The Preliminary Specification Part CVII (FM Part XIII)

In this last post of our third pass through the Financial Marketplace module of the Preliminary Specification I want to focus on the role that the financial community can have in its participation in making the producer innovative. And how that producer, through the Financial Marketplace module, can accelerate their innovativeness and enhance their capabilities.

What we have learned about innovation is well summarized by Professor Giovanni Dosi in the following quotation.

“businesses commit to innovation stemming from exogenous scientific factors and endogenously accumulated capabilities developed by their respective firms”. His general point is that “observed sectoral patterns of technical change are the result of the interplay between various sorts of market-inducements, on the one hand, and opportunity and appropriability combinations, on the other”. p. 1141

The manner in which the oil and gas investor earns a return on their investment will be on the basis of the producers innovativeness. From that investors point of view, using the public interface of the People, Ideas & Objects Financial Marketplace module they can quickly determine whom has the highest trajectory change in terms of Revenue Per Employee. They will then be able to engage with that producer in terms of what their team is capable of in the earth science and engineering disciplines. And then commence collaborations with those producers that are of interest to the investor on the basis of what they have seen in the Financial Marketplace module. Then the producer and the investor can discuss how the financing of the “interplay between various sorts of market-inducements, on the one hand, and opportunity and appropriability combinations, on the other” can come about.

The efficient financing of innovation on an industry wide basis should be one of the overall processes managed by the Financial Marketplace module. As described here, and understanding that there is much more to be written about the Preliminary Specification, the ability to focus on the producer with the highest level of innovation, as reflected in the trajectory change in Revenue Per Employee, will be quick. As the pace of change in the science, and the rapid pace of change in the service industries, the pace of change in the producers will only be matched if the investment community is able to respond to the market changes at the same speed as the producers are able to. Therefore in order to accelerate the producers it is necessary to accelerate the pace and speed of the financial community in terms of their capabilities in understanding the producers business. This is the focus of the Financial Marketplace module.

In terms of what the capabilities of the producer are, and what they are able to achieve, I can see some producers unwilling to document and publish this material for reasons that they will leave themselves exposed to competitive exploitation. That’s always possible, however, as with any competitive advantage they can be actively marketed and developed or hidden and atrophied. The ability to market these competitive advantages to the investment community and in turn develop them further is the opportunity being discussed here. The paradox of Revenue Per Employee is the area where the difficulties really lay and where their attentions should really be focused.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CVI (FM Part XII)

With this blog post I want to clarify some of the positions and directions that have been discussed in the Preliminary Specification to date, and make clear those that are pertinent to the Financial Marketplace module. These may or may not have been discussed specifically in this module and need some further clarification.

In our review of Professor Giovanni Dosi’s paper, “Sources, Procedures, and Microeconomic Effects of Innovation“ we should ask what are the incentives for the financial marketplace to invest in the producers discovery of innovations and there development? Will these depend on the incentives that interested and motivated agents perceive in terms of expected economic returns? Professor Dosi calls “appropriability those properties of technological knowledge and technical artifacts, of markets and the legal environment that permit innovations as rent yielding assets against competitor’s imitation”. In previous blog posts we have documented that producers have lead times and learning curves as process innovations. Are these incentives enough of a market inducement for profit motivated agents?

The competitive advantages of the producer are its land & asset base, and its earth science & engineering capabilities. To develop its capabilities it has been suggested here in the Financial Marketplace module that the financial community will have an incentive in funding the development of the producers capabilities. These competitive advantages, the capabilities, when applied to their land & asset base will generate the rent yielding assets the financial community is seeking. To hold the land & asset base is the alternative the investor has to consider. However, without the capabilities to develop the properties the assets are of little use. The investor must acquire the capabilities in some fashion and that will cost them. To develop them through a producer may be the most effective and lowest cost alternative available to them.

