The Preliminary Specification Part LVI (PLM Part VI)

In this our second pass through the Preliminary Specification, we turn now to the second marketplace module, the Petroleum Lease Marketplace (PLM). In our previous posts of the PLM I tried to impress upon you the importance of the user vision of the three marketplace modules. Having done so, I am now free to discuss the PLM from an oil and gas point of view. Today’s post will discuss the importance of the working interest distributions, particularly in the facilities areas, and how they need to be handled in the People, Ideas & Objects application modules. This discussion will include the Partnership Accounting, Material Balance Report and Accounting Voucher modules.

The working interest distribution for the production from a well is fairly straight forward. Other then the changes that we noted, before and after casing point elections, before and after payout etc, the values remain relatively constant over the life of the well. However, for gas plants and related facilities the distribution to the owners of the facilities is anything but constant. This brings into play a multitude of different ways to treat the ownership of the production and the costs of processing. The manner in which the accounting for that production and the cost of processing is of material concern to the owners of those facilities. In fact it is the difference between making a profit or not. The inability to grasp the scope of the concern has led many to disrupt the facility owners business.

The problem comes down to the fact that there are two different ways in which to calculate the working interest distribution of the throughput of the product through the facilities. One is to take the literal mathematical reality of the situation, the other is to take what is agreed to by the owners and operators of the facilities in the Construction, Ownership & Operation (CO&O) agreement. The two worlds could not be more different. As you can imagine the agreed to situation has to rule the day. The facts of the agreed situation are very dynamic and create variances that are unique and depend on the situation that is in play that day. Therefore rarely is the production allocated on the same basis as the prior day. Irrespective of the production allocation, the Material Balance Report will still balance and will also balance to the various other reports. What the situation is at issue with, is the owners or the producers who have production processed through that plant or facility will have either sold or purchased product or had done some transaction with their production at that facility that needs to be accounted for.

Now to handle that day-to-day activity there needs to be an ability for the plant owners to account for the transactions that are occurring within the plant based on the CO&O. Relying on the Partnership Accounting module will be part of what they will use for the handling of the plants accounting. However, because they can’t take a literal working interest distribution and they have to rely on a dynamic distribution based on the CO&O, a special algorithm will need to be built within the PLM to deal with the CO&O. This algorithm will capture the agreements production allocation methodology. This algorithm will be dynamic based on the gas composition, production factors and activities at the plant, but it is also not fixed. There are changes to the algorithm on a month to month basis. As new wells are brought on, new functional units are brought on, new products are sold to new purchasers etc. these need to be taken into consideration into the algorithm.

In the current accounting world these “algorithms” are managed within spreadsheets. Not my favorite place to put a critical piece of business. I think that the user community can do something to embed these algorithms within the system so that they are more “mission critical” and less subject to human error.

As a plant owner the days of major changes are not over yet. There are still the equalizations that have to be calculated. These equalizations are some times run monthly but mostly done on an annual basis. They are done to correct any of the owners over / under capacity utilization during the year. If an owner owns 25% of the facility then generally they would not be billed processing for any of their throughput. However, at the end of the year it is determined that their actual throughput use was 29% then they would need to be charged for that 4% capacity that they overused. These calculations would also have an “algorithm” within the PLM for the Partnership Accounting module to use.

I would reiterate this is an area of extreme importance to the owners of the facilities in oil and gas. To handle these transactions appropriately is the only manner in which People, Ideas & Objects will approach this issue. As it stand today, I am certain no other software vendor fully comprehends the significance of these points and does not provide anywhere close to the level of functionality as we have proposed in these modules.

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 LV (RM Part VI)

In many ways the Resource Marketplace module of the Preliminary Specification is the cross-roads of many of the other People, Ideas & Objects application modules major processes. It is where the Accounting Voucher’s design of transactions will ultimately be exercised. And where the Research & Capabilities overall process of capabilities development will be realized. Maybe most importantly it is a marketplace module where people will be able to buy and sell their ideas for products and services of what the innovative oil and gas producers need. If the Research & Capabilities module is a long term process of maintaining and increasing the earth science and engineering capabilities of the firm and Joint Operating Committees (JOC). Then the Resource Marketplace module is the day-to-day module of implementing the policies from that long term process.

