OCI Blockchain, Part V

 Research & Capabilities

We have discussed the current producers' capacity to deal with issues constrained by the ERP systems in use today. That we see a repetitive inability, or lack of capacity to deal with the existing issues of the industry. As a result, we seem to be reliving the 1990's issues around takeaway capacity and commodity pricing. Furthermore, industry finds it difficult to address new issues, such as the commercial development of shale reserves and the relationship with its service industry. I have suggested that the industry seems to be in a never ending cycle it cannot exit from. The ERP systems that exist today operate on a day-to-day basis and cannot deal with the long term perspective.

This cycle of day-to-day existence damages the industry. The ability to deal with this issue is by adopting the Preliminary Specification and acquiring the software development capability proposed by People, Ideas & Objects. Then the innovative and profitable oil & gas producer will be able to break the cycle of system dependency. This will enable them to effectively plan and execute the business of the business. Until we do this, it's best to become familiar with the various elements of the scenery we're in. And that primarily refers to losses from operations in North America and its overall destruction. 

Does anyone believe that proceeding along this same course that we’ve traveled for the past number of decades, and with the passage of even more time, will change the industry's profitability? The scenery is the same as in 1986 and only officers and directors have benefited. The Research & Capabilities module provides an exit from this endless cycle. How the firm breaks away from what it’s done before and develops its capabilities to enhance its business in the long term is detailed here. There are a number of things we do in this module that make that happen in the Research & Capabilities module.

Research & Capabilities is a producer-driven module, while Knowledge & Learning is a Joint Operating Committee-based module. Based on the research conducted prior to writing the Preliminary Specification we determined many things that are detailed specifically in those two modules' specifications. Items such as the producer should be the ones developing innovations for their deployment in the Joint Operating Committee. Then they’ll make the inevitable mistakes made during the development of the innovations once and only once. Then when the innovation is developed and implemented successfully it can be released from the Research & Capabilities module to the Knowledge & Learning module representing the producers' interests in their Joint Operating Committees as a capability available for its use. Making any process development mistakes once in the producer firm, not repeatedly in each Joint Operating Committee, is a key to the dynamic, innovative, accountable and profitable oil & gas producer. To develop an innovative oil and gas industry, these two modules are essential. Much of Professors Giovanni Dosi and Richard Langlois' research was implemented in these modules. Enabling the innovations and capabilities of the firm and Joint Operating Committee, which are unquestionably the key competitive advantages of the producer firm, their focus and priority. 

How this is implemented in the Research & Capabilities module is through a collaborative textual interface called the Dynamic Capabilities Interface. This captures the research or capability or explicit knowledge of the firm. The key attribute of blockchain implementation in the Research & Capabilities module will be within this Dynamic Capabilities Interface. This documents the processes of the producer. As time passes elements of each process are amended and improved upon. Our Dynamic Capabilities Interface will highlight the changes since the reader last read that “page” of the interface. By using the blockchain, changes to individual processes are written to subsequent blocks of the blockchain. Therefore each of the blocks concerning that capability will provide the reader with a history of the process's development. The latest block represents the latest text addition for the current version of the capability. A comparison will be made to the previous version number read by the user. Any changes since then will be highlighted in different colors. It will enable them to quickly and easily learn of those changes. A similar interface in the Knowledge & Learning module called the Planning & Deployment Interface will operate in the same manner.

The Research & Capabilities module documents the producer's capabilities. Those procedures that they can replicate consistently. Capabilities that have been made available to the various Joint Operating Committees they have interests in. The dynamic, innovative, accountable, and profitable oil & gas producer also has a second revenue stream. That is the sale of these capabilities to the Joint Operating Committees under the pooling concept discussed earlier in this module. There is also the opportunity to sell these capabilities to other producers directly. The documentation of these capabilities forms the foundation of the producer firm's Intellectual Property. Having these capabilities documented and published across the larger population of producers represented on their Joint Operating Committees through the Knowledge & Learning module secures their copyright. Having these captured on the blockchain will document the time and place these capabilities were developed. This will ensure that the producer can defend them against claims that they violated other producers' capabilities. The key competitive advantage of the producer is the deployment of their earth science and engineering tacit knowledge. 

Knowledge & Learning

Access to the various capabilities of the participating producers in the Joint Operating Committee is made through the Knowledge & Learning Planning & Deployment Interface. Blockchain makes access secure. Using the private / public key encryption of the blockchain only those producers who are members of the specific Joint Operating Committee will have access to those details. It will be necessary that each Joint Operating Committee has an individual key that is also shared by users who are interested. Then the data and information can be encrypted by the private key and reviewed by the shared public keys held by each producer. What we see with these two modules of the Preliminary Specification is the development, deployment and controlled access to the research and capabilities of the producers involved in the Joint Operating Committee. By implementing blockchain technology, we are able to deliver this solution to producers for their needs in this area. 

There are many other elements of these two modules that will benefit from the blockchain. The need to include a discussion at this point would be moot. Understanding these two features will help determine how blockchain is ultimately implemented. It is these two modules that provide a distinct advantage through blockchain technologies. The one advantage I'm particularly pleased with is the clear vision of how these features can now be developed. Before, without the blockchain these processes and functionality were not necessarily the easiest parts of the Preliminary Specification to build.  

I would like to highlight the reason the Research & Capabilities and Knowledge & Learning modules are structured this way. It’s a point that needs to be understood why we’re doing it and the reason for this is captured in the Research & Capabilities module. The quotation below is from Professor Richard Langlois’ Modularity in Technology and Organization. I discussed how I've interpreted this understanding and applied it to oil & gas.

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) who point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 27.

To be specific, what we’re doing in the Research & Capabilities module is “moving the knowledge to those with decision rights.” And this is where the alignment under People, Ideas & Objects begins. What the current producers are trying to do is to “move the decision rights to those with the knowledge.” And that is where the conflict is being created. The Joint Operating Committee has the operational decision making framework and there is little to change that. The knowledge is held within the participating producer firms designated operator. It is therefore necessary to create a process that sees knowledge flow from producer firms to the appropriate Joint Operating Committees and that is what the Research & Capabilities module's Dynamic Capabilities Interface does. 

Analytics & Statistics and Performance Evaluation

Another dual use set of modules as the Analytics & Statistics module deals with the producer firm and the Performance Evaluation module deals with the Joint Operating Committee. Moreover, these modules are designed to contain algorithms of analysis that determine specific performance criteria. And then provide the user with ad-hoc analytical reporting. There is not much I know about what blockchain technologies can provide here. Blockchain is concerned with the recording, securing and reporting of data on distributed ledgers. The Analytics & Statistics and Performance Evaluation modules are not involved in the generation of data. Instead, they manipulate data acquired through other modules and outside of the industry.

Compliance & Governance

It’s difficult for me to see a substantial role for the Blockchain module in the Preliminary Specifications Compliance & Governance module. In the Partnership Accounting and Accounting Voucher section of this Blockchain module discussion, we noted what role blockchain technologies could be used. This lack of vision in terms of its use in Compliance & Governance doesn’t preclude our user community from developing creative and innovative ways to ensure compliance and governance is attained through blockchain technologies. What I am finding is that the extension that blockchain will provide everything to everyone gets to the silly stage when talking about compliance and governance issues and opportunities. Articles such as this one from Oxford Academic which state that blockchain will eliminate the need for public accounting firms and annual audits are not fully understanding the role of these audits in business. 

3.7.a. Accountants and financial intermediaries

In a world with real-time accounting, consumers of financial statement information would not need to rely on the judgment of auditors and the integrity of managers. Instead, they could trust with certainty the data on the blockchain and impose their own accounting judgment to make their own non-cash adjustments such as depreciation or inventory revaluation. The potential US savings equals the total revenue of the accounting industry, which exceeds $50 billion per year. This sum represents the social cost for third-party validation of the accuracy of company accounts, or more simply, the social cost of mistrust of corporate managers. Instead of relying on the auditing industry, which itself has been subject to moral hazard and agency problems (Cunningham, 2006; Ronen, 2010), each user could costlessly create their own financial statements from the blockchain’s data, for whatever time period they wished. Users could access the firm’s raw data and make their own decisions about depreciation schedules, marking assets to fair market value, and recognizing non-cash accruals to earnings. To survive, accountants would need to reinvent themselves as interpreters of raw financial data, and given the large size and complexity of many companies, market demand for their services would probably continue in some form.

