Saturday, December 31, 2005

Herbert Simon, Nobel laureate - Economics

'What information consumes is rather obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.'

The previous blog entry provides a scenario of how the technology vision 'may' affect the data requirements of an oil and gas concern. Add to this technical data, the business assumptions underlying the need to monitor the wells and you have either a competitive advantage to be used effectively, or a poverty of attention.

We don't know exactly how this technology will be implemented or the effect of it, and that is the point of this blog. I am attempting to build the ERP type systems that support the Joint Operating Committee. Where a systems development capability that can deal with the energy producers need to change, now and in the future. A need to facilitate the engineers and earth scientists the opportunity to;

  • Understand and implement the changes and advancements in their respective sciences.
  • Test theories and implement innovative techniques that expand the sciences involved in oil and gas.
Without the ability to effectively deal with these two points, the competitive advantage that 'may' occur are going to redefine the landscape of the industry. Winners will become losers and new companies based on this revised understanding will grow to replace those companies that can't compete.

Can the energy industry compete with the ERP style systems that they have now? Will they be able to position their organization for the next business cycle on the basis of a new competitive advantage? Do they have the business systems and software development capabilities that support this scientific environment? Or, does the industry as it stands today, have to fail in order for these changes to be made?

The technology vision's impact on oil and gas.

A previous entry reflected on a vision of what technology was going to provide in terms of an architecture in the near future. Typing of languages, Java's Asynchronous capability, WiMax and IPv6 were converging to make all objects, real or virtually controllable, monitor-able and manageable.

This entry attempts to document many of the opportunities and possibilities that this technology vision may provide to the oil and gas industry. How the systems are built and how the actual technologies are employed will be the topic of future entries and not specifically addressed here. Rest assured the limitation of ones imagination is the largest barrier, not the technologies capability.

If we consider the oil and gas industry is fundamentally dealing in high pressure and high temperature environments located well outside the domain of the visible, it is far easier for a petroleum engineer to determine what is valuable information that should be collected. The moment an engineer figures out some characteristic of the data, downhole tools will be spawned faster then the classic production decline. I believe this is where the majority of the innovation has occurred, and will occur in the future.

Nonetheless, if having even two defined controllable and manageable devices downhole to control some aspects of heat and pressure available to collect data for the engineer or geologist. And in the province of Alberta some larger companies are involved in drilling over 5,000 wells per year. That would be 10,000 devices that are acting in such a manner as collecting and reporting live data, and in turn being manipulated in a manner to optimize the production. Add those 10,000 devices to last years total and the amount of information that is now available is remarkably close to a tidal wave.

As a former accountant / auditor / management type my knowledge of downhole operations is limited. I do know one important fact. That oil exists in the minds of oil men. That they are currently satisfied that there is more then adequate energy for the world for the next century is beyond my unscientific mind. Rest assured they are able to do amazing things when given the opportunity.

They just need the data, a fertile scientific mind and the rest is gas in your tank. This data is now becoming beyond their reach due to the sensitive nature of time and the volume of data they are responsible for. Without a system that can be managed and manipulated at this level, their ability to meet the markets demand for energy will be limited.

How much longer will this system go undeveloped is unknown. The method for the development has now been established in this blog and we await the day the developments receive the crucial final piece, the budget of the oil and gas producer.

A community environment...

This post attempts to define a few things, so I'll state them right off and fill in some of the blanks now and in the near future.

  1. The community necessary to support these development is the explicit responsibility of the oil and gas industry to support financially.
  2. The method of payment for industry to comply with the needs of the community is through this blog's PayPal button.
Developers will consist of two groups, those within Sun and Oracle, and those that are in the open source community. They will be paid for through the proceeds provided by the oil and gas producers. All associated costs of these development and infrastructure will be borne by the producers from this moment on. A continued lack of industry funding will be the sole reason for the lack of any developments.

The method that these activities are supported is through this blog. Contributions to this development can be made through the PayPal system that this blog now receives. As the copyright owner I am the only one authorized to accept monies from the producers for these developments. I will then pay the developers, Sun and Oracle the necessary fees to ensure that the system is supported.

Assessments are being made on a global basis for these developments. The Canadian components of this system were costed at $85 million, the costs for a global system are sizeably larger. It is with this in mind that a revenue model that can be relied upon needs to be established. This revenue model will be an annual assessment of $1 per barrel of oil equivalent per year. Very affordable and a fair assessment for an oil and gas producer to pay.

