Friday, January 30, 2009

Nouriel says the "D" word.

This week we have been able to focus on the community that needs to form here. A community that needs to build the People, Ideas & Objects ERP styled software systems that are desperately needed for the oil and gas industry. Today we have a fairly strong dose of negative economic news, and I submit these latest articles to provide the support for the changes that are needed. If we don't act, we will be in a much more dire situation then we currently find ourselves.

First is Professor Nouriel Roubini states the "D" word. He also states that the five top U.S. Banks are insolvent. Nouriel may be the most famous economist due to his precise calling of this economic decline. Noriel has provided very sound quantitative and qualitative analysis of what is happening economically. Prescribing some of the remedies that are necessary to offset this decline. When he starts using the "D" word, I think it is very serious point. His most recent interview was on Wednesday with Bloomberg News "On the Economy" with Tom Keene at the Davos, Switzerland World Economic Forum. I highly recommend listening.

Next is the earnings of the oil and gas producers. Conoco Phillips fired the first shock in the season by reporting a loss of $31.8 billion for the fiscal 2008 year. Wow, must be a problem there.

Lastly the news comes from Forbes, Occidental Petroleum's Chairman finds that the current pricing structure is inadequate to cover the cost structure.

"The current oil and gas industry cost structure is higher than what the current product prices can support," said Dr. Ray Irani, the company's chairman, who said the company would lower its 2009 capital spending budget to $3.5 billion to protect its returns.
Hm must be a problem there. Just a note, I don't think I will be reporting on any more oil and gas company earnings outside of the Pigs. (CNRL, Nexen, Petro Canada and Encana.) Conoco is a well run firm, however, that is in the context of last centuries performance. The Pigs are deserving to get stuffed and I'll continue on as they release their losses.

The need for this community is evident, and is on display in almost every business article written today. The economic decline is going to get much worse, the oil and gas companies are being questioned with their own survival, and the need for this community to form and get on with the job of building the next generation systems AND organizations is now, please join me here in doing these critical tasks.

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Thursday, January 29, 2009

Davos, Switzerland

I have highlighted the writings of Bruce Nussbaum of BusinessWeek magazine on this blog before. Among other things he writes the NussbaumOnDesign weblog, (subscribe to the RSS feed). My previous posts of his are here and here. Since his writing, the topics he covers (Design and Innovation), and the ideas that he raises are valid to this community, I am setting up a label (to aggregate his posts within the Innovation in Oil and Gas weblog) and Technorati tag / URI for Nussbaum (to aggregate posts within all blogs that have been tagged Nussbaum.)

He is in Davos, Switzerland for the annual World Economic Forum. In a series of articles he is metaphorically letting the rubber hit the road. Arguing that the people that are discussing the economic consequences of the current economy are the ones that brought the problems to us, and are not necessarily the people who will be getting us out of this economic mess anytime soon. I highly recommend reading his post here.

A “transformational crisis” is the term used in the opening session of the World Economic Forum by founder Klaus Schwab to describe the state of the global economy today. Institutions are not working, unemployment is soaring and we have to first manage the crisis, then manage a new world post-crisis. (Italics are my emphasis.)
The real critical aspect of his posting is that he suggests the people who are the ones that will be making the transition are not necessarily in attendance, or are relegated to the sidelines at Davos. Nonetheless there are a number of very valid quotations that I would like to highlight.
Rupert Murdoch, Chairman and Chief Executive Officer, News Corporation, USA, and Co-Chair of the Annual Meeting 2009. “Don’t let’s lose sight of what creates wealth; it’s open markets, capitalism and we’ve proved this again and again in last century,” he cautioned.

Werner Wenning, Chairman of the Board of Management, Bayer, Germany, and Co-Chair of the Annual Meeting 2009. “We’re talking about growing populations; we have to address issues of how to secure energy supply and of climate change; we’re also talking a lot about sustainability and returning to the basics of sustainable behaviour.”
Bingo, we are being challenged by so much more then just an economic mess. This is why this community that we are building for the oil and gas industry is so critical. Without the necessary systems being built for the future organization, we will not get anywhere close to this future. Software systems are the glue that make organizations work. Using the Joint Operating Committee in the oil and gas industry is the critical organizational construct of the innovative producer. It is the legal, financial, operational decision making, cultural and communication frameworks of the industry. SAP and Oracle, who define and support the bureaucracy, are able to provide compliance and governance for the SEC, Tax, and Royalty regimes. They DO NOT recognize this critical organization, the JOC, in their software.

Nussbaum in a second posting for today, writes the following highlights from what he has entitled "Fear in Davos"
It’s midnight and I’ve talked with maybe 20 really smart people so far at Davos (yep, very dense population of very smart people at the World Economic Forum) and the consensus is that a deep fear is running through the conference this year. Things could be much worse, is the message.
One senior public European figure told me “First we had the financial crisis. We still have that plus an economic crisis. Now we’re getting both plus a political crisis. This is getting ugly.”
We can chase new ideas around the table for a number of years. We no longer have that time or luxury. Understanding that using the JOC is the real key to innovation in the industry is something that I have been doing for the last 5 years. The idea of using the JOC has been thought through to the point where a total overall vision (the Draft Specification) is ready to be implemented. It details what using the JOC could provide if we built this software. Wasting time thinking of new ways to organize is unnecessary.

Critical to this possibility is the ability of a community to take the Draft Specification and produce a Preliminary Specification. But this community, which is very large and understands what I have been writing about, is ready to move. The oil and gas people in Davos are not the ones that are going to see these changes implemented. It is you the reader of this web log, and the concerned member of the oil and gas industry that belongs in this community, please join me here.

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Wednesday, January 28, 2009

Innovation Engines and more.

Booz, Allen, Hamilton and the Aspen Institute hold an annual conference to discuss many issues. The 2008 event is summarized in a document entitled "Harnessing the Power of Ideas" which include two very interesting and pertinent articles to the work we are doing here. These papers deal with energy, innovation and the community based approach.

Innovation Engines: Where Will the Next R & D Breakthroughs Come From?