Another aspect of the understanding that we have learned about innovation is that innovation is the result of a quantifiable and replicable process. Taken from the perspective of an investor, the value this understanding provides is that the means of production, the scientific capability is within the scope of his / her undertaking. The risks still exist. However, the ability to develop the innovation from a known capability exists and is a possibility based on a quantifiable and replicable processes. That is not to say that they will be successful, there are still impediments to their success, however, just as Apple is able to produce dominant market changing products, the quantification of innovation is possible and probable.

Lastly the final point of today’s post is that money is not necessarily the determinant of innovative success. If it were there would be more innovation occurring in the large firms. Innovation can and does come from anywhere and does not necessarily require the vast financial resources that are believed to be necessary to make them real. From the financial marketplace perspective this would provide them with the evidence they don’t need to throw a lot of money around to make the producers innovative. A lot of the capabilities that are needed can and will be developed in innovative ways as a result of not having an unlimited capital budget. This might be the key point that draws the capital marketplace into the Financial Marketplace module and participates in the development of the capabilities of the producer.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CV (FM Part XI)

With such a focus on the earth science and engineering capabilities of the innovative oil and gas producer we run the risk of becoming to focused on the science. Revenue Per Employee will go a long way to keeping the producer focused on the business end of the calculation. But there has to be more. And some times that “more” comes from the cold hard slap in the face from the money markets telling you that you’ve been wrong about something for a long time. How can we incorporate some feedback within the Financial Marketplace module of the Preliminary Specification, so that it doesn’t get to the point where the producer has to sustain that humbling cold hard slap from the financial community.

We have discussed the promotion of the producers team of earth science and engineering capabilities on the Financial Marketplace module in our October 20, 2011 blog post. It is through that interface the producer communicates to the financial marketplace the capabilities that they have assembled and what they as a producer are able to accomplish. I see the long term development of the producer as an extension of this capabilities development. The application of the capability and its development to a geographic area where the risks are of a certain nature and are unknown and unknowable for the foreseeable future. This is the nature of the oil and gas business and to embark on such an adventure without the financial marketplace committed to your team would be unwise and certain to fail. What is needed is a means to communicate on top of the capabilities interface that we discussed earlier, and include what Professor Giovanni Dosi states here.

Internalization and routinization in the face of the uncertainty and complexity of the innovative process also point to the importance of particular organizational arrangements for the success or failure of individual innovative attempts. This is what was found by the SAPPHO Project (cf. Science Policy Research Unit 1972 and Rothwell et al. 1974), possibly the most extensive investigation of the sources of commercial success or failure of innovation: Institutional traits, both internal to the firm - such as the nature of the organizational arrangements between technical and commercial people, or the hierarchical authority within the innovating firm - and between a firm and its external environment - such as good communication channels with users, universities, and so on - turn out to be very important. Moreover, it has been argued (Pavitt 1986; Robert Wilson, Peter Ashton and Thomas Egan 1984) that, for given incentives and innovative opportunities, the various forms of internal corporate organization (U form versus M form centralized versus decentralized, etc.) affect innovation and commercial success positively or negatively, according to the particular nature of each technological paradigm and its stage of development. p. 1135

It sounds simple, and reasonable, to include “good communication channels” as a necessary part of any relationship between an innovative producer and its financial backers. To include these within the ERP systems is the key to making them effective. What originates as a result of these “good communication channels” is defined by Professor Dosi.

In general, each organizational arrangement of a firm embodies procedures for resource allocation to particular activities (in our case, innovative activities), and for the efficient use of these resources in the search for new products, new processes, and procedures for improvements in existing routines; however, the specific nature of these procedures differs across firms and sectors. For example, the typical degrees of commitment of resources vary by industry and so do the rates at which learning occurs. I now turn to the interpretation of these phenomena. p. 1135

Professor Dosi states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs. One would assume that this is the calm guiding hand of the capital markets providing leadership to the producer.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CIV (FM Part X)

This blog post is a follow on post to yesterday’s discussion of Revenue Per Employee and why it is important that it is promoted on the Financial Marketplace module of the Preliminary Specification. If you have not read People, Ideas & Objects Revenue Model it might be worth your while to have a read. Within that document we make a bold assertion that goes something like this.

