Friday, October 30, 2009

New Feed Address

Please change your "Innovation in oil and gas" feed from whatever you are using now, to this new feed address.


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Thursday, October 29, 2009

Change at Conoco

The Houston Chronicle reports today that ConocoPhillips have revised their corporate strategy.

ConocoPhillips CEO James Mulva signaled a dramatic shift in course for the nation's third-largest oil company Wednesday, saying that after years of bulking up through acquisitions, it is now focused on being a smaller, leaner business that takes better care of its shareholders.
Everything that People, Ideas & Objects is about is represented in that statement. Going back to the Preliminary Research Report, the changing nature of the energy industry has been evident for a long time. Nothing has been done about this during the past 10 years. Why would anything be done when the high energy prices made managements look effective. Now that the writing is on the wall, expect to see many CEO's become enlightened. I am surprised though at the comment that ConocoPhillips would take better care of its shareholders. It is the shareholders of these producer firms that I expect will direct the financial support towards People, Ideas & Objects and the User community. Providing them better control over their oil and gas assets.

A point about communication. If you or someone you know works at ConocoPhillips, or any other producer. Please introduce them to the Draft Specification and encourage them to get involved here. For me to establish a direct communication with ConocoPhillips, or for that matter any producer, is counter productive in terms of the Community of Independent Service Providers. It is the Users who are the critical contact with the firms. They are the ones that will use the People, Ideas & Objects application modules and their services to make the producer the most profitable that it can. It is the User community that will direct the developers in the development of the applications they need. For me to communicate directly with the producers is counter to the interests of this user community.
But the change is necessary in light of the global recession and the difficulty of accessing new oil and gas reserves around the globe, coupled with the massive costs of extracting them, he said.
An honest assessment of the change to the oil and gas business. The position of the producer firm needs to be able to focus and support the innovative earth science and engineering talent in their firm. To do that requires the Joint Operating Committee to be the key organizational construct of the innovative oil and gas producer. It is one thing for ConocoPhillips to begin the process of becoming more focused on the sciences. In today's market the ability to change direction needs to have the changes recognized in the software first. SAP and an innovative science oriented Joint Operating Committee will not work. Bringing the CEO Mulva's comments into question as to their validity.
Mulva's comments underscore challenges facing major oil and gas companies and may even call into question the bigger-is-better, integrated business model that has prevailed in the oil industry for decades.
Asking these giants to make the change from the SAP induced bureaucratic firm to something more nimble is difficult for me to see without a change in the ERP systems they use.
Now, ConocoPhillips appears to be embracing a business model more akin to smaller, independent oil companies, which many investors prefer because they are more nimble and likely to deliver better returns, said Fadel Gheit, oil analyst with Oppenheimer & Co.
Who knows maybe they will be successful. Or the properties they sell off will continue to fuel new and more innovative firms.
When asked if he believes other oil companies will follow its downsizing lead, Mulva said not necessarily. But, he said, “I think longer term — I can't speak for the other companies — it's really changed from prior decades. It's going to take a somewhat different approach.”
That different approach is members of the User community joining me here.

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Sunday, October 25, 2009

McKinsey Interaction Costs Part II

This is the second post of McKinsey's review of Interaction Costs. The original McKinsey documents are located here and here. As in my first blog entry, the discussion is about the role that people will have in future organizations. How work is changing over time from transformational to transactional and on to tacit. McKinsey notes in its opening paragraph.

Like vinyl records and Volkswagen Beetles, sustainable competitive advantages are back in style - or will be as companies turn their attention to making their most talented, highly paid workers more productive. For the past 30 years, companies have boosted their labor productivity by re-engineering, automating, or outsourcing production and clerical jobs. But any advantage in costs or distinctiveness that companies gained in this way was usually short lived, for their rivals adopted similar technologies and process improvements and thus quickly match the leaders.
Durable competitive advantages, like in other industries, have been hard to develop in oil and gas. Much of the last 30 years has been a battle of survival from one crisis to the next. Most of these crisis were due to the high cost of capital, or low commodity prices. There have also been a variety of issues that are unique and local, such as the lack of take away pipeline capacity in Western Canada.

Today I see a different business that is driven by the earth science and engineering capabilities of the firm. Driven by these sciences ever increasing volume of work per barrel of oil equivalent. Application of the science and engineering knowledge to the asset base is the unique, durable competitive advantage of the producer firm. Sustainable competitive advantages are attainable in oil and gas to those that can build their capabilities in the earth sciences and engineering disciplines.

As we have mentioned here many times the key ingredient is the quality of the team that occupy senior management. Providing the resources and direction to reveal the long term value is the skill of these teams. The key is that oil and gas exists in the minds of oil and gas (wo)men.
New McKinsey research reveals that these high-value decision makers are growing in number and importance throughout many companies. As businesses come to have more problem solvers and fewer doers in their ranks, the way they organize for business changes. So does the economics of labor: workers who undertake complex, interactive jobs typically command higher salaries, and their actions have a disproportionate impact on the ability of companies to woo customers, to compete and to earn profits. Thus, the potential gains to be realized by making these employees more effective at what they do and by helping them to do it more cost effectively are huge - as is the downside of ignoring this trend.
What can I say. McKinsey have been able to provide advice such as this throughout the past decade. What is needed in oil and gas is the organization, its systems, the people that support the team and the team itself to operate at a higher level. A level that is focused on innovation in the earth sciences and engineering capabilities and the never ending increases in the demand for these talents for every barrel of oil equivalent.

SAP is the bureaucracy. Started in the 1970's to deal with the various tiers of manufacturers in the auto industry, SAP has branched out into all the industries on the planet. SAP is the most popular choice of senior producers and holds the number one position of ERP systems in oil and gas. I have seen installations that use the budget system to calculate the gross and net expenditures on a Statement of Expenditures or Statement of Operations. To suggest that they recognize the Joint Operating Committee is beyond the scope of what is possible. With the numbers of companies, and the volume of installed code, there is not enough energy in the universe for SAP to make the changes to support the innovative oil and gas producer.

