Revisions to the Accounting Voucher Part 3

 Purchase Order Systems

It's very 1970s to be thinking of a Purchase Order system. The 1970’s is the last time that I can think of anyone ever using one. (It certainly might be used in the larger firms, however, I am unaware of this.) The practicality and usefulness of these systems seemed to have receded in the 1980’s and no one has considered their existence since. Now we talk in terms of Supply-Chains, however oil & gas doesn’t have a “supply-chain” as the term is used. Supply chains are for retail and manufacturing. Purchasing is for oil & gas. I would reiterate that the use of a Purchase Order system is something that our user community will need to research to determine if the need and desire exists. I see substantial value in building one and seek to document how that value could be realized.

The Purchase Order system is part of the Accounting Voucher as the necessary part of the processing of any large capital item. The use and application of the AFE, Cost Center or Lease charge code remains the same notwithstanding the Purchase Orders existence or not. There is no change in the coding structure as a result of the inclusion of the purchase order number. The Accounting Voucher relies on the Purchase Order for further approval of the specific contract dealing with a particular vendor on a specific project.

There are a number of cases where the management of the vendor relationship needs to have special considerations. Particularly in oil & gas where the details of the project are specific and large. Engineering contracts for the building of gas plants, pipelines and facilities are some of the examples. Situations where the contract must meet certain criteria and the vendor must qualify to meet those criteria during the construction process. It's of concern to the producers that the firm that is chosen be capable of undertaking the work that is described. It’s never the lowest cost and the bid wins type of contract bidding process. This overall bidding process falls under the larger Purchase Order process of the Preliminary Specifications Accounting Voucher.

Once the vendor has been selected then the approval of the costs are subject to the terms and conditions of the contract. Any prepayments or partial payments can be processed on the basis of the strength of the Purchase Orders document and the final payment is subject to the satisfactory completion of the contract. If the contract is subject to any holdbacks and other conditions, then those would be applied within the Accounting Vouchers payments on an automated basis.

The Purchase Order system is designed to provide producer(s) with a level of control over large contracts. Something that is done frequently in oil & gas. By managing the bidding process and providing a level of control over the contract in terms of making and controlling the payment process. The Purchase Order is a valuable tool in any producer's system. Having these contained within the Accounting Voucher of the Preliminary Specification is the natural placement and method to automate many of these control processes. See also the Resource Marketplace module for discussion of the Oracle Purchasing and Procurement module that has been included as the base of the Preliminary Specification. 

Two Distinct Sources of Revenue

Professor Giovanni Dosi’s paper discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Professor Dosi’s theories that make them directly applicable to oil & gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil & gas firms search, and production of hydrocarbons. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products' costs and / or capabilities beyond that of the competition. Professor Dosi notes:

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

The producer firm is committed to developing their earth science and engineering capabilities with the understanding that they advance their competitive advantages, and earn a return on their investment in them. How within the People, Ideas & Objects application does the producer earn a return on their investment in these capabilities? Certainly through enhanced profitability of their land and asset base. However, with the Preliminary Specification this long term value adding process is augmented through direct charges to the joint account in order to generate and sustain the capabilities in the short term. That is to say that the earth science and engineering resources that are pooled into a Joint Operating Committee, have been assigned a specific role within the Industrial Command & Control and whose costs are captured in the Partnership Accounting module and are therefore producing a “revenue” stream for the producers capabilities.

The question then becomes what is the charge for the individual during the time they’re working in the Joint Operating Committee. It will be easy to determine the hours that have been worked in the various JOC’s through the Work Order. The hourly rate charged would need to include a number of factors. The skills of the individual, the technical resources of the producer firm that is at the disposal of the individual, and also a measure of the level of innovativeness of their producer firm, say something like Revenue Per Employee that reflects the overall effective productivity of the firm. 

The net result of this is that the revenues generated from this second revenue stream should at least cover the costs of the producer, and in some cases will have captured a return on their investment on the capabilities they’ve developed within their firm. To proceed on any other basis would be unreasonable.

It comes down to the question of what business is it that the producer is in? Are they in the business of generating profits from producing oil & gas, or are they in the business of generating profits from providing geologists and engineers to the operations they have an interest in? If we look at the competitive advantages of the producer it is the land and asset base, and the earth science and engineering capabilities that they apply to that asset base. Clearly both production and capabilities development are within the scope of the competitive advantages of the oil & gas producer. And to a large extent the costing of the technical resources is not fundamentally different from what occurs today. In today’s market, the operator is provided with “overhead allowances” for the capture of some of these costs. The difference from today and what is proposed here is that the elimination of the concept of an operator by “pooling” the technical resources committed to the Joint Operating Committee by its participants to acquire the necessary overall capabilities. The direct costing of these technical resources that approximate the producers revenue per employee value as a replacement to the operator overhead allowances. One that will more directly reflect the value of the contribution and the costs that are incurred.

To take this opportunity to charge the costs of the capabilities of the producer firm and earn a return on investment may be an issue that some will have with the concept. In a world where the market for engineers and geologists is highly competitive. Where producers are assessed on their performance based on their Revenue Per Employee, a competitive, measurable factor. The acquisition of additional technical resources is a difficult process that has investment performance implications to the firm. The ability to at least offset some of the overall costs of the technical resources helps to mitigate the investments in the short term. This is the purpose for enabling the direct billing of technical resources to the joint account in the Work Order of the Accounting Voucher. (Detailed further in the Background section of this wiki.) The means in which to maintain and sustain these competitive resources for the long term by recovering their costs from capital and operation activities.

When we get to the Research & Capabilities and Knowledge & Learning modules. We will see the development of these capabilities from an innovative point of view that takes on a different perspective. The ability to capture the costs of the development of a firm's technical resources as a competitive investment, and have them as a source of revenue here in the Accounting Voucher is established. Looking at the development of the producer as it exists today, it is somewhat of a paradox as to which is developed first, the land base or the capabilities. With the ability to have the capabilities to generate its own immediate source of short term revenue this paradox is resolved in the short term.

Some may suggest that these costs offset the production revenues of the Joint Operating Committee that would have gone to the producer anyways. And that may be true. However, in a world where the demands for the technical resources are expected to be as significant as some suggest. The need to deal with the problem on a wholesale basis, as the People, Ideas & Objects pooling concept does, is a requirement, and secondly, the assumption that each of the producer firms will develop their technical capabilities may be proven to be false. The cost of the capabilities incurred by the producers will also be realized by the Joint Operating Committees where they’ll be challenged to earn a profit to maintain production. Accounting is concerned with accurate and timely recording of costs, this recognition is therefore appropriate.

Miscellaneous

One thing that we’ve not been able to discuss regarding the Accounting Voucher module of the Preliminary Specification, is that the module is used for entry of all transactions for accounting purposes. Whether it is through the Material Balance Report, which is encapsulated within its own voucher, or a simple accounts payable voucher, everything that will be entered into the People, Ideas & Objects system is through an Accounting Voucher. And there will be different types of vouchers for different types of charges. Each with their own voucher series numbering. (For example all Material Balance Reports will be 200,000 series.) Business is also, in many cases, repetitive. The ability to reuse any Accounting Voucher as a template for subsequent months will be a feature of the People, Ideas & Objects Preliminary Specification. 

Conclusion

One of the basic assumptions of the People, Ideas & Objects Preliminary Specification is the pooling concept that is used to replace the “operator” designation in use today. Therefore many of the participants in the Joint Operating Committee will be actively participating in managing the property on an ongoing basis. As a result some of the Accounting Vouchers will be open to charges from multiple producers represented in the Joint Operating Committees that the producer firm is a participant in. The revenue, capital and operations of each of the Joint Operating Committees accounts are open to the direct debit and credit charges of all of the participants in the JOC. 

The ability for each producer to have the just-in-time earth science and engineering capabilities available for all the properties they manage requires them to have unused and unusable surplus capabilities. These unused and unusable capabilities, on an industry wide basis, are leading to unnecessary resource shortages that are no longer affordable. Specialization and the division of labor will need to be employed by the producer in terms of their earth science and engineering capabilities. The ability to pool these critical resources from participating producers into the Joint Operating Committee releases these otherwise hoarded unused and unusable capabilities. People, Ideas & Objects pooling concept also implies that some producers will provide other resources to the property in disproportionate amounts to their working interests. All producers need to contribute the skills, knowledge, experience and ideas that they have in an innovative oil & gas industry. Therefore each of these producers need to have the ability to charge for their earth science and engineering capabilities to the joint account. All charges are subject to the AFE, Lease or Work Orders budget requirements and cost control remains the domain of the Joint Operating Committees. 

Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asks “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovative inputs. It’s People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated and constrained by the administrative ease in which producers operate. 

This administrative ease can also be stated for the Material Balance Report. It is within the Accounting Voucher where the Material Balance Report is embedded within the Accounting Voucher itself. Inheriting the capabilities to balance the financial aspects of the voucher, but also the volumetric information. It is at that point, when the volumetric information attains the integrity of the accounting system, that the automation of the various processes based on the volumetric data can begin. 

If the producers are confident that the deal that was conceived is accurately captured in the operation, it’s appropriately reported through the Accounting Voucher and throughout the Preliminary Specification. And the operation is reporting a substantial and consistent profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Accounting Voucher Part 2

 Designing Transactions

One area of the Accounting Voucher where the Preliminary Specification is different is the concept of designing transactions. We should spend some time on defining what it is that we’re speaking of. Where accountants will be spending their time in the future is designing transactions and leaving the processing, mostly through automation as a result of the design of the transactions, to the computers. If you’ve been reading the Preliminary Specification you’ll have an understanding of the methods of organization of the marketplace and the producer firm and how the Joint Operating Committee interacts with these. It will be with that understanding that we can begin to understand the concept of designing transactions. So let us begin with a simple description of the transaction's makeup. From Harvard Professors Carliss Baldwin and Kim Clark. 

...objects that are transacted must be standardized and counted to the mutual satisfaction of the parties involved. Also in a transaction, there must be valuation on both sides and a backward, compensatory transfer - consideration paid by the buyer to the seller. Each of these activities - standardizing, counting, valuing, compensating - adds a new set of tasks and transfers to the overall task and transfer network. Thus it is costly to convert even the simplest transfer into a transaction.

Let's use a scenario where a group of producers have several producing wells of natural gas with some liquids production. They are situated next to a large gas plant that processes their gas in exchange for the liquids and markets their gas on the spot market. In this scenario we are evaluating these properties from the perspective of implementing them into the Preliminary Specification. We begin by analyzing the production accounting elements in the Accounting Voucher with the related Production Accounting Service Providers. The Production Accounting Service Providers assess their fees on the basis of a unit of work incurred during the production month for any of the many processes involved and however our user community configures the software during the development of the Preliminary Specification. At each point they’ll assess a fee for their service based on transaction design principles. The transaction designs contained in the Preliminary Specification that our user community developed, provides the automation and the related service provider then goes through their billing process and at the end of the month, when profitable production has invoked that process, produce their invoice for their services to their Joint Operating Committee clients based on the work output rendered. This implies our user community designed their work flow from a transaction design point of view. Professors Baldwin and Clark. 

The user and Producer need to deploy knowledge in their own domains, but each needs only a little knowledge about the other's. If labor is divided between two domains and most task-relevant information hidden with each one, then only a few, relatively simple transfers of material, energy and information need to pass between the domains. p. 17

and

Placing a transaction - a shared definition, a means of counting, and a means of payment - at the completed transfer point allows the decentralized magic of the price system to go to work. p.22

Again if there is no production there is no basis for the Production Accounting Service Providers billing. Fulfilling the Preliminary Specifications decentralized production model objective. This scenario shows how the Production Accounting Service Provider needs to design their transactions to produce the desired result, conduct their service and automate their billings. Additional transactions are designed from the process of gas production, sales of the natural gas, royalties and payment of the processing fee are all similarly designed into the Accounting Voucher. This is the role of the Accounting Voucher for the producer firm and Joint Operating Committee. Automation of the business processes of the innovative oil & gas industry through transaction design. The fact of the existence of production itself is creating an information unit that triggers the appropriate service providers to conduct their operations on the Joint Operating Committees behalf. 

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on... Frederick Hayek (1945)

The Accounting Voucher has the “Transaction Design Interface” that provides a worksheet for accountants to design transactions. There is a defined process of analysis of how to break down these transactions and we will get into that as we proceed through the development of the Preliminary Specification. It is important to recall at this point that each Accounting Voucher is used as a template for subsequent months. So once a transaction is designed, it will be reused, and built upon through the implementation of it as an Accounting Voucher template providing the automation that is invoked each month of production which is supervised through the service provider organizations.

The role of the Accounting Voucher in determining the source of the market or the firm as the originator of the transaction is minimal. However, it has a role in ensuring the costs of these transactions are minimal and are a source of both the producers, as represented in the Joint Operating Committee and service industries profitable operations. If there was a simple way to describe this purpose of designing transactions it would be as a tool to coordinate the firm or Joint Operating Committees use of the market. This conceptually falls between transaction costs economics, capabilities and transaction design. All three are areas that Professor Richard Langlois has included within his area of research. We have also used Professor Carliss Baldwin for her work in transaction design. Professor Richard Langlois in his paper "The secret life of mundane transaction costs."

However, a new approach to economic organization, here called "the capabilities approach," that places production center stage in the explanation of economic organization, is now emerging. We discuss the sources of this approach and its relation to the mainstream economics of organization. p. 1

and

"One of our important goals here is to bring the capabilities view more centrally in the ken of economics. We offer it not as a finely honed theory but as a developing area of research whose potential remains relatively untapped. Moreover, we present the capabilities view not as an alternative to the transaction-cost approach but as a complementary area of research" pp. 7.

The Accounting Voucher module of the Preliminary Specifications transaction design takes the accountant away from the benign scorekeeping role to the role of active participant in the operation. One that looks at the market from the point of view of how best to coordinate the various elements and provide the greatest value add to the firm or Joint Operating Committee. In Richard Langlois “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization"

A close reading of this passage suggests that Coase's explanation for the emergence of the firm is ultimately a coordination one: the firm is an institution that lowers the costs of qualitative coordination in a world of uncertainty. p. 11

And this is maybe one of the important considerations of the work that we do here in People, Ideas & Objects, our user community and service providers. Is the realization that each producer firm and each Joint Operating Committee are going to be unique. That due to their makeup they’re going to be different in material ways. Innovation will have a dramatic scale in how it is measured against each firm or JOC. Specialization and the division of labor, other aspects of the changes being imposed on producers will demand a high diversity in terms of their makeup. The approach will be anything but cookie cutter. 

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of cooperating individuals. p. 17

Therefore, according to the research of Professor Langlois the transaction costs will be an immaterial item in comparison between firms or Joint Operating Committees. That is to say that they will be the same in all instances. And People, Ideas & Objects have asserted that they will be immaterial due to the application of standardization through Information Technologies. However the differentiating costs between firms and JOC’s will be these costs of coordinating the market. Making the Accounting Voucher module a critical tool in the ability to offer the producer firm the most profitable means of oil & gas operations. 

... while transaction cost consideration undoubtedly explain why firms come into existence, once most production is carried out within firms and most transactions are firm-firm transactions and not factor-factor transactions, the level of transaction costs will be greatly reduced and the dominant factor determining the institutional structure of production will in general no longer be transaction costs but the relative costs of different firms in organizing particular activities. p 19

We have been discussing the Accounting Vouchers “Transaction Design Interface” and its purpose as a tool to coordinate the use of the market. We want to ensure that the efforts in coordinating the market are consistent with the objectives of the firm or the Joint Operating Committee and don’t conflict with the objectives of those who are initiating the work in the Research & Capabilities or Knowledge & Learning or other modules. As we can see coordination through the Accounting Voucher of the Preliminary Specification is focused on the business end of the transactions, not on the operational side.

The first question that most people will have is why are we concerned with the coordination of the markets in the Accounting Voucher? Here Professor Richard Langlois made the following comment in response to a question in his “Vanishing Hand” paper. 

Here again, I think the problem is one of conceptual imprecision. It is perfectly common, and often unobjectionable, to contrast a market and an organization, that is, to contrast the institution called a market and the institution called an organization (such as, notably, a firm). But the opposite of “organization” in the abstract sense is not “market” but disorganization. More helpfully, the opposite of conscious organization is unplanned or spontaneous coordination. In this sense the market-organization spectrum (and similar spectra one could imagine) are arguably orthogonal to the planned-spontaneous spectrum. One could well wonder, as I have (Langlois 1995), whether large organizations do not in fact grow far more as the unplanned consequence of many individual decisions than as the result of the conscious planning of any individual or small group of individuals. And it is certainly the case that, as Alfred Marshall understood, both firms and markets “are structures for promoting the growth of knowledge, and both require conscious organization” (Loasby 1990, p. 120).