Please note the costs of the oil and gas producers employees that work with the developers are to be the sole cost of the producers and are not part of this formula. The employees motivation is the opportunity to have their work completed in a simpler manner then the companies currently require, and as a result may participate at their own costs.

Software only requires one copy to be produced. Therefore the efficiencies of this model are fair and reasonable. For 2005 the total revenue for this system would total $120 million, and a company such as Canada's Encana Energy would need to pay approximately $700 thousand.

Companies that have not contributed to this program's development will be assessed any past unpaid contributions from this point forward and an annual late fee / penalty. Producers should read the McKinsey and Harvard articles that are pointed out earlier. The risks of "waiting" any longer will have the costs as identified in those articles.

Technology architecture, in a nutshell...

I am a big fan of the open source movement. The developers behind the movement are the best there is. More eyeballs looking at and improving / developing the code the better. Genesys is an open source application. This provides the access that developers from around the world to work on the code for development and improvements.

The method of exposing these developments to the world will be through Collabnet as soon as we can afford the licenses. (See the next entry for news on that front.) Collabnet is a Sun product that is available for other companies to purchase for their developments. Collabnet is what Sun uses for the Java Community Process (JCP) and a similar environment will be created with Collabnet for Genesys.

The licenses used for these developments will be Sun Microsystems CDDL (Common Development and Distribution License). Providing the opportunity to review the code and contribute anywhere in the application. The unique aspect of this license is that any use, whether compiled or via a web service is not permitted without paying the appropriate fees for use. Free to the developers and employees of the oil and gas companies to define and build the systems, and fees for the oil and gas producers to use the system for their employees use.

Another aspect of this system will be that the server, the service and all aspects of the hardware will be based on Sun's Grid. Purchasing processing power on a $1 per hour per processor makes more sense to me then paying and worrying about uptime. Access through out the world will therefore be accessible by anyone with a need for this system. Producers can be assured of high throughput, high processing capability and safe and secure data. Anything less is unacceptable. A unique aspect of this architecture is the only people whom will ever have access to the data is Sun, Oracle and the producer themselves.

Solaris has to be the operating system, there is no question in my mind regarding this open source operating system. By far the best server OS going.

The need for a database will be provided by Oracle on the Sun Grid. More on this later, a decision that is not taken lightly with respect to the history between Oracle and Genesys. Nonetheless, attempts to have IBM express any interest in this is too difficult for the right hand to talk to the left hand. And therefore Oracle gets the work.

Sun has an open source project called GlassFish. It is a Java EE 5.0 Application Server under development. As this will be the first 5.0 Java server, the fit with this project provides a lot of synergies. Since most of the conceptual design being described in this blog will be dependent heavily on asynchronous process', annotations are a requirement, and therefore Java 5.0 is required.

So in a nutshell, that defines the operating system, the infrastructure, the database and the development environment. Pretty easy this development world isn't it. Recall the copyright is held by me personally for the control and capability that is necessary to make this system real, which is what I am doing.

What's a transaction, continued...

We discussed the voucher system contained within this program, and how the "transaction" was redefined in the process as well. This blog entry will be to define some interesting characteristics of the transaction and its behavior.

To process a transaction it is necessary to establish that each and every transaction processed by the system, the world over, will be a primary key for the entire industry. That is to say that the coding structure for the transactions will need to be unique with no duplicates, not only spanning the company, but the entire industry. The code structure of a transaction will contain much of the following:

  • Company ID (Foreign Key)
  • Joint Operating Committee ID (Foreign Key)
  • Voucher ID (Foreign Key)
  • Transaction ID (Foreign Key)
  • Lease ID (Foreign Key)
  • AFE (Foreign Key)
  • Vendor / Customer ID (Foreign Key)
  • Vendor / Customer Invoice # (Foreign Key)
  • Amount
Foreign Key attributes would be enforced by the database.

As I indicated in the discussion about the voucher system, other then the differences regarding Company ID's, any of the companies involved in the joint operating committee could post and process the same code to the system. Therefore a duplicate payment check will need to not only be run within each company, but also compare information between the companies within the committee. (declarative referential integrity)

What's a voucher, continued...

In the previous post I mentioned the use of an accounting voucher to maintain the integrity, security and balancing components of the production volumes contained within the system. All aspects of the voucher need to be balanced in order to be posted to the system. This balancing usually defined in the regulations governing the oil and gas industry, Sarbane's Oxeley and / or other SEC or pertinent requirements. This entry will begin to define what a voucher is, and what it is not.

