The Preliminary Specification Part CXXIV (R&C Part XIX)

Today I want to take a look at Professor Giovanni Dosi’s “key factors” in the context of the scenario that we used recently during our review of the Partnership Accounting module. Recall that we had a number of producers who were joining together through the Work Order to participate in an engineering study. This was discussed in the Partnership Accounting module to highlight the manner in which it eliminated the logistical accounting difficulties that impede the development of these working groups. Today I want to discuss how the efforts of that working group are added to the capabilities of the producer and are managed in the Research & Capabilities module of the Preliminary Specification.

Upon completion of the working group the producer firm will have a unit of knowledge that has been developed from the efforts of the group. Professor Carliss Baldwin provides us with some clarity here with her “knowledge begets capabilities, and capabilities beget action” comment. What is needed is for the producer to have a central repository for the knowledge that is accumulated through the various working groups and other “key factors” in which they acquire that knowledge. This will be called the Capabilities Interface in the Research & Capabilities module and will detail the source of the knowledge, the key factor, how it was acquired, and what it involves will be captured within a wiki styled interface. This interface is also sorted by geological zone and populated to the Knowledge & Learning module for the Joint Operating Committee, based on what geological zones they produce from. Organizing a firms and Joint Operating Committees capabilities is the beginning of developing, deploying and effectively managing them.

Within any module of the People, Ideas & Objects application the user will be able to right click their mouse and select from a sub-menu of actions. These actions will include the ability to begin a Work Order, raise an AFE, prepare a Joint Venture Agreement etc. If the user can take action on the capabilities listed within the “Capabilities Interface” then we have achieved the process that Professor Baldwin states is necessary. Having this information centralized for the producer, and the specific information for the Joint Operating Committee helps to concentrate the knowledge within one location within the firm. There will be little confusion as to where to find the answer to a specific question. When the user finds what they are looking for, the detail of the knowledge or capability should be specific enough as to define a process as to how it is implemented. Understanding that knowledge is never static, the ability to update the information with lessons learned would be part of the users responsibility. Recall this update from lessons learned is also done for the Joint Operating Committee in the Knowledge & Learning module.

The ability to annotate and reference the material within the wiki would make this more usable. However, with the tools that are available today, such as search, make the information more valuable. What is truly valuable is the types of tools that will be available tomorrow. We are beginning to see some of these tools enter the consumer space with the iPhone’s SIRI virtual assistant. The first step however will be to acquire the data and make it actionable through the ERP system of People, Ideas & Objects. Then we will be able to add these tools easily as they become available in the future.

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 CXXIII (R&C Part XVIII)

In today’s post we want to document the last of the key factors that Professor Giovanni Dosi states are necessary to support innovation. And then begin a discussion on these key factors and how they are implemented in the Research & Capabilities module of the Preliminary Specification.

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

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.)

Its only logical that innovation will spring from advanced markets with labor mobility, legal protection and capital markets. Its one thing to have these facilities provided, its another to have them aligned within the organization. With People, Ideas & Objects we are aligning the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee with the compliance and governance frameworks of the hierarchy. This alignment permits the producer firm and the Joint Operating Committee to attain greater speed, innovation and accountability as a result.

What these key factors reflect is that the innovative oil and gas producer must first of all be capable. Innovation leverages the capabilities of the service industry, the producer marketplace and the greater market makeup. For the producer to attain their highest level of capabilities is the objective of the Research & Capabilities module. Each producer will be able to attain their own specific level of capabilities, and that level will be dependent on these key factors. Not all producers are built the same. The ability therefore to achieve state of the art capabilities and highly innovative practices are not something that are at risk in terms of being “copied” by other producers. Therefore a producers willingness to participate in the collaborative environment created in the Research & Capabilities module would not risk any proprietary competitive advantage. On the contrary, based on these key factors, non-participation would limit the competitive advantage.

This environment is the polar opposite of the manner in which the industry operates today. Certainly there are high levels of joint ventures in operation, however, those are designed to mitigate financial risk more then anything else. And I am not suggesting a different posture be taken in terms of the risk profile of the industry. Only that a more open collaborative earth science and engineering level of discussion and participation is necessary for the industry to move to the next level of performance. One that enables the key factors that have been discussed in these last three posts, interact with the highly aligned and innovative oil and gas 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 CXXII (R&C Part XVII)

Yesterday we discussed the need to have the service and oil & gas industries develop their overall capabilities in order for the producer to be able to advance theirs. That these industry wide capabilities have an enabling or constraining effect on each of the individual producers own ability to develop their capabilities, and hence innovations. Today we want to discuss the other aspects of how the producers capabilities are enhanced, and the various elements within the Research & Capabilities module of the Preliminary Specification that enable these to develop.

