These Are Not the Earnings We're Looking For, Part III

I’m curious as to where as an industry we go from here. Will OPEC implement a further cut in their production to offset the coming “explosion” of North American shale production? Or will the banks revisit their restrictive lending policies and resume the good old days of lending as much as is desired? The producers themselves will certainly continue to display their production “discipline” and “this time is different” ways. They may be able to find further room to deplete less of their capital costs per barrel. And claim once again that those “cost reductions” were innovative reductions in costs, as they were able to do in 2017. Or maybe, the investors will be satisfied that all is well and there’s no cause for concern in oil and gas, and resume their annual investment and dilution rituals? Prices of the commodities might go higher, as they did in 2017, which would make it all that much better. The fact of the matter is the producers have had a run of good luck in terms of dealing with this crisis. OPEC did the impossible and have shown the market two things. That oil and gas commodities are subject to the principles of price makers. And the problem lies with the North American shale producers who have no business sense or understanding. What will the lucky lottery prize be this time that gets the producers another year of “muddle along” and “doing nothing” as their strategy and operating procedure?

Earnings of our 23 producer firms stand at $15.25 billion for the year. An increase of $7.85 billion over the $7.4 billion that was earned up to the third quarter. Or have they? Oil prices were certainly the highest they’ve been for years and producers were claiming to be profitable at as little as $12 / barrel. Is this what was expected from an investment of $460 billion? If we take a more reasonable allocation of capital from property, plant and equipment, what would the earnings have been? People, Ideas & Objects suggest that the industry needs to retire these excessive balances of previously unrecognized capital costs from past production on a timely 30 month schedule. If producers were to do that then losses would be ridiculous and not representative of a commercial industry. Which has been what we’ve asserted on many occasions. As fast as the $460 billion in property, plant and equipment was depleted, and that is only for the 23 producers in our sample, additional capital would be spent that would replace at least $153 billion in the property, plant and equipment account. Would this balance be a more representative balance for our sample producers to reflect their property, plant and equipment assets? The point here is that no matter what producers do, these excessive balances that have been built up over the past decades will be their legacy.

Assuming, once again, that the industry was a viable going concern with commercial operations and the producers were generating adequate revenue to cover all of their costs. These incremental charges for depletion would be reflected in higher working capital of approximately the same amount of the increased depletion being recorded. If we look at the working capital of our sample producers at the end of 2017 it’s $648 million less than what it was at the end of 2016. The cash crisis continues as a result of the shareholders and bankers lack of participation in the continued farce that is the oil and gas industry.

I guess we can mark down the fact that the producers were able to generate some luck once again when it came to generating their financial statements. Although they report $15.25 billion in earnings, which is an improvement over the third quarter, it has been a disaster these past three months. The luck they seemed to have earned comes in the form of President Donald Trump’s tax cuts that generated $9.7 billion of those $15.25 billion in earnings. Therefore in the fourth quarter our sample producers actually lost $2.3 billion and for the 2017 year our sample producers only produced $5.5 billion in earnings. The bureaucrats would believe that this is a good performance that entitles them to continue for as long as they want. I don’t believe they have the time. And I think others have lost their patience too.

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. 

These Are Not the Earnings We're Looking For, Part II

What is clear as a result of the publication of the fourth quarter reports of the oil and gas producers. Is that it’s time to take the keys to the Ferrari back from these teenagers. I’ve been saying that none of the efforts up to this point where going to make any difference. Things would only get worse. And the scope and scale of the problems that I see are well beyond what can be healed in normal approaches to business issues. Disasters have been left to fester for years and in natural gas for over a decade. Leaving the situation as is when faced with this level of difficulty is dangerous. We are much worse off as a result of the fact that the bureaucrats can’t, won’t and will not do anything about this situation, ever. Where is this long term damage being represented?

The universities Geological and Engineering faculties have been hollowed out of students. Producers are claiming they can’t get enough frac crews into the Permian leaving too many wells drilled but not completed. The service industry has been fundamentally destroyed by the withdrawal of activity and the long payment periods of the producers. Jumping at the snap of the producers fingers isn’t generating any interest in the investment community when so many rigs lay idle and representative of the wholesale devastation in the service industry. We saw this in the software industry in the late 1990’s. There were dozens of ERP providers looking to provide oil and gas ERP solutions. The producers thought they could get the ERP providers to spend their own money to prove to them that they were committed to the oil and gas marketplace. Some did, and once they produced the software the producers knew that they could have the ERP vendor for a song. Anyone seen an oil and gas ERP software investor outside of the lunatic that’s writing this? The damaged reputation of the oil and gas producers with the service industries investors will be something that haunts the oil and gas industry for many decades. And lastly the people in oil and gas and the service industry. They are searching for ways out. Whether they still have a job in industry or not, they’ve had enough.

