The end of the paper economy.

I have commented many times about the state of the current global economy. Why do I continue to discuss these economic difficulties? This is a necessary part of the development of this software. The ways and means of the global economy are being transformed to new and more effective ways of organization. Whether that is your belief or not is not something that I am challenging. I am trying to build support for the fact that these economic and organizational changes need to be accepted by every individual that works in the oil and gas industry. Milton Friedman has best captured the point in the following comment.

Now, you never have real changes unless you have a time of crisis. And when you have a time of crisis what happens depends on what ideas are floating around, and what ideas have been developed, and thought through, and are made effective. 

I'd like to think the ideas that I have formulated in the research and writing represented in this blog are some of those ideas that are just lying around. I perceive this time as the point of greatest opportunity for individuals. Our lives will be transformed, if we take this opportunity and run with it, we could achieve more then has been possible in many generations. 

There is going to be a sizable amount of pain as the "old" dies away and the new is formed by trial and error, but mostly frustration. But it will be worth it. What was conceived of as being of value in the past, - paper assets, stocks, bonds, pensions, real estate and retirements - are falling in value and will be not be adequate for our long term needs. What is of value and what can anyone in the oil and gas industry do to participate in this new economy and rebuild their lives?

I think the new economy is going to be based on "rights". Where access too, or ownership of, rights is the basis of how an individual earns a living. At least that is my theory and I'm sticking to it. The right to use the People, Ideas & Objects software is subject to license in which the rights to the ideas of using the Joint Operating Committee are available to everyone who chooses to make a living in oil and gas. These rights and the associated software are provided for free to those who provide services to the oil and gas producer, in their own service based offering. People, Ideas & Objects revenues are sourced by those that benefit from the sales of oil and gas. Oil and gas producers and governments which have the need for the people to manage and organize their assets and provide the most profitable means of oil and gas production. Creating an environment of dependency and mutual support between those that work in oil and gas, the producer companies and government agencies that collect royalties, and the software development process and application itself.

Please, join me here in this necessary and worthwhile cause.

Technorati Tags: People's Economics Change Energy Software

Former Talisman CEO Jim Buckee

I have always valued energy based on the potential price of gasoline. My projected $600.00 / barrel translates into approximately $5.00 / liter of gasoline, which includes taxes. This would be the deal of the century if it were not for the current price of oil is around 5% of my projected $600.00 price.

This qualifies as the deal of the century on the basis of the mechanical leverage we have achieved for each barrel of oil, as calculated in the book "Profit from the Peak", is 18,000 man hours per barrel. On that basis the $600.00 / barrel replacement cost is only $0.03 per man hour. 

Along comes Jim Buckee, former CEO of Talisman Energy in January 15, 2009 Calgary Herald suggesting the price of a liter of gasoline will reach $20.00 / liter. This would make the replacement cost of one hour of man labor escalate to $0.12, what is he thinking? Dr. Buckee's reputation in the oil and gas industry is unimpeachable. Building Talisman up to approximately 500,000 barrels per day of production, $20.00 / liter is a legitimate and serious claim. 

We can all assume that the types of claims made by a former CEO would be different then one that occupies that office. Those that are the CEO's of today's organizations are guarded in their comments and would never be able to make such a claim. Shareholders and the public would run scared and frightened. A former CEO carries the credibility of the office, yet has the ability to speak the truth of the situation that they are familiar with. 

What is difficult to comprehend is the scale in which we have become dependent on 86 million barrels of oil per day. Energy production provides for our way of life and standard of living as a result of not having to be occupied with the menial tasks of our ancestors. Who amongst us will be the first to volunteer to reduce their consumption by 2% (1.72 million barrels per day). And if we can find the willing volunteers for that I am certain that we can find the volunteers for the next years 3% decline. This is a slippery slope where the end doesn't necessarily involve our survival. 

My aim is not to frighten people. I want people to join me in solving this problem by building the software that will identify and support the type of energy producers necessary to sustain, and expand our standard of living. Needless to say I find this to be an important task and would welcome those that are able to help, to please join me here. 

