Consider This... AI is the Killer App of IP

A technical glitch (user based) left this in Monday's spot for publication, as draft. It is the last post of this series and is not out of sequence by publishing it today.

 Artificial Intelligence: Intellectual Property as the Killer App

George Sivulka, CEO of Hebbia, made an important distinction in this presentation:

• Individual Artificial Intelligence breeds chaos.
• Institutional Artificial Intelligence fosters coordination.

Isolated AI produces answers or actions, while institutional AI produces governed orchestration. Consider the number of AI Agents that may soon be operating within a producer firm. What types of Agents will they be? Who will authorize them? What information will they be permitted to access? What will they be expected to produce, and who will be accountable for the consequences?

AI Agents deployed independently throughout an organization represent the individual Artificial Intelligence Sivulka described. Each Agent may appear useful in isolation, yet collectively they can circumvent established processes, duplicate existing capabilities, produce conflicting information, and introduce considerably more risk than value.

The resulting questions are not theoretical.

• Was an AI Agent granted the database access it required, or was its usefulness limited by incomplete access? Did it obtain information beyond what was authorized? Is its output accurate, complete, and relevant? Can the result be recreated consistently? Is there an authoritative source against which it can be validated?
• What happens when an existing system presents more comprehensive and trustworthy information? Which result is correct? Which is reliable? If the two presentations are inconsistent, can either one be trusted?
• That is not coordination. It is managed chaos—assuming it is managed at all.

From Individual AI to Institutional AI

Institutional Artificial Intelligence does not mean merely providing every employee with access to the same AI platform. It means placing Artificial Intelligence within a defined operating environment governed by established authority, business processes, information structures, security, accountability, and Intellectual Property.

Before an AI Agent is permitted to act, the institution must be able to answer:

Who authorized the Agent?

What business purpose is it authorized to serve?

Which information may it access?

What transactions or processes may it initiate?

Which decisions may it support, recommend, or make?

How will its actions and sources be recorded?

Can its output be reproduced and independently verified?

Who reviews exceptions, errors, conflicts, and unintended consequences?

Who remains accountable for the result?

Without these answers, an AI Agent is not an institutional capability. It is an individual experiment operating inside a commercial organization.

That distinction becomes particularly important when Artificial Intelligence is introduced into accounting, administration, operations, and Joint Operating Committee activities. Will an AI Agent’s output be accepted for regulatory purposes? Will other members of the Joint Operating Committee rely upon it? Can its calculations be proven? If proving the result requires someone to reconstruct the entire analysis manually, what efficiency has the Agent actually created?

If the output is not sufficiently reliable for regulatory, contractual, accounting, or operational purposes, is it limited to supporting decisions? If so, what kinds of decisions? Surely consequential strategic or operational decisions cannot be based upon information whose authority, completeness, and reproducibility remain uncertain.

Artificial Intelligence is too valuable to be deployed without these determinations.

Artificial Intelligence Is Not a Substitute for Information Architecture

AI Agents, Palantir, Databricks, and similar technologies are increasingly treated as essential items that corporations must be able to mention to investors. Technology history contains no shortage of products and movements adopted as evidence that an organization was operating at the frontier—only to be replaced or forgotten shortly afterward.

Artificial Intelligence should not become another corporate fashion.

Its greatest value is not in gathering poorly organized data from incompatible systems and presenting management with a collection of possible answers. Search engines have been locating, aggregating, and organizing vast quantities of information for decades. Artificial Intelligence can do considerably more, but only when the underlying information and business architecture permit it.

The more important question is why existing oil & gas systems cannot prepare the required financial and operational information today.

Has the data been captured in its primary form? Is it properly normalized and organized within an appropriate database? Has the industry become dependent upon aggregated information because the original operational detail was never retained? Have management and operational accounting fallen behind financial reporting because the systems lack the information necessary to support them?

There is no technical reason for this condition to continue.

Field data capture, Internet of Things devices, automated processes, and transaction-level information can provide more complete, accurate, and timely financial and operational data. Artificial Intelligence can then operate upon that foundation. It should not be expected to compensate for the absence of one.

AI applied to poorly structured information may produce an answer faster. It does not necessarily produce the correct answer.

Artificial Intelligence Within a Transaction-Focused ERP

Synallagi (The Greek word for Transaction.) is a transaction-focused Enterprise Resource Planning system. Artificial Intelligence introduced into this environment can provide substantial benefits, including improved analysis, automation, exception management, planning, coordination, and Autonomous Asynchronous Transaction Orchestration.

It also creates consequential risks.

A producer’s responsibility does not disappear merely because an Artificial Intelligence system initiated a transaction, issued a request, prepared a purchase order, generated a Work Order, or performed another automated or autonomous action. The organization must continue to govern the authority, purpose, limits, and consequences of every action undertaken through its systems.

This creates a distinct challenge for future Enterprise Resource Planning systems. Artificial Intelligence must be capable of operating with greater autonomy while remaining subject to defined commercial authority, business rules, security, verification, and accountability.

If Synallagi appears complex, it is because these complexities already exist within the oil & gas business. Synallagi addresses them directly through software and through the specialized service provider organizations established by our user community. That software and those services are People, Ideas & Objects’ response to the operational difficulty of the industry and the technological capabilities society now demands.

Ignoring these risks would be foolish. Preventing Artificial Intelligence from creating value because the risks were never addressed would be equally so.

Intellectual Property as the Institutional Framework

Artificial Intelligence requires more than data and computing capacity. It requires defined knowledge, authority, processes, relationships, limitations, and expected outcomes.

That is the role of Intellectual Property.

Intellectual Property provides the guidelines, guardrails, frameworks, security, and operating definitions governing who may do what, where, when, why, and how. It establishes what an AI-enabled process is intended to accomplish, what it is prohibited from doing, and the conditions under which its output may be accepted.

Licensing our user community and their service provider organizations ensures that the Artificial Intelligence they deploy through Synallagi performs the functionality expected and authorized within their licensed areas. The applicable Intellectual Property defines the process management embedded in the software and the authority under which that process operates.

There is no more and no less.

Within Synallagi, Intellectual Property and Artificial Intelligence have a bidirectional operational relationship:

Intellectual Property provides the business models, process definitions, knowledge, authority, and constraints upon which Artificial Intelligence operates.

Artificial Intelligence applies, extends, and operationalizes that Intellectual Property through analysis, automation, coordination, and autonomous activity.

Intellectual Property is therefore both the fuel and the guardrails for Artificial Intelligence.

This is how individual Artificial Intelligence becomes institutional Artificial Intelligence.

Artificial Intelligence combined with Intellectual Property makes Orchestration both possible and operational.

Intellectual Property Organizes People

Intellectual Property is not merely a technology asset. It is a means of organizing people around defined knowledge, rights, responsibilities, and commercial purposes.

Copyright protection reflects a principle embedded in the United States Constitution: progress is encouraged when people have recognized rights in the works and ideas they create. Those rights allow knowledge to be developed, protected, licensed, commercialized, and distributed through durable organizational structures.

Intellectual Property will retain its value for as long as people continue to have bad ideas, good ideas, ridiculous ideas, brilliant ideas, and ideas whose value becomes apparent only after years of work.

Artificial Intelligence does not diminish the importance of those ideas. It increases the speed and scale at which they can be tested, refined, implemented, and distributed.

Much of the increase in the Western world’s standard of living can be attributed to specialization and the division of labor described by Adam Smith. Successive generations have found better ways to provide products and services faster, at higher quality, and at lower cost. Steam engines, internal-combustion engines, moving assembly lines, automation, software, and now Artificial Intelligence have extended that process.

The enduring source of progress, however, is not the tool alone. It is the organization of people and knowledge around productive purposes.

One of corporate America’s less-discussed weaknesses is its tendency to accumulate knowledge within organizational silos until that knowledge becomes inaccessible, commercially unusable, or obsolete. Artificial Intelligence, software, and new organizational models make those silos increasingly vulnerable.

Engineers and geologists no longer require the institutional scale of established producers to develop sophisticated operating capabilities. New producers can be formed around specialized knowledge, clearly defined Intellectual Property, software, Artificial Intelligence, and algorithms. With the appropriate commercial and organizational structure, these scientists can outperform larger competitors burdened by outdated ideas, systems and methods.

The reset is already underway—from organizations that hoard knowledge to individuals and communities capable of converting knowledge into operating capability.

Synallagi as an Institutional Environment

People, Ideas & Objects established Intellectual Property as one of Synallagi three principal competitive advantages. Our user community and our research are the other two.

Over the past several decades, Intellectual Property has enabled us to establish a distinct position within the Enterprise Resource Planning industry. It provides North American oil & gas with a structure, business model, plan, vision, method of addressing its persistent difficulties, and competitive framework of enduring value.

The details of what works and what does not will be determined by our user community during development. The broader institutional environment, however, is already defined through Synallagi’s nine Organizational Constructs, the seven frameworks of the Joint Operating Committee, its eleven modules, Oracle Cloud ERP, and the body of Intellectual Property governing their relationships.

Together, these components establish a shared direction.

When someone within the oil & gas industry asks how a particular activity should be undertaken, that person should be able to understand intuitively where the work belongs, which authority governs it, what information it requires, and how the need should be communicated to others operating within the same environment.