As a former auditor, prior to my days in the software business, these are ridiculous assertions. Just because a transaction has been recorded on a blockchain does not imply that the transaction's integrity is beyond question. Auditors do not just verify that transactions have been recorded in the system correctly, but rather that those transactions are the legitimate revenues and expenses of the business. Misappropriation of corporate assets can and will occur no matter what technologies are used. People who are bent in that manner will always find a way to circumvent the systems put in place. That is the same for blockchain technologies. Elimination of the audit function from the role of public accountants is never going to happen. Not with blockchain or any other technology. 

It is the oil & gas business issues and opportunities that drive the fourteen modules of the Preliminary Specification. We are not technologically focused on oil & gas industry solutions. People, Ideas & Objects are solving business issues and exploiting opportunities for the oil & gas producer through the application of Information Technology. We provide the most profitable means of oil & gas operations, everywhere and always. No amount of declarative referential integrity in a database will solve oil & gas producers' business issues. Holding up blockchain as the be all and end all solution to business problems is a part of the myth around this technology. We’ll remain focused on the business issues and opportunities of the North American oil & gas producers and address those through innovative means. We'll work on the business solutions and implement them appropriately in our software. That is our business offering and we’ll continue to differentiate ourselves from those that sell the latest technological widgets for oil & gas. 

The concerns that we’ve expressed in the development of the Preliminary Specification and the implementation of blockchain technologies are the same concerns expressed by PriceWaterhouseCoopers in their PwC Blockchain Validation Solution. These concerns are addressed in our budget where we allocated to the public accounting firms for their work in assuring the oil & gas producers that the developments made under the Preliminary Specification are consistent with Generally Accepted Accounting Principles and the appropriate business practices. These public accounting firm reviews of People, Ideas & Objects developments, and our user community, will be part of the continuous developments undertaken as part of our permanent software development capability we provide the oil & gas industry. Our second concern is that there is a consistent tendency to believe that blockchain can somehow eliminate audits. Nothing could be further from the truth. 

It is with this mindset that PriceWaterhouse is now offering software and services based on the blockchain. This will aid in auditing their client firms. Entirely consistent with People, Ideas & Objects thinking of what is required in terms of the Compliance & Governance module of the Preliminary Specification. This module is consistent with the needs of a dynamic, innovative, accountable and profitable oil & gas producer. It would only be necessary to specify PwC’s software within the Preliminary Specifications Blockchain module. I would however make one suggestion that I think is relevant to People, Ideas & Objects. Our budget is to be distributed to all public accounting participants. By pooling their resources, they can ensure that all of the oil and gas producers they represent are included in their work with us. I would also prefer to see all public accounting firms pool their blockchain software and services into one offering. There are too many conflicts when one firm chooses KPMG to conduct the audit of a firm that has implemented PwC’s Blockchain Validation Solution. 

The reason I see this pooling of accounting firms' resources as necessary is that the future is different. PwC is, in the right way, approaching all industries and companies with blockchain software. Attempting to create a substantial competitive advantage for their firm. Which is not incorrect and should be commended. However they are also locking in those clients to their other services to get the full meal deal and the best of breed solution. If the blockchain software is pooled with other accounting firms then their clients and shareholders can select any audit firm they want.

We had in the late 1990’s issues with audit firms owning ERP software used by producers in the industry. It created conflicts and public accounting firms divested those assets. I think the reasoning for those divestments is stronger today than ever. Conversely the type of software and service that PwC is offering in its Blockchain Validation Solution is an extension of their statutory requirements to producer firms. This could be argued as the future of the public accounting firm. There is no way we can put the genie back in the bottle now that the idea has been presented. Therefore the pooling of public accounting firms to offer a generic solution in the audit capabilities of blockchain technologies is in my opinion a necessity. The software and services associated with these products are in their infancy and will develop to include more and more compliance frameworks. Creating a demand for the product to grow in terms of its function and process capabilities. This is to the point where it becomes, I would suggest, too large for one of the large audit firms to undertake and manage on their own. Secondly it would be too much of a burden for the producer firms and firms in other industries to carry the costs of up to ten of these same software development initiatives being undertaken by public accounting firms. One for each industry. Sharing the burden as a non-rival cost under Professor Paul Romer's "Endogenous Technical Change" theory may be a solution.

People, Ideas & Objects have developed our pooling concept in many ways for the oil & gas industry. First in the sense that all producers pool their IT budgets into one ERP system development. Avoiding the demands of each producer developing inhouse capabilities to build and support an ERP system. Doing so does not provide them with any competitive advantage whatsoever. By pooling the producers' budgets, we can save substantial sums for each individual producer. We can also focus on the needed developments of the industry with the larger aggregated budget to do so. The pooling of earth science and engineering resources in the Joint Operating Committee is also provided as a solution to the expansion of the division of labor and specialization of those professions. An expansion that would soon move the scope and scale of those producers' capabilities, and key competitive advantages, outside of what a commercial operations budget can sustain. And will provide a means to deal with the anticipated shortfall in those technical resources as a result of pending retirements and lack of new university intakes. 

By pooling the public accounting firms resources on one software solution they will be able to access the budget that will be necessary to build the kind of solution that this will eventually be. An ominous and comprehensive solution for the audit profession. To avoid lock-in, which I would suggest, is necessary. If an accounting firm used their blockchain and audit software to lead their sales effort and lock-in their services, that would be contrary to everyone's interests. However if they were able to share in the revenues of the blockchain and audit software and compete based on the quality of the audit services that they can provide above and beyond their competitors, then that would be the most ideal solution for everyone concerned. The choice for shareholders will then be based on the most qualified auditors available for the job. 

People, Ideas & Objects Blockchain module is provided as a significant enhancement to the other thirteen modules of the Preliminary Specification. Including this technology eases many of our needs to resolve some of the difficult technical questions we raise. This is due to the complexity of our solutions. That is where I see blockchain technology being most valuable to oil & gas businesses. I will continue to update and develop the Blockchain module, as with all modules in the Preliminary Specification, as situations arise.

People, Ideas & Objects Preliminary Specification is eleven years old. During the time we discussed the specification, our user community and service providers and all the other elements needed for dynamic, innovative, accountable and profitable oil & gas producers. There were no changes to the specification, establishing it as a baseline for our user community. Today we begin the definition of our 12th module of the Preliminary Specification. After researching the topic and grasping an understanding of the Information Technology that underlies the blockchain, today we can begin the integration of that technology into all aspects of the other thirteen modules of the Preliminary Specification. 

The most effective video I found describing what blockchain provides is from its biggest proponent, Don Tapscott, author of the book “Blockchain Revolution.” This video has a number of interesting catch phrases that I think help people understand the technology.

OCI Blockchain, Part IV

 Partnership Accounting

It is the Partnership Accounting module that captures oil & gas accounting. It is a comprehensive module that includes the Material Balance Report, described elsewhere in this Blockchain module description. One of the unique attributes of the Partnership Accounting module over what is offered in the marketplace today is the Gas Cost Allowance and surplus capacity functionality and process management. These features cost each producer within the Joint Operating Committee depending on their investment in associated properties. If they have an interest in the Joint Operating Committees of gas gathering and gas plants, compression or other facilities, their costs will be unique. The complexity of these calculations is responsible for the manual manner in which they are calculated. Most are subject to annual, but sometimes monthly, equalizations and therefore use Gas Cost Allowance estimates for each month of the year. These estimates are corrected and filed at the end of the year. 

Gas Cost Allowance being a predominately manual process today, the Preliminary Specification seeks to automate it with the Material Balance Report capturing the data and information within the blockchain in order to build the automation, specialization, division of labor, innovation and quality of the various processes dependent on that data. Our user community should develop the Gas Cost Allowance calculations to a highly automated level. If that still requires estimates during the year, that will have to be done. However, the level of automation that can still be done outside of these, I believe, is comprehensive. This adds substantial value to a dynamic, innovative, accountable and profitable oil & gas producer. 

Once we’ve understood blockchain’s features and capabilities we begin to see the value it provides society. People, Ideas & Objects are concerned with the broader issues associated with society and not just the oil & gas producer. We see in this downturn the cost that society has incurred as a result of producer officers and directors not paying attention to their business. This has left overproduction and overcapitalization to fester and metastasize. Oil & gas is the primary industry that drives more than producers' profitability. The follow-on effects of their actions, and mostly lack of actions these days, are catastrophic. There are more than producers at stake in this situation. Investors were the first to experience difficulties and what I think we can see is that today's organizations are inadequate for society's needs. Revised methods are needed in order to deal with the issues and opportunities presented in the business, as existing organizations are too slow and conflicted. 