The voucher is a unique entity in this system and provides the majority of the inherent checks and balances of the system. The vouchers and transactions have different meanings and connotations in this environment.

Recall the point of organizational structure on this system is the joint operating committee and as a result the entire manner that things are defined is fundamentally different. Further discussion of vouchers is necessary at this time, and subsequent entries will define what a transaction is. The difference between what a voucher is in many other systems is more consistent with a transaction, and it is important that I define that a voucher is not a transaction as it is traditionally understood it to be.

Let's start by defining what other vouchers in the system do. From monthly production volumes, employee / contractor agreements, drilling contracts, anything and everything that would be of a long term relation with the joint operating committee and or require more then one traditional accounting period to complete. A voucher would be where individual transactions are processed and posted. Processed and posted by any one of the members of the joint operating committee representative firms.

The most important characteristic of a voucher would be its span across the companies that are active / involved in the specific joint operating committee. So that company a, b or c would be able to post a transaction to the joint account, and the voucher verify and distribute the costs / revenues accordingly.

AFE's and leases would therefore maintain their traditional roles of collecting costs and revenues, capital budgets and operate in much the same manner that the traditionally have. Statements of Operations and Statements of Capital. That is as accounts accumulate and maintain the cumulative balances to date.

Vouchers span multiple companies and are associated with one Joint Operating Committee, transactions are transactions that are processed by any of the companies involved in the specific joint operating committee, eliminating the concept of status, somewhat, of operator / non-operator. Vouchers can span multiple accounting periods, usually, and are associated with a business relationship that is contractually based. (Drilling contract, employment contract etc.)

Again I am describing a complex issue with the system and entering new concepts to the oil and gas industry. To add one technical detail that these vouchers, transactions, joint operating committee's, afe's, leases, contracts, individual companies and vendors / customers are all defined in URI's that are approved by the partners. More on this technical detail later.

Managing accountability, integrity, security...

For the lack of being unable to come up with a better name, lets call the accountability, integrity and security components of this software the Integrity Systems. From now on we will refer to this concept as this.

The problem
The problem that needs to be addressed in these developments is the ability to understand and rely on the web services to ensure that data is correct, safe, balanced and meeting the data's requirements of reporting. If we think back to the technology vision and how that could affect the data domain that an individual will be responsible for, it will certainly boggle the mind. How an individual will deal with this problem will be to ensure the policies and procedures regarding their data is managed properly by capturing the requirements in this system.

If an individual deals with too many reports today, remember that we are quickly approaching the point where there is more data and information produced in the current year then all previous years before, just imagine when we hit that point. This may seem far off for most, however, I think we may be there in 2007.

Controlling this information has to be approached from a more constructive point of view. The user needs to have the system manage the items to ensure that the requirements are met, is this data required for the Sarbane's Oxeley reporting and other SEC requirements, most definitely, is the data shared within the organization, most definitely, then by whom, what about partners, vendors, contractors? Holding your cards close to your chest and not letting anyone seeing anything will seem so ridiculous in this environment when compared to the responsibility and obligations that the data and information bring to your organization.

This data explosion will be the death of the large organization as it exists today. They will choke and gag a slow death as they attempt to find out what the source of their problems are. This is why this site is so important. It needs to be built to ensure that there is a means to do the job when the hierarchy and bureaucracy fail.

Some oil and gas specific problems.
A concept has to be formed around the integrity of the oil and gas production volumes. These volumes need to be grounded in some manner to the accounting system. When a producer reports production from a well all the pertinent data is generated from that production volume that was formerly done by accountants. The system can add, subtract, multiply and divide with greater consistency and accuracy then a human can, trust me on this.

That a change in production volumes would have the same commensurate change in the accounting data. (adjusting for revenues, royalty, partner share, etc.) This integrity was conceived to be captured and managed within the Accounting Voucher of the system. The Accounting Voucher being a document that manages the integrity, source data and to a greater extent, the process necessary for the system. It takes some serious time and effort to consider all the implications, both positive and negative of this type of system.

This process management is consistent with the asynchronous manner in the technology vision noted in an earlier entry. The asynchronous manner of the accounting system brings a freedom that is not otherwise available. The first concept will be Snapshots, and Variable Snapshots. These are the traditional reporting requirements of an organization, but they have no defined time period. A balance sheet as of two minutes ago. An income statement for the last eight years up to this morning. What has time got to do with an analytical reporting period. Snapshots will be prepared for the statutory reporting requirements of course, but for knowledge and analytical purposes, time adds no value to the decision at hand. After all you know the system is correct because your auditors verified these systems as the most accurate available.

