McKinsey Organizational Capabilities

McKinsey have published the results of a recent survey. Their survey was on the topic of building organizational capabilities. People, Ideas & Objects is designed to provide the oil and gas industry with an ERP systems development capability. A user driven capability that provides the innovative oil and gas producer with the most profitable means of oil and gas operations. Key to this objective is the ability of the producer firm to focus on its strategic assets. And build the science and engineering capabilities necessary to exploit their talent and assets.

I would argue that with the financial crisis and the soon to be insatiable demand for energy. Will require industry to focus on developing these capabilities. However, I am satisfied with the survey result suggesting:

Nearly 60 percent of respondents to a recent McKinsey survey say that building organizational capabilities such as lean operations or project or talent management is a top-three priority for their companies. Yet only a third of companies actually focus their training programs on building the capability that adds the most value to their companies’ business performance.

The last sentence of that quotation is an area where the Community of Independent Service Providers have another business opportunity. It was noted here the other day that the CISP could research, develop and implement principles of and consulting services for the area of organizational behavior. Building organizational capabilities in focusing the producer on the engineering and earth science disciplines may very well be another area where the CISP could develop a substantial business. That is not to suggest that the CISP is involved in the direct science and engineering, McKinsey provides a good definition of the context.

We defined a capability as anything an organization does well that drives meaningful business results. The survey explored which capabilities are most critical to a company’s business performance and why they focus on the capabilities they do. It also asked executives how their companies create and manage training and skill-development programs and how effective those programs are in maintaining or improving on their priority capabilities.

I believe the oil and gas needs a strong software development capability. Software is an area where value can be built in all industries. If users are able to think of new and innovative ways of doing business, the ability to change to those new ways is dependent on the software that defines and supports the organization. In a science focused business such as oil and gas. Where innovation on those sciences will accelerate substantially in the decades to come. The capabilities within the producer, and the software development capability that is discussed on this blog, are areas where value can be built. According to the McKinsey survey results, this concern / objective is not generally shared.

Sixteen percent of respondents in China and 20 percent in India say capability building is a top priority for their companies—versus 10 percent overall and 8 percent in North America.

and

Respondents at companies whose training programs are effective in maintaining or improving the drivers of business performance also say their companies pay more attention to tools that support or enable capability building, such as standard operating procedures, IT systems, and target setting and metric tracking.

People, Ideas & Objects has been resisted by the management of oil and gas. They know that if there is no software developed that competes with their way of doing business, they can retire in riches. Building a capability is managements conflict of interest.

In addition, although resistance to change is often viewed as a barrier to building new capabilities, almost as many respondents to this survey identified a lack of resources and an unclear vision as barriers.

Within People, Ideas & Objects I have specified a Technical Vision of how IT will impact oil and gas. There is also a User Vision of how the users will interact within the system. And the Draft Specification details a vision of how and what the software will do for the oil and gas producer. What is management's vision of the future?

To reiterate this is an area where much value can be created. The producer firms will be challenged in ways that we can't imagine today. To prepare for this eventuality, the Community of Independent Service Providers will be able to prepare their clients in the fashion that McKinsey discusses in this survey's results. These are the types of businesses that can be developed by the CISP. I will continue to highlight areas where I think the most value can be generated to the producers, and earned by the CISP.

If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Barbara Franklin on Nightly Business ...

Last nights Nightly Business Report has some interesting closing comments from Barbara Franklin. Ms. Franklin is a Director of Dow Chemical and Aetna Inc., and since 1980 has served on twelve other boards. She was also Commerce Secretary in the George H. W. Bush administration. Her comments were provocative and if correct show that shareholders, directors and investors are better able to deal with the governance of their firms.

Around 22:00 minutes into the show Mr. Franklin is introduced to discuss the "increasing role of shareholders in corporate governance" and "the rise of the shareholder is a blow to old school CEO's". Suggesting that our appeal to the shareholders and investors in oil and gas may not end in vain. In reviewing these comments it becomes obvious that I should include the Directors of the producer firms as I feel they too are interested in better corporate governance. A small oversight on my behalf.

The comments that resonate with the work that we are doing at People, Ideas & Objects are as follows:

The demise of the imperial CEO is at hand. They are more participatory and actively work with their boards.

After Enron and WorldCom scandals, the passage of Sarbane's Oxely act, a board room power shift emerged. Today boards are much more engaged with CEO's in a variety of ways.

• CEO Succession
• Strategy
• Ethics
• Executive Compensation
• Risk Oversight

And now a new board room power shift is in the wings. Some shareholders want to add their own candidates to a companies slate for election. Eliminating the need for proxy fights. The result could be a more collaborative governance structure in publicly traded companies. We'll see.

These are all positive initiatives. Since Ms. Franklin was speaking as if the first power shift, the boards being more engaged with CEO's, has occurred. The topics of Strategy, Ethics and Risk Oversight are areas where People, Ideas & Objects can add value to the producer firm. If as Ms Franklin suggests the second "power shift is in the wings" where shareholders are able to "add their own candidates to a companies slate" then corporate America could have the tools necessary to deal with many of the problems in today's business.

How could participation in People, Ideas & Objects budget funding help to make these "power shifts" more effective? For the shareholders, directors and investors having a direct say in the development of the software that their firm operates under, they will have the tools to deal with the firms issues and opportunities.

I have suggested many times in this blog that SAP is the bureaucracy. That management have used the SAP application to entrench their positions. As much as the management affect the change in the ERP software is the amount of change that can be exercised. Since SAP is static, the organizations do not change and management have SAP as their straw man excuse at hand.

