The Preliminary Specification Part CX (PA Part XIV)

Today I want to continue on with the scenario that we have been discussing regarding the Work Order system in the Partnership Accounting module of the Preliminary Specification. Yesterday we discussed how one producer could participate in a study with other producers by setting up a Work Order to capture their involvement. Their contribution involved one engineer, some office space and computer time. That they would contribute some cash was also a possibility as they signed on for a total of 10% of the projects projected costs. Today I want to talk about the other producers involvement and how the Work Order system, being a multi-organizational system, is able to capture the different ways in which each producer will participate and account for these differences within the People, Ideas & Objects Partnership Accounting module.

The emphasis is once again on the ability of these producers to innovate. The collaborations and interactions between producers and participants in the industry will be the source of many of the innovations that occur in the future. The impediment to doing these as a result of the bureaucracy and the current suite of accounting systems in use in the oil and gas industry is what I want to draw a contrast to in this scenario using the Work Order. Its time in this day and age that the systems become as complex and as sophisticated as what is being described here so that the innovation in the earth science and engineering disciplines can occur. Professor Giovanni Dosi expands on this point further in the following quotation.

Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

Within the project that the producers want to participate in. Some want to contribute a variety of different resources, some have specialized capabilities that are critical to the project and others are more or less along for the ride and are willing to participate by paying cash. Some have an AFE that has been approved that can direct the funds to pay for their participation. Some will incur the costs as part of their annual payroll budget for engineering. Still others have a working interest partner that are willing to share the costs over a number of Joint Operating Committees. The combinations and permutations of how a Work Order gets financed and funded are unlimited when we consider the number of different ways producers can participate.

Now to have a Work Order system that takes the information from these various parties and assimilates the understanding of the deal from the five or six people who have the “meeting of the minds” to initiate this project is the critical point in which to start. Each needs to codify their understanding of how their participation of the costs are funded and costed to their People, Ideas & Objects Partnership Accounting modules Work Order. All of the participants are using the one Work Order that is shared across all of the producers. This agreements understanding needs to be captured within the Work Order system prior to its approval by all of the producers. Much like an Accounting Voucher the costs need to be coded, but also the sources of the funds need to be identified. This way the system can process the charge within the firm in the manner that it was expected to be. For any charges that are above the threshold that a firm was willing to commit to, that imputes that another firms cash commitment would be provided to cover those costs. The Work Order should make these cash transactions between these producers as a result of the approval of the document. The point of the exercise is that once the Work Order is approved, the understanding of the deal, as captured by the interface, is executed.

As I indicated two days ago the ability for an accountant to follow on with the necessary accounting for these transaction requires significant recreation of the “deal” and time of the parties who conceived of the deal in the first place. A bureaucratic waste of time. The interface of the Work Order should be sophisticated enough to be able to capture the substance of the deal in what ever permutation and combination that is conceived of by the originators. I understand the myriad ways that these can be done and the difficulty in making an interface that captures these. That I don’t think is the difficult part. What I think would be the difficult part would be to make an interface that provides these services in a manner that is simple and easy to use, and captures the deals substance. I, however, know it can be done, and the reason it hasn’t been done is that the budget for software developments like these have not been set out. Its at times like these that people should revisit our revenue model and rethink People, Ideas & Objects approach based on our projected budget.

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 CIX (PA Part XIII)

In yesterday’s blog post we discussed the role that the Work Order system would have in clearing up the administrative minutia of the accounting related issues of the Partnership Accounting module in the Preliminary Specification. Today I want to continue on with that discussion and ask what that has to do with innovation. It is this third pass through the Preliminary Specification that we are focusing on the topic of innovation and it seems that accounting related issues are a bit distant from the concerns of the innovative oil and gas producer. Or are they.

