Wednesday, May 31, 2006

"Petro Canada was forced to make a hostile bid."

Its 1982 and Canada has just passed its new "Liberal" governments budget. Petro Canada, being the product of the Canadian government's attempt to emulate the rash of 1970's style third world countries. Commenced the nationalization of petroleum assets. Venezuela, Mexico's Pemex and Libya were the prototypical examples that the Canadian government used to nationalize the Canadian oil and gas industry under Petro Canada's "management". Under the premis of a "back-in" Petro Canada was handed many of the most handsome oil and gas properties in the country. The fact that they were owned by other companies was not an issue. And as is the case with other third world nations, why would Petro Canada assume things are different in 2006.

With the Federal treasury in tow, Petro Canada went on a spirited acquisition trail. Foreign energy producers like Shell, Texaco, Chevron and BP soon learned that Canada was not hospitable towards foreign investment, and hence found little market value for their assets. Having adopted discriminatory tax policies that favored Petro Canada, foreign companies sold at distressed prices to Petro Canada. So when Petro Canada used these two methods to acquire assets, we see the attitudinal reason for their lack of patience with Canada Southern Petroleum and their Arctic assets. (Remember Petro Canada must be known an explorer.) Or as I have stated before, Petro Canada and its management are entitled to their entitlements.

Petro Canada in today's Calgary Herald indicates that it has not necessarily given up on Canada Southern Petroleum Ltd. (Recall its "Wednesday's corporate strategy" today). However as they are quoted as saying,

"It was toward the end of the process that Canada Southern came back to us with their estimate of value, which was significantly different than what our's is."
Kinda reflects an un-constructive point of view. You want to buy, the vendor does not want to sell. These "bargaining" positions that others may take towards Petro Canada's offer are not typical in the third world, and are particularly inconvenient for the management of Petro Canada. If you listen carefully you can just about hear the management of Petro Canada, "if you don't sell then we'll nationalize your interests". And "if we can't nationalize you, we'll impose discriminatory taxes on you to force you to sell at prices we deem reasonable".

Just as this Tiger (Petro Canada) can't change its stripes, either can it's management. The pen may be mightier then the sword, however, I would say the WebLog is mightier then the pen!

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Tuesday, May 30, 2006

To Kyoto, or not Kyoto, that is the question.

Firstly I don't think there is a sane person that believes the influence of Kyoto protocols was a positive or reasonable solution to the environment. When politicians and bureaucrats come up with solutions, they have a tendency to be the wrong solution to the wrong problem at the wrong time. The science not being fully established, yet, many fear that the need for action is now, just in case. Not an unreasonable or irresponsible point of view.

Is this the time for energy industry to take this initiative and make it theirs? What if they were able to establish reasonable targets, commercial frameworks and dare I suggest environmental improvements. The point I want to make here is I think this can be done "profitably".

The environment and energy industries are now one in the same. How the energy industry can stick its head in the sand until the environmentalists go home is as unreasonable as the Kyoto protocol itself. Its time for the energy industry to get in front on this issue and make it their problem. In Canada the unjust method of allocating Kyoto penalties would have had serious detrimental outcomes with respect to our industries performance, commercial viability, and unquestionably a decline in the environment.

The sad part of this entire debate is that it appears the solution to the problem is what the energy industry needs anyway. As the oil reserves decline in pressure, and hence their drive, secondary forms of pressure maintenance, such as water injection are introduced. To enhance these secondary methods many miscible and / or tertiary methods and agents are added to maintain the reservoir pressure, and influence the oil from the rock. These methods are successful in capturing as much as 40% of the oil in place. Natural gas, propane and butane are injected into the formation sustaining production deliverability and increasing the life of the field, something that is desperately needed.

CO2 or Carbon Dioxide the chemical that Kyoto has deemed as evil is one of the most effective miscible agents. Not only would CO2 maintain the formation pressure, the CO2 works to loosen the grip of the rock on the oil, freeing it to be captured in the production. How big are miscible floods in Canada? Very large with over 30 fields that are actively being flooded with these miscible agents. I think there are more then 3 CO2 floods in the province of Alberta as well. Miscible floods that are driven by CO2 gas that is sucked out of the earth's atmosphere.

This is hardly a failure of the energy industry to deal with the problem. So why have they left the issue to the politicians? I think this is symptomatic of the inability of the structured hierarchy to deal with the problems of today. The Alberta Government has had a significant influence in the development of miscible floods in Alberta for over 3 decades. Funding 100's of millions of dollars in royalty holidays and incentives to maintain long term oil deliverability for the province. They and the energy industry have done a fantastic job in making this engineering understood and productive for the companies and the citizens of Alberta. The Alberta Research Council has been able to develop the leadership on this initiative. They have even developed a handsome software application PRize 3.0 to evaluate reservoirs for the effectiveness of miscible flooding. No one who is familiar with these initiatives would argue the level of their success.

It is therefore, in my opinion, the failure of the hierarchy to deploy the necessary resources in the Kyoto debate, and the failure of the hierarchy to use what it knows to mitigate the environmental risks. I want this blog to include the environmental components of the earth's atmosphere as a critical part of its role. I am therefore adding the topic of the environment as a point of the discussion on an ongoing basis. After all what we are doing in building this software is to define the innovative high performing oil and gas organization. A key component of these high performing organizations must include a solution to the environmental problems we face. If we are building the software and design the solution in the software, then we can solve the problem.

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When were Petro Canada's options granted?

A story in today's Wall Street Journal asks if there is any correlation between the time that stock options are granted and their pricing. Steve Stecklow asks of Dr. Erik Lie (pronounced Lee) in "Options Study Becomes Required Reading"

"it's uncanny how good these executives must be at predicting what will happen with future stock prices"
After considering the situation, and writing his doctoral thesis, Dr. Lie raised a very interesting point regarding the use of stock options. He asked if the companies that were under his study to provide the dates of the stock option grants.
"Dr. Lie says he tried to contact a few companies to ask about the dates they granted options but he couldn't get past their secretaries, and gave up. His paper concludes, "Although I show aggregate evidence that retroactive timing occurs, it is difficult, if not impossible, to prove that such timing takes place in individual cases".
Now I think that Dr. Lie has valuable theories here. So in the interest of science and better accountability we should help Dr. Lie in his quest. Does Petro Canada back date stock option grants? Lets have a call in and determine if we can find out. Petro Canada's phone number is 403-296-7691 and ask for Gordon Ritchie, Senior Director, Investors relations.

Please report any findings to this blog through the comments field of this entry.

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Petro Canada news management.

I am sorry to report that Petro Canada have pulled their press release about the acquisition of Business Inteligence Software. Fortunately the press release can still be sourced through Google Finance.

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Monday, May 29, 2006

Organization, the key.

This blog is dedicated to ensuring the optimal organizational structure is provided for oil and gas. I have noted that information systems need to support and define the organization, how a technical vision can fulfill this promise, and some of the accounting related issues. I think that we have found some important issues that need to be debated and discussed on an ongoing basis.

One critical area that we have not discussed so far is how the organizational command and control is achieved. This being a particularly important element and one that touches on the technical vision, accounting and management related issues and joint operating committees 5 frameworks. (The five frameworks being legal, financial, operational decision making, cultural and accountability.)

Without the hierarchy to define who is responsible, accountable and authorized, little if anything will be achieved. Individuals are how organizations achieve their tasks. Who represents the organization, their validity, their security and authorization can all be encapsulated in the software and have much of these interactions operate seamlessly. But how do the people organize themselves?

Simple military styled command and control. By layering a matrix of military structure, from General's to Privates, over the joint operating committee, the how and who is sourced, tasked and completed.

There are many aspects of this new issue that need to be discussed. Today I am starting a new series on how this layering of the human, physical and tangible resources can be deployed in a military styled fashion under the tag Military Command. Enough said for today and much to think about.