Blockchain is the Internet of Value. Augmenting the Internet of Information we've had for decades. Anything of value can be secured virtually and securely through the blockchain. Business in terms of organizational structure no longer is constrained by physical and intellectual constraints. People acting in their, and hence society's best interest will ensure progress everywhere and always. Despite the fact that this sounds too good to be true, the problem is that we cannot afford to sustain the failure rate of our current organizations. They drag us under faster each and every year. How much longer will it take for the operational, political and financial degradation that we’ve experienced to affect the industry in irreversible ways? The question I think most people ask is why is this necessary?

People, Ideas & Objects provides oil & gas producers with the most profitable means of oil & gas operations. Why is the oil & gas industry unprofitable today? Clearly, oil & gas producer organizations are unconcerned and uncaring about these larger societal issues. What we can conclude today is that those facing the consequences of oil & gas unprofitability are outside the oil & gas industry. These are investors, royalty holders, the service industry, taxing authorities, and the people involved in those groups who don't have a say in the industry's operation. Alternative methodologies are needed. I am proposing the Preliminary Specification as that methodology and with the blockchain module included as our 12th of 14 modules. 

Throughout the Preliminary Specification people can see a separation between administrative and accounting functions performed by service providers. This separation is present as a result of each service provider focusing on one process and applying it to their customers. These customers are the oil & gas industry. Each Joint Operating Committee that produces will be charged directly from each service provider each month. In this there is a highly objective nature of the work being done by the service providers. Oil & gas producers and industry have lost objectivity today. When CEO’s consider their bloated asset balances to be the value representative of their efforts, we see the current distortions in the oil & gas industry manifest themselves over the past four decades. Are oil & gas producer capital costs an asset or cost? That question should be the first question in the CEO's mind. If they recognized the capital expenditure, they would replace that with the cash they would receive from the price of their product sold. This assumes the producer prices their product appropriately with operations, overhead and capital. This last cost being the most critical in a capital intensive industry. 

The service providers' objectivity is facilitated by organizational specialization and division of labor within the Preliminary Specification. This is enabled through the Blockchain module in our software. People within the service provider have no appreciation or understanding of the customer whose data they'll be managing. It will mostly be in large batches that are homogeneous in nature. It will be treated accounting-wise like all other data. What will be applied will be the appropriate regulations and requirements inherent in the software that they, as our user community representative in the development of the software were and will continue to be defining. The service provider's accounting process will become more scientific and associated with the pure accounting of the needs of the industry and the data sciences that they’ll be able to apply to the large volumes of data they use. To manage the transactional nature of all of this data the blockchain maintains the private / public keys, the hash codes and transaction management necessary to ensure not only the automation and objectivity is attained by the service provider but also the timeliness, accuracy, security and objectivity that is needed by the producer in the marketplace today. 

People, Ideas & Objects recommends a different policy for recording assets. The SEC requires that a producer's capital assets never exceed the present value of the reserves base times the current price. As a result, anything below that number is an acceptable accounting policy for recording property, plant and equipment. We believe that producers' activities are focused on maintaining their production profile. And therefore the costs to maintain the production profile are not capital assets. Secondly any intangible costs of drilling, casing, cementing and completion are unrecoverable. These are therefore not assets either. What we suggest here is that anything with a serial number is the only cost that is an asset and part of property, plant and equipment. What this policy does is shift the burden of oil & gas exploration and production costs away from investors and onto consumers. That is how businesses operate. Ensuring that the consumer pays the costs of oil & gas exploration and production ensures that the oil & gas industry can sustain itself as a viable going concern. This is where their cash is fully returned to them within a few years of their investment. The second question a CEO, after our first question of what is a capital cost, an asset or a cost, is do they want to have billions of capital assets in property, plant or equipment or do they want to have an equivalent amount of cash and short term investments? That is the difference between the current situation and People, Ideas & Objects policies. 

Applying this policy across the industry objectively is one of the benefits of the Preliminary Specification configuration and service providers. The assurance of the integrity and validity of the process and charges being created by the service providers to either the producer or Joint Operating Committee is a result of integrating blockchain technologies within the Preliminary Specification and most particularly here within the Partnership Accounting module. We’re talking about objective, generic and standardized accounting across the oil & gas industry. Processes that consider the industry's needs and requirements and the rules and regulations that govern them. I fail to see the argument here in terms of how or why objective, generic and standardized accounting applied across any industry would be considered a negative attribute. This is an element of the vision I had for the Preliminary Specification when I wrote it. That the blockchain is the method that enables the technologies within the Preliminary Specification to more easily integrate the objective, generic and standardized accounting we’re discussing here. This is one of the features we're implementing in this Blockchain module.

We have a responsibility for our future to produce today’s oil & gas profitably. The calculation of the cost of oil & gas exploration and production can be found in the Partnership Accounting module. These calculations will include the profitability of the Joint Operating Committee, the producer and the price calculations needed for profitable oil & gas production. These will be the actual revenues and costs incurred by producers and individual Joint Operating Committees. Today in almost all instances quotes from producers about their profitability do not consider accounting information. These quotations are based on reserve estimates provided by consulting reservoir engineers. This practice needs to shift to base quotations, and most importantly producers' decisions, on the actual accounting costs and profitability. Then we can be assured that we’re producing today’s oil & gas profitably. 

Earlier in this Blockchain module specification we discussed the Material Balance Report. We spoke about how blockchain technologies were to be used to secure the production and associated data for the processes and automation within that report. Within the Partnership Accounting module there are other features that benefit from blockchain technologies. These include the pooling concept where members of the Joint Operating Committee, due to the potential future shortages of engineers and geologists, and further specialization and division of labor, need to pool these technical resources to cover all of the technical requirements of the property. We also have the Work Order which has two components that introduce the second business model of a dynamic, innovative, accountable and profitable oil & gas producer. The Work Order is a key to moving the producer and industry forward in terms of innovation on a producer's competitive advantages. 

Within the pooling concept we introduce the capability of each participant within the Joint Operating Committee to actively participate in the property's operations. Therefore each producer will charge costs to the Joint Operating Committee in the same manner that the Operator does on behalf of its working interest partners today. Blockchain ensures that only authorized producers will be able to make payments and charge the Joint Operating Committee on behalf of the property. Each producer writes to the blockchain blocks the transactions that make up the operations and capital that are the agreed and approved costs. These will be controlled through traditional means of AFE’s and annual operating budgets. In order for the pooling concept to succeed each producer must be able to spend and recover funds directly to the Joint Operating Committee on behalf of the partnership. The blockchain, as well as other software within People, Ideas & Objects and Oracle Fusion Applications, will ensure no unauthorized transactions are posted.

The first element of our Work Order is the ability for producers, that is any group or configuration of producers, to work together in a research project or study group. Since producers may have no prior relationships, ad hoc involvement in these studies creates administrative nightmares that prevent the use of adequate levels of studies and research. Innovation within the oil & gas industry demands an exponential level of these studies compared to today’s activity. In order to stimulate that producers need to enhance their capabilities in these areas. Once again the blockchain will be used to manage the disparate nature of the producers' individual contributions and costs of the research project or study and the distribution of these costs and results. By securing these transactions within the blockchain they are made accessible by the participants. Only authorized participants will be able to pay or process costs through the study. By eliminating the administrative disaster that these research projects have become in today’s environment we expect that they’ll expand significantly.

The second element of the Work Order is the ability of the producer firm to generate the revenues necessary to offset the costs of their earth science and engineering capabilities. The direct costs associated with these competitive advantages will be offset by charging these resources directly to the Joint Operating Committee. Without the COPAS overhead allowances these costs are not covered under the Preliminary Specification. Therefore charging the property directly for the work done by these resources is how this is remedied. Each of these resources will be required to charge their time to a Joint Operating Committee or producer's overhead account. Their time and standard charge out rate will apply and be billed each month. It is expected that these “consulting” revenues would always cover or be higher than the costs to maintain the producer's earth science and engineering capabilities. With many data elements of the Preliminary Specification captured on the blockchain. It will be possible for partners to view the Work Orders time, charge out rate, and other data regarding the billing to the Joint Operating Committee.

Here is what I see for the future. Blockchain is a distributed ledger technology. It is open source. Oracle is committed to the technology as seen in the development of Blockchain Tables within the Oracle Autonomous Database. Blockchain as a feature of Oracle Database seems natural. The Oracle Cloud ERP provides the immutable nature of the data. I think this is where we’re heading and will be the situation when we release the Preliminary Specification as commercial software.