Adding to the complexity of the system is the need to have the Integrity System manage the regulatory compliance of the governments royalty regimes, land and concessions, or as I have called them here the Petroleum Lease Market (PLM) Systems, the SEC and most particularly Sarbanes Oxeley.

Many questions arise as to the source of the reason, purpose and value of a system with these integrity constraints. Based on my strong belief that the manner that a systems checks and balances are inherently stronger then those that rely on human intervention. Choosing systems based methods over human based methods is a choice based simply on the superior method of implementation. We have the technologies and capability to make a system that will alleviate many of the mundane, yet important, audit, internal controls, and verification of data as opposed to the reliance on human capability. The paradox is that these systems in turn are responsible for the tidal wave of data and information.

The value of this Integrity System is that it will free the user to focus on the elements of creative and value generating components of the business. Just as systems have reduced the management of data from human to a system task, these Integrity Systems seek to reduce the process management from a human to a system task. As I like to say, when Henry Ford invented the assembly line, what type of worker was then required to man it? This type of question should be asked by anyone affected by these systems.

Key to the success of this subsystem, is the challenge to the developers to be able to capture these requirements within, not only the asynchronous manner of the oil and gas industry operations, but also define, manage and control the process of reporting and their associated, ever changing requirements.

Based on what I know of Java, and its strict adherence to typing and security, this system can only be built on a language as rigorous as what Dr. Gosling has created. This is where the genius of the man will be proven.

Web 3.0

Web 3.0 has been declared and I have to say that reading these should be done with the understanding that for oil and gas producers in the world, this site is the "where" Web 3.0 has started for the oil and gas industry.

No one knows how this will develop, and therefore relying on the copyright of the original idea that I published in May 2004 is the strength of this offering.

John Seely Brown and John Hagel were key individuals in describing the web services paradigm. I used their papers extensively in my thesis. Their documentation of the concept is located here and is based on this blog and this other blog that should be included in your RSS feed no matter what industry you are active in.

I made the sarcastic point in my thesis of:

"The only requirement for the technical revolution to continue is for the coup to trigger the signal. Metaphorically speaking, of course."
I reiterate these words with the one change, the leader is dead.

Another McKinsey article...

The title of this entry is the URL to the article at McKinsey. Registration may be required to read the article.

An interview of the CEO of Manpower, the large temporary employment agency. The article notes the difficulty in the market for individuals, the risks to organizations and the fallout of non-action.

Noting that many of the issues that companies are facing today are attributable to the chronic and systemic downsizing that companies have conducted. The looming shortage of quality staff and the strategy that a firm needs to employ to offset many of these issues and risks.

Why the copyright?

Simple, to protect and control this project through the difficult stages that remain ahead, and those that have been successfully overcome to date.

Copyright law provides an author the exclusive monopoly rights to the concepts created in the works. The use of the joint operating committee, and the definition of software as being the defining component of an organization are two of the strongest innovations contained within the document. Others are there, however, we'll focus on these two for the purposes of this entry.

To prepare a derivative work is the exclusive right of the copyright holder. Therefore in this case the right to build a software based system on these two key attributes are the exclusive domain of myself. This provides me, the copyright holder, with the ability to control the development of all the technologies associated with this innovation. I can sell the copyright, license it or do nothing with it if I should so please.

My choice is to use the copyright to bring the innovation to the marketplace under my direct control, and hence for my commercial benefit. If I had to rely on other competitive aspects, such as speed or capability alone, the ability to compete would eventually decline.

So, is the choice to compete on the basis of intellectual property wrong? I don't think so. If you want to compete in the oil and gas ERP market space against me, come to the game with you own unique method of organizing an oil and gas company, or on the basis of some other manner that you believe is superior to my use of the joint operating committee, and lets knock out the solutions from there.

The ability to rely on a copyright is implicit in everything that you right. It is therefore very important to attribute any of the fundamental underlying theories that your innovations depend upon. For me this included the work of Dr. Anthony Giddens and Dr. Wanda Orlikowski and most importantly Dr. Giovanni Dosi.

The inherent desire to keep the secret from the rest of the world to avoid anyone from stealing the idea is 100% the wrong way of protecting it. The idea behind copyright is to publish the work so that the rest of the world can benefit from the knowledge and continue to build off the innovation of your work. The simple act of publishing is all that is required to protect the idea. By keeping it secret provides no value to society and no protection if someone else publishes the idea first.