The article asks the very pertinent question:

Rather as evidenced in the 2007 Strategy + Business study The Customer Connection: The Global Innovation 1000, increased return on investment is directly associated with a market driven, customer focused R & D strategy. Moreover, consumers are participating more directly in innovation and technology development, signaling the innovation landscape may be moving from the top down, Manhattan Project style model to a networked, continuously adapting and evolving "Google Style" approach. Are these developments temporary, or will "innovation engines" continue to change? Are traditional top down models still effective? p. 3
These and other questions are asked in the document but are not answered. More a call for answers. Here I can state unequivocally that the Manhattan Project style would never work in bringing an innovative software development project on-line. Score one for the Google Styled approach.

Megacommunities: Addressing Global Challenges Through Collaborative Networks

This article is right on topic with what is being done here. Defining the People, Ideas & Objects user and developer community as a megacommunity resonates with me. In their "why this matters" section it is stated:
Our increasingly globalized and interconnected world is creating issues too large for one authority to solve alone. The issues we face - environment risks, energy security, climate change, food and drug safety, global health - are so complex and involve such a diverse set of stakeholders that traditional methods of problem solving are ineffectual. In response, we see new types of collaboration emerging. p. 14
More particularly this quote gives me goose bumps.
A megacommunity approach helps create the conditions for translating complex issues into clear solutions. More than a large community of people, megacommunities are collections of organizations whose leaders and members have deliberately come together across national, organizational, and sector boundaries to reach the goals they cannot achieve alone. This tri-sector engagement of similarly concerned organizations focuses on a clearly defined  issue where the vital interests of those organizations converge. A megacommunity focuses an issue so that it is clearly defined but not oversimplified. The issue is scaled, but it maintains its complexity. p. 15
Download the .pdf and use it as a guide to increase your involvement in this megacommunity.

Web 2.0 and Beyond: What Does the Cyber Future Hold?

Discussion of the cloud and its impact is beginning to generate interest and discussion. This article presents some of the issues of web 2.0 technologies from the point of view of speed. I appreciate this discussion and ask, although the pace may be too fast for most of us, what does a bureaucracy do in the face of this viable and developing alternative. From their "Why this matters" section:
Web 2.0, the latest technology trend in computing and communications, is popular slang for a series of dynamic, interactive applications producing new forms of technological and social interaction. The lightening pace of web 2.0 technological innovation and evolution challenges our ability - as individual users, communities (real and virtual), and cultures - to grapple with its immediate and enduring implications. As these technologies increase connectivity, decentralize power, and facilitate mass collaboration, cyberspace presents a formidable dilemma for policy makers: What does the future of cyberspace hold, and how might policymakers shape it? p. 29
Interesting question. What I would suggest the oil and gas investor, the government agencies and particularly the progressive minded producers do, is to get on board and start pulling their weight. There is no control or "shaping" if your not here, no one can hear you.

Fueling the Future: Sustainable Choices for a New Transportation Landscape. and Food, Fuel, and Famine: Will Biofuels Starve Us or Save Us?

And lastly these two articles ask the right types of questions in my mind as to what the future holds in terms of energy production. Those in the oil and gas industry know that the endowment of oil and gas can not be replaced by man made synthetics. This is a very dangerous discussion. One that can cause significant issues in our very near future. We need to realize the most effective way to fuel the future is through a combination of aggressive exploration of the earth sciences and engineering disciplines, and their application in the oil and gas industry. We also need to reduce the amount of energy we consume by more effectively using what we have. Driving to work in the morning is becoming more and more ridiculous by the day. Join me here and lets build systems that will reduce the daily commute to simply logging in to People, Ideas & Objects .

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Tuesday, January 27, 2009

Users. The 5 w's and how.

Yesterday I highlighted an article from McKinsey regarding the rebels that are needed to overturn the poor non performing bureaucracy. Establishing that one of the objectives that I am trying to meet for 2009 is the recruiting of 100 "users" for extending the Draft Specification into the Preliminary Specification. I thought it might be worthwhile to clearly identify what I think these people will do, and answer some of the questions that may be asked. First of all the community of people that read this blog on a regular basis are here for a reason, and that first and foremost means you may be interested in further exploring what needs to be done and how you could fit into the community.

I want to reiterate the terms of these first 100 individuals by defining what is expected of them and what is required. The first item of business will be to review the process of how they join the community. Special emphasis should be placed on the summary submission of your contribution. This should include how you expect to extend your organization as a key or cornerstone "Community of Independent Service Provider".

Why will these people join?

They know in their hearts that the current system is not working. That the need for the industry to move to a higher level of performance is necessary, and they have ideas that will make a difference.

Who are these people.

People who have worked in oil and gas for at least 5 years. Engineers, earth scientists, administrators, accountants, developers and generalists. People who are from the oil and gas companies, investors in oil and gas, government agencies and the service industries that depend on the energy industry. Anyone who can trace their salary or revenue from the energy industry as a whole. The focus is the Joint Operating Committee and therefore is limited to the up-stream end of the business.

These are people who are looking to establish their own service based offering to the oil and gas producers. This will be developed by using the People, Ideas & Objects software applications they build here, and use to deliver to their client producers. This is a business opportunity to the first 100 individuals that sign up. This is not an exclusive arrangement, it will be offered to everyone that joins the development. It is just these people will be the first 100 and will therefore have access to the knowledge and understanding to establish a service based offering.

Where are these people located.

From all corners of the world. One of the Preliminary Specifications deliver-ables is to determine the geographical scope of the application. I have set the minimum to be North and Central America. However, the demand for this type of application is universal and needs to consider the many voices who are part of the global oil and gas industry.

When are these people needed.

Today! Ideally we should have the full complement of 100 by this time next year. They will then undertake to establish their own guidelines, organization framework and deliver-ables. The scope of their undertaking is to set in motion the minimum required application functionality and process management.

How are these people going to do their job.

I have purposely left the Preliminary Specification as a blank slate. Although I expect the Draft Specification to be used as the initial input, there may be better ideas out there. These should be considered at the earliest possible time. The method that this will be done is through the collaborative environment established through the Google Apps for People, Ideas & Objects. This environment currently has many tools and is more then capable of providing what is necessary for these people to work throughout the world from their office and their home.