Lets look at the Work Order system from the perspective of a successful producer who is active in the marketplace and has developed an earth science and engineering capability that scores well in terms of Revenue Per Employee. The CEO is approached by one of the engineers who hears of several other producers who are conducting a study on something of interest to your firm. They are looking for other participants to join in and you want the engineer that brought the news to join in the project. Assuming everyone of the producers was using the Work Order system they would be able to pool the resources they have within the Work Order that was set up to manage the project. You were able to commit to a 10% share of the x costs and would offset those costs with your engineers time and use of office space and some computer resources. (Note all costs are pre-approved and budgeted from other accounts.) With the Work Order you were able to make these commitments subject to the other 90% being committed to, and then your approval would be automatic.

We have here the means of which the people who are working within the industry to commit to programs and projects in a manner that is natural to their business. This is the way that the systems should be working in 2011. What we have today is an impediment to the operator in the industry who feels that participation in the study with the other producers would be worthwhile, however, the accounting and approval nightmare will haunt him for the next three quarters and subject him to such regulatory oversight as to question his moral integrity. So instead the project doesn’t proposed, funded, participated in or get done.

In Professor Dosi’s paper “The Sources, Procedures and Microeconomic Effects of Innovation” he discusses the role that such administrative minutia have on innovation.

The discussion will aim to identify (a) the main characteristics of the innovative process, (b) the factors that are conducive to or hinder the development of new processes of production and new products, and (c) the processes that determine the selection of particular innovations and their effects on industrial structures. 

In our example the financial resources are there. The motivation exists within the organization to do a spectacular job on the project. What happens is the bureaucracy gets in the way and slows things down and makes it a task that requires superhuman effort to even try. And maybe one or two projects will get done each year on the basis of sheer will. But what is needed is the ability to conduct a volume of projects that is far in excess of one or two, and that is beyond the scope of the organizational context as the producers are organized today. Without the ERP systems to define and support these innovative processes, these processes will not spontaneously appear.

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 CVIII (PA Part XII)

Lets be clear, what People, Ideas & Objects are proposing in the Preliminary Specifications Partnership Accounting module is nothing like any other joint venture accounting system. When we begin to account for the Joint Operating Committee as the key organizational construct. Align all of the frameworks of the producer and the JOC together. And then unleash the innovativeness in both the producer and the JOC, the accounting becomes a torrent of activity where no transaction is the same as any other. A little poetic license helps my writing style.

Some of the processes that we have described in the Preliminary Specification have been comprehensive and involve multiple organizations, over multiple accounting periods. Whether that’s the development of capabilities that begins in the Research & Capabilities module, touches on the Resource Marketplace and Financial Marketplace modules, and passes through to the Knowledge & Learning module. Some of these processes carry transactions that are as complex and as difficult to quantify as the process. Some will be for the joint account, some will be for the producer to incur on their own and as we learned in the Financial Marketplace module some transactions might be as a result of an investment being made by an investment group.

We discussed the Work Order system that was able to control the costs associated with a project. The projects contained within a Work Order might be funded by an AFE or a budgeted account, and as a result will be able to control the costs of the project, monitor them and maintain a governance through the use of the Military Command & Control Metaphor of the People, Ideas & Objects system. The Work Order system will be able to designate the ability to charge out the costs to the appropriate owners of the projects at the initialization of the Work Order. Since the Work Order is a multi-organizational system, that is members of a Joint Operating Committee or members of the field services industries will be able to participate in a Work Order, which means they will then have the ability to pre-approve and participate in the project. The accountant working within the Partnership Accounting module won’t therefore be running around trying to seek approval from partners to approve the expenditures to projects that didn’t get approved properly. If everyone within the industry only works to a chargeable work order, and all work orders are approved by those who will be financially responsible for the charges, then the accountants job in chasing their tail is over.

The point of the Work Order system is hopefully not lost on others in the industry. Some may feel that the Work Order duplicates the attributes of the AFE, and I would argue that they are fundamentally different. The AFE approves spending for field level and construction projects of a capital nature. The Work Order system is a means to deploy the capabilities of the producer or JOC in an authorized manner. When we are able to extend the Work Order system across multiple producers, JOC’s and suppliers, the ability to deploy the capabilities of multiple organizations will facilitate the innovativeness that we are seeking in the oil and gas industry. The Work Order may take budget dollars from multiple AFE’s and assign them to a team of engineers that are asked to develop the process necessary to make their firm more capable. Or, departmental budget dollars from two producers may be contributed to a Work Order for their Geologists to attend a conference and conduct research on some promising development. The simple point being that no one does any work without a Work Order to charge their time to, and no Work Order can collect charges that hasn’t had their budget pre-approved.