The financial condition of almost all of the producers is well beyond what can be remediated. Being a capital intensive industry, cash flow has always been strong. For the past four decades that was all that was required. Earnings were irrelevant. What cash flow represents is the investors money being returned to the business to be reinvested, pay down debt or returned to the shareholders. None of that happened in the past four decades. What did happen is the circus became ever bigger and more robust. The ability to fund current capital expenditures from new investors, with the associated dilution never being an issue to the bureaucrat, was all the rage. The cash flow was diverted from its proper role in the firm to support the overhead and interest with the new capital funding the capital expenditures and dividends. A little sleight of hand that carried on for many decades. Then natural gas prices fell, followed on by oil which exposed the game to the investment and banking community. Their strike continues and it doesn’t look to me like anyone is going to be jumping back in. Back when cash flow was being diverted, the industry was slowly being drained of any and all value. If not for the producers capitalization of every possible cost to hide the fact that these organizations were actively draining the value that the investors were pumping in each year, no one would have touched anything within the industry.

Today the industry is a wasteland representing no value. The service industry is a wasteland representing no value. There are trillions of dollars needed to maintain and expand the deliverability of North America. How and with what? If the sum total of everything is unable to generate any value. And indeed drains the ownership of further value each year. Who is going to make this industry function as it should? This is the sad result that these self interested, spending mad bureaucrats have created. Nothing, only it's far worse than that, it's nothing that takes billions each year just to keep it running. If these producer organizations bureaucrats were and are unwilling to fix these issues by implementing the Preliminary Specification why are they still around and what are they 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 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. 

These Are Not the Earnings We're Looking For, Part I

I’ve argued that oil and gas is in a state that is in permanent and terminal decline. The way in which I see things is reinforced by the fourth quarter reports of the 23 producers that we follow. I think now is the time to act by making the decision to build and implement the Preliminary Specification and therefore I will be making my case here in this series of blog posts. The first issue we’ll be discussing is the capitalization policies of the producers.

Until recently it was the size of the asset values of the producer firm that was the basis of success in the industry. CEO’s would brag about the growth of their assets and maintaining a “strong balance sheet” based on the large volumes of property, plant and equipment. Cash flow from these investments enabled them to pay the overhead and interest and there was an ever expanding pool of investors that were able to provide future capital to spend to maintain and grow the producers deliverability. Over time producers learned that what was included in property, plant and equipment were large percentages of those interest charges, overhead costs of the accounting and administration of the firm, including the receptionists time, phone service and Post-It-Notes. Few of the producers costs don’t end up in the property, plant and equipment account. Which has been the way of the industry for the past four decades. It is culturally ingrained with the leadership and management and that is the way it is done.

Oil and gas is a capital intensive industry. Therefore the largest cost incurred are the costs of drilling, completion and equipping. Our argument is that recognition of these costs in a timely fashion would be in the best interest of the dynamic, innovative, accountable and profitable oil and gas producer. They would seek to outperform their competitors by recognizing their capital costs as quickly as possible. Converting their property, plant and equipment investments back into cash via increased cash flow that would fund further investments, pay down debt and issue dividends to their shareholders. This assumes they were operating a commercial enterprise that was generating the revenues necessary to cover their costs. The current environment has their capitalization policies leading to high asset values and large profits. Over the past four decades these large profits have attracted overinvestment in the industry, increased the deliverability of the industry and collapsed the oil and gas commodity prices. In reality though, what was believed to be high asset values and large profits were just accounting magic that deceived the producers, industry and investors into believing that value was being generated. When in fact, as a result of these policies, the industry was using the capital generated from new investors each year to subsidize consumers for their consumption of energy. The amount of the subsidy accurately captured on the producers property, plant and equipment balance on their balance sheet. This activity has been able to continue for the past four decades due to the highly distorted policies of capitalization by the producers. This accounting game has now become obvious to the oil and gas investors who are unsatisfied with the performance and are actively withholding their participation in the industry.

