What I Mean by "Overproduction"

What has become clear to me is that there’s some confusion about how I’m using the term “overproduction.” What qualifies as overproduction and how it’s measured. In our White Paper we note that the economic principle is summarized as “overreported profits attract overinvestment which creates overproduction.” This is also defined in educalingo.com as:

In economics, overproduction, oversupply or excess of supply refers to excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment. The demand side equivalent is underconsumption; some consider supply and demand two sides to the same coin – excess supply is only relative to a given demand, and insufficient demand is only relative to a given supply – and thus consider overproduction and underconsumption equivalent. Overproduction is often attributed as due to previous overinvestment – creation of excess productive capacity, which must then either lie idle, which is unprofitable, or produce an excess supply.

Simply overproduction is unprofitable production. We know the price of both oil and gas have been fundamentally destroyed by oversupply. We know that producers' cash and working capital balances reflect their chronic unprofitableness. I guess the question therefore would be has anyone seen any underemployment in oil and gas lately? What we have in the last sentence of this definition is the issue that North American producers should be most concerned about. We should all be able to agree that the prices of $61.21 and $2.183 that were realized at the end of 2019 were inadequate to sustain the industry. Producers reported profitability however cash was being consumed. If we assume that the prices necessary for existing North American producers to be profitable is $100 that implies that 145 mm boe / day is more supply than the market would bear at that price. Let's also assume that the price destruction reduces consumption to 110 mm boe / day. A 35 mm boe / day overcapacity that would need to be shut-in, or, in order to attain the North American, profitable everywhere and always price of $100. No one knows what the numbers would be; these are all assumptions for the purpose of showing the example of the situation that the North American producers find themselves in. There is a surplus in this example of 35 mm boe / day that is unproductive, leading to chronic unprofitability across the 145 mm boe / day.

As the quote suggests the “creation of excess productive capacity, which must then either lie idle, which is unprofitable, or produce an excess supply.” This excess 35 mm boe / day supply we are finding, in an environment where the energy prices are price makers, not price takers, is even more unprofitable than the idle capacity. The reason being that it has reduced the price substantially enough that the gross revenues of 145 mm boe / day are lower than the 110 mm boe / day. The issue of idle capacity, or the current North American producers unrecognized capital cost of past production as we call it, is a cost that is not eliminated completely from the market. Although the Preliminary Specification makes all the costs variable, creating a null operation. The capital that was used to generate the surplus capacity has an implied cost that must be accounted for, in this case, by the North American producer. Surplus capacity is one of the highest costs a firm can incur, are horrendous and are the toxic waste that will eat away at any company over time. Although producers claim their costs that were once $60, then $50, and $40 then $30 are mysteriously able to reduce the “historical” aspect of their costs, these costs in fact have not been reduced. The legacy of these unrecognized capital costs of past production will be carried by the existing producers until such time as their production is able to retire these costs. Which based on producers depletion schedules is around 2050. Therefore they’ll be in this depressed economic environment they’re in now until the time they are able to deal with and eliminate the implied capital cost of their surplus capacity. 

However, PI&O looks at those surplus capacity costs differently than the North American producers do today. They are the amount of the discount in energy prices the consumers were provided as a result of the investors in these oil and gas producers paying the capital costs of past consumption. Consumers paid the operating costs and investors generously paid for the capital costs on the consumers behalf. They did this when they fulfilled their role of providing the annual capital infusion, then producers capitalized everything to their big, bold, beautiful balance sheets for eternity. The Preliminary Specifications price maker strategy provides a go forward mechanism for the industry to produce profitably everywhere and always. However it also provides the existing producers a means to exit the dilemma of surplus capacity costs they’ve created for themselves. The unrecognized capital costs of past production that has been incurred to generate their overcapacity might haunt them to the end of their days, or alternatively they could join PI&O et al who’ll provide them with our price maker mechanism necessary to recover those costs, by finally recognizing these capital costs of past production and proceeding as a profitable industry. If not PI&O et al will rebuild the industry brick by brick, and stick by stick without them. 

It is in our White Paper that we identified these unrecognized capital costs of past production as the only residual value remaining in the industry. The amount of these unrecognized capital costs, or the prior consumer discount, can now be passed to the consumer through higher prices in our price maker strategy. Turning big, bold, beautiful balance sheets back into cash. Making up for past producer sins and rehabilitating the financial condition of the current producers. Or, we’ll rebuild the industry brick by brick, and stick by stick from the ground up on the basis of a new competitive cost structure. Mostly through purchasing properties at steep discounts from cash starved and desperate bureaucrats. And in turn defining a substantially lower commodity price that attains profitability for those new producers derived from the Preliminary Specification. Which will permanently preclude the existing producers from ever recovering their previously unrecognized capital costs of prior production. Either way producers will be looking at removing those costs, they can do so early and deal with their surplus capacity difficulties with PI&O et al, or they can continue to cling to the few remaining drowning victims for a few more decades as they sell off what they built for pennies on the dollar. 

Clearly their situation will not be rectified by any coronavirus stimulus. Their damage is a result of four decades of overinvestment that will resist resuscitation of the industry in any form by the current status quo bureaucracy “muddle through” strategy. There should be no doubt about this and the fact is clear the situation as it stands today is terminal. We can declare it terminal today as it doesn't have any capacity to recover, or we can sit and hope it comes around for the next decade or so. The bureaucrats are down to their last drowning victim in the Federal government and the ability for them to act is constrained by some producers who resist, wisely, government involvement in the industry. Which brings up the question regarding Exxon. With 6.1 million barrels of oil equivalent in daily global production, nothing will happen without them. What the existing North American producers will need to do then is wait until such time as Exxon is out of business too. Again, the rebuilt industry under the Preliminary Specification on a brick by brick and stick by stick basis will be highly cost competitive in terms of their capital costs, in a capital intensive industry, in comparison to existing producers. Therefore this lower capital cost structure will be holding any upside on capital cost recovery for the existing producers due to a continuation of lower oil prices, lower but still profitable to the new producers, and drawing out the pain of the demise of the old producers, that is of course unless they join us.

A quick note to realize the Saudi’s and Russians will not be making much difference to the oil price or to anyone. With the decreased demand in consumption the effect that they were seeking by starting their “price war” has been expanded exponentially. And is far outside of anyone's control. I think the same can be said for any real or tangible assistance to the North American producers from governments. The need is not there as it is in the hospitality, medical and other industries. However producers are now claiming that “our energy independence and national security depend upon it.” The coronavirus stimulus is not designed to rectify the damage that bad management created over the past number of decades. However, from what I’ve seen these past two days, people are beginning to come out of their self-imposed lock-down and exercising their freedom to enjoy life again, at six feet’s distance or more.