The second key factor that Professor Giovanni Dosi defines as necessary is as follows.

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

• Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.

Again these only make sense in terms of being critical to enabling the capabilities of the producer firm. The question becomes is how does the Research & Capabilities module and the Preliminary Specification specifically deal with these key factors to enhance innovation?

The first key factor that I want to address is the “supply of technical capabilities, skills, engineers etc.” That raising the quantity and quality of the earth science and engineering technical resources of the industry is possibly one of the three top issues of the industry. How does the Research & Capabilities module specifically increase the supply of these resources? As we have stated here many times the need to rely on the standard economic tools of an enhanced division of labor and specialization are the keys to solving this problem.

If we look at the way the industry is structured today, with each producer building the capabilities needed to address every possible contingency within their organization. The overbuilding of capabilities is the result and this surplus capacity is left unused and unusable. Each producer pursuing the same strategy leaves a large surplus capacity that is unused and unusable on an industry wide basis. The pooling concept that People, Ideas & Objects has developed within the Preliminary Specification. Where producers of a Joint Operating Committee are able to pool their technical resources to meet the properties demands. Eliminates the overbuilding of capacities in each of the producer firms, and enables the producers to deploy any surplus capacity.

That’s the first element of the division of labor and specialization that is inherent in the Preliminary Specification. The second element deals directly with the ability to organize the technical resources in a manner that deals with how the “bread and butter” geology and engineering is done in the industry. With a dedicated software development capability such as that which is People, Ideas & Objects competitive offering, the ability to organize new service based offerings to meet the demands of the industries bread and butter earth science and engineering demands would now be possible. The expansion of the division of labor and specialization will therefore increase the throughput of the industry from the same volume of resources, and also enhance the quality of the resources. As we have stated many times here at People, Ideas & Objects, software will define and support the future division of labor and specialization.

Regarding the “facilities for the communication of knowledge” as a key factor of innovation. The Research & Capabilities and the Knowledge & Learning modules are collaborative information systems that are “industry-wide” in their implementation. A review of the many interfaces that were mentioned in yesterday’s post shows that the development and sharing of knowledge, which are critical for the development of the individual producers capabilities and innovativeness, are systemic throughout this module.

Lastly I would ask the user community if we need to develop an interface in the Research & Capabilities module that allows the producer to interact with the academic and research areas of the earth science and engineering disciplines. It would seem to me to be a worthwhile addition however, the user community may have some specific ideas on what should be included.

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 CXXI (R&C Part XVI)

It’s only reasonable that the producer firm is going to approach the operation of some technically difficult task with the appropriate capabilities. Innovation requires that the capabilities of the producer be the base on which the innovations can leverage. What Professor Dosi has defined in his research is the key factors that innovation requires. Over the next few days we will discuss these key factors and how they are integrated within the Research & Capabilities and other modules of the Preliminary Specification.

One housekeeping duty is to note that there is a “Capabilities & Stimuli” interface in the Petroleum Lease Marketplace module. This documents the contractual obligations that the producer is required to meet in terms of commitments to the various Joint Operating Committees that the producer is a participant in. And to leverage the working interest partners capabilities that are likewise legally committed. This interface is placed in the Petroleum Lease Marketplace module to document the legal obligations that are contractually defined. This interface should also be recreated in the Research & Capabilities module.

In today’s post we will deal with the first of the three key factors of innovation, Professor Dosi notes:

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

• Capabilities and stimuli generated with each firm and within the industry of which they complete.

What you are capable of is wholly dependent on what has been purposely developed within your firm. These capabilities have developed over time and are able to be deployed repeatedly. As time passes further capabilities are developed and the firm becomes more capable through a variety of different means. The ability of the firm to develop these capabilities is limited by what the oil and gas service industry is capable of providing. If they have only x number of rigs available, then only so much work will be done. And if the rigs are only able to drill shallow wells then the science of the producer will be constrained by the capabilities of the service industry. Furthermore, if the producer is a state of the art earth science and engineering wonder in a sea of producers who are barely able to successfully drill shallow wells, then the state of the art producer is reduced to the same level of the others. The marketplace of the producers in terms of their technical resources and their capabilities have an enabling and constraining limit on what the producer is capable of. Lastly innovation is leveraged from this base.