That's correct. I don't expect anyone to lose or have to quite their job while they are making this critical investment in the software or their service based offering. All of the activities in the Google Apps for People, Ideas & Objects are encrypted via https. Your boss will only know of your activities if you show them, or they too are members of this community.

What will they be doing.

Assessing what is possible and probable. What is the first commercial release of the application going to need and how will it attain that. What needs to be done in the client producer's to make the application available technically and business wise. In short answering a lot, if not all of the "what" and "how" questions that are needed to be asked before developers start to build the application.

In summary.

I do not expect to be inundated with a flood of initial contributors. However, these people will need to be of a fairly diverse subset of the industry. The need to have a good representation leads to much of the need for the high number. However, it would be up to those to determine how they organize themselves once they are together. Some people who apply may not initially be accepted. This does not preclude anyone from joining in the second round of recruiting. It is important to remember the second round will be a fully sponsored round, where contributions of both the first 100 and subsequent people will be paid for their efforts of working on this software. Industry has been very slow to pay any attention to this project. In other words $0.00 has been the income to date. And if we wait for them to start funding this development, it will be far to late by then. It is assumed by me that the opportunity to establish your service based offering in this initial round will provide tangible monetary results in the very near future. I therefore ask you to please join me here.

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Monday, January 26, 2009

McKinsey on Market Rebels.

I have to say that I like this article, its writer, and the video that is included. (Click on the title of this entry) It has particular value to this community as we begin the process of recruiting members. To start off the opening paragraph states:

Activists who challenge the status quo play a critical but often overlooked role in both promoting and impeding radical business innovation. Their importance stems from the very nature of innovation, which frequently challenges existing interests, norms, values, social practices, and relationships. As a result, the joined hands of market rebels—activists and their recruits—have with surprising frequency exerted significant influence on market acceptance of breakthrough products and services.
This is more support for the changes prescribed by this community. I would suggest that the size of this community is very large for the type of change that is being prescribed. It is this community that is aware of the problems in oil and gas, aware of the details contained within the Draft Specification, and beginning to be aware of a possible role for themselves within these software developments. It truly is a community of rebels who are well positioned to move to accelerate the needed changes in oil and gas.

With lay-offs beginning in the industry, the demand for this community will begin to accelerate. Our appeal to the oil and gas investor and the government groups, with oil and gas royalties, are beginning. These two identified sources of revenues will soon begin to support the needs of the community and begin to offer an alternative means of employment and operating in the oil and gas industry. Both the software and the associated services of this community will better manage the oil and gas resources compared to the bureaucracy. This article shows that there are difficult roads ahead.
These examples and many others hold valuable lessons for executives pursuing innovation. The costs to consumers of adopting such innovations are high because adopters have to topple existing conventions. Stimulating collective endeavors that initiate social change can be a critical part of reshaping markets.
It has to be asked. Can the oil and gas industry as it exists today change to what is necessary for tomorrow? Will the bureaucracy still be in power in 10 years? These two questions show the future is not going to be met by our current organizations. As we roll into the 2008 annual earnings season. We will find that these companeis have ceased to find new oil and gas reserves and production to meet even last years performance. In some cases, such as Exxon Mobil's in 2007, they lost 10% of their production. Expect to see an acceleration of the production declines during 2008, and even an accelerated further decline in their projections. This communities job is not a luxury or a nice to have, it is a necessary action to ensure that society and people are provided with reasonable volumes of energy for years to come. These firms are failing and will not be around in ten years time based on today's performance.
To do so, companies must understand how market rebels forge a collective identity and mobilize support. Crucial for many activists is articulating a “hot cause,” which arouses emotion and creates a community of members, and relying on “cool mobilization,” which signals the identity of community members while sustaining their commitment. Companies also can boost their odds of harnessing the power of collective action by employing the right tactics, such as emphasizing two-way communication with consumers. Above all, a mind-set shift is needed: managers hoping to foster and encourage the diffusion of radical innovation need to start thinking like insurgents. Those who do so are likely to become more effective at influencing their own organizations too.
One of the objectives I had set out for this year was the recruiting of 100 individuals to take the Draft Specification and develop the Preliminary Specification of the People, Ideas & Objects software application. These "rebels" will be investing their time and capabilities in establishing their own Community of Independent Service Providers to support their use of this software in the producer firms they will represent. These people will be best able to take the ideas in the Draft Specification and determine what is required in terms of the application and the services that need to support it. These people will be defining the oil and gas industry and how it will operate in the future, and how their service based offerings are designed to keep the industry innovative.
Market rebels aren’t Molotov cocktail–throwing World Trade Organization (WTO) opponents. They are groups of individuals who together shape markets through hot causes, which arouse emotions, and through cool mobilization, which allows participants to realize collective identities. Executives that understand the roles and practices of market rebels are more likely to be successful innovation leaders.
Please join me here.

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Friday, January 23, 2009

The top 25 posts of 2008.

Much like other blogs I wanted to publish a "best of" list of the favorite content. I have been using Google's Feedburner service for many years and have watched this community grow. Google's acquisition of Feedburner was completed this past summer and as a result the domain changed and we have lost the cumulative "best of" or most popular data. However we still have the data from July 22, to December 31, 2008 as listed below.

Unfortunately, their is no information on the popularity of the Draft Specification which was published between December 2007 and August 2008. Google has made many positive changes to Feedburner and are still working very hard on improving the service. Here are the 25 most popular items on innovation in oil and gas. 

Thanks for reading, and please join me here.

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Thursday, January 22, 2009

Just because they say yes...

... doesn't mean its ok. I thought we would have learned that lesson from the mortgage fiasco we are now experiencing. Just because a banker says you can have that new house does not mean that it's a wise decision. This logic is something that people should have thought about when it was happening, not when it's too late. 

Just as the mortgage broker, President Barack Obama and the Democratic Congress should heed the call to think twice about "stimulating the economy". We proved that Keynsianism was a flawed economic policy in the 1980's. Why is it now assumed that the problems brought about by easy money is going to be fixed by even easier money. Failure is a necessary element of economic change, and failure has to occur to make way for the new success. There is no way to avoid it. By delaying the organizational failures only makes it more costly in terms of higher unnecessary debt, and longer time frames.