Much can be said about Oracle Fusion as well. Oracle recently showed some of the aspects of their new system. They should be credited with the energy to at least rewrite the software code. That only took them $39 billion. So one can see the scope of how difficult it is for these applications to change their stripes. Now Oracle has to embark on the other aspect of moving the universe by changing their paying customers to the newer far more expensive software. Exactly, what was Oracle's CEO Larry Ellison thinking.

Neither of these two software vendors have listed the energy industry as a primary focus. They have ceased to be a viable alternative in the oil and gas marketplace for their inability to understand or deal with the unique attributes of the producer. That is they do not know of the Joint Operating Committee's existence. Neither of these two applications have any vision of what the oil and gas firm can understand or appreciate.

Neither of these two software vendors have a business model that meets the needs of the producers. Or a business model that provides the value of the software to the benefit of the software user. Theirs are more interested in corporate survival, due to their $39 billion in investments. It is however, reasonable to assume that both these two software vendors will be able to deploy vast armies of marketing people to impress the "old school" management with another version of their software.

This will be a test of the "old school's" managements survival from the pre-crisis economy. McKinsey sees this reality just as I do here at People, Ideas & Objects.
As more 21st-century companies come to specialize in core activities and outsource the rest, they have greater need for workers who can interact with other companies, their customers, and their suppliers. (Enabled in People, Ideas & Objects by the Resource Marketplace Module)
Thus the traditional organization, where a few top managers coordinate the pyramid below them, is being upended.
Raising the productivity of employees whose jobs can't be automated is the next great performance challenge -- and the stakes are high.
Companies that get it right will build complex talent-based competitive advantages that competitors won't be able to duplicate easily -- if at all.
I think that I am on record as stating that "best practice" is one of the worst acts that management conceived. For oil and gas producers to maintain their competitive advantage is to focus on their asset base, which includes their land lease and productive assets augmented with their earth science and engineering capabilities.
The good news concerns competitive advantage. As companies figure out how to raise the performance of their most valuable employees in a range of business activities, they will build distinctive capabilities based on a mix of talent and technology. Reducing these capabilities to a checklist of producers and IT systems (which rivals would be able to copy) isn't going to be easy. Best practice thus won't become everyday practice quite as quickly as it has in recent years.
Much of the McKinsey article focuses on the changes in the types of work that is being undertaken at firms today. Documenting how jobs, and particularly new jobs, are focused on tacit interactions. How over time jobs have transcended transformational to transaction oriented and now "tacit" work.

As I indicated in Part I of this review, the reductions in transaction costs is a focus of the Draft Specification. This second McKinsey article is on the role that people will fill in the future of work. Please join me here.

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Thursday, October 22, 2009

Paul Romer on BBC

We have covered former Stanford Professor Paul Romer in this blog before. In fact People, Ideas & Objects is the name that I derived from Romer's new growth theory. New growth theory suggests that future economic growth will be developed from People, Ideas & Things. I simply changed "Things" for "Objects" as we are object based software developers.

Romer is on the short list for a Nobel prize because of his new growth theory. In a related BBC commentary, an excellent summary of his thinking of what "Ideas" are about.

Physical objects are often scarce; economic growth is often limited by that scarcity. Conventional economics is the so-called dismal science, dominated by the law of diminishing returns where businesses compete with each other into their ultimate extinction, capitalism making the rope to hang itself.
Paul Romer disagrees, profoundly. Ideas are what makes the difference, and turn economics into the optimistic science. And in the networked world, in software, in new research-heavy disciplines such as biotechnology, ideas are shared across frontiers at lightening speed and then breed much faster than rabbits.
Needless to say Romer is blogging and providing more substance to his ideas here. His recent post on how certain countries were able to deal with the housing of its citizens is fascinating. Are we destined to learn these same lessons from the beginning again? We would be foolish not to review what works, and where it works, based on the experiences we have to date. That is what Charter Cities is about and I think the lesson is directly applicable to the work we are doing in People, Ideas & Objects software developments for oil and gas.

"There’s a little corner of economics where there still exists a sense of wonder about what is possible."

Please join me here.

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Wednesday, October 21, 2009

And there's more.

The energy industry does have a problem that is reflected well in today's $81 oil price. The purpose of this blog is to organize and develop the software modules in the Draft Specification. Why we are doing this is that the bureaucracy is constrained and is unable to meet the demands of the consumers in the 21st century. Without abundant energy the world economy will be in jeopardy, as will our way of life.

John B. Hess is the CEO of Hess Corporation, a second generation exploration and production oil and gas company. With a market value of $20 billion they have become one of the U.S.' great independent producers. It's reasonable then to assume that Hess knows what he is talking about. And he does.

In a major statement entitled "Oil and the Future", Hess has released a paper that discusses the energy industries looming supply side crisis. The problem is well defined in this paper. What we need to do is organize ourselves to face this challenge. Without the software that supports and defines the Joint Operating Committee (JOC) we will not be able to rise to this challenge.

Hess goes on to provide sound advice to deal with this problem. His recommendations are the three C's Communication, Courage and Collaboration. The following quotations capture the scope of the problem.