So those companies that want to keep the engineering and science work under wraps are only hurting themselves in addition to the rest of society. It should be carefully noted that many large firms have a valid claim for the ideas that you generate during your day to day job. Your employer has paid for the rights, and you may have renounced them when you were hired. So make sure that the valuable ideas that you have are your own.

The time value of a copyright is international in scope and lasts for 70 years after my death. I think this was done this way to ensure that it was not motivating to knock off an author to get to the product. For what ever reason for this extended time frame, it is an excellent method for me to secure that my family has food on their table for many years after I am gone.

So the open source community is wrong in renouncing the rights to the copyright? Nothing could be further from the truth. Open source is a verbatim interpretation of the copyright law as I have explained it here. The "licensing", whether on the GPL, LGPL, Apache or whatever license provides the rights to use it, and contribute to the benefit of the copyright owner. Code submissions are therefore renounced to the copyright holder by the author of the code. Software should never have the compiled binary distributed. To have them open to all that may be of interest are for, again, the benefit of society and / or the copyright holder.

That is my interpretation of copyright law that I am relying on to protect my ideas. These are my full rights and I think I need them to protect the idea and myself. As we continue with this blog we will revisit many of the components of copyright law and this entry specifically.

The two particular take-aways from this entry are;

  • I will compete on the basis of the unique attributes of my ideas. Competition will have to come in the form of other methods that are able to stand up competitively to my methods. Of note SAP is the bureaucracy, in that it defines the organizational structure and is constrained by the installed base of their intellectual property. I certainly welcome them to attempt to compete against this.
  • Open source development will be for the sole benefit of the copyright owner. The right to prepare derivative works is granted through the license, which in turn renounces any code or developments to the copyright owner.
It is my fundamental belief that the initiative to proceed with these software developments is not held by the oil and gas industry. Their desire to fund this development does not exist, and may never exist, due to the nature of their conflicted motivations. The ability to have the software conduct and host the entire accounting and administrative aspects of oil and gas is possible with the quality and diversity of open source initiatives, this copyright, and the markets need for more oil and gas.

Therefore, those accountants, auditors, lawyers, landman or software developers that contribute to this project will benefit from having their ideas and concepts incorporated with the remainder of the communities membership. This providing those professionals with the ability to earn a better living in their chosen career. The source of their income being generated on the basis of their contractual arrangements with the producer.

The source of the revenue that the copyright generates will be derived from the producers that use the system. These copyright revenues will support the development and operating costs defined by the community, in order to do their jobs. It is important to note that as information becomes ever more abundant, to work in the hierarchy will require 80 hours per week to the job, or in oil and gas the alternative is to use this system and its modern architecture to halve the time necessary to do the job.

Lets start here, and lets start now, to change the way that oil and gas companies throughout the world are managed. And most importantly, have some fun.

Excellent article on oil and gas...

Provided by McKinsey Consulting. A definite read for anyone in oil and gas. (Click on the title for the url)

A technology vision.

A lot has happened in the past decade. Information technology has had its ups and downs and has provided some significant changes in the ways that business is conducted. This blog dedicated to the changes that information technologies are having on the business landscape in the energy industry. These underlying IT changes are derived from a vision of what and where the Internet will become in the very short term. This entry noting the components of the vision and detailing some of the aspects of the changes foreseen.

The 4 major components of the vision are of significant simplicity, are currently being implemented globally, and are only waiting for a final integration to occur. Just as many technologies need to be learned first hand before they are understood. These technologies share what I would suspect is their largest impact by building onto the comprehensive architecture of the technology environment available today.

The four components are as follows:

  1. IPv6.
  2. Object Oriented Programming (OOP) with particular emphasis and focus on Java.
  3. Asynchronous Process management.
  4. WiMax.
IPv6 (Internet Protocol version 6)
The first component is the network protocol IPv6. Current operations are conducted on the IPv4 protocol which is 2 to the power of 32 and version 6 provides 2 to the power of 128. A number of static IP addresses for every square inch of Earth. I suggest this eliminates the "Client Server" architecture we know the Internet as today. IPv6 provides a situation where every "network aware" device could be identified, controlled, managed, monitored, AND, monitor, control, identify or manage. Or in other words the ability to operate as either a client or a server.

Now these items don't require any "new" technologies be created, only adopt what is available and standard. Today most of the cell phones on the 3G network are operating on IPv6. Both China and Korea moved to IPv6 in 2004. The rest of the world is implementing IPv6 as quickly as they can, with North America being one of the slowest implementations. This slow response is predominately due to the large infrastructure already in place based on IPv4.