My argument is that it’s time to quit thinking about what other drowning victims bureaucrats can cling too, and begin rebuilding the industry brick by brick, and stick by stick by initiating and funding the Preliminary Specification. That way bureaucrats could admit their mistakes leave the industry and say they did something productive to remedy these issues. What I’m suggesting is that bureaucrats just leave. There is little damage that’ll be done if they did leave and only continued damage if they stay. They’ve done enough, we'll take it from here. Before they go just initiate the development of the Preliminary Specification and raise the budget to do so. And then go.

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Links to White Paper and Preliminary Specification

On April 4, 2020 we found that our url shortening service was no longer in service. Hence all the url's to the White Paper and Preliminary Specification throughout this blog no longer function. We have since joined bitly and are using the following. 

For the:

White Paper,    Profitable, North American Energy Independence -- Through the Commercialization of Shale    https://bit.ly/3aIds4VWhitePaper

Preliminary Specification    https://bit.ly/3aOXTsgPreSpec

Preliminary Specification Preamble    bit.ly/2wdjHP0Profit

User Community Vision    https://bit.ly/39OLovvUserComm

User Community How to Join    https://bit.ly/39EN1f7HowToJoin

Service Providers    https://bit.ly/2x2jrCUSerPro

Budget     https://bit.ly/349TZYhBudget

Revenue Model    https://bit.ly/2xQ5EiGRevMod

Initial Exchange Offering    https://bit.ly/2X7jwzSIEO

We apologize for any inconvenience.

A Vision and a Plan to Deal With the Largest Oil and Gas Issue, Ever

The unaccountable nature of our good friends the bureaucrats will continue. There should be no doubt in anyone’s mind that this is the case. Professor Thomas Sowell said “It is easy to be wrong - and to persist in being wrong - when the costs of being wrong are paid by others.” After fighting them since 2003 on these very issues it is obvious that bureaucrats will not change even in the face of negative oil prices on a wholesale basis. It’s not their money that they’ve destroyed. It’s not their livelihoods that they’ve destroyed. And it’s not their careers they’ve destroyed. These bureaucrats do thank you for your expression of concern, but can assure you that they’re fine. Identifying them as I have for these past decades as the culprit of this destruction was easy, they were the ones responsible. Can anyone doubt that now? They had the authority to deal with the issue and institute any remedial action necessary, for decades. As we’ve seen now after more than a decade of excuses and blaming others, there is nowhere for them to hide. We all need to tell them to leave. We don’t want them, they provide no value, and are a drag on the performance of the industry. But before they leave they need to show some remorse and apologize to those they’ve damaged so extensively by instituting and funding the Preliminary Specification. Then when they leave immediately after they can say they did what they could to fix the mess they made. They set in place a plan and strategy to build a future and removed the problem from the industry. This is the only way in which the industry is going to heal itself. If you doubt me, we can wait another year and see what happens then, but I suggest action.

PI&O’s Preliminary Specification, user community and service provider organizations provide a comprehensive vision for the next 30 years. One in which the oil and gas industry is dynamic, innovative, accountable and profitable, everywhere and always. A vision and a plan for 30 years that once adopted, will have people rallying, including investors, to oil and gas. The key here is the investors. They invest in the future earnings and cash flow of what they see the industries plan, strategy and vision can provide them. They will provide the capital for that and be somewhat patient for a year or two for that vision to manifest itself. People are the same. If they see that an industry is vibrant and there are opportunities that are fresh and exciting they’ll want to get involved. And what about OPEC+, if they saw the Preliminary Specification, its user community and service providers being funded and built would they continue with their full production strategy? This is how we begin to rebuild the oil and gas industry brick by brick, and stick by stick. Which is the only opportunity that we have available to us at this time. So much destruction has occurred that any attempt to tinker with what exists today will only fail due to cultural inertia, and would carry a significantly lower probability of success than the Preliminary Specification provides. The Preliminary Specification has been actively promoted here and through our White Paper since December 2013 and July 2019. The cognitive dissonance that these have created in the industry are adequate for our needs to start the development of the user community working on identifying and specifying exactly the details of the systems they want and need. Brick by brick, and stick by stick.

We have claimed throughout the Preliminary Specification and this blog that the issue we resolve is the largest administrative and accounting issue the oil and gas industry has ever faced. Thanks to our good friends the bureaucrats it has now become the largest issue in oil and gas, ever. We should all be pleased to be able to work towards this solution and build the new oil and gas industry, brick by brick, and stick by stick. This time of great upheaval and crisis is our greatest opportunity for the individuals with the knowledge and capability to complete these tasks. Build a stable, financially capable industry that is well managed and robust which provides affordable, abundant but profitable energy for the next three decades. Crisis is the point in time where opportunities are at their greatest. Our user community members, with the roles and responsibilities that we recently detailed, can begin this process. They will be ground zero in terms of where and how this rebuilding process begins. This is why they must be endowed with the resources that PI&O have established in that community. That is the way that it will be done in the highest quality, fastest and most efficient way. Using the capitalist system with thousands of entrepreneurs applying their knowledge and capabilities in new, exciting and innovative ways.

Bureaucrats, here’s your chance to prove to everyone that you didn’t do this deliberately to line your own pockets. That you didn’t do it out of greed and self-interest. Before you leave the stage make the commitment to build the Preliminary Specification, our user community and their service provider organizations and secure the funding for the whole project. That way at least you can say you did your best and your legacy will have at least one positive element in which you can sail into retirement.

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Production Allocation Based on Profitable Production

I thought that I would start with some good news first for once. This is in fact excellent news and something everyone should know and understand. What is the plan and strategy for the energy industry? As it stands with the bureaucrats it appears to clutch onto any other drowning soul. That doesn’t mean that’s what’s going to happen. If the Preliminary Specification, our user community and their service provider organizations were adopted by the industry, its plan and strategy inherent in every aspect of our software and services would be seen by all concerned as positive for the future of oil and gas. Investors would see a dynamic, innovative, accountable and profitable industry being rebuilt from the ground up and look to position themselves immediately to earn their future profits there. People would look to the industry with renewed interest and seek the opportunities that a dynamic, innovative, accountable and profitable oil and gas industry offered. And what about OPEC+. If they saw the industry rebuilding itself in the vision of the Preliminary Specification et al, would they continue to erode their future prosperity? These may not all be available immediately today but will be obvious in the next few years and provide everyone with the opportunity to realize a future career or business in which to base themselves upon. This situation we are in today is a terminal situation for the bureaucrats and we should cheer their final demise as a positive attribute. The quicker we get moving in the direction of rebuilding our future through this plan, vision and strategy the faster we’ll turn this ship around and become what it is the industry should and we all know it can be. 

