As an operational service provider, you will be responsible for the management of a process on behalf of the oil and gas industry. A simple job some might say, I would argue that it would be one of the most technically challenging and demanding businesses that could be considered. The dimension of the work would be breathtaking in terms of understanding the scope and scale of the work that is undertaken each month. Without getting into the details of a specific process, and speaking only of the generalities, I want to discuss the scope and scale, and the details of the “what” and “how” of a service provider in the People, Ideas & Objects Preliminary Specification.
Having as the process domain, the entire North American producer population to manage would be a difficult and challenging task to grasp initially. The approach to the process would be fundamentally different than that which would be done in a junior oil and gas company or ExxonMobil. Even they don’t come close to that scale of the proposed volume. Therefore the need to design the process within the user community from the basis of some new method of organization will have already been determined as a result of your early participation in the People, Ideas & Objects user community. The softwares design and process management will be consistent with this new philosophy.
As a result of this new philosophy, the user community research will have determined a new level of specialization and division of labor for the people that need to be involved in that process and the tasks that they will need to do. Defining what the computers and what the people can each do best. As we have noted here many times before, computers are good at storing data and processing information. People are good at making decisions, collaborating, innovation, ideas, planning, creativity, design, leadership and problem solving. This new specialization and division of labor between computers and people will be the base that your service provider will use in this new oil and gas environment. It will be one of the things that you use to enhance your service to ensure that the oil and gas producers continue to achieve the most profitable means of oil and gas operations. A new specialization and division of labor that will provide better services and lower costs to the producers and reveal new ways in which to do business that can add value to their organizations.
And participation in the user community will continue as a result of your work in the service provider. The need to make changes in the specialization and division of labor has to be initiated in the software first and foremost. We are defined and supported, and constrained by the software systems that we use. Any change that we make in our organizations must first be made in the software. As a member of the service provider sub-industry your role in the user community continues so that you have the ability to affect the changes necessary through the People, Ideas & Objects software development capability and user community commitment and vision. This feedback from the service providers is one of the primary reasons that there will be constant development work being done on the systems and services provided by this ecosystem. All to the benefit of the oil and gas producers enhanced profitability.
If this sounds like the more appropriate manner in which to operate the industry. One where change and dynamic capabilities are the competitive advantage of the oil and gas producer. Then you can join me here. The alternative is to continue on with the profit destroying methodology of each producer attempting to develop the entire scope of administrative and accounting capabilities in-house with no sharing of those capabilities. It can’t be that I am the first that asks if that is working.
I want to continue on with the discussion of the operations of the service providers in the environment of the People, Ideas & Objects Preliminary Specification. The service providers role is a critical one. As we discussed, they have the capability to implement the toolset of specialization and the division of labor on the administrative and accounting processes of the oil and gas industry. The Preliminary Specification moves these capabilities away from each producer having to build the administrative and accounting requirements in-house. To a reliance on the capabilities that are provided on an industry wide basis. This movement of capabilities enhances a producers profitability by reducing the heavy burden of building the enormous capabilities necessary to operate an oil and gas producer today. As a result of this movement, each process that the producer has will be made available through a service provider for a service transaction fee.
It is on the basis of changing the relationship of how the producer accesses their administrative and accounting capabilities that we are able to enhance their profitability as we noted above. However, it is also how we are able to implement the decentralized production model. This model provides the capability of the producer to implement a “price maker” strategy that will be a key competitive capability in this shale based reserves era. This is enabled by the producer shutting in any unprofitable production. Reducing the amount of the commodity on the marketplace and therefore increasing the commodities prices. At the same time, during the period that the production is shut-in, the reserves are held for a time when they can be produced profitably. The property records a null operation as there are no revenues, no royalties, no operating costs and no overhead costs. The lack of overhead costs being incurred is a feature of dealing with the administrative and accounting capabilities on an industry wide basis. When the property is shut-in the service providers will receive nothing from the task and transfer network that will cause them to incur any administrative or accounting action or generate a billing for their services for that month.