In addition to providing a strong competitive advantage to the producer firms, use of People, Ideas & Objects (PI&O) software applications would also provide the most profitable means of oil and gas operations. Recall this is the competitive advantage of this software development project and its Community of Independent Service Providers. We will provide this value added process to the innovative producer by ensuring that the most effective division of labor and specialization, defined and supported by the PI&O software, are used in the day to day operations of the oil and gas producer.

Simply if the output of the industry is going to expand it has to be done on the basis of an enhanced division of labor and specialization. To do that, in this day and age, requires that software be built to define and support those processes first and foremost. PI&O’s Revenue Model is not abusing this fact to state that the industry can’t get to an expanded division of labor without us. We are only stating that we can use these facts as our collective sense of urgency to ensure that this project gets finished.

In theory, Revenue Per Employee will therefore increase under People, Ideas & Objects use. Due to the organizational structure, the Joint Operating Committee supporting the earth science and engineering innovations, the specialization and enhanced division of labor expanding the output of the producer. All as a result of the software defining and supporting the organization, the division of labor, specialization, etc.

Revenue Per Employee is therefore a reflection of value. When we discussed the factor in the Petroleum Lease Marketplace module it was for internal consumption purposes. The purpose of using Revenue Per Employee in the Financial Marketplace module is to publish it and allow the investment community to compare your performance against your peers. As we discussed in the Petroleum Lease Marketplace module there would be three types of variances that could be calculated on the comparisons between periods. There would be the volume, price and number of employees variance. Each would impute a different result in terms of what the comparison of the variable meant.

Does Revenue Per Employee reflect a more innovative footing. That may be debated for a long time. I think it clearly does, and I can’t think of a more effective means of answering how innovative a producer is. Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.” The net result of this, in a laboratory setting would be great experiments. The net result of this in a commercial setting like an oil and gas firm would be increased revenue over the period without the additional burden of increased overhead. Therefore Revenue Per Employee, in my opinion should have its own interface in the Petroleum Lease Marketplace, and be published as well on the Financial Marketplace module.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CIII (FM Part IX)

In yesterday’s post we asked the important question of what role will the capital markets play in the future of the oil and gas industry? More specifically, I want to ask what role will they play in funding innovation? Will they value the capabilities of the innovative producer and fund them as was suggested yesterday? Will the demand for capital be diminished as a result of the high commodity prices reallocating the financial resources towards an innovative producer? What role will banks fill in this costly science and engineering based environment? These are all difficult questions that have to be asked in funding the oil and gas producer. Since the 2008 financial meltdown there is definitely change in the air.

With the Financial Marketplace module of the Preliminary Specification the attempt to keep the producer within the financial market is the objective. As the answers to these questions are worked out in the market the producer will be able to participate and resolve the issues in their favor. The risks associated with taking too much time to resolve these issues will fall unfavorably on the producer.

Recently we discussed in the Petroleum Lease Marketplace module the factor that was developed in People, Ideas & Objects Preliminary Research report of Revenue Per Employee. I think it might be worthwhile to publish the producers Revenue Per Employee factor for the current and past periods, and include some of the future projections of where the producers factor is heading. This would provide the investors and bankers with an understanding of the innovative standing that the firm was expecting to maintain over the next few periods.

One of the attributes of Revenue Per Employee is that your history becomes a significant part of the calculation. If you have a poor factor then the performance of those fields will continue to affect your performance in the calculation from that point forward. Laggards remain laggards. To change requires significant and radical changes to the way the firm operates. Those firms that have a high factor are those that are able to truly state that they are innovative. And they have the benefit of that history in which they will be able to live off those high factors for the short and medium term. This factor can be a significant selling point, or alternatively, highlight the real stinkers.