That common understanding is institutional coordination.

The Killer App

In the early 1980s, people purchased personal computers without knowing what practical purpose they would serve. Asked what they intended to do with them, many offered the same answer: store recipes.

Businesses were equally uncertain. A departmental personal computer might be shared among ten people and then carefully dusted each evening while providing little material value.

Lotus 1-2-3 changed that. The spreadsheet gave the personal computer an immediate, compelling commercial purpose. Word processing followed, and the expensive electronic recipe holder became an indispensable business tool. The term “killer app” came to describe the application that made the underlying technology essential.

Artificial Intelligence is now searching for its killer app.

Within Synallagi, that killer app is Intellectual Property licensing to our user community and their service provider organizations.

Our Intellectual Property licensing architecture gives Artificial Intelligence a defined commercial purpose. It determines what knowledge may be used, which processes may be performed, who may authorize them, what limitations apply, how responsibility is allocated, and where the resulting value belongs.

These mechanisms constrain risky or unbounded behaviour while enabling the desired degree of analysis, controlled automation, and Autonomous Asynchronous Transaction Orchestration.

Artificial Intelligence is a powerful new animal with multiple personalities. It can produce extraordinary value when applied appropriately and for authorized purposes. It can enter areas of consequential impact without sufficient forethought. It can also be used in ways that are plainly inappropriate.

Society has never before placed tools this powerful, affordable, and broadly available into the hands of so many people.

The difference between chaos and coordination will not be Artificial Intelligence itself. It will be the Intellectual Property, authority, architecture, and institutional discipline within which Artificial Intelligence is permitted to operate.

Artificial Intelligence + Intellectual Property, Makes Orchestration Possible and Operational. 

1. Constraining Abilities and Behaviors

Intellectual Property considerations impose hard and soft limits:

Access controls, segregation of duties, and sensitivity tiers: Synallagi permission models treat valuable IP as protected assets. AI inherits the same constraints as our user community and service providers; AI cannot elevate privileges or combine roles in ways that would violate IP-protection or embedded compliance policies dictate.

These constraints keep AI from becoming an unbounded actor operating in unknown and unconstrained ways within producers, Joint Operating Committees or other organizations Synallagi may be operational.

2. Harnessing Behaviors Through Intellectual Property-Grounded Guidance

Orchestration aligned to IP domains: Synallagi operates within scoped knowledge and tool access that mirrors the IP and Joint Operating Committees are organized. Orchestration enforces high-level business intent while remaining inside their IP-defined boundaries.

3. Enabling Controlled Automation and Desired Asynchronous Autonomy

The same Intellectual Property-centric controls that constrain the system also create safe operating envelopes for autonomy:

Risk-tiered human-in-the-loop: Routine, low-risk tasks can run fully autonomously. High-stakes actions involving large commitments, decisions, allocations or data sharing will trigger configurable thresholds that route to human approval or dual-control. Any proposed write or external action is checked against IP-protection policies, monetary limits, categorical rules, and anomaly detectors before execution.

Auditability and reversibility: Full logging of AI decisions, data accessed, and actions taken supports both operational control and later IP enforcement (e.g., proving independent development or detecting leakage).

Intellectual Property supplies both the distinctive knowledge that makes the AI valuable inside Synallagi and the legal and technical boundaries that keep it focused and accountable. The result is automation and autonomous behavior that is powerful enough to deliver the “killer-app” productivity gains while remaining inside the enterprise’s desired control surface. Without these IP-defined definitions and constraints, Artificial Intelligence becomes less useful and unacceptably risky.

Intellectual Property gives Artificial Intelligence something authoritative to know. Artificial Intelligence gives Intellectual Property the capacity to reason. Orchestration gives both the ability to act.

Conclusion

The next generation of Enterprise Resource Planning systems is being built today. North American oil & gas will participate in this environment in one form or another. The question is whether the people who will develop, operate, and depend upon these systems will build what they need for themselves—or accept whatever the status quo chooses to provide.

The choice is between an institutional system such as Synallagi and an alternative best compared to the Department of Motor Vehicles: centralized, procedural, slow to change, and more committed to preserving its processes than improving the results of those required to use them.

Persistence may be the one attribute current producers have working in their favour. They will continue to “muddle through.” How they will do so is increasingly difficult to understand. The commercial world has changed direction, while the industry’s unresolved problems become more restrictive, expensive, and crippling each day. As producer risks increase, the responsibilities, rewards, and opportunities available to individuals diminish, while the explanations offered by officers and directors become more elaborate.

Persistence is not a strategy.

If a 1920s vision of organizational efficiency is considered adequate for the 2020s and beyond, then “muddle through” remains the appropriate choice. Synallagi offers a different vision: markets and producers organized through the Joint Operating Committee, supported by our user community, specialized service provider organizations and an Enterprise Resource Planning architecture capable of adapting continuously to changing commercial conditions.

For individuals deciding where to invest their careers, knowledge, and future, the contrast could not be more stark.

Artificial Intelligence will intensify that choice. It is a remarkable technology whose eventual consequences may exceed anything we presently anticipate. Will it produce changes comparable to another Industrial Revolution? Almost certainly.

Its low cost, accessibility, and ease of use will place extraordinary capabilities in the hands of individuals and institutions alike. That prospect conflicts directly with organizations satisfied with a century-old operating model. Those organizations nevertheless retain one considerable advantage: they control most of the industry’s institutional and financial resources today.

They have also observed what happened to industries that were disintermediated, reorganized, or as we describe them, “refactored their organizational charts” before them. They have learned how to defend their authority and preserve their position. We should expect them to use the resources they control to do so.

The means through which individuals maintain their independence—from both DMV-style institutions and Artificial Intelligence controlled by others—is Intellectual Property. More precisely, it is enforceable access to Intellectual Property, clearly defined licensed authority, and the ability to convert knowledge into operating software and commercial capability.

Our user community can define what it knows to be accurate, embody that knowledge in Synallagi, and apply the resulting capabilities throughout the industry. Its members can then combine Synallagi’s explicit knowledge with the tacit knowledge accumulated within their service provider organizations, benefiting both producers and themselves.

That is the Synallagi vision: unified Intellectual Property ownership supporting distributed authority, innovation, specialization, and commercial independence.

It is a compelling alternative to the DMV model. It is also a choice each individual must make. For my part, I am grateful that I made that decision long ago.

This installment of the Consider This… series of papers has described Artificial Intelligence as the killer application of Intellectual Property. Possessing Intellectual Property has always been valuable, but the practical question remained: what are you going to do with it?

For years, Synallagi was stored in a database originally used for recipes. The Intellectual Property existed, but its ability to act remained limited. Artificial Intelligence changes that. It can interpret, apply, extend, and operationalize Intellectual Property at a speed and scale that were previously impossible.

The relationship is reciprocal. Artificial Intelligence makes Intellectual Property dynamic; Intellectual Property gives Artificial Intelligence its form, structure, purpose, authority, and limitations.

Without that structure, organizations may attempt to manage their risk by restricting the number of AI Agents they deploy and containing the fallout when those Agents produce conflicting information or exceed their authority. That is not an institutional solution. It is merely limiting the amount of chaos.

Within an oil & gas Enterprise Resource Planning environment, Artificial Intelligence must operate through defined business processes, authorized information access, verifiable results, accountable transactions, and enforceable Guardrails. Intellectual Property provides those conditions. It turns Artificial Intelligence from a powerful but unbounded tool into a reliable institutional capability suitable for financial, administrative, and operational use.

People, Ideas & Objects’ Synallagi—together with Autonomous Asynchronous Transaction Orchestration, our user community, and their service provider organizations—provides that institutional solution for North American oil & gas producers.

Synallagi is wrapped within an Intellectual Property framework that enables producers to meet emerging challenges, realize new opportunities, and eliminate persistent, systemic, and financially damaging problems. It aligns technology, knowledge, authority, motivation, and accountability within a coherent commercial architecture.

The result is what we describe as "A New Discipline" for oil & gas.

It is founded upon a revised culture of reserves preservation, performance, and profitability. It enables producers to increase their speed, capabilities, capacity, success, and achievements as the marketplace changes. Most importantly, it reduces Organizational Latency—the time between recognizing an opportunity, determining what must be done, developing the required capability, and achieving a successful result—to a fraction of what it is today.

The future is being built now. The only remaining question is who will build it—and for whose benefit. People, Ideas & Objects, our user community and their service provider organizations have the Intellectual Property in the form of Synallagi with Autonomous Asynchronous Transaction Orchestration. Intellectual Property gives Artificial Intelligence something authoritative to know. Artificial Intelligence gives Intellectual Property the capacity to reason. Orchestration gives both the ability to act. 

Artificial Intelligence Is the “Killer App” of Intellectual Property—Making Orchestration Both Possible and Operational.

Consider This... AI is the Killer App of IP

 Guardrails

The Synallagi Targeting Framework will be examined comprehensively in a forthcoming paper within our 21st Century Marketplace Vision series. For this paper's purposes, it is sufficient to establish the guardrails within which it must operate.

