Sunday, May 31, 2009

Changes at Shell.

A number of articles are appearing about the announced changes at Shell. A new CEO Peter Voser takes over July 1, 2009 and has announced a major overhaul of the firms operations. Fox notes:
Oil giant Royal Dutch Shell on Wednesday announced a series of changes to senior management roles and responsibilities, which it said were aimed at creating a sharper focus on operating performance and technology.
I interpret these changes as an admission that the engineering and earth sciences necessary for each barrel of oil produced are increasing. The Calgary Herald reported that Voser said:
"Organisationally, we are too complex, and our culture is still too consensus-oriented. Our costs are simply too high," Voser said in an email to staff, excerpts of which were seen by Reuters.
Details of the changes include the consolidation of divisions into operating units around geographical locations. North America being one in which I would assume Houston will take the lead role in. It is also reported that many lay offs will occur throughout the company. 
The Calgary Herald notes many of the differences between Shell, Exxon and BP's announced reorganizations. These are all ongoing and reflect different characteristics and management styles. 
Exxon is renowned within the industry for its strict management practices and insisting employees do not deviate from standard operating procedures. BP, on the other hand, had a risk-taking culture that allowed considerable freedom to managers of units or fields, and Shell had a culture of making decisions by consensus.
What does People, Ideas & Objects offer firms such as Shell, Exxon and BP.
It's interesting the three methods that are used by Exxon (Strict Management Practices), Shell (Consensus) and BP (Risk Oriented.) Neither of these management practices or strategies are precluded in the People, Ideas & Objects. It is very clear that a unique strategic identity is enabled in each producer through this system. This also does not preclude a strong governance structure. With the reduction of the hierarchy an alternate form is required and one has been developed. That is the Military Command & Control Metaphor used within the Joint Operating Committee affording the pooling of resources and reducing the redundant capabilities built within each silo'd oil and gas firm. 

Lastly I would point to how this project is a commercially viable one by pointing out the business model of People, Ideas & Objects and the Community of Independent Service Providers. And the Technical Vision  of where the Information Technologies promise the greatest value and how this product is supported technically. 

These firms are a part of the global oil and gas industry and therefore part of the focus of this development. I encourage you to forward this post to the people you know at Shell, Exxon or BP and have them read for themselves what is possible. I would also encourage you to get involved in moving this vision forward by joining in this process

Saturday, May 30, 2009

For the last time. 

This royalty "debate" in Alberta has to stop. We consistently are told by the Calgary Herald, who for some reason are beholden to the venture capital groups, that the Provinces royalty regime is the reason for the economic difficulties. Are we to assume then, that the Alberta Governments royalty regime is the source of the global meltdown. 

The issue is there's money on the table. Billions and it belongs to the resource owners, the people of Alberta. It goes back to the battle of Alberta in 1972. Our Premier Peter Loughheed was not going to allow the Federal government, represented by Canada's version of Obama, Pierre Trudeau to abscond with the resources that belonged to the people of Alberta. Trudeau mania, as the Obama nation will do for the U.S., destroyed Canada. Loughheed was successful and the bitter Trudeau in retaliation changed the tax laws to disallow Alberta royalty payments as deductions from income taxes. Never before has a tax been implemented is such an unfair and unreasonable basis. 

Fast forward to today, our new Prime Minister Stephen Harper from Calgary quietly reversed this injustice two years ago. The tax deduct-ability of Alberta Royalties was brought back in line with all other industries and jurisdictions. Therefore creating a huge after tax benefit for the producers. What is not remembered is that the Alberta government had to reduce their royalty take in order to remain competitive in the industry. Not reducing the royalty take would have left Alberta a ghost town.

Enter the 1980's and Trudeau is up to no good again. This time implementing the national energy program. This much hated program disallowed producers from selling their production at world prices, and received a regulated price dictated by Ottawa. A wellhead tax of 12% and the discriminatory ownership rules that disallowed anyone but Canadians owning oil and gas producers. Lougheed countered this, again, with the Alberta Government granting up to 35% of capital costs to producers that remained active. This also stopped the province from housing only ghost towns. 