Now back to today’s dismal facts. What security or direct benefit do our good friends the bureaucracy seek by having the government dictate production allocations? Wouldn’t that just entrench their administration for that much longer and make it that much more difficult to eliminate them? The one thing I’ve learned is that as far as they’re concerned it is all about them. Why else would so many people have lost so much without even a shrug from these bureaucrats? As far as they’re concerned all of this has been a resounding success!

The fact of the matter is that there won’t be anything left of the North American producers by the end of this month. The bureaucrats' destructive ways have led to the ultimate demise of these producers with nothing left for them. If we assume that North American producers are generating revenues of $10 / barrel net, that there is 40 million barrels of oil equivalent production and their out of pocket cash costs are as low as $30 / barrel; we need to account for the payment of 100% of the overhead that is being incurred each month, overhead that I believe is as high as $15 / barrel. Then each day the industry is flushing $800 million down the drain. For 30 days that cost is $24 billion that they don’t have. At the end of 2019 our sample of 20 producers, representing 10 million barrels / day, had $5.4 billion in working capital, which doesn’t include what was consumed in the first two months of 2020. Banks had already begun to refuse access to lines of credit. And the real kicker is that there is still storage available today! Making May, or post virus hibernation, look like...? Or dare I ask what 2025 is shaping up to look like? 

It would seem more people are beginning to join in on my dire predictions about the state of affairs in oil and gas. As I noted above it didn’t have to be like this, we can turn this ship around quickly. The first quote is from oilprice.com author Mitchell McGeorge who lays it out the best I could have ever imagined. 

The world’s oil markets are at a crisis point arguably not seen in its history. 

With global oil demand curtailed by an estimated twenty million barrels per day due to the coronavirus led shutdown in the world’s economy, the oil war would turn an already dire economic outlook for global energy demand into a catastrophe that could change the energy landscape forever. An increasing number of producers are now losing money on production, wells are being shut-in and in certain areas (e.g. Canada) the oil industry may never recover – a generational destruction of personal livelihoods and the end of a reliable source of national wealth and revenue.

Yes, the economic crisis caused by the coronavirus has severely affected the global oil markets but, the actions of the participants in reaction to this crisis have shown an industry in the grips of a mass suicide.

And

As often the case since 2017, the US is looking for others to do the ‘heavy lifting’ when it comes to the supporting of the global energy market. OPEC and OPEC+ have legitimate gripes that their support of the global oil price through production cuts has directly led to continuance the US shale industry’s exponential production growth.

US shale production has grown to such an extent that it has helped the US eclipse both Russia and Saudi Arabia in becoming the world’s largest oil producer. This has been trumpeted by the US President as the US achieving energy independence. 

To the often-made complaints by OPEC and OPEC+, the US has always cited ‘free market’ forces. How ironic now that there are calls by domestic US shale producers for tariffs, duties and even limits on foreign oil to provide an ‘artificial’ oil price floor.

From World Oil the simple, basic and now obvious comment.

The current oil crisis will see the energy industry finally achieve the restructuring it so badly needs

Of course this has already been painful for many in the industry. The market capitalization of our sample of 20 producers at the end of March 2020 sees losses of $234 billion. Extrapolating that across the North American producers it comes in at about $936 billion. To reiterate that is three months losses just for the investors. It’s not as easy to calculate the losses and pain being realized by others who have been so fundamentally betrayed by the mindless, self-interested bureaucrats, but maybe that's the point. When we first published our budget in early 2014 my discussions with bureaucrats reflected they were confused as to why $8 billion was necessary. Today we see what Mitchell McGeorge calls “The world’s oil markets are at a crisis point arguably not seen in its history” which could no doubt be solved by said bureaucrats for $5 in total. It’s just they don’t want to. That it is such a big issue makes me think we’ve priced our solution in the right ballpark. “Cost benefit analysis” is a term in business that I suggest bureaucrats look up and weigh our budgeted costs against the perceived benefits of actions they didn’t take. 

As Mr. McGeorge noted, producers call for tariffs, duties and limits on foreign oil, and I would add the production allocation deemed necessary from the Texas Railroad Commission are the focus of the bureaucrats today. All of these are unnecessary when we consider the business principles of the Preliminary Specifications price maker strategy. By making independent decisions at each property, based on actual, factual accounting information that determines profitability of the property, then deciding to produce or not is not collusion as the excuse-a-minute bureaucrats make it out to be. You would not be colluding with anyone, you would be running a profitable business. It is basic business that is done at every level of every industry. Ford has had the sales leading truck in the F-150 for decades. Yet each year they shut down production to ensure that they don’t overwhelm the inventories at their dealerships and lose the pricing power that they have. Ensuring that the product remains profitable. Only a fool would continue to produce a product that lost money and think they were doing something altruistic. 

Therefore making profitability the basis of production allocation is the only fair and reasonable basis of allocating production. Government mandates don’t work as evidenced by the initial success of the Alberta government's institution of production allocation of oil at the start of January 2019. These production limits are still in place and the province's oil production is receiving prices as low as $6 / barrel. The lowest on the continent as there is no incentive for the producer to uphold the production discipline to keep production off the market. OPEC has had nothing but difficulty in instituting quotas over the past decades. Although it has worked recently, they’ve been ineffective in the global market. The only method of production allocation that will provide the market with production discipline is by using profitability. Then producers can maximize their corporate profits by shutting-in their unprofitable production, working these properties over to bring them back to profitable production, and therefore not diluting their overall corporate profits with the losing properties losses. However, this a feature only of the Preliminary Specification with the user community and service providers in place.