The variance in the marketplace of the factor of Revenue Per Employee is truly remarkable. I haven’t run the calculations lately but to have a variance of five fold is not uncommon. When a producer has five times as much revenue per employee as its competitor then it reflects that something is fundamentally different in terms of what they are doing. As we stated in the Petroleum Lease Marketplace module, although not necessarily an overall reflection of innovativeness, the trajectory of the factor over a period of time is definitely a reflection of innovativeness, or not.

The Financial Marketplace should be a place where the factor of Revenue Per Employee should be highlighted and the trajectories promoted. I will leave it to the user community to determine where in the interface of the Financial Marketplace module to put it. I think the demand for capital in the global economy will continue to be substantial for the long term. In a capital intensive business those with the access to capital will have an advantage. And that advantage will go to those that can prove they are outperforming their competition on the basis of a more innovative footing.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CII (FM Part VIII)

We now begin our third pass through the Financial Marketplace module of the Preliminary Specification. As has been mentioned this third pass is focused on innovation and reviews Professor Giovanni Dosi’s 1988 paper “Sources, Procedures and Microeconomic Effects of Innovation”. It has been argued throughout the writings in this blog that commodity prices are reallocating the financial resources to fuel the innovative oil and gas producer. If that is so, then what role will the capital markets play in the future of the oil and gas industry?

Taking this thinking to its extreme then the most innovative firm would also be the most profitable. As the costs of capital would be lower then its competitions, and with their innovations being on a steeper trajectory, and therefore more effective, and would be at less cost then the competitions. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competition. Professor Dosi notes:

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

What you are capable of achieving as an innovative oil and gas producer is possibly the most valuable asset that you have in the very near future. This capability is what you are investing in and how you expect to earn a return on your investment. Although much of your capability may be funded by the day to day of your operation, it represents a critical part of your firms investments. In answer to the question posed earlier, this investment in your capabilities is a future role for the capital markets to make investments in.

We noted that the producer firms engineering and earth science team was being highlighted in an interface on the Financial Marketplace module in the October 20, 2011 blog post. Is it time that the producer was able to financially leverage these capabilities in the capital markets? If innovation is the result of the team that is put together, then the ability to fund that team and earn a return on the basis of their performance might be something that should or could be considered in this new energy era.

To facilitate that possibility the interface in the Financial Marketplace module could have performance metrics that reflect the results of their efforts. These could be quantified over a certain period and verified by reserve reports prepared by independent engineers. The point of the exercise would be to increase the value of the producer firm based on the intangible value of its capabilities. In a world where ideas matter, the ability to quantify them and qualify them within a marketplace brings real value to the oil and gas producer and investor.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part LXI (FM Part VII)

I just want to take a moment to reiterate the Preliminary Specification series that I am publishing over these next few quarters is designed to initiate the process for the community. Earlier on it was thought that the community would be able to use the Draft Specification and the research that was contained within the blog. However, I think that by producing this series it is more organized and easier for the community to get a handle on the complexity of the processes and functionality of the modules. I think with this series, the Draft Specification and research the community will be able to get a solid start on the Preliminary Specification when it begins.

In today’s post I want to discuss one of the key differences that is occurring during the transition from the easy era of energy development to the current more difficult energy era. In the Preliminary Research Report I was critical of a what I called a banking mentality in the investment attitudes in oil and gas. Where, similar to a bank, one could invest your money in oil and gas and expect an annual 10% return on somewhat of a guaranteed basis. This banking mentality had arisen, I suggested, as a result of the poor energy prices in the 1980’s and other difficulties in the business in the early 1990’s.

