21st Century Marketplace Vision - Our User Community - Part IX

Preamble

It is rapidly becoming standard that Enterprise Resource Planning providers must compete on demonstrable value. If they cannot produce a tangible revenue stream above and beyond their cost, they will become uncompetitive in the near term. Gartner stated on April 2, 2026, that by 2028 more than half of enterprises will stop paying for assistive intelligence tools such as copilots and smart advisors and will instead prefer platforms that commit to workflow results. The same Gartner release also projected that by 2030, software companies that merely add bolt-on Artificial Intelligence to legacy applications, rather than redesigning for agentic execution, could face margin compression of as much as 80 percent. (Gartner)

Every move within Synallagi has been made with enhanced producer profitability in mind. For decades, People, Ideas & Objects have worked to enter oil & gas on the strength of a value proposition substantial enough to justify adoption. We have organized our user community as the primary vehicle for creating, developing, and implementing that value. We have equipped our user community with the authority, responsibility, capabilities, and commercial purpose through a strong organizing charter. 
Nothing will be resolved in terms of remediating the damage to industry from producer officers and directors more than generating profitability. As the primary industry producer, oil & gas producers must be profitable, everywhere and always. Synallagi provides what's needed.

Our user community is motivated through a shared bonus structure that rewards creation and development in the areas of performance, innovation, profitability, accountability, and automation during software developments. It also includes team-based incentives tied to overall project completion, module completion, and other measures intended to reinforce collaboration and coordinated execution. At the individual level, incentives include project completion rewards, exclusive Intellectual Property license domains, ownership and operation of service provider organizations. This structure is intended to align commercial upside with the creation of measurable value.

The third paper in this 21st Century Marketplace series will address our user community’s service provider organizations and will introduce a different incentive architecture. That structure will be built around Synallagi’s Autonomous Asynchronous Transaction Orchestration and automation’s architected, designed, and implemented through our user community. In that environment, people are progressively abstracted from the transaction layer of the marketplace, the producer firm, and the Joint Operating Committee. Their role shifts upward into the higher-order functions of accountability, assurance, supervision, and management.

By setting a new standard, individuals can attempt the process on a trial or part time basis and evaluate their knowledge and skills to assess their capabilities to operate within our user community and participate productively before having to fully commit. Initial prepackaged projects will be available for this purpose.

Service provider organizations (our user community) will participate in the value created for producers, Joint Operating Committees, and the marketplace. Across the industry, the aggregate yield from those benefits should be substantial, making the cost of sharing economically immaterial relative to industry’s gains produced. These benefit allocations will be governed through a targeting framework that measures value creation and records the compensation earned from it. That framework will allow both producers and our user communities to determine, in tangible terms, whether revenues and costs are being managed fairly and equitably. It will also provide an objective basis for reporting the overall performance of our user community over time, including the total benefits generated for producers, Joint Operating Committees, and marketplaces.

Our value proposition remains in the range of $25.7 trillion to $45.7 trillion over a twenty-five-year period. If value of that scale is available, why has it not already been pursued? The first reason is disintermediation. Officers and directors of producer firms are unwilling to proceed where doing so would disrupt their existing self-serving arrangement to correct what they already know is broken. People, Ideas & Objects have been unable to overcome this obstacle. 

In a recent X post on March 11, 2026, George Sivulka @gsivulka of @hebbia articulated a significant new perspective: "Productive Individuals Don’t Make Productive Firms." His commentary includes key observations such as:

Individual AI breeds chaos.

Institutional AI fosters coordination.

Contrary to the expectations of some producers—who believed we would open source the specification to limit the influence of People, Ideas & Objects—we have maintained control. We are confident they will appreciate the regulated environment that our user community can now provide under our Synallagi IP license. It is People, Ideas & Objects belief we need our Intellectual Property to define, support and constrain the work that is undertaken by Autonomous Agents. AI agents unable to expand outside of their IP driven license is a preferred methodology.

The destruction inflicted on North American oil & gas is tragic. Shale represents the greatest endowment of wealth ever placed within an industry, and to have that endowment emerge within the most powerful economy in history should have produced extraordinary results. Instead, in less than two decades, those entrusted with authority have accepted it as unprofitable, uncommercial, and incapable of generating acceptable returns. That outcome is all the more striking because many warned throughout that period that their prevailing methods were outdated and destructive. The investment community recognized the danger over a decade ago and withdrew support in order to limit its exposure and contain the scale of the damage. In that respect, the discipline imposed by investors may have prevented an even deeper collapse.

The earlier abdication of authority, responsibility, accountability, and control over industry resources has placed officers and directors in personal financial jeopardy. To persist with the same method of operation in the face of such clear damage and such an obvious need for change exposes them to even greater organizational dysfunction and compounds the failures already in evidence. Synallagi and our user community provide a means of resolving the issues identified in our March 27, 2026 paper. In practical terms, they offer a path by which those officers and directors may withdraw from this destructive position without further deepening the liabilities they would otherwise continue to incur.