The question therefore becomes how do we broaden the base of not only the producer but the service and oil & gas industries. Recall how the Research & Capabilities module has a "Ideas Marketplace" blog like interface where members of the industries can post ideas of products and services that might be of interest to the producer firms. Producers may then act to support these ideas with funding and support to develop the idea into a product or service to augment their capabilities. Recall the "Supplier Collaborative Interface" in the Resource Marketplace module that enables the industry as a whole to benefit from the lessons learned by each producer. The "Gap Filing interface" where the producer can anonymously publish where they see gaps in the service industries offerings. Enabling the service providers to prepare new products and services based on a further defined division of labor and specialization. Or how the information within the Research & Capabilities interface is organized on the basis of geological zone so that only those pertinent zones are populated to the individual Joint Operating Committees through the Knowledge & Learning module.

Recently in the Partnership Accounting module we discussed the accounting attributes of the Work Order system in forming working groups amongst industry participants. These could be informal working groups formed to study some geology or engineering situation among interested producers. The ability to strike these groups, participate in them and develop further capabilities as a result of these studies is a critical aspect of how the producers will develop their capabilities. Since the costs and the results are shared the industry as a whole advances. Leaving the producer open to further potential innovations. I see this as an area that will explode in terms of activity, if, the accounting logistics and bureaucratic nightmare that they create can be dealt with in the manner that the Partnership Accounting module does.

We will continue tomorrow with further discussion of these points.

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 CXX (R&C Part XV)

Now we begin our third pass through the Research & Capabilities module of the Preliminary Specification. This will focus on innovation which involves the capabilities of the firm. In the fourth pass through the Preliminary Specification we will be focusing on capabilities. The Research & Capabilities application module is unique in that it provides the producer firm with the ability to document, develop, and deploy their earth science and engineering capabilities. We will be briefly touching on some of the capabilities areas in this the third pass, and will do a deep dive in the fourth.

It is through Professor Giovanni Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” that we will view this module, and if you have the time it might be worthwhile to review the Research & Capabilities module as background for these blog posts.

A couple of things that jump out at me in the Research & Capabilities module are the division of labor between computers and humans. Formulating ideas, making decisions and collaborating are the activities that are captured in this module. Leaving the mundane transaction and data management tasks to the computers. This I think an appropriate division of labor, I wonder at times what SAP’s thinking is on this. Another aspect that caught my eye was Professor Richard Langlois comment that we are “moving the knowledge to those with the decision rights” as being the primary process that the module captures. And lastly, that a user can right click at any time within the module and initiate any standard ERP type of action on anything in the module. This being an extension of Professor Carliss Baldwins research that notes “knowledge begets capabilities and capabilities beget actions”.

To the topic of innovation, Professor Dosi’s article discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. 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 note:

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.

We discussed only a few days ago that the Accounting Voucher would enable the producer to charge the various joint accounts with the costs of their technical resources with the implicit assumption that they would generate a return on the investment in the firms capabilities. We also discussed the differences between what is acceptable practice today (with overhead allowances) and the different positions that some might take on the topic. However, I think Professor Dosi’s point here has to be taken as the key criteria as to the direction the industry takes on the issue. You are investing to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competitions. The ability to sustain the state of the art oil and gas capabilities on the basis of what a producer earns from oil and gas production is a direct result of those capabilities, however, shouldn’t the costs of those capabilities earn a return above and beyond what the oil and gas production provides?

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 CXIX (AV Part XI)

One area that has been difficult for the oil and gas producer to deal with is the volatile energy prices. With the costs of production and reserve replacement increasing and the reserve depletion on such a rapid pace, the decline in energy prices can have a material effect on the value captured from a field. With every producer producing at capacity, this risk of price declines comes into play more frequently then maybe needs to be realized. This blog post asks the question, what if, there was agreement in the Petroleum Lease Marketplace and implementation in the Accounting Vouchers Material Balance Report of the Preliminary Specification, to limit the production at certain thresholds based on predetermined commodity prices?

We can accurately tell what the costs of reserves and production costs are and there are many times when these exceed the prices that are received in the marketplace. The North American natural gas marketplace is a very good example of this situation. Selling at a loss may fuel the short term cash flow situation however, it as at the long term expense of reserve replacements. In a highly innovative oil and gas marketplace, the costs of innovation are being funded by the commodity prices. However, these costs may exceed the temporary fluctuations in the market prices for the commodities. Is it wise for the producer to continue to produce at capacity?