In the 1990's we found ourselves in debt and had a budget deficit of mammoth proportions. Our new Premier Ralph Klein implemented an austerity program that enabled us to live with in our means and indeed reduce our debt. Note at no time were the producers subjected to any changes in the royalty framework or taxes in order to balance the budget. This was done on the back of taxpayers who went without education and health benefits. Civil servants by the truck load were laid-off and eventually the government finances recovered. 

In this past decade the province has prospered due to their fiscal house being in order. We became debt free and were the benefactors of an appropriate fiscal discipline and increasing energy prices. What throughout this period back to the 1970's provided was a stable royalty regime for the industry that existed since 1972. My math may fail me but that is 37 years ago. Has the industry changed? Does the Alberta government have to keep its hands off the windfall the producers are realizing from the federal tax changes? I wouldn't think so either. 

What the Calgary Herald seems to be unable to comprehend is the royalties are the fair value consideration the producer pays to earn title to the product. It is not a tax. Royalties belong to the people of Alberta and the producer must purchase those commodities from the people of Alberta. The Alberta Government acts as an intermediary to administer and distribute this value back to the rightful owners. I have repeatedly made comments to the Calgary Herald over the past year about these points and have never seen any of these facts appear in the paper. I find it ironic and typical of the Herald is not permitting any comments on this point in today's' on-line version. 

The Canadian Association of Petroleum Producers have been running this campaign for the industry. Recent defections of their members are showing that cracks are appearing in this facade. Husky and Paramount have both ceased to be members of the association. It is not clear why they declined their membership, but the "rumor" is it's over the handling of this royalty situation. Paramount' founder and leader is on record as saying the royalty changes are positive. Therefore, I think the Calgary Herald, who are soon to meet the great printing press in the sky, will have the Calgary people cheering their demise for their representing only CAPP's point of view to the real owners of the oil and gas resources. 

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Friday, May 29, 2009

Sources and costs of energy.

Reason Magazine have published a summary of the various costs, advantages and disadvantages of the various forms of energy. This summary is very educational and shows in stark terms the energy problems we face. It makes it clear where we should putting our capital and our efforts. It also shows that when man attempts to best mother nature, it usually turns out bad. Have a look here.

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Wednesday, May 27, 2009

Welcoming Jeff Rubin to the club.

Today's Calgary Herald has an article on Jeff Rubin former Chief Economist and Strategist at CIBC World Markets. He has been prescient in his predictions of oil prices over the last two years. Accurately predicting both the rise and recent fall in the prices. The statement that he makes is as follows:

Everything we have taken for granted is about to change. Our cars, our homes, our whole world has been getting bigger in the cheap-oil era. Now it is about to get smaller - and, greener. Much greener.
Rubin's problems, and his joining the "club", is as a result of the recent publication of his book.
Why Your World is About to Get a Whole Lot Smaller: Oil and the end of globalization. 
Seems his employer didn't want to have anything to do with the book!
Rubin, who spent 20 years at the Canadian Imperial Bank of Commerce unit, said he quit to publish his book after the Bay Street firm didn't want to be associated with it. 
I went through the same process in May 2004 when I published the Preliminary Research Report. The report that is the basis of this software development project; and is where it was proven the Joint Operating Committee is the natural form of organization for the innovative oil and gas producer. As a result of the publication of this report, I have not worked in the oil and gas industry for five years. I know what it's like to be ostracized for your ideas. It's not the most enjoyable process, it is however, very liberating. 

As more voices start down the difficult road that I, and now Jeff Rubin have taken. It's important that the people who join this development are not subjected to this archaic and destructive process at the hands of the vested interests. I have set up the system here in such a way that the only way your employer can know you are participating in this development, is that they are here too. So please follow this process and join us here

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Monday, May 25, 2009

A Failure of Capitalism.

A fascinating debate is taking place over on Professor / Judge Richard A. Posners second blog . I mention his "second" blog as his first is a weekly debate between himself and Nobel Prize winner Gary Becker. Each week they debate a finer point of economic interest on the well read Becker-Posner blog. Posner's second blog is an extension of his recent book "A Failure of Capitalism: The Crisis of 08 and the Descent into Depression."