Now some may think that I am contradicting myself from yesterday’s post by stating that this banking mentality is only the market dictating an expected return. I would suggest the two are different. Investing only to participate in the types of returns that a bank is able to compete with imputes that the industry has no risk profile. That everything is invested for the expected cash flow that will provide for the return on a proven basis. This is how the industry was run, with essentially no risks taken. Looking at the heads of successful oil and gas companies found financial people, lawyers and accountants as CEO’s. People who could relate to the commercial end of the business and deliver on the promised returns. Engineers and geologists toiled in obscurity.

Contrast this to the times of the 1960’s and some of the 1970’s when the industry was actively exploring for new fields. Investments were being made for the purposes of the long term prospects of the firm. The cash flows of the firm were worked on, however, the prospecting was the key to the future. I see today, in this difficult energy era, as being more similar in terms of investment attitude to the 1960’s and 1970’s time then the 1980’s and 1990’s. An era that is based on the earth science and engineering capabilities of the producer and what can be done in terms of discovery, and the production of reserves. A time when the engineering and geological minds were running the firm, and the accountants, finance and lawyers were in their designated support roles.

The bureaucracy that brought you the banking returns of the 1990’s are still running the show today. (Lawyers are a sticky bunch.) For them to become the team that will discover and produce the energy in this new earth science and engineering focused era can’t happen. There is no such metamorphosis. Until such time as the engineers and earth scientists move to control the firms and establish themselves in full control of the firms will this transition be complete. And we might only be at the beginning of this trend. Although I have seen a number of geologists as CFO’s, a trend that I think is very positive.

In terms of the Financial Marketplace module, as an investor, I want to know who has the best team and the best capability in terms of their earth science and engineering talents. In terms of how that potentially, as an investor, can make me money is significant. These geological and engineering teams potential to find large volumes of oil and gas reserves, and have those values realized overnight is of significant interest to me, as an investor. It is therefore necessary I think that the producers have some ability to promote their exploration and development team, prospects, capabilities and opportunities in the Financial Marketplace module, subject to regulatory compliance of course.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LX (FM Part VI)

Our previous post reflects how the Preliminary Specifications Financial Marketplace creates the environment where speed and performance are rewarded with the ability to have the financial resources available when they are needed. A key focus of that marketplace will be on the return that is provided to the investors, and how the producer remains focused on providing the highest returns, and the delivery of those returns.

The first item of information that a marketplace should tell a producer is what is an acceptable rate of return for an investment in oil and gas. This is the criteria that all producers should use to evaluate their oil and gas investments. If the rate of return or capital allocation does not exceed the markets expected rate of return then the project should not proceed. There is no more important factor or information that a producer needs to know. The producers discipline and methodology in its capital allocation is how the successful producers succeed. This blogpost is how the Financial Marketplace module incorporates the calculations of return on investment and capital allocation in the Preliminary Specification.

First of all there are no more confidential, in my opinion, information then these calculations. Particularly the capital allocation can be a complex algorithm that is usually contained within multiple spreadsheets. Centralizing these calculations within the Financial Marketplace module would be opportune as its managed by the Security & Access Control module and general access to the historical accounting data. There is however much more to the decision making process then just the numbers. The managements discussion, based on the calculations is sometimes the important feature. Therefore having robust features for discussion throughout the calculations of return on investment and capital allocation will be necessary. This might best be represented as a black board feature of the module.

There is more to the process then just blue sky thinking and number crunching too. What I am suggesting here is that the process of capital allocation is an art as much as it is a science. The process needs to be rigorous and thorough enough to ensure that every rock has been overturn and inspected. That process can and should be automated to the highest level in the Preliminary Specifications Financial Marketplace module. It is up to the individual producer to either follow the process or to ignore it, as much as they do the capital allocation process today.

Astute readers will note the obvious contradiction that is inherent in the Financial Marketplace module. You have to love the contradictions. Doesn’t the speed we discussed yesterday contradict the deliberate pace of the capital allocation process described here? No, that is to say it shouldn’t, or they should be one in the same. Having the speed that was described yesterday was desirable only if you had some measure of control. The control is attained through the capital allocation process that is described here. These two forces, speed and control, are in the hands of the management of the firm and are reflected in the performance of the assets. The marketplace will see this performance and respond appropriately and that will be reflected through the Preliminary Specifications Financial Marketplace module.