Executive Summary

The preamble establishes the central theme of this paper: the business opportunity available to administrative and accounting professionals in North American oil & gas. These professionals can participate directly in rebuilding and reconstructing the industry’s culture around reserves preservation, performance and profitability. Their participation in our user community is instrumental to implementing the standards, expectations, aspirations, capabilities and authority required to achieve that outcome. Through our user community, they can establish their own organization, apply their oil & gas knowledge and contribute directly to the development of Synallagi.

The paper then turns to the configuration of our User Community Charter. It describes the business opportunity available to our user community, the revenue model supporting it and the work required to make it operational. It also addresses the critical role of Intellectual Property in the future of work and its application within our user community charter. The motivation of our user community must remain focused on providing for the most profitable means of oil & gas operations. In the Artificial Intelligence era we are entering, “blind, sleepwalking agents of whomever will feed them” is no longer acceptable. Our user community is business-focused, action-enabled and accountable.

The paper also details the multiple revenue streams available to our user community members and to the service provider organizations they own and operate. These revenue streams provide the foundation for developing businesses around Synallagi and oil & gas. Our user community also serves a critical bridging role between Information Technology and oil & gas, connecting software development capability with industry-specific administrative and accounting knowledge.

A historical review of the distinction between markets and firms is then undertaken through the work of Professors Elinor Ostrom, Oliver Williamson and Ronald Coase. The objective is to establish that transactions should occur at the lowest point of transaction cost. For the last century, hierarchies largely prevailed over markets. In the 21st century, however, stablecoins, crypto, Information Technology, Artificial Intelligence and other supporting institutions are creating a revolutionary dynamic in favor of market selection. This discussion is contained in Appendix III.

In a brief twenty-minute presentation, George Sivulka of hebia.ai outlines the Seven Pillars of Institutional Intelligence. People, Ideas & Objects has integrated these pillars into Synallagi as the Artificial Intelligence framework within our Information Technology Organizational Construct. This paper reviews these concepts for our user community to provide a foundation for discussion and to guide their development efforts. While the academic analysis in Appendix III examines the historical relationship between markets and firms, the hebia.ai Seven Pillars provide the forward-looking Artificial Intelligence perspective.

For our user community, Intellectual Property is foundational. As a licensee of Synallagi, our user community acquires a secure platform on which to build its organization. Intellectual Property is also an Organizational Construct of the software. It supports, defines and constrains the boundaries of each exclusive process domain. Those boundaries, in turn, constrain the environment in which Artificial Intelligence operates. Artificial Intelligence is the killer application for Intellectual Property. Our user community and its service provider organizations will operate with these advantages.

Throughout its work, People, Ideas & Objects has maintained that the oil & gas industry has been pursuing a destructive business model and strategy. That model would inevitably cause the industry to suffer. The consequences, however, extend beyond the industry itself. The societal dependence on oil & gas is far larger than the balance sheets of producers.

Warren Buffett’s description of the “institutional imperative” is directly relevant. He observed that rationality frequently collapses when managers mindlessly imitate the behavior of their peers or when the leader’s preferred business craving is supported by internal studies, regardless of its merit. People, Ideas & Objects have made this argument consistently. Synallagi provides every producer with the means to produce most profitably. Once that level of performance is achieved, each producer is endowed with the resources necessary to pursue its own independent strategy, lead its own firm and compete on its own merits. The industry’s repeated shifts from shale, to clean energy, back to shale, then consolidation and now international expansion are indicative of Buffett’s institutional imperative.

The industry now lacks the capacity and capability to conduct operations at the scale necessary to sustain productive deliverability. There is also an unwillingness by many parties to engage with North American producers for standard business activities while current leadership remains in place. Yet officers and directors continue to suggest they can resume prior production volumes, and they have convinced politicians and the public of that claim. This creates the conditions for industry damage to escalate into a broader societal disaster for North America. We have reached critical points in reserves deliverability before. We have not, however, reached them with shale representing the largest share of productive capacity. Avoiding that outcome is the purpose of People, Ideas & Objects’ work.

It is one thing to criticize the current structure. It is another to offer a solution. Our user community, its service provider organizations, Synallagi and People, Ideas & Objects are components of that solution. Together, they address the administrative and accounting failures that have had a detrimental financial impact on the industry. Through administrative and accounting reorganization, overhead costs can be converted into variable costs based on profitable production. Our user community and its service provider organizations represent a reallocation of resources away from producer-owned overhead structures and toward specialized, market-based process organizations. Each service provider can manage a defined process on behalf of the oil & gas industry, benefiting from advanced specialization and division of labor.

This structure does more than convert overhead into variable cost. It also enables the sharing of Cloud Administration & Accounting for Oil & Gas software and services across the industry. This eliminates the need for each producer to build and maintain the same non-competitive administrative and accounting infrastructure as every other producer. The benefits of competitiveness, specialization, division of labor, shared infrastructure and variable overhead are significant. Yet they are secondary to the larger advantage: the ability of our user community to produce standard, objective, factual, high-quality and accountable reporting for each and every Joint Operating Committee.