If the ownership class had the ability to influence the software design, then they have the ability to influence much of the make up of their firm. People, Ideas & Objects is user based developments. The user community is comprised of all stakeholders. Since it is requested that the budget be funded by the shareholders, directors and investors of the firm, then they would have direct influence.

One of the breakthroughs of the Preliminary Research Report was the finding that software defines and supports the organization. To change the organization requires that the software be changed first. Therefore the investor, shareholders and directors need to acquire influence in a defined software development capability. In oil and gas that is People, Ideas & Objects.

If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Hands off the throttle

One of the issues that I have talked about consistently on this blog is the manner in which management control all aspects of the oil and gas "market". Receiving all of the proceeds of the oil and gas production entitles them to influence the market in ways that are contrary to the markets benefits. What I mean is the managers feel that it is their money and they should expend it as they feel fit. Bringing all attributes of the oil and gas marketplace within their domain of responsibility. This was evident in the $147 oil market when they stated the costs associated with field operations were escalating faster then inflation. This prompted them to state that "suppliers were getting greedy".

Who's really getting greedy. The reverse side of this coin is just as ugly. I place the reason for this problem on the on again off again throttle actions of the management. That is the field operations are being populated with enough individuals who are addicted to drugs that complete camps are failing. Attempts to run "dry" camps fall into the same problem. What I think the problem is, is that management have consistently moved the throttle on and off once too often.

Anyone that wanted to work in oil and gas soon found the feast vs. famine environment not to their liking. Oil and gas field operations are difficult, dangerous, remote and frustrating. Frustrating from the point of view that the general rule is that the lowest IQ will dictate the outcome of any teams tasks. When NooB's are addicted to drugs they bring a level of unknowing and complete unreliability to the task at hand, the outcome is failure. Good people don't want to be associated with failure. Besides, other industries do exist.

To make my life more difficult again, there is a second aspect of this problem. The conflict of interest problem. This is very evident in the IT area, where many people feel little to no value is generated for the volumes of money they consume. When a good friend or cousin has an idea for how they could introduce a new widget, they inevitably show up on the doorstep. Where they promote the importance of the manager and suggest he should hire them to put the widget in place at his firm. The rest of this scenario has been played out a thousand times and no one seems to ever mention it. But we all know that the reason for many of the failures to generate value in IT is a matter of perspective. If you look at it from the perspective of the manager who has an ownership interest in the widget producer, then success is the word.

Lets put another card on the table. One that I have talked about consistently on this blog as well. The issue is that I should not own the Intellectual Property that is represented in the Draft Specification, Preliminary Research Report or this blog. This is not the way in the managers world. The first thing they did when I proposed that we conduct the research in September 2003 is state that they don't hire small research firms. And turned around and hired Cambridge Energy Research Associates to conduct the research. So I funded the research myself and published the Preliminary Research Report in May 2004. Little did the managers know that by that time, CERA hadn't completed their work yet! This is representative of the expectation that management is entitled to use whatever IP they desire when they desire to use it. And without compensating the inventor or creator.

The problem with this last point, is that the next great innovation is not going to be easy. Earning the rights to the copyright or patent is compensation for the difficult work done to generate the breakthrough. Without this compensation, of having monopoly rights on the use of the IP, the motivation doesn't exist to do the work. This is how the founding fathers of the U.S. Constitution wrote the laws, the oil and gas managers may have an issue with them as well. Otherwise without IP you have a stagnant market where no real innovation is occurring.

There has to be a better way. I think we need to look closely at the attributes that make a producer profitable. Is Intellectual Property of field operations a critical success factor in Exxon's profitability? Of course not. Does Exxon manufacture their own drill bits? Of course not. The profitable nature of any oil and gas company is the legal access to the reserves, [the lease] and the physical assets used in production. Outside of that it's the scientific and engineering capabilities of the people that the producer employ. No where will you find the management of IP as poorly handled as by the current management in oil and gas firms.

How the Draft Specification deals with this unique and irreversible [irreversible while management are at the helm] situation is by essentially removing management from the decision making process. Let markets be markets, but also provide them with more information. What is needed is a revenue or business model for the service industry so that they can invest and develop their skills and capabilities with a somewhat greater assurance that tomorrow, they won't starve. All of those service providers are being treated like they are in kindergarten, and I know this because of the response that we have received from the same management. I may be openly critical of them, however, they deserve it. Since it's 4:00 on a Friday they won't see it anyway.

The first information these service providers receive is the detailed capital and operating expenditure budgets of the producers for the next 5 - 10 years. Whether this data is detailed in the reserve reports or actual AFE's, the Draft Specification Resource Marketplace Module aggregates all the producers that use the system and publishes the information by geographical region. No specific producers data is known. It's all aggregate. None of this data is for certain, it may be different when the time comes. But what can be determined is what level of investment may be made by a service provider to achieve their corporate goals and strategies. Imagine you have an idea of applying hydraulic fracturing to "tight" sands. And you have an idea on how to retrofit that fracturing technology in a way to release that gas in a manner that could help those producers. You see the costs associated with drilling in these areas and you think it might work, think it might cause the drilling costs to decline substantially and have prepared a patent application for the device.

Having secured his idea in the patent application. The entrepreneur begins writing about the idea in the search-able Research & Capabilities Module of the Draft Specification. There he further earns the rights of copyright and, introduces the idea to the marketplace for producers to participate financially in developing the innovation and the marketplace gains the benefit of knowing the ideas and building off of them earlier. And before anyone realizes, the tight sands are the next great frontier of gas exploration due to the innovation contained within this one device.