The Targeting Framework is intended to identify, evaluate, monetize, and distribute a portion of the incremental benefits generated through the knowledge, skills, experience, expertise, ideas, and innovative capabilities of our user community. These benefits may arise from reduced costs, increased revenues, improved productivity, better business processes, or entirely new operating capabilities developed by our user community and enabled through our software developers.

In a directly related matter. Intellectual Property as discussed to this point forms the foundation of what is and what is not undertaken within the producer firm and oil & gas industry through Synallagi. Where in fact Artificial Intelligence is the “Killer App” that makes Intellectual Properties value realized. And as we will see in this paper AI plus IP makes Orchestration both possible and operational. 

Guardrails: Protecting Value, Trust and Architectural Integrity

A seemingly insignificant improvement—such as a recurring $0.25 reduction in cost or increase in revenue—may mean little to an individual producer. Applied repeatedly across the 1.1 to 1.3 million producing wells in North America, however, that same improvement could create substantial industry value. The Targeting Framework would determine the portion of that value attributable to an innovation and support the distribution of an agreed derivative share to our user community members and service provider organizations responsible for creating, implementing, and sustaining it.

The framework cannot be permitted to assess its own success subjectively. A permanent base case of industry performance must be established against which subsequent developments are measured. Benefits must be calculated independently, objectively, verifiably, and consistently—both for the most recent reporting period and cumulatively from the time Synallagi becomes operational. What gets measured gets managed.

Oversight must therefore be entrusted to an independent body representing our user community, producers, and other appropriate participants. That body would govern the evaluation, calculation, monetization, allocation, distribution, administration, and arbitration of benefits. Its purpose would be to ensure that value is neither claimed without evidence nor withheld from those responsible for creating it.

This is the first guardrail: no demonstrated value, no distribution.

The second is that every innovation must operate within Synallagi’s established business models and architectural framework. A change producing an apparent benefit in one area cannot be accepted if it creates hidden costs, inconsistencies, or failures elsewhere. Synallagi is an integrated Enterprise Resource Planning architecture. Much as a building has its foundations, electrical systems, plumbing, and structural components must work together. Shortcuts taken during development will eventually be paid for by everyone who depends upon the system.

Innovation must therefore be initiated, refined, developed, tested, documented, validated, and supported before its benefits can be recognized. Errors will occur—often more frequently than solutions during the early stages of development. What matters is whether those errors are identified, understood, corrected, and converted into better methods. The objective is not the appearance of progress. The objective is completion: work that operates accurately, reliably, and consistently throughout the architecture.

The third guardrail concerns authority. Synallagi development will occur within an independent community of qualified, authorized, and licensed collaborators. Our user community will provide the business knowledge and functional direction. Software developers will provide the comprehensive technical capabilities necessary to convert those requirements into operating software. Service provider organizations will combine the explicit knowledge captured in Synallagi with the tacit knowledge accumulated through implementation, specialization, and continuing industry experience.

Each participant will have a defined role. No contributor should receive credit for value that cannot be attributed to their work, and no participant should be able to appropriate another person’s contribution. The applicable Intellectual Property, licensing, documentation, attribution, confidentiality, and derivative-work requirements will govern how innovations are developed and incorporated into Synallagi. These matters will be addressed more fully in the section that follows.

The fourth guardrail is transparency appropriate to responsibility. Synallagi should produce an industry scorecard comparing the established base case with the performance achieved after implementation. That scorecard would show the aggregate value created through the combined innovations of our user community across North American oil & gas. Each user community member would also receive a detailed accounting of the innovations attributed to them, the value those innovations generated, and the compensation earned as a result. As stated earlier what gets measured gets managed.

Transparency does not mean that confidential methods, individual contributions, proprietary information, or commercially sensitive details must be exposed publicly. It means that the calculations, decisions, and distributions must be sufficiently documented to withstand independent review.

The fifth guardrail is that compensation must remain connected to realized value. The Targeting Framework is not intended to reward ideas merely because they are novel, nor effort merely because it was expended. It is intended to reward demonstrated improvements that producers can implement and from which the industry receives measurable benefits.

This changes the basis upon which some work may be valued. Compensation has traditionally been tied to attendance, hours worked, or a defined organizational position. Synallagi creates the opportunity to compensate people for finding better methods, developing them with software developers, proving that they work, and distributing their benefits across the industry.

Artificial Intelligence will accelerate this change. Manual movement of data and repetitive calculations will increasingly disappear, while the value of judgment, domain knowledge, innovation, and effective implementation will increase. The implications for work, productivity, and compensation will be considered more fully in the Artificial Intelligence section of this paper.

These guardrails are not intended to constrain innovation. They establish the conditions under which innovation can be trusted, protected, commercialized, and distributed at scale. They align the interests of producers, our user community, service provider organizations, software developers, producer investors, bankers and the broader industry around a common result: independently verified improvements in reserves preservation, performance, and profitability.

The Targeting Framework must ultimately answer two questions:

• What measurable value has Synallagi created for North American oil & gas?
• And who is responsible for creating it?

If those questions can be answered objectively, accurately, and fairly, our user community will have more than an incentive to innovate. It will have a durable means of building businesses around its knowledge, converting individual expertise into industry-wide capability, and sharing in the value it creates.

The Tragic and Utopian Visions

In A Conflict of Visions: Ideological Origins of Political Struggles, Thomas Sowell distinguishes between two fundamentally different understandings of human nature: the constrained vision and the unconstrained vision, also commonly described as the tragic vision and the utopian vision. The constrained vision regards human beings as permanently limited in knowledge, judgment, and virtue. The unconstrained vision considers human nature sufficiently malleable and perfectible to permit society to be deliberately remade according to an ideal design. Basic Books, Google Books.

The danger arises when a utopian vision attempts to impose a perfect outcome upon imperfect people. By discounting human limitations, competing interests, dispersed knowledge, and unintended consequences, the pursuit of perfection can produce coercion, institutional failure, and precisely the harms it was intended to eliminate.

Synallagi subscribes to the tragic—or constrained—vision. It does not assume perfect knowledge, flawless judgment, or uniformly benevolent behaviour. It therefore relies upon defined authority, distributed knowledge, incentives, accountability, measurable performance, and institutional guardrails. As the discussion below demonstrates, Synallagi is designed to work with human limitations, not to pretend they can be designed away.

Motivation: Aligning Individual Reward with Industry Value

In our January 20, 2025 paper, “Catalysts for Cultural Change: The Leadership Role of People, Ideas & Objects User Community,” we outlined a compensation model for the individuals responsible for developing, completing, and continually improving Synallagi.

The underlying principle is straightforward:

What gets measured gets managed—and what creates measurable value should be rewarded.

People, Ideas & Objects must provide sufficient motivation for our user community to bring Synallagi into operation throughout the North American oil & gas industry. That motivation cannot depend upon promises of future opportunity alone. Members must be able to support themselves while Synallagi is being developed, receive meaningful recognition for completing the work, and participate in the recurring value their innovations create after commercial release.

This requires a layered compensation model.

During development, our user community members would receive basic hourly compensation and performance-based bonuses. After commercial release, the Synallagi Targeting Framework would begin evaluating, calculating, monetizing, and distributing the recurring value created by their innovations, automations, and autonomous developments. Members would also earn revenue through their service provider organizations, including fees for managing Joint Operating Committee processes and compensation for participating in the continuing development of the processes for which they are responsible.

Each form of compensation serves a distinct purpose.

Basic Hourly Compensation

Members of our user community would receive basic compensation of $50.00 per hour for their participation throughout the software-development process. Their work would include collecting information, identifying issues, analyzing existing processes, formulating solutions, defining business requirements, testing results, and designing the organizations through which those processes will eventually be delivered.

Our user community members are not software developers and will not be expected to write code. They will have access to a dedicated software-development team capable of converting their knowledge, ideas, and functional requirements into operating software.

Their role is creative and analytical. They must determine what Synallagi needs to do, why it needs to do it, how the resulting process should operate, and whether the completed software fulfills its intended purpose.

Basic hourly compensation provides members with the means to support themselves while performing this work. It also prevents the future opportunity offered by the Targeting Framework from being used against them. People cannot reasonably be expected to accept substantial professional and financial risk while receiving nothing more than a promise of compensation after commercial release.

At the same time, hourly compensation alone cannot provide the motivation necessary to complete a project of Synallagi’s scope. It recognizes time and participation; it does not fully recognize performance, completion, innovation, or the value ultimately created.

That is the purpose of the bonus system.

Performance Bonuses

Performance bonuses would provide immediate recognition for achieving prescribed outcomes during development. They are distinct from distributions made through the Targeting Framework.

Bonuses reward the successful completion of defined work. The Targeting Framework measures and distributes a derivative share of the recurring value subsequently created by that work in the marketplace. One provides near-term compensation for performance; the other creates the potential for long-term income from realized industry value.

The bonus system must recognize that performance occurs at several levels.

Project Completion Bonuses

Individual projects would be budgeted, approved, and administered by a project owner responsible for a Synallagi module, major process, or defined area of functionality, such as the Material Balance Report or Work Order.

Each project would have established requirements for functionality, quality, accuracy, timing, documentation, testing, and integration. A Project Completion Bonus would be earned when those requirements were satisfied.

This bonus provides the additional compensation necessary for members to receive the full value of the time, judgment, and effort invested in completing a project. It supplements the basic hourly compensation received while the work is underway.