My remarks today will cover “Oil and the Future.” Today, our industry is at a crossroads. Oil has moved to a demand-led market where supply is struggling to keep pace. The financial crisis of the past year has reduced demand by 2 million barrels per day, creating excess inventories and lower prices. While this setback has brought us some welcome breathing room, I believe that it is only temporary. Once economic growth recovers, it is likely we will return to the market conditions of one year ago. The price of $140 per barrel oil was not an aberration; it was a warning.
A warning, indicating that there is time remaining. Our approach should be to get organized first. And for innovative oil and gas producers in the 21st century, getting organized means building the software to define and support the Joint Operating Committee.
Over the past several years, many people in our business have expressed confidence that we were up to meeting the challenges ahead. From the producer perspective, it has been suggested that the remaining global endowment of up to 3 trillion barrels of recoverable oil meant that we should not be concerned with a prospect of shortages. Higher prices, advancing technology and sound government policies would enable supply to keep up with demand. Consuming nations viewed these issues quite differently, criticizing producers for rising prices, blaming oil for climate change and implementing policies to develop alternatives to hydrocarbons. I would suggest there is a major disconnect between consumers and producers.
In this next quotation, Hess defines a break between what the producers see and what they act upon. It's a break that I find interesting in dealing with this problem. Each producer firm is only concerned with their production and do not necessarily see the broader picture. Looking at the horizon they see that such and such heavy oil project and these offshore resources will offset any declines experienced by any of the other producers. In other words the horizon is muddled by too much information.
The approaches of both consumers and producers are based on hope, but what we need is a sober reality. The reality is that an oil crisis is coming that could prove devastating to future economic growth. Given the long lead times of 5-to-10 years from oil discovery to production, we need to act now to avert this outcome. I would like to suggest a framework of three “C’s” to address this threat: communication, courage and collaboration.
All is not lost. Over the course of my career in the oil and gas industry, I have been shocked in terms of its performance. When called upon the industry has been able to deliver, and I would expect the same from this current call. Hess' message is to communicate the facts and eliminate the confusion around this issue.
Given these facts, we need to communicate the following message:
  1. Hydrocarbons are here to stay.
  2. Oil demand growth will be unrelenting, increasing 1 million barrels per day each year.
  3. We are not running out of oil but growth of production capacity over the next several years will fall short of the incremental 5 million barrels per day each year that we will need to meet demand.
  4. We will ultimately be at risk of supply rationing demand through skyrocketing prices that will threaten economic stability and prosperity. If we do not act now, we will have a devastating oil crisis in the next 5-to-10 years.

In reading the paper I came to the realization that this is an all interested persons must rise to this challenge. Consumers, International Oil Companies, National Oil Companies, Independent producers, OPEC, and consuming nations.
The stakes have never been higher. We must build a balanced and comprehensive approach to energy security and protection of the environment to ensure sustainable development. We must unite and work together as an industry, communicating one message, having the courage to act and collaborating for the global good. In this world, there will be a bright future, not only for oil, but for many generations to come.
We are a fair distance from resolving this. I have suggested that the ability to conduct appropriate exploration has been lost since the hey day's of the 1960's. Hess is quoted in this paper as stating "Resource additions from exploration last replaced annual production in 1987". We have a job to do, please join me here.

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Tuesday, October 20, 2009

Where is IT heading

Apple announced its forth quarter earnings yesterday. I think these earnings show that the demand for IT systems is very strong. Strong growth in all product lines provides a confidence in the recovery of the economy. The global recession has certainly abated for Apple, but is there more to these financial results? Is there more that can be imputed about the general economic recovery?

We can thank Professor Carlota Perez for pointing us to the fact that the old economy was becoming progressively more inefficient. And that this inefficiency would lead to a decline in the engines that drive the economy. This fact is generally agreed to by most, and that change is in the air from an economic point of view. But more importantly is her highlighting the role of Information and Communication Technologies (ICT), in providing the real value generation of the near future.

Perez stated simply the Information & Communication Technologies are the engine that will bring the world economy to an entire new level of performance. A level where the problems of today will pale in comparison to our opportunities. That we will experience an increase in general quality and standards of living. I like to think we are at a point in time that parallels the industrial revolution, which we are. But instead of mechanical leverage we are leveraging intellectual thought and ideas. An opportunity that will take us many decades of increasing productivity and quality of life.

The New York Times ran an article that speaks to these opportunities.

Much depends on how the nascent revival in the technology sector plays out. Computer hardware and software are building blocks of the modern economy, as basic as iron ore and coal were to the industrial era. Together, technology products represent about half of all business spending on equipment.
John T. Chambers, chief executive of Cisco, was even more bullish recently, predicting a substantial increase in productivity at American companies driven by investments in Internet software and hardware. “I think we are entering a period very similar to 1997 to 2004, where you’ll see a decade run of productivity increases,” he said in an interview.
And for the oil and gas industry that is what People, Ideas & Objects is about. The Users, Producers and Developers that are involved in this applications development. We'll be able to incorporate the never ending productivity initiatives into the software. Making the producer firms benefit by being the most profitable operations through the use of this software and Community of Independent Service Providers. Please join me here.

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Monday, October 19, 2009

A Brief Summary

The last two blog posts highlight the value of the Draft Specification and why the industry needs to begin the process of building this application. The Users and Producers are both major beneficiaries of being involved in this project. The Users have the opportunity to build the systems and Community of Independent Service Providers. These Users are focused on ensuring that they provide the most profitable means of operations of any producer.

For the Producer, not only do they get the systems and software that identify and support the Joint Operating Committee, the natural form of organization in the industry. They also have the ground work inherent in their organizations that will enable them to remain innovative for decades to come. With People, Ideas & Objects, producers will have their organizational DNA able to carry them for at least twenty more years.

The other thing we have learned in these last two posts is that the competition has no vision. Oracle has been in "rewrite" mode for the better part of this past decade. Buying ERP vendors by the dozens, they have inherited a legacy of applications that are being brought under the name of the rewritten Oracle Fusion. That's a compelling vision! Until now we have not had the benefit of a well defined competitive offering from Oracle. Now that Fusion is defined we can move away from their declaration of it being a competitive offering.

The strategic positions and offerings of Oracle, SAP and People, Ideas & Objects are there for each producer to begin their evaluation. And don't forget to evaluate the different business models. People, Ideas & Objects is charging the costs of developing the application once, across the entire industry. I don't think that Larry Ellison with his $24 Billion in acquisitions, and $15 Billion of research and development on Fusion, will have his customer in mind. He probably is more concerned from which direction his board will be attacking from.

Oracle and SAP products provide technological solutions to business issues. They recommend their products to be purchased and installed in a "big bang" style. Change of the magnitude of People, Ideas & Objects is considering is successful when done from the ground up. The problem with ground up driven change is that it needs a vision. The difficulty for Oracle and SAP is they have no vision of what the innovative oil and gas producer needs.