The point being that information is what is needed for people to make reliable decisions upon. The industry needs to recognize the Intellectual Property laws that exist in the western world. Management can't succeed when there is no benefit to the one who thinks about the innovation. Management needs to respect the law of the land and stop this filthy habit.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Dosi Nature of Technologies Part I

The quality of the recent working papers has been spectacular. On topic, leading edge and practical to the work that is being done here at People, Ideas & Objects. Professor's Baldwin, Perez and Orlikowski have provided strong support for the potential users in the oil and gas industry who know the status-quo is not working and as a result are looking for alternatives.

Professor Baldwin's working paper on the Mirroring Hypothesis started to list what ingredients were necessary within teams to enable an innovative software development capability. And through the mirroring hypothesis, the software development capability will define and support the innovative oil and gas producer.

Professor Giovanni Dosi's 1988 paper "Sources, Procedures and Microeconomic Effects of Innovation" was the primary research document used in the May 2004 Preliminary Research Report. Much like Professor Perez, Professor Dosi is talking about technological paradigms. The abstract of this new paper "On the nature of technologies: knowledge, procedures, artifacts and production inputs".

In the most general terms, a technology can be seen as a human-constructed means for achieving a particular end, such as the movement of goods and people, the transmission of information or the cure of a disease. These means most often entail procedures regarding how to achieve the ends concerned, particular bits of knowledge, artifacts and of course specific physical inputs necessary to yield the desired outcomes. In fact, the procedures and the underlying knowledge they draw upon, the physical and intangible inputs implicated, and the performance characteristics of outputs are different but complementary aspects of what technology is. These things are the object of this short essay. p. 173

In the budget discussion that was yesterday's post. We see the context of these recipes within firms and markets. We are standing on the shoulders of several generations of giants. To tear up the bureaucracy resonates with all people who have had the displeasure of dealing with them. But to do so without an alternative is reckless and dangerous. To imply that the alternative can be brought to bear "just-in-time" or the bureaucracy won't fail on its own; are two ideas that we should not accept.

The financial crisis was brought about by bank managers using the same bureaucratic thinking that I see in oil and gas today. The bank management was compensated handsomely as they drove the industry off a cliff. The amount of shareholder value that was wiped out by management should frighten everyone in business today. After all that has transpired in the past two years, we see the bank bonus and compensation continue at record velocity! These bank managers were very wise not to have invested in any alternatives to their ways and means.

Are the leadership in the energy industry going to wait for the same thing to happen to them?

1. Technologies as recipes

If we think of only the components necessary to drill a well then we are missing a large portion of tasks and time involved. These also don't necessarily capture the methods that make the drilling of the well successful. These are the attributes that need to be designed, analyzed and implemented in order for the next generation of organizations keep us from the return of the dark ages.

The conception, design and production of any artifact generally involves (often very long) sequences of cognitive and physical acts. It is therefore useful to begin by thinking of a technology as something like a ‘recipe’ entailing a design for a final product which, much like a cookbook recipe, concerns a physical artifact together with a set of procedures for achieving it. The recipe specifies a set of actions that need to be taken to achieve the desired outcome and identifies, if sometimes implicitly, the inputs that are to be acted on and any required equipment. p. 173

The critical nature of the Community of Independent Service Providers in making the People, Ideas & Objects application modules successful can not be understated. The tacit knowledge contained within that community can not be codified into software. Software, however, can enable and exploit the tacit knowledge through the interactions of the technologies if we are smart enough to do so.

However, in the domain of industrial technologies this is not generally the case: the requisite knowledge and skills are distributed across many individuals and a crucial issue concerns when and how they are called for. No matter how mechanised a process (as in contemporary times), the construction of most artifacts is a team operation. Different people, and groups, are assigned to different parts of the process. How the artifact turns out will depend not only on the overall design and recipe that nominally is being followed (if any), but on how the work is divided, the match up of the skills and understandings of what is to be done under that division of labour with what actually needs to be done, how effectively the work is coordinated and managed and—at least as important—on the effectiveness of the procedures linking what different individuals (and, often, different organisations) actually do. pp. 173 - 174

It is reasonable to suggest, as it is true, that success within the oil and gas industry will be dependent on the CISP and the users who are enabled through the People, Ideas & Objects application modules. This should be stated as the objective, not a boisterous comment by someone who is full of themselves. As members of advanced societies these are the speeds and the altitudes that we are flying at.

Although the distributed nature of technological knowledge limits the accuracy of the ‘recipe’ representation of the nature of technologies, it does help to highlight their procedural dimension. The latter involves problem-solving procedures, in which respect building a car, writing a software package or proving a theorem are not that different (this idea is of course grounded in many contributions of Herbert Simon; see, for instance, Simon, 1987, and, for some elaborations, Dosi and Egidi, 1991). There have recently been attempts to formalise the structure and dynamics of such procedures in the combinatorics of elementary cognitive and physical components underlying the intra- and inter-organisational division of labour and its dynamics (see Marengo and Dosi, 2005; Marengo et al., 2000; Rivkin, 2001; Rivkin and Siggelkow, 2003). p. 174

Professor Herbert Simon is a Nobel Laureate that was quoted in the Preliminary Research Report as saying.

"...What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it" (Simon 1971, p. 40-41).

Taking all that Dosi has stated to this point, assumes that the "noise" of competing attentions are silenced and we have a focus on the desired objectives. Innovation is also about failure as much as it is about success. Can it get much more difficult?

2. Beyond explicit recipes: organisational routines

Luckily we are not starting from scratch. The Joint Operating Committee has been operating virtually since the early days of oil and gas, almost 140 years ago. The breakthrough in the Preliminary Research Report is that moving the well defined compliance requirements of the SEC, Tax and Royalties to align with the JOC's legal, financial, operational decision making, communication and cultural frameworks. Allows us to innovate off of the shoulders of those generations of giants that we stand upon. The JOC is a well defined organization.