In this day and age, with such large distances, geographic, size, language and other considerations between vendors and producers, leaving the coordination of the markets to “spontaneous order” is asking too much of human ingenuity. Particularly with the focus of the industry to a further division of labor and specialization, where the risk and reward of oil & gas operations are so great, market coordination or transaction design will be a critical and necessary task to be carried out. Each operation may be the result of more people being involved, specialization and the division of labor will have an influence here. Once again it is not from an operations point of view that we are attempting to influence the operation, it is from the business point of view. How will the transactions and business be captured in such a manner that the firm and Joint Operating Committee are incurring the lowest possible costs of the most efficient methods of these business transactions? 

As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. In other times and places, notably in less-developed economies or in sectors of developed economies undergoing systemic change, gap-filling requires other forms of organization — more internalized and centrally coordinated forms. p. 6

and

Let’s take a closer look at the nature of the “gaps” involved. Adam Smith tells us in the first sentence of The Wealth of Nations that what accounts for “the greatest improvement in the productive power of labor” is the continual subdivision of that labor (Smith 1776, I.i.1). Growth in the extent of the market makes it economical to specialize labor to tasks and tools, which increases productivity – and productivity is the real wealth of nations. As the benefits of the resulting increases in per capita output find their way into the pockets of consumers, the extent of the market expands further, leading to additional division of labor – and so on in a self-reinforcing process of organizational change and learning (Richardson 1975; Young 1928). p. 7

We’ve seen over the course of the past number of decades that the speed and capacity for change by producer firms is poor. People, Ideas & Objects have asserted this is attributable to the bureaucrats desire to maintain low levels of accountability through poor ERP systems. Today organizations are defined and supported by software, and most particularly their ERP software, and they are therefore constrained by them. The Preliminary Specification has chosen the market to deal with this issue as opposed to cultural difficulties of change and historical performance of the firm as the other choice. There needs to be a means in which to affect a new trajectory in the performance of the producer firms and it is specialization and the division of labor which is the only proven method to build any economic value since 1776. This can best be accessed through the market which provides the added benefit of disrupting the producer firms bureaucratic culture. A culture that is counter to profitability and one that must be dismantled. The addition of transaction cost economics and these tools will augment the ability to enhance the transition and facilitate the performance trajectory necessary to achieve profitable energy independence in North America.

In the determination of the firm or market as a choice for the producer firms to use as the means of production, the question in oil & gas is academic. The geographic and technical diversity necessary to operate within the North American oil & gas marketplace, on the basis of the many levels and types of operations a producer could specialize upon, even in today’s market. The answer has and always will be the market. There is significant conflict and contradiction in the relationship between producers and the service industry as a result of the treatment the service industry has been subjected to over the past number of decades. It is suggested the producers will need to make a deliberate effort to remediate and rebuild the capabilities and capacities that are necessary in order to provide profitable energy independence in North America. 

The starting point of this rebuilding process for our user community is as follows. If we recall in the Resource Marketplace module the vendors and suppliers are maintaining their own contact data. Within that data is their key personnel that include their field staff. They should also be including their key business personnel for the purposes of the “Transaction Design Interface” to collaborate on these interfaces. In addition, their billing information and banking data, as well as other critical data and information that will help the producer firm or Joint Operating Committee efficiently coordinate and process the transactions they’re involved in. Lastly a collaborative interface should be provided for everyone within the Accounting Vouchers vendor pool to discuss how the transaction is designed and the template that is used by the specific vendor. Needless to say the involvement of our development of software for the service industry will begin here. Please see the Implementation page of this wiki to review the budget and more of the details.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Accounting Voucher Part 1

 Introduction

We now shift our attention to the Accounting Voucher module. The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. They both being accounting modules, it is natural that they have high levels of integration. The Accounting Voucher is unique in that it brings to the producer the ability to design transactions and specific accounting voucher templates such as the Material Balance Report. These are not innovations that the producer will use to become more innovative but are provided to ensure that the innovative producer's processes are actively defined and supported throughout the People, Ideas & Objects application modules.  When the business is a science, as it is in oil & gas, it would be in the producer's interest to remain open and flexible in both its scientific and business approach. The Accounting Voucher and Partnership Accounting modules provide this organizational flexibility.

The manner in which these two modules operate is as follows. The Accounting Voucher captures the transactions. Partnership Accounting reports on the transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process that’s familiar and traditional in the accounting world.

We noted in the Partnership Accounting module how our Work Order provided producers with the ability to form and participate in working groups. Providing flexibility in participating and accounting for these working groups. This flexibility is what is being sought after in the rest of the producer firm and Joint Operating Committee from these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to a producer's innovation as much as the Research & Capabilities or Knowledge & Learning modules provide.

The People, Ideas & Objects Accounting Voucher module will provide the means for the application to “manage the disparate inter-dependencies of modularity theory and Transaction Cost Economics.” That is a summary application of Professor Baldwin's comments and theories. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the People, Ideas & Objects application. What this means is it’s necessary for people to cease just processing transactions, by way of automation, and move toward the definition and design of transactions to optimize the business of the producer and Joint Operating Committees performance.

Vouchers, Open To All Within the Partnership

One of the implications of using the People, Ideas & Objects system is that each partner within each Joint Operating Committee will have authorized access to the pertinent Accounting Voucher during the time that a Voucher is either open or closed. Each of the producers involved in the Joint Operating Committee are therefore able to access the Accounting Voucher and have costs / revenues distributed to the other partners involved in the Joint Operating Committee based on the AFE or operations budget. This is one of the key differences that we discussed in the Petroleum Lease, and Resource Marketplace modules. Partners are all contributing to the joint account as equal participants with the role of “operator” being relegated to a thing of the past. (Note too of course, that each participant is able to charge their own account with their own 100% charges. These charges are to their private accounts and therefore not seen by any of the other participants.)

Cost control becomes an issue when everyone is able to charge freely to the joint account. A careful reading of the previous paragraph reflects that I didn’t state “charge freely." Cost control comes about as a result of the traditional budgetary control of AFE and the Work Order system that we’ve discussed in the Partnership Accounting module. Without pre-approval by the partnership nothing is able to be processed by the People, Ideas & Objects software applications. And as we’ve seen in the discussion of the Security & Access Control module, few will have the authorization to “charge freely” to the joint account in any form or fashion. With the traditional ability to charge to an AFE or Cost Center, and possibly during the development of the People, Ideas & Objects Preliminary Specification, our user community determines there’s a need to have a purchase order system, ensuring that an appropriate bidding and contracting process is in place, no unauthorized amount will be accepted in the system. There is also the fact that each voucher needs to be approved for payment before any money is expended and that approval would need to consider the budget authority of the Joint Operating Committee.

As one can envision these Joint Operating Committee - Accounting Vouchers can become large as they include the entire month's business of the property. Accountants would be frustrated at month-end trying to get these Vouchers closed if they had to seek approvals and close each of the transactions within the appropriate small window of time of their month end. Needless to say that each transaction within the Accounting Voucher is a small subset of the larger Accounting Voucher and can be dealt with as a stand alone individual item. Seeking its own approvals and authorizations that deal with just the domain of the specific transaction.

What is different in the People, Ideas & Objects Accounting Voucher system vs what exists today is the elimination of the designation of operator. The capabilities for each producer to house the state of the art earth science and engineering resources necessary to run all of their properties within one oil & gas firm is believed to be beyond the scope of what is possible in the future. Our solution in the Preliminary Specification is the further specialization and division of labor of the earth science and engineering capabilities of each producer firm and the pooling of these resources of the partnership within the Joint Operating Committee.

The Material Balance Report

The Material Balance Report is an Accounting Voucher that is unique and has the following characteristics. It is designed to provide automation to the production, revenue, royalties, marketing and other processes of the producer firms and Joint Operating Committees. It is this type of specialized use of an Accounting Voucher that our user community should consider applying to other situations when contributing to the Preliminary Specification.

What is proposed in People, Ideas & Objects Material Balance Report is that for an Accounting Voucher to close it must balance the financial debits and credits, but must also from a volumetric perspective material balance, system balance and partnership balance. Each of these volumetric perspectives are accessed through a different “mode” within the voucher to make the necessary changes to correct any volumetric imbalances or errors from that specific perspective.