Projects may be short or long and may require both synchronous and asynchronous participation. Several projects may operate concurrently. Work that cannot be completed within its requirements may need to be reassigned, and members who repeatedly cannot meet their responsibilities may need to reconsider their continued participation.

The objective is not activity. It is completed work that functions properly within Synallagi.

Module and Major-Process Bonuses

Every Synallagi module is responsible for a defined category of functionality and process management. Each module contains numerous specialized processes, functions, information requirements, integrations, and dependencies.

Project Completion Bonuses recognize incremental accomplishments. Module and Major-Process Bonuses ensure that members also remain focused on the larger deliverable.

An individual project may satisfy its immediate requirements yet leave the overall module incomplete. Members must therefore remain attentive to how their projects combine with the work of others and whether the complete module or major process operates as intended.

Team-Based Bonuses

Synallagi cannot be developed through isolated individual contributions. Its complexity, scope, scale, and required development speed would produce incoherent results if every participant concentrated exclusively on their own work.

Team-Based Bonuses would reward coordination, shared problem-solving, cross-functional support, and successful completion of the broader Synallagi platform. These bonuses may complement—and in some circumstances exceed—individual performance bonuses because the value of an integrated Enterprise Resource Planning system depends upon the success of the whole.

Some members will focus almost exclusively on their licensed domain. Others will contribute wherever additional effort is required to move a process, module, or the complete platform through its final stages. Both forms of participation are necessary and should be recognized appropriately.

When Synallagi achieves commercial release, a final Team-Based Bonus would be distributed among those whose contributions earned participation in that result.

Commercial release would also establish the point from which the Targeting Framework begins measuring the incremental value created by subsequent innovations, automations, and autonomous developments throughout the Synallagi ecosystem.

Profitability, Innovation, and Accountability Bonuses

The objective of People, Ideas & Objects and our user community is to provide dynamic, innovative, accountable, and profitable oil & gas producers with the most profitable means of oil & gas operations—everywhere and always.

Our user community is also expected to establish a culture of reserves preservation, performance, and profitability throughout the industry.

That responsibility requires members to search continually for better methods within producer firms, Joint Operating Committees, and the broader industry. Profitability, Innovation, and Accountability Bonuses would recognize work that materially advances those objectives during development and implementation.

The purpose is to reward people for changing how work is performed, resolving persistent problems, and creating capabilities that would not otherwise exist.

Automation and Autonomous Development Bonuses

Automation and autonomous development are not one-time undertakings. They represent a continuing effort to provide better-quality services faster, more accurately, and with substantially greater efficiency.

Automation and Autonomous Development Bonuses would motivate our user community to continue identifying activities that can be simplified, automated, or performed autonomously through Synallagi. The industry benefits from those improvements through lower overhead, improved execution, greater consistency, and better use of professional knowledge.

The cost of rewarding an individual innovation becomes comparatively small when distributed across the production profile of the North American oil & gas industry. Through Synnefa.ai—Synallagi’s cloud-distribution environment—producers would share the cost of maintaining a single industry-focused Enterprise Resource Planning system in a manner comparable to the cost-sharing economics of cloud computing.

Synnefa takes its name from the Greek word for “clouds.”

From Immediate Recognition to Recurring Value

Development-stage bonuses and the Targeting Framework must not be confused.

Bonuses compensate defined performance and completion. They provide relatively immediate recognition while Synallagi is being built and brought into operation.

The Targeting Framework begins with demonstrated marketplace performance. It determines whether an innovation has created measurable value, how much value has been created, who was responsible for creating it, and what derivative share should be distributed to those contributors.

This creates a direct relationship between individual initiative and industry value.

A user community member who identifies an opportunity, works with software developers to implement it, proves that it operates successfully, and distributes it throughout the North American producer population should participate in the value created by that work. The greater the recurring benefit and the broader its application, the greater the potential long-term value to the member responsible.

Completion is therefore not merely an organizational demand. It is the point at which future value can begin to be realized.

Incomplete work cannot be implemented. Unverified work cannot be valued. Poorly integrated work cannot be distributed safely. Shortcuts that damage the architecture delay or diminish the benefits available to everyone—including those responsible for taking them.

Motivation consequently becomes one of Synallagi’s operating disciplines. Members are rewarded for completing their work accurately, supporting the work of others, protecting the integrity of the architecture, and continually seeking new value after commercial release.

Building Independent Businesses

Our user community must ultimately be independent of both Synallagi and People, Ideas & Objects as operating businesses. Members cannot build their futures upon promise and hope. They require defined areas of responsibility, durable commercial rights, and several sources of income.

Based upon each member’s knowledge, experience, contribution, and area of specialization, an appropriate Synallagi domain would be identified and licensed to them. That Intellectual Property license would provide the authority necessary to operate within the domain and prepare authorized derivative works.

The license would also grant the member the exclusive right to establish a service provider organization for that domain. Through that organization, the member could combine the explicit knowledge embodied in Synallagi with the tacit knowledge accumulated through implementation, operation, support, and continuing improvement.

Their potential compensation would therefore extend beyond hourly payments and bonuses to include:

Fees earned while participating in incremental software development.

Process-management fees charged through their service provider organization.

Performance bonuses earned during Synallagi development and implementation.

Targeting Framework distributions arising from measurable, recurring industry value.

The long-term commercial value of operating within an exclusively licensed area of Synallagi.

Profitable Production Rights represent another component of Synallagi’s funding model. These rights will be made available to members of our user community at a 15 percent discounted price when available. Their limited adoption does not establish a failure of Synallagi or of Profitable Production Rights; it reflects the continuing failure of producers to act upon the opportunities available to them.

Motivation as an Operating Principle

The compensation model is designed to balance survival, performance, completion, innovation, and long-term value.

Basic hourly compensation enables people to undertake the work. Performance bonuses reward defined achievements. Project, module, and team bonuses align individual effort with the completion of the integrated platform. The Targeting Framework allows contributors to participate in the recurring value their innovations create. Intellectual Property licensing and service provider rights enable them to convert personal expertise into enduring independent businesses.

Together, these mechanisms answer the fundamental question confronting every prospective member of our user community:

Why should I accept the risk, make the commitment, and undertake what may be the most difficult professional challenge of my career?

Because Synallagi offers more than employment. It provides an opportunity to build, own, operate, and continually improve a specialized business around the knowledge and experience that an individual has spent a career developing—and to share in the industry-wide value that knowledge creates.

Consider This... AI is the Killer App of IP

Origins and Applications of Synallagi Intellectual Property

Several events during the 1990s convinced me that the Information Technology industry’s treatment of Intellectual Property had reached a low point. Software companies—organizations whose revenues, profitability, and enterprise value depended almost entirely upon their Intellectual Property—routinely behaved as though “what’s yours is mine.”

The contradiction was unmistakable. How could a software company expect others to respect its Intellectual Property while refusing to recognize theirs? More importantly, why would customers, suppliers, or business partners choose to work with a company that did not respect their ownership rights?

Over the decades that followed, the industry gradually began to recognize this paradox. Intellectual Property has since become one of the defining assets of the modern economy.

Near the end of the twentieth century, I began asking a simple question:

What asset class would become the most valuable in the twenty-first century?

The answer became increasingly apparent. Every productive asset connected to a revenue stream would eventually be managed, at least in part, through software. Unless society intended to abandon computing and return to the abacus, software would become the operational layer governing commercial assets, consumer assets, Business Operations, and commerce itself.

That prediction has largely become reality.

Ownership of an oil & gas property, for example, is no longer sufficient to create a sustainable competitive advantage. Performance increasingly depends upon access to the software, business models, data structures, processes, and Intellectual Property that enable the property to be operated profitably.

Once that conclusion became apparent, there was no turning back.

Intellectual Property as a Competitive Advantage

The collapse of the dot-com bubble delayed our ambitions. After two unsuccessful attempts to develop oil & gas Enterprise Resource Planning systems during the 1990s, People, Ideas & Objects was re-established in May 2004.

This time, the strategy was fundamentally different. Synallagi would be built upon Intellectual Property as one of its three principal competitive advantages.

Looking back over the past two decades, that decision has proven sound. Although organizations now recognize the importance of Intellectual Property, its full value remains difficult to measure because it’s never truly complete. It evolves continuously through research, development, innovation, and practical experience.

People, Ideas & Objects has now published almost five million words. Synallagi itself is approaching half a million words and is being refined architecturally and technically in preparation for its handoff to our user community. Once that handoff occurs, the needs and experience of North American oil & gas producers will expand its detail substantially.

The present documentation is not intended to prescribe every future development. Its purpose is to establish a coherent vision and architectural foundation upon which our user community can build.

Collectively, that community will extend Synallagi far beyond anything one individual or organization could accomplish. At the same time, it must preserve our objective of providing North American oil & gas producers with the most dynamic, innovative, accountable, and profitable means of oil & gas operations.

In doing so, a culture of reserves preservation, performance, and profitability can replace today’s culture of “muddling through.”

Why Unified Ownership Is Necessary

For this vision to succeed, the Intellectual Property of Synallagi must remain under unified ownership. That ownership can then support comprehensive licensing through which every member of our user community receives access to Synallagi, the authority to prepare derivative works, and the opportunity to establish service provider organizations that combine their tacit knowledge with the explicit knowledge captured in the software.