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Sunday, May 28, 2006

Competition vs. coopetition.

A very good friend noted the nature of the oil and gas business is not one for the sharing of intelectual property. Competition is the predominate culture of the industry. When anyone talks about culture and change we know that in any organization the two traditionally have not mixed. How cultural change occurs is usually by extreme forces that compel the culture to be dealt with. So how are these ideas of Brown and Hagels "Creation Net" able to function in the competitive culture of the oil and gas industry. Please don't hesitate to comment. This issue needs a vigourous debate to get to the ultimate solution. Here are a few thoughts of mine.

Here in Calgary we are on a two week supply of concrete. Monstrous trucks used to mine coal and heavy oil are having difficulty in sourcing the volume of rubber necessary to meet their tire wear demands. Caterpillar is selling most of its production into Asia which is creating shortages of adequate industrial equipment. And please don't even ask for a Waukesha Engine. This is not an environment that competition can prosper in. Just as President Ronald Reagan revolutionized economics with policies that define and support what globalization is, new economic forces are beginning to grow and redefine the supply / demand trajectories. These new economic forces, in my opinion, are not linear, but logarithmic and possibly even exponential to yesterday's performance.

Company's that want to participate in this new economic reality have to address their sphere of influence and increase their capacity through the "Creation Nets" that Hagel and Brown define. Their three key components for effective creation nets were defined as;

Uncertain demand for goods and services.
When your customers are down the block, servicing their demands was relatively easy. Today your customers are global and their demands unknown and unpredictable. Your ability to secure methods to control production, demand management and inventories are tools that are unable to deal with the real issues in this very near future.

A need for the participation of many different specialists if creation and innovation are to occur.
Expanding your sphere of influence to include groups that would have previously been considered your competition provides two benefits.

  • Increase the volume and quality of brains towards the problems at hand, facilitating and spreading innovation.
  • Allocate the finite resources to optimize the most efficient production on a global basis.
Rapidly changing performance requirements in the marketplace.
As I suspect, starting with the second quarter of 2006 Petro Canada's financial performance will shock everyone. How could a firm in this energy environment do the things that they have done, to have caused so much destruction? The evaluation criteria for success and failure will need to be redefined. That Petro Canada and Enron have both reported "earnings" has nothing to do with reality, or the future.

If we don't align ourselves to solve these problems and address these cultural issues, then we are destined to suffer unnecessarily. The hierarchy and bureaucracy are in complete control. They are the most self serving and destructive forces in this new business environment. They exist to serve the powerful few and must be stopped.

In my plurality thesis I have defined that the software is either a constraint or facilitator to organizational performance. The culture of the oil and gas industry is derived from the joint operating committee. Its key value creators, the engineers and earth scientists are born of a sharing and collaborative academic culture. I don't want to change the culture of the industry, I want to realign it to where it belongs.

However, after a century of big business models. Models that enabled substantial organizational performance, those models have failed. Its now time to say goodbye to the bureaucratic culture and re-align the oil and gas industry to its more natural cultural influences of the joint operating committee and scientific roots. To meet the customers energy needs for the long term requires we build the software to support these "Creation Nets".

Unfortunately the financial resources necessary to build these applications are firmly held in the tight fist of the bureaucracy, so lets start cooperating.

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Saturday, May 27, 2006

Petro Canada announces new, software?

Just a couple of days ago I ran a series of how a firm like HSBC in 1982 set out to become one of the world's largest financial institutions on the basis of its Information Technology strategy. Here we have Petro Canada announcing that it has purchased a "new" software application. Next we'll see announcements when the company has turned on the lights. I mean, why are they announcing that they purchased a new software application?

Maybe there's something exciting like the HSBC findings. That Petro Canada will be providing the world with a bold new strategy! I some how doubt it. The company that sold them the software, Information Builders and their oil and gas software offering can be seen here. They like Petro Canada have a unique vision regarding entitlements that I find best reflected in IBI's statement;

"That's why industry leaders such as Gulf Canada Resources Limited, Northwest Natural Gas, and Westcoast Energy, Inc. have turned to Information Builders to deliver crucial business information to managers, employees, customers, and partners."
Now if I am not mistaken Gulf Canada Resources Ltd. being purchased by Conoco Phillips in 2001. Westcoast Energy being purchased by Duke around the same time. Here we have Petro Canada making a press statement about the purchase of a software application that is so well utilized in oil and gas, that the vendor company cannot even bother to update its customer list from five years ago?

The accountability charges that I have made here are beginning to stick in Petro Canada's back side. The management being as progressive as they are, by selecting and making the acquisition of new software are directly responding to the charges that I have made in this blog. Petro Canada's attitude that the selection of the alternative "Information Builders" accountability framework is the preferred model to what I and SEC Chairman Christopher Cox are talking about. It is also evidence that they understand my thesis that the software defines the organization. By selecting a second rate vendor that has no real offering and making hay about it in the press is the best this bunch of half wits can generate.

However, like so much of their past activity, the transaction only fuels the concern that they are lost and should be dealt with promptly by the Petro Canada shareholders. I will leave it to my readers to determine if the charges that I have made in this blog are valid.

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To me Petro Canada is more disturbing then Enron.

There seems to be an attitude at Petro Canada that the company is involved in the oil and gas industry. If it is seen to be "active" for the sake of "activity", then the fleecing of the investors, based on the Enron model, can continue. Yesterday it was learned that the Board of Canada Southern Petroleum Ltd. rejected the Petro Canada offer, and in their response to the press, Petro Canada reflected that they thought the offer was fair and would not be amending it. Petro Canada is not attempting to be successful, its not attempting to be a failure, it is just involved in diversionary activities.

Lots of press that makes it "appear" that they are a progressive and prudent company. Recall that my prediction is that Petro Canada's second quarter will be an abysmal performance. How they report the validity of their "Panic" business model, and "hourly" strategy sessions will have a deep and compelling reflection of the firms character.

So in the activity column, Petro Canada is looking to augment their capability through the acquisition of some land in the Arctic. When the offer is rejected, they turtle and go home. The objective, to look as if they are an active explorer, being achieved in their minds, they can then turn to the stage producer to commence with the next show.

I found some pertinent analysis in Saturdays New York Times regarding the Enron trial. The quote was;

"The Enron case will forever stand as the ultimate reflection of an era of near madness in finance, a time in the late 1990's when self-certitude and spin became a substitute for financial analysis and coherent business models. Controls broke down and management deteriorated as arrogance overrode careful judgment, allowing senior executives to blithely push aside their critics."
Yesterday I promised my readers that I would summarize the Petro Canada story for them. In selecting the tag on this blog "Petro-Canada" will aggregate all my "Petro Canada" stories for the readers. This is why Chairman Christopher Cox's use of tags in the SEC's accountability framework is so powerful, its so damned simple.

It appears to me in the case of Petro Canada, they have added new elements to the Enron styled rule book, however, to me, this is only proof that history does repeat itself.

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Friday, May 26, 2006

Petro Canada, the series.

Well the word is out that both Ken Lay and Jeffrey Skilling are now convicted felons. The attainment of this key event in my marketing plan has finally come true, and I can now commence phase II. I will proceed with the analysis regarding Petro Canada, and determine why it is they have not been charged, yet.

In today's coverage of the Enron story, the Calgary Herald wrote;

"Meanwhile, Canadian Experts said that had Lay and Skilling run their company in this country the two would likely still be "walking free"".
And I can assure you, if Petro Canada were operating in Texas, they too would have been in prison by now.

I have prepared a long list of stories that I will be writing in the next few weeks about Petro Canada. These stories will focus on a systemic inability to account for their actions. When confronted with the facts, the company has skirted the questioning adeptly through obtuse reporting and what is best described as a shell game. I will start tomorrow with a summary of the accusations that I have made in this blog to-date and continue on with my reasoning why Petro Canada should be made to account to their shareholders and several other interest groups.

