June Business Report

Marketing

Petro Canada continues to provide ample material for analysis and comment, and we are anxiously awaiting the companies second quarter results. The results of this marketing are beginning to provide the exposure that we seek, particularly locally.

In the Technorati service we are still jumping around a fair amount, however this last month we have seen our ranking down to the low 500,000's. Not bad for a six month blog, and considering the total number of ranked blogs has jumped to almost 42 million.

Content

We set out to see what kind of pace we can attain in terms of the frequency of blog postings. With the stated May objective of writing one article per day, I am now putting this in place for the long term. The discipline to write one story per day is a rather torrid pace for one individual. But it has an indirect effect of increasing and focusing the quality and value of the entire process. Therefore I want to try and establish a new guideline for July, that being of 8 posts per week, and, one per day as new minimums in posting.

My Favorite entries.
My favorite entries for the past month are:

• The completion of the summary series on partnership accounting.
• The completion of the summary of Genesys' technical vision.
• The ongoing series on Petro Canada
• Is the joint operating committee revolutionary

Technical Architecture

No changes to the overall technical architecture were made in June 2006. GlassFish continues to soar in terms of its acceptance and value to the community. Discussion with BEA Systems were brief and uneventful. The cut off point between GlassFish and a business oriented functionality is unanswered at this point. The more I research this area, and the more we define the unique areas of using the joint operating committee, the more I believe that we may be best off developing these ourselves.

Budget

Revenue to the end of June: $0.00

July 1, 2006 budget items. (All costs are in U.S. dollars and include the 33% premium for the development copyright fee.)

1. Project management and development = $300,000
2. Sun Grid The first thing we need is a home for the code. The grid provides everything we need in this instance, and the Grid that I selected was Sun's. At $1 per processor hour, a very affordable way to secure the resources we need. I think that our first years requirements would be amply satisfied with 10,000 hours of processing for the remainder of 2006 calendar year. Total requirement = $13,300
3. Ingres Open Source database and part time DBA, Total requirements = $57,000, Collabnet, I would like to have a generous budget for this critical tool. Provides the code management, community process, project and issue management. Budget includes tools, appropriate setup and consulting services. Total requirements = $34,000
4. General and Administrative, first 6 months of operation Total requirements = $60,000
5. Membership in W3C Total requirements = $9,000
6. Total Capital and Operating budget, 2006... $484,000

Notes

• Sponsors, producers, and user contributions and donations are accepted.
• Please recall that this community is and will be supported by the producers. Based on an annual $ assessment per barrel of oil. For 2006 the assessment was fixed at $1 per boe per day per year.
• A company such as Encana in Canada would therefore be expected to support the community to the tune of $700,000 for the 2006 calendar year.
• These Monthly Business Report budgets are being proposed on a pay as you go basis for 2006 to support the community and ensure the community develops in the manner that is expected.
• Your donations are greatly appreciated, no donations mean no development work is being done.

Technorati Tags: Business-Report, Genesys

Genesys' definition of success.

The project management book that I am reviewing and commented on earlier stated a project needs a definition of success. This is my definition of success for this project, please feel free to comment. Also recall that the definition of success can and will change over the course of the project life.

"Revolutionize the managerial and administrative performance of the innovative oil and gas firm. Through active participation of the future user's of these systems develop a global "Enterprise 2.0" software application. An application built explicitly to identify, support and unleash the potential of the joint operating committee. The natural form of organization of all producers."

I'll post this as the header of the entire blog so that it is available and can easily be referred to. This will also make any changes more noticeable.

Revolutionary? Yes based on the criteria that I noted here earlier this week and in consideration of this other point.

"Doubt is the father of innovation". Galileo

Technorati Tags: Genesys, Success, Innovation, Energy

A vigorous debate about alternative energy.

MIT Video has a "soap box" with Professor Donald Sadoway about the sources of alternative energy. The video discusses the majority of the alternatives that are "believed" to be available. And Dr. Sadoway dispatches some rather brutal common sense as to the viability of these alternatives.