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

User Community Developments, Part XXXIV

I’ve yet to hear a valid argument against People, Ideas & Objects (PI&O’s) assertion that oil or gas should only ever be produced profitably. No one’s been able to provide a reasonable explanation as to why we would ever produce oil and gas unprofitably. These are commodities that are unlike any other in that they’re not replaceable; you can’t grow a new crop next year or melt them down for reuse. What other commodities meet those criteria? Continuing to produce unprofitably, I believe, is the equivalent of robbing future generations of the use of their energy in ways that are wasteful. If the products were produced profitably, then we can assert consumers used them effectively and efficiently and were therefore not wasted. Are we able to say that about the production of hydrocarbons in the past decades?

We have frequently discussed the Preliminary Specifications standardization of accounting and administration that will be undertaken in oil and gas by our user communities service provider organizations. Every property would be subject to the same objective and standard treatment that is applied to any other property in North America. Natural gas is much more costly to account and administer for, due to its byproducts. Some properties are significantly more complex than others. These will be reflected in the unique cost structures of each and every property. In addition the administrative and accounting costs are all variable under the Preliminary Specification. Making all of the costs of the producers variable based on production. Enabling the implementation of our price maker strategy and ensuring the profitability of each and every producing property.

It will be the role and responsibility of our user community to ensure that the accounting and administrative aspects of each property are both timely and accurate. As well as the method of accounting that is applied is both objective and standardized throughout the North American producer base. As a result producers will know that their profitable production is profitable in direct comparison to all other production across the continent. (There will need to be some special consideration for the consistent full production of heavy oil as its scalability is not economic or viable under any circumstance.) It should be noted that included in those profitability calculations will be the actual prices that were received at the property. Any differentials would be applied however there would be no consideration for any hedging. That is a corporate activity that is something the producer may consider continuing if they so desire. It does not affect the criteria of whether or not to produce a property. The property will be the only basis of evaluation in terms of profitability.

In a world of ever increasing costs due to the advancing difficulty in producing each incremental barrel of oil and gas. The need to remain active and proactive on a costing methodology for how the capital is recaptured and its cash reused by the producer is of concern. Conventional oil and gas will be treated differently than what shale would or should be. With its flush production, steep decline curves and costly reworks this will take a more precise accounting than what has taken place to date. Our user community will need to apply their most advanced thinking in terms of what and how the costs of oil and gas exploration and production are realized. As we’ve also mentioned the recognition of capital provides a return of the cash that was previously invested. Providing a ready source of capital for the producer to reinvest for the future. With the capital expenditures that are forecast the need to source adequate levels of capital are necessary. The only source of capital available to the industry is the recycling of their capital costs on a higher frequency than the multi-decade basis they’ve done in this “build a balance sheet” era. Our user community will need to ensure that adequate capital resources are provided to the producers for this purpose.

Bureaucrats have been intoxicated with the cash flow from oil and gas production in the past decades. The industry is a capital intensive industry and therefore the return of capital that was previously invested has always been strong. The deferral of capital recognition for decades has been a result of the levels of cash they’ve been able to generate in these producer organizations. It has taken them significant effort to understand and develop unique and innovative ways in which to divert these funds into their own pockets. The issue that we have today is that with the Preliminary Specification the volume of cash coming into these organizations is going to be an exponential increase from the bureaucrats' days. Luckily we’re disintermediating them and won’t have to concern ourselves with their hands sliding back into the cookie jar. Where did all that value go? Nonetheless the cash that is generated will be substantial and the need to have better control over this will need to be instilled within the industry, producers and larger oil and gas dependent economies. We should build some software like the Financial Marketplace module of the Preliminary Specification that deals with this!

We’ve seen some discussion recently about production quotas with OPEC+ and Texas, and also some discussion about government imposed production allocations. Our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” discusses these in addition to our price maker strategy. These discussions are consistent with the Alberta government's production allocations that reduced the province's production by 350,000 boe / day since January 1, 2019. These are not the remedies we’re looking for. They are ineffective as they are unable to impose the production discipline that is needed in the marketplace. Producers shut-in the production to meet the quota and then begin to figure out how to get around the quota. In Alberta there are several ways of doing so. None of the production is evaluated as to whether it is profitable or not, and therefore it is all detrimental to the producers bottom line. Currently the Alberta based production is receiving single digit oil prices. Low prices as a result of continued overproduction as the government mandate has done little to solve the problem they were created for. The only method in which the market will institute any production discipline is through the use of profitability as the means in which a producer is evaluated upon. Then they are motivated by the value enhancement of doing so. The increases in value from implementation of the Preliminary Specification includes saving the reserves for a time in which they can be produced profitably, ensuring that the costs of the reserves don’t have to carry the additional burden of the successive losses that would be incurred if the property continued to produced unprofitably, the producer only produces profitable operations and no longer dilutes their earnings with unprofitable operations and the commodity markets have the marginal production removed from the market and hence the prices will find the market price. Our user community will be the critical resource to enhancing the profitability of the energy industry. Our methodology or price maker strategy has been known in oil and gas since at least 2007. If it were able to be implemented within the current configuration of producers, would it not have been done so by now? The fact is producers and the industry are not configured in any way to provide this information or this mechanism, it is impossible for them to do so. Only the Preliminary Specification can.

Global oil inventories are alleged to be at around 750 million barrels as of Monday March 23, 2020. Oil storage capacity is believed to be about 1 billion barrels. If the demand for oil has dropped by 20 million boe / day and overproduction is at 2 million boe / day. The remaining 250 million barrels of storage may be filled in as little as ten days, or the day after April fools. When storage is full will it be the coronavirus or overproduction and oversupply that occupies the minds of the producer bureaucrats? Will President Trump have time to hear the producers concerns then? What we will know is that oil prices will go negative, the differentiated prices are not that far from zero today, single digits and falling. Maybe producers will understand the best form of storage is the reserves themselves. For example, don’t produce unprofitable production. Maybe the North American producers will wake up to the fact that they’ve been unprofitable all these decades. Maybe they’ll realize they’ve been so unprofitable that they’ve consumed value and cash with each barrel produced. They were only viable when someone else was providing consistent cash infusions. Maybe they’ll realize that investors saw this a few years ago and got out. Maybe they’ll realize that OPEC is still making money as the low cost producers, and will continue to do so. Maybe they’ll realize with all the doors slammed in their face, that blaming everyone, cutting everything and everyone the time for a reckoning will be at hand? That having the ability to withhold unprofitable production is not market manipulation as they have always claimed but just plain business sense.