Elimination of the client and server model will have a dramatic overall effect in the way that information technology is deployed. There is really a very limited amount of work that a client can do, whereas servers are the main workhorses.

Other advantages of IPv6 include its more modern design that integrates better security, identity etc.

Object Oriented Programming (OOP) and Particularly Java
The difference between Java and most of the other OOP is its strict adherence to typing. Typing is a term that defines and requires every object be of some "Type". This ties the language to the real world in that any object that exists, either real or virtual, can be recreated, and their behavior reflected in the Java language.

A like copy of any object can therefore be replicated virtually by the Java language. This gives the user the ability to control, monitor, identify and manage any object through the Java language. Again a very simple interpretation of the language and its capabilities.

Asynchronous Process Management
Asynchronous vs. Synchronous communications can best be reflected in the differences between a letter vs. a telephone conversation. Synchronous communications and activities have the unpredictable nature to them. They are able to accommodate the unpredictability of the situation by both parties being their to rectify issues as they happen.

Asynchronous communications and actions have the tendency of not being predictable due to the nature of things never go like they should, or that the reply / response isn't necessarily what was expected.

Here is where the Java language can implement the asynchronous communications and actions with the objects so that they can deal with life's little problems. Asynchronous actions can be replicated in the Java language and over time acquire any and all possible characteristics or behaviors. This is through the developers ability to write methods of exception handling and explicitly in an asynchronous manner.

Simply the loss of wiring has a liberating effect on the entire information technology architecture. Connections that are simple, powerful and cheap and the final component of this vision.

The ability to broadcast and receive a signal to the Internet at anytime, anywhere. If we think back it wasn't too long ago that we just started using the Internet on an "always on" basis.

Wrapping up the vision
The only limitation to this vision is the limit of ones imagination.

That's the what, here's the how...

Up until now we have discussed what the organizational changes could and should be. Moving to the Joint Operating Committee (JOC) as an organizational model has an air of being too philosophical or non-tangible and there is a need to have some meat added to the concept. So here is how I see the manner in which this type of system could be developed to meet the needs of the oil and gas industry.

I am going to call the initial phase of this system the Petroleum Lease Market (PLM). All associated documents and functionality will be built from here. (When things are developed.) The PLM is a database of the Petroleum & Natural Gas Leases for the land governed by the state, province or lessor. The lease, or concession, entitles the holder to the mineral rights and is the start of the process of exploring and drilling for oil and gas. This therefore being the natural place to start any software developments.

The lease documents are populated into the database to represent the mineral rights for the region. The population contained within the database would be those that are under lease, being posted, auctions and prospective lands. The level of detail of information queried and available by an authorized user, actively monitored, recorded and controlled by the system.

The ability to then buy, sell or trade these leases would be possible through a variety of transactions managed by the system. Or, in other words a market complete with its own community is formed.

From here the derivative works of the Farm-in, Farm-out, Novation, Joint Operating Agreement and / or Construction Ownership and Operator-ship could be developed through the collaborative environment of the PLM. Additional documentation such as the operating and accounting procedures would be available to be negotiated, documented and executed electronically in this collaborative environment.

The PLM would be a virtual portal that gives the producer, investor, employee access to the Lease, agreements and its associated history. It would literally be the area where people would "go to work." Having both a Private and Public interface to the data elements and functionality, a producer who has an interest in a certain area would be able to engage the owners of any lease of interest, on future business opportunities and from there, pursue subsequent operations.

Employees and contractors could actively contact producers and investors to offer and provide their services to work as consultants in the day to day activity of the lease, or contract for drilling rigs etc. Adding additional developments to manage the approval of AFE's, Contracts, Statements of Operations, and Statements of Expenditures. Tying these latter components into on-line commerce based on the comfort level of the individual producer.

All of these operations are derived through the Joint Operating Committee. As was mentioned in the research document, the financial, legal, cultural and operational decision making frameworks, why not move the accountability for those decisions over to JOC? This conceptual alignment has received immense tacit support by most of the people who are employed in the oil and gas industry.

The accountability is managed by the hierarchy because that is the only logical manner in which an organization could control their assets during the past 100 years. Now with the technologies available for "Collaborative Commerce" (recall Harvard's term) the hierarchy is not necessary for the purposes of 21st century operation, particularly in oil and gas.

Sarbane's Oxeley has placed an additional burden on firms from an accountability point of view. The level of documentation and detail necessary has to be codified in the systems. This naturally fits the organizational point of view of the JOC far better then the hierarchy. I fail to understand how a CFO who tells the market the company will increase its production by 10% in the next year, when in reality his scope of influence can not impact the operations to that level.