We also see in the Resource Marketplace module some of the efficiencies of using the JOC as the key organizational construct of the innovative producer. And that is an important differentiation of the Resource Marketplace module in comparison to the Accounting Voucher and the Research & Capabilities modules. It is a Joint Operating Committee (primarily) facing module. Therefore it is representative of the many participants of the JOC and therefore will have the influence (industry standardization) of many producers Accounting Voucher needs and Research & Capabilities developments. Optimizing transactions between contracting parties will provide enhanced performance to the overall industry. These changes will not lead to small increments in overall performance, but I believe based on my research into Professor's Langlois and Baldwins theories, will have exponential performance improvements.

Another key point is the tearing down of the basis of Intellectual Property (IP). An industry such as oil and gas which is based on its earth science and engineering needs. After all it is a business based on science. If we are to expand the capabilities in the science and innovation in the industry. We are going to need to solve many very difficult problems. And as we progress the volume of ideas needed will be an order of magnitude of what is required today. These problems can’t be solved in an environment where there is no upside for the individuals to solve them. Addressing the motivation to solve these problems and enabling the people to earn the rights to the Intellectual Property within the People, Ideas & Objects application modules is the first step in making the necessary industry wide changes. This therefore turning the oil and gas industry into a far more dynamic business.

I want to quote some work of Professor Giovanni Dosi’s. Specifically his 1993 article “Hierarchies, Markets & Power” which is a must read for those that want to dive deeper into these subjects. He states a simplistic model of organization will include the following, and I have annotated the area where these are addressed in the modular specification;

• The distribution of formal authority. [The military command and control metaphor.]
• The distribution of actual power in the above distribution [The people]
• The incentive structure. [Innovation, intellectual property, and capabilities.]
• The structure of informational flows. [Security & Access Control Module]
• The distribution of knowledge and competence. [The people] p. 10
• History, so to speak, solidifies into structures which constrain future developments. p 12

The purpose in developing this “Marketplace” is to ensure the future of the industry structure remains flexible and amenable to the changes in the sciences and innovation. But also to attain and maintain the highest performance . And in this next quotation Dosi notes how this will come to be.

Clearly, it is the domain of Schumpeter’s creative destruction’, and of Moore’s (1978) analysis of the social bases of obedience and revolt, to name but two famous examples, and it applies also to the dynamics of economic organizations and institutions at large. p. 13

I’m a big fan of that concept of revolt. What I hope to have been able to put across in the discussion of the Resource Marketplace is the bigger question of how capabilities are generated from markets. Information plays a big role in this and the generation of ideas makes those markets dynamic. Lastly we must rely on the market forces of creative destruction to ensure that today’s bureaucracy loses its hold on the reigns of power (somebody has got to lose), and that we are prepared to have our solution ready.

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 LIV (RM Part V)

Today I want to discuss what I mean when I say that users of the People, Ideas & Objects Preliminary Specification will “design transactions” in the Resource Marketplace and Accounting Voucher modules. Transaction Cost Economics is an important element of how the energy industry can control its costs and designing transactions is a key to those savings and efficiencies. Also I want to highlight the role of the user as an active agent in making things “happen” in the Resource Marketplace.

As with any marketplace the focus has to be on the user. The user in this case could be representing either a producer, or a service industry provider. A user is someone with access to the People, Ideas & Objects module who would be optimizing the “tasks” and “actors” involved in transactions, and will be able to turn the producers needs into a demand for services in the Resource Marketplace Module.

There are two changes that might make things different in the future as a result of organizing on the basis of using the Joint Operating Committee as the key organizational construct of the innovative producer. One is that designing transactions will become a skill that is going to be used substantially more. And two, the division of labor is going to expand, meaning that the job which may have had a few contractors to complete today, may now have an order of magnitude more in terms of numbers of contractors tomorrow. Consider the following.

Designing transactions
When people buy a major item in their lives like a house or a car. They itemize the details of what is, and what is not included in the price. Who is to provide what and the terms and conditions of when the items will be completed. This is what is meant by designing transactions. Its more or less what Lawyers do for a living, or that is to say, it is an important aspect of their work in any commercial sale agreement. This type of work is where the costs and efficiencies of the organization can become onerous or very easy. If a firm has “engineered” their transaction costs down to a fine point then they are able to manage their costs efficiently. This will be the case for an oil and gas producer. Transaction costs include the costs of installation, finance, testing, the specifications, types of materials to be used and the engineering consultants, etc. In oil and gas it is easy to see how these costs, even for a small job could become problematic.