The take away for me was the efficiency and ease of use of the internal combustion engine. Alternatives are not that easy, and they are certainly not within the scope of anything that is safe or affordable. Dr. Sadoway notes the following regarding some of the alternatives.

It was 1839 when William Grove invented the Hydrogen fuel cell. Today the costs and possibilities of this promising energy source are further then ever from being realized. I highly recommend watching the video by clicking on the title of this entry. It is a complex and difficult process that is best explained by Dr. Sadoway.

Batteries have experienced significant development over the last two decades. Fueling the laptop and cell phones to their prominence today. To power a vehicle however becomes rather costly. To travel 100 km would cost the consumer approximately $1 million in state of the art lithium ion batteries.

Dr. Sadoway responds to a number of questions from the audience, one being the viability of nano technology capacitors. These seemed promising yet many years away. Brief mention of Emery Lovins use of switchgrass and book "The end of the oil game" are, I can assure you, not cost effective at this point. To burn more energy then you produce seems somewhat counter productive to me. And that is what is required for switchgrass and corn based ethanol's. Just because of the large corn subsidies do these alternatives even get mentioned.

So what is the answer to the use of hydrocarbon based life style? I think there are three very good answers that promise the most value in the short to mid term. They are the increase in horsepower from the average internal combustion engine. To double the horsepower per gallon would reduce the size requirement of the engine and reduce the demand for energy. If each molecule of gas contains E=MC2 of energy, we are a long way from realizing the full value of each drop of gasoline. The second alternative is the Segway, and the third is the funding of this software to enable more innovation in the supply side.

In Formula One, the engines are as powerful as they were in the 1980's when they were propelled with 1.5 liter turbo specifications. Gobbling up gas at a phenomenal rate these engines were in race configuration capable of around 1,000 horse power. Today the use of normally aspirated 2.4 liter engineers generate almost 700 horsepower with spec gasoline and use less then 160 liters per race. This is directly comparable to the 3.5 liter engineers that were generating 500 - 600 horse power with exotic fuels at the end of the turbo era in 1989. In other words we have probably doubled the horsepower per drop of gas in the past 2 decades. How much more can be achieved in this area?

The Segway is faster then most cars in rush hour traffic. I'll leave Dean Kamen to explain the efficiencies of this transportation device that he invented on MIT video here. I think this type of rational thinking needs to be adopted. The prices at the pumps have done nothing to defer the desire for energy. The world is consuming 1.5 million additional barrels per day since this time last year. What price is necessary to stop the increase and reduce the demand? Obviously much higher. If the Segway can get 20 km on $0.50 of electricity, and get you to work faster, there is value in that.

Technorati Tags: Genesys, Alternatives, Innovation, Energy

Petro Canada

Petro Canada has revised it's offer for Canada Southern Petroleum Ltd. to $165 million from $113 million. Does this mean that they are overpaying for this asset? Recall what they said about Canada Southern Petroleum's expectation of value, that it was too high.

Petro Canada's increased offer of 146% may be the result of the humiliation in knowing that their previous offer received only 61,587 tendered shares. Thankfully they did not call themselves explorers in the press release.

Technorati Tags: Genesys, Petro-Canada

The Institute for International Economics

In an article entitled "Accelerating the globalization of America" the authors made two interesting comments in the Executive Summary.

"Innovations not implemented because resources cannot adjust forfeit some of the potential of the economy." p.xviii

"Two additional links between productivity and international trade are that trade in technologically sophisticated products is associated with higher productivity and the industries that have invested heavily in IT have a greater propensity to export." p. xxi

The bureaucracy is slowing us down, (a given) and innovations that would otherwise benefit the economy are now having their value forfeited. The market demands for energy continue to outstrip supply. Whether we are at the peak of production or not is not the question. The question should be, how much are we giving up economically by not proceeding with this project?

These comments make me want to declare another call to action, and if it were it would be number 11. Access to the article is provided by clicking on the title of this post. I highly recommend downloading the entire document. It is a substantial work in terms of its findings.

Technorati Tags: Call-to-action, Innovation, Energy

Is the joint operating committee revolutionary?