Another contradiction might be suggested that with banks funding Joint Operating Committees on a semi-autonomous nature, this will interrupt the capital allocation process and affect the return calculations of the firm. We discussed this in a previous blog post on the Financial Marketplace module. That banks funding the Joint Operating Committee as opposed to taking general claims against the individual producers. Would be more motivated and aligned to develop the individual property. This might be contrary to the producer own capital allocation processes. That is true, however, since they are using borrowed money to invest in that Joint Operating Committee they are leveraging the investment of the producer. Therefore the actual return to the producer “should be” leveraged to the point that it would exceed the markets expected return.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LIX (FM Part V)

Here at People, Ideas & Objects we frequently state that we are moving the compliance and governance frameworks of the hierarchy into alignment with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategy frameworks. We are doing this to achieve greater speed, innovative capabilities and accountability. This post is to discuss how some of that speed is achieved, by reducing the financial constraints and the time required that financing has traditionally taken in oil and gas.

In our previous pass through the Financial Marketplace module. We discussed how banks could finance all the producers within a Joint Operating Committee. As opposed to today’s method of each producer having their own banker. This would provide a focus for the bank that is unconstrained by any other properties or concerns. We also discussed, with the technology automation that is available today, that both the producers and the banks could automate most of the increased logistical banking requirements that this would cause. I also suggested that the disenchanted oil and gas investor might be better served by providing them with the ability to invest directly in the property, giving them the opportunity to circumvent the bureaucracy. A bureaucracy that has provided no upside on 400% energy price increases. And lastly that these changes, made through the Financial Marketplace module, provide a focus for the alignment of the financial interests to the Joint Operating Committee to achieve some of that speed, innovative capability, and accountability.

Now lets explore that speed aspect. The Financial Marketplace module is one of three of People, Ideas & Objects marketplace modules. That imputes a line of communications is open between the financial marketplace and the producer firm that is above and beyond that of the compliance requirements. It is therefore going to have to be authored by the senior people of the firm who know what it is that they are authorized to state. The current investors who have an interest with the producer would be able to source historical accounting data and information on their investments from the producer from the Partnership Accounting module. Future plans and investments, the difficult situations to discuss, could be published and promoted in the Financial Marketplace and meet the regulations requirements for full disclosure. Thereby giving no investor or group any unfair advantage in terms of quality of information.

The point of the marketplace is the opportunity to establish significant and rich relationships with investors and bankers of all shapes and sizes. Make no mistake, the ability to attract capital will be on the basis of performance, for that there is no alternative. However, the speed and effort at which a producer is able to raise the funds necessary to develop their assets depends on the quality of those assets and the quality of the relationships they have with the investment community. The Financial Marketplace module helps to establish a stronger relationship with the investment community, therefore in a significant way increasing the speed at which you can approach the oil and gas business.

In a capital intensive industry, financing is a critical issue for any producer. In an industry where innovation is providing significant value add, and with escalating capital and costs of operations the relationships with your investors need to be of premier concern in your business. Speed will become a major criteria on how you will be evaluated in the marketplace. If you as a producer are unable to perform in terms of competing, or participating at the speed of the marketplace, you will be left behind, very quickly. Reputation has a permanence to it that is difficult to change. Financing can give you a head start and the ability to participate at the speed of the marketplace, and maybe even set the pace for those to try and follow. The speed at which a producer is able to execute would be reflected in the Financial Marketplace module. Transparent marketplaces are a two way street. And it is here that I think the Financial Marketplace module will enable those producers with superior performance to attain a real speed advantage.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part XIV (FM Part IV)

This will be our last post on the Financial Marketplace module in terms of our Preliminary Specification output discussion. In this post we will discuss some of the generic reporting requirements of the module. These interfaces are of a financial nature and reflect the types of people (accounting and finance) that will be working within the module. This post looks at the reporting from both the Joint Operating Committee and the producer perspectives.