A routine is ‘an executable capability for repeated performance in some context that has been learned by an organization’ (Cohen et al., 1996, p. 683). p.174

The existence of the JOC has even survived the ignorance of SAP. SAP's static interpretation of all companies and all industries worked at one point in time. At least that is what we are told. As this overall discussion has revealed, we must aspire to higher levels of capabilities within the innovative oil and gas producer.

Such ‘higher level’ capabilities go under the name of dynamic capabilities (Teece et al., 1997). p. 174

For the oil and gas industry to become more dynamic, says everything to me. Decisions, decisions and even more decisions. I see the industry occupying people's time with so many decisions that the current bureaucracies will choke and explode. If the industry is being run off the cliff by management isn't the question. Just as the former Soviet Union became so inefficient to the demands of its people, the bureaucracies in oil and gas are heading down the same well worn path. The banking industry provides us with current experience as to how vested, entrenched and corrupt management can become. To me the only question left to ask is; would it be more detrimental to society if the oil and gas industry collapsed like the 2008 financial crisis?

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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More constructive changes.

In my last post I showed how the Information Technologies needed to be monitored more closely by oil and gas companies. Noting that SAP's Gravity application was too powerful to be put in the hands of users without a method to ensure the technologies did not violate the compliance and governance models. This is a type of risk that I have identified many times in the past few years. A risk that grows larger each day.

It's one thing to criticize and another to provide solutions. That is what the Draft Specification is about, providing the innovative oil and gas producer with the vision, community, tools and methods needed to ensure they are compliant and working within their compliance and governance requirements. Management have chosen to stick with their bureaucracies and SAP, which defines and supports the management, for their own purposes. This blog has targeted the shareholders and investors that own the oil and gas companies, are dissatisfied with their managements, and see the Draft Specification as an alternative.

I mentioned the Military Command & Control Metaphor (MCCM) in my last post. That's for the members of the Joint Operating Committee to establish a chain of command and governance of the assets managed by the JOC. That an engineer from company A, a geologist from company B and an administrator from company C can see that the authority and responsibility are held by certain individuals and are capable, authorized and responsible for making the decisions for that JOC. This would be expanded to include the designated staff from each producer who are part of the JOC, the field operations people and those that may be consultants and / or suppliers to the property.

Not to get too off track here, I want to make a point that has not been stated before. The source of the People in the CISP are globally sourced. This provides the producer with the best possible means of having the most competitive offerings available to them.

The MCCM and the Compliance & Governance Module of the Draft Specification are designed to instill a JOC with the requisite authority, command and control based on the compliance and governance requirements. In a world where the number of people that work for a JOC may total thousands, having anything but a highly dynamic and flexible work force can only be managed by the ultra slow bureaucracy or the MCCM of the Draft Specification. If we are to expand the economic performance of the oil and gas industry we will need a more defined division of labor. A global marketplace of the talents necessary to expand the performance of the oil and gas industry. To suggest anything else is irresponsible, and SAP should know better.

How is it that the software development being undertaken by People, Ideas & Objects is able to employ the MCCM? The methods of how the development is undertaken is User involved. The User base, or as they are referred to here as the Community of Independent Service Providers or CISP is composed of the entire population of the industry. This entire population of the industry is also part of the Resource Marketplace Module. A module that provides People from suppliers, producers and vendors to market, engage and build business relationships. Where their qualifications and capabilities are able to designate their offerings as their potential role in the JOC based on the MCCM. It is then the producers of the JOC to engage in the resource and establish the transactions between the producer and its suppliers / vendors / CIPS. And designate the individuals with the requisite authority, responsibility, task, calendar etc. of the JOC. People, Ideas & Objects being part of the CISP can be included in the JOC's MCCM and therefore undertake the appropriate software developments and have the JOC with the requisite authority to make the changes to the software.

Our competitive advantage, of both People, Ideas & Objects and the CISP is to provide the most profitable means of oil and gas operations. Dare I ask what SAP or Oracle provides the oil and gas producer. Please join me here.

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Our Competitive Advantages

This post is about the technological competitive advantages of People, Ideas & Objects. The unique advantages that technological developments bring to our approach to ERP systems development. It's important that users and producers understand how our advantages can deliver the systems as defined in the Draft Specification. If people are not sure if what we are doing is even technically possible. Then it is difficult for them to see how a start-up can take such an opportunity and deliver on it. In a nutshell, yes we can. The proof has been written about elsewhere and I will refer to these so the individual can do their own research. This is important, as I do not expect anyone to have to take a leap of faith that this risk is not being identified and addressed.

I want to also stress that the identification of yourselves to any producer as being affiliated with this project is not advisable. The management of the oil and gas companies are not constructively approaching the systems or organizational needs of the innovative oil and gas producer. Secondly, to suggest that the individual give up their current career for this opportunity would be too much to ask. I would only expect that people would be involved with this project on a part time basis to begin with.

Contrast the competitive advantages that are being developed in People, Ideas & Objects to the competition. Oracle has spent $39. billion to bring out their Oracle Fusion product. How has this product been built to deal with the issues of the innovative oil and gas producer? SAP has a checkered past in the industry and they too have what I would consider critical faults in their offerings.

The first thing is to define the priority of the development. In systems you can have any two of three priorities. Either 1) the speed of development, 2) the quality of the development or the accuracy of meeting the users requirements, or 3) effective cost control. Making this decision is academic when we consider the scope of the application, the financial resources of the oil and gas industry and our fundamental value proposition and business model. The speed and quality can be attained in a start-up, I'm not certain that it can be built into a large organization such as SAP or Oracle. Our speed and accuracy are something that have been available to SAP and Oracle in the past. Asking them to overcome the speed and focus I know is too much.