The Joint Operating Committee is a thing that exists as a result of legal agreements and in the minds of oil men and women. It therefore doesn’t “own” anything or incur any costs. All of the charges to the joint account must clear in the month they’re incurred to the producers involved. It is the same situation for the volumetric information. The Joint Operating Committee "Accounting Voucher" balances to zero in terms of costs and volumes each month by clearing its charges to the partnership and royalty owners of the property. Clearings are done after the balance. That does not guarantee that the facility will remain in balance. Adjustments and amendments to the Accounting Voucher may occur. These may happen and they can be subsequently balanced and cleared to the partnership accounts in the same manner as before. And that is on an automated basis. The point of the exercise is that you have the business of the Joint Operating Committee captured in the Material Balance Report which is an integral part of the Accounting Voucher. Essentially all three are the same thing, the Joint Operating Committee, Accounting Voucher, and Material Balance Report. An integrity of reporting that is embedded within the accounting systems that are as rigid as debits must equal credits.

We now discuss the contracts regarding the petroleum products produced from a specific Joint Operating Committee. Contracts that would include marketing for gas, oil, natural gas liquids, or contracts for charges for gathering, processing etc. If a stream of product was flowing through a facility, then a contract for processing or sale would be attached to it. The ability to attach the contract to the stream would enable the Accounting Voucher to establish the associated accounting for the gathering or processing of charges / sales for that stream. These charges (invoices) or sales (receipts) are generated in automated fashion by the Preliminary Specification.

The Accounting Voucher is for lack of a better term a template that is built upon as time passes. Each month as the property changes, these changes are captured within each Accounting Voucher and the template is renewed each month with the accumulation of the properties history, the data from the Petroleum Lease Marketplace and other modules. If a new contract was added for the production from a new well, then that contract stream and the new well would be represented in the next and every month's Accounting Vouchers. The Accounting Voucher template documents the changes in the property over time. Providing the base for the subsequent automation of the business processes to be established, tested, debugged and deployed.

Critical to the “definition and design” of transactions is the fact that these transactions are balancing themselves out. If the debits and credits were not in balance at the end of the day, then the automation of the systems and the accountants would not be doing their jobs. The same could be said for the volumetric reporting. If in the Material Balance Reports was out of balance (call this material balance), or were not balancing the inputs and outputs to other Material Balance Reports (call this system balance), or the internal accounting of those volumes to the partners, royalty holders and others were out of balance (call this partnership balance) the accountants and systems would not be doing their jobs. Simply the process of closing the Accounting Voucher will need to consider not only the balancing of the debits and credits from a financial point of view. They will also need to ensure that the material, system and partnership volumes reported in the Material Balance Report are also in balance. Without these systems in balance, the Accounting Voucher will not clear or close.

This imposes another rather strict provision on the quality of the information that is accepted into the People, Ideas & Objects Accounting Voucher module. Precluding the acceptance of a voucher due to the inability to balance a volumetric requirement holds the system up for what is a common occurrence. What if the volumetric information is unavailable in a timely fashion? What if the information is part of the normal amendment process? Then we are left with the traditional accounting methods of dealing with these types of issues. An accrual of the volumes in order to achieve the balancing necessary should be able to be processed in the current month. Most production processes are amended for up to 90 days. These accruals would then be automatically reversed in the following accounting months Material Balance Report. What is different from existing systems is that we are enforcing the systems to volumetrically balance. Not just inputting key variables but imposing and enforcing the facts of what actually happened at the Joint Operating Committee, and if it is subject to a comprehensive Construction, Ownership and Operation agreement, what is agreed to be accounted for before the close of the Accounting Voucher. And by that I mean specifically, from the point of view of either dealing with the contractual arrangement as dictated by the governing agreements as the determining factor for the means of production allocation. Or if the agreement refers to the chemical composition as the basis of production allocation, both of these methods will be available in the Material Balance Report of the Accounting Voucher in an either, or and mixed environment.

The difference may be subtle but the implication is significant. Locking the volumetric balancing, over the long term, into the Accounting Voucher itself enforces the system to follow the volumes as produced and processed. Once this is achieved a certain level of unimpeachable integrity is achieved regarding the production data and the automation of detailed processes based on those volumes can begin and be assured to be based on the facts of the facilities and assets data and information captured in other modules. Any subsequent amendments will correct the record.

There are many aspects of this system's management of these processes that are unique and necessary. The reason they have not been undertaken has been the broad scope and scale of the development undertaken is comprehensive and beyond what the technology could have provided. It is certainly from a budgetary perspective beyond the scale of what any individual major producer would undertake as the value gained would not be there for the individual producer to incur the entire cost, and most certainly well beyond the standard approach of an oil & gas ERP software development solution provider. People, Ideas & Objects are aggregating the North American producers budgets to make these available through our ERP software and the service provider organizations. Turning the cost of oil & gas administration and accounting, which includes the ERP systems development, into a Cloud Administration & Accounting capability for North American based producers. Those with a comprehensive understanding of these processes will fully appreciate the points that I’m making and the implications involved. My understanding of these processes is comprehensive, I know it can be done and we’ll do this correctly. That this undertaking may be one of the most comprehensive features of the Preliminary Specification. Therefore it is done on the basis where the costs of development are shared and shareable, or non-rival, and driven by a user community vision such as we have. Therefore there is substantial value in terms of cost savings to each producer with untold value through application of the specific attributes of People, Ideas & Objects value proposition. 

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Artificial Intelligence Module

Summary

With People, Ideas & Objects, our user community and their service provider organizations we have a powerful combination of proposed capacities and capabilities available for the dynamic, innovative, accountable and profitable oil & gas industry and producers. Assuming our budget is financed at some point in the future. Which I can only conclude at this time will occur as long as the associated difficulties in oil & gas persist. And therefore I believe our funding is certain. When we add to this the incomprehensible list of capacities and capabilities of the products and services of Oracle Corporation. Add to these the models and markets that are built upon the use of the Joint Operating Committee and four other Organizational Construct’s of this Preliminary Specification. We will have a strong foundation in which to begin the resolution of industry issues and ensure that real profitability is earned everywhere and always throughout the North American oil & gas industry. I dare ask what the bureaucrats are offering? And will the cost of their option be any less than the trillions of dollars irretrievably lost so far?

People, Ideas & Objects have chosen our distinct competitive advantages to be our user community, Intellectual Property and research as the three areas of our domain to focus upon. These are how we earn our profits. We are a commercial operation and we will always be one as we’ve learned, just as everyone in oil & gas has, what the meaning and value of real profitability is. Without real profitability there is nothing but waste and atrophy. To do anything in business the first question should be where does the money come from? It must come from a steady stream of profitability to support, maintain and manage the operation. There is no other sustainable source of capital capable of doing so. To spend others' money on a continuous basis is child’s play in comparison to the challenge of developing and maintaining a profitable business. A culture of profitability has been lost through four decades of today’s methods of oil & gas management.

Introduction to the Artificial Intelligence Module

Within the Preliminary Specification there is the Security & Access Control module that sets out the necessary security and data access to those in the industry. Providing access to the right information at the right time to the right people with the right authority at the right location and on the right device. Two other modules are the Performance Evaluation for the Joint Operating Committee and the Analytics & Statistics module for the producer firm. These modules are tools that build upon the basic data within the greater Preliminary Specification and Oracle applications that will provide value to users. Organizing this data in an integrated manner and permitting two different perspectives of that same data, one from the point of view of the Joint Operating Committee, accessible by each of the authorized members of that property, and the other perspective from the producer firm providing their users with access to their proprietary accounting and administrative data for subsequent analysis. 

Recently we announced that People, Ideas & Objects would be developing as part of the Preliminary Specification, our own data model as a core part of our Intellectual Property. Our data model will be unique to our user communities needs and accommodate the data models used within the Oracle ERP Cloud products. In addition, another aspect of People, Ideas & Objects is the Technological Vision we set out on August 26, 2006 of this blog. It has four components that are in place today, and we feel they provide us with significant differentiation of our product and service offering and will provide real value to the oil & gas industry and producers, enhancing their profitability once implemented. These four technologies consist of Java, Wireless Networks, IPv6 and the application of what we describe as Asynchronous Process Management. We are wirelessly capable today with both WiFi and Cellular networks. Soon we’ll have the addition of space based networks such as Elon Musk's SpaceX StarLink network. As background these four technologies enable the Internet of Things (IoT) in an industry that is based on the earth sciences and the applied science of engineering. Where the chemical components of oil & gas are measured and monitored in terms of pressure and temperature. The capacity and capability to monitor and control an unlimited means of devices throughout the producer's domain. Java and IPv6 enable the addressing capabilities to ensure that the device that is being sought to monitor and control, is the precise device that is being accessed. Java is a highly secure, typed language which doesn’t confuse itself as to which variable is which, etc. IPv6 networks may appear as if they’ve not been implemented, but that is not the case. They are available through Oracle’s ERP Cloud offering. And the most significant IPv6 implementation to date is the cellular phone networks since 4G or LTE. Cellular phones such as Apple and Android devices are IPv6 based devices accessing network voice and data over an IPv6 network.