We see here in an article from the New York Times  that the Chinese may be at the end of their unlimited financing of American consumption. What happens, President Barack "I'm in over my head" Obama, when the world says "no I'm not investing in that"; and the Obama budget meets the immovable mountain of the Chinese propensity to finance the American taste for debt . 

Moral hazard is here, no consequence from the government actions are considered. It's all just a matter of waving a magic Obama wand and all will be well. Or alternatively, we just dig ourselves into a much bigger hole to dig out of in the not so near future. 

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Wednesday, January 21, 2009

Apple's App Store and others.

What this post is about is the type of environment or community I see People, Ideas & Objects becoming. There are many types of communities that exist today that I can point to, and detail the attributes that appeal to me, and what I think should be emulated in "our" application modules. (Click on the title of this entry to be taken to a New York Times article on Apple's App Store.)


I am a prolific user of Google applications. Including Google Apps for People, Ideas & Objects where the Wiki, blog and many other productivity and collaboration applications are available. A regular Google Account also provides the ability to monitor and control the various data types that an individual is interested in. Consisting of more then 33 distinct applications, each is capable of managing a certain element of your world, and connect you with members of your community, whatever that may consist of. 

The attribute that I find Google Applications provide is a very good example of what the alleged "cloud" provides. Up to date applications that are available everywhere. This is the next element of the always-on Internet, and represents a huge leap in software value. When applications can be upgraded once, the speed benefits more then just the developers. The iterative development of software is possible, and users are put in the driver seat and in control of the applications features and functionality. 

Apple iTunes

iTunes, the application that just keeps getting better. Music, podcasts, radio, movies and TV. All of your entertainment in one easy to use, search-able database. And if you want to purchase a song or movie, the iTunes Store is just a click away. All the sophistication that is the iTunes application is available in the easiest interface. You have the opportunity to organize and manage your entertainment in unique and innovative ways like SmartPlaylists, and the new Genius functionality. 

The attribute that I find iTunes brings is the complete management of one element of your life. Your entertainment. What I would like to see is the user, who is in control of the developments for the oil and gas producer, use the People, Ideas & Objects application as their commercial environment. The place where they earn a living. 

Apple's App Store

We've all heard about the iPhone and its applications. Independent developers and firms that are selling "cloud" based services can develop an application very easily for the iPhone. With a huge Software Development Kit provided by Apple. A developer can make an application that could be a complete home run on the iPhone for as little as $50,000.00. With a readily available market, and distribution to consumers, developers are finding access to revenue streams of up to $500,000.00 / year. 

It should be made clear that this is the first time that a developer has been able to independently invest, market and earn based on their entrepreneurial skills. There have been markets such as SourceForge and Collabnet. But those are not necessarily ways to make money. They only provide for the ability, in the open source ideal, to being involved in making much better software. 

I am doing what is possible to make People, Ideas & Objects the second market for these developers. But theirs more, much more. This is also the marketplace where users will be able to actively participate in making the software they want and need, and also earn money for the time spent on working with developers and also their producer clients. 

The services associated with People, Ideas & Objects software are licensed to the users under contract. Developers and Users are able to look to the work being done here as part of their career and for monetary gain. As I have mentioned here many times before; the total cost of a global application with the full scope of a producer firm, is estimated to be in excess of one billion dollars. The majority of those revenues are distributed to the individuals who make the software what it is. The users and developers, please join me here

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Tuesday, January 20, 2009

The Parallel Revolution

A YouTube video in which the presenter suggests that parallelism is the biggest computer science issue of the past 50 years. Whether that is true or not is a subject of much debate. Parallel processing has been around for almost 15 years and has been a bit of disappointment. A disappointment when we consider what is possible if parallelism could solve the problems the presenter is referring to.

The problem comes down to the speed at which the processor can do a job. The operating systems are not necessarily able to manage the priorities all of the traffic coming in for processing. When the process, particularly a business process, needs to be manage in a defined sequence over time, and particularly based on interactions by the user. There is no way in which to ensure that the sequence is taken in the proper sequence. 

This affects us in People, Ideas & Objects because we have chosen to make Asynchronous Process Management one of the four cornerstones of our Technical Vision. When we consider how the Joint Interest Billing process is completed between several companies represented in the Joint Operating Committee, we see the value in solving this problem and enabling this technology. 

The operating and capital costs of a well, facility or plant is distributed to the working interest owners on a monthly basis. In the Partnership Accounting Module of the People, Ideas & Objects application we introduce a number of new variables to make the process more effective in defining and distributing the costs incurred by all of the partners. The ability to identify and apply these new costs, on top of the innovative way it handles all costs, revenues and royalties, needs the Parallelism being discussed in this video. Various people within the firm are measuring and capturing these costs for distribution. This firm may be scattered across many geographical regions and time zones. The ability to have the process managed in sequence may take several weeks of moving from desk to desk in the paper chasing world. In the virtual world it can and needs to move much quicker. Some times things happen that have the necessary dependents not fully complete, and that would be necessary in terms of mitigating the time of all the associated processes. However, there is also a need to ensure that the process is not over-ridding previously made decisions and data in the system. The process needs to be parked if a critical aspect is needed before processing. 

Once this process is completed within the firm, it is then necessary to follow a similar process for the firms in the Joint Operating Committee. When you consider the number of costs, properties and firms within the industry you can see the complexity of this process needs to be handled in the appropriate sequence. 

Where are we in terms of resolving this problem. I would suggest we are very close to having the means at our disposal of defining the software to follow the process in this Asynchronous manner. Steve Jobs of Apple has claimed that he has solved this problem and will release the capability in the next version of their Operating System, named Snow Leopard. Java makes the management of the process possible, but a bit cumbersome. Future changes are with this idea in mind and will achieve resolution of this critical area at some point in the very near future. Making the People, Ideas & Objects application modules able to make the possibilities real, please join me here

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Monday, January 19, 2009

The end of the paper economy.