The key technological advancements that make People, Ideas & Objects the most competitive in the oil and gas marketplace are as follow.

Java

By for the most powerful of programming environments. And blah, blah, blah techno talk. Needless to say this is an easy and unanimous choice.

Frameworks

Employing the re-usability of Java. Rebuilding everything from scratch is just not necessary. So much infrastructure and capabilities have been built into open source and other frameworks. Providing infrastructure and capabilities at a level that enables flexibility without the constraints.

Open Source

In combination with Agile / Scrum, Frameworks and Java, Open Source brings so many of the qualities that it is hard to document them all. Realizing the value in software development is in the journey, not the destination.

Data Model

Maybe one of the more difficult decisions, but this is what we have so far. We will be using the Professional Petroleum Data Model (PPDM) data model. And in answer to the technical question are we relational or object relational, I'll need to be convinced that an object relational model would work in a complex application such as People, Ideas & Objects. Until then we are relational. Performance may not be as fast, however, accuracy will be predictable.

The PPDM data model has the combined efforts of the industry in defining a data model for use by members of the petroleum industry. Our use of this work, which is substantial, eliminates a difficult area of concern. PPDM increases the quality of the subsequent developments. At the same time I think PPDM's data model has not been rigorously tested in the marketplace. And therefore we will be looking critically at the data model to see if it can be enhanced through a more strict interpretation of Relational Theory. And if it can be optimized for the innovative oil and gas producer. 

Modular Specification

The Draft Specification is modular for a reason. Modularity is a key attribute of simplifying systems development. Interactions between modules are easily handled and the overall system design can be accommodated. In total we will be employing fifteen development teams in the agile / scrum development methodology.

Agile / Scrum

This is a method that has simplified development to its most efficient. Scrum increases the performance of a development team from two to ten times the standard. That's correct, a two to ten fold increase in productivity. This doesn't sound at all believable but I can assure you it is true. Although it is open and available to anyone that wants to strive to achieve these multiples of development efficiency, it is difficult to implement retroactively in teams that have been together for a long period of time. Many developers are unable to transition.

One of the key attributes of Agile Scrum teams is the focus and role of the user. It is critical and the methodology makes itself accountable to those users in quick, short, intense development periods. I'll talk more about this methodology in the future, one of its key advantages is that the team can be distributed as far, and as wide as is required. Enabling the best of the best developers to be recruited and involved in this development. The key mode of communication between users and developers is the User story.

User Driven

You can not expect the user to be satisfied with systems that do not involve them. Users can not expect worthwhile systems that they did not have a hand in. The difficult and time consuming aspect of building systems to the users specification is the development of the community. People have had time to be able to codify these ideas and think of new and innovative ways for the system to be built to deal with a nuance of their day to day activities in their jobs. This will be the real key competitive advantage of this community.

User Interface

I don't use Windows systems. Two hours with one of those machines and I get frustrated either at the slow pace of my work or the fact they seem to break every time I push them. Using Mac's as machines and Unix / Linux are the only ways in order to deal with computers.

I have a wonderful ability with computers. When I started in oil and gas in 1977 I was introduced to them and they have been my friends since. In fact all my best friends are computers. The way we interact with them is critical to the productivity of the user. To ignore the user interface is to miss out on much of the computers value.

Users need to see the approach we are taking is going to be successful. Committing to a losing cause is in no one's best interest. How their involvement in the quality of systems is clear. What is not clear is how an application of such scope and functionality can be approached and built. The performance of technology, its reliability and maturity are providing productivity gains that are surprising to everyone. I'm seeing a distinct move away from the Oracle and SAP style of application offering. The need for fast, innovative firms is being demanded throughout the world. This can only be provided by a software development capability dedicated to the innovative firms. Please join me here.

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McKinsey Interaction Costs Part II

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

Like vinyl records and Volkswagen Beetles, sustainable competitive advantages are back in style - or will be as companies turn their attention to making their most talented, highly paid workers more productive. For the past 30 years, companies have boosted their labor productivity by re-engineering, automating, or outsourcing production and clerical jobs. But any advantage in costs or distinctiveness that companies gained in this way was usually short lived, for their rivals adopted similar technologies and process improvements and thus quickly match the leaders.

Durable competitive advantages, like in other industries, have been hard to develop in oil and gas. Much of the last 30 years has been a battle of survival from one crisis to the next. Most of these crisis were due to the high cost of capital, or low commodity prices. There have also been a variety of issues that are unique and local, such as the lack of take away pipeline capacity in Western Canada.

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

As we have mentioned here many times the key ingredient is the quality of the team that occupy senior management. Providing the resources and direction to reveal the long term value is the skill of these teams. The key is that oil and gas exists in the minds of oil and gas (wo)men.

New McKinsey research reveals that these high-value decision makers are growing in number and importance throughout many companies. As businesses come to have more problem solvers and fewer doers in their ranks, the way they organize for business changes. So does the economics of labor: workers who undertake complex, interactive jobs typically command higher salaries, and their actions have a disproportionate impact on the ability of companies to woo customers, to compete and to earn profits. Thus, the potential gains to be realized by making these employees more effective at what they do and by helping them to do it more cost effectively are huge - as is the downside of ignoring this trend.

What can I say. McKinsey have been able to provide advice such as this throughout the past decade. What is needed in oil and gas is the organization, its systems, the people that support the team and the team itself to operate at a higher level. A level that is focused on innovation in the earth sciences and engineering capabilities and the never ending increases in the demand for these talents for every barrel of oil equivalent.