If your a user interested in getting involved, please join me here. If your a producer that wants to start supporting this development, please call me by using the call me feature at the bottom of the left hand column.

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Sunday, October 18, 2009

Producers Have Choices

Shadow boxing has been something we've had to do here for the past number of years. Our opponent, Oracle was under development with their Oracle Fusion product suite. Fusion is now being promoted, that is to say it's being revealed, to help interested producers decide which system, Oracle, SAP or People, Ideas & Objects, they should use. As no one in their right mind would select SAP the decisions were somewhat delayed until Oracle revealed their hand. Now its D-Day.

For the past four years the giant Elephant in the room has been what Oracle was spending their time and money on. Since their acquisition of PeopleSoft, J.D. Edwards, BEA and Siebel they had been busy developing their Fusion offering and strategy. Therefore it's now time to expand our focus of the competition to include Oracle Fusion. I think I have seen enough to know that the Oracle's Fusion product is not designed or suitable for the oil and gas producer. But then I am biased.

Last week Oracle had their annual OpenWorld conference in San Francisco. Oracle CEO Larry Ellison made the keynote presentation on Wednesday. The one hour, forty minute presentation is available here. I highly recommend the viewing of this video to see the type of applications that Oracle is bringing to the market. Viewing of the conferences other presentations are available here. Of interest there is a good video of Sun Chairman Scott McNeally who appears to be retiring from Sun. Always entertaining.

The most obvious point in viewing Ellison's keynote is that he has spent a lot of money. To make this offering the following table reflects how much money Oracle has spent.

PeopleSoft - J.D. Edwards
December 2004
$10.3 billion
January 2008
$7.85 billion
September 2005
$5.85 billion
Research & Development
2005 - 2009
$15.0 billion
Total Investment in
 Oracle Fusion
$39.0 billion

And that does not include any sail boats. The serious question that has to be asked is how is Oracle going to make a return on this investment? All of this money has been expended to bring out a generic set of modules that deal with the company as a silo'd entity. Again it has no consideration or understanding that the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer.

In a direct comparison of the module specifications, we see the stark difference between the Draft Specification and Oracle's costly Fusion offering.

Modules available in Oracle Fusion.

  • Financial Management
  • Human Capital Management
  • Sales and Marketing
  • Supply Chain Management
  • Project Portfolio Management
  • Procurement Management
  • Governance, Risk and Compliance

Vs. People, Ideas & Objects modules

Generic Modules

Security & Access Control Module

Accounting Modules

Partnership Accounting Module
Accounting Voucher Module

Marketplace Modules

Petroleum Lease Marketplace Module
Resource Marketplace Module
Financial Marketplace Module

Producer Modules

Compliance & Governance Module
Research & Capabilities
Analytics & Statistics Module

Joint Operating Committee Modules

Knowledge & Learning Module
Performance Evaluation Module

People, Ideas & Objects provide the producers with the applications on a cost plus basis. The one time development costs are amortized over the entire industry. Our business is to provide the producer with a software development capability that accommodates the changes in their business. Changes from today and for many decades to come. I will highlight the analysis and decisions that were made in coming to this model over the next few weeks.

Oracle's business model has not changed. Selling the entire application suite to each company is the only way that they can begin to amortize the capital costs they have spent to date. Now whether Oracle will consider those investments as a sunk cost or not is something for them to figure out. But this is not something that is going to be resolved quickly.

Another aspect of these high capital costs, is that Oracle hasn't garnered any competitive advantage in the oil and gas business. Large additional capital costs will still be needed by the purchaser of the Oracle Fusion application suite. I believe the costs associated to customize Oracle Fusion to the producers needs will be substantially greater then the total People, Ideas & Objects costs.

A critical and important characteristic of the People, Ideas & Objects application is being revealed by comparing Oracle's business model. All of the Joint Operating Committee participants are being accommodated by our application. There will be no need to coordinate the interactions with each and every participant, with each and every Joint Operating Committee. The problem in systems in oil and gas is that the interactions beyond the corporate reach cause the firms to expend significant effort in making these interactions work. People, Ideas & Objects is looking at the costs from the JOC point of view, therefore the interactions are handled at the point of origin. The costs associated with defining these interactions in the Oracle Fusion product will be incremental to the costs of People, Ideas & Objects.

If it is not clearly evident to the oil and gas producers that their is a need for new systems in oil and gas, it should be. And that the least constrained, conflicted and confused option is an advantage. This start up with a compelling vision provides real value to the oil and gas producer in comparison to these costly behemoths. How many years before Oracle and SAP come up with a compelling vision of how the oil and gas industry is able to move to the greater demands expected of each producer.  Now is the time to decide where the future of your companies systems come from. Everybody get on board and join me here, the train is leaving the station.

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Thursday, October 15, 2009

From Draft to Preliminary

I published the Draft Specification last year and we now move on to the Preliminary Specification. The Draft was developed to codify the research and ensure that a system based on its specification would identify and support the innovative producer. The Preliminary Specification has many objectives but the most important factor is the User will be who will work to define the requirements.

This is the point where the User begins the task of defining what the requirements of the application are. It is also the point where I will no longer have any influence in the makeup of the application. That's the point, one person could do this work if they were able to live to the age of 4,000 years. The scope of the application, as defined, covers the administration and management of the producer. From accounting, legal, land, capital and operational expenditures the entire firm is operated by the People, Ideas & Objects application. Just as SAP is used throughout the company.

The Partnership Accounting Module brings in an additional expansion of the scope by including all global jurisdictions as requirements. If a producer is to operate within all possible areas of oil and gas operations they will need to handle the currency, partners jurisdiction and accounting regulation requirements. Joint Operating Committee's are used throughout the world. Their operations command that the application accommodates operations in any area of the world, with partners who reside in any jurisdiction of the world.