I have commented many times about the state of the current global economy. Why do I continue to discuss these economic difficulties? This is a necessary part of the development of this software. The ways and means of the global economy are being transformed to new and more effective ways of organization. Whether that is your belief or not is not something that I am challenging. I am trying to build support for the fact that these economic and organizational changes need to be accepted by every individual that works in the oil and gas industry. Milton Friedman has best captured the point in the following comment.

Now, you never have real changes unless you have a time of crisis. And when you have a time of crisis what happens depends on what ideas are floating around, and what ideas have been developed, and thought through, and are made effective. 
I'd like to think the ideas that I have formulated in the research and writing represented in this blog are some of those ideas that are just lying around. I perceive this time as the point of greatest opportunity for individuals. Our lives will be transformed, if we take this opportunity and run with it, we could achieve more then has been possible in many generations. 

There is going to be a sizable amount of pain as the "old" dies away and the new is formed by trial and error, but mostly frustration. But it will be worth it. What was conceived of as being of value in the past, - paper assets, stocks, bonds, pensions, real estate and retirements - are falling in value and will be not be adequate for our long term needs. What is of value and what can anyone in the oil and gas industry do to participate in this new economy and rebuild their lives?

I think the new economy is going to be based on "rights". Where access too, or ownership of, rights is the basis of how an individual earns a living. At least that is my theory and I'm sticking to it. The right to use the People, Ideas & Objects software is subject to license in which the rights to the ideas of using the Joint Operating Committee are available to everyone who chooses to make a living in oil and gas. These rights and the associated software are provided for free to those who provide services to the oil and gas producer, in their own service based offering. People, Ideas & Objects revenues are sourced by those that benefit from the sales of oil and gas. Oil and gas producers and governments which have the need for the people to manage and organize their assets and provide the most profitable means of oil and gas production. Creating an environment of dependency and mutual support between those that work in oil and gas, the producer companies and government agencies that collect royalties, and the software development process and application itself.

Please, join me here in this necessary and worthwhile cause.

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Friday, January 16, 2009

Former Talisman CEO Jim Buckee

I have always valued energy based on the potential price of gasoline. My projected $600.00 / barrel translates into approximately $5.00 / liter of gasoline, which includes taxes. This would be the deal of the century if it were not for the current price of oil is around 5% of my projected $600.00 price.

This qualifies as the deal of the century on the basis of the mechanical leverage we have achieved for each barrel of oil, as calculated in the book "Profit from the Peak", is 18,000 man hours per barrel. On that basis the $600.00 / barrel replacement cost is only $0.03 per man hour. 

Along comes Jim Buckee, former CEO of Talisman Energy in January 15, 2009 Calgary Herald suggesting the price of a liter of gasoline will reach $20.00 / liter. This would make the replacement cost of one hour of man labor escalate to $0.12, what is he thinking? Dr. Buckee's reputation in the oil and gas industry is unimpeachable. Building Talisman up to approximately 500,000 barrels per day of production, $20.00 / liter is a legitimate and serious claim. 

We can all assume that the types of claims made by a former CEO would be different then one that occupies that office. Those that are the CEO's of today's organizations are guarded in their comments and would never be able to make such a claim. Shareholders and the public would run scared and frightened. A former CEO carries the credibility of the office, yet has the ability to speak the truth of the situation that they are familiar with. 

What is difficult to comprehend is the scale in which we have become dependent on 86 million barrels of oil per day. Energy production provides for our way of life and standard of living as a result of not having to be occupied with the menial tasks of our ancestors. Who amongst us will be the first to volunteer to reduce their consumption by 2% (1.72 million barrels per day). And if we can find the willing volunteers for that I am certain that we can find the volunteers for the next years 3% decline. This is a slippery slope where the end doesn't necessarily involve our survival. 

My aim is not to frighten people. I want people to join me in solving this problem by building the software that will identify and support the type of energy producers necessary to sustain, and expand our standard of living. Needless to say I find this to be an important task and would welcome those that are able to help, to please join me here. 

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Thursday, January 15, 2009

World Energy Outlook

Fatih Birol, Chief Economist and Head, Economic Analysis Division, International Energy Agency (IEA) makes a speach that is broadcast on YouTube. This speach addresses the Annual IEA Report released in November 2008. The audience for this speech is the Council of Foreign Relations. The discussion is predominately about the climate impact of CO2 produced from the use of energy. This is a disappointment as the scope of the IEA is on energy. Climate change has its own custodians and is not really an appropriate topic to take the time away from the discussion abut energy supply and demand. The energy issues alone have the potential to obscure all of the issues mankind faces. If we are faced with those dire energy related problems, will we be able to look to the IEA for the answers? Not in my opinion. If the topics of discussion are continually diverted away from energy supply to travel down obscure bunny trails such as climate change and alternative energy, we most certainly will suffer the consequences of an inadequate supply of energy.

The first part of his speech deals with the current pricing situation. Making the assertion that the supply of oil is not benefited by the decline in prices. Based on the IEA Report there is a risk of permanent damage to the supply of oil if many of the larger projects are not completed. Particularly, Mr. Fatih Birol raises his concern over the accelerating decline of existing known oil and gas reserves. Suggesting this accelerated decline risks the ability to meet market demand in the long term.

At 47:39 an excellent question is asked by "Sally  " of Columbia University. She comments that the current IEA report is a "radical departure" from thirty years of reports that suggested the supply would rise to meet the demand. The IEA Report suggests that their is a supply problem and asks if it is possible to keep supply at these levels in light of the issues that the accelerating decline curve reflects.

Who knows what the future holds. As I have mentioned before my training and experience in oil and gas is in management. I do not understand the particular nuances of what reserves are produceable or which are of value. Limiting my upward mobility in the industry. I do know, however, the amount of time, energy, money and most important of all "ideas" it takes to find a barrel of oil in the current industry environment. I also know the demand from China and India on top of the high demand levels of the advanced economies will challenge the industry on the demand side of the equation. 

I also know that SAP and the current crop of ERP systems that are in use in the industry, are inadequate to approach this problem. Supporting and cementing the bureaucracy in its well established rhythms, as is SAP's success, is the impediment to innovation, adequate supply of energy and the ability to continue on as a civilization. 