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

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

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

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

This will be a test of the "old school's" managements survival from the pre-crisis economy. McKinsey sees this reality just as I do here at People, Ideas & Objects.

As more 21st-century companies come to specialize in core activities and outsource the rest, they have greater need for workers who can interact with other companies, their customers, and their suppliers. (Enabled in People, Ideas & Objects by the Resource Marketplace Module)

Thus the traditional organization, where a few top managers coordinate the pyramid below them, is being upended.

Raising the productivity of employees whose jobs can't be automated is the next great performance challenge -- and the stakes are high.

Companies that get it right will build complex talent-based competitive advantages that competitors won't be able to duplicate easily -- if at all.

I think that I am on record as stating that "best practice" is one of the worst acts that management conceived. For oil and gas producers to maintain their competitive advantage is to focus on their asset base, which includes their land lease and productive assets augmented with their earth science and engineering capabilities.

The good news concerns competitive advantage. As companies figure out how to raise the performance of their most valuable employees in a range of business activities, they will build distinctive capabilities based on a mix of talent and technology. Reducing these capabilities to a checklist of producers and IT systems (which rivals would be able to copy) isn't going to be easy. Best practice thus won't become everyday practice quite as quickly as it has in recent years.

Much of the McKinsey article focuses on the changes in the types of work that is being undertaken at firms today. Documenting how jobs, and particularly new jobs, are focused on tacit interactions. How over time jobs have transcended transformational to transaction oriented and now "tacit" work.

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

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Industry Management of Intellectual P...

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

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

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

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

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

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Oh those Russians.

We see in this Reuters article that Russia wants western based producers to develop their offshore energy resources. I think this shows that the demand for the type of skills that the Duverney's and BlackPearl's, the prototypical producer, is high amongst National Oil Companies (NOC's). 

I think this is indicative of the difficulties of finding and producing oil and gas. The demands of energy, in the non-easy era, are particularly hard from the engineering and earth science perspective. I think the International Oil Companies (IOC's) have learned that they can rely on the skills of the prototypical start-up to build their reserves. NOC's can take a lesson from Russia who appear to be actively searching for the skills to develop their reserves. And were only to happy to seize assets from Shell and BP a few short years ago. 

Adding political risk to technical, financial and all the other risks these teams face. Is just another day at the office. 

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"Industry in a box."

It's 1992 all over again. I find myself in the position where I have a good handle on the needs and understanding of the energy industry. And I stumble into the previously unfavorable position where Oracle Corp is making statements and announcing product architectures that resonate with me. And that is the bad part. Not that Oracle technology is not the best, it is, and I find they are sailing closest to the wind in terms of the market offerings and future architectures. 

The problem for me is that Oracle and I have had business dealings before. In early 1997 Oracle executed a coup against its global Independent Service Providers that was of questionable strategic and tactical value. It is doubtful in my mind that Oracle has changed its way's. With their pending acquisition of Sun Microsystems they seem to be an imposing figure on our horizon. We need to decide how to capture the best value for our clients, the oil and gas producers.

The comment "Industry in a Box" is attributed to Larry Ellison who is the founder, Chairman and majority owner of Oracle. The comment was made in a Forbes article "Questioning Oracle's Cloud" where it is asked if Oracle's commitment to cloud computing is consistent with its current application offerings. 

Irrespective of Oracle's application offerings, People, Ideas & Objects Draft Specification details the needs of an innovative oil and gas producer. None of the current Oracle application offerings are needed to augment the software development capability that People, Ideas & Objects offers the oil and gas producer. Leading one to realize that Oracle is as much of a direct competitor as it is a technology provider. I think it was this same conflict that lead Oracle to make the decision to become an application provider at the expense of its Independent Software Vendors in 1997. 

The point of the article is Ellison's comment. It accurately captures the value proposition that People, Ideas & Objects offers the oil and gas producer. A value proposition based on the understanding that the innovative producer will have it's asset base, geological and engineering capabilities as its primary competitive advantage. Owning and operating computer hardware and software that provides the back office functions does not provide any competitive value. 

Go through an energy companies career listings and see the detailed description of an IT job they are looking to fill. Painful. The "Industry in a box" for oil and gas is consistent with the competitive advantages and value proposition noted here. A centralized, secure, virtual capability providing the producer with the most profitable means of oil and gas operations. Please join us here.

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Changes at Shell.

A number of articles are appearing about the announced changes at Shell. A new CEO Peter Voser takes over July 1, 2009 and has announced a major overhaul of the firms operations. Fox notes:

Oil giant Royal Dutch Shell on Wednesday announced a series of changes to senior management roles and responsibilities, which it said were aimed at creating a sharper focus on operating performance and technology.

I interpret these changes as an admission that the engineering and earth sciences necessary for each barrel of oil produced are increasing. The Calgary Herald reported that Voser said:

"Organisationally, we are too complex, and our culture is still too consensus-oriented. Our costs are simply too high," Voser said in an email to staff, excerpts of which were seen by Reuters.

Details of the changes include the consolidation of divisions into operating units around geographical locations. North America being one in which I would assume Houston will take the lead role in. It is also reported that many lay offs will occur throughout the company. 

The Calgary Herald notes many of the differences between Shell, Exxon and BP's announced reorganizations. These are all ongoing and reflect different characteristics and management styles. 

Exxon is renowned within the industry for its strict management practices and insisting employees do not deviate from standard operating procedures. BP, on the other hand, had a risk-taking culture that allowed considerable freedom to managers of units or fields, and Shell had a culture of making decisions by consensus.