The division of labor
As the producer focuses on their land & asset base and earth science and engineering capabilities. Product and service providers will be focusing on their key competitive advantages as well. Letting some of the work that they may have done in the past to specialists at different companies. This will increase the number of vendors that a producer will use to do normal operations in the field. This specialization and enhanced division of labor will provide greater efficiencies and cost control for the producer firm through more competitive and innovative solutions. It will also increase the throughput of transactions that a producer will have to deal with and put more emphasis on the designing of transactions.

On the other end of this process is the product or service provider who is able to contract for what the producer needs. They too have interfaces to the Resource Marketplace module that are similar to the producers. These user’s that may have anticipated what the markets demand is going to be, and are the first to configure an innovative solution and are able to market their product or service effectively in the Resource Marketplace Module. These element’s of the competitive market changes are reflective of the producers needs as determined in the Resource Marketplace, and its use of transaction cost economics (TCE). This process involving an iterative loop of constant improvement of the transactions and processes in the energy industry.

Lastly when these resources are discovered by the JOC or producer, the contract negotiation between the two parties can begin to take place. The first step in contracting will be the determination of exactly what the transaction should look like as determined by the Accounting Voucher. This would then lead to the specific negotiations, automation of the creation of the contract, and assignment of the Resources to the contract. From there this software should enable high levels of automation in order to relieve the user from work that is better suited to computers, and focus on the optimization and efficiency of the transaction.

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 LIII (RM Part IV)

Yesterday I apologized for being distracted and unfocused during our first pass through the Resource Marketplace module. And that apology stands but there just seems to be a nagging bitterness that is evidence of something more. That I was bitter toward the management in oil and gas and their status-quo do nothingness. And I realize today that its not bitterness that I am expressing but the fact that the stand still attitude of the energy industry is so counter to what is necessary in the “Resource Marketplace” for a healthy functioning industry. That today’s gap between the service and oil & gas industry could not be wider. That is my frustration, and that will be the topic of discussion for today’s post.

This gap is represented in many of the Canadian independents calling the service industry providers greedy and lazy. Read any of these firms annual reports and controlling the costs in the field are uppermost on managements mind. This adversarial point of view creates an environment where no long term benefits are generated. When costs are the primary focus of the relationship then nothing positive is developed for the long term. Everything is sacrificed for the job at hand. Only to have the same situation occur at the next job. The energy industry has become its own worst enemy.

What is needed is the Resource Marketplace module that is being discussed in the Preliminary Specification. Where ideas, products and services and being built with the financial resources of the producers for the long term benefit of the producers. The only way that innovative and competitive forces are going to be developed in the Resource Marketplace is for the producers to participate in the market. By dictating to those who now operate there, and only those that operate there, you limit the opportunities in which to deal with the competitive forces of the marketplace.

For the management to turn to another alternative other then their current ways and means will be the last alternative they chose. That has been proven in their approach to the Resource Marketplace and to People, Ideas & Objects. That is why the choice has to be made for them by the people who own the industry, the shareholders of these companies. As soon as they perceive the management to have failed in providing adequate earnings for the long term, they will look for alternatives. Management have, or will fail, it is only a matter of time, and what is proposed in these writing is the alternative that can be used to operate those assets.

But this is how change happens. When a fundamental change of the scale of an industry transformation needs to take place, creative destruction comes into play. The old ceases to build value and the new rises to replace the old. Its as simple and as complete as that. So whether change is top down or bottom up I don’t care. People, Ideas & Objects are not change agents we are solution providers. The forces of creative destruction are too powerful for management to fight, its best just to be in the right spot at the right time.

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 LII (RM Part III)

In our first two posts of the Preliminary Specifications Resource Marketplace module it seems that I was more confused with the Research & Capabilities module and bitter with the status-quo management of the oil and gas industry. In this second pass through the Preliminary Specification I’ll try to keep on topic. The Resource Marketplace module is one of three “marketplace” modules in the Preliminary Specification. Its purpose is to provide the service industry, the oil and gas producer firm and the Joint Operating Committees with the ability to interact and contract for products and services that are needed and provided.