In summary what’s it going to take to make the transition from the current oil and gas industry to the one we’ve described in the Preliminary Specification. First of all there has to be a continental wide destruction of any and all value contained within the oil and gas industry. Check, complete and good job bureaucrats. There is development of the Preliminary Specification with its highly capable, dynamic, innovative, accountable and profit oriented user community and service providers with the software and software development capabilities that facilitate change. Ones with the power, control, Intellectual Property, budget, leadership, people, revenue sources, licensing, distinct and comprehensive competitive advantages, timing and accuracy of the costs of exploration and production, quality of service, objectivity and standardization of administrative and accounting services and lets not forget the responsibility and authority to get it done. This is a new capacity, capability and functionality in the oil and gas industry. It is not available today and needs to be purpose built to deal with today’s issues and tomorrow’s future.

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Yes, of Course...

Everyone can shut-in now, in fact it seems to be all the rage! World Oil published an article on Sunday March 29, 2020 that identifies shale as a type of rock that can have its production shut-in without any damage to the formation whatsoever.

Shale Threshold. “The market is going to be out of balance for quite some time,” Morris said.

Yergin, the confidante of oil ministers and chief executives, sees the threshold for reinvigorating shale between $50 and $60 a barrel. U.S. crude was trading above the $50 level as recently as Feb. 26.

“At $50, we’ll start to see a recovery and a step up in investment, so long as people feel safe about the price floor beneath them,” he said.

It’s funny that Yergin should put it that way. A big part of shale’s resilience lies in its unique geology. Unlike the so-called conventional fields in Saudi Arabia and Russia, North American shale is rock so dense that it doesn’t degrade or collapse on itself if oil production is interrupted. In other parts of the world, disrupting output can do irreversible damage.

That’s why the bulk of Chevron’s $4 billion spending cut will take place in the Permian, CEO Mike Wirth said Tuesday. It’s a rare field where production can be turned off almost instantly without adverse long-term impacts.

With shale, “the assets don’t go away because you haven’t destroyed the field,” said Ken Medlock, senior director of Rice University’s Center for Energy Studies. “We’ll see a thinning of the herd but the assets will still be there.”

Welcome to the shut-in party pal(s). Not to suggest otherwise, but I always believed that a frac job was to “blast” the rock with water and hydraulic pressure, opening a void for the oil or gas to flow to? Their point in this is; that not until you’ve systemically, comprehensively and financially destroyed everything in the oil and gas industry will you begin to shut-in properties. That you could have shut-in production when we completed development of the Preliminary Specification in December 2013, which suggests that unprofitability is the point in which you shut-in a property. A time period in which bureaucrats lied to everyone about, my list is far too long to include everything so I’ll just list my favorite lies here, market rebalancing, capital discipline and we’ll muddle through. I am going to add “doesn’t degrade or collapse” formations to the top of my list right now. Now with all the destruction they’ve caused they’ll admit shut-in production is the way to go. The issue bureaucrats had before, with shutting in production, was that it took effort to do so.

This problem isn’t going to go away I’m afraid. As I discovered decades ago the industry is not configured to function in this way. It uses the high throughput production model. Which sees maximum capacity produced at all times to offset its large overheads. The Preliminary Specification shifts the industry to the decentralized production model which makes all the producers' costs variable. Then any property that is shut-in incurs no costs. Overheads are incurred by the service providers who will not be conducting any work on shut-in production and therefore will not render any billing for their services. Shifting the overhead costs from industry to the service providers enables producers for the first time to be able to control their overhead costs.

Not only do the service providers have a role in this but also the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. The Joint Operating Committee is the industry standard legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Using it aligns these frameworks with the compliance and governance that is “currently” managed by the bureaucracy.

This shut-in production enables producers to save the reserves for a time in which they can be produced profitably. The reserves will not have to increase their return on investment when it includes the additional losses of the property if it continues to produce unprofitably. Global oil and gas storage facilities will be augmented and better managed by assuming reserves are a natural form of storage. And the commodity markets will find the marginal price when the marginal barrels of oil equivalent are removed from the marketplace. It is this logic I assume that these people now find so compelling.

Therefore here are a handful of useful questions that people may want to ask these newly enlightened bureaucrats.

• Who will be the producers that shut-in their production? Profitability has been determined by PI&O to be the only means in which to allocate production fairly and reasonably. Therefore what we’ll see from the industry is the continuation of their favorite activity. “It's not them, its other producers, we’re profitable.” The blame game.

• Which properties will be shut-in? There is not a producer in the industry that knows within a range of +/- 25% of their revenues what their profitability at any property is. Ask for the detailed reports and focus on the actual overhead charges. There are no actual overhead costs charged to the properties, anywhere on the continent. Most, probably 85% of overhead is capitalized. It must be that properties manage themselves and the overhead supports the bureaucrats? Don’t ask me, I already know the answers, ask the producers these questions, that’s why they're profitable. 

• If PI&O’s Preliminary Specification makes actual overhead variable, what does this renewed interest in shutting-in consider to do with the producers overhead? The key question, and why what they’re doing doesn’t work. Their overhead is 100% fixed. The same at any level of the production profile. Therefore their profits may appear even more specious as a result. But they do have a plan of course, just lay the overhead off. Those people that were just hanging on by their fingertips trying to keep up while doing ten peoples work, might be able to let go soon. And those that are remaining get ready for more work and soon it will be your turn too. Isn’t oil and gas fun!

Just as the producers told the service industry to cut their costs by 25%, they immediately jumped at the opportunity and reduced the volume of their business which was already on its knees due to this bureaucratically induced depression. This too will inspire and motivate the remaining few people left in the producers to redouble their efforts again. As I said on Friday to the bureaucrats, before you go, initiate and fund the Preliminary Specification. That way you can do something positive for once in your lives.

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Epic Dishonesty

The level of dishonesty that is being pushed by the producer bureaucrats at this time of crisis is quite frankly nauseating. After fighting these people for decades about their destruction of value from overproduction and deceptive accounting practices, the inevitable business consequences of doing so are coming home to roost. People, Ideas & Objects (PI&O) has faced a brutal onslaught for over 15 years of absolute garbage from these people for proposing a solution that enables them to remedy these specific issues, and be profitable everywhere and always. Our White Paper “Profitable, North American Energy Independence -- Through the Commercial of Shale” published on 2019’s American Independence Day details this issue and its solution. Why, if as they’re now claiming, shutting in has been the standard operating procedure in industry, as noted in World Oil, has the industry gone to the verge of negative pricing and completed its full destruction? But also, why the abuse of PI&O, and why the arguments against shutting in production all this time? Or in other words if shutting in was standard procedure, why didn’t industry proceed with the development of the Preliminary Specification at any time since its publication in December 2013?