Appendix II extends the Material Balance Report example introduced in our March 27, 2026 paper, 21st Century Marketplace Vision for Oil & Gas — Issues, and its related podcast. That paper discussed the influence of automation on the overall Material Balance Report and, specifically, the Systems Balance. This paper extends that work by addressing the autonomous elements of the Material Balance Report and their involvement in producing the report. It also includes a brief discussion of the Material Balance and Partnership Balance components of the Material Balance Report.

21st Century Marketplace Vision - Issues - Part II

The Issues

The accelerated deployment of Artificial Intelligence across the corporate landscape is creating unprecedented mechanical and intellectual leverage. The potential expansion in productivity and value creation across society is substantial. In the oil & gas industry, however, the primary challenge is not technological. The transition is structural, architectural, organizational, and cultural.

Over the next twenty-five years the scale of transformation will be profound, likely exceeding conventional expectations. Producer firms remain the central economic actors within the energy sector and therefore carry the responsibility to lead and finance the development and implementation of the People, Ideas & Objects Synallagi. Without deliberate institutional design, the transition will occur in a fragmented and inefficient manner. With it, the North American oil & gas industrial complex can adapt in a coordinated and coherent fashion.

The realization of Artificial Intelligence’s promise is inseparable from energy availability. The capacity to build, operate, and sustain next-generation infrastructure—while simultaneously meeting broader economic demands—depends entirely on reliable, abundant, and profitable energy production. It is here we now “toss the cat amongst the pigeons.”

The industry presently faces one of the most difficult periods in its history. Operational discipline has weakened. Financial credibility has deteriorated. Political capital has eroded. The service sector, once a central pillar of technical capability, has been materially damaged—largely as a consequence of the conduct of producer officers and directors. Major service providers in North America are increasingly diversifying away from oil & gas in search of more stable opportunities in other industries.

The origins of this condition are structural. Four decades of systemic unprofitable production and persistent overproduction, combined with leadership insulated by financial abstraction rather than operational reality, have produced an industry sustained more by appearance than by performance.

Against this backdrop, several advanced and material issues become evident. Each is structural in nature. Each is correctable through disciplined institutional redesign of the type contemplated in Synallagi.

21st Century Markets

Throughout the 2026 series of People, Ideas & Objects papers, we advance the view that the oil & gas industry will become increasingly dependent on markets as its primary organizing mechanism. Producer firms will gradually retreat from many of their traditional functions. The Internet enables hyper-specialization, deeper division of labor, and the shared use of critical Information Technology resources and supporting infrastructure. These forces weaken the competitive position of hierarchical organizations. Markets outperform hierarchies not only in cost efficiency, but also in speed, capacity, and capability.

Within this environment, the depth of knowledge inside any single organization must concentrate on its genuine competitive advantages. In oil & gas, these advantages lie in engineering and geological expertise. In a hyper-specialized ecosystem, producers will obtain most operational capacity from the market while focusing their internal resources on high-level scientific and technical work. This concentration will define the basis of competition among producer firms.

Capabilities that are generic across the industry should not be replicated internally by every firm. For example, building proprietary cybersecurity infrastructure for cryptocurrency and stablecoin transactions within each producer organization would be inefficient, duplicative, and consume capital resources. Markets will supply these services more effectively when required.

Participation in a market-based economy requires adherence to certain structural attributes. Objective, standardized, timely and accurate centralized approaches to oil & gas accounting and administration represent a significant efficiency gain. Synallagi, proposed by our user community and service providers, establishes such a framework. Beyond cost savings, it provides a collective understanding of what the industry is—and what it is not. 

Our architectural direction implies a structural shift: the ERP platform ceases to function primarily as an internal enterprise control system and instead operates as a market coordination engine. In this configuration, the ERP becomes the infrastructure through which hyper specialized participants—human and / or AI—execute transactions or Synallagi’s in a coordinated, policy-governed manner.

Market coordination is then wrapped in our Marketplace Interface for the three markets of Synallagi. The Petroleum Lease, Resource and Financial Marketplace modules. Providing the oil & gas, service industry and other market participants with the means to engage in commerce within the industry on a stable-coin, crypto enabled, Autonomous Asynchronous Transaction Orchestrated environment. 

Within Synallagi, seven organizational constructs have been identified that support both producers and the broader industry:

• the Joint Operating Committee

• Markets

• Intellectual Property

• Information Technology

• Innovation

• Professor Paul Romer’s theory of Endogenous Technical Change (sharing)

• Hyper-specialization and the division of labor

Markets function as a defined and supported organizational construct that also imposes constraints on operations. They significantly influence the framework (what, how, where, when, and why) for conducting business. 

Additionally, Trust is currently being evaluated as a potential eighth foundational institutional construct.

Whose Problem is This?

These issues belong squarely to the 21st century. How they are interpreted will vary according to individual perspectives on the oil & gas industry and the strategic choices people make regarding their future.
Several questions naturally arise:

• Are conditions in the industry today accurately represented?