Accounting Voucher

The Accounting Voucher and Partnership Accounting modules are the two pure accounting modules within the Preliminary Specification. They work hand in hand to provide the full scope of accounting requirements of the dynamic, innovative, accountable and profitable oil & gas producer and Joint Operating Committees. Each of these organizations will be provided with full financial statements that reflect their standardized, objective profitability. The scope and scale of the Preliminary Specification for accounting and process management includes everything an upstream producer needs. It can be defined as high levels of automation from field data capture to financial statements. Only this basis of accounting can be considered to be the base level of what is necessary and required for the next generation of oil & gas producers. Effectively changing accounting's role in the industry from a statutory compliance and governance requirement to a dynamic decision-making role and capability. 

The unique feature of the Accounting Voucher is the capability to manage the pooling concept introduced in the Preliminary Specification. Pooling sees all of the participants in a Joint Operating Committee actively involved in the properties' day-to-day operation. Through the expansion of the producer's earth science and engineering capabilities due to specialization and the division of labor. There will be few, and possibly no producers that will be able to fully staff their organization with the resources to cover the global scope of the sciences' demands. Producers will need to specialize in specific, high value capabilities to ensure their cost structures remain within commercial operations. It is also important to address the perceived shortfall in earth science and engineering resources in the future. The Preliminary Specifications pooling concept allows producers within the Joint Operating Committee to contribute their unique capability. Eliminating what People, Ideas & Objects have called the industry wide unshared and unshareable nature of the surplus unused and unusable capacity present in today’s earth science and engineering capability. 

In essence what will be possible is for a participant within a Joint Operating Committee to raise an Accounting Voucher for either their producer firm or a specific Joint Operating Committee. That Accounting Voucher would allow them to process what is traditionally understood to be an accounting voucher for whatever purpose. The Accounting Voucher itself is an electronic representation of the document. Therefore it is shareable between producers who participate in the Joint Operating Committee. Blockchain comes into play here. The concept of sharing seems inconsistent at first, given the inability for a specific block to be duplicated on the blockchain. The Accounting Voucher shares the block information without duplicating the block for each participant producer. 

It is also the immutable nature of the data contained in the blockchain block. These data elements would include everything regarding the Accounting Voucher. Be accessible only through the public / private keys of the participating producers in the Joint Operating Committee, or the individual producer. This depends on the nature of the Accounting Voucher. The data is encrypted and cannot be viewed by anyone. Changing any data within a block representing an Accounting Voucher would rewrite the hash code. Once the hash code is rewritten, it cannot be verified through its distributed ledger. It would be recommended by People, Ideas & Objects that the distribution of the blockchain ledgers used within the Preliminary Specification be distributed to each and every oil & gas producer within the industry. This is a security feature of the blockchain due to the immutable nature of the data. If all copies of the blockchain agree on each block's hash codes, no tampering has occurred. If someone attempted to tamper with the data they would have to replace the revised hash codes on each copy of the distributed ledger the instant they made the change. This is not considered reasonable or possible in terms of blockchain operation.

OCI Blockchain, Part III

Financial Marketplace

Within the Financial Marketplace we deal with something present in other marketplace modules. Oil & gas producers must acquire capabilities that are dynamic, innovative, accountable, and profitable. At the extreme, each producer can house all of their capabilities within their own organization and mine for steel to manufacture their own drill bits. Or it can use the market to obtain the capabilities it needs. Within the Preliminary Specification we shift from the current producer configuration to one that is more dependent on the market to meet its needs. This is most obvious in the change in administration and accounting performed by our user community-based service providers. Moving from the fixed overhead of the producer to a variable overhead of the industry. Moving resources around allows service industry representatives to focus on their key competitive advantages. Enhancing the focus on the service industry expands industry throughput through specialization and division of labor. Enabling producers to focus on their key competitive advantages, their land & asset base, and their earth science & engineering capabilities. 

The Joint Operating Committee also serves as our key Organizational Construct for an oil & gas company that is dynamic, innovative, accountable, and profitable. Therefore from a fiscal point of view we are moving from a producer perspective to a Joint Operating Committee perspective in order to advance the speed, accountability and innovativeness of the industry. In the Financial Marketplace and other modules we are therefore looking to establish each Joint Operating Committee as its own standalone reporting organization. With each providing full financial statements for each property. Enabling producers of any size to consolidate upwards to determine their cumulative interests. The Financial Marketplace module enables each Joint Operating Committee to have its own banking and financial resources for the producer firms in the partnership. Creating a better defined risk portfolio for banks, a standalone securitizeable organization and increased administrative efficiency.

The U.S. dollar is the currency in which oil & gas producers operate. Our use of blockchain within the Preliminary Specification is to secure transactions within distributed ledger technologies. The purpose of blockchain implementation is not to replace cash with coins or tokens. There is no value or compelling reason to challenge U.S. or Canadian currencies. Blockchain technologies within the Financial Marketplace module benefit the Joint Operating Committee. Having an immutable ledger of transactions within the Joint Operating Committee ensures only approved transactions are completed. When there are 3,000 individual service providers providing administrative and accounting services to each of the potential several hundred thousand Joint Operating Committees. Only those authorized public / private keys of the service providers and Joint Operating Committees will be used to write to the specific Preliminary Specifications blockchains. Eliminating the opportunity for other non-authorized organizations to bill the Joint Operating Committees.

The level of automation introduced throughout the Preliminary Specification is one of our products' many features. People, Ideas & Objects software development capability, our user community and service providers seek to enhance automation, specialization, the division of labor, quality, innovation and having computers working for us throughout the oil & gas, and service industries. Seeking to secure the Preliminary Specifications data within the blockchain itself enables us to ensure precision. Saving time by eliminating redundant checks. Securing that data and reporting it to the appropriate producers, Joint Operating Committees and users. Once this data is as it should be we can automate the processes. Not only the automation mentioned in the Preliminary Specification, but that which will be developed and included by our user community during initial development and the subsequent iterations prepared by our user community and the application of our permanent software development capability. Automation can relieve us of the menial tasks we are burdened with today by checking data, entering data, and processing it if the data quality is immutable and unimpeachable. Activities that are best left to computers which would then provide us with the time to approach the higher level tasks of leadership, problem solving, decision making, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising, innovating and financing. A specialization and division of labor between people and computers for the 21st century.

The Financial Marketplace module will be where this vision hits the ground. That is the cash balance. Data checking, verification, validation, and audit processes must be automated. This is where a level of sophistication and understanding of the entire Preliminary Specification is necessary to make the appropriate changes to the industry and producer structures. In addition to the implementation of internal controls, our budget for the Preliminary Specification includes in the Compliance & Governance module a budget of $114 million for Public Accounting firms to review these processes on behalf of the oil & gas industry. It is used to ensure compliance, review the Preliminary Specification code, and ensure it does not violate GAAP. It will also certify that annual audits of producers undertaken by Public Accountants based on this overall systems review. Forming the basis of their annual audit.

Speed and control are some of the objectives included in the Financial Marketplace module of the Preliminary Specification. Producers' ability to turn capital over quickly is a competitive advantage in today’s business model. Producers could become self-funded if they maintained a minimal or even zero balance of property, plant and equipment. Capital projects must be completed faster and easier, and as a business that should be a given. Shifting the focus to the Joint Operating Committee where the operational decision making, financial and legal frameworks of the Committee's nine frameworks exist will also speed up the process. Having the participants of each Joint Operating Committee come to a consensus on the issues and opportunities of the specific property provides a clear strategy and focus. This is without operator constraints impeding progress. Meanwhile, as the Financial Marketplace points out, speed is meaningless without control. It will be understood, I would assume, that if a property is not profitable, or a subsequent event takes the property into unprofitable territory then it will be shut-in. This will impose production discipline on the producer. Also, with the Financial Marketplace module's ability to enable banks to deal with only the Joint Operating Committee, the ability to leverage the returns of the producers' interest in the property becomes a reality.

Within the Petroleum Lease, Resource and Financial Marketplace modules there is a common interface known as the Marketplace Interface. At the time it was initially proposed it was quite controversial, but since then, things have settled down. It is a virtual representation of the industry marketplaces and Preliminary Specification. Users, vendors, service industry representatives, producers and others will have avatars within the People, Ideas & Objects Preliminary Specifications Marketplace Interface. This will enable them to interact within this virtual marketplace representation. Organizations may want to establish virtual real estate to house their commercial offerings. Ability to invoke components of all Preliminary Specifications modules for functionality and process management. This is done by conducting transactions, interactions and connecting through the interface elements through “tiles,” or the right click of a mouse. This is done to engage others in the oil & gas business. It is intended to be an innovative medium of communication, business and operational capability. This is positioned between the undocumented but highly available telephone call and the well documented and difficult to arrange on-time meeting. With the implementation of blockchain technologies within the Preliminary Specification the documentary elements of these exchanges, transactions and interactions become immutable and secure. More importantly, as noted in the two TED Talks below, trust becomes the commodity available between parties. 

