OCI Request For Proposal, Part V
New Growth Theory
People, Ideas & Objects has taken North American producers' administrative and accounting resources and reorganized them into independent, individual service providers. This has allowed them to focus on one process and turn producers' overhead costs variable, based on profitable production. In turn none of the producers' costs are fixed in the Preliminary Specification. Creating six substantial value propositions that are tangible and clearly evident. Which include:
- Maximize producer profitability by not diluting corporate profits through the production of unprofitable properties.
- Save the producers petroleum reserves for when they can be produced profitably.
- Reserves would no longer need to recapture additional costs of previous losses as future profits.
- Reserves are seen as a cost-free means of inventory and storage.
- Removing marginal production from commodity markets ensures prices dictate market activities.
- While shut-in producers can focus their innovative efforts on increasing production, reserves, and cutting costs to return their properties to profitability.
Secondly and perhaps more importantly in terms of building value for the greater North American oil & gas economy. Specialization and the division of labor which has proven to be the primary method of generating all tangible value for western civilization since 1776. Based on these principles, we have reorganized administrative and accounting resources to build value to ensure profitable operations. Specialization and division of labor will enable industries to enhance productivity in unknown, unquantified and unqualified ways. We facilitate this through our permanent software development capability, our user community, and their service provider organizations implementing these principles.
We have adopted an incremental method of building value on top of these two methods through Professor Paul M. Romer “New Growth Theory” of non-rival costs. In a December 1, 2001 Reason article he summarized his theory as “People, Ideas & Things.” Throughout the Preliminary Specification we've adopted these principles and named this initiative People, Ideas & Objects as we are object-based software developers. Using Professor Romers' "New Growth Theory" and non-rival costs, we've elevated them to an Organizational Construct. Standing on the shoulders of giants and especially Adam Smith’s Specialization and Division of Labor. Professor Romer has elevated business thinking in this direction and it is the next frontier in building value for organizations through the mitigation of costs in substantial yet unquantifiable ways to enhance the performance of those that use these methods.
Professor Romer’s theory is the basis of how cloud computing has brought value to our economy. Users can share the costs of heavy capital investment in technology, capacity, capabilities, resources, maintenance and support costs and turn them into variable costs. Variable based on usage. Conversely service providers can enhance their service offering through specialization and division of labor which would otherwise be unavailable to individual organizations. We have extended this thinking to include not only Oracle Cloud ERP but also oil & gas administrative and accounting functions to be managed as shared and shareable resources. Eliminating the need for each producer to build, resource and maintain the necessary non-competitive accounting and administrative infrastructure they need as dynamic, innovative, accountable and profitable oil & gas producers. Providing a standard, objective and value driven service that shares the sole objective of ensuring oil & gas producers achieve the most profitable means of oil & gas operations, everywhere and always.
Professor Romer's theories are one of seven Organizational Constructs of the Preliminary Specification. All seven are focused on building value for producers and providing tangible means to do so. In this proposed configuration, they are available through the Preliminary Specification, our user community, and their service provider organizations. Creating the culture necessary for the industry to be dynamic, innovative, accountable and profitable. The culture will be established with permanent software development capabilities and our user community. This culture will iterate on these principles over time to bring further value to the industry.
Professor Paul M. Romer
Published in October 1990 “Endogenous Technological Change” became the foundation of “New Growth Theory” in economics that has developed and provides value throughout the economy through its application. In a Reason Magazine interview Professor Romer explained many of the points.
Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth. S71
Professor Romer won the 2018 Nobel Prize in economics for these principles. It is our view that these are incremental value-adds to traditional specialization and division of labor. It is this principle of sharing non-rival costs that will mitigate what we believe to be the secondary reason for the systemic lack of profitability in oil & gas. In general, overhead costs are currently corporate. We will shift responsibility for those expenses and charge the actual, factual overhead costs incurred by service providers' billings directly to the individual Joint Operating Committee. There they become a cost of a property product and are captured in the sale price of the commodities. Through the sale, these funds are recaptured and returned to the company, which are used for overhead costs for the following month, etc. Currently producers capitalize overhead costs and therefore sell their product below its actual cost and are not recovering the cash spent on monthly overhead expenses. As they state, they're “putting cash in the ground” and building balance sheets." Constantly sourcing new cash to finance their overhead expenses each month.