What does People, Ideas & Objects offer firms such as Shell, Exxon and BP.

• The Preliminary Research Report provides:
  
• A focus on the expanding earth science and engineering demands of each barrel of oil.
• A focus on innovation and its iterative impact on science. 
• How a firm can adopt an innovative footing.
• A greater focus on the business of the business through the five frameworks of the Joint Operating Committee.
• Providing the innovative footing and science based strategy.
• The legal, financial, operational decision making, communication and cultural frameworks of the industry. 
• A global dedicated oil and gas software development capability.
  
• Unconstrained by the paradox of code and customers. 
• Draft Specification.
• Eleven modules based on the research contained in the Preliminary and Final Research Reports.
• Firm focused application modules.
• Compliance & Governance 
• Research & Capabilities 
• Analytics & Statistics 
• Marketplace focused application modules.
• Petroleum Lease Marketplace 
• Resource Marketplace 
• Financial Marketplace 
• Joint Operating Committee application modules.
• Knowledge & Learning 
• Performance Evaluation 
• Accounting application modules.
• Accounting Voucher 
• Partnership Accounting 
• Generic
• Security & Access Control 

It's interesting the three methods that are used by Exxon (Strict Management Practices), Shell (Consensus) and BP (Risk Oriented.) Neither of these management practices or strategies are precluded in the People, Ideas & Objects. It is very clear that a unique strategic identity is enabled in each producer through this system. This also does not preclude a strong governance structure. With the reduction of the hierarchy an alternate form is required and one has been developed. That is the Military Command & Control Metaphor used within the Joint Operating Committee affording the pooling of resources and reducing the redundant capabilities built within each silo'd oil and gas firm. 

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

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

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Exclusively oil and gas.

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

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

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

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

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

Spending any more time on the competition is a futile exercise. I prefer to highlight the advantages the producers will attain by joining the community here. 

• A dedicated software developer working exclusively with oil and gas.
  
• Focused on the Joint Operating Committee to facilitate speed and innovativeness.
  
• Unconstrained by the traditional software paradox of code and customers.
  
• Providing a competitive value proposition and business model .
  
• Offering a compelling vision of how the industry could operate more efficiently. 

Technorati Tags: People's Capabilities Development Economics Strategy Value-Proposition

McKinsey Where Innovation Creates Value

Once again we have a McKinsey article that is timely and topical. The point of this article is on innovation, and mostly talks about how firms are able to garner the advantages of research and technology. Clearly the importance of these attributes in the competitive toolbox of an innovative producer is unmistakable. "How" is the difficult question, and is why this software fills a key role in the delivery of value created by innovation.

In a nutshell, it is derived through the Community of Independent Service Providers (CISP) that are being recruited here. This communities role and purpose is clearly identified and explained in this article. I strongly suggest you download the article and keep it handy for future reference in what ever you do professionally. Yes it is that good.

McKinsey begin by suggesting that services will not follow the same demise that manufacturing did in the U.S. That the value generated by research and innovation are available to everyone who may want to use it. The problem isn't so much where to get it, but how to use it.

A similar complexity characterizes globalization. A variety of cross-border flows can be important to innovators—for instance, the diffusion of scientific principles and technological breakthroughs, the licensing of know-how, the export and import of final products, the procurement of intermediate goods and services (offshoring), equity investments, and the use of immigrant labor. Many kinds of global interactions have become more common, but not in a uniform way: international trade in manufactured goods has soared, but most services remain untraded. Of the many activities in the innovation game, only some are performed well in remote, low-cost locations; many midlevel activities, for example, are best conducted close to potential customers.

It is the CIPS who are on the frontlines in determining the producers needs, developing with People, Ideas & Objects developers the software applications that dovetail with the services they provide to their producer clients. But this is not the important aspect of this article or the method that the community is forming. It's in this next quote here.

Techno-nationalists and techno-fetishists oversimplify innovation by equating it with discoveries announced in scientific journals and with patents for cutting-edge technologies developed in university or commercial research labs. Since they rarely distinguish between the different levels and kinds of know-how, they ignore the contributions of the other players—contributions that don’t generate publications or patents.

There is a clear divide in most people's lives between the elite journal publishing academics and those that make oil and gas producers profitable and successful. This divide is not new, and it's important to note that in this article McKinsey says the relationship and interaction will remain relatively the same. What also remains the same is the value creating innovation will be with the same people, the difference is the mechanism and organization in which this craft will be applied, through the People, Ideas & Objects software applications and its Community of Independent Service providers. (Emphasis added).

The willingness and ability of lower-level players to create new know-how and products is at least as important to an economy as the scientific and technological breakthroughs on which they rest. Without radio manufacturers such as Sony, for instance, transistors might have remained mere curiosities in a lab. Maryland has a higher per capita income than Mississippi not because Maryland is or was an extremely significant developer of breakthrough technologies but because of its greater ability to benefit from them. Conversely, the city of Rochester, New York—home to Kodak and Xerox—is reputed to have one of the highest per capita levels of patents of all US cities. It is far from the most economically vibrant among them, however.

This next quotation puts in context the value of a community as is conceived and discussed in this blog. That the opportunity that we have in re-organizing the oil and gas industry and providing society with the ample energy we need to fully explore our economic opportunities is at hand. But it is the fact that the community is the producers most effective and efficient means of attaining its most profitable operations.

More than 40 years ago, the British economists Charles Carter and Bruce Williams warned that “it is easy to impede [economic] growth by excessive research, by having too high a percentage of scientific manpower engaged in adding to the stock of knowledge and too small a percentage engaged in using it. This is the position in Britain today.”2 It is very much to the point that the United States has not only great scientists and research labs but also many players that can exploit high-level breakthroughs regardless of where they originate. An increase in the supply of high-level know-how, no matter what its source, provides more raw material for mid- and ground-level innovations that raise US living standards.