In the posting regarding NASA scientist Dr. Robert Casanova on MIT Video last weekend. I kind of intimated that this concept of the joint operating committee and the topic of discussion on this blog is revolutionary. Not one for understatement, I should probably explain my point and ask "Is the joint operating committee revolutionary?"

Unequivocally Yes.

Using the definition Dr. Casanova provided,

"Revolutionary paradigm shifts are simple, elegant, majestic, beautiful and are characterized by order and symmetry."

Required reading may involve those that are not familiar with oil and gas to read the "What is a joint operating committee" post I did a few months ago. This will provide readers with some necessary background.

The comments that I have received personally consist of the "well of course" type. People realize immediately the value of the concept. Over time they're thinking moves them to make comments like "this solves the majority of the administrative issues in oil and gas." Or "It's an entire new discipline."

I think it is revolutionary, and here is why. I can see each element of Dr. Casanova's description of revolutionary in the overall concept of using the joint operating committee as the organizational construct. It is simple, it solves so many difficulties in oil and gas, and provides a natural element of both order and symmetry. The ease of how the solution gets built in terms of functionality, logic and process is a true beauty when the power of Java is layered on to the solution.

Steeped in history the joint operating committee is, as I have said, the natural form of organizational structure in oil and gas. This is for the following reasons:

1. The mitigation of risk, spreading the exploration and production costs over a number of companies permits greater flexibility and capability within the ownership group.
2. Sharing of gathering and processing facilities. Not every producer needs to build a gas plant. These costs can be shared amongst a number of companies and reduce the impact on the environment and maintain higher levels of throughput.

In other words partnerships are a critical and inherently common occurrence in oil and gas. The reason the hierarchy has established itself was to manage the business in an effective manner after a certain size was attained. These forms of organization became the norm in the 1940's, 1950's and 1960's and have outlived their useful purpose in the 21st century. If using the joint operating committee is not revolutionary, a revolutionary manner of organization is needed to solve energies perfect storm.

Back to the partnerships, as everyone can well imagine there would be many legal documents that support and define the partnership and these have been in place since the beginning of the industry. Industry associations, codified documents, and the many agreements that have been executed form the legal foundation of the industry. The strength of these documents and procedures form the culture of the industry and establish normal and acceptable practices of operation, decision making, financial accounting and reporting.

The area where the joint operating committee fails is in the accountability framework. This has been the domain of the hierarchy. And now the hierarchy is failing in providing the shareholders with adequate and effective controls. This has become such a problem that the U.S. congress has implemented Sarbanes Oxley for the assurances the shareholders need. Clearly these are not working and provide little comfort to the shareholders at large. Form my point of view the legislation has done little outside of reinforce the entrenched bureaucracy.

What would happen if we moved the tax, SEC, FASB and Sarbanes Oxley accountabilities to the joint operating committee? Would there be a greater alignment between the decisions being made? Yes, most definitely. When accountability is separated from decision making, troubles occur. There is no one responsible for the bad decisions and no one can trace the good decisions to the successes. After a period of time people begin to realize the time and effort necessary to make the difference is not worth it and very quickly stop trying. Not the proper attitude of an innovative producer.

Technorati Tags: Accountability, Joint-Operating-Committee, Innovation, Energy

Project Management Part l

I've begun reading a book that I think is rather unique in the discipline of project management. Written by Francis T. Hartman a University of Calgary professor, "Don't Park Your Brain Outside" takes a political look at PM and provides an interesting perspective. I 'll comment on this in four separate postings with the points that I find unique and not part of the standard fare training in project management.

Professor Hartman starts out with his SMART acronym which stands for Strategic Management, Alignment, Regenerative work environment and Transitions. A little different approach but one can already see some changes to what I would call normal Project Management.

The first point he makes is not to assume that you know what the project requirements are. Take the time to ask the right questions of the right people. Most importantly know where to find the right answers.

Secondly a definition of success at the outset of the project. Noting here that the perceptions of people change as the project progresses. This will have to be determined for this project. I will post a separate entry after I give some thought to this rather complex and difficult question.