By sharing the administrative and accounting infrastructure, turning these costs variable based on profitable production, and applying specialization and the division of labor to the administrative and accounting areas. Through the development of our user communities and service provider organizations. And then delivering to industry our Cloud Administration & Accounting for Oil & Gas software and service. People, Ideas & Objects are adding real value to North American producers in terms of resolving what are their largest impediments to profitability. Chronic overproduction, or unprofitable production as we describe it and high overhead costs.
Oracle CloudWorld 2022 Conference
It was during this conference that it became apparent that Oracle was pursuing the incremental value adding process that Professor Romer defined in his paper “Endogenous Technological Change.” Augmenting their generic business processes with service providers such as banks and logistics companies with fully optimized and integrated services with Oracle Cloud ERP, just as People, Ideas & Objects are approaching the unique oil & gas attributes. We all have an extensive software development workload ahead. I see at least 20 years of work in this area. Continually improving upon prior innovations.
The most impressive example provided during the conference was the expense reporting features of J.P. Morgan Chase. If an employee uses their credit card for business, they can choose the type of expense to be classified. Oracle Cloud ERP would evaluate the charge based on the company's policies and determine its eligibility. If eligible it would be processed and payment made to the employee or the credit card company. Eliminating the massive number of hours and costs incurred in expense reporting by organizations during the year in their current systems. This is reduced to a few milliseconds of processing time. While the cost to the organization to use Oracle Cloud ERP is incidental in terms of the time spent on Oracle Cloud Infrastructure. As well as the engineering costs associated with the development of the specific system the software engineering costs are amortized across the global population of Oracle Cloud ERP customers using the feature. To a lesser extent People, Ideas & Objects provide this level of service to North American producers for their unique oil & gas attributes. The lesser extent is due to the smaller population of oil & gas users for which this development and implementation will be targeted. As such, North American producers have the opportunity to realize both Oracle and People, Ideas & Objects innovations concurrently and at substantially reduced costs. These are due to Professor Paul Romer's theories.
Intellectual Property
People, Ideas & Objects establish the need to rebuild the oil & gas industry and producer firms. This is due to the damage and destruction caused by producers' officers and directors. Their “muddle along” strategy has instilled a “do nothing” culture that provides a status quo existence that has not and will never change. Even the event of 2015 and all subsequent years in which investors have refused to participate further in the industry has not prompted a response or action. Where does motivation come from to efficiently and effectively conduct this rebuild? Oil & gas is one of the most advanced science and technology industries. One that demands innovation and iterative development of those sciences to ensure adequate reserves and production are provided by a dynamic, innovative, accountable and profitable oil & gas and service industry. And to ensure that it always meets the conflicting objective of ensuring consumers are provided with abundant, long-term supplies of reliable and affordable oil & gas.
The importance of Intellectual Property in the oil & gas industry is that it will organize innovation. The most productive innovation is when it’s organized under a structure that enables the market to focus on its development. The North American marketplace established Intellectual Property centuries ago and we have reaped its benefits. The United States included copyright in its Constitution. Copyright must be published to earn it. Exposing it to the marketplace of ideas where it can be built upon and enhanced by others. It reduces the “me-too” phenomenon that oil & gas bureaucrats have created and benefited from to generate price competition in the service industry, elsewhere and to ensure everyone was rendered “blind sleepwalking agents of whomever fed them.” Is this the method that an innovative industry is built upon? With bureaucrats sitting on top of the primary industry of oil & gas and using its revenues to endow their favors with a penny or two here and there?