A marketplace to support contracting from A to Z. To deal effectively with the Resource Marketplace the producer will need tools to effectively engage with the suppliers for the resources they need. The Resource Marketplace Module provides a window on the “Resource Marketplace” for Joint Operating Committee’s (JOC) and producers. Anything of value that is contracted between “actors” in the oil and gas, service, software and user community generated business’ will be found, contracted, managed and developed through this module. Its simply a virtual representation of the marketplace. Therefore the negotiation, determination of available resources, determination of transaction costs, contract execution and effective software tools to monitor and verify compliance to the contract are all part of the Resource Marketplace module and its interfaces to other modules of the Preliminary Specification.

Similar interfaces will be provided to the service industries. After all transactions have two parties, the efficiencies of the producers would inherently include the efficiencies to the service provider. If we have an accounting system, then certainly offering these services to the suppliers would only make sense. It is not just producers in the Resource Marketplace. Key to the efficiencies in the Resource Marketplace are the mitigation of transaction cost friction. Friction on both sides of the transaction, because transaction costs in the Resource Marketplace are costs that will be ultimately borne by the producer.

Contained within the marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in this virtual marketplace. The scope and size of the Resource Marketplace should accommodate the needs of Exxon Mobil and their $250 billion annual operating costs down to the single entrepreneur starting out in the business. To preclude any group, profession, organization, or person from the Resource Marketplace would limit the value available to the industry.

Also, to call this a just a Human Resource Marketplace would be incorrect because it would limit the participants in the market. Whatever service, product or solution is provided to the energy industry, form either individuals, those employed by producers or JOC’s, or companies providing services to the producers. This should include Schlumberger and anyone directly or indirectly employed in the energy industry.

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 LI (C&G Part VI)

How could we have a discussion of the Compliance & Governance module and not discuss the much loved Sarbanes-Oxley requirements. As everyone is aware these are standard requirements for American based financial capital markets. The impact of the legislation has seen many changes in corporate America, and to me it provides a good start in the area of overall corporate governance. With the global scope of the changes that are being contemplated in the People, Ideas & Objects Preliminary Specification, I think now is the time to to rethink governance from stem to stern. To implement governance into these changes in a manner that doesn’t just add them to the system, but embeds them deeply within the systems DNA.

From what we know about the development of corporate governance in the last twenty years we should certainly give this different approach a try. The probable reduction in direct supervision and management, which is what the pundits say the future holds, would also require a commensurate increase in governance of the firm. That governance coming from an increase in the automation of the processes through the People, Ideas & Objects software development team and user community.

This is the last post for the Compliance & Governance module, and the last post of the first layer of the peeling of this onion we call the Preliminary Specification. We will now start over and begin peeling the second layer of the onion and go a bit deeper in the Preliminary Specification. Tomorrow we will start again with the Resource 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 L (C&G Part V)

Today we want to discuss the governance of the capabilities process documented in the Research & Capabilities and Knowledge & Learning modules. Recall that this process takes the ideas that are generated throughout the oil and gas industry, and the service industry, funds them, develops commercial products and services, develops the producers capabilities, transfers those capabilities to the Joint Operating Committee and learns through their application. As we can see this is a long term process that would have many open ended elements that could be lost in the shuffle, or has aspects of the process that are too tempting.

Its probably best to take a step back and discuss why we are implementing this process in the Preliminary Specification. Simply we have two choices for providing the producer firm with the products and services of the service industry. We can let the market provide for all of the products and services, or we can have the producers conduct all of the work from manufacturing drill bits to producing the oil. We currently have a situation where the producers are dissatisfied with the service industry and are micro-managing that industry through control of the market. When producers are not satisfied with the size of the drilling rig fleet, they, the producers will commission more rigs. Sending the wrong messages to the service industry entrepreneurs. Producers have to work with the service industry, not against them, and certainly not accuse them of being greedy and lazy. When you take away the incentives to build a drilling rig, don’t accuse them of being greedy or lazy.

It is here within this “capabilities” process that the firms governance must enforce the boundaries of the firm. The division between the market and the firm, and where that division lay has to be enforced within this process. Simply the producer firm is only concerned with their asset base and their earth science and engineering capabilities. Everything else must be provided by the marketplace. The producer however has a role in providing a vision and leadership to the marketplace and seeding that market with funding. In a paper written by Professors Richard Langlois and Nicholas J. Foss entitled “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.” they note.

The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 21

The economic change the producer is facing is the commodity prices are rewarding the innovative producer. To focus on purchasing more drilling rigs is not where a producer can increase value. The governance of the producer must maintain the focus on where the producer can gain the greatest value, on finding and developing oil and gas reserves, otherwise.