Therefore it is here we will have the total data set of the historical and proprietary data for the producer firm in the Performance Evaluation and Analytics & Statistics modules. The historical data of each Joint Operating Committee. Analytical tools to enhance the meaning of that data and generate the necessary ad-hoc information that the producer may find of value for their unique competitive advantages of their land and asset base, earth science and engineering capabilities. Although these will be used in ways that are unique and value generating in each of the producer firms, and within each of the members of the Joint Operating Committee. These will be a base infrastructure that’ll be prepared and provided to each of the producers on a continuous basis through the People, Ideas & Objects et al infrastructure defined in this Preliminary Specification. 

There is no production discipline in the oil & gas industry. Therefore it’s not a business and never will be a business without profitable business objectives as long as the bureaucrats remain in place. Production discipline could be imposed by forming a North American cartel, (illegal) or government production mandates where no one is ever satisfied with their allocation or implementing the Preliminary Specification. Only the Preliminary Specifications method of production allocation, based on “real” profitability, provides for a legal, fair and equitable means of production discipline. If the property continues to produce a profit then it continues to produce. Otherwise why would you continue to produce if a properties loss reduces the overall profitability of the producer firm, effectively destroying the value of the properties reserves, adding the cost of the ongoing incremental losses to the costs of the reserves, incurring the costs of production and storage of surplus production instead of holding it as reserves and keeping the marginal, or unprofitable, production off the commodities market to ensure they’ll find their marginal prices. Marginal prices not just for the unprofitable property but all the properties across the North American continent. Markets provide one thing and only one thing, their price and bureaucrats refuse to listen to prices even when they're negative $40. They claim our method of production allocation is collusion. If making independent business decisions based on detailed, actual, factual accounting that determines the state of the individual properties profitability is collusion, then bureaucrats belong back in the former Soviet Union. 

It is our user communities service provider organizations that provide the means to instill the production discipline across the North American oil & gas producers. Service providers are a reallocation of the existing producers administrative and accounting resources into approximately 3,000 individual service provider companies. There the service provider will focus on one process and apply that process across the entire industry's data set. It will be at each of the service providers where the application of the individual process will be conducted on a standard, objective, actual and factual basis across the industry. This will be done as a result of each of these processes being highly engineered during the development of the Preliminary Specification and continuously improved by our user community members in order to meet the requirements of the industry, regulators and all other stakeholders. And of course the producers and Joint Operating Committees needs. Therefore when the time comes to review the Joint Operating Committees individual, complete and comprehensive financial statements for the month, a feature of the Preliminary Specification. And if they find that a property, for whatever reason, is no longer profitable they can confidently conclude the property needs to be shut-in. They’ll know that every other property in the industry has been assessed on the same objective, standard, detailed, actual and factual accounting basis and as a result each producer can accept that the accounting treatment they received on that property was no different in terms of being better, worse than any other property of theirs or other North American based producers. And therefore knowing that the focus of the producer is to maximize profits everywhere and always, any unprofitable properties only dilute their overall corporate profitability as well as collapse the commodity prices across their production profile, they will appreciate the value of this objective accounting information. They will be able to move the property to their inventory of shut-in properties where their earth science and engineering capabilities can be innovatively applied to rehabilitate the property in some manner to bring it back to profitability. All net positives for the producer and industry overall, but also the energy consumers who will be certain of an abundant supply at the lowest possible cost for their energy. 

In summary, once again this infrastructure we’re building is to provide the North American oil & gas industry with the most profitable means of oil & gas production, everywhere and always. As mentioned, on top of this data we have two modules, the Performance Evaluation, and Analytics & Statistics modules that will provide enhanced tools to analyze this framework for their competitive advantage. Building off the detailed, actual, factual financial data of the operation. Not operational or engineering data that has been massaged or allocated and has no historical basis of financial performance. Each producer as a single entity has nowhere near the resources, capabilities or capacity in which they need to be able to begin developing the automation of their business processes, specialization and demands of this environment. An environment that will be a given from a technological architecture point of view. However, we do know bureaucrats are more than capable of muddling through these technical changes. Deliberately maintaining poor quality ERP systems that produce specious accounting with obscure transparency and no accountability have fulfilled their purpose in bureaucratic nirvana.

The structure of our user community is the means in which the producer firms enhance their ERP software. If they want or need changes to their existing systems, who do they go to in today’s environment, who has authority at the producer, who has authority at the software vendor? In the Preliminary Specification people will only need to speak to the relevant user community member(s). Only our user community is licensed to make changes and prepare derivative works of the Intellectual Property of the Preliminary Specification and any additions. Our developers are licensed to take directions from only user community members in terms of what to develop. They are blind, deaf and dumb to all others. Our user community members population is approximately the same as the number of service provider organizations they own and lead. They are focused on their area of expertise and are applying their specialization, division of labor, quality, automation, innovation, integration, leadership, issue identification and resolution, creativity, collaboration, ideas, design, planning, thinking, negotiating, compromising and using conflict and contradictions to get to the source of the issues as their key competitive advantages throughout their organization. User community members are the principles of the service providers whose role it is to provide their tacit knowledge as a service, in addition to the explicit knowledge that is captured and delivered in the People, Ideas & Objects Preliminary Specifications software.

Artificial Intelligence

Our user community and their service provider organizations are the intellectual framework of the oil & gas industry in terms of accounting and administration. It would be my hope, my anticipation and expectation that one day our user community would provide the industry with the software and services that anticipated the business needs, issues and opportunities that oil & gas faced on a proactive basis. The Preliminary Specifications software would be dealing with what it is that’s concerning the industry. Taking a leadership role in the development of the administrative and accounting of the industry. Therefore leveraging this framework as I’ve described earlier as a natural extension of what it could, but most importantly should be doing. Ensuring that oil & gas remained dynamic, innovative, accountable and profitable everywhere and always. 

Artificial Intelligence always sounds ominous and a highly advanced Information Technology that will be the next solution to all the world's problems. I generally agree with this and believe we should employ it towards resolving the ominous Y2K issue. But seriously, Artificial Intelligence is really nothing more than advanced automation. Breaking a problem down to its simplest form that is definable and manageable in a reasonable scope can be determined through this tool to automate the decision making and other higher level processes. Which is a valuable tool in the right hands, and with the appropriate base of data from a historical accounting point of view. If you Google “baby formula” be prepared to be inundated with ads for baby formula from local and online stores. This is a preliminary application of AI and we see the benefits of such actions in the form of Google’s quarterly profitability. The use of AI is highly dependent on the quality of the data being used. As we’re aware the financial information of the producers isn’t worth the paper it’s written upon. The first priority therefore must be the implementation of the Preliminary Specification in order that the financial data is being captured appropriately and in a manner that will be usable. Providing the base level tools for analytical and statistical analysis as groundwork for the feeding of this Artificial Intelligence module. There is a need to expand this by stating the data, analytical and AI framework of the Preliminary Specification will be a necessity for implementation and use of the Internet of Things (IoT). Where they’ll be able to be working together as a future architecture.

Moving the Artificial Intelligence for ERP domain within the user community and service provider domain therefore is a natural and necessary fit. My thinking on this began as a result of the announcement by Mr. Thomas Siebel and his Artificial Intelligence firm C3.ai Inc. Thomas Siebel sold Siebel Systems to Oracle Corporation a number of years ago. The purpose behind C3.ai Inc is consistent with the theme that is present in the ERP marketplace. Individual companies can spend vast amounts of money and time internally on ERP systems or Artificial Intelligence with no benefit, wasting investment and unnecessary demand on critical AI and ERP resources. Mr. Siebel suggests that there is a 99% failure rate of internal corporate AI initiatives. I would suggest that the level of destruction we’re witnessing in oil & gas today is a result of the inability of bureaucrats to understand their business due to their deliberate atrophy of the ERP systems provider marketplace. If their ERP systems were operating as they conceptually should, would the industry be in the condition it’s in today?