The organizational structure of the proposed oil & gas industry People, Ideas & Objects et al are rebuilding will be based on Intellectual Property and innovation. Structured and based on the laws of the land. These laws will define what innovation is undertaken and what is not. Violation of another's copyright or other Intellectual Property is not allowable under the law so there cannot be any violators. A self-policing mechanism reduces the overall costs of unnecessary innovation duplication. Focusing energy and resources on profitable innovations in products and services. Providing the incentive and motivation for those with the ideas to do the hard work of making those developments. Fully protected from Intellectual Property poaching that's actively sponsored by producers, officers and directors. Which is culturally ingrained and accepted by them in oil & gas today. And to do so not just today, but always and everywhere.
Copyrighted publications enable an understanding of how things are done. Providing the means to build upon that understanding with additional innovations. Intellectual Property therefore provides us with a strong legal structure that encourages innovation, eliminates the costly redundancy of duplication of efforts, educates and ensures the necessary legal protection to enable the motivation for the individual to do the difficult and challenging work we can all agree is the foundation of the industry. This applies across the greater oil & gas economic structure which includes all secondary and tertiary industries. The 21st century will be known for Intellectual Property leverage. Much like the last century leveraged mechanical effort. For officers and directors to avoid this or opt out is foolhardy in the extreme.
What is the motivation for people to develop their “ideas?” Are they not, just like the bureaucrats, in it for themselves and looking to siphon off what they can from the industry? Self interest is part of human endeavor. It comes down to whether or not it builds value. Self-interested officers and directors have been well compensated while the industry has been destroyed. A contrast due to the fact that they’ve not been motivated by the discovery of ways to create value. Intellectual Property is therefore not only a structural organizational component that can enable control of the innovation process throughout the industry. The participants are motivated to build value through incremental profitability, cost reduction, enhanced production deliverability or reserve expansion. It is the law, and most importantly, it is proven. The reason the United States dominates in the manner that it does is due to the fact Intellectual Property laws provide the motivational and organizational principles of how their economy and society operate. It assumes people are intelligent beings, not serfs like bureaucrats. It is productive, constructive, focused on generating value and benefits society. Otherwise why would individuals do the difficult work that’s necessary? By bureaucratic command? As a science and technology business, that is refuted to be second only to the space industry in terms of complexity. What has and what have these bureaucracies done under their business model?
Difficult work needs to be undertaken in a complex science and technology-based industry in a 21st century business environment. Oil & gas is a critical necessity for our economy and way of life. One in which the environment and organizations we are presented with today can be assessed as wholly inadequate to meet those needs both today and in the future. And what is potentially more difficult is they’ve shown no propensity to recognize any of its issues or the need to make any changes. There is a need for significant development in all aspects of the greater oil & gas economy during this rebuilding period. A method of organization will be the first element necessary for a solution. However we have to address the issue of how that organization is formed and the subsequent pieces are put in place. The need to understand “how” those involved in this rebuilding will be motivated to do this difficult work and where they can fit in is addressed in the Preliminary Specification. This is accomplished through the adoption of Intellectual Property as an Organizational Construct. This is defined and supported by the software and services People Ideas & Objects et al propose in this RFP.
People, Ideas & Objects, our user community and their service provider organizations focus on providing all North American oil & gas producers with Cloud Administration & Accounting for Oil & Gas. To ensure startup, small and junior oil & gas producers receive all the Preliminary Specification capabilities and capacities. This is due to the critical role and nature of their existence in terms of dynamism and innovation. Currently we have a market in oil & gas where officers and directors point to the startup to junior producers as causing the difficulties we’ve seen in the industry. In fact they may have become the officers and directors' most recent viable scapegoat! Our focus is appropriate, and we can ensure these producers can enter the industry with fewer barriers to entry. We do this by providing all producers with the means to generate a second source of permanent revenue from day one. A ready market where demand and coordination for the markets earth science & engineering resources will be made available through the Preliminary Specifications Work Order, Resource Marketplace, Research & Capabilities and Knowledge & Learning modules. Providing them with the cash to pay their mortgage, Internet, work from home and skip past the dog food aisle for their families' nutrition. Incorporating their experience, skills, knowledge, and ideas into the broader market for oil and gas. We also eliminate that impossible wall of never ending overhead costs that consume investors' dollars year after year. This is the base of fixed overhead of the small to junior producer. Which is and has been the cause of their demise today. It didn’t matter how advanced their technical skills were, that’s not what determined their success or failure as a startup oil & gas producer. Instead, it was if they could get past that wall of base overhead costs.