In this blog he has solicited some interesting commentary and dialogue. Recently he received a comprehensive reply from former Federal Reserve Chairman Alan Greenspan. Greenspan's points are here, here and here. Posner responds to Greenspan here . 

I highly recommend that you subscribe to both of Posner's blogs and read the debate that is taking place around this fascinating time of economic renewal. 

Sunday, May 24, 2009

Exploration facts.

There's news from Reuters and the Calgary Herald that Canadian oil and gas companies costs of finding and producing oil are expected to fall this year. What has to be record prices is the announcement that the cost of replacing one barrel of oil rose to $22.72. It does not mention whether this was attributable to the higher level of engineering and earth science per barrel of oil, or, the lower volume of discoveries of reserves from exploration and production activities.

Irrespective of the specific reason why the price is rising, the same costs in 1999 were only $4.38. (All prices are reflected in Canadian dollars.) What the two articles subtly suggest is the costs associated with drilling and field work were up substantially. I have mentioned many times that the oil and gas company manager operates more as a Seal trainer then someone interested in developing the business they are in. They are only more interested in making themselves look more important by doling out the fish food to the service companies based on a "what have you done for me lately" basis. Between holding their captive audience over lunch to hear how wonderful they are, and talking to the press about how greedy the service industries have become, these oil and gas company managers pretend to have a full slate of work. Nothing could be further from the truth and I would suggest, again, that these people be shown the street as soon as possible. 

I have addressed these issues in the Draft Specification. The ability to develop the service industry is a critical part of an innovative oil and gas industry. The constant boom and bust cycles, and the "this quarter closing" ritual have made it difficult for service companies to develop any long term vision. Make hay while the sunshine's and hunker down when the storms role in are the only two operational strategies. To move forward from an engineering and earth science point of view. The oil and gas companies must approach the service industries with an eye to developing usable and innovative technologies together. The companies receive 100% of the revenues associated with producing oil and gas. When it comes to paying the royalties for those that are entitled to them, or the service companies that help in the exploration and development, the oil and gas company manager treats them as if they are a leach on their otherwise unearned fortune. The Resource Marketplace Module and Research & Capabilities Module address these issues and offer a solution of how the oil and gas and service industries can achieve greater throughput, innovation and capabilities. 

To speak to the elements in the main part of the Reuters and Herald articles. I suggested in the Preliminary Research Report that the engineering and earth science costs per unit of production were going to escalate as a result of the lapsing of the cheap energy era. This difficulty is showing itself in the five fold increase in costs over one decade. If anyone believes this trend will continue, that would bring a $110 / barrel of oil cost within the next decade. I happen to believe the number will be substantially more then five fold, although I have given up my gambling and fortune telling careers.

The power hungry primates that serve as managers at the Canadian oil and gas companies will have much larger budgets to play with. People, Ideas & Objects research shows that oil and gas companies are organizationally constrained. For them to increase their throughput requires more resources. Consistent throughout the Draft Specification is an understanding that re-organization is the only proven method of increasing productivity. Adam Smiths pin shop proved this in the 1700's and we have benefited from specialization and the division of labor since. The need is evident to me. Please join me here.

Monday, May 18, 2009

Google's Schmidt

Eric Schmidt is the CEO of Google and is making the keynote presentation at Carnegie Mellon Universities Commencement Ceremony .