The energy supply problem is a long and difficult task for the industry to undertake. We need to take the first steps in making this happen. We live in an advanced economy where the division of labor requires thousands of people to undertake the smallest of transactions. These people are unable to know all of the necessary connections to make these transactions successful. The role of software is critical in identifying and making these people function at the optimal performance. I am suggesting we first and foremost organize the producer in a fashion that meets the needs of the industry. Now is the time to develop these systems and unleash the human resources necessary to solve these critical problems. We need to begin this new approach to the industry by changing our organizations to instill the innovation and performance that this new environment demands. Please review the  Draft Specification, and join me here. 

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Wednesday, January 14, 2009

Louis V. Gerstner on MIT video

The Networked World: Are We Ready For It? (Click on the title of this entry to be taken to the video.)

Louis Gerstner brought IBM back from the brink of destruction. The firm had misplayed the transition from the mainframe to the PC and as a result had reduced their near monopoly power in the IT industry to an almost bankrupt company. Gerstner was instrumental in taking the firm in a new direction with profitability in software and hardware products. I think that was the right direction and the current Chairman Sam Palmisano has taken the firm toward a service based operation, which I think is a failed strategy.

Nonetheless, Gerstner's video is over six years old. The vision he lays out is exactly the same vision that most in the IT business subscribe too today. What happened? Why did this six year period pass without the changes that were obvious to industry leaders like Gerstner so many years ago.

The bureaucracy has interfered in making the organizational and technological changes necessary to see Gerstner's vision real. When the budget power resides in the hands of the bureaucracy, we see record volumes of business for the SAP application suite, because SAP is the bureaucracy. Innovation and change have been traditionally resisted by the bureaucracy, and with so much innovation and change necessary, the bureaucracy has been able to easily avoid it and hence delay its ultimate demise. It is not coincidental that this time also saw the management attain the greatest amount of control over their organizations at the expense of their key stakeholders. The bureaucracy winning is the natural outcome of this battle.

If we go back to 2002 and take the vision of Gerstner to the current point of time we can time the last six years as the point where the bureaucracy had successfully resisted the technological and organizational changes. This is also the time that the fleecing of their companies by the management, for the managements benefit began in earnest. It is reasonable to assume that at some point the methods of the bureaucracy would become to slow and too unresponsive for the needs of society. 

As I stated in the Preliminary Research Report, the collapse of the Former Soviet Union was a reflection of the demise of Russian society as a result of its organizations not able to provide for societies needs. People were unable to work when they were lined up at the bakery for food. We saw lineups of people waiting for their bread and food when the so called supermarkets were literally barren. To a large extent, as I suggested in the Preliminary Research Report, the current financial meltdown is as a result of the bureaucracies methods are unable to provide for the societies needs.

Waiting for the Great Obama to solve the financial meltdown is going to leave a lot of people disappointed. There is not enough money in the printing presses to overcome the inefficiencies of the bureaucracy. If we do not set out to build the organizations we need for the future deliberately, they will not come about. We are beyond the ability to have the corner store, where the supply and demand are local, satisfy the complexity in the economy. We depend on a globalized economy and the people that depend on each other have no understanding or appreciation who, what, where and when these interactions occur. Expecting this to generate itself is typical of the thinking that the market will provide the solution when the demand shows itself. It is clear from this video that the demand has been in existence for over six years now. The market will only provide it when action is needed and action is taken. We need to act now and make this software for the innovative oil and gas industry. Laissez-fair is no longer able to provide the types of spontaneous order that Frederick von Hayek suggested. Complexity demands that we need to act, please join me here. 

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Tuesday, January 13, 2009

Robert Malone, on MIT video.

Achieving U.S. Energy Security Through Energy Diversity

Robert Malone is the Chairman and President of BP America and is speaking about energy policy in the United States. Going back to the Nixon administration and reiterating some of their goals in terms of where and how the U.S. would source their energy. Stating the attempts to formulate a policy have failed, and now is the time to address this difficult situation. 

Talking about our future and the difficulty in getting people's focus on a national energy policy. Its a market economy, and I think the idea is that you get paid when you explore, develop and produce the product. Looking to the government for the leadership in making the policy changes  to enable domestic supply has provided the U.S. with nothing but the failures going back to the Nixon and Carter administrations. 

I disagree with the argument that the U.S. is spending too much on foreign energy supplies. The cost of a barrel of oil is the deal of the millennium. What the U.S. economy, the most efficient consumer of energy, is able to generate with one barrel of oil is far greater then the cost. The U.S. is the largest consumer of energy, and the largest economy in the world. We need to stop thinking in terms of the costs of energy and think more in terms of the value. This requires that we begin to understand and use energy in the most efficient methods possible to fuel our economy. One of the dumbest ways we spend our energy is in gridlock each day twice a day, in order for our supervisors to take attendance. What we need is systems that enable the user to do their jobs when and where the user is, and when the job needs to be done. This begins with the oil and gas producers sponsoring the software developments contained within the Draft Specification.

I can foresee the future user of People, Ideas & Objects waking up and logging in to the system within the first fifteen minutes of their waking. In comparison today, this simple act of logging into the system takes the average person up to 2.5 hours from their waking. The only analogy that I can draw to this foolish idea of getting to work; is having to drive back home in order to make a personal phone call. Ridiculous, join me here.

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Monday, January 12, 2009

They're here, again.

Layoffs. Our local Calgary Herald is reporting layoffs at drilling contractors due to rig activity at 36% of capacity.

What I find particularly frustrating is the propensity for the oil and gas companies to exacerbate this boom or bust attitude. It was just a few months ago that we heard about the difficulties in securing the next generation of employees to run the industry. When considering a career people cite the boom and bust nature, and the demands of working long hours, prospective workers expressed the lack of interest in the industry. This happening at a time where the brain trust is / was about to retire. The layoffs may make it next to impossible for the producers and suppliers to recruit new talent, when the next uptick happens.

This is not just a local occurrence either. Schlumberger is laying off workers in the United States. Is this the extent of the thinking of current oil and gas company management. There are larger issues and opportunities that need to be addressed. The People, Ideas & Objects systems as detailed in the Draft Specification approaches the vendor and suppliers from a different perspective. One that works to build capacity and ensure that the needs of the industry are met by all. 