The following two TED Talks are highly informative in the sense that they provide an understanding of blockchain technology's implications on trust. They also explain how blockchain will replace people’s trust in organizations and institutions with trust in strangers. The implications of the shift in trust are dramatic, and when viewing these videos please consider them from the point of view of their integration within the Marketplace Interface as described above and in the Financial, Petroleum Lease and Resource Marketplace modules definitions. 

Ted Talk by Bettina Warburg.

Ted Talk by Rachel Botsman

Within Bettina Warburg’s presentation she mentions that “Institutions are a tool to lower uncertainty to connect, interact and transact within society.” With Rachel Botsman's presentation providing the example of AirBnB where a visitor would not leave the place in anything but great condition because otherwise they’ll be rated poorly. Noting that distributed trust which is defined as transparent, inclusive, decentralized, accountable and bottom up is replacing institutional trust that is opaque, closed, centralized, licensed and top down. Ms. Botsman also introduced her “Trust Stack” concept which includes three steps. First, trust in the idea, then trust the platform, and then trust the other users. It is these elements of trust that help people earn the trust they need to take the “leap of trust” or “leap of faith” from the known to the unknown. 

It is the integration of blockchain within the Marketplace Interface that makes for what I believe to be a new environment of what and how business will be conducted in oil & gas. I see significant potential for people and organizations to interact at greater speeds. This is with less issues regarding what level of trust should be given and an understanding of the level of capabilities being offered. If the Marketplace Interface user can review the blockchain history of a potential party they may interact with. See that they are who and what they represent and that they have a history of delivering that capability to the marketplace. Confidence in those transactions may be higher than today's organizational structures. 

Included within the Preliminary Specification software written to the blockchain block that documents the transaction will be a video or screen capture of the sessions of all of the users in the transaction and of course the documents produced as a result of the interactions. These will be secured and captured within that blockchain block. Blockchain will make the Marketplace Interface highly secure, data immutable and documentary value unimpeachable. 

Within the Financial Marketplace module we briefly discuss the concept of securitization of oil & gas properties. Blockchain makes this possible. The ability to secure title through the Petroleum Lease Marketplace, as well as funding through the Financial Marketplace modules Marketplace Interface facilitates both. A service provider can handle the accounting and administration of the properties on behalf of the working interest owners. This allows the investor to work directly within the oil & gas industry for their working interest. They may have little in the way of oil & gas earth science and engineering capabilities, however the second business model of the Preliminary Specification is the trading of these capabilities between producers both within the Joint Operating Committee and throughout the industry. Investors would therefore obtain these capabilities through their Joint Operating Committee partners. The blockchain provides the investor with the trust model necessary to ensure that the title interest is theirs, and their property produces profitably at all times.

OCI Blockchain, Part II

 Security & Access Control

We’ll now walk through each of the thirteen other modules of the Preliminary Specification and discuss the Blockchain implementation in each. The first is the Preliminary Specifications Security & Access Control module. This seeks to ensure that “the right people have the right access to the right information with the right authority at the right time and at the right place, on the right device.” Which is one of the more difficult aspects of the Preliminary Specification. This requirement is complicated by unique elements introduced through use of the Joint Operating Committee as the key organizational construct. It is also expected that producers, and the service industries dependent on producers, will be required to expand their throughput through enhanced specialization and division of labor. This is as a result of the natural demand for more engineering and earth science effort for each incremental barrel of oil or gas produced. And the reduction in market availability of earth science and engineering resources due to the recent downturn. This is due to the anticipated retirement of large percentages of those professions. Triggering the need for technical resources pooling of each producer participating in the Joint Operating Committee. Imposing a temporary compliance and governance structure over this pooling through the Preliminary Specifications Industrial Command & Control, a feature of the Security & Access Control module. 

The majority of the information contained within each producer firm regarding the Joint Operating Committee is the same. Each producer shares all of the data and information pertinent to the Joint Operating Committee. They will be party to the service providers' billings for the administrative and accounting services rendered for that Joint Operating Committee. One clarifying aspect of using the Joint Operating Committee is that the data and information created and used within that organizational construct is unique to the partnership. The sharing of this data within the Joint Operating Committee is standard in the industry and has always been. This contrasts with the unique and proprietary nature of producer firms' data and information. Segregating these two distinct types of data from each other would and should be the first order of business during our development. That way members of a Joint Operating Committee, of which a producer firm may have an interest in several thousands of, won't leak any proprietary firm data. 

Continuing with the discussion of blockchain integration in the Security & Access Control module. At this point, the implementation of blockchain technologies opens up a number of possibilities. There are many possibilities, and there are too many to list and document all of them here. The need for our user community to fully identify and explore the issues and opportunities of each of these possibilities will be their responsibility during development. Producers' needs in the area of confidentiality and their specific concerns regarding the cloud, encryption and security, as are many other areas, need to be addressed through their active involvement with our user community. Otherwise decisions will be made without producer involvement. There will be little opportunity, after the fact, for them to make the substantial changes that the Preliminary Specification development provides. User community-based systems are the only development methodology worth pursuing. Our user community understands oil & gas, and can implement that understanding within the software on their own. Without producer involvement, only producers will suffer. It is in their own self-interest interests to participate by interacting with our user community. 

The key area that producers will suffer from is that their perception is that these developments are a one-way street. That the users absorb what the producers want and deliver that to them. Today, producers need to keep on top of the changes in the software and how those developments impact their organization. Implementation of the software will have to be done with significant consideration to its impact on the producer firm. Changes will need to be made during development and implementation. Sitting out the first round of software development with our user community may preclude the producer's organization from benefiting from the software. As the ability for a producer to assimilate the first round of changes alone while iterations are being made upon those in the second round of developments may render the producer unable to keep up with the industry's updated standard of profitable organizational performance. 

People, Ideas & Objects use Oracle's cloud implementation to host the software derivative of the Preliminary Specification. Oracle Autonomous Database provides Multi-Tenancy. Each “tenant” or producer in our case will have its own database instance, its data is separate and distinct from all other instances (producers)' data. Each instance of the database uses the same database for its functionality. From a software development and deployment point of view this significantly reduces our costs and difficulties in deploying the Preliminary Specification as conceived. Each producer will have their own, for all intents and purposes, database and applications that are distinct and independent to each and every other producer. In prior databases, and in other vendors currently, the need for cloud implementations of those databases was either separate containers for each or we would have had to use a producer ID to identify the data belonging to one producer in a pooled database of all of the other producers in the industry. Either of these last two options would have been unacceptable or costly from a licensing and support perspective. 

When we look at the decentralized nature of the blockchain we see a further separation of the data and information of the producer from each of the other producers in the industry. The addition of decentralized ledger technology which is the blockchain will enhance this Multi-Tenant effect of the Oracle database. It is difficult, in my opinion, to justify the use of hardware and software for ERP purposes within the producer firm itself. The feature that we want to maintain by using the cloud is the overall feature of Security & Access Control of “the right people having the right access to the right information with the right authority at the right time and at the right place.” For these purposes the “right place” is the cloud and whatever the location of the user. It is my understanding that blockchain has a feature called Blockchain Access Control. The blockchain's individual blocks are accessed via public / private key encryption technology. Eliminating passwords and providing the level of security and overall access control that not only the producers' data and information needs but also the Joint Operating Committee.

Resource Marketplace

“A marketplace to support contracting from A to Z.” The issue that People, Ideas & Objects takes to the industry's operation is that producers appear unaware and uncaring that they are the benefactors of being a primary industry. They feel the secondary industries they rely on to complete the work they need done are “greedy and lazy” and leeches off of their revenue stream. It is simplistic to view the world from this perspective when producers collect 100% of the cash from oil & gas commodity sales. The problem is that it is difficult to understand that those revenues were not earned 100% by producers. And slashing activity levels, cutting the service industry's “costs” during times of difficulties, extending the time when accounts payable are paid by producers from 6 to 18 months can be done when everyone does it. Puts the service industry in severe financial jeopardy. And everyone does it when no one pays attention to the fact that producers' overproduction of oil & gas commodities is chronic and systemic. Which mitigates the impact to the producers and leverages it towards the service industry. The Resource Marketplace changes this. It also identifies the source of the innovations that producers first claim as theirs. These innovations are really those of individuals who have worked hard for decades in the service industry. Who have had their Intellectual Property disrespected by the producers and ignored until the producers desperately need the innovation from the service provider and they finally begin to approach the situation responsibly. 