• Will those conditions persist in the future?

• How secure is long-term energy independence in North America?

• Will producer officers and directors intervene to address structural deficiencies?

• How much of the calculated $5 trillion in natural gas losses can be mitigated going forward?

• Is there sustainable profitability in oil & gas?

• Can the industry compete effectively in dynamic North American capital markets?

• If not, why not?

These questions frame the strategic challenge.

Resistance is Futile

The primary response of large producers has been consolidation. Combining balance sheets has allowed firms to withstand volatility, expand political influence, and strengthen their independence within that arena. However, when assessed from a financial performance perspective—and in terms of broader industry progress—the results are less compelling.

In many cases the underlying issues appear to have intensified. Institutional resistance has deepened, and the capacity for meaningful change within these organizations appears limited. Accordingly, expectations that these firms will drive structural reform in the short or medium term should remain restrained. This reality complicates the development of new institutional initiatives.

Markets, however, continue to evolve. As this 2026 paper series will demonstrate, the pace and scale of change is accelerating. Organizations resistant to adaptation may struggle with the velocity of the transformation underway. These developments are not optional features or incremental improvements; they are structural requirements for continued participation in the industry.

The contrast with earlier technological transitions is instructive. Few organizations today operate on dial-up connections or 56k modems. Likewise, transaction flows should be architected, automated, and available for executive review rather than processed sequentially through inbox-based, manual workflows. These examples represent technological transitions that are under completion and demand much more than the other technological changes that came before them.

Looking ahead, far more sophisticated mechanisms will emerge. Autonomous and asynchronous micro-transactions, settled in stablecoins and tied to crypto-securitized ownership interests within a Joint Operating Committee, may become routine in only a few years. Even this scenario may represent a modest example of the commercial infrastructure required to support future markets.

For engineers and geologists pursuing exploration opportunities, securing capital, conducting research in a working group, or restoring production from shut-in properties, the focus must remain on science and technical decision-making. The underlying infrastructure—transaction processing, digital coordination, and financial settlement—should operate seamlessly in the background. When markets provide this infrastructure effectively, technical professionals are freed to concentrate on the work that creates value. We believe they should have a greater interest in the application and development of scientifically-focused Artificial Intelligence frameworks. The choice they have is infrastructure to support their business or if it's not available, their business being consumed.

Downsides of Decentralization

In the choice between consolidation (hierarchical firms) and decentralized, market-dependent structures, the latter carries several inherent disadvantages rooted in transaction cost economics. Professor Ronald Coase showed that firms exist precisely because organizing activity through markets incurs real costs—searching for partners, negotiating and writing contracts, monitoring performance, and enforcing agreements—that are often higher than issuing internal directives. Even when technologies lower some of these frictions, the trade-offs remain material.

The principal downsides relevant to our situation are provided by Grok 4.2:

• Elevated transaction costs and administrative friction — Arm’s-length market dealings require ongoing due diligence, legal safeguards, and dispute resolution that internal hierarchies avoid through simple authority.

• Coordination and integration difficulties — Complex, interdependent activities (shared infrastructure, large-scale capital projects, or rapid industry-wide responses) are harder to orchestrate when participants remain independent.

• Inconsistency and fragmentation — Standards for safety, environmental compliance, data reporting, and operational quality can diverge across autonomous entities, increasing regulatory burden and investor confusion.

• Greater exposure to volatility — As we have discussed, “markets are messy.” Smaller, market-dependent organizations have fewer internal buffers against price swings, capital-market shifts, or boom-bust cycles.

• Risk of opportunism and hold-up — Independent actors may exploit asset-specific investments or incomplete contracts to their own advantage, a classic problem identified by Oliver Williamson.

• Slower knowledge transfer and public-goods underinvestment — Tacit know-how spreads less efficiently across organizational boundaries, and collective investments in R&D, training, or industry standards suffer from free-rider problems.

These disadvantages are substantially offset by the structural realities of the North American oil & gas industry. Operations span a vast continental domain, with each region displaying unique geological and technical characteristics in addition to the advanced expertise required for field operations. Producers retain full operational control through the Joint Operating Committee. Decentralization of the service sector is therefore not a radical departure but the continuation of a model that has existed throughout the industry’s history.

Moreover, administrative and accounting functions do not constitute competitive advantages for producers. Shifting these responsibilities to the market instead delivers clear benefits: material cost reduction and the elimination of bureaucratic overhead that has long acted as a drag on performance.

That said, many of these downsides are not fixed. Advanced accounting systems, real-time performance visibility, blockchain-enabled contracting, artificial intelligence, and a new class of specialized service providers can dramatically reduce transaction costs and coordination frictions. This is exactly the framework Synallagi is designed to deliver—turning what has traditionally been a decisive argument for consolidation into a competitive advantage for decentralized, market-driven organizations.

OCI Resource Marketplace Module, Part VI

 Change Management

Among the many areas of research Professor Langlois has undertaken is modularity. Modularity builds on the boundaries between the firm and the market and is one of the reasons the Preliminary Specification has fourteen modules. Modularity's primary advantage is managing change. Changes can be managed by isolating their impact to one module. Professor Richard N. Langlois wrote in “Modularity in Technology, Organization, and Society.