The task and transfer network is a part of the Preliminary Specification that will be developed in a variety of different modules. It provides the high level of automation that is necessary for the service providers to efficiently process the oil and gas producers operations. The task and transfer network is the automation of the processes that is a key toolset of the service provider. Just as specialization, the division of labor and cloud computing are key toolsets of the service providers. It is the application of these tools that are the focus of the service providers in providing the oil and gas producers with the most profitable means of oil and gas operations.
The task and transfer network is the beginning of automation of the producers process. When an activity occurs at a property such as production, construction, operation or drilling for example. Then that activity invokes the process management of the software and the pertinent service providers. If nothing is conducted at the property to invoke a process at the task and transfer network then no administrative or accounting work is incurred by the software or the service providers, creating no billing from the service providers. The producers are being billed only for what they use. It is in this way that a producer can control their costs and ensure that they are able to have higher profitability at lower production volumes, and achieve higher commodity prices by removing their excess, unprofitable production from the marketplace.
It is the service provider that resides at the point of discovery and conflict of the producers administrative and accounting operations. It is there that they can improve and enhance the process through the substantial toolset that they have at their disposal. Key within that toolset is the People, Ideas & Objects software development capability and their direct participation in the user community. And it is in that way they can effect real change to ensure that their producer clients are provided with the most profitable means of oil and gas operations.
To call the service providers a sub-industry of the oil and gas industry is appropriate based on their scope and scale. Replacing the industries administrative and accounting capabilities that are housed within each individual producer involves a lot of individuals. And in terms of costs, on a North American basis, it is estimated that the producers incur $40 to 60 billion in G&A costs that would be reallocated as revenues to the service providers. A significant change in the manner in which the oil and gas industry is operated. However People, Ideas & Objects, the user community and service providers value proposition over the life of the shale based reserves is in the trillions of dollars in increased commodity revenues. Therefore the prospect of this change is justified just on the enhanced profitability of the producers. Additional value is generated based on the ability of the service providers to exercise real economic growth through the toolset of specialization and the division of labor.
Arguments against this change will be bureaucratic in nature and their self centered needs. Only a bureaucrat can aspire to defend the current administrative and accounting needs of a producer firm as being anything but necessary. Through the compliance requirements of the various government agencies, the sophistication of the society that we find ourselves in and the needs of the oil and gas producers partners. The administrative and accounting requirements of an oil and gas producer are one of the chief causes of the poor profitability in the oil and gas industry. The business model that the industry is structured under, the high throughput production model, requires that the producer produce at capacity at all times in order to cover these expensive overheads. Production at capacity is leading to the low natural gas prices that are creating the systemic losses that will lead to the demise of the industry at some point in time. The bureaucracy is quite content to wait until that time, I feel we should do something about it and have proposed the Preliminary Specification as a solution to the lack of profitability, performance, accountability and innovation within the industry.
It is the light weight of the producer organization under the Preliminary Specification that enables some of these desired characteristics. Having the administrative and accounting provided by the service providers has left the C class executives, the engineering and earth science resources of the producer firm, the land, some legal and support staff. With this small footprint, no matter the size of the production profile, the producer firm is able to focus on their key competitive advantages of their land and asset base, and their earth science and engineering capabilities. Having state of the art administrative and accounting service providers is what they will have on a service fee basis. Accessing this industry wide capability and freeing them from the task of building the administrative and accounting capabilities in-house.
This will enable the producer to be able to focus on their business of generating greater value for their shareholders. The service providers capabilities will also accommodate change in the manner in which the producers do their work. Through the user community participation and the People, Ideas & Objects software development capabilities the service provider can enable change in the software and processes to increase the productivity of the producer firm. Changes made within the oil and gas producer itself, and changes to enhance the producers key competitive capabilities. These can be handled by the service provider to ensure that they are adopted within the processes that the producer uses. Enabling a further specialization and division of labor within the earth science and engineering disciplines. Something that is suggested here that is necessary in order to address the shortfalls in these critical resources over the mid to long term.