Innovation in oil & gas will not withstand decades in which coiled tubing developers beg producers to try their product to see what the possibilities are. Or Packers Plus is abused for their ball-dropping and packer developments. People, Ideas & Objects can speak of these things as we’re only the most recent example of the abuse that people have to endure to deal with oil & gas producers. Nothing in the industry would have happened in the shale industry if it weren’t for a number of individuals who brought those technologies to life in the service industry. These innovations took decades for producers to accept as common sense. People, Ideas & Objects can assume that it’s only a short period of time from now when producers realize that producing only profitable production with our decentralized production model’s price maker strategy is considered common sense. 

A more cooperative and collaborative environment is created within the Resource Marketplace. This is to ensure the innovations the industry needs in the next few decades are brought to market in a timely manner. An environment where ideas are respected, supported and developed with the understanding that producers will benefit. What other purpose could coiled tubing or ball dropping serve? The service industry is not the producer's enemy and is not greedy or lazy.  

Blockchain is most valuable in this area of the Resource Marketplace module. We will implement distributed technologies to support the recording of transactions and reporting of them. Specifics of what and how will hopefully be done through collaborations between our user community and the producers. Even if it is just our user community that determines the details of the Resource Marketplace and its blockchain use, we’ll be more than satisfied with that. With the Resource Marketplace module there is the implementation of the Marketplace Interface. This is shared with the Petroleum Lease Marketplace and Financial Marketplace modules. There is also from a transaction processing perspective Accounting Voucher and Partnership Accounting modules. In addition the Resource Marketplace module feeds critical data and information into the Research & Capabilities, and therefore the Knowledge & Learning modules. It is the focal point, the point where much of the transaction history will be reflected on the blockchain. 

One of the markets blockchain is uniquely qualified to address is Intellectual Property. Particularly from the point of view of the smart contract technologies included in the Ethereum blockchain. As we noted the innovations and IP of oil & gas field operations mostly resides within the service industry. And those people or companies have ample protection from three forms of Intellectual Property, including copyright, patent and trademark protections. What I’m suggesting here in the Resource Marketplace module is that we have an element of the Marketplace Interface that is a registry of that industry specific Intellectual Property. This registry would be implemented within the blockchain and therefore be available for people to view and see when and where the ideas were created. In addition it could be used as a marketing tool by those who are behind the idea to recruit producer participation and active involvement in the funding and deployment of those IP-based technologies. The focus would be on innovation and ideas within the oil and gas industry. Concentrating the service and oil & gas industries on these innovations and developments.

Petroleum Lease Marketplace

Don Tapscott defines blockchain technologies as the Internet of value. In terms of value, land and mineral rights are the area where producers secure oil & gas reserves. Having a registry of land titles on blockchain is a logical direction for the industry to pursue. Most of these registries are managed by federal, state or provincial governments who lease mineral rights. Would they, or are they considering this as an area of service development? Nonetheless our user community should fully explore the opportunities and issues of using the blockchain to manage land titles for the industry. Is that feasible within a timeline that is consistent with our initiative for triggering governments to act. Otherwise we will depend on developing the Petroleum Lease Marketplace on the basis of the Preliminary Specification as it stands today. That is not an issue as I see it as a necessary part of our system. It would be an advancement compared to current market offerings. Subsequent developments to incorporate blockchain within the module would be enabled once jurisdictions enabled their registries to use blockchain technology. People, Ideas & Objects' software development capabilities facilitate subsequent developments.

Petroleum Lease is a marketplace module, which means that it is the place where buyers and sellers interact to transact for things of value. This marketplace would be populated by producers seeking to acquire and divest of oil & gas assets. They would make arrangements with partners in Joint Operating Committees, post and bid on available leases and engage with the market as a whole. As with the Resource Marketplace module the Petroleum Lease Marketplace module is a source of transaction origination. Therefore, administrative and accounting service providers, producers’ legal representatives and others would also be in touch with the principles behind the transactions. Ensuring that the transaction details were understood and implemented on that basis. As has been mentioned in the Marketplace Interface both “tiles” and contextual menus would be available to support these transactions and their principal users. Embedding these within the blockchain, even if it may not initially involve the issuing jurisdiction's registry, would still provide value with a history of the transaction. This would also provide integrity achieved over the property history. 

One of the advantages of blockchain is the immutable nature of the data contained within the blocks. However, due to the checks and balances inherent in the technology, it is nearly impossible to change the data within the block. Any changes to the data are written to subsequent blocks. The user can therefore see the result of the two blocks of data which provide them with the information they're looking for. This YouTube video describes it.

Using the Ethereum blockchain throughout the Preliminary Specification would be the preferred technology at this time. Blockchain technologies are being innovated. For instance, blockchain technology has now processed 2.5 million transactions per second. What People, Ideas & Objects and our user communities needs will be and the capabilities that will ultimately be provided by Oracle’s Cloud Blockchain offering will need to be determined by our user community after consideration of all of the industries needs and technical requirements.  

As the Petroleum Lease Marketplace describes there are a number of data elements, mostly attributable to the Joint Operating Committee, that come into play as a result. What is necessary is that the data captured by the Preliminary Specification in any module must be unimpeachable in quality and integrity. Searching for data elements to ensure they're the correct data is a known time-consuming and wasteful process. With blockchain the nature of the data within the Petroleum Lease Marketplace can achieve this unimpeachable level of integrity. This will save the industry time and effort checking information that's correct or should have been correct. The level of effort necessary to achieve this assurance consistently is the job of our user community. Doing the research, design and development once, then defining the process management in the software, and the data source that provides these levels of assurance can be done by our user community during our development. This level of examination and review is what is necessary for the oil & gas industry to move forward to the next level in systems quality.

OCI Blockchain, Part I

 People, Ideas & Objects are implementing a Blockchain module within the Preliminary Specification. There are several unique and valuable applications of the technology in other modules and they'll be discussed here. Blockchain technologies can also be considered the next revolutionary technology that changes the world we live in. This is not our approach at any point in our solution. We are resolving business issues in North American oil & gas producers. Not selling the latest technologies.

The first quote from Mr. Don Tapscott is “so what that means is the nature of a corporation and the nature of competitiveness is going to change. This is a time of great transformation. First of all, every industry will go through huge convulsions, not just financial services, resources, … Secondly, it means that every business function will change.”

The phrase that resonated the most with the Preliminary Specification is around 3:35 in the video. Mr. Tapscott said “everyone has a “shared network state” where they can “look real time at everything that’s happening.” Once we’ve moved to the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil & gas producers. We discuss what is “a shared network state” within the industry. The Joint Operating Committees are / could be standalone investments or held together as a network of assets within an oil & gas producer as a firm or corporation. Joint Operating Committees are independent due to this “shared network state” and the manner in which they are managed in the Preliminary Specification. The concept of operator is replaced by our Pooling concept and each working interest owner is an active participant at all times.

Recall we are moving the compliance and governance frameworks of the hierarchy to the Joint Operating Committees legal, financial, operational decision making, cultural, communications, innovation and strategic frameworks. Transactions between the owners of the Joint Operating Committee either in terms of the land that they lease, both mineral and surface, the capital assets deployed, the production and sales of commodities, the service industry representatives they engage, the producers' earth science and engineering capabilities, our user community and service providers will be able to operate within this “shared network state” we understand to be the oil & gas industry and service industry. 

Oil & gas transactions are always the subject of heavy documentation and verification. As we move to a software driven era, integrity, documentation and verification can’t be ignored. With blockchain we gain highly secure systems by implementing blockchain as our 12th module in the Preliminary Specification. Where it will interact with other modules and provide the transaction security necessary. Oracle Autonomous Database has introduced a Blockchain table which for our purposes is highly effective. We'll discuss this implementation later in this module. What is known is that it will be used in at least 50 different ways that I can think of. This will provide integrity and security necessary in today’s systems. Anywhere there are interactions or transactions between producers and Joint Operating Committees there will be the opportunity to implement blockchain for securing the transaction. 

We now describe blockchain technology and its integration into oil & gas. Within the Preliminary Specification we’ll have many interactions and transactions that currently do not exist in the industry. The volume of transactions processed through our system will be substantially higher than currently experienced in the industry. This would be the case with the same producers and with the same production volumes. When using the Joint Operating Committee as the key organizational construct we take the data at its lowest possible value obtainable. Today many ERP systems capture aggregated data from spreadsheets. In addition there is an increase in transaction throughput as a result of each participant within the Joint Operating Committee being active on the property as opposed to receiving one set of accounting reports from the operator each month. This volume of increased data and transaction throughput is then extended by the 3,000 administrative and accounting service providers each processing their billings for their services for each Joint Operating Committee. These increase the volume of transactions, and hence the quality of the data, by substantial numbers. 