The second element of this overcapitalization anomaly is the speed in which these assets are depleted. Currently producers allocate the costs of exploration and production across their known reserves. Therefore only a small percentage of the firm’s property, plant and equipment are recognized as costs in the current year. From an accounting basis this may make sense from a purely theoretical point of view. From a 21st century, high performing organization point of view it doesn't make any sense to be deferring the recognition of your capital costs to as much as 27.79 years as Cenovus has done in the second quarter of 2017. The demands for capital in the capital marketplace, and the performance of the firms that are successful in the 21st century are not provided with such luxuries. If the investors knew that they were being deceived by the accounting magic being discussed here, they would have withdrawn their investments far earlier.

When this overinvestment through chronic annual share distributions created overcapacity. The commodity prices were not going to be adequate to cover the real costs of oil and gas exploration and production. The deferral of the recognition of these costs into several decades therefore caused the producers to destroy value in the industry. The industry today has been hollowed out of its value and is incapable of providing, building or sustaining value. The subsidy to the consumers has quietly and effectively reduced the industry to the point where it demands a subsidy of several billion dollars each and every year to continue just to function. There is no residual value left anywhere. What the producers have done is they have listed on their balance sheets in the property, plant and equipment account the capital costs of past production. It has been easy to manage a firm on this basis. Now with bloated balances throughout the industry, the tough part begins. The recognition of the past productions capital will be difficult for producers to deal with and account for.

Bureaucrats will claim these are just accounting charges. They do not affect the cash flow of the producer. Ok, we’ve heard that before and they have the accounting mechanics correct. What they’re essentially saying is keep the spending machine going. Let them issue more stock and continue spending that to “build” the organization. What they never want to do at any point in time it seems, is account for that money that they keep spending and recording in property, plant and equipment. It’s a great game until the investors get wise to it. I truly don’t see where the producers go from here. Oil and gas has not been a commercial operation for the past four decades. This spending machine is becoming more obvious to more people every day. As that is what it is, a spending machine, nothing more.

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. 

User Community Developments, Part VIII

Oracle has developed a term that I’ve recently come to appreciate. One that is consistent with the needs of People, Ideas & Objects, our user community and the service providers. That term is “rip and replace” when discussing transitioning between ERP systems. Our concern here is for the integration and implementation of the software, technologies, data and services that are necessary to make the oil and gas producer achieve the most profitable means of oil and gas operations. These will be the responsibilities of the service providers specifically and will have to be a key consideration of the user community members when they’re working with our developers. How will these changes be implemented within the producer firm and industry? The user communities objective of providing state of the art leadership and capabilities would include the change management leadership during the integration and implementation phase of installing the software within the oil and gas sector. It would also include their change management leadership during times when the software they’ve enhanced or improved requires their service provider organization and its producer clients to make the necessary changes.

The user community members development work with our software developers will involve the capture of the needs and understanding of what, how and why the software they’re designing will need to be developed. User community memberships are part-time positions with the bulk of the members earnings being generated as a result of the interest that they own in the service provider(s) they’ll create and operate. Working with the oil and gas producers during the initial software development phase will be necessary in order to determine what it is the producers are looking for in terms of the software that we’re building. This would fall under the part-time work that the user community member would be conducting. These part-time revenues are paid for out of the People, Ideas & Objects user community portion of our budget. Preparation and planning for the changes, training and the myriad different things that are going to have to be done in order that a “smooth” integration and implementation occurs when the software is complete and operational. These fall under the responsibility of the service providers and therefore ultimately the user community member.

These would be revenue generating activities and the bulk of the service providers revenues in terms of their pre-software operations. The allocation of costs and revenues of the user community member and service providers is pretty clear in my mind. As it will be in everyone else’s. It’ll just be that none of us agrees with one another. Another reason that we need to be moving forward soon. We have a diversity and scale of work that is well beyond anything that has been done in industry before. Is it impossible? It’s always impossible until it’s done. I do not see the continuation of the status quo oil and gas producer for much longer. Considering the work that we need to do I think it's reasonable to assume that we’ll soon be under pressure to get things done yesterday. Which is unfortunate but is the way that things get done.

Another area that both the user community member and service providers will be involved in is the fact that we have everything fully defined at this point. Which of course we don’t and never will. What unknown’s are unknown are probably kept that way, however we can be assured that they are growing in scope and scale each and every day. Where I see these fall under is the user communities responsibilities. People, Ideas & Objects have limited their specialization and division of labor in this effort to research, Intellectual Property and software development. For us to tackle anything more is lunacy. What and how the user community and service providers fill in the needed voids are their business models and opportunities. They’ll be entrepreneurs building their own businesses. What we’re all doing is creating a new sub-industry in the ever widening gap that has formed between oil and gas and the Information Technology industries. There is a relatively new area within management that deals with the specifics of these unknown unknowns. That is Program Evaluation, which is not research but its own discipline. Instead of researching to determine something new, Program Evaluation undertakes a study of which is the best option. That would be my summary of it. This has to fall under the area where the issues and opportunities have the means of being resolved by those who have the power and tools to resolve them, the user community.