Modularity is a very general set of principles for managing complexity. By breaking up a complex system into discrete pieces - which can then communicate with one another only through standardized interfaces within a standardized architecture - one can eliminate what would otherwise be an unmanageable spaghetti tangle of systemic interconnections. p. 1

People, Ideas & Objects impact is beyond just the software proposed to be developed. Organizations such as the producer firm, the Joint Operating Committee, the service industry participants and the service providers are all impacted by the modules in the Preliminary Specification.

What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to modularity in the design of the organizations that produce such products. p. 1

And

Why are some (modular) social units governed by the architecture of the organization and some governed by the larger architecture of the market? p. 2

It is in our Revenue Model that People, Ideas & Objects assert that these software developments are not just for oil & gas producers. They are for individuals, society, and the greater oil & gas economy. To focus only on the producers misses some of the “who” we are developing these systems for.

The set of design rules that guide social interaction are what we can generally call social institutions (Langlois 1986). These rules determine (among other things) the extent to which, and the way in which a society is a modular system. The desirability of modular design is a theme with a long history in the theory of social institutions. Adam Smith long ago proposed a decentralization scheme based on what he called "the obvious and simple system of natural liberty," by which he meant a system of private property regulated by common law and subject to minimal central administrative intervention. On the economic level, this approach would lead, he believed, to economic growth spurred by innovation, learning, and an ever increasing division of labor. pp. 14 - 15

And

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place," he wrote, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its order. We must solve it by some form of decentralization"(Hayek 1945, p. 524). p. 15

When a user is working in the Resource Marketplace module. Whether they are in an oil & gas producer, a Joint Operating Committee or a supplier / vendor. The scope of what they are dealing with is limited to the Resource Marketplace. Modularity provides interfaces to the other modules when necessary. However, dealing with just the data, processing and functionality of the Resource Marketplace enables the module to deal with many issues within that marketplace, the key variable it can deal with is change.

Under some circumstances, the benefits of modularization may not be worth the cost. For example, a system whose environment never changes may not have to worry much about modularization. p. 8

And

In a world of change, modularity is generally worth the costs. The real issue is normally not whether to be modular but how to be modular. p. 11

Software development issues and opportunities fall within General & Administrative costs. The costs associated with this are not integral to the competitive advantages of producers of their land and asset base, nor are they an integral part of the coordination of the market for earth sciences and engineering. Yet they are critical to providing the producer with what People, Ideas & Objects assert in our Revenue Model as the result of our three core competitive advantages. Providing the most profitable means of oil and gas operations for oil and gas producers. It is the oil & gas producer that needs to be focused on sustainable profitability in order to access the abundant financial resources necessary to rebuild the industry and approach this challenging future.

Dynamic Transaction Costs

Dynamic Transaction Costs are a unique area of research for Professor Richard Langlois. That is to say I think he’s the leading researcher on the topic. It is a topic that affects us significantly as we operate in an environment where change is the one constant we can rely on. Langlois’ definition of Dynamic Transaction Costs from “Transaction Cost Economics In Real Time” is as follows.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-versa. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

Clearly the oil & gas industry will have significant Dynamic Transaction Costs without People, Ideas & Objects Preliminary Specification. That is to say that they will not have the capabilities they need when they need them if they continue to use SAP in a structured hierarchy. During 2023 it has become evident that this is the case. Since the initial publication of the Preliminary Specification in 2012, the service industry has been hollowed out by the officers and directors of the producer firms. There will be significant Dynamic Transaction Costs incurred throughout the greater oil & gas economy. This is due to the transition to full reliance on the market for resources and the damages realized. Recall we are looking for “thicker” markets to develop as the Joint Operating Committees look to the market for all of its Resource Marketplaces. Let's recall what capabilities are with a quote from Langlois’ “Dynamic Transaction Costs in Real Time,” and the phrase from Harvard Professor Carliss Baldwin of “Knowledge begets capabilities, and capabilities beget action.”

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organization probably begins with Edith Penrose (1959), who suggested viewing the firm as a 'pool of resources'. Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources.Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied 'how to' knowledge useful for particular classes of activities. pp. 105 - 106.

We have noted that when a supplier / vendor is selected within the “Planning & Deployment Interface” of either the Research & Capabilities or Knowledge & Learning modules. Then the associated key and operational staff c/w their positions in Industrial Command & Control would be populated into the interface from the Vendor / Supplier Contact Database. With the knowledge we learned about Dynamic Transaction Costs. We could also populate the “Planning & Deployment Interface” with the capabilities information from the supplier / vendor when it is selected. This information would also be available when needed from the Vendor / Supplier Contact Database. It would be maintained by the vendor, as all the information in that database is.