At first glance, unified ownership might appear self-serving.

It is not. It is an organizational necessity.

If ownership of the architecture became fragmented among hundreds or thousands of individuals, organizations, and competing commercial interests, the result would be architectural inconsistency, incompatible implementations, recurring ownership disputes, and potentially the destruction of the product itself.

Most importantly, fragmentation would leave unresolved the underlying problems confronting unprofitable North American oil & gas producers.

A comprehensive industry Enterprise Resource Planning system cannot be developed through fragmented ownership of its foundational architecture. Unified ownership, combined with comprehensive licensing, solves that problem.

Every member of our user community receives licensed access to the entire body of Synallagi Intellectual Property. Contributors therefore work within a common architectural framework instead of negotiating separate rights to individual components owned by multiple parties. Their authorship and contributions are documented and attributed through established development processes, while ownership of the resulting Intellectual Property is governed by the applicable licensing and contribution agreements.

Our user community is exclusively licensed to prepare derivative works of Synallagi Intellectual Property. Initially, those derivative works must remain consistent with Synallagi’s established business models and architecture. Once the commercial platform has matured, those foundations can evolve through controlled iteration.

This discipline is essential. Premature architectural divergence in one area would create unforeseen consequences elsewhere throughout the system.

Central Ownership and Decentralized Innovation

The Intellectual Property generated through authorized derivative works is acquired by People, Ideas & Objects. Members of our user community are compensated for their knowledge, effort, and innovation. The resulting Intellectual Property is then incorporated into the central body of Synallagi and made available to every licensed member of our user community.

That creates a powerful network effect.

Suppose a member of our user community develops an innovative analytical process that requires information drawn from numerous database structures throughout Synallagi. Under our licensing model, that individual can use the complete architecture without negotiating separate commercial agreements with multiple Intellectual Property owners, software vendors, or proprietary data-model providers.

Conventional software-development documentation records the contribution, its authorship, and its relationship to the broader architecture. Innovation can proceed without unnecessary legal or commercial barriers.

Under many competing development models, developers must license proprietary data models, purchase access to software frameworks, and pay ongoing fees for particular information structures. Such an environment would make the collaborative development of Synallagi commercially impractical and time consuming. 

Our approach eliminates those obstacles.

Aggregating Intellectual Property within a unified ownership structure removes unnecessary disputes over who owns each component of the system. Individual contributions are identified, reviewed, attributed, and governed before being incorporated into the specification.

Over time, contributors will naturally develop expertise in particular business domains reflecting their experience, professional relationships, and interests. Those specializations provide an objective basis for recognizing their contributions while maintaining the integrity of the overall architecture.

This balance between centralized ownership and decentralized innovation lies at the heart of the Synallagi Intellectual Property model. It preserves a unified architectural vision while enabling thousands of individuals to develop collectively a system that no single organization could realistically build alone.

An Intellectual Property Model for Continuous Improvement

Synallagi’s ownership and licensing model is intended to maximize the value of its Intellectual Property for every participant. Producers, the service industry, our user community, and their service provider organizations all benefit from a single, coherent body of Intellectual Property that evolves continuously instead of fragmenting into competing versions and incompatible architectures.

One of the model’s greatest advantages is its ability to support the continual refinement of business processes as industry practices evolve and new opportunities emerge.

Conventional Enterprise Resource Planning systems frequently preserve existing business practices in software. Synallagi is intended to do something fundamentally different. It is designed as an adaptive platform that continually incorporates knowledge, innovation, and operational improvements from across the North American oil & gas industry.

This capability is particularly important to rebuilding investor confidence. Investors increasingly demand accountability, transparency, and sound governance from producer firms. Meeting those expectations requires more than improved reporting. It requires an evolving foundation of Intellectual Property that strengthens the financial, administrative, and operational integrity of the industry.

People, Ideas & Objects does not purchase an ownership interest in, or assume control over, the independent businesses operated by members of our user community. It licenses valuable Synallagi Intellectual Property to them for this defined commercial purpose.

Each licensee remains an independently owned and operated business. It controls its own operations and finances and assumes its own commercial risks. In exchange for access to Synallagi Intellectual Property, however, the licensee agrees that the licensed Intellectual Property, authorized derivative works, confidential information, and Synallagi-specific capabilities will not be used to develop or support competing products or services except as expressly permitted by the applicable license.

That expectation extends throughout our user community and its service provider organizations. Their responsibility is to continually improve the administrative, accounting, and operational capabilities of North American oil & gas while advancing Synallagi as the industry’s leading Enterprise Resource Planning architecture.

People, Ideas & Objects considers that responsibility to be an endless and unlimited frontier.

Authority Belongs to Our User Community

People, Ideas & Objects places its greatest emphasis on our user community because that community represents one of Synallagi three principal competitive advantages.

Through the licensing model, our user community receives the authority, tools, and organizational structure necessary to become the leading source of oil & gas accounting and administrative expertise.

Over time, we expect our user community to do more than respond to changes in the industry. We expect it to anticipate and lead them.

Its responsibility is to identify emerging business requirements, evaluate their implications, and evolve Synallagi before those requirements become critical. This represents a fundamental departure from conventional Enterprise Resource Planning systems, which have traditionally been used to preserve established business practices rather than improve them.

Our user community charter establishes three principles providing members with the authority necessary to fulfill this responsibility:

Our user community is exclusively licensed to prepare derivative works of Synallagi Intellectual Property. Anyone seeking a correction, enhancement, or new capability need only contact our user community.

Software developers are licensed to obtain business requirements and functional direction exclusively from our user community. They accept direction from no other source.

Our user community controls its own budgets and establishes its own development priorities.

Together, these principles enable our user community to engage directly with the broader North American oil & gas industry. Producers, Joint Operating Committees, service providers, engineers and geologists, accountants and administrators, employees, auditors and accounting firms, compliance, governance, security and legal advisers, investors, financial and marketplace participants, technology providers and software developers, Artificial Intelligence specialists, cybersecurity specialists, Oracle Services specialists, other secondary- and tertiary-industry participants and relevant disciplines ideas, identify emerging requirements, and propose improvements. These individuals will know precisely whom to contact when they identify an issue or opportunity, while Synallagi retains a coherent architectural vision and unified body of Intellectual Property.

Our user community evaluates those contributions, reconciles them with the overall architecture, and, where appropriate, incorporates them into Synallagi as new software capabilities and professional services.

This establishes a continuous cycle of innovation in which the industry participates directly in the evolution of its Enterprise Resource Planning platform. The specification is ecosystem-informed, user-community-led, service-provider-enabled and technologically supported.

Converting Individual Knowledge into Organizational Capability

The license granted to members of our user community includes the right to establish service provider organizations and sublicense them to implement, manage, and operate the processes those members are responsible for defining, designing, and developing.

This structure combines two forms of knowledge:

The explicit knowledge embodied in Synallagi architecture, software, business models, and documentation.

The tacit knowledge accumulated by service provider organizations through specialization, implementation, experience, and continuing interaction with the industry.

Together, these forms of knowledge can be delivered directly to North American oil & gas producers.

In this way, individual members of our user community can extend and leverage their knowledge, skills, experience, expertise, ideas and innovative capabilities through specialized organizations capable of serving the industry at scale.

The phrase “knowledge begets capability, capability begets action” captures the core philosophy of researchers Carliss Y. Baldwin and Kim B. Clark regarding how organizations transform abstract design theory into competitive market value. In their seminal work Design Rules: The Power of Modularity, they outline how understanding technical systems drives practical corporate execution.

The service provider sublicense is distinct from the license granted to a member of our user community. Service provider organizations do not independently receive the authority to prepare derivative works of Synallagi Intellectual Property. That authority remains exclusively with the applicable user community member, the principal of their organization.

When development or modification of a process is required, the user community member may delegate aspects of that work to the service provider organization while retaining the licensed authority and responsibility governing the resulting derivative work.

Service provider organizations nevertheless receive substantially broader rights and capabilities than those available under the End User License Agreement. Rights and capabilities necessary to leverage their knowledge, skills, experience, expertise, ideas and innovation to enable action.

The distinction is intentional.

End users are licensed to use Synallagi in conducting their oil & gas operations. Service providers are licensed to implement, operate, support, specialize in, and improve the delivery of defined Synallagi processes under the authority of the applicable member of our user community.

The result is a structured hierarchy of Intellectual Property rights and responsibilities:

People, Ideas & Objects maintains unified ownership of Synallagi Intellectual Property.

Our user community receives the exclusive licensed authority to prepare derivative works.

Service provider organizations receive sublicensed authority to commercialize and deliver specialized Synallagi processes under the authority of the applicable user community member.

Industry participants receive the rights necessary to use Synallagi through the End User License Agreement.

This structure preserves the integrity of Synallagi Intellectual Property while enabling specialization and the division of labor to develop and operate at scale.

It allows the knowledge of an individual user community member to become an enduring organizational capability. Synallagi’s explicit knowledge is combined with the service provider’s accumulating tacit knowledge, skills, experience, expertise, ideas and innovative capabilities.