What if the agreement that governs the Joint Operating Committee has the partnership agreeing to a reduction of production by 15% when the price of the commodity drops below x value. And what if the agreement also reduces the production by 25% when the production prices drop below y value. These situations would help to mitigate the loss of earnings on the reserves and not materially affect the cash flow of the operation. The global implications of many producers implementing this type of price based production profile would put a floor on the commodity prices. A floor based on the marginal costs of reserve replacement.

The implementation of the production decreases would be triggered in the Petroleum Lease Marketplace and signaled to the Material Balance Report. One area that we have not yet discussed in detail is the field data capture that is implicit in the Material Balance Report. This signal from the Petroleum Lease Marketplace module would then choke back the production to the 85% threshold when the prices realized are below the level set in the trigger.

Selling at a loss is a fools game. The political issues surrounding the choking back of production are something that might make some wince. However, the reality is that the costs of production and reserve replacement are escalating and the volatility in the commodity prices only seems to becoming more prevalent. With shale gas costs in North America being as high as they are, who would contemplate producing at these prices? In many ways we are our own worst enemies.

This scenario of price driven production adjustments will be part of the Preliminary Specification. If producers decide to use it, it will be there choice. I think it is necessary with the situation in the energy market that the producer has some protection of their investment from the volatility and political influences of the commodity marketplace.

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 CXVIII (AV Part X)

The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. They both being accounting modules, it is natural that they have high levels of integration. The Accounting Voucher is unique in that it brings to the producer the ability to design transactions and the Material Balance Report. These are not innovations that the producer will use to become more innovative but are provided to ensure that the innovative producers processes are actively defined and supported through out the People, Ideas & Objects application modules.  When the business is a science, as it is in oil and gas, it would be in the producers interest to remain open and flexible in both its scientific and business approach. The Accounting Voucher and Partnership Accounting modules provide that organizational flexibility.

The manner in which these two modules operate is as follows. The Accounting Voucher captures the transactions. Partnership Accounting reports on the transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process that is familiar and traditional in the accounting world.

We noted in the Partnership Accounting module how the Work Order enabled the producer with the ability to form and participate in working groups. This flexibility is what is sought in these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to a producers innovation as much as the Research & Capabilities or Knowledge & Learning modules do.

Professor Dosi (1988) 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. It is People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated or constrained by the administrative ease in which the producer operates.

The same can be stated for the Material Balance Report. If the producer is confident that the deal that was conceived is accurately captured in the Accounting Voucher. And the operation is therefore also reporting a substantial profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved.

This will be the last post on the Accounting Voucher during our third pass. We will be skipping over the Security & Access Control module as it is not directly involved in the producers innovation. Recall that our third pass is focused on innovation and therefore we will be moving to the Research & Capabilities module of the Preliminary Specification.

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 CXVII (AV Part IX)

Yesterday’s post detailed the ability for a producer to offset the costs of their capabilities and their development to the various Joint Operating Committees that they participate in. With the expected increase in the earth science and engineering effort in each barrel of oil produced. And the difficulty in increasing the supply of geologists and engineers to meet the demands of the business. The pooling concept has been developed within the People, Ideas & Objects application to deal with the supply and demand of these finite technical resources. It is within the Accounting Voucher of the Preliminary Specification that the automation of the charging for these resources, as detailed in yesterday’s post, enables the producer to earn a return on their investment in their earth science and engineering capabilities.

It comes down to the question of what business is it that the producer is in. Are they in the business of generating profits from producing oil and gas, or are they in the business of generating profits from providing geologists and engineers to the operations they have an interest in? If we look at the competitive advantages of the producer it is the land and asset base, and the earth science and engineering capabilities that they apply to that asset base. Clearly both production and capabilities development are within the scope of the business of the oil and gas producer. And to a large extent the costing of the technical resources in the manner mentioned in yesterdays post is not fundamentally different from what occurs today. In today’s market, the operator is provided with “overhead allowances” for the capture of some of these costs. The difference from today and what is proposed here is that the elimination of the concept of an operator by “pooling” the technical resources of the Joint Operating Committee participants to acquire the necessary capabilities.