Blockchain is a pure Information Technology solution within the Preliminary Specification. The other twelve modules are designed around business issues and opportunities currently being experienced by producer firms and industry. Those primarily being the chronic lack of profitability and the cultural capacity to accept they have a profitability problem. With the business models contained within the Preliminary Specification, producers will gain our value proposition valued at $25.7 to $45.7 trillion over the next 25 years. Our Preliminary Specifications decentralized production model's price maker strategy ensures that producers produce only profitable products. Enabling them to pursue the oil & gas business with the appropriate cash flow to fund their capital expenditures, pay down their bank debts and return capital to their shareholders. Currently producers expect shareholders to fund their capital spending as a subsidy to the energy consumer. This leaves them with disgruntled shareholders and high bank debt due to lack of real profitability and cash flow. Producers should be able to cover all three cash requirements adequately at all times. The blockchain is a pure technological application that provides the industry and producers with enhanced security and integrity. Added to the dynamic nature of our software development capability, user community and the Oracle Cloud ERP offerings we use as the base of our system. 

What is blockchain and how does it work? A brief description of Distributed Ledger Technology (DLT) is as follows. White Hat Security provides this summary.

Every time a transaction is initiated, a block is created with the transaction details and broadcast to all nodes. Every block carries a timestamp, and a reference to the previous block in the chain, to establish a sequence of events. Once the transaction authenticity is established, that block is linked to the previous block, which is linked to the previous block. This creates a chain called a blockchain. This chain of blocks is replicated across the entire network, and is cryptographically secured. This makes it challenging, but almost impossible to hack. I say almost impossible because it would take significant computational power to attempt.

In the context of security, both system transparency and immutability of blockchain data comes into play. Immutability in computer science refers to something that cannot be altered. Once data is written to a blockchain, it becomes virtually immutable. This doesn’t mean that the data cannot be changed – it just means that it would require extreme computational effort and collaboration to change it. In addition, it would be very difficult to cloak it.

There is a TED talk from June 2016 with Don Tapscott. In this video he gets into the details a bit more than the prior video. He calls blockchain an "Internet of Value" that supplements the current Internet of Information. A suitable description in my opinion.

Our next step in defining our 12th module, The Blockchain, is the implementation of the technology by Oracle Corporation. Oracle Fusion Middleware and Applications are the base financial ERP applications in the Preliminary Specification. These are now called Oracle ERP Cloud. Soon after the publication of the Preliminary Specification, we amended our budget to move to the cloud for both development and deployment purposes. Oracle's cloud offerings no longer require us to build and maintain physical hardware for our needs. It has been through decisions such as these that we reviewed the entire process of oil & gas. The question we seek to answer is how can we deliver our product to market at a faster pace than expected. By moving to the cloud we can shift budget dollars from physical hardware to Oracle services and speed up our implementation substantially. Speed is a critical competitive factor for all businesses today. We see the implementation of blockchain as a critical element in the reduction of the time we need to develop our solution. Although conceptually our offering does not change, the ability to acquire the security and integrity that blockchain provides will mitigate much of the software development work that needs to be done to build those features ourselves on behalf of producers and industry. That our technology provider is taking a leadership role in implementing blockchain within their ERP solution is also of significant benefit to People, Ideas & Objects, our user community, service providers, producers and subsidiary industries. 

In Oracle's involvement with blockchain we have an Oracle sponsored IDC white paper. I highly recommend registering for the download and reviewing this document. Oracle is looking to blockchain to differentiate their product in the marketplace and producers benefit. It is with that in mind that we now shift our attention to our next concern. Now that blockchain has resolved much of the industry's security and integrity, much work is left to be done. Our concern is the Access Control capabilities of the People, Ideas & Objects Preliminary Specification. The fact that we offer a unique scenario would be an understatement. Having a cloud-based, industry-wide solution that meets the needs of a proprietary access control system such as ERP. When we introduce the Joint Operating Committee where multiple producers need access to the same data we have our work cut out for us. The following paragraph from this IDC white paper leaves me perplexed. 

Our research suggests that most enterprise customers are looking to build permissioned or private ledgers that only allow those with specific permissions to access distributed ledgers.

I am unaware of if or how blockchain would provide this capability. However we are not providing a solution available today. We are taking today’s Information Technologies and applying them to oil & gas business issues and opportunities. A software development company focused on the needs of our users based on Oracle Cloud ERP. This focus on our user community has been our priority since the Preliminary Specification publication. User community-based developments are the only quality and usable systems today. Therefore with that in context, IDC notes the nature of the blockchain is in a similar state. The adoption of technology by providers like Oracle is at the beginning and will continue to grow over the next few years. Which is consistent with our plans and needs. 

Connectivity to existing systems is often a challenge because many blockchain and distributed ledger technology platforms available today are early-generation solutions. For example, capabilities for enterprise plug-and-play with enterprise resource planning (ERP) solutions and integration with enterprise-class system of record (SOR) are not available in most blockchain offerings. Because many solutions are early versions, multiple features that are required for enterprise deployments such as systems availability; business continuity/disaster recovery (BC/DR); and platform security are still under development.

And 

The interconnectedness of enterprises with their customers, suppliers, and intermediaries is another challenge faced by business and technology teams looking to develop blockchain solutions. As a result, the distributed nature of blockchain ledgers can make it hard to provide the privacy that some customers and counterparties expect. For example, transaction records contained in buy and sell transactions and details contained in shipping instructions in the supply chain may need to be segregated into different domains to provide privacy and confidentiality. Great care must be taken to provide advanced levels of security to prevent employees or bad actors from committing fraud by posting misleading information or gaining inappropriate access to customer transaction information.

People, Ideas & Objects is a research and software development firm driven by our user communities' needs. We are beginning our developments based on the Preliminary Specification. It is a specialization and division of labor that fills the gap between the oil and gas industry and the Information Technology industry. For each producer to have the requisite capabilities to build and deliver software of the Preliminary Specifications scope and scale is untenable based on their budget and limited resources. Aggregating the industry's efforts within this new sub-industry is the only solution to the business and technical difficulties producers face today. The idea of 150 producers researching and developing blockchain technologies and integrating them into their ERP systems independently is absurd. As would any aspect of our offering, which does not fall within the producers competitive advantages of its land & asset base, or earth science & engineering capabilities.

Oracle's blockchain implementation is the general topic of discussion. We continue to quote from the Oracle sponsored IDC whitepaper. Within that paper there is a summary that captures Oracle’s product and service offerings, and to some extent their commitment to blockchain.

Oracle Blockchain Cloud Service (BCS) is an enterprise-grade, distributed ledger platform designed to support new DLT applications and extend ERP, supply chain management (SCM), and other enterprise software-as-a-service (SaaS) and on-premise applications by enabling enterprises to conduct business-to-business transactions securely and at scale across a trusted network with tamper-proof digital records (see Figure 2). Oracle SaaS and on-premise application suites are used in many industries as the backbone of an enterprise's information system. Extending these systems with blockchain capabilities through BCS provides significant value to Oracle's customers and lowers many risks inherent in adopting new technology.

Oracle is our technology partner as we believe they have the most advanced technologies in the marketplace. And that is not by a slim margin. Oracle’s Database 23c is well beyond what the competition offers. It seems that IBM, Microsoft and others cannot keep pace with Oracle's database developments. Java is no exception. Since their purchase of Sun Microsystems, Java has become ever more popular as a programming language for business. Particularly from a database developer's point of view. And no one can match Oracle's commitments in the ERP marketspace. With the purchase of PeopleSoft, Siebel and JD Edwards, Oracle spent $18 billion in market acquisitions for these companies. Still not satisfied they undertook $4 billion, from the ground up, development of an ERP system based on the Java Programming Language. This was to produce their Fusion Middleware and Fusion Applications. I’m seeing the same level of commitment in their blockchain offering. I feel that Oracle will use their services in this area to further differentiate themselves in ERP and other market spaces. All of these investments total over $56 billion as of 2022. 

Pushing the concept of fair use to its extreme, I now want to quote from the IDC paper extensively. The following are their recommendations on how to proceed with Oracle blockchain technology within organizations that adopt it.