It is my opinion that all firms in their right minds would have assessed the risks and opportunities of the criminal charges and legislative environment created in the U.S. since Lay and Skilling were first discovered. It is my opinion that Petro Canada did that assessment and determined that it would somehow not affect them. It is clear now that they have a made a critical error in judgment and will now need to account for the $1 billion + in stock options ($199 million of which is in the money) along with a series of actions that have permanently crippled the company. But when you are asked to manage the nationalized oil and gas assets the Canadian Federal Government confiscated from the international producers, a pervasive mindset of being entitled to your entitlements begins to penetrate the minds of management and as we shall see, certainly not a commercial mindset at that.

I can assure you this blog has caught the attention of the management of Petro Canada. With Google Analytics there is not much of who and what your readership is interested in, Petro Canada as a topic scores highly on this blog. With the stated strategy that I am employing in this conflict as "I have a right to be sued" I can guarantee my readership the next ten days or so will be very entertaining. The first thing that may stand out is that Petro Canada is / was substantially smaller then Enron. But the scope of the executive compensation and cover up at Petro Canada is not only larger in monetary terms but far more serious. After all they knew what Lay and Skilling were up to. How do they propose to explain that they were not aware?

Finally I will tie in the actions of Petro Canada's management in making sure their continued entitlement's to their entitlements were not challenged by the thesis of this blog. This thesis being that the Joint Operating Committee was the natural form of organizational structure of oil and gas firms. That the bureaucracies were redundant is a given that is tacitly understood by everyone, but to define the Joint Operating Committee as the key organizational focus required the software to be built before the changes would occur.

Petro Canada's exclusive and lucrative party was being threatened by this thinking. They realized if the software wasn't built, then the risk would be eliminated and through their selfish and un-constructive thinking, have taken these concepts to make their party continue on indefinitely.

As custodians of the investors resources Petro Canada will be held to this higher standard of expectation.

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Number 9.

The number of calls to action increases by one more. This one more local. Mr. Murray Edwards is sort Calgary's version of the local boy done well. At 46 years of age he has amassed a fortune of several billion dollars and is currently holding down the following roles.

  • President, Edco Financial Holdings Ltd.
  • Vice-Chair, Canadian Natural Resources Ltd.
  • Chair, Ensign Energy Services Inc.
  • Chair, Magellan Aerospace.
  • Owner, Resort of the Canadian Rockies Inc.
  • Co-Owner, Calgary Flames.
Mr. Edwards is quoted in the May 2006 issue of Alberta Venture, in which he is the cover story "Who Cares About Respect"

"We're really big proponents of flat organizations where people have a sense of ownership."
So lets mark this down as number nine in a long lists of calls to action and welcome Mr. Edward's to the party, maybe one of his energy related firms will be the first to donate to these software developments.

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Wednesday, May 24, 2006

Is Petro Canada's executive compensation fair or reasonable?

No, but then again Mr. Ken Lay and Mr Jeffrey Skilling have been found guilty of 6 and 28 counts respectively of Fraud, Conspiracy and Insider Trading.

You be the judge.

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Who'll be the HSBC of the oil and gas industry, Part II

In HSBC we have a firm that has developed an overall global strategy to compete in the banking business at the highest levels. All based on the foundation of Information Technology and specifically their "Hexagon" system. So much so that the HSBC Hexagon Logo and the system are synonymous with the firm.

As of 2005 HSBC has continued in its strategy and are filing financial statements that are stellar to say the least. With $20.9 U.S. billion in pre-tax profits, overall, I rate this far superior to the earnings of both Microsoft and Google. I also have difficulty in assessing these as banking earnings, and would prefer to compare them to other technology companies such as Google and Microsoft.

That Hexagon brought HSBC's ambition of being the one of the worlds largest financial institutions into reality. Clearly this strategy has been implemented and optimized since 1982 when the system was conceived.

It's now 2006. Given the same situation in oil and gas, how could an aggressive producer use the Genesys system to enable them to be faster, more capable, more adaptable and more innovative then the next competitor. Using Genesys, its proposed software development capability, the joint operating committee as the primary organizational focus, who will be the first oil and gas producer to realize its benefits. Benefits that HSBC has proven are available with the appropriate IT strategy supporting the firms main strategies.

What I am restating here is the information that I have commented on many time in this blog. Information that I fundamentally believe in and would expect that will not be long in finding its audience. The world needs the energy resources. We have what the President of MIT is calling the perfect energy storm. One in which our current deliverability is not sustainable due to the prolonged "cheap" oil era. We as global business leaders need to form Genesys for the oil and gas industry, just as Hexagon was to HSBC.

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Tuesday, May 23, 2006

Who'll be the HSBC of the oil and gas industry.

I was struck by the new logo and branding campaign that HSBC is revealing at their new location here in Calgary.

"The World's local bank."
I have to admit first off that HSBC is one of my favorite companies of all time. I was first introduced to the strategy and vision of its leadership in the second year of my MBA program. We were asked to review the company for one of many thousands of readings we reviewed. What was unique and struck me was that they had hired the head of information systems to be the new company president. This was the top president of the entire company, not a subsidiary or branch, the global operation. Gutsy move for a company to do, especially since this was well before the understanding of technology that should be present today in every board room.

Here are my edited notes of the reading.

Expectations and impacts of a Global Information System: The Case of a Global Bank from Hong Kong.


The world's industries now must compete on a global scale. The opportunity and threats of the global marketplace provide industry with constant pressure to build world products, and tailor products to customers in diverse markets.

The banking industry has been particularly affected by the changes to globalization with the combination of competition, deregulation, the availability of cheap IT, and the shift towards a global outlook by large industrial organizations which have lead to dramatic changes in the strategy and structure of the banking industry.

HSBC's hexagon application is studied to determine how one bank has used IT to coordinate IT strategy, global assets and overall strategy to compete with IT as a cornerstone and on a global scale.

Expected impacts of global IS in the financial services industry.

The Hexagon system.

HSBC is an international bank with operations in 79 countries and 5500 offices. 120,000 employees, a size that only Citibank can match. IT has been an explicit part of HSBC's strategy, with 6000 worldwide IT staff heavily involved in product development. The Chairman and CEO, John Strickland is a computer programmer by training and began at HSBC in 1966. Hexagon began conceptually in 1982 headed by Strickland. A strategic threat was identified when Citibank and Chase were both able to provide corporate customers with terminals to access "in country" transactions and balance data on their accounts.

HSBC customers were well to do international travelers that may gravitate to the type of services being offered by Citibank and Chase. It was determined that HSBC would need to leapfrog the competition in terms of functionality, the concept was to provide the resources of a worldwide banking system right to the desktop manager. The ability to know real time information on the cash balances, receivables and securities balances worldwide would be the objective of Hexagon.

In 1985 the first operational version offering basic account information and payment instructions was installed at 5 Hong Kong banks. In 86 it was installed at locations in the US, UK, Singapore and Japan. The ability to send and receive email between branch manager and customer was added. In 1989 a functionally rich version of the application was distributed to 30 countries of the HSBC.

Currently the Hexagon system (circa 1997 I believe) is a global electronic banking service giving customers 7 x 24, 365 day service from the customers PC in multiple languages and operating systems. 500 other banks are using the Hexagon system and Hexagon is also tied into the international SWIFT and Automated Clearing House services of check clearing. JPMorgan uses the services for their private banking clients. Checks can be written online and sent in 40 different currencies.

These facilitate the international firm the ability to distribute money as required to any region within the world on their desktop.

Hexagon Performance Impacts.

To asses the impact of Hexagon on the HSBC we need to look first to their customers and secondly assess the performance of HSBC expected functional impacts of a global information system and finally examine HSBC's overall firm level service.

Customer Acceptance.

The growth of customers on the Hexagon system since its introduction to include 50% of all electronic international corporate banking transactions worldwide.