Rather than constraining innovation, Synallagi Intellectual Property and licensing architecture establishes the framework through which innovation can be enabled, developed, protected, commercialized, and distributed throughout North American oil & gas.

That is one of the purposes of unified Intellectual Property ownership: not to limit participation, but to enable collaboration. The second is a recent development of equal consequence.

Consider This... AI is the "Killer App" of IP

 Today we have another paper in the “Consider This…” series of relatively short discussions on topics of interest. This one raises several points that people in oil & gas may wish to debate. I’ve opened the blog to comments and welcome that discussion, although I encourage participants to protect their identities. We continue to attract the wrong kind of attention from producer officers and directors, and even participating in a debate could carry career consequences. Please exercise care.

I’ve been preaching the gospel of Intellectual Property as one of the primary competitive advantages of People, Ideas & Objects’ Synallagi, including its licensing through our user community and their service provider organizations. In this paper, I compare the challenge of explaining its value to the arrival of the personal computer in the 1980s.

People would ask, “What will you use it for?” Unless you were buying $1,000 databases and compilers, the answer was often “storing recipes.” We had acquired some remarkably expensive paperweights.

Then came applications such as Lotus 1-2-3, which gave businesses a compelling reason to put personal computers on their desks. The spreadsheet became a defining example of the “killer app”—an application whose usefulness made the underlying technology indispensable. Naturally, everyone also needed a computer at home to keep track of what those recipes were costing.

Many more “killer apps” followed. Our paper applies that familiar idea to Intellectual Property.

Artificial Intelligence Agents rummaging through corporate data, processes, and procedures may not seem like an immediate concern to everyone. As their reach and ability to act expand, however, the question becomes unavoidable: what defines the limits of their authority?

“Consider This…” proposes that Artificial Intelligence is the “killer app” of Intellectual Property. The business definitions, rules, and institutional arrangements embodied in that Intellectual Property provide the basis for constraining an Agent’s authority, scope, and scale of action. Those constraints must then be implemented and enforced in the software. This is particularly consequential in Enterprise Resource Planning, and central to the development we are undertaking.

We extend this argument to Autonomous Asynchronous Transaction Orchestration in Synallagi. Orchestration is the part that deserves closer attention. A transaction requires more than the ability to interpret information. Who is involved? Who may access the data? What authority does each participant hold? Who can approve the transaction? What must happen before it proceeds?

These questions lead to many more as we account for the unique requirements of oil & gas and implement them in Synallagi. Intellectual Property defines. Artificial Intelligence interprets. Orchestration acts.

Orchestration is the traffic cop, the lights at intersections, the paved roads, and the speed limits that keep us somewhat civilized. It coordinates how a transaction proceeds through the participants, permissions, approvals, and other requirements that give it business meaning.

The paper is available here. Over the next few days, I’ll also publish its sections as individual blog posts, adding to the pile of recipes I’ve been accumulating here for some time.

A podcast will follow—if I can teach Artificial Intelligence to pronounce Synallagi. At this stage, it is almost comical: a different pronunciation every time, and never the right one. I’ve tried explaining that it rhymes with “technology” or “philosophy.” Apparently, we may need to begin with what “rhymes” means.

Consider This... Hayek on Prices Part II

Part II of Consider This... Price Maker Strategy and Hayek 

Industries Current Practice

Analysis of this graph (@soberlook) from the perspective of producer firms suggests that total costs across the major shale basins range from approximately $48 to $54 per barrel of oil produced. Within that total, operating expenses and royalties account for roughly $28 to $37 per barrel, while capital costs are estimated at $18 to $23 per barrel. 

The capital cost component warrants closer examination because it reflects one of the industry’s most significant misconceptions. The figure shown on the graph is not the commercial cost of recovering invested capital within a competitive timeframe. Instead, it is an accounting allocation that distributes total capital investment across every barrel expected to be produced over the property’s entire productive life. In shale developments, that period may extend for decades and, for certain natural gas properties, potentially generations.

People, Ideas & Objects contend that this accounting convention no longer reflects the realities of modern capital markets. Investors do not commit capital with the expectation that it will remain tied to a producing property for several decades before being recovered. Capital carries an opportunity cost. Every dollar committed to one project is unavailable for new drilling opportunities, debt reduction, shareholder distributions, acquisitions, or alternative investments. Conventional oil & gas accounting largely ignores this economic reality.

Within Synallagi, we therefore propose a fundamentally different treatment of capital recovery. Capital invested in a property should be substantially recovered during approximately the first thirty months of production, corresponding to the period in which most shale wells generate the majority of their productive capacity before expensive decline management and re-fracturing programs become necessary. Recovering invested capital within this period allows producers to continually recycle capital into new opportunities, strengthen their balance sheets, reduce debt, reward shareholders, and finance future development without repeated dependence on external financing.

This approach fundamentally changes the criteria governing production decisions. Production should occur only when commodity prices exceed the property’s full economic cost, including operating expenses, royalties, and the competitive recovery of invested capital. Profitability—not merely positive operating cash flow—becomes the governing principle. The distinction is fundamental.

The graph identifies what the industry commonly describes as “break-even” and “shut-in” prices. In practice, these definitions generally assume production should continue whenever commodity prices exceed operating expenses. Any contribution toward capital recovery, however small, is considered sufficient justification for continued production. Production is expected to cease only when prices fail to cover operating costs.

This is not genuine economic break-even. It is merely an operating cash flow threshold.

Under this approach, producers acknowledge that invested capital is not being recovered competitively, yet continue producing because cash continues to enter the business. Positive operating cash flow is mistaken for profitability. It is not.

Failure to recover capital within a commercially competitive period indicates that shareholder wealth is being consumed rather than created. Although production generates immediate cash receipts, it simultaneously exhausts the underlying investment. Ultimately, the reserves are depleted while much of the invested capital remains unrecovered. Under the Synallagi framework, such production is economically unprofitable for the entire reserve base, regardless of whether operating cash flow remains positive.

Synallagi therefore adopts a different production discipline.

Assuming the cost estimates presented in the graph are broadly representative, production should cease once commodity prices fall below the property’s true economic break-even point. Continuing production below that level reduces corporate profitability, delays capital recovery, and accelerates the destruction of shareholder value.

The consequences extend well beyond the individual producer.

Oil & gas commodities are better understood as price-making markets than price-taking markets. Every producer that continues producing below economic break-even contributes additional supply to an already oversupplied market. That incremental production depresses commodity prices, reducing profitability not only for the individual producer but for every producer participating in the market.

When this behavior persists across an industry for decades, the cumulative effect becomes systemic wealth destruction. The collapse of North American natural gas pricing—from the historic energy-equivalent relationship of approximately 6:1 relative to oil to more than 50:1 during 2024—illustrates the long-term consequences of sustained overproduction without adequate production discipline.

The issue is therefore not one of accounting terminology. It is the absence of production discipline founded upon profitability.

Most industries recognize that unprofitable production cannot continue indefinitely. Temporary losses may be accepted during short-term market disruptions, but businesses eventually reduce production or suspend operations before cumulative losses threaten the enterprise itself. North American oil & gas has largely abandoned this discipline.

Instead, conventional accounting methods defer capital recovery over extraordinarily long production lives, substantially understating the property’s true economic cost of production. A property appearing to break even at approximately $50 per barrel under conventional accounting may require commodity prices approaching three times that amount before invested capital is recovered within a commercially competitive period.

The consequence is predictable. Investors are presented with financial statements suggesting properties are profitable when, economically, they continue consuming shareholder capital. This misunderstanding has encouraged chronic overproduction, suppressed commodity prices, weakened returns on investment, and contributed to the destruction of industry value for more than four decades.

Synallagi replaces this framework with one founded on genuine profitability. By measuring both operating costs and the competitive recovery of invested capital, producers gain an objective basis for determining whether production creates shareholder value or merely consumes it. Production discipline is therefore governed by profitability rather than operating cash flow alone.

Conclusion

So concludes what I consider to be the first successful paper in our Consider This… series. Unlike the broader 21st Century Marketplace Vision publications, these papers focus on a single issue related to Synallagi, our user community, and their service provider organizations. Their purpose is not to present the entire architecture, but to examine one idea in sufficient depth that its broader implications become apparent.

This paper compared our price maker strategy with Professor Friedrich Hayek’s September 1945 essay, The Use of Knowledge in Society. What is most striking is not simply the elegance of Hayek’s theory, but how closely the behaviors he described eighty years ago resemble those observed throughout the oil & gas industry today. The central question remains unchanged: can decentralized decision-makers, guided by accurate information communicated through markets, consistently outperform centralized administrative control?

Hayek understood that accepting this proposition required a considerable degree of faith. It demanded confidence that no individual or central authority could ever possess sufficient knowledge to allocate resources more effectively than the collective intelligence expressed through market prices. Throughout his career, that proposition remained controversial. Political and economic thought has repeatedly oscillated between confidence in markets and confidence in centralized planning. President George H. W. Bush’s famous characterization of “voodoo economics” during the 1980 Republican presidential campaign illustrates that skepticism. Yet the remarkable economic performance of decentralized markets over subsequent decades has steadily reinforced Hayek’s central thesis.