Another point that is made that I have not noted anywhere else is to ensure that you consistently focus on either the costs, the time or the quality. Jumping around or being confused on this critical aspect causes more confusion due to the poor communication it brings to the team. It should also be stated here that the objective of this software development is to provide the quality that the end user needs and wants. The focus on this will be achieved at the expense of time and cost. However, we are dealing with high risk elements in terms of the technical risk, and need to approach this project with the desire and ambition to resolve these hurdles. Cost and time are not secondary, just not the priority in this project.

Capital budgeting in oil and gas is what I consider to be fun. Making the right decisions on the right properties and finding a place for the money has become rather scientific these days. Applying these principles of return on investment and risk in the project components is something that will have to be built into the process on this software application. As I have proposed the CollabNet software as the primary tool for collaboration with the developers, this will be the critical point of what projects are started first, second and third.

Lastly the open communications of this project management program is the "what's in it for me". Voicing each participants secret agenda's and objectives at the beginning of the program is something that I have not seen before in project management. It has the desired purpose of freeing up collaboration and allowing team members to gel quicker and more effectively when their secret motivations are well known.

I'll post more as I travel through the text.

Technorati Tags: Genesys, Development, Project-Management, Energy

Ray Lane in BusinessWeek

Ray Lane is a partner at Kleiner, Perkins, Caufield & Byers and a former president of Oracle Corporation. He knows what he is talking about. The title of this entry will take you to a Business Week article that documents many important points. Two of these points I want to discuss in this entry.

"The traditional method of selling big corporate software applications as multi million-dollar packages that take years to implement is broken."

"The 70% of startups out there that are trying to do what the big companies do, only better, faster and cheaper - it's a fools errand. The customers would like to buy that from a large company, so their going to lose out." Ray Lane

Surprisingly, perhaps, I think he is right on both counts. The large multi year, multi million dollar packages are the dinosaurs of the software world. Even Petro Canada tried to implement SAP and after $14 million gave up. Its a fallacy that went too far in retrofitting the company to the software.

On the second point of Ray Lane's, stating that the startups will fail, is something that I struggled with at the beginning of this process and something that I think I can also prove is not valid in the oil and gas sector. The two points that I would assert in my defense is that I am the copyright owner of the methods and processes discussed in this blog, and in my thesis. I published my thesis in May 2004. I have tangible evidence that the state of the art thinking was not as advanced as what I proposed in September 2003, and earned in the publication of the Plurality document.

Back in 2003 I concluded that the software vendors could consume themselves competing with new offerings and no one would have been able to secure a competitive hold in the market. The only manner in which to establish a competitive offering, I felt, was to own the intellectual property as the key competitive advantage. The copyright, and other forms of intellectual property were the only sources of value in this new age is the conclusion I came too in 2003, and I believe is the case fundamentally today.

Secondly, if anyone thinks that a large vendor is going to be able to write the code for the Partnership Accounting module that I have spoken about here (to aggregate the stories just click on the Partnership Accounting tag). I think they would be mistaken in their expectations. This needs a clean slate approach and the heavy involvement of the potential and future users.

So on that basis I would agree and disagree with Mr. Lane. Intellectual property is the only method of securing any kind or competitive advantage in this new day and age. Those that attempt to build systems without their differentiation being codified and protected are in my opinion wasting their time. What is required to compete with this software is some fundamentally different basis of organizational structure for the software to define and support.

On an unrelated note, Rod Boothby has an excellent summary of the CTC in Boston with a number of quality links to other blogs of importance and significance.

Technorati Tags: Genesys, Partnership-Accounting, Innovation, Enterprise-2.0

Dr. Robert Cassanova on MIT Video.

Dr. Cassanova is the Director, NASA Institute for Advanced Concepts (NIAC). Clicking on the title of this entry will take you to the video.

What Dr. Cassanova talks about is revolutionary thinking. Taking a variety of quotes from visionaries, genius', and revolutionaries Cassanova defines what revolutionary thinking is. My purpose in posting this topic is due to the radical nature of this project. Upsetting the bureaucracies is not an easy task, but the need to address the demands for energy are great and the bureaucracies are not aware of these needs. With today's high energy prices there is a disconnect in the motivation of oil and gas companies.