Technorati Tags: People's Call-to-action Energy Change

World Energy Outlook

Fatih Birol, Chief Economist and Head, Economic Analysis Division, International Energy Agency (IEA) makes a speach that is broadcast on YouTube. This speach addresses the Annual IEA Report released in November 2008. The audience for this speech is the Council of Foreign Relations. The discussion is predominately about the climate impact of CO2 produced from the use of energy. This is a disappointment as the scope of the IEA is on energy. Climate change has its own custodians and is not really an appropriate topic to take the time away from the discussion abut energy supply and demand. The energy issues alone have the potential to obscure all of the issues mankind faces. If we are faced with those dire energy related problems, will we be able to look to the IEA for the answers? Not in my opinion. If the topics of discussion are continually diverted away from energy supply to travel down obscure bunny trails such as climate change and alternative energy, we most certainly will suffer the consequences of an inadequate supply of energy.

The first part of his speech deals with the current pricing situation. Making the assertion that the supply of oil is not benefited by the decline in prices. Based on the IEA Report there is a risk of permanent damage to the supply of oil if many of the larger projects are not completed. Particularly, Mr. Fatih Birol raises his concern over the accelerating decline of existing known oil and gas reserves. Suggesting this accelerated decline risks the ability to meet market demand in the long term.

At 47:39 an excellent question is asked by "Sally  " of Columbia University. She comments that the current IEA report is a "radical departure" from thirty years of reports that suggested the supply would rise to meet the demand. The IEA Report suggests that their is a supply problem and asks if it is possible to keep supply at these levels in light of the issues that the accelerating decline curve reflects.

Who knows what the future holds. As I have mentioned before my training and experience in oil and gas is in management. I do not understand the particular nuances of what reserves are produceable or which are of value. Limiting my upward mobility in the industry. I do know, however, the amount of time, energy, money and most important of all "ideas" it takes to find a barrel of oil in the current industry environment. I also know the demand from China and India on top of the high demand levels of the advanced economies will challenge the industry on the demand side of the equation. 

I also know that SAP and the current crop of ERP systems that are in use in the industry, are inadequate to approach this problem. Supporting and cementing the bureaucracy in its well established rhythms, as is SAP's success, is the impediment to innovation, adequate supply of energy and the ability to continue on as a civilization. 

The energy supply problem is a long and difficult task for the industry to undertake. We need to take the first steps in making this happen. We live in an advanced economy where the division of labor requires thousands of people to undertake the smallest of transactions. These people are unable to know all of the necessary connections to make these transactions successful. The role of software is critical in identifying and making these people function at the optimal performance. I am suggesting we first and foremost organize the producer in a fashion that meets the needs of the industry. Now is the time to develop these systems and unleash the human resources necessary to solve these critical problems. We need to begin this new approach to the industry by changing our organizations to instill the innovation and performance that this new environment demands. Please review the  Draft Specification, and join me here. 

Technorati Tags: People's Energy IEA Innovation Peak-Oil

Louis V. Gerstner on MIT video

The Networked World: Are We Ready For It? (Click on the title of this entry to be taken to the video.)

Louis Gerstner brought IBM back from the brink of destruction. The firm had misplayed the transition from the mainframe to the PC and as a result had reduced their near monopoly power in the IT industry to an almost bankrupt company. Gerstner was instrumental in taking the firm in a new direction with profitability in software and hardware products. I think that was the right direction and the current Chairman Sam Palmisano has taken the firm toward a service based operation, which I think is a failed strategy.

Nonetheless, Gerstner's video is over six years old. The vision he lays out is exactly the same vision that most in the IT business subscribe too today. What happened? Why did this six year period pass without the changes that were obvious to industry leaders like Gerstner so many years ago.

The bureaucracy has interfered in making the organizational and technological changes necessary to see Gerstner's vision real. When the budget power resides in the hands of the bureaucracy, we see record volumes of business for the SAP application suite, because SAP is the bureaucracy. Innovation and change have been traditionally resisted by the bureaucracy, and with so much innovation and change necessary, the bureaucracy has been able to easily avoid it and hence delay its ultimate demise. It is not coincidental that this time also saw the management attain the greatest amount of control over their organizations at the expense of their key stakeholders. The bureaucracy winning is the natural outcome of this battle.