We will be taking a short break from our series on user community developments to discuss the fourth quarter performance of the producers.

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. 

User Community Developments, Part VII

The objective of the user community is to provide the oil and gas industry with state of the art leadership and capabilities in terms of oil and gas administration and accounting in North America. Focused on providing the oil and gas producer with the most profitable means of oil and gas operations. We have discussed many of the positive attributes of the user community and service providers in this series. Today we’ll discuss one of the downsides in undertaking these steps in providing these objectives, leadership, capabilities and profitability to the oil and gas industry. We are well past ten years in which natural gas prices have been depressed. I read the other day from an authoritative group who were suggesting that the possible natural gas reserves in the U.S. were now in the range of 4,500 tcf. An abundance of gas that is unfathomable. What we do know about this gas is that it is predominately shale and that shale is costly to produce. Much more expensive than what is being realized and reported on today’s producers financial statements.

Continuing to drill and develop these possible natural gas reserves, and for that matter the shale oil, in the way that it is done today will lead to the absolute and certain destruction of the industry. If we aren’t there yet. Taking these possible 4,500 tcf of gas, and maybe it’s much much more, and moving it on to the market as quickly as possible doesn’t seem to be working for anyone. Yet, if I suggest to the producers that they control their inventories like a business would, by only producing what is profitable. The screaming and hollering doesn’t seem to abate. This is truly a surreal situation where the industry is being operated with no logic or business sense whatsoever. The only hope for the industry in a world where shale reservoirs exist is the operation of producers based on our decentralized production model of the Preliminary Specification. Key to the ability of our model is the service providers providing the variable overhead costs of their services on an industry wide basis. Relieving the individual producers from their fixed overhead costs. Overhead costs that are currently unshared and unshareable, yet replicated in each and every producer. Any producer that considers their administrative and accounting expertise as a competitive advantage has already expired as a functioning organization. Without the change to our decentralized production model and the existence of the service provider sub-industry, the oil and gas industries administrative and accounting capabilities and costs will remain fixed. In that case the oil and gas industry is doomed.

The key therefore to our success within the oil and gas, and service industries, and to the larger extent our society that depends on oil and gas. Is the user community and service providers that we’re discussing here. Without them the software doesn’t get designed and developed in the appropriate manner. And therefore the industry will never changes from their current software offerings. ERP applications which will continue to define and support the oil and gas producer organizations that flood the commodity markets with excess oil and gas. The question should be asked how much unprofitable production needs to be taken off the market today? I think we can all understand that it wouldn’t take much. Maybe 10%. Even in the worst scenario of an economy in complete crisis I couldn’t see the demand for energy dropping below 85% of what it was before the economic disaster. Determining what is profitable or unprofitable in times like this, as in any time, will need to be an effective part of the accounting that the service providers and the Preliminary Specification provide the industry. This is also where the downside for the user community member and their service provider organizations comes in.

There will be a fundamental shift in the responsibility for cost control of the overhead costs in oil and gas production. It will no longer be the domain of the individual producers. If they produce 100,000 barrels they will incur 100,000 barrels of overhead costs. If they produce 50,000 barrels they will incur only that much in terms of overhead costs. Overhead costs as a result of the Preliminary Specification are variable. The burden for where these costs reside will be with the service providers. I believe this will be a positive development in the oil and gas industry. Not only do the producers obtain the feature of having variable overhead costs. The service providers will be able to exercise real cost control of these overhead costs on behalf of the oil and gas industry. Service providers will know that at any time they may lose up to 15% of their revenue as a result of some uncontrollable event. And therefore as a result they will be able to plan and budget themselves accordingly. Each service provider is in control of their domain which is the unique process that they manage for the industry. The cost they incur to provide their services are what they will control. It will be a manageable task in which to budget, plan and control those costs. The benefactor of this is the oil and gas industry who, as a result of the Preliminary Specification, our user community and service providers, obtain variable overhead costs and effective overhead cost control for the first time in the industries history.

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. 

