The Preliminary Specification Part CCXIX (PA Part XXIX)

We want to continue to discuss the differences and similarities of the AFE process in the Partnership Accounting module of the Preliminary Specification. In particular we want to focus on the culture of the Joint Operating Committee and how the AFE process represents a large portion of the culture of the oil and gas industry. Lastly we’ll tie this discussion into the paper written by Professors Richard Langlois and Paul Robertson entitled “Institutions, Inertia and Changing Industrial Leadership”.

We have discussed many times that the People, Ideas & Objects application modules are moving the compliance and governance frameworks of the hierarchy into alignment with the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee. By doing so we are recognizing and adopting the culture of the industry in its many forms. The change that we are exercising is the removal of the bureaucracy. When it comes to the AFE process there is little in the current process used by companies that is not representative of the culture of the industry. It is optimal that People, Ideas & Objects and the user communities capture that culture in these software developments when developing the AFE process.

One area that we will provide an enhancement to the AFE process is through the elimination of the “operator” designation. People, Ideas & Objects operates on the concept of a pooling of the resources of the partnership represented in the Joint Operating Committee. This is done to help mitigate the technical resource shortfalls, particularly in the earth science and engineering areas. As a result of this pooling an AFE will be open to any one of the participants in a Joint Operating Committee to post charges to. Those charges could be for their staff who are working on the project or for costs they incurred on behalf of the project.

With each producer potentially contributing unequal shares to the joint account or AFE during a month, or over the course of an AFE’s term. The possibility that an over or under contribution of their participation might occur. Therefore monthly equalization's will need to be a necessary part of the reconciliation of the accounts of the AFE. For example, if one of the partners was to pay for the drilling day rate, and their working interest share was only fifteen percent, then they would have paid in excess of fifteen percent of the budgeted AFE. In a case such as this, the producer should be compensated to the point where their contribution does not exceed the approved budgeted amount.

All of this is consistent with the culture of the industry as it operates today. What we are proposing is aligning this culture within the Joint Operating Committee with the other eight frameworks. We are not resisting this well ingrained highly functioning “inertia” as Professor Langlois would call it.

Inertia is the focus of this paper. As is explained in more detail below, inertia has two major functions in the cycle of punctuated equilibrium. Inertia result from, and in a sense embodies, the best feature of the stable phase of the cycle because it is based on the learning process in which producers determine which procedures are most efficient and effective. Once people are satisfied that the know how to do things well, they have very little incentive to look for or adopt new methods. In the words of Tushman and Romanelli (1985, pp. 197, 205), "those same social and structural factors which are associated with effective performance are also the foundations of organizational inertia..., success sows the seeds of extraordinary resistance to fundamental change." Inertia also provides the tension, however, that leads to the (relatively) short, sharp shock of the revolutionary period (Gould, 1983, p. 153) because the pressure required to displace a successful but inert system is considerable and takes time to accumulate. When there is little inertia, change can be assimilated in a gradual and orderly fashion, but an entrenched system may need to be vigorously displaced. p. 3

Based on this quotation, bureaucracies have little inertia and can be changed, therefore we will continue.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CCXVIII (PA Part XXVIII)

In this post I want to clarify some of the similarities and differences between the AFE and Work Order in the Partnership Accounting module of the Preliminary Specification. And to point out an important difference in the People, Ideas & Objects systems documents that is different then those that operate today.

I had mentioned previously that at no time should any of the staff at a producer firm or Joint Operating Committee be working and not having their time charged to a Work Order. The People, Ideas & Objects system will have the ability to charge your time to a valid Work Order and it is incumbent on the employee or contractor to ensure that they have their time charged to a valid Work Order number. These statements were made earlier on in the Preliminary Specification and now I can state that this also applies to the AFE. So the statement should read that it is incumbent on the employee or contractor to ensure that they have their time charged to a valid Work Order or AFE.

Some may wonder what is the difference between a Work Order and an AFE. AFE’s within the Partnership Accounting module are fundamentally no different then the industry understanding of an AFE. And that is, its a means to deploy the Joint Operating Committees capital within the Joint Operating Committees domain. A Work Order is different in that it is not affiliated with any formal partnership model. It is an informal group of producers that have come together to participate in a small project that is a one time event. Which will require the need to aggregate and distribute costs and revenues based on a working interest distribution. It has a formal approval process, but not as rigid as the AFE’s in that it requires budgetary approval only. They can be internal or external and are used to control the deployment of the budget of the firm / Joint Operating Committee.