Shutting in production is the only remedy to overproduction and oversupply which PI&O suggest has been ongoing since the late 1970’s in North America. Ours has been resisted by producers for every possible reason under the sun. The costs and risks of shutting in, as noted in oilprice.com, were never mentioned at any time before and are specious, as there are a variety of temporary operational reasons producers shut-in production, such as workovers etc. The internal processes to shut-in on a wholesale basis don’t exist. Operational decision making authority resides with the Joint Operating Committee. One of the reasons that we have moved to make the Joint Operating Committee the key organizational construct in the Preliminary Specification. And the current systems information in oil and gas as to which property is profitable doesn’t exist. However these processes to shut-in production can be developed by the engineers and by developing the Preliminary Specification. Alternatively if they persist in not wanting to do that, then go out of business.

In a World Oil article it was mentioned that the lack of storage would force the producers to shut-in substantial volumes of production. They indicated that at many times in the past shutting in had been conducted for a variety of reasons, most specifically the 1986 OPEC actions to flood the market. I’m having a hard time remembering these actions. What I recall was the phenomenon of producers crying “oh, whoa is me.” Nothing was done then and only when the global oil storage is full, and prices go negative do bureaucrats wake from their slumber. This is a continuation of the dishonesty we’ve seen over the past fourteen years that PI&O have been actively developing the Preliminary Specification and promoting our solution. Does anyone remember the long held belief in “market rebalancing.” Or how about the common call that we’ve been here before and it always gets better. How many times have we heard the other industry standard bearer of “capital discipline.” There’s also the “we’ll muddle through, and do nothing” as the methods that were proposed as “actions” to deal with the declining prices and destruction of value.

I grant them today’s commentary reflects a change in the bureaucrats tone. They’re not blaming anyone and focusing on their own actions that would be necessary to remedy the situation. This to me is amazing, albeit the horses bolted long ago and are nowhere in sight, probably deceased. If it is reasonable now to shut-in production after systemically overproducing for decades and prices are in the single digits, threatening to go negative. Why would it not be reasonable to shut-in production when the property is unprofitable? Bureaucrats should look around and notice the number of groups that are supporting their organizations. No investors, banks, the service industry and all the people they have working for them. They’ve fundamentally betrayed them with their dishonesty and destruction of their money, careers and livelihood. No one is listening to them, and to say things that are not true about our history is annoying the hell out of me.

Dear Bureaucrat, here’s an idea and a short term plan of action to deal with the situation. Bow out, but before you go, initiate and finance the development of the Preliminary Specification so that you can set in place the righting of your wrongs, reverse the destruction you’ve caused and in a way apologize to all the people you’ve betrayed. Then take a hike!

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

User Community Developments, Part XXXIII

The one upside that our user community and service providers will be able to count on when they commit to People, Ideas & Objects is that we’ve eliminated all of the business risk associated with their move from oil and gas to this new industry configuration. We need people to be involved in this initiative and we need large numbers of people in order to ensure that we complete the task from all areas of administration and accounting in the industry. The only way this can be done is to secure the budget for People, Ideas & Objects in advance of any work being started. And that is exactly what we’re doing. The time spent fooling around by bureaucrats has taken us into a situation where the industry and service industry, as well as the general economy, have been put in dire need of help. Much as we would like to trust our alleged customers we know they hold the attention span of mosquitoes. We would just be getting started and they would see an entire weeks uptick, that’s five consecutive days, in the oil price and cancel these software developments as they would deem them to be unnecessary. As a result effectively killing this initiative permanently. We documented the treatment of ERP software developers over the past three decades by oil and gas producers. This is listed on page 18 of our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” And lastly with the scope and scale of this project we are unable to fund the project ourselves, however need to since the majority of the producers are on a greater than 18 month accounts payable schedules. Therefore once we have our full budget in hand the user community member will be able to transition with reduced business risk and can then provide their full commitment to the project.

We have seen the extent of our good friends the bureaucrats' apparent need to destroy everything that’s in front of them. We have also seen their inability to deal with People, Ideas & Objects since 2003. They’re not interested in building profitable businesses as we are. They would conspire to derail our initiative in the many ways that they’re familiar with value destruction. Just as they’ve derailed and devastated the landscape in oil and gas. We can not afford to risk the user community to this well documented bureaucratic tendency in a naive or trusting manner. They will not be the ones who are forwarding the funds to People, Ideas & Objects. People have ceased to believe, care or take the time to listen or understand those that are and have been in power in the oil and gas industry. It may now seem that all the doors that were once open to producers at one point in time have been slammed shut. The reality is that their opportunities have been closing down since the decline in natural gas prices, as a result of shale, over a decade ago. Investors, bankers and others have seen enough on the natural gas side over this past decade, they didn’t need to know more. It just takes a while for the bureaucrats to run around and test each door for any lingering opportunities. Last week when Occidental turned to investors to step in and help them with the debt they’ve committed to, I thought that this was the height of hypocrisy, boldness and obtuseness. And maybe the end.

Producers will need to become used to this form of transaction very quickly. It won’t be just ourselves that demand cash upfront before any work gets done. After destroying the industry, and the service industry in an even more comprehensive manner, no one will be coming to their financial rescue either. The key difference is that none of their decline was anything to do with their management. To conduct any field operations or get anything done the producers will need to be paying in advance until they can reestablish their trust and good governance with those that they conduct business with. Give it a decade or so before you even try I would suggest. The abuse and destruction of the service industry is the legacy of the existing producers and they will need to deal with this very soon. $18 / barrel of oil should help out tremendously here.

Switching topics now from our budget funding dynamics to communications throughout the user community. We find during this time of self isolation, advantages to the methods of organization that People, Ideas & Objects our user community and their service provider organizations are building. There will be a diverse and dynamic community represented in our user community and service providers. Each bringing their own understanding and knowledge of how their corner of the oil and gas industry operates. Collectively the full scope and scale of the industry's knowledge will be captured. Application of this knowledge in a focused direction, toward building the most profitable means of oil and gas operations, will be achieved through the communication facilities we’re bringing to our users. We are using Google Docs with the variety of tools that are available for the purpose of enhanced communication. If you’ve not had the opportunity to use these I would suggest you give them a try as the more familiar you are with them the more valuable they become.

