodology of the Preliminary Specification that ensures the capital costs are appropriately retrieved from the consumers and the industry remains profitable everywhere and always as a means to secure the long term supply of oil and gas. What right do we have to produce oil and gas unprofitably today? How will we justify this current excessive unprofitable consumption to the future consumers of oil and gas? Innovation in oil and gas is an important role in the industry, the producer, the consumer and society in general. An industry and producer that continues to dump more and more oil and gas production on to the markets with little to no understanding of the impact on the commodity prices, will not be justified or accepted much longer in my opinion.
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.