Impacts in terms of Hexagon's purpose.

Scale and Scope Economies.

The costs associated with incremental use of customers is marginal. Repositioning to other customers is a simple interface change to accommodate the needs of the new customer group.

Hexagon has helped HSBC to become the largest bank with assets of $452 billion vs. Citibank @ 310 billion and Bank of America @ 260 billion. It is also one of the largest in terms of its global reach with only Citibank operating in 98 countries as being larger. (Again 1997 I believe. )

Product Value

Hexagon offers customers opportunities to reduce costs by saving transactions processing steps. Many customers have their corporate financing departments tied into Hexagon and operating them as if they were part of the ERP systems. (i.e.; integrating payroll within the Hexagon systems)

If Hexagon provides value to its customers then they should be able to charge a higher fee for the service. Interest income plus other revenue were compared from 1990 to 1997 to HSBC and its competitors. A comparison of pretax profit also showed that HSBC margins grew from 21% to 42% during the seven year period and from third position to first.


Operating costs usually associated with the staffing of operations are reduced due to the efficiency of the software.

In terms of the staff expense as a percentage of operating income, HSBC is in the middle of the pack. The conclusion is that Hexagon has not reduced average transaction expenses. When we examine premises and equipment expenses as a percentage of revenue, HSBC expenses are the lowest among the peer group of banks. This suggests that Hexagon has reduced the physical bank space required and as such does not show up when measuring Hexagon's transaction costs.

Organizational Effectiveness.

Hexagon integrates much of the back end operations of a bank. The securities and payments part of their operation.

Competitive advantage.

The full value of Hexagon depends on its geographical scope. The ability to provide service in each country a customer may operate in provides the value. Therefore someone wanting to compete on the basis of the same functionality as Hexagon needs to establish just as large a network of global reach as HSBC, which limits the competition to a very small amount of companies.

Success of HSBC

HSBC's explicit strategy includes a focus on the development of cutting edge IT applications to support its global operations. For 1997 HSBC pretax profits were $8 billion US. HSBC was the tenth largest in its peer group of 100 banks, and was number 1 in pretax profits for 1995 to 1997.

Discussion, Limitations and Implications for managers.

The results strongly suggest that Hexagon affects HSBC's performance by increasing economies of scale and scope, providing additional value to customers, increasing efficiency within HSBC and improving organizational effectiveness. In addition network externalities in the product provide disproportionately more value to the customer when every location at which the customers wants to do business is covered by the system.

These also create substantial barriers to entry for any competitor that may want or need to compete with HSBC. The configuration of the remaining aspects of the bank are different then most other banks around the world. The ability for HSBC to augment the value and advantages of the system by configuring their physical assets to compliment the Hexagon system are key in achieving many of the value propositions.


This research shows that firm level performance is affected by many factors. While our analysis focused on one broad product line, the quantitative and qualitative analysis, nor all of it together, proves that Hexagon positively affected HSBC's performance. The researchers however believe that Hexagon's value proposition is quite persuasive.

Implications for Managers.

This is further evidence of the extreme importance of IT infrastructure to their business. Customers will begin to demand faster transaction speeds, lower transaction costs and geographic scope. Only highly integrated global systems can hope to compete on this level.

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Monday, May 22, 2006

Dr. Giovanni Dosi, Sources Part IV, E

The externalities of the innovation process.

Dosi has been clear in establishing the public and private components of technology and the innovation process. Specifically the appropriability of the innovation process is endogenously and exogenously influenced. That innovation and science are linked, and each contribute and inhibit the development of the other. Oil and gas firms are now tasked with not only the development of the science, but must understand the sciences development. The same attributes apply to the process of innovation as much as they do to their underlying sciences.

In this section Dosi takes the public component and divides it into two forms.

"First, there are certainly "free-good" elements, in technological progress, essentially stemming from the free flow of information, readily available publications, and so on." p.1146

Secondly, the "un-traded interdependencies among sectors, technologies and firms and takes the form of technological complementarities, synergies, flows of stimuli and constraints that do not entirely correspond to commodity flows." p.1146
Here Dosi asserts the "production of bicycles drew technological knowledge from the production of shotguns". This does not necessarily warrant much in terms of further study. What Dosi is attempting to do here is lay some further groundwork that will be added to in part F and in part "G Some Conclusions". Therefore I am only adding or stating these components now in order to fill in some value in the next Dosi entry.

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Sunday, May 21, 2006

Another morning, another call to action.

Mr. Olivier Appert, Chairman and CEO of IFP has written a fine conclusion that leads me to comment at the end of this blog.

"In order to meet the world's needs and demands for energy, while simultaneously observing our current energy supply and protecting the environment, the oil and gas industry will have to solve many complex technological problems in the coming decades and continue to innovate as it has done since its inception.

Recent scientific and technical advances, the fruits of collaboration between the worlds of research and industry, have led to a profusion of promising emerging technologies and represent key assets for preparing for the future, particularly in terms of managing the energy transition from oil and gas to new energy sources.

In the face of increasingly fierce competition, it is imperative these new challenges become integral to our research and innovation strategies. Developments will play a crucial role in guaranteeing genuine sustainable development for the world."
I can assure Mr. Appert that he is 100% consistent with the Plurality thesis I wrote in 2004. It was at that time however that the recognition of the capability of the oil and gas industry as represented by the hierarchy would fail in this critical task. That new and more innovative organizational forms are required. The joint operating committee being the global cultural manner of the oil and gas industry, is the financial, legal and operational decision making frameworks as well. The joint operating committee is summarily ignored by the hierarchy, who's only claim to fame is the accountability framework. If you hear a manager in a company complaining about Sarbane's Oxley, then you not only have a hierarchy in full control, but a hypocrite of the highest order. It is Sarbanes Oxeley that defines the scope and value of bureaucrats justification, salary and pension benefits.

So as I noted here yesterday, SEC Chairman Christopher Cox understands that the way to redefine the accountability framework is through the Extensible Business Reporting Language, and the SEC's tag library. What we therefore need to do, is first and foremost, build the software to define and support the joint operating committee as the natural form of organizational structure. Until we do this, these calls to actions are just words that soon will fade in there meaning in the face of the angry energy consumer who wants to know why they can not drive their car or heat their home.

This is serious, if your expect the current organization of the oil and gas industry to solve this, you first better explain it to them fore I have not seen the recognition that Mr. Appert's report is generally accepted.

Albert Einstein said two pertinent things.
  1. Today's problems will not be solved by today's thinking.
  2. Doing the same thing, over and over, expecting different results is the sign of insanity.

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Saturday, May 20, 2006

Calls to action, a summary.

Occasionally I will post a summary of the number and quality of the Calls to Action I am finding today. Each of these have been reflected on in this blog and can be searched by their technorati tags.

To date: (no particular order)

  • Thomas L. Friedman in his book "The World is Flat".
  • Oxford Analytica.
  • Chrisotopher Cox, Chairman of the Securities and Exchange Commission using XBRL.
  • Harvard University.
  • McKinsey Consulting.
  • The Oil and Gas Journal.
  • MIT President.
One would think that the oil and gas companies, investors, users or developers might want to start hitting the PayPal button, make a donation and we can start building this system.

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Another day, another call to action.

The Wall Street Journal continues on its tradition of producing some of the finest articles. This one about the relatively new Securities and Exchange Commissioner (SEC). Mr. Christopher Cox. Not only has the new commissioner have a great name, but he also has a good idea that dovetails well with what this blogs purpose is.

"Build software that manages the accountability framework, then alignment with the financial, legal, operational decision making and cultural frameworks is achieved. The recognition that these frameworks are defined and constrained by the Joint Operating Committee are how the producer achieves the speed, innovation, capability and adaptability to meet the markets demand for energy." (Quoting myself here.)
Mr. Christopher Cox is interested in doing the same for the entire world's financial trading markets, which as SEC commissioner is his responsibility.