Centralizing the resources of the industry into Artificial Intelligence based ERP developments which will be developed and deployed through the People, Ideas & Objects et al framework is an efficiency that is consistent with our theme of ERP developments. The demands of software development are no longer a capability that can be attained in-house in order to ensure the full scope of the organization's needs are covered. The same applies to AI. Therefore the Preliminary Specifications consolidation of the industries resources on one focused development in an objective, standard and compliant manner offers better functionality and capability at considerably less cost to each producer. Oracle has AI initiatives with their Oracle ERP Cloud, the base of our solution, and we will therefore be adopting those tools. I believe that the addition of this thirteenth module's AI capabilities is a natural extension of our user community and their service provider organizations and an efficient use of industry AI resources. Enabling producers to focus on their key competitive advantages of their land and asset base, earth science and engineering capabilities and to do so profitably. Incurring the time and energy to build the capacity and capability of ERP based AI once, and sharing the cost of development and this initiative's success across the industry. 

But there's more, the demand on AI resources in terms of the practitioners would be too high to ensure that any individual producer was able to attain any level of AI competency or competitive advantage in the industry for ERP based AI. It would duplicate the capability of our user community in this area and therefore answer the question, why is there that 99% failure rate? In a highly risk oriented Information Technological environment, the ability to share that risk and mitigate the failure rate should appeal. 

Yet producers would be realizing AI’s value based on their intuition and creative application of these business capabilities towards their asset base. This ERP based AI module is not distributing the AI to each producer. We are providing the organization and implementation of successful data integration with statistical and analytical tools and standard, packaged Artificial Intelligence frameworks that will have been proven to be valuable in the ERP domain of an oil & gas producer. It will therefore be incumbent upon the producers to take these tools and use them in their interpretation and application against their own proprietary data and business makeup. 

One of the aspects of the Preliminary Specification is that the administrative and accounting burden of each individual producer is substantially reduced as a result of the changes we’ll be instituting. These changes are a result of the burden of the producers' fixed, unshared and unshareable, administrative and accounting capabilities being reallocated to the variable and shared administrative and accounting capabilities of the industry. Variable based on production. Another key attribute that we’re using to reduce the costs of administrative and accounting, yet increase the performance and quality of our offering is by using specialization and the division of labor to be distributed across our service providers. These two elements of the Preliminary Specification will work to enhance the cost performance of the producers as we believe that overhead costs are substantial, and are one of the secondary reasons responsible for producers’ chronic unprofitability. Specialization increases the performance trajectory of the service providers' administrative and accounting resources by increasing their capacity with the same or even fewer resources. We also apply this principle in the area of software development. More importantly is the unshared nature of the current, bureaucratic and redundant spending of the same overhead costs within each siloed producer organization, in areas that are not distinct competitive advantages of producer firms. It is People, Ideas & Objects that are using Professor Paul Romer's “Endogenous Technical Change” and the treatment of non-rival goods. As represented in our application of the Cloud Computing paradigm in offering our Cloud Administration and Accounting for Oil & Gas service.  

A key difference between what People, Ideas & Objects have proposed is that the Artificial Intelligence module is properly constructed after the business models, markets, architecture, infrastructure, functionality, organization and data are assembled. Bureaucrats have been using Artificial Intelligence to enhance their thinking for the past number of years. It has provided no results that we can see or are aware of. In fact it seems to People, Ideas & Objects that AI may have been another viable scapegoat at the time to ensure their investors knew the bureaucrats were on the job. Except they have no usable data. Without that data being organized and managed appropriately what purpose is AI? Oracle has recently stated that IoT may increase a firm's volume of data five fold by the year 2025. It may be a good time for the industry to start concerning themselves with such issues as data and profits. Secondly, each producer spending money on a new initiative that is the “next great thing” is a consistent criticism of ours with respect to the behavior we’ve seen of bureaucrats.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Revisions to the Budget and Implemention Part 9

Service Providers

The area in which we’ll see the greatest level of change in the industry is with the service providers which our user community members own and operate. They are the reallocation of the accounting and administrative resources of the producers after the Preliminary Specification is implemented that provides the decentralized production model. This is the critical change necessary to solve the industry's profitability issues, enabling the producers to produce oil & gas profitably everywhere and always, and turning the producers fixed overhead costs to variable, variable based on profitable production. The service providers deliver the People, Ideas & Objects et al Cloud Administration & Accounting for oil & gas service to the producers in a full service offering. 

Our user community will determine the processes managed by their service provider organizations. Taking all of the processes within the industry and determining the appropriate manner in which they should be reorganized and managed in a standard, objective manner. Using a variety of different tools, but most particularly specialization, the division of labor and automation, they will be able to identify the optimal solutions and design the way a process should be managed in the industry under the Preliminary Specification. They’ll then work with our developers and develop the software on the basis of the processes that they’ve designed. A substantial portion of this User Budget is being allocated to this area as the number of service providers is substantial, their role in the industry is new, is without any prior organizational definition before this reorganization and has no software process definition. Each user community member will need to define the process under management by their service provider and ensure that the scope and scale of that service covers the entire North American producer population and domain of their processes responsibilities. Service providers will need to ensure comprehensive coverage from the global, industry wide perspective. Although the application for the specific process they develop, implement and operate will be of limited scope, managed through a microservice, the scale of their involvement in the industry will be substantial. 

The revenue streams of the service providers will be a reallocation of the G&A expenditures that are currently incurred by today's oil & gas producers. These are estimated in the range of $40 to 60 billion per year for the North American producer marketplace. The majority of these costs will be carved out and used to establish the service provider's revenue base on a go forward basis. These revenues will be generated by the service providers when they assess the individual Joint Operating Committees for their process fees. The question becomes how does an individual position themselves to acquire the ability to manage processes in this new sub-industry? Please review the User Community and Service Provider sections of the wiki in order to determine the details of participation and possibly joining this community. 

Contingencies

People, Ideas & Objects, our user community and service providers are exercising wholesale changes everywhere and on everything in the oil & gas industry, the service industry and creating the service provider sub-industry. The prototypical producer is changed and how people are engaged with them. It is this level of change that needs to be analyzed and designed by our user community with the resources in these User Budget Categories. It will be our users that determine the actual makeup and means of the industry when the People, Ideas & Objects Preliminary Specification goes operational in the industry. 

Developer

We move on from our User Budget Categories to the Developer Budget Category. What we’ve done is assumed there is an hour to hour, dollar for dollar relationship between our user community members and software developers. 

User community based software developments are the only worthwhile method of developing software in the 21st century. To assume that developers would understand the principles of their discipline and be able to determine the needs of the industry without user assistance is the impossible expectation that leads to failure. People, Ideas & Objects et al, and more specifically the greater oil & gas economy can not risk any form of continued failure. 

People, Ideas & Objects as an organization was reorganized to focus on our competitive advantages of Intellectual Property, our user community and research as the three categories of our offering. As part of our Intellectual Properties development, software developments will be contracted out to Oracle Corporation for the purpose of speed of product delivery. For People, Ideas & Objects to contemplate assembling the team of developers capable of this scope and scale of application development would demand anywhere from 5 to 10 years. Subsequent time would be spent turning it into a high performing team. This time is unavailable to the oil & gas producers and greater oil & gas economy. Therefore the ability to contract this development to Oracle will cut the majority of this team assembly time down to zero and save the industry the continued losses during this period. 

People, Ideas & Objects began our user community developments in March 2014 and have therefore offset much of the time that is necessary to communicate the conceptual model within the market, appeal to our targeted audience of those who aspire to the user community, actively identify and recruit them. These long lead times are necessary to cobble together a user community and to do so with a viable vision which are the two major stumbling blocks that impede their use in software developments today. We have been able to cut these time requirements down to what I would suggest is close to zero.