User Community Developments, Part VI

If we consider the number of people that work within the administrative and accounting fields of the oil and gas industry today. And if we could account for the costs of these people. Including the payroll burden, office space and every cost that these people incur. We would be able to determine the approximate size in terms of the population and the revenues of the service provider sub-industry that we’re creating. What we’re doing is moving the existing administrative and accounting resources of the individual producer firms, and reallocating these to the service provider sub-industry. Therefore the size of the service providers would approximate this resource divided by the 3,000 service providers that we’re creating. Both in terms of cost and the number of people. The population may be smaller, primarily as a result of the increased efficiency from the service providers competitive advantages, and the cost differential between these two business models being the profit element of the service providers.

The reality of the 21st century is beginning to be realized by many people. Back in the 1990’s when I started working on this project it was the wild west in terms of Intellectual Property. If you had any, that only lined you up in the firing squad. It didn’t make you valuable or competitive, it made you susceptible. Today it’s a completely different story. People realize that Intellectual Property is among the most valuable assets that you can own. If you could own anything today, I think IP is something that would provide you with a prosperous future. I feel that you either need to own it, have access to it through a license agreement or work for a firm that has a license to some IP. Those are the only three ways in which you will be employed in the future. As a user community member and service provider I am offering the opportunity to secure your future in what I believe to be the most valuable oil and gas administrative and accounting asset available, a license to the Intellectual Property making up the Preliminary Specification.

Some people believe that the only type of organization in the future will be software companies. I fully subscribe to this fact. Nothing of value will be owned and operated in any industry through any means other than through software. You can own the oil and gas asset, for what that will be worth. However you will have to have access to the software that makes the oil and gas asset profitable if you want to be in business. (Which makes our ICO particularly interesting and valuable.) Every industry and every business will be subject to this very simple fact. Software will be the only business that exists anywhere. How do you own software? Through the Intellectual Property that it’s comprised of. Two simple facts that will drive the 21st century to what we know is possible. And that is infinitely further than where we are today. You can not compare an industry such as what we have in oil and gas today. Where we’ve had no real development or evolution, in my opinion, over the past four decades. With an oil and gas industry that will be subject to the innovation and competitive advantages of 3,000 user community members and service providers freely innovating in the decades to come.

There is always the opportunity for anyone and everyone to go about the process of developing their own Intellectual Property. The time that I’ve been at this project is consistent with the amount of time that it takes and will always take. Ideas are easy to come up with. The difficulty is proving their functional through dedicated research that proves the ideas are usable. That research only took me ten years. My offering of a license to the Preliminary Specification is the second tier of value in terms of earning any IP. And it is available today through this process of application.

Two examples of every industry and every company being a software company are HSBC and WalMart. Everyone thinks Walmart is in the retail business, it was born a software company in the 1960’s. I believe their competitive offering will defeat the “in every business” or “world domination” model of Amazon. Retail is a dying business, except for WalMart. If you look deep into their business it was never about being a retail provider, but using systems to give the customer what they want at the lowest price. Each WalMart has the ability to cater to the unique community that they’re located within. Other retailers offer the same experience in every store they own. Although I believe Walmart drifted away from this orientation in the recent past. The new CEO is investing heavily in technology and training to compete online.

It was in the early 1980’s that the Information Technology manager of HSBC was able to create an application called Hexagon that enabled a customer to “pool” their cash resources that were dispersed around the world. These cash resources were dispersed in order to provide the financial resources of each division and region that needed to function on a day to day basis. On a cumulative basis this was a very large commitment of cash and logistically difficult to manage. Therefore with HSBC’s Hexagon application each region could essentially use the same, smaller pool of cash for their purposes. An innovation that launched HSBC from an intermediate sized bank to the seventh largest bank in the world, a global giant. And moved that IT manager into the CEO’s position. The impact of Hexagon is also reflected in the fact that the company's logo is in the shape of a hexagon.

What we see in these two examples is that WalMart has moved to a dominant position since its founding and adoption of IT in the early 1960’s. And HSBC fundamentally changed the makeup of their competitive offering through IT in the early 1980’s. Other examples would be Kmart and Sears who have failed to implement any changes and are in precarious financial positions. I would argue that oil and gas would be closer to the Kmart, Sears era of IT implementation and I think that would prove to the oil and gas bureaucrats that I can be extremely generous with my comments. Going forward it would seem that oil and gas will be subject to the disintermediation that is the overall, global trend affecting business and industry. The question is where do you stand in terms of that transition? And how do you own any IP.

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.