If by contrast, the old configuration of capabilities lies within large vertically integrated organizations, creative destruction may well take the form of markets superseding firms. History offers many examples of both. p. 21

I am going to suggest that reliance on the Work Order and Military Command & Control Metaphor of the Preliminary Specification be the means of how the producer maintain focus and governance on this process. Distraction away from the objective of the firm is a very real possibility in dealing with the noise of the marketplace. The Work Order will ensure that no work is done on unauthorized off-the-reservation projects and that a chain of command is imputed in the administration of each project. This will help to ensure that each project is ultimately focused on providing the producer with earning greater returns on oil and gas reserves enhancement and production.

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 XLIX (C&G Part IV)

The manner in which much of the work is done in the proposed People, Ideas & Objects Preliminary Specification resonates with the ideas of how work will be done in the future. Direct supervision is replaced by self organizing groups who are motivated by and directed by the performance of their property. This becomes the altruistic nirvana that people aspire to work for; and the governance issues that this creates for the firm. This post deals with the governance issues and how the governance areas of the Compliance & Governance module reels in the vision of self organizing groups to something that is more workable and sensible in the commercial environment.

First of all the Military Command & Control Metaphor is not just for the Joint Operating Committee. Although we have discussed it in terms of just the JOC, there is nothing stopping the firm from using the organizational overlay within the firm. This would also apply to the Work Order system. These two tools would provide the firm with the ability to ensure that tasks were assigned and completed as budgeted and execution was consistent with the firms expectations. Recall by the use of these systems, it is understood that no other work is undertaken without the ability to charge time or costs to a work order. Effectively ensuring that no off-the-reservation type of projects are undertaken. The Work Order system could also provide the internal control necessary to ensure that the appropriate people necessary to achieve the governance are assigned to approved projects and are capable of meeting the requirements of the tasks. When “things” go wrong it’s usually at the beginning and having that “governance” information available is the objective of this warning.

When we talk about the firms and Joint Operating Committees internal controls, they seem to me to be a lost art in the tool kit of today’s management. The ability to set up a control to trigger a warning that something is happening that is inconsistent with normal policies, has been used more in the past then they seem to be used today. The power of technology seems to go hand in hand with internal controls. I think they provide a strong method of  governance that should be built in to the People, Ideas & Objects governance area of the Compliance & Governance module. That is to say that a section be devoted to building database “triggers” and “stored procedures” that are used by the firm to monitor areas of the firms activities. These of course being available only to those individuals with the appropriate authority to access the data and information necessary to run the queries, and to fully appreciate the art and science of internal controls.

There is a potentially large issue that we need to discuss in the topic of governance which I will approach in the next post. The issue is the process of how the capabilities of the firm are generated. Recall in the Research & Capabilities and Knowledge & Learning modules the reliance on the marketplace to generate ideas that “might” be funded by the producer firm is certainly an area where enhanced governance is required.

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 XLVIII (C&G Part III)

In a capital intensive business such as oil and gas, access to capital is a critical capability the producer needs to develop their operation. In order to have access to the capital you must meet the regulatory requirements and compliance needs of the markets. Therefore the Compliance & Governance module of the Preliminary Specification is a critical capability to all those that are dedicated to building an innovative oil and gas producer. That applies equally to ExxonMobil and the start up oil and gas operation.

And it should be a concern of ExxonMobil that the start up oil and gas operation has its compliance and capital in good shape. Why? What’s that saying you can’t pick your neighbor's and you can’t necessarily pick all of your partners. Sometimes you have to deal with partners that you have no history with. You want to make sure that they are capable of operating in a fashion that is at least consistent with standard industry practices. It is those standard industry practices that include high levels of compliance and governance in today’s oil and gas industry operations.

As we have discussed in the past few days the level of expectation by regulators with respect to the compliance requirements are high. It would appear that there is no sense that any relief will be forth coming, on the contrary, we should expect the level of requirements to grow. This is the only reasonable expectation, however, I would ask, have we implemented these compliance frameworks correctly? Have the regulations which are submitted in technical frameworks, been “integrated” to the ERP system, or just attached?

We can see the answer to that question when we find that no current ERP system calculates the Gas Cost Allowance for royalty calculations. To conduct these types of calculations you would need to integrate the royalty frameworks deeply within the ERP systems, and that clearly has not been done. So when it comes to the automation of the compliance frameworks, which is the objective of the regulators in publishing these technical frameworks, nothing has been done from the industry side.