If we go back to 2002 and take the vision of Gerstner to the current point of time we can time the last six years as the point where the bureaucracy had successfully resisted the technological and organizational changes. This is also the time that the fleecing of their companies by the management, for the managements benefit began in earnest. It is reasonable to assume that at some point the methods of the bureaucracy would become to slow and too unresponsive for the needs of society. 

As I stated in the Preliminary Research Report, the collapse of the Former Soviet Union was a reflection of the demise of Russian society as a result of its organizations not able to provide for societies needs. People were unable to work when they were lined up at the bakery for food. We saw lineups of people waiting for their bread and food when the so called supermarkets were literally barren. To a large extent, as I suggested in the Preliminary Research Report, the current financial meltdown is as a result of the bureaucracies methods are unable to provide for the societies needs.

Waiting for the Great Obama to solve the financial meltdown is going to leave a lot of people disappointed. There is not enough money in the printing presses to overcome the inefficiencies of the bureaucracy. If we do not set out to build the organizations we need for the future deliberately, they will not come about. We are beyond the ability to have the corner store, where the supply and demand are local, satisfy the complexity in the economy. We depend on a globalized economy and the people that depend on each other have no understanding or appreciation who, what, where and when these interactions occur. Expecting this to generate itself is typical of the thinking that the market will provide the solution when the demand shows itself. It is clear from this video that the demand has been in existence for over six years now. The market will only provide it when action is needed and action is taken. We need to act now and make this software for the innovative oil and gas industry. Laissez-fair is no longer able to provide the types of spontaneous order that Frederick von Hayek suggested. Complexity demands that we need to act, please join me here. 

Technorati Tags: People's Organization Change Market Failure

Robert Malone, on MIT video.

Achieving U.S. Energy Security Through Energy Diversity

Robert Malone is the Chairman and President of BP America and is speaking about energy policy in the United States. Going back to the Nixon administration and reiterating some of their goals in terms of where and how the U.S. would source their energy. Stating the attempts to formulate a policy have failed, and now is the time to address this difficult situation. 

Talking about our future and the difficulty in getting people's focus on a national energy policy. Its a market economy, and I think the idea is that you get paid when you explore, develop and produce the product. Looking to the government for the leadership in making the policy changes  to enable domestic supply has provided the U.S. with nothing but the failures going back to the Nixon and Carter administrations. 

I disagree with the argument that the U.S. is spending too much on foreign energy supplies. The cost of a barrel of oil is the deal of the millennium. What the U.S. economy, the most efficient consumer of energy, is able to generate with one barrel of oil is far greater then the cost. The U.S. is the largest consumer of energy, and the largest economy in the world. We need to stop thinking in terms of the costs of energy and think more in terms of the value. This requires that we begin to understand and use energy in the most efficient methods possible to fuel our economy. One of the dumbest ways we spend our energy is in gridlock each day twice a day, in order for our supervisors to take attendance. What we need is systems that enable the user to do their jobs when and where the user is, and when the job needs to be done. This begins with the oil and gas producers sponsoring the software developments contained within the Draft Specification.

I can foresee the future user of People, Ideas & Objects waking up and logging in to the system within the first fifteen minutes of their waking. In comparison today, this simple act of logging into the system takes the average person up to 2.5 hours from their waking. The only analogy that I can draw to this foolish idea of getting to work; is having to drive back home in order to make a personal phone call. Ridiculous, join me here.

Technorati Tags: People's User Video Energy Economics

They're here, again.

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

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

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

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

Technorati Tags: People's Management Failure Capabilities

The founder of the independent oil producer.

In Canada we have the pioneering spirt of Daryl (Doc) Seaman and his two brothers BJ (Byron James) and Don who established the independent oil producers in Canada. Without these individuals, the energy industry would not have had the entrepreneurial spirit that guided it through the very difficult times of the 1980's. All Canadian's have been benefactors of these men's vision, courage and dedication to the ideals of the independent pioneer.