The final point of this entry is the cost of these developments need to be bourne by the hierarchy. (And hence why it hasn't happened yet). The expectation that this level of system development can be undertaken by the open source movement is too great a burden at this time. However, I would project that the open source movement could commence these types of developments in less then one year from now.

By early 2007 the oil and gas industry may be subject to the development of systems that they are not directly sponsoring. This is the type of situation we will see in the near future of all systems for all industries. Open source is very powerful you either get on board or get run over.

The last point is the methods that the industry would pay for these transactions. The producers would need to subscribe to the system and pay a nominal fee for each transaction. I can assure you that no employee or individual would ever have to pay for access to the system. The oil and gas industry > $2 trillion industry. The employee's use is almost guaranteed due to the fact that the alternative is to work the 80 hours that their jobs would take through the traditional hierarchy. This is the definition of Web Services and accurately reflects how things may be developed in the near future.

Some freinds joining the party...

The expiration of the use and function of the organizational hierarchy is also being discussed by some heavy weight think tanks. Harvard publishing and McKinsey & Company have both published works that address the need for organizations to use the collaborative tools available to eliminate the negative attributes of the hierarchy.

Harvard's book is directly on topic with its introduction of what they define as "collaborative commerce". A name that I like, and one that describes these concepts far better then the traditional "web services". Noting that the speed of innovation, and increased competitive advantage are at hand for the companies that implement these systems and procedures. Noting also that collaborative commerce in turn provides long term sustainable advantages.

I think that the only difference from the Plurality document and the Harvard book is that the focus on systems in oil and gas, where as Harvard notes the need for "commitment and change across a number of areas: governance, strategy, process design, information technology infrastructure, people management, culture and change, and measurement."

McKinsey's article is right on point with the focus on systems. Entitling the publication "The Next Revolution in Interactions" this in my opinion ties it into the "Web 2.0" discussion that many people have branded the concept, and of course is consistent with Harvard's "Collaborative Commerce". Providing the entire article in a down loadable podcast was also what I thought was a good idea that I hope to see more of.

These two new articles combined with the Plurality document are excellent road maps to the means of innovative organizations. I hope you enjoy them as much as I have.

"Plurality should not be assumed without necessity"

The following are the two key concepts of the research I conducted that form the foundation of this blog. The research proves the Joint Operating Committee forms the natural form of organization in oil and gas, and that to change an organization requires that systems be built based on the organizational model used, first. Suggesting that SAP is the bureaucracy. This entry consists of a heavily edited portion of the Abstract of the similarly entitled research report. Readers can email this blog to secure a .pdf copy of the research report.

The title does not appear to mean much until it is explained further. This statement was written by Ernst & Young in a 1997 report to the World Bank, and was described as: 'it's not what you know that you do not know that hurts you. It's what you do not know, that you do not know that will. It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle,
than to bring about a new order of things.' Knoop & Valor (1997). "Plurality..." is also known as Ockham's Razor, its modern interpretation being "The simplest explanation is more likely to be correct."

This statement clearly reflects the times we live in today. The difficulties in business appear to be expanding exponentially and inversely to the capacity to deal with them. Change within organizations is difficult when the constraints of a hierarchy are imposed on the employees within that organization. Additional issues that effect the organization are accurately reflected in the following statement:

'What information consumes is rather obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.'

- Herbert Simon, Economist and Nobel Prize recipient.

I undertook this research in 2004 for the following purpose;

To test the hypothesis of:

  • The corporate hierarchical organizational structure is an impediment to progress and most particularly, innovation.
  • Determine if the Industry Standard Joint Operating Committee, modified with today's information technologies, provides an oil and gas concern with the opportunity for advanced innovativeness.
Research questions (In summary)
  • Has the hierarchy's value expired?
  • Can the scope and understanding of the process of innovation; be reduced to a quantifiable and replicable process?
  • Will the Standard Joint Operating Committee (SJOC) facilitate the means to innovate?
  • Does the industry need to change from a banking to a science and engineering based mindset?

Several of the fundamental factors underlying the oil and gas business have changed.

  • Commodity prices are providing a reallocation of financial resources to facilitate innovation.
  • Earth sciences and engineering disciplines will expand substantially in the 5 - 10 year time frame.
  • Oil and gas is entering a phase of complexity, risk, and reward particularly in:
  • The mature Western Sedimentary Basin.
  • The Arctic, a harsh and remote area.
  • Heavy oil.
  • Offshore operations, Pacific and Atlantic.