Another aspect of how both the Work Order and AFE are different in the People, Ideas & Objects system in comparison to other systems that exist today is the manner in which documents are stored. Everyone is familiar with multiple copies of files that have been edited by different people. A disappointing and troubling problem when it comes to electronic files, a disaster when it comes to documents. No one can have different electronic versions of a document. Therefore there can only be one copy of the document that is used by everyone. (Exclusions for backup etc.) Since its electronic, multiple people can be using the same document at the same time.

The best example of a system that uses this exact manner of file management is Google Doc’s. Where users have access to a list of files in which they or others they grant access to can edit the same file. Any conflicts in the editing of those files are resolved by the users while editing and the file stays as one complete edited file at all times. There is no need for someone to take edits from many files and put them into one file as is the case with Microsoft Word or Excel.

Instead of files People, Ideas & Objects will present the user with documents like AFE’s and Accounting Vouchers that they have authorized access to. They and others will have the ability to view, edit and delete based on their authorization level and be assured that only those documents exist. No other more advanced copies, or copies that are less advanced, are being worked on. The amount of time and energy that will be saved in knowing that just one document exists is not only satisfying but highly productive.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CCXVII (PA Part XXVII)

One area that we have not discussed in any detail are the processes around the Authority for Expenditure or AFE. In this the fourth pass through the Preliminary Specification I am going to break the AFE discussion down into two parts, one here in the Partnership Accounting module and the other in the Research & Capabilities and Knowledge & Learning modules. What we will discuss today are the partnership accounting aspects of the document, and later we will discuss the capabilities deployment elements in the other modules.

As with any interface in the Preliminary Specification the user has the opportunity to right click on an item and pull up a menu item called “Create an AFE”. The system will have intelligence and be able to populate elements of an AFE template with the information that you right clicked from. For the purposes of this scenario, lets suggest that you clicked on a well description. The system will then populate the AFE with the information for that well and the partners that are in that Joint Operating Committee. The suggestion was made that another lateral and fracing job be done to increase the production from the shale gas zone. And you populate the AFE with the appropriate account codes that would be used to account for the costs. Note: due to the extensive work done in the Preliminary Specification it should be anticipated that the industry would have access to a global chart of accounts. Budgeted costs were worked out with a number of vendors that you were working with who have developed some enhancements to the re-entry and fracing of multi-lateral wells. You think these are significant innovations and the costs make it a potentially valuable enhancement to the wells production profile.

To present the AFE to the partners you have asked them to join you in the “Marketplace Interface” at the vendors facility to view a presentation of their new tool. All having confirmed their attendance. At the end of the presentation you digitally sign the AFE which releases the document to the other partners. (All with the data elements that are consistent with their data naming conventions. Global AFE #’s, account #’s, etc.) You indicate the cost estimates and time frame that this can be done to the one well, the poorest performer in the facility. You also submit the engineering and geological analysis of why you think the formation will perform well to the work that is proposed.

Within the AFE document itself there is a collaborative interface for the partners to discuss issues and opportunities related to the document. During the month this discussion focused on how the existing lateral could be protected from any damage during the drilling and fracing of the second lateral. Several partners expressed concern that the program did not do enough to ensure that no damage occurred so a supplemental was raised. After the supplemental there seemed to be a consensus amongst the members of the Joint Operating Committee that the risk was certainly worth the effort and the AFE was digitally signed by all the participants.

During the collaboration it was determined who was available from the producer firms to work on the project and a team was set up to manage the engineering and geological aspects of the program. These peoples time, as well as the accounts for the vendors for that AFE were now able to accept the charges for them. Cost overruns were not expected as an arrangement with the vendor for a fixed price was agreed.

This is a simple scenario of how the firm will raise an AFE and have the members of a Joint Operating Committee approve / disapprove of it. In larger firms there would be an automated routing of the document to the various internal departments for approval. This could be done simultaneously as multiple people can be reading one electronic document at the same time. Therefore accounting, production and exploration could each be approving the AFE all on the same day with none of the paper shuffling that normally goes on. Even within each department the various people who need to see and sign off on the information can do so at any time.

This routing of the document will of course be conducted at each of the producers who are party to the Joint Operating Committees. Each also having access to the collaborative interface of the AFE document between the partners.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.