It is with sadness that we learn the passing of Doc Seaman this evening. His legend will live for many years, and he will be missed.

Bruce Nussbaum of BusinessWeek.

Over at BusinessWeek they have an interesting blog on innovation and design . The post for this week is topical for the work that is being done on this website. Entitled the "Transition conversation: Is 'Transformation' a better concept than 'Innovation' to guide us forward?'  The opening sentence brings the subject in focus

We are having a great conversation on one of the most important subjects in our lives—how we can change our broken institutions and out-dated culture to survive and thrive within 21st century forces.

That is what this blog, innovation in oil and gas is about, and what the software system we are building, People, Ideas & Objects, is about. How we can change the failed bureaucracy in the oil and gas industry. We need to approach the ways and means that we organize ourselves for the 21st century challenges in the oil and gas industry. By using the Joint Operating Committee (JOC) we are able to align the compliance and governance that is the sole concern of the hierarchy with the legal, financial, operational decision making, communication and cultural frameworks that are the domain of the JOC. This alignment puts the business of the oil and gas business back into the proper context. And therefore is able to support innovation and speed / performance of the producer.

This failure is very costly and is reflected in lower reserves, accelerating production declines, and a lack of concern by these firms management. They are willing to take the credit for the higher prices and associated profits. I suggest we credit them with the recent profits and fire them for their current losses. Outside of these events it would be difficult to to associate any action or positive development from these bureaucrats. Nussbaum suggests similar difficulties are associated with all industry in general. 

Our institutions aren’t working. They are broken. Corporations, investment banks, health care, schools, universities, Congress, transportation. The current crisis is accelerating the breakdown in the major institutions of our lives that began in the 90s.

Today software is the key to organizational performance. I coined the phrase "SAP is the bureaucracy" to reflect the impact that software has on defining and supporting the type of organization they are. Software is a deliberate and necessary part of any future organizational change. It is not the technology that is driving this initiative, its aligning the business of the oil and gas business to support and encourage innovation, speed and capacity to change as critical business attributes.

Digital technology is disintermediating every organization, eroding the role of all middle men and women, from ad agencies to college professors, from newspaper editors to hospital administrators, from political parties to savings banks. The shape of all our institutions is radically changing.

People, Ideas & Objects software developments are driven by the users, the multiple of professions that are part of the oil and gas industry, who are the people and their ideas that make the energy industry. This is a user based initiative that drives the software development. The software simply automating many of the new and innovative ideas users want and need to increase their organizations performance.

The power to create and participate is moving to the masses. Digital technology is giving everyone the tools to tinker again, to design and shape their learning, their working, their play. Craft is back in newly significant ways that we are just beginning to understand.

The energy industry is desperately in need of an innovative organizational basis. We are headed in a downward projection in terms of reserves and production. A situation that presents these organizations with its demise, yet, the management are unconcerned outside of the impact that this will have on their salary, pension and most precious of all stock options.

“Innovation” is inadequate as a concept to deal with these changes. You have “game-changing” innovation, which is big but rare and incremental innovation which is small but common. “Innovation” implies changing what is. “Transformation” implies creating what’s new. That’s what we need today, a huge amount of totally “new.”

Nussbaum is suggesting that the innovative mindset is not enough any more. The world is quickly moving on to new initiatives. "Transformations" being the result of the innovative methods of an industry. Transformation are driving this new level of change. The fact that oil and gas firms are unwilling to participate in these ways, after all it means a lot more effort on managements behalf, is one thing. However, I have been pushing these ideas to be adopted in the industry since September 2003. The tally for the amount of financial resources that have been committed to these ideas is $0.00. (And I am forced to work outside of the oil and gas industry because I have accused the bureaucracy of failing.) As far as I am concerned, that is disgusting. This fact alone reflects that management have their collective heads in the sand. And I am not suggesting that this software development and using the JOC is the key to attaining the innovation necessary, I have done the research and it works on paper. It's just that it is the only idea that suggests the status quo is the not accessible. And if there was a better idea presented, I would certainly get behind it and start pushing that. The important point is that the bureaucracy is failing. It is time to do something about it.