Contained within this address is a summary of how an individual can compete in the future. I think Schmidt accurately details what it is that will provide an individual with the necessary tools to build value for themselves. Just as buying a house was a good investment in the past, these tools may be the key to your future. This summary includes:
  • The culture of Carnegie Mellon is one of getting things done. And how the importance of getting things done is in today's marketplace. 
  • You think friend is a verb.
  • George Bernard Shaw "all progress is made by unreasonable men".
  • It's all about opportunity and you make your own luck. 
  • You can not plan innovation, you can not plan invention, all you can do is try to be in the right place and be ready. 
  • If you live your life and forgo your plan, you can also forgo fear. In some sense you have been penalized for making mistakes. Now you have to go out and make them, because mistakes enable you to learn and to innovate and try new things. And that is a culture of innovation that is going to create all the great opportunities. 
  • Do things in a group, don't do things by yourself, groups are smarter, groups are faster, groups are stronger, none of us is smarter then all of us. 
  • Some truths endure. Leadership and personality matter. Intelligence, education and analytical skills matter. 
  • In a world when everything is remembered and kept forever, you should live for the future and the things that you really care about. Curiosity, compassion 
  • Resilience in the human spirit is amazing. It is what got us through WWI and WW ll.
  • You'll find today to be the best chance that you have to be unreasonable. To demand excellence, to drive change to make everything happen. 
Schmidt's comments about being unreasonableness resonate with me. I wrote the following on this blog back in April 2006.
"There is a saying by George Bernard Shaw...
"The reasonable man adapts himself to the world; the unreasonable one persists to adapt the world to himself. Therefore all progress depends on the unreasonable man."
I am an unreasonable man".

And I would invite those interested in this software development project to take these points from Dr Schmidt, and join us here in this most unreasonable of tasks.
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Sunday, May 17, 2009

More comments on the 36 hour work day.

Last year I noted the pace of development of this software's development was accelerated through what I called the 36 hour work day. A global application developed by the global oil and gas industry has the benefit of accessing more regions simultaneously. Earlier I wrote the following;

Lastly I want to add fuel to the fire of my adversaries by noting that the compression of time is something that will be implemented in this application. Instead of budgeting for four years, I think it can be done in two and half years to initial commercial release. (Maybe even less!). We are approaching a systems use that may start the day in Russia, China and India, move to the Middle East, Europe and then the United States. Users from these regions will be able to collaborate in an asynchronous manner. Hence providing for potentially a "day" of user driven development that totals 36 hours. 
The more that I have thought about this type of development, the more I have difficulty in recommending any other method. Software development has been, for at least a decade, a collaboration by individuals and groups that are scattered around the world. Many never meet, ever. Whether the development team is just outside the door to your office, or the other side of the globe. It makes no difference in the methods used to develop the applications. The Open Source model has proven time and again to be the superior means to develop software. 

Since I first wrote about this concept the main issue that I have focused on is the User / Developer interactions, and I have the following comments. The Draft, Preliminary, Detailed and Final Specifications aggregate the industries knowledge in the form of wiki's and globally accessible medium. Starting with the text of the Draft Specification, Users will build the detail, UML, diagrams, voice, picture and video mediums to express their understanding and needs of the system. As the Developers interact with the Users through these rich media, it matters not where the individuals, teams and groups are located. All will have the current understanding available to them, and more importantly the history of how these decisions, standards and specifications were determined. A rich, searchable environment that defines the key attributes of the innovative oil and gas systems necessary to support the innovative oil and gas producer. 

And it won't stop there. The code that is developed based on the Users specifications is accessible by the Developers and Users of the systems. This is done for a number of reasons, firstly to ensure that the systems are doing what is expected of them. The days of attaining assurance of the software vendors code accuracy and consistency. Assurance being attained by the size of the software developers balance sheet and cash balance I expect is over. These assurances don't provide any value in comparison to the variety and volume of eyeballs that can and will access the code the applications are derived from. Reading the code that makes up the application is reviewing the facts. Facts that Oracle and SAP don't provide for, I wonder why that is?

Thursday, May 14, 2009

McKinsey, Averting the Next Energy Crisis.

Let me make it clear. The reason that I have pursued this issue over the past five years is due to the extensive nature of the threat. Our energy supply and demand balance is in serious jeopardy of becoming the biggest issue man has ever faced. When I look around I see a handfull of people at People, Ideas & Objects and McKinsey working on this problem. We have received no support and have consistently been kicked to the curb as a lunatic Cassandra, Chicken Little, Boy who cried Wolf or what have you. Now our lone voice is joined by a chorus of people calling for action.