I have always argued that there is two ways in which to approach the problems that we face in oil and gas. One is to automate the processes to high levels with systems. This requires the high capital costs of software development like what People, Ideas & Objects have proposed. Or, you can employ the human resources to maintain the compliance requirements on a manual basis. This is the method that industry has chosen to pursue up to this point. I would ask in times where;

• The cost of capital is historically low.
• The demand for human resources is somewhat constrained.
• The regulators have published technical frameworks.

Why wouldn’t the oil and gas producers chose to develop the People, Ideas & Objects applications.

Automation of the compliance frameworks within the People, Ideas & Objects applications would provide many benefits to the innovative oil and gas producer. The costs of doing this engineering work is being amortized over the entire industry. Making these highly engineered software products, incidental in terms of actual cost to each producer. Access to these systems would be to the benefit to all of the producers in the industry. Enabling the capability of each individual producer to meet or exceed the minimum standard of industry expectations. In a world of increasing demands your partners capability could become a critical issue to your operation. There is a compelling argument here in the compliance part of the Compliance & Governance module. And I think its time for the industry to act.

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 XLVII (C&G Part II)

Yesterday we discussed the opportunity that we have of centralizing the software development costs and efforts for Compliance & Governance frameworks under one roof. That is to say that instead of each producer building the in-house capacity to have their software and compliance capabilities maintained, it is possible instead to have it centrally managed through People, Ideas & Objects. Today I want to take that concept a bit further and break down another element of the cost of compliance and discuss how that element of compliance could also be done in a centralized manner. That element is of course the accounting and administrative costs incurred in meeting the regulations requirements. The costs of which are incurred in the human resources and associated overhead. Therefore these costs are an area where specialization and the division of labor could be applied and build real value for the producer firms.

It comes down to the question of where is the compliance work done at the Joint Operating Committee or the firm. It has to be done at the firm as all the variables are unique to each producer. However, that does not preclude the firms from having their accounting done by groups that work for many firms. Traditionally public accounting firms do work for many firms. People, Ideas & Objects will rely on our proposed network of Community of Independent Service Providers (CISP) who would be looked at to provide these types of services. These accounting services have been traditionally handled internally by the producer firm, however, I think from an efficiency point of view there may be an alternative means of having these types of work done. I think that it may be time that producer firms should consider that they undertake to have CISP member firms conduct the entire scope of accounting and compliance work for multiple producer firms. Why not.

If we were to approach the accounting and compliance reporting requirements on a specialization and division of labor basis we could add significant value to the industry. Taking the organization of the accounting across the industry and building the accounting and compliance needs for all of the producers would provide that value at lower costs and better service because of the efficiencies from the division of labor and specialization. Particularly in the area of compliance reporting, especially royalty, where the knowledge of the people who were employed in the compliance service could be so specialized that they are able to ensure that their clients royalty obligations are the lowest possible. With royalties being the largest cost component of a producer this would certainly be of value but there are greater efficiencies then these available. There would also be the ability to manage the process with the most efficient team available.

These are the two elements of the costs of compliance. First, as we noted yesterday the cost of maintaining the software in compliance to the regulations. And two, the accounting that is done in keeping the firm up to date. If the software can be maintained on a global basis on behalf of the industry by People, Ideas & Objects then the one time costs of the software can be amortized over the industry as a whole. And if the accounting costs can be managed by also centralizing the accounting function, and as a result, specialization and the division of labor coming into play. Then the industry is benefiting by reducing their costs by reducing the two largest components of the costs of compliance in the most cost effective way. Yet, they have also done so in the manner where their compliance is more accurate.

Another element of quality also comes into play as a result of the proposal from People, Ideas & Objects. That element is time. If the timeliness of the information that is provided is within the guidelines, or is earlier, then the quality of that information is much higher. I think that what is proposed here with the high levels of software automation, specialization and the division of labor provide an assurance that the timeliness of the information that the systems we are building will be better then the deadlines imposed by the regulators. This timeliness doesn’t appear to come at the expense of any accuracy either.

Lastly when we discuss moving the compliance and governance frameworks of the hierarchy to the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. We state that this provides an increased speed, innovativeness and accountability. For when you move compliance closer to operational decision making, accountability is the result.

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.