Our discussion of the costs of administering high levels of banking due to using the Joint Operating Committee as the key organizational construct of the innovative producer is an important consideration in this discussion. We have two choices to deal with these high administrative costs. We can hire a lot of people, or alternatively we can highly engineer the software that the industry will use to deal with the administrative burden. A highly engineered software solution, backed up with a software development capability such as is proposed by People, Ideas & Objects I think would earn the general consensus.

Understanding the marketplace metaphor and the discussion regarding bankers and investors in previous posts, the module would include, but in no way would be limited to, the following.

Joint Operating Committee perspective.

• Banking deposit and payment processing.
• Account reconciliation and analysis.
• Short term asset reconciliation and management.
• Dynamic working capital determinations.
• Short term liabilities accounts and management.
• Long term liabilities accounts and management.

From the producer perspective.

• Banking deposit and payment processing.
• Account reconciliation and analysis.
• Short term asset reconciliation and management.
• Dynamic working capital determinations and allocations.
• Short term liabilities accounts and management.
• Long term liabilities accounts and management.
• Shareholder equity accounts and management.
• Consolidated JOC working capital.
• Uncommitted consolidated JOC working capital.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XIII (FM Part III)

In our two posts regarding the Financial Marketplace module we have discussed both the relationship with bankers and investors. In the first post we noted that the module provided the choice to either maintain the banking relationship between each partner in the Joint Operating Committee. Or alternatively each Joint Operating Committee might be represented by one bank for all partners. In our second post we noted that the interfaces and tools that could be available to establish a marketing relationship between the producer and the investment community. Where there were possibilities to have the property securitized and other means in which “ownership” might be different then what exists today.

Today I want to briefly discuss the logistical implications of having these types of situations operational in an oil and gas firm. To suggest that this would make the financial aspects of a producer firm simpler would be contrary to the reality of a system that is providing these types of opportunities. Simply the legal and financial reporting and logistical requirements would be an order of magnitude more voluminous. It is fair to assume that the producer firm would need to maintain a banking relationship with most of the banks that had a presence in the oil and gas business. That relationship would include loans, accounts and all of their services. Managing for each loans financial requirement would become unbearable. Causing all kinds of administrative and management burdens that would otherwise not be incurred in today's systems.

Crap. All of these are done today, albeit on a smaller scale, in most companies. Adding a multiple of volume through automated systems such as what is being discussed in the Draft and Preliminary Specification makes the prior discussion a mute point. What is not realized is that the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. By enabling the financial constraints of the property to be just the financial constraints of the property and only the financial constraints of the property. The participants in the Joint Operating Committee are free to deal with those that are financially motivated in dealing with the issues of that Joint Operating Committee. There are no more of “them”, who are never in attendance at meetings anyway. When it comes time to make a decision, a decision can be made.

Its not that the decisions are made in the Financial Marketplace module. What this module is doing is aligning the financial interests of the Joint Operating Committee so that the decision rights are in alignment with the operational decision making authority. The financial, legal and operational decision making authority resides in the Joint Operating Committee and the alignment of these interests makes the ability to decide the best course of action possible. Currently, the muddling of these frameworks by general assignments to banks by each producer, and some nameless and faceless investor, limit the flexibility of the decision making authority of the engineers and earth scientists who are responsible for the performance of the property. By focusing the ownership and operating resources on the assets of the Joint Operating Committee, the consensus can be achieved and decisions can be made.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XII (FM Part II)

It is the Financial Marketplace module in which I really throw the cat amongst the pigeons when I talk about the redundancy of the bureaucracy. Yet when I reflect on the past three years, I see the investment marketplace holds the oil and gas producers management in not much better esteem. There is a general dissatisfaction within the oil and gas investor community. How much of this dissatisfaction is to do with the overall financial market meltdown, and how much is to do with a general dissatisfaction with the oil and gas industry itself is unknown.