The nature of remote work will be a feature of the developments of the Preliminary Specification and not as a result of any virus, or bug. Access by the authorized user using the appropriate device reviewing the data and information that they require is what we’ve set out to develop within our Security & Access Control module. Augmenting these features and capabilities will be Oracle’s security applications that are comprehensive and state of the art in the Information Technology and business communities. This will apply to not only our user community but also their service provider operations and extend further to almost everyone in oil and gas that needs access to financial information.

These requirements will place new demands on the skill requirements of those who are user community members and working within their service provider organizations. Information Technologies are becoming increasingly ubiquitous and will continue to demand more from users. However, People, Ideas & Objects are expecting much more from our user community. First and foremost it is important to note that the priority that we are looking for is the knowledge and understanding of the oil and gas industry. That is paramount. However the need to be able to be active in a high technological environment during development, implementation and operations will demand that these skills be of a higher grade than what may be seen as adequate today. This will be what is required to operate in our environment but also, as we noted within the user community vision, the ability to communicate with our developers.

Secondly your ability to communicate with the People, Ideas & Objects developers in their primary skill set will be necessary to enhance the communications between yourself and our developers. It is easier for you to understand the elements of these concepts in relational theory and Java then it is for them to comprehend the full understanding of the oil and gas industry as represented in the entire user community. Therefore to enhance the communications between the developers and the user community it is by far the easiest for the user community to be able to speak generally the language of the developers. As there is no way in which the developers are ever going to fully understand the full scope and scale of the oil and gas industry that is contained within the entire user community. 

A reasonable approach to the task at hand I believe. The connection between these two otherwise disparate points, funding and communication, are important in that the job that is falling to the user community is becoming more critical each and every day. Our user communities leadership will be needed to provide the industry with the future and profitability that it needs. The means in which you will do that is through these enhanced communication with our developers who are well versed in the language and understanding of their own world. Our enhanced understanding of that world would facilitate better communications and in the long run a prosperous oil and gas industry. However, for our user community to be looking over their shoulders concerned about the business risks of this initiative, if the bureaucrats were going to regain control of the producers after a rally in oil and gas prices etc. etc. is unacceptable. We have to eliminate the business risk for our users in order for them to concentrate on this difficult task they have ahead of them. I don’t want to add any additional unnecessary stress or concern but after four decades of mismanagement by these bureaucrats, what other choice is there, or will there be, for industry to choose in the foreseeable future?

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

User Community Developments, Part XXXII

As much as the producers would like us to believe that all of the damage has been done by the coronavirus, we know different. The long term destruction of the industry at the hands of the bureaucrats has been the cause, and will remain so long after everyone is healthy again. Occidental may still be rated as junk with its stock now trading at 13% of what it was before their dreams of Anadarko began. They’re now appealing to investors to help them deal with their secured debts of $39 billion, $75 billion in total debt, and a market capitalization of less than $10 billion. Such is the way of the oil and gas bureaucrat, it’s not their fault. They are trying as hard as they can, don't you know. That they’ve destroyed 87% of their shareholders value is inconsequential. It’s time for the investors to step up and deal with the debt that their dumb decisions created. That’s right it’s the investors turn to bail them out. After turning to everyone including the Easter Bunny they’ve found no support that will sustain their antics. So it’s back to the investors who were never listened to three and a half years ago. The coronavirus based bailouts and the Saudi / Russian tariffs didn’t happen either. Who will help these poor helpless and hopeless souls.

“The search for data, big data being the key, Artificial intelligence and Machine Learning will show the way of the oil and gas industry.” Hogwash, garbage and ridiculous. This is the theme that has guided producer bureaucrats for many decades. Building huge IT playgrounds for the bureaucrats to play in. During the course of this activity it is reasonable to suggest that they’ve lost the script. Which of course they have. There are a variety of software applications, Artificial Intelligence and all wonder of applications of widgets that go whirr in the industry. Just in the area of inventories what is it that you want to know? Bureaucrats can tell you with extreme precision. They have applications using Artificial Intelligence which review satellite imagery for known crude oil storage tanks. Taking measurements of the size of the shadow cast by the tank at the time of the day and year, and GPS coordinate to determine the volumetric size of the tank. They then calculate the size of the shadow cast by the floating roof to determine the volume stored in that tank. Then they aggregate these volumes across the globe or region of interest to determine the storage of oil. Fantastic, spectacular and fascinating what one can do with one's technology today. The problem is what use is this information? The question that they should have asked and obviously never was. Well, the bureaucrats claim to get a better understanding of the markets. Well, bunk. If they have such a good understanding of the market why do they continue to produce unprofitably? The market is sending them the one signal that is necessary for them to understand, the one signal that imputes the production, inventory and demand, all in one, and that is the price of the commodity. Yet bureaucrats continue to ignore the commodity price at great jeopardy to themselves as they pour over these tank inventory readings. Creating more paper reports and processes of untold value destruction that generates nothing discernible. Unable to determine if the property they’re producing is profitable within plus or minus 25% of the range of its revenues. But that’s accounting and accounting isn’t exciting.

The point of course is the need to have users define the software that is developed. Otherwise you end up with science experiments and activities that take a lot of time, energy and money and flush them down the big drainage ditch of value that is oil and gas. In terms of how oil and gas is run is clearly reflected here. It’s a big science experiment. If you're not using the most bleeding edge science then you're not “winning.” It’s not just the software, it’s also the business that the user community keeps focused on. What People, Ideas & Objects user community does is implement common sense into the process of building software. Give the users what it is they want. Forget about what the technology can do and have the business prevail in terms of what is needed to be done. Review the Preliminary Specification, the user community vision and determine what aspect of the technology is driving this initiative. None. Technology for technology's sake is the great misdirection that has clouded and confused the user into either stating its useless or not understanding it. Little has been accomplished after 50 years of technological innovation at this point, in my opinion. Yet we stand on the shoulders of Information Technology giants and are capable of delivering real results if we just focus on the business principles and user communities, and not the shazam.

Cost control and shuffling data between the multitudes of software applications in order to determine that nothing has changed is the art and science of bureaucracy. I was told, when People, Ideas & Objects began our by-line of providing the most profitable means of oil and gas operations. That no one cared about profits, I was called crazy and kicked out of the industry for our dedicated focus on profits, among other things. It is easy to see that the same attitude applies to market prices. Basic business principles are not used, appreciated, understood or accepted in oil and gas. Proponents of these principles are ridiculed and belittled because the bureaucrats know far better, they have the satellite imagery to prove it.