Officers and directors know the Preliminary Specification establishes a strong foundation for Intellectual Property of individuals within the industry. This value becomes available to those original authors, innovators and entrepreneurs which is in turn marketed to oil & gas producer firms whose distinct competitive advantages include the coordination of the markets earth science & engineering capabilities and their land & asset base. This is provided through the Preliminary Specifications Resource Marketplace, Research & Capabilities and Knowledge & Learning modules that were published in final form in August 2012. From the Resource Marketplace module I summarized the points as follows.
Another key point is the tearing down of the existing Intellectual Property culture. An industry such as oil & gas is based on earth science & engineering needs. After all, it is a science-based business. If we are to expand the capabilities of science and innovation in the industry, we have to address many difficult problems. And as we progress, the volume of ideas needed will be an order of magnitude greater than what is required today. These problems cannot be addressed in an environment where there is no incentive for individuals to solve them. Addressing the motivation to solve these problems and enabling the people to earn the rights to the Intellectual Property within the People, Ideas & Objects application modules is the first step in making the necessary industry wide changes. This will turn the oil & gas industry into a more dynamic business.
With the oil & gas industry fundamentally destroyed as it is, its Intellectual Property is also in disarray. The capabilities and capacities are deteriorating as we speak. Making this an Intellectual Property gold rush in the industry, to save it from bureaucrats. However, employment contracts may have clauses that state that while working for them, any product is theirs. Consolidated producers' difficulty is that none of this is published and the act of publishing is how copyright is earned. Patents and trademarks are defensive, in that they protect what is known of Intellectual Property at a time. Copyright is offensive and allows Intellectual Property expansion through the creation of derivative works. Copyright does not secure idea rights. It only grants monopoly rights to the expression of that idea. In other words, it must be pursued and maintained as I do here.
It is particularly relevant to consider Intellectual Property Rights in an industry that coordinates market capabilities for earth science & engineering, along with its land & asset base. These seem diametrically opposed in terms of how they function. What People, Ideas & Objects suggest is that there is no need and no benefit in having the producer firms own any of the Intellectual Property that supports “what, how and why” the industry operates. We need to address the motivation for how the industry progresses, how science and technology progresses innovatively and quickly. And address why this hasn’t been the case.
This Intellectual Property section of our RFP Response is ripe with conflict and contradiction. We stated earlier that shale science and technology were the most advanced, yet belittled its development over the past years. The contradiction is that I’m only suggesting oil & gas producers are static. The development and implementation of shale technology would have taken place decades earlier if producers had kept up with progress in the service industry. It is there, in the service industry where all innovation and development occurs. There is no benefit to a producer owning Intellectual Property on a drill bit. And we are extending Intellectual Property deployment to the sciences of geology and engineering. What have been the bottlenecks to the further development of the industry over the past few decades?
Business changes quickly. Intel's dominance in the market is now a constraint that causes them to lag the market in consequential ways. As the dominant processor manufacturer, it has been deemed a redundant business model. Business value is no longer in processor manufacturing, it's in their design. Contract manufacturing is a commodity business where others find profits and opportunities in that area where Intel cannot compete. In terms of design being the value, that is now the case. People should read the summary of Ampere Computing’s Leadership Team that now has one of the most powerful processors available. Oracle (a major shareholder) has moved their high performance cloud offering to Ampere processors, which Oracle’s Cloud offers today.