Sounds simple doesn't it. Defining the scope is one of the difficult jobs to be determined in the Preliminary Specification. The compromises, the tough decisions will need to be made by the Users during their development of the specification. That is why the Users are compensated for these contributions and use the knowledge learned to develop their own service based offering as part of the Community of Independent Service Providers.

The Users defined scope will also be dictated by the producers that are involved in funding this project. If a producer firm requires heavy oil operations, natural gas or conventional oil. If they need certain geographically or regional coverage or SEC, SEBI, China Securities Regulatory Commission or Britain's Securities and Investments Board. Or needs to pay Texas, U.S. Alberta or Yemen royalties. A producer that does not include their operations at this critical point in time, can not have the application they need, or the Users that are intimately knowledgeable of their needs. There is much at risk as we transition from the Draft to Preliminary Specifications.

The overwhelming level of the scope of People, Ideas & Objects functionality and process management are daunting. Spooky might be the more operative word. I have been working on this project for over six years and I will continue to work to make this application real. Its that passion thing. Much of what I thought was going to happen in the Preliminary Research Report has come about. The time is now to begin this critical next step of the Preliminary Specification.

The community that reads this blog is large and is waiting along side me. Waiting for the producers to begin funding the Preliminary Specification. Their funding which is needed to ensure it contains what they require in terms of their operations. Please join me here.

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Wednesday, October 14, 2009

Another step closer.

We live in a world where the communicative ability of each individual is, for lack of a better word, unlimited. What I can do with the technology available to me is truely remarkable. Voice, text and video are all being captured, transmitted, and understood by their recipients. What are they talking about, ideas. It use to be that if you wanted to make a personal phone call at work, use of the telephone for non business purposes was not permitted. As ridiculous as that sounds, and it is ridiculous, it is not too different today. The majority of use of the computer at work is limited to the business areas that you are involved in. Browse to a "not approved" site and you could be called on it. This doesn't turn us into the nanny state, it gives the IT Manager something to do.

What we are doing is spending upwards of two to two and half hours a day to travel downtown to use the computer at the office. Not to much difference to the way that phones used to be regulated. Why wake up to spend all that traveling time for your managers mandatory attendance. When you can be productive as soon as you make a cup of coffee. It doesn't make to much sense other then the ability to so, doesn't exist, because the bureaucracy is unable to change.

The BBC is reporting today that Wifi, which is a cornerstone of the People, Ideas & Objects Technical Vision, is going through another specification called Wifi Direct. Enabling point to point network creation. 

It will let wi-fi devices like phones and laptops connect to one another without joining a traditional network.
The future that I see, and the one the Technical Vision provides, is that people will work in much the same way they are communicating today. Gripes that people were concerned with of working, where ever and when ever, big brother watching, or never get a moments rest, have been replaced with the freedom of not being at the behest of the phone ringing, somewhere they are not. With video being recorded of your every move the belief was this would be an invasion of privacy. These concerns are mitigated by the knowledge that you are being recorded, and the freedom these devices otherwise provide.

People, Ideas & Objects would extend these freedoms to having the opportunity to do your work in the future in the same manner that you live your life today. One in which you the User has a direct influence on. If data security is really the concern of the management then they had better get on board with this software development project. The issue I see is that the bureaucracy doesn't want to give up control of the access to the data.

In the past, many times I would think there is a better way to do the job I was tasked with. Many times I thought this would be so much easier if I could get a new report, or other information to make the job easier. This was easier to do twenty years ago then it is today. How many times have users thought that If I had the authority and access to the data and developers, I could make this job much easier or more timely. People, Ideas & Objects is the opportunity to have these types of interactions available to the users. Please join me here.

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Tuesday, October 13, 2009

Users, the focus and the key

The visions that are part and parcel of People, Ideas & Objects Draft Specification provide the "User" with an interesting "mainstream" business opportunity. User based development is the critical link in making this or any software development successful. I may now start stating this project is "mainstream" based on the ideas of Professor Oliver Williamson and his winning the Nobel in economics.

We have seen in the past few weeks the discussion turn to the hundreds of thousands of jobs that make up Exxon, and by assumption there are hundreds of thousands of different jobs in the industry. This knowledge is held tacitly in the minds of those that work in the industry. To hold the understanding of a handful of the roles is available to many who have an abundance of experience in the business. But that's about it. The collective knowledge of how this industry operates and runs on is unknowable, and that's the point. The only way we are going to be able to understand this tacit knowledge is by having the community of Users detail what it is they know.

Ask SAP how it processes the delivery of propane to a new customer and they will provide you with their understanding of how to bill for a product. What the User knows is how to use the SAP module to achieve the results that are desired. The User has the tacit knowledge of how the industry works and retrofits that understanding into SAP's version of best practice. What is the best or optimal way of doing the job is never asked, until now.

Users have to be the individuals that work with the developers to build the applications that they know can be better. Until such time as the User is the focus of the development, we will not see the optimal or most effective solution. We will continue to be presented with applications that the developer or a single producer needed. Not what is known to be possible. People, Ideas & Objects is the Users opportunity to have the applications they need, built.

It's also an area where the User can build a business. By bringing their ideas of how best to do a job in the industry, they are paid by People, Ideas & Object's. This is not just a one time event, or something they can be involved in for a few years. I see the applications changing constantly as the underlying industry and business changes. These Users will be involved with the developers on a somewhat permanent part time basis. But that's not all. The User has to have hands on understanding of what is happening at the producer firms.

As members of the Community of Independent Service Providers they also have free use of the People, Ideas & Objects applications at their producer clients. Ensuring that the needs of the producer are met by the applications they have had a significant hand in defining and developing. Being intimately involved in bringing the applications to their producer clients. Where their role with the producer being the defining part of their work with People, Ideas & Objects.

This is not a small undertaking and the amount of work being done by the Users is a large multiple of the volume of time that the developers spend in writing the code. To expect that these people would not be compensated for doing this work doesn't pass the laugh test. They need to be compensated for the advanced skills they bring to this project.