The Resource Marketplace Module  provides a solution that moves away from this boom and bust mentality. The oil and gas companies had been complaining constantly about the "gouging" and "greed" that the field contractors were charging for their services. Are these current layoff's what the oil and gas companies should be working to mitigate? By shrinking the size of the drillers and suppliers pool, only make the problems the oil and gas companies will face in the future more difficult and costly. You do reap what you sow.

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Sunday, January 11, 2009

The founder of the independent oil producer.

In Canada we have the pioneering spirt of Daryl (Doc) Seaman and his two brothers BJ (Byron James) and Don who established the independent oil producers in Canada. Without these individuals, the energy industry would not have had the entrepreneurial spirit that guided it through the very difficult times of the 1980's. All Canadian's have been benefactors of these men's vision, courage and dedication to the ideals of the independent pioneer.

It is with sadness that we learn the passing of Doc Seaman this evening. His legend will live for many years, and he will be missed.

Friday, January 09, 2009

Bruce Nussbaum of BusinessWeek.

Over at BusinessWeek they have an interesting blog on innovation and design . The post for this week is topical for the work that is being done on this website. Entitled the "Transition conversation: Is 'Transformation' a better concept than 'Innovation' to guide us forward?'  The opening sentence brings the subject in focus

We are having a great conversation on one of the most important subjects in our lives—how we can change our broken institutions and out-dated culture to survive and thrive within 21st century forces.
That is what this blog, innovation in oil and gas is about, and what the software system we are building, People, Ideas & Objects, is about. How we can change the failed bureaucracy in the oil and gas industry. We need to approach the ways and means that we organize ourselves for the 21st century challenges in the oil and gas industry. By using the Joint Operating Committee (JOC) we are able to align the compliance and governance that is the sole concern of the hierarchy with the legal, financial, operational decision making, communication and cultural frameworks that are the domain of the JOC. This alignment puts the business of the oil and gas business back into the proper context. And therefore is able to support innovation and speed / performance of the producer.
This failure is very costly and is reflected in lower reserves, accelerating production declines, and a lack of concern by these firms management. They are willing to take the credit for the higher prices and associated profits. I suggest we credit them with the recent profits and fire them for their current losses. Outside of these events it would be difficult to to associate any action or positive development from these bureaucrats. Nussbaum suggests similar difficulties are associated with all industry in general. 
Our institutions aren’t working. They are broken. Corporations, investment banks, health care, schools, universities, Congress, transportation. The current crisis is accelerating the breakdown in the major institutions of our lives that began in the 90s.
Today software is the key to organizational performance. I coined the phrase "SAP is the bureaucracy" to reflect the impact that software has on defining and supporting the type of organization they are. Software is a deliberate and necessary part of any future organizational change. It is not the technology that is driving this initiative, its aligning the business of the oil and gas business to support and encourage innovation, speed and capacity to change as critical business attributes.
Digital technology is disintermediating every organization, eroding the role of all middle men and women, from ad agencies to college professors, from newspaper editors to hospital administrators, from political parties to savings banks. The shape of all our institutions is radically changing.
People, Ideas & Objects software developments are driven by the users, the multiple of professions that are part of the oil and gas industry, who are the people and their ideas that make the energy industry. This is a user based initiative that drives the software development. The software simply automating many of the new and innovative ideas users want and need to increase their organizations performance.
The power to create and participate is moving to the masses. Digital technology is giving everyone the tools to tinker again, to design and shape their learning, their working, their play. Craft is back in newly significant ways that we are just beginning to understand.
The energy industry is desperately in need of an innovative organizational basis. We are headed in a downward projection in terms of reserves and production. A situation that presents these organizations with its demise, yet, the management are unconcerned outside of the impact that this will have on their salary, pension and most precious of all stock options.
“Innovation” is inadequate as a concept to deal with these changes. You have “game-changing” innovation, which is big but rare and incremental innovation which is small but common. “Innovation” implies changing what is. “Transformation” implies creating what’s new. That’s what we need today, a huge amount of totally “new.”
Nussbaum is suggesting that the innovative mindset is not enough any more. The world is quickly moving on to new initiatives. "Transformations" being the result of the innovative methods of an industry. Transformation are driving this new level of change. The fact that oil and gas firms are unwilling to participate in these ways, after all it means a lot more effort on managements behalf, is one thing. However, I have been pushing these ideas to be adopted in the industry since September 2003. The tally for the amount of financial resources that have been committed to these ideas is $0.00. (And I am forced to work outside of the oil and gas industry because I have accused the bureaucracy of failing.) As far as I am concerned, that is disgusting. This fact alone reflects that management have their collective heads in the sand. And I am not suggesting that this software development and using the JOC is the key to attaining the innovation necessary, I have done the research and it works on paper. It's just that it is the only idea that suggests the status quo is the not accessible. And if there was a better idea presented, I would certainly get behind it and start pushing that. The important point is that the bureaucracy is failing. It is time to do something about it.
Design is the answer. I use the term “transformation” to capture the immensity of the task ahead of us and to guide us in the magnitude of that task, but the actual tools, methodologies and, yes, philosophy of that mission is found within the space of design and design thinking. This is what many of those in this thread of a conversation are saying and I agree. It is the design schools that are creating the tools of transformation and graduating the people to implement them, not the business schools (one exception—The Rotman School of Management). It is the Institute of Design in Chicago, The D-School in Stanford, DAAP at The University of Cincinnati, the Parsons School of Design in New York City, The Art Center College in Pasadena and RISD in Providence where “Transformation” is being developed.
I have codified the ideas that I have researched and presented them in a coherent vision of how I see the industry moving to a more innovative footing. This vision is reflected in the Draft Specification  and I encourage you to join me here in this very important work. 

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Thursday, January 08, 2009

John Taylor, of the Taylor Rule.

Here we have a special document in which to review. The Taylor Rule is a very simple principle that was put forward by John Taylor in 1993. A prolific writer, Professor Taylor is being added to the list of academics we follow. His writing is clear in terms of defining and explaining the economic situations that he is writing about.