The scope of operations of an oil and gas concern are geographically, politically and scientifically diverse. The hierarchy limits the detail and focus to deal with the political and technical difficulties of each facility. Expecting an organization with these constraints to innovate is foolhardy.

The hierarchy has created Information overload, which in turn has created a paralysis in decision-making, directly affecting the capacity to change and or innovate. The hierarchy's bureaucratic, complex and conflicting lines of authority have muddled accountability. The ability to identify success / failure,
to share those experiences, and to learn from them has diminished and is not progressing. Calgary, as a collective group of independent producers, is discovering constraints to its ability to drill wells in the prairies. How can an industry with these constraints consider the complexities of the geopolitical,
technical and operational concerns in the frontier areas of oil and gas.

Research results.

What's the problem, the JOC is operating as usual? However, the:
  • JOC is not directly accountable for its operating decisions in terms of financial performance.
  • Smaller reserve opportunities require greater effort, innovation, consensus and focus.
Advantages of the JOC.
  • All participants are motivated equally. Financial opportunity drives consensus.
  • The SJOC is the legal, financial, operational and cultural foundation of the oil and gas industry. All the internal processes tacitly support this fact.
  • The participants in SJOC hold significant technical and managerial capabilities.
The scope of operational authority of the committee is constrained by the participants financial interest in the property. The committees formation is traditionally formed around a geographical area, is traditionally limited in it's geological and aerial extent. This naturally limits the focus of the committee to
that facility. The SJOC is therefore motivated, and has the appropriate level of focus for the needs of an innovative organization.

The disadvantages of the conflict between the SJOC and the traditional hierarchy.
  • Introduces political and bureaucratic conflict.
  • Compromises and muddles internal decisions.
  • Lacks the direct support from the hierarchy.
  • Eliminates initiative and innovation. No tolerance for risk taking or experimentation that is required for innovation.
  • Successes and / or failures are not identified, shared or learned explicitly by any of the participating organizations. Knowledge is held tacitly, limited amounts of knowledge is codified or made explicit.
  • Conflicting processes between the hierarchy and SJOC impede not only innovation, but the speed and capabilities of the organization.
  • The SJOC is not directly accountable.
  • No consensus on performance related goals or objectives.
  • No regulatory or internal financial reporting requirements.
  • The hierarchically based organization is an impediment to future progress.
  • Capacity to replace reserves has become logistically, operationally and organizationally constrained.
  • Capacity to meet the market demand is diminishing.
My research's conclusion.

The classic hierarchy's useful life expired and its existence conflicts with the efforts and capabilities of the JOC. The Industry JOC is the natural form of organization for oil and gas where the participants of the committee are supported and augmented through the diversity and availability of the remaining organizations team members. A greater alignment to this conceptual model would facilitate the desired
innovation. SAP and their competitors tacitly support the hierarchy and bureaucracy that obstruct alignment to the JOC. And without explicit support for the JOC, these ERP systems are inappropriate for an oil and gas organization. Genesys'® research and software developments are the only opportunity for producers to acquire ERP styled systems based on the JOC.

This blog is being developed to broaden the communication of this message and to codify the tacit and explicit support that this concept has achieved. Although it sounds radical, it is met with strong support by members of the oil and gas industry, whom understand implicitly the benefits of this method, and at the same time seeing how many of the large issues regarding innovation and demand for oil and gas are able to be met.

I will provide further evidence that this concept has some legs to run further, with current research that reflects the technical and collaborative environments are having a significant impact. I hope to have a vigorous discussion around this concept with the express interest that; licensing of the copyright to prepare a number of software related derivative works be started.

Thursday, December 29, 2005

A new blog...


I want to invite everyone to this new blog to discuss the role of innovation in oil and gas, a topic that is complex, is being addressed globally, and might possibly be one of the most important corporate issues throughout the business world. That issue being how do we continue to fuel the global economy?

The purpose of this blog is going to be threefold,
  1. discuss the methods of organization of oil and gas firms, and specifically the possibility of replacing the hierarchy or bureaucracy with the industry standard Joint Operating Committee (JOC).
  2. debate the attributes and elements of innovation in oil and gas.
  3. explore the impact of today's information technologies, and their role in making energy firms more innovative and accountable.
I would welcome any and all comments from readers and encourage a lively debate through this fascinating new medium of blogging.

Thank you

Paul Cox
People, Ideas & Objects