User driven developments are proven to be the only successful method of building quality software. With this project we are taking on the entire scope of the administration and management of the Joint Operating Committee and producer operations. Including compliance and governance. This is not a small task, and although the costs have not been tallied, our focus on the User communities development is the only means of software development that is  considered. Please join me here.

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Monday, October 12, 2009

Nobel to Oliver Williamson

The Nobel Prize was awarded to Elinor Ostrom and Oliver Williamson this morning. I can't think of anything that puts the People, Ideas & Objects community inline with the current thinking of the economic community. I am elated. I am not aware of the work of Elinor Ostrom and I will look into her work to see if it applies as directly as Professor Williamson's does. I have two blog posts on Oliver Williamson's work and the one paper I reviewed "Introduction to Transaction Cost Economics" which provided strong grounding for the Draft Specification. I also have 7 other papers of his sitting in the hopper waiting to be reviewed. I'll certainly bump these up in terms of priority as to when I will approach them.

Noteworthy among today's accolades are the following.


Both Ostrom’s work on governance institutions and common-pool resources and Williamson’s work on governance institutions and the transactional boundary of the firm contribute meaningfully to our understanding of how individuals coordinate their plans and actions in decentralized, complex systems.
From The Wall Street Journal
“According to Williamson’s theory, large private corporations exist primarily because they are efficient. They are established because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements. When corporations fail to deliver efficiency gains, their existence will be called in question,” according to information on the research released by the Royal Swedish Academy of Sciences. “Large corporations may of course abuse their power. They may for instance participate in undesirable political lobbying and exhibit anti-competitive behavior. However, according to Williamson’s analysis, it is advisable to regulate such behavior directly rather than through policies that limit the size of corporations.”
Ostrom’s work also has something to say about regulation: “The main lesson is that common property is often managed on the basis of rules and procedures that have evolved over long periods of time. As a result they are more adequate and subtle than outsiders — both politicians and social scientists — have tended to realize. Beyond showing that self-governance can be feasible and successful, Ostrom also elucidates the key features of successful governance. One instance is that active participation of users in creating and enforcing rules appears to be essential. Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctioning are the responsibility of the state and should be conducted by public employees.”
From the Calgary Herald
"Since we have found that bureaucrats sometimes do not have the correct information while citizens and users of resources do, we hope it helps encourage a sense of capacity and power," the professor told a news conference via telephone.
and this quote that takes People, Ideas & Objects to the mainstream and away from the "fringe".

"Over the last three decades, these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention," it said in a statement.
"Are there relationships between the Fed and the banking sector, on which it has such a significant influence, that haven't been thought through as fully as they might in organizational terms?" he asked.
Much of their theories were used to prove the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. Specifically noting that the natural "boundary of firm and market" is best represented in the JOC being the market. I'm dissapointed that I was only able to review one of Williamson's papers. My favorie quote from his paper is as follows.
Ronald Coase's 1937 paper on "The Nature of the Firm"expressly confronted an embarrassing lapse: whereas the distributing of activity between firm and market had been taken as given by economists, the boundary of the firm should be derived from the application of economic reasoning to the make-or-buy decision. pp. 15 - 16
Please join me here in this worthwhile, and now "mainstream" project.

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Sunday, October 11, 2009

James Hamilton on Exxon Production

I have highlighted the work of University of San Diego Professor James Hamilton on this blog before. He writes this weekend on the changing face of the oil and gas industry. Focusing on the difficulties Exxon has experienced this past decade in moving their daily production volumes higher. Exxon has stated on two occasions, 2001 and 2006 they will increase production 3% each year. Only to experience an overall small decline.

This is in many ways last weeks news and something that was known by most "in the know" in the industry as early as the mid 1990's. With the commodity pricing being so bullish in the past decade, it is reasonable to assume that all was done by all the producers to bring on as much production as was possible. Nonetheless the overall deliverability of the global industry has been somewhat stable at around 85 million barrels per day.

What I find interesting in Professor Hamilton's article, is the range of Exxon's risk profile. Spending $4 billion for a 25% interest in Ghana's offshore Jubilee oil field. still seems to signal a change in philosophy for a company that has historically been extremely careful with its investments in order to maintain its position as a very low-cost producer.
It is suggested in the article that Exxon needs a price greater then $100.00 per barrel of oil in order to provide a return for that investment. I would suggest that the ways and means of managing this investment in Ghana is not any different then what a groups of start up producers would face in a low risk onshore play in North America. The Joint Operating Committee is the systemically global method of managing oil and gas assets.

Exxon did not spend $4 billion to have the "operator" take operational control of the property. They will influence what they want to see in the property and participate effectively through the Joint Operating Committee. A form of organization that SAP is not even aware it exists! The members of the JOC are able to pursue their own independent strategies as to what they want and need from the property. The conflict and contradictions only arise when Exxon Mobil should attempt to apply a global corporate compromised strategy. These corporate compromises are unable to extract the value that properties like the Jubilee oil field provides. Each JOC needs to be managed in the best interests of the property. A critical change to the way things need to be done in oil and gas today.

Corporate strategies can be developed on what is done with the value of the proceeds from the Jubilee field, and that is where the large International Oil Companies (IOC's) and the start up producer may differ. I recall my many days when I was auditing Imperial Oil the Canadian arm of Exxon. I was reviewing the firms gas royalty operations on behalf of my client the Alberta Government. This was between the years 1988 to 1994 and I accumulated the knowledge of how the firm was designed.

It was brilliant and awe inspiring. The times were different then today, the commodity prices and oversupply of the market were the two overriding concerns. Looking at how the firm extracted value from each property, granted under a standard corporate strategy, and used their "might" to make the operation the most impressive accumulation of assets that I had ever, and still had the opportunity to see.

What I am suggesting is that today Imperial would need to be run in a different manner. A manner where each property is designed to maximize the return and minimize the risk of each individual property. You can not do that with the bureaucracies that are in play, and the software they use, such as SAP. 