People, Ideas & Objects spent the prior decade before August 2012 researching the “what, how and why” the industry and producer firm would need to operate when using the Joint Operating Committee as the key organizational construct. It is here that sizable amounts of time, the time necessary to paint the overall vision that our user community is using and benefiting from, are being offset from the industry. To lose this time advantage by organizing and tuning a software development team for the better part of a decade seems too wasteful to contemplate. Particularly when it’s clear that Oracle have spent over $55 billion in their Oracle Cloud ERP offering which is a cornerstone of their organization. Their software development service has what we expect to be over 15,000 developers available in their consulting division and in excess of 50,000 developers in their organization in total. Together these three elements, the advanced nature of our user communities development, the overall vision of the Preliminary Specification, Oracle’s market leading tier 1 ERP system and consulting division, make for a formidable offering for producers in terms of capturing the value that People, Ideas & Objects have secured and are offering through this Budget and Implementation.

Budget Dollars

I would challenge producer directors and officers with the question of where would they invest their capital more effectively than with People, Ideas & Objects, our user community, their service providers on top of Oracle Cloud ERP with their software developers? Providing producers with the most profitable means of oil & gas operations and making effective their oil & gas assets by having access to the software and services that make those assets profitable. There is a specific ask by the investment community that the need for tier 1 ERP systems be implemented before they return. If you can’t support the need to invest, develop and implement the Preliminary Specification on Oracles tier 1 ERP system, to enhance your profitability then your investors will need to understand more than just the questions they’re asking regarding your past performance and accountability record. People, Ideas & Objects comment is premised on their exit in 2015 and expressed distaste for the bureaucratic means of management of oil & gas producers. Absolutely nothing has been done about the investor actions of withholding support, which is the most direct statement of dissatisfaction that investors can make. And these investor demands have been replaced by the “alleged” investor actions to turn the oil & gas producer into clean energy providers. Which is something that received immediate attention and crisis level action in transforming the business focus. 

As significant as the damage and destruction that has been conducted by producers upon themselves. What they’ve been able to do to the service industry is much more significant. People, Ideas & Objects have chronicled the abuse leveled at the service industry by producers over the past decades. As difficult as it seems in oil & gas, the service industry is realizing far worse consequences in terms of the financial fallout of the cumulative effect of those producer actions. Griping about the cost increases and availability of the field operations is the method producers have chosen to deal with this issue. The reality is that defined long term remedial efforts will need to be taken by producers in order to rebuild the service industry before the capacity and capabilities are established at the level necessary for energy independence in North America. 

In addition to the disgruntled investor and bankers of oil & gas producers and the service industry, there is now the disgruntled consumer. One who sees through the clean energy distraction and the risks that the chronic lack of producer performance has brought to them in today's market. If it is that the producer's officer or director left the scene to pursue the goal of saving the planet with the teenagers and congresswomen, then go. At least have the decency to put these industries back into a condition that they can survive and prosper by funding the Preliminary Specification. However, bureaucrats will have to leave the oil & gas revenues to the investors that built them, those revenues are theirs. 

I’ll also mention the people who work in oil & gas but this applies to those that work in the service industry too. Everyone is tired of the boom / bust cycle. It doesn’t exist in other industries as it does in oil & gas. This is due to the fact that after the great depression we learned the consequences of overproduction. People realize there are better ways in which they can be employed to pay the mortgage and raise a family than to risk being laid off for 18 month cycles at a time. Will bureaucrats continue to be able to secure the best and brightest when their cyclical record of employment is as well known as it is now known? In an advanced science and applied science industry using pressures and temperatures on volatile commodities, is this the appropriate 21st century approach?

We see a new level of change taking place in North America. It appears to me that you can push people quite far in terms of what they’ll accept. Then the proverbial straw that breaks the camel's back causes the people to roll back what was previously pushed upon them. 

In terms of the cost of the budget to develop the Preliminary Specification, and this covers the developers and our user community, we have set it at $15 billion U.S. until the end of 2022. Inflation may cause future difficulties. Due to producer bureaucrats' lack of experience in terms of ERP software project completion, and the risk to all concerned if producers decided to cancel the funding mid-stream for the development of the Preliminary Specification, this money is paid upfront and in its entirety. The development costs of People, Ideas & Objects Preliminary Specification are estimated to be one third of those revenues, I have Intellectual Property royalties of one third and we are a profitable operation with net margins of one third. We also believe that if oil & gas producers don’t have some skin in this game, they’ll have difficulty holding their interest in ensuring this project is successful. It's a lot of money and we share industries' concerns regarding the size and makeup of this budget. While at the same time ask where their concern has been regarding the size and makeup of the damage that has been caused by their management. 

Producer bureaucrats have a legacy of viable scapegoats to place the blame on others for their responsibilities and inactions. It is this budget mechanism that I’m using to insulate myself from the blame, blaming and viable scapegoating exercise of this project's failure. I will have earned my compensation and will be insulated from that point of view. However, if they want to hang the failure of this initiative on one individual, an initiative that is dependent on so many from this point forward, then they’ll certainly have the failure that they probably desire in order to maintain their bureaucratic franchise. These are larger points of view and issues far greater than I’m able to deal with. I’m ensuring that the financial resources necessary to complete the project are in hand before anyone will have to commit to this project. Avoiding the wrath of the bureaucrats. Participation by the producers through the user community is mandatory to make this a successful initiative. Precluding the bureaucrats, specifically the officers and directors of these producers, from these developments and possibly their role in the producer is also mandatory. 

People, Ideas & Objects proposed the development of the Preliminary Specification when it was completed in August 2012 after a full decade of research. It is an innovative solution to the age-old problem of overproduction in oil & gas. The issue of overproduction was discovered during the great depression and has been worked out of all industries but not oil & gas. Overproduction began in North American oil & gas in the late 1970s and was clearly evident with the initial commodity price collapse during the summer of 1986 in the global oil prices. Since that time there has been only one group that has prospered from their participation in the industry. The producer bureaucrats as represented exclusively by the officers and directors of those firms. The uncaring they’ve shown throughout this time has been testament to the methods and means of their administration throughout the past number of decades. “They’ll muddle through,” “we’re building balance sheets,” “you have to put cash in the ground” and “it’s a difficult business” have been their symphonic responses to any questions. 

The facts still remain however that throughout this period when the Preliminary Specification was available, their ostracization of People, Ideas & Objects continued, and it is only these officers and directors who’ve had the authority, responsibility, accountability and financial resources to avoid the disaster identified in the Preliminary Specification and we’re all realizing today. Personal financial aggrandizement was the officer and directors first and only priority. A consequence that has put society in jeopardy when each barrel of oil generates up to 25,000 man hours of mechanical leverage. Making it evident to everyone the risk of what a lack of abundant, affordable energy will have on our economy and our way of life. 

Producers have placed themselves in an untenable position. Action is needed. To implement a tier 1 ERP system that identifies and resolves these issues outside of the Preliminary Specification is not available as far as I am aware. If there is it will need to preclude any of the Intellectual Property contained here. It will need to show the legacy of its research and development of any of its Intellectual Property. Choices are therefore limited and producers' continued failure is no longer an option. 

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how, to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Budget and Implementation Part 8

Engineering & Earth Science

This is a unique area for an ERP system to consider and one that we pay appropriate attention to. Using the Joint Operating Committee brings about an operations focus for all that are involved. That is also reflected in the Resource Marketplace, Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. This operations focus brings the earth sciences and engineering disciplines into the ERP software of the oil & gas producers. It is therefore necessary that we allocate an appropriate amount of our budget to the earth science and engineering areas to ensure that we’ve included all of the necessary elements that a producer and Joint Operating Committee will need. 

Our research produced the Research & Capabilities and Knowledge & Learning modules. Which enables a producer to focus on the development and deployment of their scientific capabilities. And to conduct specific tasks such as moving the knowledge to where the decision rights are held and appropriately manage the processes of innovation. These elements arise more from the business side than they do from the science. I am not familiar with the geological sciences and applied science of engineering from the point of view of the processes that are used in the day to day use and development, outside of their capabilities development and deployment. This budget is for the development of those items. 

We are not recreating the engineering or geological applications that exist in the marketplace today. We are looking to manage the processes that are prevalent within an oil & gas producer that can be more effectively managed in user driven ERP applications. We’ve reorganized oil & gas producers through the decentralized production model, where the producer is a highly focused unit consisting of the C class executives, the earth science and engineering resources, some land and legal and support staff. With the remainder of the resources being relocated into service providers. The manner in which these earth science and engineering resources operate will therefore have changed materially as a result. Both production and exploration administration are located in service providers. Therefore the processes that the producers will rely upon will need to be redefined, redeveloped and the ERP software built. 