If you feel that this post is too much of a reach, I would beg to disagree. We live in a time when the challenges and opportunities have never been better. Starting off with this economic transition to the new and better ways, we have this opportunity to take for ourselves, and in turn provide the producers and society as a whole with greater value.

But excelling in the overall innovation game requires a great and diverse team, which takes a very long time to build.

Please join me here.

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They're here, again.

Layoffs. Our local Calgary Herald is reporting layoffs at drilling contractors due to rig activity at 36% of capacity.

What I find particularly frustrating is the propensity for the oil and gas companies to exacerbate this boom or bust attitude. It was just a few months ago that we heard about the difficulties in securing the next generation of employees to run the industry. When considering a career people cite the boom and bust nature, and the demands of working long hours, prospective workers expressed the lack of interest in the industry. This happening at a time where the brain trust is / was about to retire. The layoffs may make it next to impossible for the producers and suppliers to recruit new talent, when the next uptick happens.

This is not just a local occurrence either. Schlumberger is laying off workers in the United States. Is this the extent of the thinking of current oil and gas company management. There are larger issues and opportunities that need to be addressed. The People, Ideas & Objects systems as detailed in the Draft Specification approaches the vendor and suppliers from a different perspective. One that works to build capacity and ensure that the needs of the industry are met by all. 

The Resource Marketplace Module  provides a solution that moves away from this boom and bust mentality. The oil and gas companies had been complaining constantly about the "gouging" and "greed" that the field contractors were charging for their services. Are these current layoff's what the oil and gas companies should be working to mitigate? By shrinking the size of the drillers and suppliers pool, only make the problems the oil and gas companies will face in the future more difficult and costly. You do reap what you sow.

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Times like these calls for...

In most business' the amount that management sell their products at is higher then its costs. In oil and gas we would only dream of such a concept as price management. In the Draft Specification I have included a price management capability on a fully automated basis.

The problem comes down to the designation of one producer as the operator. The operator has every motivation to keep the wells and fields producing to their fullest extent at all times. This is as a result of beliefs of competitive drainage, and the bank expecting their investment to perform. The fact of the matter is that the operator does not have the authority to shut in any production without the consent of the partners.

Recall that today, the Joint Operating Committee (JOC) meets on a relatively infrequent time frame and the majority of the reporting is standard fare statements and data. Any production volume reduction is not possible without the consent of the producers who hold x% as determined in the Operating Procedure.

Fast forward now to the day in which the People, Ideas & Objects system has been built and is commercially available. It is fair to assume that the volatility in the commodity prices remain and the variance in price is in the realm of + / - 20%, and somewhat determined by political factors and seasonality. This would make the majority of the production either very profitable, marginal or create a loss situation.

With the People, Ideas & Objects system we will have the ability to calculate the costs on a "live basis" based on the contributions of the partners involved in the JOC. This is the key change factor that enables the producers to use an algorithm to move production up or down based on the commodity prices and the actual costs of the operation. If at any time the required percentage of voting partners determine that the costs exceed the price received, production would be scaled back to 50% of the flow rate. If the loss exceeds 10% then another 50% of production would be reduced to the point where the production could be scaled back to the level that the partnership are satisfied the optimal reserves production and prices are optimized.

These operations are dependent on one factor, the collective decision of the producers representing the JOC. This is the type of capability that would be made available in People, Ideas & Objects. The standard bureaucracy can not make the decisions in fast enough time frames to make the decision valid. By the time the decision would be made, the prices may have risen dramatically just at the time the wells were being choked back.

After the decision from the JOC has been made. And this decision is based on the producers vote and desire to optimize the value of the reserves. This decision is therefore somewhat automatic in that each producer will be able to input their specific criteria that they would expect the changes in production to occur. The commodity prices fall below what the calculated actual costs are and if the production became marginal, the wells production would be reduced to the 50% I am using in this example. The prices subsequently, because their is a lack of production available for the consumer, increase and then the well can increase its production on any increment the JOC may have deemed appropriate for the reserves and their cost factors.

The ability to calculate the costs, determine the market prices, and the ability to slow the rate of production through telemetry. Are the technologies that are being implemented in this application. Please review the Technical Vision and specifically the IPv6 component. Other times during further price changes, the system would provide the opportunity to increase production for higher prices as well.

The interface to this capability would be the browser of those that are present virtually in the JOC. And I have suggested that these people are the actual oil and gas producer / investor / owners of the property. Imputing a reduction in the separation between management and investors is something that can be, and probably will occur in this current financial market meltdown.

Now I know that their are contractual commitments made to the firms that gather, deliver and market the commodities. The nomination process is how they monitor their business and these people will need to be involved in the decisions that are made at the JOC. That they have the right to demand gas production meet certain annual volumes could be accommodated by recognizing this price management capability and implementing it into their operation as well. I don't foresee an issue here, if there is it may be a simple matter that the producer declares Force majeure to reflect the operation is no longer commercial at current prices.

Irrespective of the ability to have these types of operations conducted I know two things. The bureaucracies are too slow to accommodate any price induced change in production. And the industry has to take responsibility for the prices that they need to realize. As we move the industry from a price taker to a price maker, the optimal use of the reserves and our endowment of oil and gas will be optimized, not only for the producer but also the energy consumer. This is achieved through the generally higher prices that will be realized, and hence the more financial resources that will be available for exploration and bringing on the more difficult production.

Please join me here.

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