By making the types of comments that Commissioner Cox states in the WSJ article. It is clear to me that he is not only on the right track but will resolve the largest administrative nightmare of the public company reporting process. To me how Sarbanes-Oxley gets resolved from here is difficult. To make any major amendment to it would make it appear as the framework has become unmanageable and invite the Ken Lay's, Jeffry Skilling and Petro Canada's back for more hollowing out of the investors wealth.

How Sarbanes-Oxley legislation is eliminated from the process is by eliminating the need for the 800 plus forms to a handful of standard tags in the Extensible Business Reporting Language. I can only thank that the Commisionner understands the technological capabilities and can apply it to the SEC. I have spoken of meta tags and meta data before, however, I'll leave it to the inventor of the Internet, Sir Tim Berners-Lee to describe why Mr. Christopher Cox's and Mr. Paul Cox's (me again) ideas are workable.

When I speak about the demise of the bureaucracy I am saying the same thing that the Commissioner is saying here. He is laying the groundwork and infrastructure of how investors will be able to manage their assets in the future. Note that I did not state the Investors can manage their companies, but the Investors Assets.

That an investor could purchase an interest in a well, and as such have the entire accountability framework in alignment with the financial, legal, cultural and operational decision making frameworks as captured and defined by the regulation and the software that defines the Joint Operating Committee, and that working interest then is a tradable asset on the worlds exchanges, then we are talking about the new society.

If I have not made it clear at this I point, I'll state it explicitly. Genesys and this blog have adopted the SEC's XBRL tag library. Wow, so now we'll be compliant with the SEC, that was easy.

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Friday, May 19, 2006

Another week, and another call to action.

This one from Oxford Analytica. And as there website reflects;

"Oxford Analytica is an international, independent consulting firm drawing on a network of over 1,000 senior faculty members at Oxford, and other major universities and research institutions around the world. Founded in 1975 by Dr. David R. Young, Oxford Analytica has built an international reputation for seasoned judgement on and analysis of the implications of national and international developments facing corporations, banks, governments and international institutions."
Seeing how they're derived from academia, and assert their independence as a key component of their offering. Oxford Analytica's conclusions and analysis would lead me to believe and trust in them more so then a Cambridge Energy Research Associates (CERA) report. CERA reports which are funded and directed by the energy industry itself, tend to have a self defining and self promoting style of research and conclusions.

It is fair to assume Oxford Analytica's report entitled "Cash rich oil majors focus on frontiers" has little direct financial support or influence by the oil and gas producers. A bias that is evident in many of the alleged research reports from CERA. Research reports that tend to be more focused on the next quarterly outcome, and Dr. Daniel Yergin's strong opinions of how much oil there is, or isn't.

Oxford Analyticas explicit conclusion is stated as;
"Technological lead will prove critical in the efficient exploitation of frontier oil provinces. Upgrading portfolios means majors will divest assets that provide material opportunities for small and medium-sized independents."
Kind of resonates with the fact that the large producers are unable to keep up to the marketplace demands for energy. Or perform in an environment of speed, innovation, capability and adaptability. But then I am just as biased as CERA is in that the hypothesis that I developed in September 2003, and attempted to have funded by Petro Canada et al, that the Joint Operating Committee was the natural form of organization for the oil and gas industry, and that organizations were defined by their software capabilities, was handed to CERA to research as I was hustled to the street by Petro Canada's management. It's just too bad that CERA is not only biased, but also very slow in reaching the research conclusion that I did in May 2004, and, Oxford Analytica have been able to agree upon currently.

If you can sense a bitterness at the attempted theft of my intellectual property by the criminal minds of Petro Canada and CERA you would be incorrect for two reasons. One I ended up with the copyright by publishing the research conclusions to my hypothesis first (the underlying foundation of this blog) . Secondly, I have a right to be sued, as stated here before and documented by Dr. Thomas C. Schelling, a right that I cherish more each day and pray will happen soon.

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Thursday, May 18, 2006

Adaptability, Sun may have something there.

I pirated the Sun CEO's comment that "adaptability" is a key component in business. I noted in an earlier entry that Petro Canada would be unable to adapt to an explorationist mindset due to the bureaucracy. Adaptabililty vs bureaucracy. That will be a major part of the new frontier. In pirating this new definition of the term "adaptability" I now realize that there is some underlying significant meaning.

When added to today's other critical business components of Speed, Innovation and Capability; adaptability establishes new performance criteria for individuals, societies and organizations.

One of the major discoveries in my research was based on Dr. Anthony Giddens Theory of Structuration. That society, people and organizations need to move and progress together, or there will be failure. It doesn't take a lot to realize the troika that Giddens defined is currently out of synch. With the bureaucracies of the organizations impeding the progress of people and society. That a failure will occur due to this non-synchronous state is a given, and I am betting that the bureaucracies will be dispatched to the trash heap sooner then most can imagine.

Dr. Wanda Orlikowski built upon the Theory of Structuration when she defined her Model of Structuration for Technology. Dr. Orlikowski's model asserts that a fundamental component of society is technology, that technology provides a duality and therefore is a constraint or inhibitor to successful advancement of society people and organizations.

I asserted in the development of my hypothesis that;

"hierarchical organizational structure(s) is(are) an impediment to advancement of the oil and gas company and society in general".
My research built upon the Theory of Structuration, Model of Technology Structuration and hypothesis to determine that "SAP is the bureaucracy". That organizations are defined and constrained by the software that supports the organization.

The purpose of this blog and the developments at are to define an organizational structure of Speed, Innovation, Capability and Adaptability in the global oil and gas industry.

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Wednesday, May 17, 2006

Why does Petro Canada get all the attention?

To prove that the blogosphere is more powerful then the bureaucracies. The ability for these bureaucracies to survive does not exist. In an environment where innovation, adaptability, speed and capability are required, who needs bureaucrats.

The need to prove that Petro Canada is run for the betterment of the managers "stock" options. Or as I like to refer to them as "entitlement" options. The management can not expect that anyone is going to overlook their use of the treasury for their own purposes. Do they not recall Enron or Worldcom?

Its not personal, but Petro Canada's staff took the time and effort to make sure that I understood that any of the efforts I made in developing this software would be minimal and unsuccessful. That my time in the oil and gas industry was over and that I should find work in other industries. So its just so much easier to pick my targets after this treatment at the hands of their so called "senior" management. Since they have had the luxury of using their power to make my life miserable, all is fair in love and war.

That these organizations as represented by Petro Canada have failed. In every metric of financial, production and particularly earnings, they will begin to show signs of being severely strained. I believe a company that was successful in the exploitation era, is an abject failure in the exploration era. They can not change their stripes.

These failures are beginning to be evident in some of the companies already. Failure is the most advanced in Petro Canada, and therefore picking targets is easiest when they pretend to continue on for the betterment of their shareholders.

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Tuesday, May 16, 2006

Point taken, Chief Java Evangelist

Jonathon Schwartz is the Chief Java Evangelist, President and CEO of Sun Microsystems and in preparation for the Java One conference, he prepared a blog entry to discuss the comparison of the shipping container to Java.

Now I like to joke that Schwartz, McNealy and Gosling are second rate Java evangelists behind myself. Maybe what I should of stated in my comparison of the container and Google is that Google's favorite language is Java.

I am highly recommending that everyone and anyone register for a free web based introductory course on the Java Programming Language. Hosted by Sun employee, Sang Shin, register for the course and learn why most people believe the Java revolution is about to really begin. I'll be registering as well because I understand Mr. Shin so well that I am going to learn much from him.

Monday, May 15, 2006

Before Google, the container.

Sarah Murray wrote an interesting article in last weekend's National Post that was brilliant. Entitled "Birthday of the Box" it chronicled the birth, issues, development and effects of the shipping container. Celebrating it's 50th year, the ubiquitous shipping container has lead to many of the innovations and benefits of globalization up to this point. Noting the particular points of interest are as follows.