Oracle's Blockchain Offering Provides Several Benefits to Enterprise Customers

▪ Faster transactions with greater resilience: Enterprise customers need distributed ledger platforms that can scale to handle increasingly large volumes of transactions. They also need resilient, highly available, and high-performance platforms to reduce transaction latency and ensure stable and secure connections.

▪Enhanced data privacy: Enterprises are concerned about the privacy and confidentiality of ledgers and limiting access to transaction details, especially in regulated industries. For example, in financial services, keeping the terms and conditions of contract details such as counterparty identities, pricing, and quantity data confidential is always a concern. In healthcare, the privacy of patient health records, patient identification, and health insurance details is paramount. Oracle's cloud services help firms build and maintain secure ledgers and smart contracts with features such as identity management with secure defense, in-depth data-in-transit and data-at-rest encryption, and multiple confidentiality domains within a single blockchain network.

▪ Simplified operations through managed services: Managed services are gaining momentum as enterprises look to get up and running faster with new leaders and upcoming blockchain smart contract projects. Enterprises can launch pilots, run experiments, and work with production-ready ledgers on production-ready Oracle-managed servers, storage, and network infrastructure, leaving backups, upgrades, and other infrastructure management considerations to Oracle software and operations. Oracle's cloud services also support rapid onboarding of new members and governance frameworks that help enterprises maintain control and security of the ledgers.

▪ Integration with Oracle SaaS and on-premise application suites: Oracle provides integration accelerators through the adapters in its Integration Cloud Service and Java Cloud Service for SaaS. These solutions enable enterprise processes in ERP, SCM, and other application suites to rapidly integrate and connect with blockchain transactions and access distributed ledger information. The application integration toolkits will provide samples, design patterns, and templates for specific business processes.

▪ New business models and revenue streams: BCS provides application development accelerators that help enterprise customers integrate their blockchain transactions and ledger records with new and existing applications. Oracle wrapped blockchain transactions with REST APIs, which can accelerate application development and integration and make transactions accessible both inside and outside the cloud. Oracle Cloud also offers sandbox capabilities that can support corporate IT developers and independent software vendors (ISVs) with application development environments, integrated CI/CD tooling, and prebuilt integration adapters for Oracle and third-party applications. These resources enable firms to quickly build and run experiments and proof of concepts to address specific use cases. These experiments enable enterprises to develop, test, and engage in new business models and revenue streams from deploying DLT and smart contracts. Oracle has also announced integration of blockchain APIs in Oracle NetSuite Suite Cloud Platform and Digital Innovation Platform for Open Banking. This can provide blockchain on-ramps to NetSuite customers and partners and to financial institutions looking to innovate with blockchain and fintech APIs orchestrated by Oracle API management services.

▪ Deployment flexibility and choice: Oracle's Cloud Machine can deliver enterprise-grade PaaS to enterprise customers' datacenters with deployment options behind the firewall. This can enable enterprises to develop cloud-native blockchain applications on-premise with modern platform services. On-premise options are especially important in regulated industries such as healthcare and financial services. The Oracle blockchain solution enables firms to use the private cloud option to retain complete control over their data and applications and fully manage application services behind their firewall, or deploy in the Oracle Public Cloud, or mix and match private and public cloud options in a hybrid deployment. In the future, Oracle plans to allow its BCS-based blockchain networks to accommodate members joining from outside of Oracle Cloud, as long as they are using a compatible version of Hyperledger Fabric, enabling more open network models across the broader Hyperledger community.

Here we see what I would call an explosion of capabilities necessary to integrate blockchain into Oracle’s technology. Oracle provides these services on behalf of their customers, including People, Ideas & Objects, our user community and service providers. There’s also an offer here that no producer can refuse. Imagine each producer spending the time and energy developing these IT capabilities. The value that will contribute to each bottom line. Or, alternatively, they could use the software development capabilities People, Ideas & Objects provide in the Preliminary Specification. Specialization and labor division dictate what businesses choose to do for tasks that generate value. And only those tasks provide us with the most profitable means of operations. Is administrative and accounting IT something that producers can differentiate themselves on? Is this where oil & gas producers build their value? With the scope and scale of Information Technologies available today, the pace of change, and these capabilities offer no competitive advantage other than to function in an advanced economy. Why would each producer continue down this road? 

To ensure compliance to the regulations is established and maintained during development of People, Ideas & Objects, our budget allocates financial resources to CPA firms. This provides an independent third party review of the activities undertaken during development. It also provides a baseline for each accounting firm to begin their oil & gas producers' annual audits. These are a check and balance on software developments from a compliance and governance point of view. They are designed to ensure that the software is consistent with the regulatory and accounting needs of the producers. It contains no inconsistent anomalies. As our user community determines, blockchain will also provide these assurances to producers. I am unable to see any alternative to providing the oil & gas producer with the most profitable means of oil & gas operations. This is on an ongoing basis for the next 25 years, in this complex technical environment.

Implementing blockchain technologies within the Preliminary Specification is mandatory for the oil & gas industry and producers. With the predicted volume of transactions managed through the People, Ideas & Objects system as a means to provide the safety, security and documentary evidence that the blockchain offers is the only reasonable way for the industry to proceed. We are not providing a solution that is available tomorrow but one that will build value for the industry in the mid to long term. Therefore the adoption of Oracle's technologies including their Oracle Blockchain Cloud Service (BCS) and Oracle ERP Cloud in combination with People, Ideas & Objects Preliminary Specification, our software development capabilities, our user community driven development and service providers fits well with the needs, opportunities and issues that the industry and producers face today and in this time frame. 

It is clear from evaluating the producers' financial statements that accounting is still conducted as it has for four decades. In addition, the industry lacks cash. No cash is generated from operations. Nothing is being provided by the investment community and no banks are jumping back on the bandwagon. Consequently, no one’s buying the industry's story. Producers continue to manage as if the status quo is the only operational choice they have. I would therefore ask, what would happen if the industry proceeded with the development of the Preliminary Specification by providing funding for our budget? The future that is defined by People, Ideas & Objects Preliminary Specification will prove to investors and bankers that the industry is a viable investment option?

One of the areas benefiting most from blockchain technologies is our Material Balance Report. It resolves the processes involved in the measurement and reporting of oil and gas production on a monthly basis. Capturing production data in the field through field data capture and automating the subsequent processes all the way to financial statements. Within this broad definition we have introduced the Material Balance Report as the means in which producers within a Joint Operating Committee can balance the reporting of the various disparate groups involved in these processes between field data capture and financial statements. Introducing the ability through the report to material, system and partnership balance production. Our user community through their work will need to determine at what point and where the production volumes within the Joint Operating Committee for a property, plant or gathering system can then be recorded within the blockchain that supports these transactions. Once production data has been captured, verified and protected, the processes and automation in the Accounting Voucher and Partnership Accounting modules commence. 

Within those modules we address the never ending amendment process that plagues this area of reporting. This is a natural part of the oil & gas business and will continue for some time. What needs to be done in the case of volumetric amendments is that they are written in a similar fashion to the blockchain. Accordingly, there is a specific blockchain for the industries production volumes. Which would aid significantly in the global reconciliation processes that are instituted within the Preliminary Specification through the material, system and partnership balance reconciliation process to ensure the integrity of the reporting is either consistent with the facts of production, or the agreements that govern the Joint Operating Committee. Whichever of those two is in effect. As I noted before it will be our user community that determines how, why and for what purpose the Preliminary Specification will implement the blockchain. 

In traditional server architectures, every application has to set up its own servers that run their own code in isolated silos, making data sharing hard. If a single app is compromised or taken offline, many users and other apps are affected.

On a blockchain, anyone can set up a node that replicates the necessary data for all nodes to reach an agreement. This node can be compensated by users and app developers. This allows user data to remain private and apps to be decentralized like the Internet is supposed to work.

I want to clarify a seeming contradiction. Producers focus on “where the money is" finding and producing reserves. This is consistent with their competitive advantages of their land & asset base, and their earth science & engineering capabilities. Therefore their current focus is appropriate. My criticism is that they don’t understand that they’re a primary industry and the secondary industries that support oil & gas, the service industry, pipelines and software etc. need to be a part of the business and producers' concerns. Producers can’t just leave these activities to fate. They have to be involved in making them happen and ensuring these businesses are compensated appropriately. If investors see that the service industry, pipelines and software businesses are treated disrespectfully and financially abused, they will hesitate to invest in those businesses. This is the case today. Leaving producers unable to get the job done. Which is the case today. They need to focus on the things they can compete in. And they need to understand that as a primary industry it’s not just the producers who’ve earned, need or are entitled to those oil & gas revenues.