Our own price maker strategy has encountered much the same resistance. When first introduced, it was criticized as collusive. Our response has remained unchanged. Independent producers, acting through the Joint Operating Committee and making decisions at the individual property level using objective, factual financial information, are not coordinating with one another. They are responding independently to the same market signals. The market itself becomes the coordinating mechanism. Like Hayek’s original proposition, acceptance ultimately depends upon confidence that prices communicate more information than any centralized management structure ever could.

This observation reaches beyond pricing strategy. It extends directly into the Organizational Constructs that underpin Synallagi. Markets are not simply places where transactions occur; they are an Organizational Construct that coordinates specialized knowledge across an industry. Likewise, the Joint Operating Committee serves as an Organizational Construct for exploration, production, governance, and operational decision-making. These structures are complementary rather than competing. The Joint Operating Committee governs the efficient operation of individual properties, while Markets coordinate information, specialization, innovation, and capital allocation across the broader industry. Together they create an organizational architecture capable of responding continuously to changing conditions.

This perspective also changes how we think about the producer firm itself. The traditional assumption has been that organizations and markets exist in opposition to one another. Increasingly, the literature on organizational economics suggests a different interpretation. Firms, markets, and other institutional arrangements are alternative mechanisms for organizing economic activity. The objective is not to replace organizations with markets, but to determine which organizational structure is best suited to a particular function.

Whether North American oil & gas requires the degree of reconstruction proposed by People, Ideas & Objects is, in many respects, beside the point. If markets represent the superior means of coordinating dispersed knowledge, innovation, specialization, and capital, then every aspect of the industry should seek to employ them wherever they create greater efficiency. Producer firms should concentrate on their distinct competitive advantages: ownership of their land & asset base together with their engineering & geological capacities & capabilities. Functions beyond those advantages should increasingly be obtained through competitive markets and the specialized organizations that serve them.

During preparation of this paper I encountered an interesting statement:

“The opposite of organization is not the market; it is disorganization.”

Although I was unable to verify this as a direct quotation, the underlying idea appears consistently throughout the organizational economics literature. Ronald Coase demonstrated that firms and markets are alternative mechanisms for coordinating economic activity. Oliver Williamson expanded this into competing governance structures. Richard Langlois and Nicolai Foss further developed the concept by emphasizing that firms, markets, and capabilities represent complementary forms of economic organization rather than opposing ones.

That conclusion reinforces one of the central themes of Synallagi. Markets should not be viewed as existing outside organizational theory. They are themselves an Organizational Construct. They coordinate information, encourage specialization, stimulate innovation, and allocate resources across an industry in ways that centralized organizations cannot readily duplicate.

Perhaps that is the most enduring lesson from Hayek’s work. Markets are not merely mechanisms for discovering prices. They are mechanisms for organizing knowledge itself. Eight decades after The Use of Knowledge in Society was published, that insight appears more relevant than ever. Artificial Intelligence, digital marketplaces, and Synallagi eleven Organizational Constructs do not replace Hayek’s vision—they extend it into the twenty-first century.

Consider This... Hayek on Prices Part I

 Introducing our new series of papers entitled "Consider This..."

The intellectual collision between the Keynesian framework and Hayekian thought remains a compelling chapter of the late 20th century. Following 1945, the consensus leaned toward the former, yet Hayek's perspective on spontaneous order eventually found its footing. This resurgence was most visible during the 1980s, when leaders like Ronald Reagan and Margaret Thatcher utilized his principles to achieve noted economic outcomes. Nevertheless, the allure of fiscal expansion often leads modern administrations, such as the one under President Biden, to return to significant budgetary and monetary expansion. Hayek’s receipt of the 1974 Nobel Memorial Prize in Economic Sciences also helped restore his academic profile.

Of note, historical accounts place both economists at Cambridge University throughout the Second World War.

Friedrich Hayek was in Cambridge during the Second World War because the London School of Economics had been evacuated there. During the Blitz, Hayek and John Maynard Keynes reportedly shared fire-watch duty on the rooftops of King’s College, watching for incendiary bombs. This episode is well documented in Hayek biographies and Cambridge histories. 

One nuance is worth emphasizing. It is an oversimplification to say that “Keynes said government was the answer.” Keynes advocated government intervention when aggregate demand was insufficient, but he did not advocate comprehensive state planning of production. Likewise, Hayek did not argue for the absence of government; he accepted important roles for the rule of law, monetary stability, competition policy, and a social safety net. The enduring debate between the two traditions is less about government versus markets than about where each works best and where each reaches its limits.

What Keynes and Hayek advocated for may not have been consistent with what ambitious politicians implemented. We’ve seen a strong move towards the left in the past 50 to 60 years. What Hayek said about the two prominent systems of government was appropriate. “Socialism is simple and seductive, capitalism is complex and subtle.” 

The Price System: Market prices act as an incredibly subtle communication system. Prices signal scarcity or abundance and utility without requiring central coordination. 

Counter-Intuitive Order: It seems absurd to the "naive mind" that decentralization generates better order than a deliberate plan.

Energy producers must now look to the price system as the mechanism for navigating the fundamental transition from scarcity to abundance brought about by shale. People, Ideas & Objects price maker strategy in Synallagi provides the necessary framework for this production discipline. If it’s profitable it produces, providing an application of the most fair, equitable and reasonable production discipline available. 

The purpose of this Consider This… paper is to examine Professor Friedrich Hayek’s seminal September 1945 paper, The Use of Knowledge in Society, through the perspective of People, Ideas & Objects Synallagi price maker strategy. Although written more than eighty years ago, Hayek’s observations remain remarkably relevant to the challenges confronting North American oil & gas in 2026.

Hayek writes:

We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, fulfills less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. pp. 526 - 527.

An obvious question follows from Hayek’s discussion of the price system. What would have happened had North American oil & gas producers adopted our Synallagi price maker strategy over the past several decades?

Surprisingly, the impact on consumers would likely have been relatively modest. The greatest difference would have been experienced by producers, their investors, the service industry, and the broader economy.

People, Ideas & Objects have documented more than $5.0 trillion in lost natural gas revenues during the 21st century. These losses represent value that was never realized by North American producers because commodity prices failed to reflect the full economic value of the resource. This value destruction is measurable and well documented, yet it has produced remarkably little structural change. Rather than addressing the underlying market mechanisms responsible for these losses, the industry has largely continued operating under the same assumptions that created them.

This observation is consistent with Friedrich Hayek’s explanation of the price system. Hayek argued that prices communicate dispersed knowledge throughout an economy. No individual needs to understand every variable affecting supply and demand because the price itself communicates the information necessary for rational decision-making.

The Synallagi price maker strategy extends this principle. A profitable commodity price becomes the signal that communicates everything the producer needs to know. It reflects operating costs, capital recovery, transportation constraints, consumer demand, global supply, infrastructure limitations, investment requirements, and competitive conditions. Rather than attempting to manage each of these variables independently, producers need only respond to the information embodied in a profitable market price.

Profitability therefore becomes the coordinating mechanism that transforms dispersed knowledge into disciplined economic behaviour. This discipline extends beyond the producer.

Oil and gas is a primary industry, but its capabilities depend almost entirely upon its secondary and tertiary industries. Drilling contractors, engineering firms, equipment manufacturers, construction companies, software providers, and countless specialized service organizations collectively provide the industry’s productive capacity. Without this service industry, there would be no practical oil & gas industry.

For more than six decades, however, producers have relied upon what has become known as capital discipline. During periods of depressed commodity prices, capital expenditures are reduced in an effort to preserve corporate cash. While understandable from the perspective of an individual producer, the broader consequences are substantial.

Capital discipline is a blunt instrument. It often requires years before meaningful adjustments occur. More importantly, it systematically reduces the productive capacity and technical capabilities of the industry itself. And the burden of the downturn is transferred directly to the service industry.

When producers cancel capital programs, demand for drilling, completions, engineering, construction, and field services contracts immediately. The service industry experience dramatic declines in revenue, often compounded by demands for significant price concessions in order to retain work. Equipment is retired, experienced personnel leave the industry, innovation slows, and specialized capabilities are lost. The bust portion of the industry’s boom-and-bust cycle is effectively transferred from producers to the service sector.

The documented loss of more than $5.0 trillion in natural gas revenues illustrates an even broader economic principle. Somewhere between the point of production and the final consumer, someone will recognize the full market value of the commodity. Someone will recover the costs, earn a profit, and supply consumers at a price they are willing to pay.

If producers fail to capture that value, others inevitably will.

The value may be realized by downstream processors, exporters, marketers, utilities, industrial consumers, or other participants further along the value chain. Alternatively, consumers themselves may benefit through commodity prices that remain below their long-term economic value. Regardless of who ultimately captures the benefit, the value does not disappear. It simply leaves the upstream producer and the industries that depend upon it to be captured by others.

People, Ideas & Objects attribute much of this value destruction to the industry’s failure to transition from a business model based upon resource scarcity to one capable of managing the abundance created by shale. Abundance requires a fundamentally different production strategy. Rather than maximizing production volumes, producers must maximize the profitable value realized from each unit of production. Synallagi provides the accounting, operational, and marketplace framework necessary to support that transition and long term management.