User Community Developments, Part V

What we’ve described in this series so far is a comprehensive list of competitive advantages that the user community and service providers will have in order to provide value for the oil and gas industry. The one thing that’ll be at issue for the oil and gas producers is that they won’t have their lowest cost administrative and accounting service providers which are the be all and end all of their existence. We, meaning People, Ideas & Objects, our user community and the service providers don’t compete on price. We compete on the basis of the value that we provide the producer and the industry. In 2017 our value proposition is estimated at $668 billion which is far in excess of the fees that would have been paid to us if we were able to provide that value. Competing on price isn’t always the right solution. We focus on the creation of value by providing the oil and gas producers with the most profitable means of oil and gas operations. Our value proposition will exist for each year of our operations.

Now we’ve discussed that we don’t compete on the basis of price. And we don’t compete on the basis of having competition within the specific domain of the service providers. Your work, as a user community participant, in the development of the Preliminary Specification will provide you with a further understanding and knowledge of your specific area of technical expertise. This will form the basis of the creation of your service provider organization which will be involved in managing that domain for the entire oil and gas industry. The establishment of your service provider will not have to deal with any “me-too” competitors operating in that domain. Intellectual Property protects your domain. There are believed to be approximately 3,000 processes under management within the industry. There will be 3,000 user community members within the People, Ideas & Objects community. As a user community member you will earn your service providers domain of operation through your participation in the development of the Preliminary Specification. The process of this earning will be established with input from the user community. User community members may have partial interests in many service providers. The salient point here is that these service providers don’t compete on price and are not subject to any of the “me-too” competitors springing up with cheaper prices in an effort to take away your business. The granting of your domain as a service provider(s) is exclusive.

Therefore how do the service providers compete? There will be a rigorous competitive spirit within the service providers. Motivated by providing the producer with the most profitable means of oil and gas operations. Since your flank is never under attack by “me-too” based competition you are free to pursue other basis of competitive actions. The competitive advantages that we’ve listed for the user community and service provider will ensure there will be robust competition between the service providers. If a service provider determines an innovation that they’ve added to their process has developed value for the producers then that will be noticed by others and acted upon. There would also be no reason that service providers couldn’t share these innovations, technical or otherwise. Competition will be on the basis of a never ending search for more efficient and effective ways of providing the producers with value in some form. Whether that value is in a monetary, quality or timely basis, these will be what drive the user community and service providers to compete against themselves in a manner that will be for the benefit of all. Competing on the basis of price brings such minimal advantages to the producer that we need to discard these notions and provide the environment where people have the motivation to excel.

And you thought processing the industries data volumes were going to be a chore equivalent to taking out the garbage. Looking at the user community and service provider from the point of view of their competitive advantages I see an infinite level of opportunity for further development of value for the industry. Our collective focus won’t be on the data being processed it will be on the value that can be generated for the industry and that will be what involves the majority of our day to day efforts. Some may consider that the implementation of this may be difficult. Interested parties should review the user community vision which provides the user community with the two effective tools that make this environment possible. The first being that the People, Ideas & Objects software developers only see the user community as their customers. Outside of the user community nothing exists as far as our developers are concerned. And secondly control of the Intellectual Property provides the service provider and user community member with the ability to make the changes that they see as necessary to improve the process that they manage. Only they are the ones that have the power to make the changes, are capable, accountable and responsible to their customers, the oil and gas producers. Who better than to leave it in the hands of.

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. 

User Community Developments, Part IV

The user community will be providing its leadership through the efficient and effective management of the administrative and accounting processes. It will also be providing leadership in the form of what and where the industry and producer should be moving to in terms of business models. If, for whatever reason, the decentralized production model needs to be changed to a new model that deals with the issues of the day. It will be the user community that undertakes the changes towards that new business model. I see these changes being anticipated by the user community, their solutions to the issues and opportunities effectively handled through their design and implemented within the People, Ideas & Objects software and their service provider offerings coincidental with the changes that are occurring in the marketplace. This will form a cornerstone of their last competitive advantage, that being quality.

Oil and gas being dominated by engineering there is an aptitude toward cost control. Everything within oil and gas is subject to the principle of being the lowest cost. It is the one and only tool in the toolbox of the oil and gas producer. In this time of low energy prices, the solution is to reduce costs. Simple isn’t it. Makes the appearance of action and who can argue with you, you’ve reduced costs. Are there better ways in which to deal with the issue of low oil and gas prices? We’ll never know because no producer is willing to expand their toolbox beyond their one cost control tool. The user community and their service provider organizations will be responsible for delivering the value proposition that we’ve discussed here at People, Ideas & Objects. We’ve estimated that to be $668 billion in 2017 alone. Never before in the history of the industry has $668 billion been saved through cost control in one year. What producers can continue to do is throw the baby out with the bath water or begin using other tools to deal with the issues they find within their business. This will be lead by our user community and their proactive management of the administrative, accounting and business model development of the industry. Then the oil and gas producer will have a state of the art capability to deal with their issues, not just cost control.