"In a metaphoric sense, at least, the capabilities or the organization are more than the sum (whatever that means) of the 'skill' of the firm's physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104)." p. 106

There will be a significant amount of information made available to the users of the “Planning & Deployment Interface.” Certainly the information to determine what is required to mitigate the Dynamic Transaction Costs, define any deficiencies and map out a successful project. 

We want to look at the situation from the point of view of the supplier / vendor. We want to see how they provide capabilities to the Joint Operating Committee that employs them. We discussed how much data regarding their service operation is populated into the Joint Operating Committee “Planning & Deployment Interface.”

From the supplier / vendor’s point of view being part of the detailed planning of the program will not be anything too novel. What we are seeking to achieve is for the oil & gas producers as represented in the Joint Operating Committees to have increased reliance on “thicker” markets in the service industry. Greater dependence on an innovative and competitive service industry marketplace is a necessary building block for the innovative oil & gas industry. This is reflected in the People, Ideas & Objects Preliminary Specifications “Ideas Marketplace Blog,” and the decentralized manner in which the industry will operate under the Preliminary Specification. Some may suggest the industry operates in that fashion, but I argue that we are far from that conceptual model. That is evidenced by the level of conflict between producers and suppliers and the lack of competition in the supplier marketplace. This situation is largely due to producer firms. They have consistently prevented the service industry market from operating effectively at critical times. This is reflected in purchasing equipment for their own use, like drilling rigs. They are not working with anything but proven technology, not sponsoring any research, not working with anyone other than those of size. They are not respecting others' Intellectual Property and not paying for work successfully completed until years have passed etc.

Listed as a project on Professor Richard Langlois' website is “The Vanishing Hand” which he describes in his paper “The Vanishing Hand: the Changing Dynamics of Industrial Capitalism” as.

The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates. p. 3

Suggesting that we are moving towards a market-based form of industrial capitalism. One that leaves behind the “visible hand” of hierarchy and management methods. We noted that the service industry had interfaces to the Resource Marketplace module of the Preliminary Specification. Specifically a project management interface that enables the provider to determine and pass their Dynamic Transaction Costs on to the Joint Operating Committee. It is necessary that producers provide the service industry with access to software in this fashion. In addition, it is necessary to offset these costs to enable markets to expand.

As in Chandler, secular changes in relative prices attendant on "globalization" (driven by technology or politics) affect economic organization not only directly but also, and perhaps more importantly, indirectly through changes in technology. Production costs matter as much as transaction costs (Langlois and Foss 1999) Moreover, the kind of transaction costs that matter in history are often not those of the Williamson kind but those I have labeled dynamic transaction costs (Langlois 1992b). Costs of coordinating through markets may be high simply because existing markets - or more correctly, existing market-supporting institutions - are inadequate to the needs of new technology and of new profit opportunities. But when markets are given time and to a larger extent, they tend to "catch up," and it starts to pay to delegate more and more activities rather than to direct them administratively within a corporate structure. p. 5

The oil & gas industry has to consider itself a market-supporting institution for the service industry. There is no primary industry for these providers, their revenues are entirely dependent on oil & gas production. It would serve the oil & gas industry well to remember that they depend on the service industry. There has been so much talk about how greedy and lazy the service industry is from the producers themselves. I can’t imagine how much worse it could get. The attitudes and actions of an innovative and successful oil & gas producer are so far removed from this behavior, we have a long way to go. Transaction Cost Economics in Real Time.

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121

To stay in the domain of the oil & gas supplier and vendor, I will discuss how their increased involvement in the Joint Operating Committee can increase producer profitability. How this organizational conceptual model will help producers and suppliers of the innovative oil & gas industry. From Professor Ronald Coase in the “Nature of the Firm” 1937

Adam Smith explained that the productivity of the economic system depends on specialization (he says the division of labor), but specialization is only possible if there is exchange-and the lower the costs of exchange (transaction costs if you will), the more specialization there will be and the greater the productivity of the system. p. 73

Oil & gas producers' competitive advantages are their land and asset base, and the coordination of the market of earth science and engineering capabilities, to a large extent everything else is secondary to the firm in terms of maintaining a profitable and competitive position within the industry. What is not core to their competitive advantage can be obtained through contract from the marketplace on the basis of the “decentralized production model.” Leaving the “high throughput production” model currently being used behind. From Professor Coase.

This is what I said in a lecture published in Lives of the Laureates (Coase, 1995 p. 245): The costs of coordination within a firm and the level of transaction costs that it faces are affected by its ability to purchase inputs from other firms, and their ability to supply these inputs depends in part on their costs of coordination and the level of transaction costs that they face which are similarly affected by what these are in still other firms. What we are dealing with is a complex interrelated structure." Add to this the influence of the laws, of the social system, and of the culture, as well as the effects of technological changes such as the digital revolution with its dramatic fall in information costs (a major component of transaction costs), and you have a complicated set of interrelationships the nature of which will take much dedicated work over a long period to discover. But when this is done, all of economics will have become what we now call "the new institutional economics. p. 73

In order to achieve a higher level of oil & gas deliverability, oil producers will need to focus on their part of the process in a more specialized manner. And that would apply to the overall industry as much as to any individual producer. Leaving the work they may be involved in today to the marketplace to provide. In the Preliminary Specification, there will be a prototypical producer firm configured with officers, engineers, geologists, geophysicists and a handful of lawyers for contracts and land deals. Supported by support staff. Everyone else is provided through a service contract with a service provider in the Resource Marketplace module. This producer firm will manage their interests in a variety of Joint Operating Committees and participate in the development of their land and assets. Each Joint Operating Committee has acquired capabilities from the Resource Marketplace suppliers/vendors.