This first paper is available from Taylor's home page. The document "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong" clearly presents his views on what has gone wrong in the economy today. It is important to note that the work is considered a work in progress, so check for updates. Professor Taylor is also a Senior Fellow of the Hoover Institute and member of the prestigious Working Group on Global Markets.

Much of the discussion in this paper supports the validity of the Taylor Rule. The Taylor Rule is best described as a relative point at which Fed policy on interest rates should be set. It is well described in this Kansas City Fed document.  

Taylor's analysis provides sound argument that the failure of the Fed to set its interest rate policies at an appropriate level sowed the seeds of the current economic difficulties. This provides a strong challenge to the long wave research of Professor Carlota Perez. Her theories have been discussed on this blog many times before, and make a strong case for the systemic patterns of the past 300 years. 

A debate between these two academics would provide some valuable knowledge as I suspect both are correct. The only way that I can think to reconcile these two different theories is to establish that the large economic changes that are brought about by technology, the deployment period in Perez' analysis, would somehow be triggered by some form of government failure. Government failure appearing to be the only constant in the two theories. 

The clarity of Taylor's writing is shockingly clear. He is a real talent in terms of articulating complex economic theories and a joy to read.

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Wednesday, January 07, 2009

Ouch, that hurts.

The Oil & Gas Journal is reporting the rating agency Moody's is downgrading the Exploration & Production sector to negative. Click on the title of this entry for the Oil & Gas Journal article.

LOS ANGELES, Jan. 6 -- Moody's Investors Service has changed its outlook of the independent exploration and production industry to negative, citing the "precipitous decline" in oil and natural gas prices to levels that are likely to result in abnormally low cash margins and fundamental credit deterioration.
I have been gleefully highlighting the difficulties that Canadian Natural Resources Ltd is having as a result of their over-reaching. This Moody's call is doubly difficult as CNRL will not only have their financial difficulties to deal with but the sector is being downgraded in terms of its attractiveness to investors.

The scope and speed of this downturn / meltdown / recession / depression is unprecedented. CNRL began thinking the air smelled pretty good around them and were invincible to the forces of the market. 

Instead of sticking to their knitting, these nit wits ramped up the debt in the mistaken belief they were the top dawgs in the oil and gas business. I'm smelling a lot of CNRL's blood in the water. The situation they have created for themselves is desperate and will require wholesale surgery. Asset sales are difficult but they will need to raise cash. Cash I'm sure their banks will have a claim to. This also assumes that they can close a sale. With most of the smart money on the sidelines, it's fair to assume this avenue will be closed as well. 

This leaves few options. Cutting capital costs can be done fairly quickly, (and has been done) but will that be enough. Layoff's of a significant amount of the staff will need to be made in order to maintain a base of operations and satisfy the bank covenants. Aw heck, why bother, throw it at the courts and let them figure it out. After all what's in it for management? Easy come, easy go right guys.

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Tuesday, January 06, 2009

CNRL loses its Fidelity

Canada's National Post (Click on the title of this entry for the article) has an article about Canadian Natural Resource Ltd (CNRL), our favorite piggy, has lost the interest of Fidelity Investments Maggelan stock fund. I can't imagine why. I mean is it the questionable accounting, the massive debt load, the massive working capital deficiency or just the probability that the Horizon heavy oil project will ever get started or the ability to ever make a profit from that white elephant? Maybe its just the steep declines in production? Probably the fact that the 44 individuals with Chief or President in their title, and lets not forget the three people who rank as Chairman, couldn't provide a reason for Fidelity to keep their shares. After all CNRL was not the only stock Fidelity were selling, they were also dumping a number of American banks.

Time continues to tick away from our four piggies. Just six months ago, the management of these companies were basking in elaborate retirement plans funded by their $3.3 billion "in the money" stock options. Well those options disappeared pretty quickly didn't they. Now the exits are experiencing a stampede of their five star investors. Hmm, lost the ability to issue bonds or increase debt, can't raise money from their investors, can't finish off the jobs they started. Failure is the only way to describe it. A failure that was precipitated by managements greed and pretense.

Asking these companies to adopt a more innovative footing seems too much to ask these days. After all they seem to be fighting for their very existence. The only thing that surprises me is that the smart money (Fidelity) actually made it out before the management defections.  

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Monday, January 05, 2009

Starting off in 2009.

Jeffrey Immelt, CEO of General Electric is quoted in a speech this last November.

The economic crisis doesn't represent a cycle; it represents a 'reset'. ... People who understand that will prosper. Those who don't will be left behind." MSNBC Meet the Press December 28, 2008.
We are quickly approaching the point in time in which we are changing the ways and means of economic organization and development. People will soon realize, on scale, that the economic problems are associated with the inefficiencies that our organizations conduct their operations. The continuation of business as usual has and will fail completely. The opportunity to address these problems and re-start from a clean slate is both the opportunity and necessity. 2009 is the point in time in which this software development becomes critical to the future of the energy industry. Pompous words, but the fact is that software defines and supports the organizations we depend upon today. If we want to make the necessary changes and design more efficient economic organizations, the software must be built first. We are well beyond the point where "spontaneous order" will provide the solutions that are necessary. We must actively define our future organizations through the development of People, Ideas & Objects software for the future of the oil and gas industry. If we do not address these points, then we will be relegated to the status quo, at best, or barbarianism from manual systems.

We all need to take some action for 2009. Each of us shares a responsibility for making this project happen. I have chosen the following priorities for myself with respect to this blog and People, Ideas & Objects.
  • Actively recruit the 100 individuals necessary for defining and developing the Preliminary Specification. (You can join me here.)
  • Re-focus on the point that innovation in oil and gas is the responsibility of everyone. There are no "Chief Innovation Officers", and restate the research that has determined what is necessary for innovation to be the industry focus.
  • Continue to define the value propositions to users, developers and producers.
  • Secure development dollars from governments, disgruntled oil and gas investors and possibly from the producers themselves.
Please note this is my first mention that producers are part of our revenue model. If, as Jeffry Immelt suggests, those producers that understand this is an economic reset will be able to prosper. Those who don't will be left behind. We should therefore open our doors to those progressive producers that understand this is an opportunity for them to prosper. (However, no piggies.)

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