That is one element of quality, the ability to deal with the issues and opportunities head on and be proactive about them. To do so in the best interest of the producer by providing them the most profitable means of oil and gas operations. Quality will also be evident in the little things that are done on a day to day basis through this environment. New software and services will track and control new data items that add real value to the producers understanding of their business. Information Technology is exploding in terms of its capabilities and with the user community, producers will have the means in which to access the users who have the understanding of their business, who have the software development capabilities through the user communities exclusive access to the People, Ideas & Objects software developers. Adding value here and there as they realize and figure out better and faster ways in which to serve their clients. The user community will have these capabilities, the power to make the necessary changes and are focused only on the best interests of the producers. Oil and gas has never had this level of quality software and service offering provided in the administrative and accounting fields. This is a 21st century organization and the means in which to deal with the future.

How this quality is implemented is generally agreed to be impossible with the current crop of producers. Creative destruction is the method that we are relying on to have these technologies and changes implemented. Bureaucrats have refused to do anything other than fundamentally destroy their producer firms and the industry. If you read the financial statements of these producers for the 2017 fiscal year it is becoming much clearer that there is not much of a future for them. Although their revenues are up as a result of the higher oil prices it's not enough. Severe damage has been done to these organizations, structurally and financially, they are zombies. Investors abandoned them many years ago when they were much healthier and I can’t see them coming back in. As has happened so many times over the past 100 years. When industries become incapable of meeting the needs of society the old is swept away and the new is put in its place. Key to this transformation will be the formation of the user community in order to organize and direct the development of the new oil and gas industry. They will be the ones on the ground with the tools in the form of their distinct competitive advantages, the People, Ideas & Objects software developers, as well as the power to make the necessary changes to the underlying Intellectual Property as we have constructed here in the user community. This is how the industry will operate in the future, there’s nothing happening in the old oil and gas industry other than waiting for the end.

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. 

Third Friday Off

User Community Developments, Part III

The Preliminary Specification is designed to provide the industry and producer firm with a framework and structure that facilitates innovation. Although we currently have an abundance of oil and gas reserves, that may make it appear that we don’t need any innovation as we have all the energy we can use. However the ability to reduce the cost, increase the safety or deal with any number of the other elements in the industry would be something that we could innovate upon. Innovation needs to be a common part of our day to day working environment in order to deal with difficulties and opportunities that we’ll face in the next few decades. What People, Ideas & Objects learned during our research was that innovation can be reduced to a quantifiable and replicable process and that innovation does not spring from just anywhere. It has to be facilitated by the organizational structure. That requires the software that defines and supports the organization and industry to be built with the purpose of developing an innovation capability. The Abstract to the Preliminary Specification captures the highlights of our approach to innovation. Any software development that is undertaken today must imbed the capabilities of innovation in the manner that People, Ideas & Objects have with the Preliminary Specification.

Therefore this innovation framework extends to the user community and their service provider organizations. As a competitive advantage we have listed innovation and technical excellence as parts of the user community members competitive advantages. This technical excellence would include an inherent fundamental understanding of the oil and gas industry as it is and operates today. It is believed that it takes at least a decade to fully comprehend the manner in which the oil and gas industry and producer operate. There is a logic and understanding that is gained through that experience that has be captured and codified within our software, the user community and service providers. Generally we are looking for accounting and administrative professions to fill the roles of the user community members, however there are many broad and diverse people who bring different perspectives to the oil and gas industry.

These competitive advantages also dictate a senior level of academic understanding and excellence. CPAs, and MBAs are the two most common advanced degrees that would provide the user community member with the academic strength to undertake this important role in the industry. Ideally we should see an orientation to the Information Technologies with experience, aptitude and courses in the various disciplines that make up IT. And there’s more. When we are looking for the people that we want to join the user community. We want the leaders in the industry who know that today is not a viable option. Leaders that say this is in no way good enough, and are oriented towards action. When you review the user community application process you will see that our demands are very high. The objective here is to develop a state-of-the-art leadership and capabilities focused user community and service providers. In terms of the numbers that we need, that being approximately 3,000 or the number of processes under management, this would be a small subset of the number of people currently within the industry who would qualify for this requirement.