Design is the answer. I use the term “transformation” to capture the immensity of the task ahead of us and to guide us in the magnitude of that task, but the actual tools, methodologies and, yes, philosophy of that mission is found within the space of design and design thinking. This is what many of those in this thread of a conversation are saying and I agree. It is the design schools that are creating the tools of transformation and graduating the people to implement them, not the business schools (one exception—The Rotman School of Management). It is the Institute of Design in Chicago, The D-School in Stanford, DAAP at The University of Cincinnati, the Parsons School of Design in New York City, The Art Center College in Pasadena and RISD in Providence where “Transformation” is being developed.

I have codified the ideas that I have researched and presented them in a coherent vision of how I see the industry moving to a more innovative footing. This vision is reflected in the Draft Specification  and I encourage you to join me here in this very important work. 

Technorati Tags: People's Innovation Management Failure

John Taylor, of the Taylor Rule.

Here we have a special document in which to review. The Taylor Rule is a very simple principle that was put forward by John Taylor in 1993. A prolific writer, Professor Taylor is being added to the list of academics we follow. His writing is clear in terms of defining and explaining the economic situations that he is writing about.

This first paper is available from Taylor's home page. The document "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong" clearly presents his views on what has gone wrong in the economy today. It is important to note that the work is considered a work in progress, so check for updates. Professor Taylor is also a Senior Fellow of the Hoover Institute and member of the prestigious Working Group on Global Markets.

Much of the discussion in this paper supports the validity of the Taylor Rule. The Taylor Rule is best described as a relative point at which Fed policy on interest rates should be set. It is well described in this Kansas City Fed document.  

Taylor's analysis provides sound argument that the failure of the Fed to set its interest rate policies at an appropriate level sowed the seeds of the current economic difficulties. This provides a strong challenge to the long wave research of Professor Carlota Perez. Her theories have been discussed on this blog many times before, and make a strong case for the systemic patterns of the past 300 years. 

A debate between these two academics would provide some valuable knowledge as I suspect both are correct. The only way that I can think to reconcile these two different theories is to establish that the large economic changes that are brought about by technology, the deployment period in Perez' analysis, would somehow be triggered by some form of government failure. Government failure appearing to be the only constant in the two theories. 

The clarity of Taylor's writing is shockingly clear. He is a real talent in terms of articulating complex economic theories and a joy to read.

Technorati Tags: People's Taylor Perez Economics

Ouch, that hurts.

The Oil & Gas Journal is reporting the rating agency Moody's is downgrading the Exploration & Production sector to negative. Click on the title of this entry for the Oil & Gas Journal article.

LOS ANGELES, Jan. 6 -- Moody's Investors Service has changed its outlook of the independent exploration and production industry to negative, citing the "precipitous decline" in oil and natural gas prices to levels that are likely to result in abnormally low cash margins and fundamental credit deterioration.

I have been gleefully highlighting the difficulties that Canadian Natural Resources Ltd is having as a result of their over-reaching. This Moody's call is doubly difficult as CNRL will not only have their financial difficulties to deal with but the sector is being downgraded in terms of its attractiveness to investors.

The scope and speed of this downturn / meltdown / recession / depression is unprecedented. CNRL began thinking the air smelled pretty good around them and were invincible to the forces of the market. 

Instead of sticking to their knitting, these nit wits ramped up the debt in the mistaken belief they were the top dawgs in the oil and gas business. I'm smelling a lot of CNRL's blood in the water. The situation they have created for themselves is desperate and will require wholesale surgery. Asset sales are difficult but they will need to raise cash. Cash I'm sure their banks will have a claim to. This also assumes that they can close a sale. With most of the smart money on the sidelines, it's fair to assume this avenue will be closed as well. 

This leaves few options. Cutting capital costs can be done fairly quickly, (and has been done) but will that be enough. Layoff's of a significant amount of the staff will need to be made in order to maintain a base of operations and satisfy the bank covenants. Aw heck, why bother, throw it at the courts and let them figure it out. After all what's in it for management? Easy come, easy go right guys.

Technorati Tags: People's Pig Management Failure