The oil & gas producer will have changed in material ways and we are unaware of how those affect the earth science and engineering resources of the producer firm. At the same time this area is fully one half of the critical competitive advantage of the producer. And we should be able to take this opportunity to move the processes of the producer firms and move them to a higher trajectory of performance. These are the objectives of these User Budgets. 

Compliance (Tax, Royalty, SEC)

The objective of the Compliance (Tax, Royalty, SEC) user budget category in terms of output is to ensure that the systems that we build are in compliance with the various regulations that the producers and Joint Operating Committees are required to comply with. Of particular concern are the various royalty requirements that are in place in the various jurisdictions the producers produce from. It is People, Ideas & Objects et al’s competitive advantage that we provide the oil & gas producers with the most profitable means of oil & gas operations. With royalties being the largest cost component of an oil & gas operation, it would be incumbent upon us that we ensure that the producers and Joint Operating Committees pay the lowest possible royalties. And that is our objective, to ensure that the royalties are calculated in the manner that provides the lowest possible royalty to all the producer organizations. Demanding an unimpeachable integrity that can be defended through the high standards of accountability throughout the Preliminary Specification.

A large part of the costs incurred in this budget category will be for the royalty component. There will be many that feel that the various governments and administrations that collect royalties should provide us some relief of those costs to help in dealing with these high development costs. To accept this money would be a betrayal to the producers we represent. We are financed by the producers, or more directly from the production itself, and provide them with the most profitable means of oil & gas operations. If we accept money from the royalty administrations then we’ve compromised and conflicted ourselves and cannot guarantee that we’re working in the best interests of the producers. I would extend this conflict of interest to our user community and the service providers at large. We have a duty to the producers to maintain our competitive advantage of providing the most profitable means of oil & gas operations and there are many of these situations that could potentially put us in a conflict of interest with our customers, the oil & gas producer. Please be aware of this and avoid them at all costs, if users find themselves in a conflict they should deal with it immediately. Review of the discussion regarding any conflict of interest can be found in the User Community Vision of this wiki.

To deal with the tax, royalty, SEC and other requirements in the North American marketplace will require more than just the financial resources that have been allocated under this budget category. And People, Ideas & Objects have made these budget allocations. In almost all cases the royalty administrations have established high levels of technical frameworks and regulations that can be implemented. The hard work from a systems point of view in many instances may already be done. In terms of the SEC and tax the same situation applies. The XBRL syntax is used by the SEC for its reporting purposes and there are comprehensive resources available throughout Oracle Cloud ERP that are the base of the Preliminary Specification. What we need to undertake as developers, users and service providers in the development and implementation of the Preliminary Specification is to break these processes of compliance and governance into their individual processes. Develop the specific software to manage that individual process in innovative ways using these resources within the other modules developments. Establish the means and methods to implement them across the industry through their service provider firm and support that process for the long term. 

Specifically that involves integrating these technological frameworks within the DNA of the Preliminary Specification. So that they are an inherent part of the application, not an add-on that is used after the fact. The service providers will be providing the services of the actual process management on behalf of the industry. It is our user community who will be actually using the applications in the service provider organizations and we need to define what it is to ensure that the management of the process is the most efficient and effective for the producer firms. If a service provider is managing the eligible capital costs for gas cost allowance for the Texas Railroad Commission. What is it that they’ll want and need in order to manage that process on behalf of all of the Texas based producers? Or if they’re managing a duplicate payment verification process for the entire North American based producer population, what is it that they’ll need and want? Are there additional internal controls to be developed in the changes and reorganization through the decentralized production model?

As we indicated during the Preliminary Specification user budget categories discussion noted above, there would be synergies between the budgets allocated here and elsewhere. The user budget category for the Compliance & Governance module has an allocation of its own budget dollars, a separate budget allocation for the Accounting Firms which is to provide for them with the ability to sign off on the compliance and governance elements of the People, Ideas & Objects applications integrity on behalf of their statutory audits. And to provide industry wide software automation, Machine Learning and Artificial Intelligence of the audit process itself that will alleviate the time and cost of these annual audits. There are significant features in Oracle Cloud ERP offering in terms of compliance and governance. Therefore with these resources I feel these tasks can be undertaken by People, Ideas & Objects, our user community and service providers for the dynamic, innovative, accountable and profitable producers and provide them with the most profitable means of oil & gas operations. 

Accounting Firms

The objective in this budget category is to have the accounting firms sign off on the People, Ideas & Objects systems development and implementation in terms of its integrity on behalf of the oil & gas producers. This work is done in the normal course of an audit, however, with the establishment of People, Ideas & Objects there will be a sizable burden that the producers will have to undertake in order to achieve this sign off. By inviting the accounting firms into the development process, where we’ve aggregated the producers resources in the manner that we have, we can mitigate their total audit costs through the appropriate treatment of these non-rival development costs, achieve the accounting firms sign off at an earlier time and achieve a compliant system for all producers in the process. 

Allocating this workload across the accounting firms that are present in the U.S. and Canadian regions will make it possible for them to acquire the talent necessary for these purposes. No one firm will be asked to deal with this exclusively as that would slow our development work. The need for these people to keep pace with the developers and our user community would be their responsibility and obligation. Our responsibility would be to implement their recommendations and achieve their sign off. 

These funds have synergies with a variety of other pools of funds that are within other User Budget Categories. The Compliance & Governance module holds the coordination and application design roles over the compliance and governance of the producer and Joint Operating Committee in the Preliminary Specification. Its budget is looking at this as the overall check and balance of the Compliance & Governance module. Other funds are coming from the Compliance (Tax, Royalty, SEC) category which will be relying heavily on the work that has been done in the compliance areas of the SEC, royalties and tax regimes in publishing technical frameworks. Other miscellaneous resources have been allocated such as the development of royalties in the Partnership Accounting Module. In other words the accounting firms will not be alone in their task.

There are significant resources being allocated to compliance and governance in the Preliminary Specification. When one considers our application relies on Oracle Cloud ERP which has the compliance and governance area covered well, we will provide the producer with an effective compliance and governance product. The service providers who will be providing the software and services to the producers will be well versed in the ways that the application operates. This is due to the fact that they’ll be participants in our user community that are involved in these developments. Moving on after initial and continuous software development to provide the software and services implementation and services on the basis of our decentralized production models reorganization. 

By having the accounting firms provide the compliance and governance sign off. They preclude themselves from participating in our user community in any other capacity. Which also precludes them from any participation in the service provider community. Accounting firms have a distinct competitive advantage in the work that they’ll be doing here. Which also defines the distinct conflict of interest they’ll have throughout the lifecycle of People, Ideas & Objects. Therefore, noting the accounting firms conflict in this regard will maintain our user community and their service provider marketplace open to those with the experience, skills, knowledge and ideas of the people from the oil & gas producers and Joint Operating Committees. 

Service Industry

Within the Preliminary Specification the oil & gas producer recognizes their enhanced reliance and dependence on the service industry. They are the secondary industry which provide the technical and geographical diversity of their operations. These funds will be used in combination with the resources that are designated for the Resource Marketplace, Research & Capabilities, Knowledge & Learning and Security & Access Control modules that we discussed in the Preliminary Specifications user budget category. 

When we talk about the service industry we are talking about the organizations that provide the field services to the oil & gas producers and Joint Operating Committees. Specifically we are concerned with how they do their accounting, their billing, their contact information etc, and the interaction of that business information with the producers and Joint Operating Committees. We will provide the oil & gas producers with the most profitable means of oil & gas operations and that requires that the administration of their operation be as efficient as possible. In order to achieve that efficiency the service industry that services the producers in the field must interact with the producer at high levels of technical efficiency. 

What I am suggesting here is that we establish a technical framework in which the service industry will comply. By providing Cloud Administration & Accounting for oil & gas, we are able to provide the accounting and administrative software and the service providers to the service industry. The service industry would have their own accounting and administrative systems which would then interface with the cloud computing services that we provide. 

Throughout the Preliminary Specification we have highlighted the areas where the service industry is represented and the interactions they will have with the producers and Joint Operating Committees. And it is a much more involved relationship. The current situation between the two industries is unsustainable and inconsistent with what is required for a dynamic, innovative, accountable, productive, proactive and profitable oil & gas producer. In all areas, from the creation and securing the Intellectual Property, to the participation in the Security & Access Controls Industrial Command & Control, Job Order etc. The need for the producer to operate their field operations with military precision requires that the service industry has the type of systems that we’re considering here. That our user community and service providers are active in providing those systems to the service industry through the budget allocation made here.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.