Whether a producer is a local startup or ExxonMobil I don't think makes a difference. The innovative oil and gas producer, the National Oil Company (NOC), or IOC will need to make these changes to this fundamentally different oil and gas marketplace. The world is in a deep recession, except for oil and gas. The pricing has never been better and the upside more dramatic to those producers that can innovatively use their earth science and engineering capabilities against their asset bases. With demand for energy from China and India, the future of the industry looks to be the best it ever has. I would challenge the thinking that SAP, conceived in the 1970's, and bureaucracies, conceived of in GM by Alfred Sloan in the very earliest part of the 20th Century, is the solution to the industries needs today.

As I am one to suggest, you should never expect a mouse to run like a horse, do not expect a bureaucracy and SAP to meet the challenges of this industry on a go forward basis. Please join me here.

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Friday, October 09, 2009

Pushing the Envelope

A lot of change is considered in the Draft Specification. Much of it difficult to assume is correct. What has been researched, and is represented in this blogs 700,000+ words, hangs together in its entirety. In other words it works on paper.

It can be frightening to view the Draft Specification and its impact in oil and gas. I know that people are ready and willing to change. The demand for change being driven by the difficulties in the economy. The escalating oil and gas prices and the financial crisis provides the realization that the old ways need to be looked at. People are looking at this point in time; from the point of view that the old ways are not providing the value we need.

How the future unfolds will not be by happen stance, in my opinion. In other industries some products are assembled in many different countries. They have components and parts that contact dozens of different countries. Organization is more by design then by chance. If, as I believe is happening, the large bureaucracies are unable to continue building value, their difficulties and decline will soon become obvious. That being so, what replaces the ways and means of the oil and gas industry from an organizational point of view.

The point I'm trying to make is that the ways and means of the oil and gas industry will not happen on their own. We need to take what proven ideas we have and start building them to ensure the transition from the old ways, the bureaucracies, is not interrupted to the new, the Draft Specification.

Looking at this problem another way, Exxon Mobil employs hundreds of thousands of people around the world. What do these people do, where do they do it and how do they do their jobs? In many ways we have lost the ability to know what our organizations do. And, if they are failing what does that mean. Can the world afford a decline in energy output? Or do we have an obligation to do something to ensure that there is a transition.

If the bureaucracies have taken the division of labor and specialization to the point where Exxon Mobil employs hundreds of thousands. What will the future need in terms of the division of labor of future organizations. To grow 90 million barrels of oil per day requires innovative, faster organizations. We think we know we can't get their with our current organizations, but we can certainly go backwards into what I will leave to your own imaginations. The choices we make today are therefore critical in making our future.

How this is done is through the people that are a critical part of this industry. Their ideas to make it better and the objects that make up the People, Ideas & Objects software. Please join me here.

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Thursday, October 08, 2009

Where do shareholders fit

Yesterday I made the comment that venture capital and industrial capital would not play a role in the future of the oil and gas industry. It is difficult to see how they could begin standing from where they have fallen today, but I need to address another assumption in the Draft Specification.

Where does the money come from that will be used to start the developments within the teams. The teams are the CEO, CFO and COO who are primarily responsible for the discovery and production of the 90 million barrels per day we need by 2030. The shareholders are also critical members of the team as represented by the CFO and through the Board of Directors.

The systemic problems in the financial markets have been with the intermediaries. The banks, brokers, funds and the like. I believe the separation of management and ownership was a good idea, poorly implemented. Interventions by the owners of the businesses have fallen on deaf ears and the implementation of stronger rules like Sarbane's Oxeley have only further entrenched the management.

Direct ownership and representation in the producers is made possible and more effective by, dare I say, Information Technology. This would be a material change in the ways and means in which the oil and gas industry is funded. I agree, the commodity prices are reallocating the financial resources to support innovation and reward sound management. The need for constant infusions of capital will not be as necessary.

Secondly, and here is the point that makes the shareholders involvement possible, if these same shareholders were involved in funding People, Ideas & Objects software development. they would be involved in both the definition and support of the organization. The type of organization that is reflected in this blog.

Recall that Adam Smith developed the concepts of Division of Labor and Specialization. These  have proven that economic growth is a result of reorganization. In the next five to ten years we will face a decline or retirement in the knowledge base of the industry. The volume of work in each barrel of oil will continue to increase as well, particularly from an earth science and engineering point of view. How can this come about if we don't have these changes in the ways and means of the industry?

In this post I have attempted to separate the financial resources between equity and debt. To better understand the role of debt, please review the Financial Marketplace Module.  There is a constant theme throughout these blog posts of the past few weeks. That constant is the need for people to take action. We are challenged by these issues and opportunities, please join me here.

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Wednesday, October 07, 2009

We need to organize

Yesterday we noted the comments of Mohammed Al-Qahtani of Saudi Aramco. Ninety million barrels of oil are needed to be discovered and brought on to production by 2030. I don't know if he has calculated what that would cost, lets assume its a big number. That's only 21 years, not a lot of time.

Does anyone believe we should leave this task to the current bureaucracies to figure out? How about we leave this ominous task to the likes of SAP to define and support those bureaucracies? It doesn't make much sense does it.

Another assumptions inherent in the Draft Specification is the role that finance capital takes in achieving these 90 million barrels. The short answer of course is absolutely nothing. With the current financial crisis pretty much on full boil it is difficult to see how they could fund the capital requirements for such a Herculean task. Going back to Professor Carlota Perez we find that financial capital is of limited value in the future. Its role was completed in financing the groundwork for the next great surge. The building of the Information and Communication Technologies was the job they were to have done and that is what they completed. As we can see, no one needs their services anymore.

Commodity prices will provide the reward to those producers that are successful. What better motivation is there for the teams, unconstrained cash flow. Failure will also be distributed fairly and equitably. No more need to have the ear of the biggest venture capitalist to endow you with success by granting you an equity influx. Those days are over and the earth science and engineering capabilities are the competitive advantages in the industry, and the determinants of success.