This will make the Partnership Accounting module workable from the point of view of controlling the costs of the multitude of different arrangements being made within the organization. If the accountants are tasked with trying to put together the costs and determine who is to be charged after the fact, this is how they become the annoying bothersome people they can become. By imposing the Work Order system in this fashion, within the Partnership Accounting module, the arrangements are pre-made and the authorizations are required before the charges can be incurred. Making the accounting for the deployment of capabilities systematic as opposed to problematic.

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 CVII (FM Part XIII)

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

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

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

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

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

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

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

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

The Preliminary Specification Part CVI (FM Part XII)

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

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

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

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

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

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

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

The Preliminary Specification Part CV (FM Part XI)

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

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

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

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

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

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

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

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

The Preliminary Specification Part CIV (FM Part X)

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

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

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

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

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

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

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

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

The Preliminary Specification Part CIII (FM Part IX)

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

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

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

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

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

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

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

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

The Preliminary Specification Part CII (FM Part VIII)

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

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

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

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

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

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

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

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

The Preliminary Specification Part CI (PLM Part XVI)

In yesterday’s post we documented the “Strategy Interface” of the Petroleum Lease Marketplace module of the Preliminary Specification. This being a simple collaborative interface that documents the unique strategy of each and every Joint Operating Committee the producer has an interest in. This blog post will deal with the positive attributes of the Strategy Interface, and the difficulties that it will impose on the bureaucracies that are unwilling to consider the option of individual property strategies.

In oil and gas the business cycle is more dependent on the reserve life of new reserves. With rapid three-year declines, especially in gas, the question becomes: is this a product of the cumulative innovative-ness in exploiting the technologies that have developed? Or, is the use and application of oil and gas technology yet to be tested against a more exploration style mindset consistent with the risk - reward of the current market pricing of the commodities. Asked another way, would there be longer lasting, more prolific reserves in the frontier regions of oil and gas? Natural gas is experiencing a unique situation with the prolific nature of the shale gas discoveries. And oil continues to experience high global demand with nominal supply growth.

Either way it appears that the exploration and exploitation of oil and gas reserves has and always will be a function of the technology based on the underlying sciences. This is undeniable, and may also be the cause of the shorter-term life cycle and diminished size of new reserves, which is agreed by most to be a trend that will continue. This reserve size and deliver-ability is paralleled in Professor Giovanni Dosi’s discussion of how innovations in industrial companies have been diluted by demand prediction and lower production volumes. Generic corporate strategies are therefore an impediment to the value realization of these short reserve life indexes. Even an innovative posture is going to bring about different strategies in terms of timing of the investments. Professor Dosi notes;

Finally, empirical studies often show the coexistence, within the same industry and for identical environmental incentives, of widely different strategies related to innovation, pricing, R & D, investment and so on. Specifically with regard to innovation one notices a range of strategies concerning whether or not to undertake R & D; being an inventor or an early imitator, or “wait and see”; the amount of investment in R & D; the choice between “incremental; and risky projects, and so on (see Charles Carter and Bruce Williams 1957; Freeman 1982 and the bibliography cited therein). Call these differences behavioral diversity. p. 1157

Changing the innovative behavior of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy. A time of dynamic change driven by the organizational changes focused around the innovative Joint Operating Committee. How can a firm that has been developed in an era of cost control transform themselves into an innovative, dynamic, earth science and engineering capability focused producer. In many cases the will to do so might exist, however, with the speed and unforgiving nature of the business cycle, not much time will be provided to those that attempt the transformation. We see in this world the capital markets reflecting many interesting phenomenon since 2008. To suggest any trend or definitive result from these would be premature. Its just a different world in terms of being an oil and gas CEO then it was before 2008.

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.