In exchange we offer an opportunity to make a significant difference in the industry. The Preliminary Specification provides the producer with the most profitable means of oil and gas operations. Critical to our ongoing claim of this profitability is the role of the user community participant. This is a substantial business opportunity that I think will range in the area of $2 to $20 million in annual revenues for the service providers. We are replacing the administrative and accounting resources of the producers and establishing an industry based administrative and accounting capability. Therefore whatever the costs of those resources are in the industry today would be the approximate size of the service providers revenues as a definition as a sub-industry.

I understand and appreciate the larger population of likely candidates want to see a commitment from whomever will provide the financial resources necessary to build the Preliminary Specification. These resources include the funding of the user community. The service providers are self supporting from the revenues that are generated from their oil and gas clients. For the purpose of saving time in the delivery of our software, the preparation of your application to the user community would be timely with its submission occurring when that commitment becomes evident.

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. 

User Community Developments, Part II

The primary reason for the change from the producers administrative and accounting capability to the industries administrative and accounting capability. Is to change the nature of overhead costs in the industry. Moving them from the producers fixed overhead costs to the industries variable overhead costs. Achieving the variability of overhead costs charged directly to the Joint Operating Committee. Therefore instead of a producer incurring all of their overhead each and every day. Only the properties that are producing will be incurring any overhead. This is as the service providers, who will be the production, revenue and royalty accountants etc., will be charging their process management fees to the individual Joint Operating Committees. Therefore the producer firms overhead will be X one month while they produce 100,000 boe / day, and .5X during the month that they produce 50,000 boe / day. Making them always profitable at any level of their production profile. This is the Preliminary Specifications decentralized production models price maker strategy and the key to this capability is the service providers that the user community member will own and operate.

User community membership includes the exclusive right to manage a process in the service provider sub-industry that we’re developing. Let's assume that you’ve selected a sub process in the overall process of surface rights payments. You would have that process as your domain exclusively for the North American producers. One caveat is that some processes will be broken down by region. Such as production accounting will be better managed on a regional basis by users who are located closer to the facilities etc. Service providers are not competing on the basis that anyone or everyone could establish a competitive offering to your service provider firm. The granting of the right to the service provider is exclusive to that user community member. No one else would have access to the software necessary to manage that process across the industry. Lowest cost is not the basis of competition of the user community and service providers. We are competing on the basis of the list that was presented in yesterday’s post.

The competitive advantage that we’ll be discussing today is the automation of the business process that the service provider manages and the user community participant develops with our software developers. Automation of each 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. As the service providers owner and manager, the user community member has a unique position in which they are situated in the industry. They are managing a process for the industry, which they will have available at anytime a software development capability in which they can make the changes and improvements to the software that they use in delivering their service to the industry and they have the power to make the changes to the underlying Intellectual Property as they require or as their process requirements change. They are the people who know and understand the makeup of that process as they are the ones that designed and developed it with the People, Ideas & Objects software developers, have the background, education and experience to service their clients, the oil and gas producers, far better than they expect.

Automation of the business process has been a topic of discussion for the past number of decades. It has been enabled through the Information Technologies offerings. However high levels of discussion is about all that has ever been achieved. The issue, I believe, is the ability to have the requisite political fortitude to deal with all of the necessary stakeholders in trying to make a change. Using software vendors then brings up an additional issue in that they are unlikely to be enthusiastic about making changes to their code. We have suggested that the current software providers are constrained by their code and customers. As they develop more code it becomes more difficult to make any changes. And as they acquire more customers, deployment of those changes takes more resources. These activities do not generate any direct revenue as they are limited to the annual percentage of their sales contract irrespective of their efforts. People, Ideas & Objects are change enabled software developers. We only earn revenue through the software developments that we make. Change is the source of our revenue and therefore we are motivated to develop and create better systems with our customers, the user community participant, and their service provider organizations.

Automation will be an area of an iterative and unending exploration of what’s possible based on the status quo. Making things faster, better and more convenient for the service providers customers, the oil and gas producer, should never end as the software defines and supports the organizations that make up the oil and gas industry. Once we stop making software developments the industry stops changing and we end up with situations such as the current environment where producers fail. Software is too important to the health of our organizations and society as a whole to leave unattended. That is why the software development capability, and control of the Intellectual Property that the user community member acquires through this environment is so crucial to all concerned.

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. 

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.