The fact of the matter is that with the run up in the prices there has been an even greater run up in the costs of production and operations. Management have provided no upside from the price increases. A management that have provided no upside on 400% price increases will not provide any upside on any further price increases. And it is quite probable that significant financial losses will arise as a result of any price declines. So there is much to be concerned about when it comes to the current state of affairs in the manner in which the oil and gas industry is managed.

I’m glad that I am on record for being critical of management, and that I am the one that management have been kicking with such vigor. It’s one thing to be right, another for management to have been so wrong for so long. Nonetheless, the industry is going through a fundamental change. One in which the earth science and engineering resources needed to discover and produce the base commodities are under increasing demands. We therefore need to organize ourselves for this new challenge.

The Financial Marketplace module provides a window for the producer to deal with the bankers within the Joint Operating Committee. This is as we discussed in last Friday’s post. Whether a producer chooses to have each participant maintain their own bank representative. Or, each Joint Operating Committee has one banker for all the producers represented in the Joint Operating Committee is a choice provided by the Financial Marketplace module.

Today’s post shows the critical role of the investor in the long term health of the oil and gas industry. I think in order to have them participate in the industry, again, will require they are provided with new tools and opportunities to invest in oil and gas. In the Draft Specification it was suggested that possibly the working interest share might be a securitized investment. I think on the basis of the past three years history, that it should be considered that the investment community might have some enhanced tools and interfaces to the producer through the Financial Marketplace module of the People, Ideas & Objects software application. After all its a marketplace.

The interfaces and tools that I am thinking are not of the statutory type that are required by various regulatory agencies. These are provided through the Compliance & Governance module of the People, Ideas & Objects application. The type of interfaces that I am thinking that may be used in the Financial Marketplace module would be more of the marketing style. Where the producer is out selling their investment to the “financial marketplace” in order to secure future investments. Ways to initiate dialog and for information and discussion to start the relationship between the investor and the producer.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XI (FM Part I)

We move now to the third marketplace module in the Preliminary Specification, the Financial Marketplace module. A lot has happened since the late spring / early summer of 2008 when I wrote this module. The financial marketplace has been shaken to its core and the implications of that shaking are still felt today. With many of the worlds financial markets continuing to be illiquid and nervous about certain situations. The capital and debt markets have been very negative towards the oil and gas industry with many of the independents being shut out of those markets. The rise of the Asian Joint Venture is a direct result of the inability to raise any money in the “normal” capital markets. I would expect to see further fall out as the Euro situation seems to be far from resolved, the U.S. is deeply indebted and demanding a lot of capital with only the quasi-government groups in Asia holding any significant amount of capital to invest.

The primary point that the Financial Marketplace module was making in 2008 was that there are competing interests and motivations in the industry in attempting to get things done. With different strategies being deployed by different partners within a Joint Operating Committee, is it any wonder that the financing of a project can ever fall into place. What the Financial Marketplace module proposes is that instead of the property being funded by several different company bankers, each taking a working interest share claim against the property. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the property. If that was the simpler solution. The attempt in the Financial Marketplace module was to offer a solution to the difficulty to funding properties when one or two of the participants were consistently falling behind in terms of their capabilities.

Today that may or may not be an objective or opportunity worth pursuing. However, I think that the freedom of having the attributes of the Financial Marketplace module still reside within the oil and gas market, and possibly even more as a result of the financial meltdown of 2008. Why? because the demand for capital will continue to be strong, and the supply will continue to be tight. In a capital intensive industry that’s going through the level of change that the oil and gas industry is going through. Having a system that employs a marketplace metaphor, which provides the participants with better information, may be more of a necessity.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.