  • 90% of global trade now travels inside them.
  • It was the brain child of Mr. Malcom McLean, a North Carolina truck driver.
  • Port operators and ship owners were reluctant to put their money into equipment, vessels and port infrastructure, and most importantly the longshoreman and dockworker unions dug their heels in. (Something that I can appreciate from the oil and gas industry.)
  • Longshoreman in New York dropped from 30,000 in 1960 to 8,500 in 1986.
  • Intermodalism impacted shipping to such an extent that OOCL Shenzhen is the largest vessel. Capable of the following capacity
    • Christened on April 30, 2003 in Korea.
    • Can travel at 25.2 knots at full load.
    • Capacity is more then 8,000 containers.
      • 8 million crates of bananas, or
      • 200 million blouses in a single journey.
  • Delivering choice to the global consumer.
  • Making production of goods to flow to the lowest cost producer. An efficiency that benefits every human on the planet.
  • Used containers are now converted to housing, schools and such in the developing world.
I agree with the author that all aspects of our lives have been impacted and improved as a result of the thinking of this North Carolina truck driver. The author notes that science is also benefiting in many odd ways. In 1992 a container of 29,000 plastic ducks crashed in the middle of the North Pacific. These ducks are helping scientists map and gain a better understanding of ocean currents as these ducks are noted and documented in their travels.

Sarah Murray is the author of an upcoming book called Moveable Feasts: the Incredible Journeys of the Things We Eat, ISBN. Although she mentions that the impact of information technologies on these innovations have also made the container fulfill the promise of its full value, I think she is missing a phenomenal parallel in terms of its impact. And that is Google.

That the container was able to revolutionize the "physical" world is credited to its roots and birth fifty years ago. Google to me provides the same value and impact from the "intellectual" world. As we have automated and "roboticized" much of our production, logistics, shipping and marketing, Google is the same revolutionary thinking. What could be thought today in this world could be implemented and acted upon by Google immediately.

As we pass from the physical to the intellectual worlds, 50 years from now, people will know and say the same things about Google, that we now know and say of the container.

Petro Canada is...

Fill in your own words here, my word is ridiculous. This is the only way that I can describe what the National Post reported in Saturday's edition. Petro Canada was considering partnering with Marathon Petroleum in a Syrian concession that Marathon was granted last week.

So, it's now Monday, the strategy of the 2005 annual report. In which the justification for selling Syrian assets at fire sale prices was.

"The sale of the mature Syrian producing assets aligns with the Company's strategy to increase the proportion of long-life and operated assets in its portfolio."
Is no longer valid.

I can only hope and pray that Petro Canada takes my recommendation to heart. My recommendation noted here was based on Dr. Thomas C. Schelling's "Strategy of Conflict" that I have the right to be sued.

So please I beg of you, sue me, because if you think it's been bad for the last couple of months, you haven't seen anything yet. So do it, and as they say "Lets get ready to rumble".

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Sunday, May 14, 2006

Petro Canada vs. Talisman and Devon.

I'll let readers determine if Petro Canada made a wise (attempted) purchase in Canada Southern Petroleum Ltd.

The May 13th Calgary Herald reported that Talisman and Devon Energy secured four of six parcels in a bid to secure rights in 1,300 square miles of the North West Territories.

Although the Talisman et al rights were for land, the $53.9 million is for work commitments. So to develop the land in the North West Territories, Talisman et al offer $53.9 million to develop 1,300 square miles. (an average cost of $41,461 per square mile.)

Recall the $113 million Petro Canada is offering to secure land in 52 square miles in the Arctic. The Arctic being somewhat North of the North West Territories. (an average cost of $2,173,076 per square mile.) I don't know, but base on these criteria it looks as though Talisman et al made the right decision here?

The key attribute of management is not to spend to much for an asset. Over time the value of the asset, and the future profitability of the company are directly related to these transactions. A good example is, a few years ago Ms. Carly Fiorina of Hewlett Packard offered $19 billion for PriceWaterhouse Coopers. For some reason the transaction didn't close and not even one year later IBM bought PriceWaterhouse Coopers for just $3 billion. A $16 billion difference.

Fortunately, Hewlett Packard dispatched Carly out of the CEO's office. Given an unlimited amount of money for asset acquisition, a fool, such as Carly or Petro Canada, will over pay for assets every time.

Saturday, May 13, 2006

Energy, the one common denominator of life.

Discussions regarding energy and its value are being actively debated around the world. Since the shortages are placing the commodities of energy into the political arena, these discussion are taking on a heightened value.

I thought I would add my two cents in to the discussion, so here goes.

Two things are finite energy and life. No other commodity, or value of anything fits that definition of "finite". There is only so much of it and there is nothing that can be done once either is gone. As time passes, energy and life are irretrievably lost. Nothing can be done to recapture it.

Kind of puts the hole energy discussion into context for me.

Friday, May 12, 2006

The Petro Canada definition of value and maturity.

Today's papers are full of the hostile bid that our favorite company, Petro Canada, is launching against oil and gas producer Canada Southern Petroleum Ltd. Paying $113 million for approximately 1,000 barrels of oil equivalent and 52 square miles in the Arctic may seem high, because it is. Asigning a value of $113 million per 1,000 bbls /day (raw land is always included in deals). Petro Canada wants to be known as an explorer, and that's all there is to it.

Or are these people even acting rationally? Petro Canada recently sold producing assets in Syria. These assets were deemed as "mature" by the company and therefore were no longer appealing to management. Is it therefore fair to assume that Petro Canada's "hostile" bid for Canada Southern is for immature assets? Lets do a comparison.

Syrian assets were sold for $676 million in late 2005 (including rights acquired in 2003). Syrian properties were producing 70,000 boe / day, or, approximately $10 million / 1,000 bbls per day. Petro Canada disposed of this for the following reason.

"The sale of the mature Syrian producing assets aligns with the Company's strategy to increase the proportion of long-life and operated assets in its portfolio."
So to use the vocabulary of Petro Canada the following values can be determined.

Arctic assets are "good" because they are strategic. (ie. long life and operated.) Syrian assets are "bad" because they are not strategic (ie. short life(?) and non-operated.)

Now I see the theme of this management. Again as with the Syrian sale, the Arctic assets seem to be done from the point of view of pure "panic."

I am going to make a clear recommendation that I hope the management of Petro Canada can understand. Revise your strategy to include the word "producing". You'll feel better for it.

Thursday, May 11, 2006

Partnership Accounting Part IV, currency and volumes.

In previous entries about partnership accounting, I have discussed the unique nature of accounting for partners in this proposed new networked application environment. In Part I, and Part II, I included how the membership of a producer within the joint operating committee might contribute capital, lands or leases, capability or intellectual property to the table. That these values would need to be identified, quantified and equalized before the partnership accounting was completed. The role of chairman would be somewhat diminished and be more equal to the other participants active participation .

In Part III I raised the issue regarding changes in the working interest shares of a property based on certain criteria or events. Imposing a cutoff in which these changes take place within the month. I also discussed the need to account for both accounting months and production months.

Today in Part IV I want to raise the issue of currencies. The operation of a facility may be in a remote area of the globe and be owned by two or more producers located in other countries. This may be a likely scenario considering today's makeup of producers.

I also want to reiterate how this system is built and its impact on the producer. Genesys software will be the core of the application that does the majority of the processing. Developers that build the core will also have plug-ins of their own that will deal with the unique data, information and regulations of a certain jurisdiction. These interfaces will need to handle the presentation of data in the appropriate accounts at the appropriate values. The core algorithm will calculate the nuances of the data elements and the presentation of these will be done by the partner providing the plugin.

Therefore, a producer in Texas may have partners from Canada and Great Britain involved in a large facility in the capital of Turkey. To represent the involvement of each partner in the currency they are regulated to report in, is up to the Genesys core with data representation in each of the four countries mentioned. A difficult task in this era of large currency fluctuations.