First up is McKinsey, (Click on the title of this entry to be taken to the report.) At 150 pages this article deals with tthe demand side of the equation. This should be mandatory reading for the many reasons captured in this quotation.
It would be all too easy to respond with complacency to a short-term easing back of energy-demand growth. Once the global economy begins to recover, energy demand will bounce back too, imposing costs on consumers and businesses and on the climate in the form of CO2 emissions. There is even potential for oil market demand to grow more quickly than supply, risking another oil market shock. In these circumstances, losing the momentum on action to rein back energy demand could turn out to be a high-risk strategy -- particularly given early evidence that policy to boost the economy's energy productivity is already having an impact. p. 18
Fair comment from a demand point of view. For an understanding of the supply side concerns, the pre-eminent authority on that topic is Matthew Simmons of Simmons Consulting. He has a 49 page slide presentation that reflects the appropriate concern. On slide 45 he calls for the need to go to an "immediate war footing" with the following actions. 
  • Step one: Enact genuine "data reform" on all key producing oil and gas fields. 
  • Step two: Begin blue prints for rebuilding our energy infrastructure. (Where I think the Draft Specification fits in.)
  • Step three: Get oil and gas prices high and create a floor. 
  • Step four: Adopt global Plan B to reduce our oil and gas use ASAP. 
Here we have the number one consulting group in McKinsey, and arguably the number one oil and gas consulting group in Simmons both warning in the most dire terms regarding the situation that we find ourselves in. 
Who else is warning us about the concern for the energy industry? Bloomberg reports that oil executives tell the Obama administration "to get real on energy independence". Rigzone quotes the CEO of Chesapeake that we are;
Current low natural gas prices are setting the stage for a dramatic price rebound that should begin this fall or winter, Chesapeake Energy Corp.'s chief executive officer told analysts Tuesday. 
I hold the CEO of Chesapeake in high esteem. Recall he is the individual who,in three days last September, lost his $2 billion fortune in a cascading series of margin calls. An individual driven by more then just the financial rewards of the business. 

The prices of oil and gas have only recently collapsed, however, we see the long term damage this has done. Many projects are cancelled and will return slowly. Here Reuters reports that Shell has shelved their Beaufort exploration program. As I have mentioned before, I'm a Shell brat, and I recall when my dad was seconded to an industry joint venture to build a pipeline to bring this gas to market. This was during the mid seventies, and we're replaying this history again. 

Where is this all leading? To a very dire situation with tragic consequences for society. Those are my words and the motivation that has fueled this desire to reorganize the industry around the Joint Operating Committee. As the chicken little who has been squawking about this issue for over five years, I am pleased to see the quality and quantity of similar calls to act on this critical issue. I'll leave you with one more voice that should be considered. This one is from The Rand Corporation. Yes, that Corporation. Which is described as the "original non-profit think tank helping to improve policy and decision making through objective research and analysis." On Monday they released a report regarding the scope of the energy issue. Here's what they have to say. (From Reuters).

HOUSTON (Reuters) - The greatest threat to the United States from crude oil imports is a long-term disruption of world supply and the higher costs associated with that loss of imports, according to a RAND Corp study issued Monday.

"The fact that the United States imports nearly three-fifths of its oil does not pose a national security threat," said Keith Crane, the study's lead author and senior economist at RAND, a nonprofit research organization.

"There is an integrated world oil market, and embargoes do not work. But a large, extended drop in the global supply of oil would trigger a sharp rise in oil prices and significantly affect the United States, no matter how much or how little oil the United States imports," Crane said in a statement.
If we believe that the same ideas and approach that brought us to this point is the solution to this problem, then I leave you with that task. If however, you agree that this is an issue that can be solved by first re-organizing our approach to the business of energy, then please join us here.

Tuesday, May 12, 2009

Exclusively oil and gas.

I've been spending some time thinking about the competition and their offerings. Specifically SAP and Oracle who are the predominate software systems used in oil and gas. There is also a large number of boutique software developers that have provided small numbers of producers with niche offerings. I don't normally spend time evaluating the competition, however, these are my thoughts regarding the impact our current economy is having on the software development business.