It is this reliance on the Resource Marketplace module at both the producer and the Joint Operating Committee that I emphasize in this discussion. Specialization at all levels of the industry will enable the oil & gas and service industries to produce more oil & gas with the same resource base. This is the benefit of specialization and the division of labor. We however, first need to implement an organizational model that incorporates all the industry elements. Service industry and service providers in both the field and the head offices of producers are included. Without that we solve only a small portion of the problem. The point of this exercise is that with the increased output of oil & gas, and the more efficient production of that oil & gas as a result of the market configuration noted above, the oil & gas producer will be more profitable due to the software that identifies and supports this decentralized production model.

The integrity of the software as reflected in the People, Ideas & Objects Preliminary Specification, our user community and their service provider organizations with Oracle Cloud ERP is the organization that holds the greater oil & gas economy together through the process of change and in defining and supporting it in its ultimate manifestation. The discussion to this point in the Resource Marketplace module may appear confusing until it is understood that the objective here is to mitigate the chaos and confusion that will inevitably occur as a result of this process. Producers broke the industry, and will use oil & gas revenues to rebuild it. They will incur significant Dynamic Transaction Costs due to the damage they've authored. There will be no better way to resolve such chaos and confusion than having the right information for the right people, at the right time, on the right device and in the right place with the right authority to access it. 

Dynamic Transaction Costs

Our overall topic is capabilities, and we are moving from our discussion of modularity to the topic of dynamic transaction costs. Dynamic Transaction Costs are somewhat of a unique area of research for Professor Richard Langlois. That is to say I think he is the leading researcher on the topic. It is a topic that affects us significantly as we operate in an environment where change is the one constant that we can rely on. Langlois’ definition of Dynamic Transaction Costs from “Transaction Cost Economics In Real Time” is as follows.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

Clearly the oil and gas industry will have significant Dynamic Transaction Costs without People, Ideas & Objects Preliminary Specification. That is to say that they will not have the capabilities they need when they need them if they continue to use SAP in the structured hierarchy. Nonetheless, even with the use of People, Ideas & Objects there would be Dynamic Transaction Costs incurred as a result of the movement to full reliance on the market for its resources. Recall we are looking for “thicker” markets to develop as the Joint Operating Committees look to the market for all of its Resource Marketplace. Let's recall what capabilities are with a quote from Langlois’ paper, and the phrase from Harvard Professor Carliss Baldwin of “Knowledge begets capabilities, and capabilities beget action.”

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organization probably begins with Edith Penrose (1959), who suggested viewing the firm as a 'pool of resources'. Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources. Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied 'how to' knowledge useful for particular classes of activities. pp. 105 - 106.

We have noted that when a supplier / vendor was selected within the “Planning & Deployment Interface” of either the Research & Capabilities or Knowledge & Learning module. Then the associated key and operational staff c/w their positions in the Military Command & Control Metaphor would be populated into the interface from the Vendor / Supplier Contact Database. With this information that we have learned about Dynamic Transaction Costs. We could also populate the “Planning & Deployment Interface” with the capabilities information from the supplier / vendor when it is selected. This information would also become available when it was required from the Vendor / Supplier Contact Database and be maintained by the vendor, as all the information in that database is.

"In a metaphoric sense, at least, the capabilities or the organization are more than the sum (whatever that means) of the 'skill' of the firm's physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104)." p. 106

There will be a significant amount of information that is made available to the users of the “Planning & Deployment Interface.” Certainly the information to determine what is required to mitigate the Dynamic Transaction Costs, define any deficiencies and to map out a successful project.

We want to look at the situation from the point of view of the supplier / vendor in terms of how they are providing capabilities to the Joint Operating Committee that employs them. We discussed how much of the data regarding their service operation is populated into the Joint Operating Committees “Planning & Deployment Interface.”

From the supplier / vendor’s point of view being part of the detailed planning of the program will not be anything too new. What we are seeking to achieve is for the oil and gas producers as represented in the Joint Operating Committees having a greater reliance on “thicker” markets in the service industry. A greater dependence on an innovative and competitive service industry marketplace is a necessary building block as a base for the innovative oil and gas industry. This is reflected in the People, Ideas & Objects Preliminary Specifications “Ideas Marketplace Blog,” and the decentralized manner in which the industry will operate under the Preliminary Specification. Some may suggest the industry operates in that fashion, I have argued here that we are far from that conceptual model. That is evidenced by the level of conflict between the producers and suppliers and the lack of competition in the supplier marketplace. I see the producer firms as the primary reason for this situation. They have consistently obstructed the service industry market from operating effectively at critical times. This is reflected in purchasing equipment for their own purpose, like drilling rigs, not working with anything but proven technology, not sponsoring any research, not working with anyone other than of size, not respecting others Intellectual Property, etc.