Currency translations can take on two distinct characteristics depending on the type of account. The asset's need to be reported at the lower of cost or market value. How is this impacted on each producer if the currency in use by the partner is the U.S. and the Turkish dollar declines precipitously. What happens to some debt or obligation if your home currency declines and your debt is denominated in U.S. dollars?

The second type of currency translation are those that would be associated with the revenue and expense type of accounts. These could also disrupt the makeup of the partnership accounting particularly if the U.S. dollar were to decline to record levels. Does this make the property represent a disproportionate value to each one of the partners?

Another issue respecting these accounts, what if the firm had paid a cash call at the beginning of the work and their was a large currency adjustment between the time the cash call was paid and the monthly statement of operations or expenditures was issued. How are these going to be handled.

The purpose in raising these points in partnership accounting should be clear. The number and types of transactions are taking on a multitude of exceptions that need to be addressed. To make this system functional and useful in this environment will be a test of the technologies. Difficult at this point, but I am confident that given the right amount of time the Java developers will have made the system able to accommodate all these various data elements. I therefore assign the technical risk as low.

In Partnership Accounting Part V, I will be discussing the difficulties in dealing with production volumes. How they are recorded, balancing, custom fees, custom products etc.

Wednesday, May 10, 2006

The "anti"-Petro Canada.

I have been very quick to point out the failures of our favorite company, Petro Canada (PCZ on the NYSE). I can assure you that the fun will continue, and as I suspect, only get better. Today I want to contrast the failures of Petro Canada with what I think the large international producer should be doing. And here in Canada we have somewhat the prototypical explorationist, Talisman Energy Inc (TLM on the NYSE). So from now on, not only will we be highlighting the systemic failures of Petro Canada, but highlighting the success of Talisman.

Firstly, Petro Canada has failed again in developing its Terra Nova field. What was supposed to be a highlight of their international capabilities is turning out to be a financial and operational disaster. Even the provincial government is recalculating their budgets to accommodate the Petro Canada failures. This time there was a failure in their production platform that will cause their facility to be down for four months. There goes that revenue, up goes those costs, down go our profits. Oops I forgot they were losing money before these failures.

I have to ask of the Petro Canada management, all this for a billion dollars in stock options?

Enough about Petro Canada, for now. Talisman announced their quarterly results and I am pleased to announce that they have discovered another significant gas find in British Columbia, Canada. Talisman is headed by it's CEO, Dr. James Buckee, a geologist, and consider themselves explorers. It is on that basis that they were able to report that oil production was up 27% to 300,000 bbls / day and gas production was the same at 1.338 BCF / day. All in all, a stellar performance in comparison to Petro Canada's diminishing production profile.

Talisman is reporting that in addition to last years find of 55 mcf / day in the Monkman area, an additional 33 mcf / day in the same area went on production last month. Attributing an exploration mindset to the company is explicitly stated by the CEO.

Dr. Buckee also noted an interesting point that Dr. Giovanni Dosi states about innovation. (Click on the title of Dr Dosi's name for that blog entry.) I stated the following based on Dosi's research.

"as any industry continues in a high priced environment the technological changes that are brought about (from innovations discovered) provide "irreversible" advantages to the innovator "at any price level".
Dr. Buckee notes his target is to find gas that is economic around $5.50. By doing so he finds the discoveries from his target of $5.50 are usually profitable at around $2.50 - $3.00! This is exactly what Dosi suggests happens. That when innovations are developed by the innovative firm, it usually has the effect of being profitable throughout the pricing structure.

All in all an interesting day, and one day closer to the Petro Canada second quarter results. I wonder how many stock options it will take them to figure out this latest disaster, I sure hope the management takes it easy from now on.

Tuesday, May 09, 2006

The revolution grows.

The title of this entry will take you to an eloquent revolutionary that accurately captures the opinion of this blog, and the systems that are needed to be developed.

As I stated in my thesis,

"the only requirement for the technical revolution to continue is for the coup to trigger the signal. Metaphorically speaking of course"
Pamela Slim, a business consultant is starting the call to the CEO's and other officer's within the corporate hierarchy. Calling out the staff to give up on the corporate environment and make a difference in the world.

All I have to say is welcome, there's a role for everyone...

Monday, May 08, 2006

The competition.

The ERP systems that are in use today by oil and gas producers are Oracle, SAP and IBM's Qbyte. These systems all directly support the hierarchy and ignore the joint operating committee's existence and authority. These are the class of application that are targeted to be replaced by Genesys.

Firstly these systems are old. In many cases up to 20 years old. Are designed to conform to the vision of the developers that started them such as SAP, and cater to manufacturing or other industries. Conceivably, Qbyte was designed for oil and gas, but that was back in the mid 1980's and since IBM inherited it from Price Waterhouse Coopers little development has taken place.

None of these systems were developed for oil and gas, and possibly more telling is that none are being developed today. Genesys is the only proposed oil and gas development that I am aware of. In a time of significant conflict within the oil and gas industry, only one system is being proposed?

As I have indicated here before, I am the rightful copyright owner of the concept of using the joint operating committee as the organizational focus of these developments. Soon after the publication of the thesis / proposal to industry, I put these competitor companies on notice that they were not authorized under this copyright to use the joint operating committee as the organizational focus of any of their ERP software.

Understanding that the competitive software companies are also based on intellectual property it serves no purpose for them to abridge, or in anyway attempt to diminish, this copyright. Recognizing this I am pleased to say they have not, and most importantly will not.

In reviewing the competitive offerings of SAP, Oracle and IBM, there appears to be no overriding issue or vision being prepared for this industry.

Sunday, May 07, 2006

John Hagel III and John Seely Brown

McKinsey Consulting is providing free access to a recent publication of John Seely Brown and John Hagel regarding innovation. Entitled "Creation Nets: Getting the Most from Open Innovation" and it's available by clicking on this title.

A little background, much of what Hagel and Brown have been writing about over the past 5 or 6 years is web services. Call them what you like, Web 2.0, Service Oriented Architectures, Software as a Service, Hagel and Brown have been on topic for many years. Of all the business consultants and bloggers, these two individuals have best defined the needs and effects of these developing and critical technologies. Much of their work is available for free at their respective websites and I highly recommend a thorough review.

I was fortunate enough to find their discussions early enough to make them a solid part of my thesis. I am grateful for their efforts and see that they have continued on with their theme and have released another "free" paper of significance. So lets dive in.

"Creation Nets: Getting the most from open innovation."
"When companies look outside their own boundaries they can gain better access to ideas, knowledge, and technology than they would have if they relied solely on their own resources."
Defining what they are calling Creation Nets with this excellent quote, Hagel and Brown go on to define the two extremes of "distributed innovation" which is
"difficult to manage / control"
"may seem to be mostly about narrowly defined joint ventures or transactions to acquire IP created by others."
Hagel and Brown admit the business models proposed are not mainstream and answer the question
"why companies must visit the patterns that emerge across very diverse domains". Why do creation nets matter? "The case for creation nets has its foundation in the speed of change in today's global economy."
Today speed is the critical component that is needed in oil and gas. The decline of reserves from exploitation requires a speedy solution to what MIT presidents Susan Hockfield's calls "Energies Perfect Storm".

Joint ventures are what the Joint Operating Committee (JOC) represents in its organizational form. The "Genesys Software creation Nets" are global populations of oil and gas workers available to provide information and knowledge to the JOC. The JOC being virtual in the Genesys system, these workers availability and value are readily available to be deployed to apply their knowledge, understanding and most of all their imaginations for innovation.