Capital expenditures are being reeled in at most if not all the oil and gas producers. This therefore applies to the software development groups that provide products and services to the oil and gas industry. Many are small vendors and will be unable to sustain any decline in revenues operations for long without continued support from the producers. That support is / will be waning as the lay-offs and losses continue to pile up in the industry. 

Generally unlike the large international software companies, the small software vendors are unable to rely on other industries, not that other industries are any better off in this economy. Suggesting that whether a vendor chose to focus exclusively on oil and gas or not, the effect in this current market is the same irrespective. 

SAP and Oracle have pursued the one solution fits all industries. This strategy leaves many in the oil and gas industry wishing they would build some functionality for energy. I doubt they will be able to address the unique needs of the industry as it exists today. Oracle is having difficulty in offering the many solutions they have purchased to customers. Oracle is not offering an integrated solution. Its integrating previous acquisitions. 

So much of these current economic difficulties are as a result of the "old" ways to sustain and provide for societies needs. Currently a bear market rally has everyone believing the good old days will soon be back. Nothing could further from the truth. This next downswing will be quick and decisive in communicating the scope of the economic damage that has occurred. It will also be dramatic enough for people to permanently change their expectations of the future. One in which they will begin to look for the things that will sustain them in the future. New projects and businesses like People, Ideas & Objects . 

Spending any more time on the competition is a futile exercise. I prefer to highlight the advantages the producers will attain by joining the community here. 
  • A dedicated software developer working exclusively with oil and gas.
  • Focused on the Joint Operating Committee to facilitate speed and innovativeness.
  • Unconstrained by the traditional software paradox of code and customers.
  • Providing a competitive value proposition and business model .
  • Offering a compelling vision of how the industry could operate more efficiently. 
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Sunday, May 10, 2009

Auditor comments on royalties.

An article appeared in last weeks Calgary Herald that shows that all is not well with Alberta Royalties. The Auditor General will be reviewing the systems that collect oil and gas royalties.

Alberta's auditor general is examining the province's new royalty structure to ensure it's delivering desired results, after the old regime didn't collect a fair share of revenue and failed for six consecutive years to reach the bottom end of government's targets.

Fred Dunn told the legislature's public accounts committee Wednesday his office is hoping to report in October the results of a systems audit on the new royalty framework that will identify whether the structures are in place to en-able Albertans to collect the royalties they're due.
I can tell you that the report in October 2009 will reveal one gaping whole that the Alberta Government should close to ensure royalty compliance is achieved. It is this gaping whole that leaves an industry to scream blue bloody murder when changes are introduced. A situation where the opaqueness of the industry only frustrates dealings with the government.

I have first hand experience with this situation. In 1992 I started Genesys Software Corp to address the governments Royalty Simplification initiative. A new and comprehensive system that would ease the royalty calculations and simplify the administration for both government and industry. The problem with this system is the same as the Auditor General will be talking about in October. And that problem is the industries refusal to spend any money on developing in-house systems to meet the royalty obligation.

This situation is also the reason that I am turning to the various governments to fund the development costs associated with meeting their royalty compliance frameworks. I as a software developer was expected in 1992 to raise sufficient capital to implement the regulations on behalf of government for industries compliance. In retrospect I do some very dumb things. I can look back on this in hindsight and say that industry expected someone to build it and they will come. What I have learned is this scenario meets the industry needs for royalty compliance. Knowing that no one will be able to meet the industry expectations; companies can rest assured they will never have to implement any system of royalty compliance.

I may have periods where my intelligence is questionable, however, I do not tend to make the same mistakes more then once. My current thinking is that in the virtualized Joint Operating Committee, the royalty holder(s) will have a seat at the table. This transparency will show the extent of the efforts producers take to explore and produce oil and gas, and provide a better means of discussion between royalty holder and producer. Discussions that are based on the facts involved in each JOC. Discussions that involve the innovative oil and gas producer and the royalty holder who wishes to better understand the business they are in, and the specific nature of the JOC.