Listed as a project on Professor Richard Langlois website is “The Vanishing Hand” which he describes in his paper “The Vanishing Hand: the Changing Dynamics of Industrial Capitalism” as.

The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates. p. 3

Suggesting that we are moving towards a market based form of industrial capitalism. One that leaves behind the “visible hand” of the hierarchy and its management. We noted that there were interfaces for the service industry to the Resource Marketplace module of the Preliminary Specification. Specifically a project management interface that enabled the provider to determine and pass their Dynamic Transaction Costs on to the Joint Operating Committee. It is necessary that the producers provide the service providers with access to the software in this fashion, and to offset these costs to enable the markets to expand.

As in Chandler, secular changes in relative prices attendant on "globalization" (driven by technology or politics) affect economic organization not only directly but also, and perhaps more importantly, indirectly through changes in technology. Production costs matter as much as transaction costs (Langlois and Foss 1999) Moreover, the kind of transaction costs that matter in history are often not those of the Williamson kind but those I have labeled dynamic transaction costs (Langlois 1992b). Costs of coordinating through markets may be high simply because existing markets - or more correctly, existing market-supporting institutions - are inadequate to the needs of new technology and of new profit opportunities. But when markets are given time and a larger extent, they tend to "catch up," and it starts to pay to delegate more and more activities rather than to direct them administratively within a corporate structure. p. 5

The oil and gas industry has to consider itself a market-supporting institution to the service industry. These service providers are not primary industries, they are dependent for their revenues from the oil and gas producers. It would serve the oil and gas industry well to remember that they are dependent on the service industry. There has been so much talk about how greedy and lazy the service industry is from the producers themselves that I can't imagine how more toxic it could get. The attitudes and actions of an innovative and successful oil and gas producer are so far removed from this behavior, we have far to travel.

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121

I want to stay in the domain of the supplier / vendor and discuss how their greater participation and role in the Joint Operating Committees capabilities, increases the profitability of the oil and gas producers. How this organizational conceptual model will not only aid the producers but also the suppliers / vendors in the innovative oil and gas industry. From Professor Ronald Coase in the “Nature of the Firm” 1937

Adam Smith explained that the productivity of the economic system depends on specialization (he says the division of labor), but specialization is only possible if there is exchange-and the lower the costs of exchange (transaction costs if you will), the more specialization there will be and the greater the productivity of the system. p. 73

The competitive advantages of the oil and gas producers are their land and asset base, and their earth science and engineering capabilities. To a large extent everything else is secondary to the firm in terms of maintaining a competitive position within the industry. What is not core to their competitive advantage can be obtained through contract from the marketplace on the basis of the “decentralized production model.” Leaving the “high throughput production” model that is currently being used behind. From Professor Coase.

This is what I said in a lecture published in Lives of the Laureates (Coase, 1995 p. 245): The costs of coordination within a firm and the level of transaction costs that it faces are affected by its ability to purchase inputs from other firms, and their ability to supply these inputs depends in part on their costs of coordination and the level of transaction costs that they face which are similarly affected by what these are in still other firms. What we are dealing with is a complex interrelated structure." Add to this the influence of the laws, of the social system, and of the culture, as well as the effects of technological changes such as the digital revolution with its dramatic fall in information costs (a major component of transaction costs), and you have a complicated set of interrelationships the nature of which will take much dedicated work over a long period to discover. But when this is done, all of economics will have become what we now call "the new institutional economics. p. 73

If the oil and gas producer is to attain a higher output of oil and gas it will require them to focus on their part of the process in a more specialized manner. And that would apply to the overall industry as much as to any individual producer. Leaving the work that they may be involved in today to the marketplace to provide. In the Preliminary Specification this will have the prototypical producer firm configured with the officers, engineers, geologists, geophysicists and a handful of lawyers for contracts and land deals. Everyone else provided through a service contract with a service provider in the Resource Marketplace module. This producer firm will manage their interests in a variety of Joint Operating Committees and participate in the development of their properties. Each JOC having acquired capabilities from the supplier / vendors in the Resource Marketplace.

It is this reliance on the Resource Marketplace module at both the producer level and the Joint Operating Committee that I am emphasizing in this discussion. Specialization at all levels of the industry will enable the oil and gas and service industries to produce more oil and gas with the same resource base. This is the benefit of specialization and the division of labor. We however, first need to implement a new organizational model that incorporates all the elements of the industry. And that includes the service industry and service providers in the field and in the head offices of the producers. Without that we are only solving part of the problem. The point of this exercise is that with the increased output of oil and gas, and the more efficient production of that oil and gas as a result of the market configuration noted above. The oil and gas producer will be more profitable as a result of the software that identifies and supports this decentralized production model.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.