Creation Nets, or open innovation's virtual nature, permit and facilitate greater exposure to larger bodies of knowledge tacitly held by engineers and geologists as sub populations of all oil and gas workers. Exposing issues and opportunities to larger groups of scientists to achieve a speed and quality the hierarchy can not, and never will attain.
Hagel and Brown note this "broader set of participants brings with it a number of practical difficulties: Trust can be difficult to establish" noting that "in fact the more diverse the participation the thornier the issues."
Hagel and Brown state "the institutional mechanisms of creation nets help overcome these very real difficulties and provide for the diverse kind of collaboration needed to support sustained innovation in a world of far flung knowledge and talent".

How creation nets work.
"Creation nets work by mobilizing hundreds or thousands of independent entities in the pursuit of distributive, collaborative and cumulative innovation."
Mobilizing such a range of participants requires a precise set of institutional mechanisms to make clear who assembles the network, who can participate in it, "how disputes will be resolved and how performance will be measured."

Genesys fills this role for the developments, this blog is the starting point. On one side are the producers who need the software, the users who seek to provide the work for the producers and explain their needs to the developers. Motivated by long term incentives creation nets align the resources for innovation.

Building and Participating in Creation Nets.

Consider the diversity of skills and experiences their networks requires and tailor the approaches accordingly. Balance local innovation with global integration. Three primary challenges are
  • Accessing and developing highly distributed talent.
  • Provide the proper contexts for the participants to come together and engage in collaborative experimentation, tinkering and innovation.
  • Effectively integrating the creations of diverse participants into shared releases.
Innovation is not the point or the focus of this. Creating the innovative oil and gas producer by defining and building the software to support the innovative users and producers.

Finally Hagel and Brown state three necessary components need to be in play for creation nets to be effective.
  • Uncertain demand for goods and services.
  • A need for the participation of many different specialists if creation and innovation are to occur.
  • Rapidly changing performance requirements in the marketplace.
In summary Hagel and Brown note that creation nets "Provide the ability to mobilize dispersed and diverse talent for innovation in flexible ways, whatever the scale."

I will be writing more about Creation nets in the months to come. The important take away from this discussion is that the long term investments made by many participants needs to get started, and therefore, I will prepare the final attributes necessary to make this so.

Saturday, May 06, 2006

IPv6, the third component in the Genesys technical vision.

The previous entry regarding the Genesys technical vision was wireless. IPv6 is the third component of the four elements of the vision and works in combination with wireless. IPv6 is not a new technology, just a modification of the old. IPv6 will replace IPv4 which is in use and provides the client server model of computing. The key difference is that IPv4 is 2 to the power of 32 vs. IPv6 being 2 to the power of 128.

IPv6 will enable anything of importance or value to be monitored and controlled, anything and everything. The ability to have unlimited static IP addressing eliminates the client server model of computing. In oil and gas, I foresee a variety of devices that will be installed at production facilities to monitor and control activities at the finest of levels. Considering the oil and gas industry is primarily chemically driven, heat and pressure are two aspects of what engineers and earth scientists concern themselves with. In other words application of IPv6 opens up the entire spectrum of the sciences for exploitation.

Currently Korea and China have implemented IPv6 as their network infrastructure. Most cellular phones use IPv6 addressing. Computers from Apple and Sun have been IPv6 capable for many years. It is therefore only a matter of time before the world can and will switch.

In Formula One the cars have 1,000's of sensors actively collecting data at all times. This data was then able to make modifications to the vehicle while racing. Although the ability to change settings was eventually banned the information collection was able to eliminate engine failures through remote remapping and altering the pneumatic valves.

The ability to function in this environment is going to require some unique technology skills on behalf of the average users. The point I want to make today is that the tidal wave of information is going to saturate workers, exponentially more so then today. Therefore each user needs to better understand the information technologies and how best to manage them. The challenge for users is to realize the unlimited application of their imaginations.

The combination of the two technologies are quickly providing firms with the ability to monitor and control their assets and resource's. Nothing in the client server model that we currently experience on the web today comes even close to the impact of these technologies.

In many ways the roll out of IPv6 networks is the culmination of all the technologies to date. Releasing the inherent capabilities of the past 45 years of building the hardware and software infrastructure.

Friday, May 05, 2006

Three calls to action.

MIT Video has its president Susan Hockfield calling for MIT to lead the charge to solve the global energy problems. Framing MIT's role as not that dissimilar to what their role was during World War II. I can not agree with her more. At 53 minutes run time, another must see video. Click on the title to be taken to the video website.

The second call to action is from The Oil and Gas Journal. They have identified the demands of quarterly performance as the reason that the energy industry has not resumed its role in addressing these issues. Nonetheless they are stating that the demands for more energy are great and the producers need to innovate is critical. A must read article.

The third call to action is of course this blog. Organizations are defined by the ERP software the firm uses. To use the joint operating committee as the method of organization will mitigate many of the administrative issues in oil and gas. It will also facilitate the innovation that is being called for. No one would argue that the hierarchy or bureaucracy in these organizations will be able to solve these energy issues.

Three calls to action in one day is a record at this point. However, they are more of the same in dealing with this significant issue. All that is needed is for the donations to support the development of this software. Clicking on the PayPal button to make a donation is all that is required to start the 50 year process of supplying the global energy demands. I don't think that anyone would argue that the organization of the resources not be the first step.

Thursday, May 04, 2006

Dr. Giovanni Dosi, Sources Part IV, (D)

D. Inducement Factors, Patterns of Technical Change and Irreversibility.

Dosi tears into these aspects of his theory with some valuable research. First he differentiates his focus away from

"the economic incentives to reduce costs always exist in business operations" p. 1143.
And defines
"specific incentives coupled with the paradigm-bound cumulative, and local nature of technological learning can explain particular rates and directions of technological advance."
When technological change is triggered by price changes, the overall trajectory of the
"new is likely to be superior to the old ones irrespective of relative prices" p. 1144.
Dosi then notes that technical progress provides values that reflect irreversible features.
Mapping the changes of technical progress provides an increase in the trajectory of those firms that used the innovations over those that choose not to implement them.

Here Dosi makes the case that the time in which the old methods are replaced by the new may be longer then anticipated. That the innovativeness of the methods that replace the old are disruptive and lag the decline of the old. Essentially determining what Clayton Christianson has been writing about recently. Innovation is difficult and disruptive.

In oil and gas we have witnessed tremendous pricing pressures since the turn of the century. Why these pressures exist, I believe, is the world is globalized and the Chinese and Indian nations are advancing their economies and consumption. The oil and gas firms are sticking to the tried and true belief that they operate at the $25 - 30 level, not the current $75 prices.

What Dosi does provide is tangible evidence that innovations are directly attributable to the changes in pricing. And this logic is easily understood. However, as any industry continues in a high priced environment the technological changes that are brought about provide "irreversible" advantages to the innovator "at any price level".

And this is the point, the oil and gas company assumes that the need to provide profitable operations at $25 to 30. Making this assumption eliminates the innovative mindset and cripples the solutions to the problems. Adopting a mindset that exists only in their minds that will never, ever be valid again, and is as fictitious as a cartoon. That is the reason for the high energy prices and left to the devices of the hierarchy this will become a self fulfilling prophecy.

If on the other hand the oil and gas company used the current prices to fuel engineering and geological innovation, it would ultimately lead to lower costs across the entire spectrum of potential energy prices.

So these companies have fooled themselves into believing that they know best and have given up trying because they don't see the demand side of the equation. This is a fundamental failure in the most pure manner of speaking. A failure that I have attributed to the hierarchy and its self promoting and self rewarding self.

As I have said many times before, those who believe the hierarchy will lead us out of this spiraling mess of an energy market is deluded. The bureaucracy is redundant and exists for itself and itself alone. No one could stand up to argue otherwise. The systems that are employed in the oil and gas firms, the SAP's and Oracle's explicitly define and support the bureaucracy.

The only manner to stop this foolhardiness is to build the systems discussed in this blog. Systems that move the accountability framework into alignment with the legal, financial, cultural and operational decision making frameworks that reside with the joint operating committee.