In the world where we are tasked with achieving a 90 million barrel per day increase in production. I can't think of a more exciting place to be then at People, Ideas & Objects. We have a job to do, and its a big one. In terms of the scope of the opportunity, I think that Duvernay's and BlackPearl's left a lot on the table. Please join me here.

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Tuesday, October 06, 2009

Collaboration is a necessity.

The Oil and Gas Journal have a comment from Mohammed Al-Qahtani, Executive Director, Petroleum Engineering and Development, of Saudi Aramco. He stated simply,

Recovering the world’s remaining oil resources will require a collaborative effort of national oil companies, international oil companies, and service companies.
This quote resonates with a number of assumptions that went into the Draft Specification. How the service industry and the producer companies are able to work closely in this most difficult of tasks. The Resource Marketplace Module is the collaborative medium in which the resource industry is able to market their offerings and contract with the producers that need them. Having an electronic marketplace that enables these connections, and facilitates the contracting is a necessity in my opinion.

The Research & Capabilities Module also provides the producer with a window on the work being done in the service industry. As I mention in that module, the producer receives 100% of the revenues from the sale of oil and gas. These financial resources need to be allocated to the service industry to conduct the research the producers will need in the long run. Funding these activities directly are what will be necessary for the producer and service providers to achieve what Mohammed Al-Qahtani also says in the article.
In addition, he noted that the world would need an additional 90 million b/d to offset declines in existing oil fields to reach a 125 million b/d level by 2030. Current world production is about 80 million b/d.
Finding 90 million b/d will be tough without the ability to collaborate in this manner. Another assumption that I have mentioned before is that the National Oil Companies will become active partners in making these plans real. Their nations reserves could best be developed in collaboration with producers from other nations. Much as Saudi Arabia has always done.

These assumption need to be incorporated in the systems that producers will use from now to 2030 and later. Systems built with the full involvement of its users. Please join me here.

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Monday, October 05, 2009

Framework Alignment

One of the attributes of an SAP system is the ability to maintain the corporate entities compliance and governance. When a firm needs reporting to the SEC or the various tax authorities, SAP provides a solid foundation or framework for that requirement.

In oil and gas the Joint Operating Committee is the legal, financial, cultural, communication and operational decision making framework. It is the business of the business of the oil and gas industry and SAP knows nothing of its existence.

What People, Ideas & Objects is developing is a replacement for the SAP ERP system. One that is purpose built and designed by its users for the oil and gas producer. A system that aligns the compliance and governance frameworks with the five frameworks of the Joint Operating Committee. An alignment that eliminates the conflict between operational authority and accountability. An alignment that identifies and supports the key attributes of an innovative oil and gas producer.

In my opinion SAP provides the compliance and governance that is necessary for the public oil and gas producer. But these are not the drivers of the business. The Compliance & Governance Module of the People, Ideas & Objects Draft Specification provide the same compliance and governance that SAP provides, however, with several differences. Instead of being the driving reason of the administration of the firm, the compliance and governance are processes that fall out of the actions and processes conducted within the Joint Operating Committee.

One of the major issues that is presented by using the Draft Specification is the governance model. With the Joint Operating Committee taking a larger and more prominent roll in the day to day management of the asset. Influence and contributions come from many different corporate entities. What is needed is a governance method that can appropriately manage the asset and meet the compliance and governance needs of the producers who make up the JOC. These are the reasons that the Draft Specification has developed and introduced the Military Command & Control Metaphor governance model.

Although moving to identifying and supporting the JOC brings issues like the compliance and governance model into question. Methods to overcome these issues are sound and are enabled for one reason, in my opinion. And that is the natural way that the JOC operates within the industry. The Draft Specification is simply aligning itself with not only the five frameworks of the JOC, but the natural way in which the industry operates. This is also the reason why SAP fails in oil and gas, please join me here in building this worthwhile system.

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Sunday, October 04, 2009

Industry Management of Intellectual P...

I want to stress or highlight a key point of the Draft Specifications assumption about the producers competitive advantage. The physical assets, reserves, leases and the capabilities in exploiting those assets are the sustainable competitive advantage that producers are interested in. A producer organization focused on building value, using the Joint Operating Committee (JOC) as the key organizational construct, can employ the right strategy for that JOC. There is no need to have a corporate strategic compromise now practiced in most firms. The strategies of the various producers within the JOC do not have to be, and probably never will be the same. Many producers have different asset mixes, costs and dynamics within each JOC. They are each free to pursue their strategy without creating conflict within the JOC.

In addition the energy producers need not own can not own the intellectual property of how the industry conducts its operations. The service industry is best able to work with the producers to innovate and develop the tools and methods necessary to optimize the discovery and production of oil and gas. Does it provide Duverney or BlackPearl with any value to have developed and patented the most innovative drill bits? Of course not, if they had developed their own drill bits they would probably be in bankruptcy instead of sold for many billions of dollars.

Is the CFO of a producer firm going to come up with the next great innovation in drilling technology. How about the CEO, will he finally prove his theory about the physics of oil and gas accumulation? No. If they were they're not doing their jobs. And as Duverney and BlackPearl have shown. Their job is in applying their understanding of the science to the assets they own, and building their production and reserves.

Who is going to "break their pick" on the next drilling technology. Who is going to discover the next organizational structure that supports the innovative producer. These innovations can only be discovered and built based on the scale that has the entire energy industry benefiting from them. To have them within one producer does not provide the motivation for the individuals to break their pick doing so. This is why the Draft Specification has developed the Research & Capabilities Module and the Knowledge & Learning Modules.

I see Canadian producers involving themselves in the business of their suppliers and service operations. When Encana purchases its own rigs when there is a rig shortage, that only stops anyone taking the risk of building new rigs. The message is the oil and gas company will involve itself in direct management when the service industry is unable to provide the needed services. This too is a direct symptom of the attitude that the Intellectual Property of the oil and gas industry is not developed or owned by any group or individual. This is the wrong type of thinking and it needs to stop. Please join me here.

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