Yet all of this Artificial Intelligence and Machine Learning, brilliance of those that are the top of the producers still have not determined what the issues are in their firm. Is it the coronavirus, too warm of winters, global warming, is it the pipeline companies fault, or governments, OPEC’s or their employing “capital discipline” to deal with low prices and unprofitability? Can everyone see the disconnect that has developed in the culture of the industry as it has moved away from basic business principles into what I really don’t know what to call this. Soviet era bureaucratic makeshift? I would also say it’s delusion however there has been a decided and violent response by these people towards People, Ideas & Objects and our Preliminary Specification. There has been a highly deceptive reporting of the activities going on here for four decades. And all the while it is these principle (the C suite and direct charges) bureaucrats who are the only, and I repeat the only ones who have benefited from their involvement in oil and gas. If it’s naive or deliberate, either way they don’t deserve our attention anymore and need to be removed.

And replaced by those of our user community that will be individually and collectively able to build the software that holds to business principles and user needs. Building software that users need, not what technologists and bureaucrats want. The life cycle of the hierarchy has been exhausted and is now exposed as a non-functioning, counterproductive and value destroying beast. Distributed, decentralized markets such as those contained in the Preliminary Specifications Resource Marketplace, Petroleum Lease Marketplace and Financial Marketplace modules. In combination with the Joint Operating Committee as the key organizational structure of the dynamic, innovative, accountable and profitable oil and gas producer are the future of this industry. But only in the hands of its users to ensure that it never falls into the hands of bureaucrats where it only becomes the space invaders of a new generation.

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

User Community Developments, Part XXXI

The three competitive advantages that People, Ideas & Objects pursue are our user community, our Intellectual Property and the research that we do to ensure that the North American oil and gas industry is profitable everywhere and always. That consumers are provided with the lowest cost commodities through a dynamic and innovative industry that ensures them an abundance of affordable products and services. We have outsourced the software development of the Preliminary Specification, and all software development that makes up our Intellectual Property, to Oracle Corporation. It is our user community that will be the source and means in which the oil and gas industry obtains, maintains and deals with the difficult future this industry faces. They will be a key part of the dynamic nature of the industry and producer firms. Anticipating, accommodating and capitalizing on the changes that are needed to avoid the difficulties and realize the opportunities over the next 30 years. Ensuring that the industry never falls into the hands of bureaucrats who create nothing but destruction again. This is the role and responsibility that I see this user community filling. What we can all be certain of is the gaping hole that exists throughout the industry today and our user community members are the only competitive means to change oil and gas’ performance trajectory.

Leadership from the user community will be at the forefront of this capability. Leadership from an individual point of view, but also from an overall community perspective. If elements of the current business model of the Preliminary Specification ceased to perform for the industry, it would be incumbent upon the user community to design and implement the changes that are needed to replace it. Independently, based on their knowledge and understanding of what is required and the prospective demands they see. Through the user community vision they have the power and control of the Intellectual Property that makes up the business models and markets of the Preliminary Specification and what it will ultimately become. Only the user community will be licensed to provide the producer firms with the means in which they can solve their issues and opportunities. Making them the sole point of contact for everyone in the industry for resolution of their issues. To whom do you go to today to have your software and process management changed? Secondly our developers only take instruction from the user community. They are blind, deaf and dumb to all others. User community members are the foundation of the value proposition that they, their service providers organizations and People, Ideas & Objects provide the oil and gas producers. To do so they must have the capability to define and be provided with the budget they need to undertake the above. This is provided as People, Ideas & Objects license raises the revenues from the oil and gas producers to pay for those that provide them with the software and services that ensure they achieve the most profitable means of oil and gas operations. Our user community will not be “blind sleep-walking agents of whomever will feed them.” Habermas

As mentioned, the user community members are individually the principles who head up the service provider organizations that will be providing the oil and gas producers with the administration and accounting from People, Ideas & Objects et al software and services. Each service provider is granted an exclusive license to conduct the full management of one individual or sub process of our application. Each service provider will have the entire oil and gas industry as their client base and will use their unique competitive advantages of quality, specialization and the division of labor, automation, innovation, integration and implementation as well as leadership, to name just the highlights. Having control of the service provider gives the user community member the understanding of the situation in the industry and what needs to be done in order to enhance it and or resolve it. They’ll then have the tools through the People, Ideas & Objects developers to be able to make the changes in the processes that they manage.

The user community members will earn as a result of these activities the part-time hourly income they receive as user community members conducting the analysis and design of the software with our developers. They’ll also have their service provider generating their own unique revenue stream as a result of attaching a fee to each transaction they process. Earning an income and profit as a result of managing their organization. Combined these revenue streams will be significant and provide them with a substantial business opportunity. In terms of their competitive advantages we did not mention price. Each service provider is granted a license to provide software and services on an exclusive basis. We feel the value of this community is in its value proposition which is in the trillions of dollars. For producers to continue to nickel and dime, playing one competitor off another does not provide the value that will be needed for the long run. Competing with other users in the community in terms of how they divide their labor, enhance their specialization and increase their quality will be collaborative. And the oil and gas industry will benefit as a result. There is also an unqualified and unquantified element of our value proposition in that the enhanced specialization and division of labor, as contemplated just in the Preliminary Specification, will be substantial enough for oil and gas to be able to increase their productive throughput with the same resources. Competing on price will ultimately destroy the potential of what this community can provide.

The user community members are derivative of the people who now occupy these roles in the producer firms today. Those that are involved in the administrative and accounting functions of the producer. Under the Preliminary Specification, in order to achieve every cost of the producer becoming variable, the administrative and accounting resources of the producer are reallocated to the service providers. That way the producer will be able to shut-in unprofitable production and through the People, Ideas & Objects system, the service providers will not receive any data from those properties. Hence no work will be done and no billing will be rendered there. Therefore the producers will incur no overhead for any property that is shut-in. The service providers will have the entire industry as their client base and could be faced with losing up to 15% of their revenues due to shut-in production. Something that they can budget and plan for.

The number of user community members that we’ll need is approximately equivalent to the number of processes that will be managed in the People, Ideas & Objects application. Three thousand is the number we have been working on since we began the development of this community in early 2014. There was always time in which to contemplate the opportunity of becoming a user community member. Now the sense of urgency may be different. I can say at this point we are no closer to our budget than at any other point in time, however, things have changed. The discretion of the potential user community member needs to consider this timing issue and conduct themselves accordingly. We have much to do.

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 American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.