Had producers consistently accounted for the full economic cost of production and limited production to profitable production, substantially more of this value would have remained within the industry. Investors would have realized stronger returns. The service industry would have maintained their technical capacities and capabilities. Innovation would have been continuously funded. Productive capacity would have been preserved instead of repeatedly dismantled and rebuilt during successive downturns.

The central lesson is straightforward. Commodity prices should communicate profitability, and profitability should govern production. When prices fail to support profitable production, the appropriate response is not to increase production in the hope that markets will eventually rebalance. The appropriate response is to preserve the resource, preserve capital, and produce only when production creates genuine economic value.

Only profitable production should be produced—everywhere and always. Synallagi lists the benefits to a producer firm of our price maker strategy as follows.

■ Maximized Profitability: Producers maximize profits when losses from unprofitable wells or properties no longer dilute the gains from profitable ones. It’s common sense to limit one's losses.

■ Strategic Reserve Management: Holding reserves until they can be produced profitably means avoiding the incremental costs associated with losses from unprofitable production. Reserves are not obligations to produce at any price. They are assets to be managed prudently.

■ Cost Reduction: Keeping oil & gas as reserves reduces production, transportation, processing, storage and administrative costs tied to excess, unprofitable output.

■ Variable Overhead Costs: Overhead costs are fully covered when profitably produced. That cash incurred is therefore returned within 60 days to the producers. Any shut-in production will not incur overhead as all Joint Operating Committee costs are turned variable in Synallagi. 

■ Synnefa.ai Our Cloud Administration & Accounting for Oil & Gas: Shared administrative and accounting infrastructure costs of software and services based on the Cloud distribution model are tangibly lower.

■ Market Stability: Removing unprofitable production allows commodity markets to find the marginal cost, establishing fair prices for all production. Eliminating industries' boom / bust cycle. Markets provide one thing, and only one thing, a price.

■ Reserves Valuations: Market prices accurately reflect the value of producers petroleum reserves. Higher commodity prices expand the volumes of proven recoverable reserves and fulfill officers and directors fiduciary duty to safeguard assets.

■ Innovation Opportunities: While unprofitable properties are shut in, producers can innovatively explore ways to increase production volumes, reduce costs, or expand reserves. To return the well or property to profitable production.

■ Replacement Value: The realized market price of oil & gas must reflect the current market’s costs of exploration and development. That is the cost of a replacement volume of energy produced today. 

■ Production Discipline: Using profitability as the criterion for production decisions is the only fair and reasonable method of instilling production discipline. Producers that continue to produce unprofitably will continue to incur losses and have difficulty competing in North American capital markets.

■ Alleged Capital Discipline: Producers claim by cutting spending on drilling and completions is their method of resolving low prices. Capital discipline is at best a dull, blunt instrument. As we see today, it is the willing destruction of productive capacity. What it also does is shift the bust of the boom / bust cycle to the service industry to suffer exclusively. 

■ Innovation as a Foundation: Higher commodity prices finance greater innovative activity.

■ Effectively Eliminating the Boom / Bust Cycle: Dynamic changes to the producers production profile ensure they remain profitable and are aware when industry overbuilding has begun.

■ Commodity Values Realization: Each barrel of oil equivalent (boe) delivers the equivalent of 10,000 to 25,000 man-hours of labor to the consumer. This represents an irreplaceable value proposition, priced in January 2026 as high as $0.006 per labor hour, yet sourced from a finite supply. It is our responsibility to future generations to ensure this vital resource is not squandered. We must demonstrate that all production was profitable and that we passed on a robust, prosperous, profitable and viable industry to future generations. Price makers only bring on new production when it is profitable. 

■ Consumers will use the Products Price to Make Decisions: Consumer decisions based on profitable prices will stabilize the demand side of the market.

■ Independent Decisions: Our price maker strategy is built on making independent business decisions, using actual, factual financial information at the property level. This is sound business practice, not collusion, which renders any such allegations moot.

■ Profitable Operations: Conceptually, profitable operations would provide a producer with all the financial resources they need to conduct their business. Providing leadership with the independence to set their own direction. End the systemic dilution of their shareholders interests to fund capital expenditures and build value.

■ Achieves North American Swing Producer Status: Oil & gas are now both global commodities subject to the supply / demand dynamics of these markets. Shale and heavy oil are unquestionably the most costly produced anywhere in the world. The role of swing producer is to add or remove production as required to stabilize prices adequate for its markets to provide for profitable operations.

Artificial Intelligence creates an opportunity to rethink long-held assumptions about how industries organize, compete, and innovate. It encourages us to move beyond established patterns of thinking and to reconsider whether existing organizational structures continue to serve their intended purpose.

North American oil & gas has long embraced a collegial culture. Cooperation, consensus, and professional relationships are viewed as virtues, reflecting an industry that seeks to distinguish itself from the crude notion of individuals competing over scarce resources. This philosophy has shaped not only oil & gas but many North American institutions.

The question, however, is whether this collegiality has gradually evolved into something less constructive. Has it become a closed culture in which opportunities are implicitly reserved for a select few? Has competition itself become viewed with suspicion? More importantly, has the pursuit of competitive advantage through superior knowledge become socially discouraged rather than celebrated?

Friedrich Hayek raised precisely this concern in The Use of Knowledge in Society (1945):

It is a curious fact that this sort of knowledge should today be generally regarded with a kind of contempt, and that anyone who by such knowledge gains an advantage over somebody better equipped with theoretical or technical knowledge is thought to have acted almost disreputably. To gain an advantage from better knowledge of facilities of communication or transport is sometimes regarded as almost dishonest, although it is quite as important that society make use of the best opportunities in this respect as in using the latest scientific discoveries. This prejudice has in a considerable measure affected the attitude toward commerce in general compared with that toward production. Even economists who regard themselves as definitely above the crude materialist fallacies of the past constantly commit the same mistake where activities directed toward the acquisition of such practical knowledge are concerned—apparently because in their scheme of things all such knowledge is supposed to be ‘given.’ The common idea now seems to be that all such knowledge should as a matter of course be readily at the command of everybody, and the reproach of irrationality leveled against the existing economic order is frequently based on the fact that it is not so available. This view disregards the fact that the method by which such knowledge can be made as widely available as possible is precisely the problem to which we have to find an answer. (p. 522)

Hayek’s observation remains remarkably relevant. The competitive advantage of an organization is rarely determined solely by superior scientific or technical knowledge. More often, it arises from possessing better operational, commercial, organizational, and financial knowledge—and, more importantly, from organizing that knowledge so it can be acted upon quickly and effectively.

Artificial Intelligence substantially expands that opportunity. Rather than replacing human expertise, it enables organizations to discover relationships, identify opportunities, and coordinate information at a scale previously unattainable. The challenge is no longer acquiring knowledge alone. The challenge is constructing organizations capable of making that knowledge available to the people responsible for making decisions.

That challenge in terms of delivery of the financial knowledge lies at the heart of Synallagi. And knowledge is provided through the price system. 

Vision without action is merely a dream. Action without vision just passes the time. Vision with action can change the world.

Joel A. Barker

From Friedrich Hayek’s The Use of Knowledge in Society (1945): 

It is, perhaps, worth stressing that economic problems arise always and only as a consequence of change. So long as things continue as before, or at least as they were expected to, there arise no new problems requiring a decision, no need to form a new plan. The belief that changes, or at least day-to-day adjustments, have become less important in modern times implies the contention that economic problems also have become less important. This belief in the decreasing importance of change is, for that reason, usually held by the same people who argue that the importance of economic considerations has been driven into the background by the growing importance of technological knowledge.

Is it true that, with the elaborate apparatus of modern production, economic decisions are required only at long intervals, as when a new factory is to be erected or a new process to be introduced? Is it true that, once a plant has been built, the rest is all more or less mechanical, determined by the character of the plant, and leaving little to be changed in adapting to the ever-changing circumstances of the moment? 

Hayek’s central concern was not simply the existence of knowledge, but how dispersed, practical knowledge could be organized, communicated, and made useful for economic decision-making. That challenge remains largely unresolved within North American oil & gas. Engineers and geologists possess extraordinary scientific and technical expertise, yet they are rarely supported by actual, factual, standardized, and objective accounting information that enables them to evaluate the financial consequences of their operational decisions.

Synallagi addresses this deficiency by integrating standardized financial information directly into operational decision-making. Engineers and geologists would have immediate access to consistent financial statements prepared according to industry-wide standards, enabling them to analyze the economic performance of their properties from both scientific and business perspectives. Rather than relying upon fragmented information distributed across multiple organizational silos, they would possess a unified operational and financial view of every property under their responsibility.

Supported by our user community and their service provider organizations, they would be able to investigate cost structures, evaluate alternatives, optimize operational performance, and continually improve resource preservation, performance, and profitability. Synallagi Business Operations Management module provides the operational framework for these decisions, while the Marketplace Interface enables participants to engage the broader marketplace, deploying both organizational and market capabilities to achieve profitable outcomes.

Viewed from this perspective, Synallagi is not merely an Enterprise Resource Planning system. It is an organizational architecture for making Hayek’s dispersed knowledge actionable. It transforms information into coordinated decision-making by placing objective accounting information alongside engineering and geological expertise, thereby allowing both forms of knowledge to contribute simultaneously to operational success. Organizational knowledge and speed will be two of the primary elements of an oil & gas investments success.