This is the changing business world and there are more innovative business models. It comes down to one word, the individual. To organize society today, with its global reach, cannot be done spontaneously. There is no serendipity when individual A meets individual B 1,000 miles away on the Internet. This is done through software providing them with the means to conduct their business. Software defines and supports this organization style. Without People, Ideas & Objects none of this oil & gas vision will come about by sitting and waiting for the phone to ring. At least it hasn’t happened yet.
The question also needs to be asked: why does Apple continue to innovate consistently? Although their products are more costly, they earn in excess of 80% of the profits of the mobile phone industry. In addition, they bring incremental value to their customers through innovation. They too rely on Intellectual Property as the basis of their value. They consider themselves a software company that sells hardware to bring customer value. Software defines and supports organizations. Who would run a company that sources products from a number of countries that total 3.5 billion in population? And then snap their fingers and say “now innovate.” It doesn’t happen without software.
For producers to double and triple down on their failed vision is the method chosen to resolve the oil & gas industry and producer issues. This is done by the current officers and directors. Raising the viable scapegoat that it's the small producers who are overproducing to meet their bank payments is causing the disaster in the industry today. When officers and directors raise this argument we see the source of their own future demise. For them to admit the overproduction issue is attributable to their own actions would never cross their minds. Everything is always someone else's fault. Should they be successful in implementing SAP or other means to secure their method of organization and management this will most certainly continue.
We’ve defined our alternative vision in the Preliminary Specification. We would note that it’s in stark contrast to the clean energy vision producers and SAP are transitioning to. Disintermediation is best defined as the removal of bureaucracy and red tape rendered redundant through the Internet. Although the world is unaware of “how” and “what” the producers current consolidation driven vision will operate as, or any details, we can only speculate as to why it’s being done when all other industries are, and not by choice, finding efficiency in the decentralized methods of organization and disintermediation through technology. People, Ideas & Objects have repeatedly stated the fact that each boe provides 10 to 25 thousand man hours of equivalent labor, or 28 to 71 times the entire global population. Officers and directors capitulation of shale resources for clean energy should be seen as irresponsible when we understand that it’s the world's most powerful economy that is the largest consumer of energy. Why aren't officers and directors seeking profitability in shale?
Due to the demands for market coordination of earth science & engineering resources in the near future, we've discussed how specialization and the division of labor are used in the Preliminary Specification to deal with these associated resource demand issues. Conceptually we have implemented the pooling concept where the ability to have the Joint Operating Committee assigned with the available technical resources of each producer firm would be how the property was managed from an earth science & engineering perspective. Pooling replaces the operator role. Establishing the second source of revenue for the producer and its supporting administrative infrastructure is in the Preliminary Specification. We have also implemented the necessary governance model to support these resources with the appropriate organizational structure. This is to ensure effective operations across the producer and each Joint Operating Committee.
Two other interesting aspects of Intellectual Property are first, safe harbor provisions. Why don't producers turn around and sue the copyright holders? This would be an unfortunate world where “big” ruled the earth and we serfs would be the drones who were forced to comply with their every command. The safe harbor provision states that people cannot sue the copyright holder. Secondly, the division of tacit and explicit knowledge. Tacit knowledge cannot be captured or written down. Only explicit knowledge can. Therefore it is up to people to take the explicit knowledge they have secured and apply their tacit knowledge as a service. This will support their Intellectual Property and generate value. These services are as relevant as Intellectual Property itself. Just as People, Ideas & Objects user communities service provider organizations deliver our software and tacit knowledge to producer firms.
There is no question that People, Ideas & Objects user community and their service provider organizations are Organizational Constructs, market supporting institutions and a critical element of the future success of the oil & gas industry. Intellectual Property is the foundation of their formation, organization and delivery of value to the oil & gas industry. The configuration of their Intellectual Property however is fundamentally different from what is described here for the engineering and geological sciences. It is for that reason that they are given specific pages within this wiki. These pages deal with the unique characteristics of their Intellectual Property and how that is developed, implemented and employed.