Consisting of a variety of quotes Cassanova starts with his own definition:

"The true revolutionary delights in an unfettered creative imagination, exploring the possibilities of understanding the mysterious."

Einstein:

"The genius is in the generalities, and not the details."

and

"imagination is more important than knowledge."

These next three quotes are not attributed to anyone, and I believe that Cassanova developed these as a result of formulating the strategy of NIAC.

"A sense of malfunction can lead to crisis as a prerequisite to revolution."

"New paradigms seem revolutionary only to those whose paradigms are affected by them."

"Revolutionary paradigm shifts are simple elegant, majestic, beautiful and are characterized by order and symmetry."

I find these definitions comforting. To me the concepts being discussed in this blog are revolutionary, particularly from the point of view of the groups that are challenged by them. Cassanova also mentions his definitions of grand challenges and grand visions. The grand challenge we face is "energies perfect storm" and a conflicted organizational construct.

Technorati Tags: Genesys, Revolution, Innovation, Energy

Petro Canada's accountability framework.

As was intimated in the top ten excuse list, the accountability of Petro Canada is broken. The self - serving management are only interested in what they can get away with and boosting the value of their options. The problem now becomes how do you deal with it? The problem as I see it is there has been a clear separation between operational decision making, which is done by the joint operating committee, and the accountability framework that is the bureaucracies only claim to justify their existence.

The accountability framework consists of reporting to the SEC, Tax, government and other accounting related areas. It is the sole domain of the bureaucracy. Where the hierarchy seeks and defines itself and the needs of the bureaucracy.

When I say that it is in conflict with the operational decision making framework of the joint operating committee, I mean the following. With respect to an oil and gas property, the methods and decision making processes are defined and codified in the operating agreements. (and at larger facilities the Construction, Ownership and Operatorship agreements.) If you want to participate, then you will incur the % allocation of any costs of that decision. If you don't want to participate, then the agreement deals with participants that elect not to participate by incurring penalties should they subsequently decide to return.

Further down the line the definition of who has voting control and what threshold of concurrence must be achieved to implement the decisions are contained in the standard operating procedures. If a joint operating committee is the benefactor of a significant find then the associated costs of gathering systems, batteries and gas plants may automatically fall within the decision making formula's. These agreements may also define a large area of land to be part of an "Area of Mutual Interest" and govern all the partners dealings on those lands that may be purchased by any party to the agreement.

My question here today is how is it that a CFO, and lets take the Petro Canada example, Mr. Harry Roberts of Petro Canada, can stand in front of Wall Street and say he will be raising the production profile of the firm by 10% in the next fiscal quarter. Based on the plans that are set in place by the joint operating committees, of which he is a member of, he can say it, however, the influence that he has in making these decisions is more or less, zero. He like any of his counterparts is literally speaking through his hat.

And as for the remainder of the management team, how can they assert that their management skills are attributable for the results that are being reported and budgeted. They have no influence! If they did not have an interest at the committee level, would the production have ceased? I think not. The sole domain of the management team are to report the results to the various regulatory and government bodies that they are required by law to report to. That's it. When it comes to oil and gas, they could be manufacturing widgets for all they know, and can influence.

In reality these organizational constructs are conflicted and obstruct the natural form of oil and gas, the joint operating committee. If SEC Chairman Christopher Cox can implement the regulatory framework of the SEC within XML tags, what will the bureaucracy then do. With the SEC's XML tags and tags that are developed through this software venture. The decisions of the joint operating committee will govern the various regulatory compliance frameworks and the reporting would fall out of the process naturally. So why have I such a difficult time in gaining concurrence? The hierarchy controls the budget for administrative operations, and therefore a sale to SAP occurs.

Now it has been pointed out to me many times that the reason that firms go to SAP for their systems is due to the "integrity" the application has with the investment community. And I agree that the investment community's perception is real. However, I would argue that just as the tax tail should not wag the dog, the compliance tail should not dictate the organizational construct. You do not need a bureaucracy to run a company in this day and age.

Technorati Tags: Petro-Canada, Innovation, Accountability