To take this opportunity to charge the costs of the capabilities of the producer firm and earn a return on investment may be the issue that some people will have with the concept. In a world where the market for engineers and geologists is highly competitive. And you as a producer are assessed on your performance based on Revenue Per Employee. The acquisition of additional technical resources is a difficult process that has implications to your firm. The ability to offset the costs of your technical resources helps to mitigate these issues in the short term. This is the purpose for enabling the direct billing of technical resources to the joint account in the Accounting Voucher.

When we get to the review of the Research & Capabilities and Knowledge & Learning modules during this innovation review. We will see the development of these capabilities from an innovative point of view will take on a different perspective. The ability to capture this development of a firms technical resources as an investment, and have them as a source of revenue here in the Accounting Voucher is what I want to establish with today’s and yesterday’s posts. Looking at the development of the producer, it is somewhat of a paradox as to which is developed first, the land base or the capabilities. With the ability to have the capabilities generate their own revenue stream the paradox is resolved in the short term, in that capabilities development is expected to earn a return on investment.

Some may suggest that these costs offset the production revenues of the Joint Operating Committee that would have gone to the producer anyways. And that may be true. However, in a world where the demands for the technical resources are expected to be as significant as some suggest. The need to deal with the problem on a wholesale basis, as People, Ideas & Objects pooling concept does, is a requirement, and secondly, the assumption that everyone else will develop their technical capabilities might be false.

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 CXVI (AV Part VIII)

We return to the Accounting Voucher module of the Preliminary Specification for our focus on innovation. This module works closely with the Partnership Accounting module to capture the accounting for the Joint Operating Committee and the producer firm. If you recall we are introducing many new and innovative concepts to the Accounting Voucher, concepts such as the design of transactions, the comprehensive nature of the Material Balance Report, and the ability for all of the producers within a Joint Operating Committee to post to an open Accounting Voucher.

In this third pass through the Preliminary Specification we are focusing on innovation. And when we get to the Research & Capabilities and Knowledge & Learning modules we will be focusing heavily on the capabilities elements of those modules. With that understanding, and the knowledge that the producer firm is building a substantial technical earth science and engineering capability, we turn to Professor Giovanni Dosi.

Professor Dosi’s paper discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Professor Dosi’s theories that make them directly applicable to oil and gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil and gas firms search, and production of, hydrocarbons. 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.

The producer firm is committing to developing their capabilities with the understanding that they advance their competitive advantages, and, earn a return on their investment. How within the People, Ideas & Objects application does the producer earn a return on their investment in their capabilities? The most obvious answer is through direct charges to the joint account. That is to say that the people (representing the producers capabilities) who are pooled into a Joint Operating Committee, have been assigned a role within the Military Command & Control Metaphor and who’s costs are captured in the Partnership Accounting module are recovering a “revenue” stream for the producers capabilities.

The question then becomes what is the charge for the individual during the time that they are working in the Joint Operating Committee. It will be easy to determine the hours that are worked in the various JOC’s of the technical resources. Whether through the Work Order or through other means, the ability to capture the time spent will be available and accurate in the People, Ideas & Objects system. The hourly rate would need to include a number of factors. The skills of the individual. The technical resources of the producer firm that is at the disposal of the individual. And also a measure of the level of innovativeness of the producer firm, say something like Revenue Per Employee that reflects the overall productivity of the firm.

Once they have factored these elements in they could then assign an hourly rate to each individual in their firm and ensure that so many hours of their year are charged to the various joint accounts that they have an interest in. With the advanced level of systems automation that we are using, we can charge the joint accounts based on the hours worked each month based on the charge out rate of each individual in the producer firm.

The net result of this is that the revenues should exceed the costs and the producer will have captured a return on their investment in the capabilities that they have developed within their firm. To proceed on any other basis would be, I think, unreasonable.

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 CXV (PA Part XIX)

In this third pass through the Partnership Accounting module of the Preliminary Specification we have focused on just the elements that support innovation within the oil and gas producer. That should not take away from the comprehensive nature of the module. Today I want to extend that understanding of innovativeness across the whole spectrum of functionality and process management within the module. And provide a sense of where the focus for the user community should reside.

If we go back to the Draft Specifications list of standard reporting output for the Partnership Accounting module we come up with a good understanding of the overall scope of the module. The community of course is uninhibited or constrained in any way by any list or requirement that I have stated here in the Preliminary or Draft Specifications. They are encouraged to add what they feel are necessary functionality, processes or modules.

Where I see a lot of changes occurring is in the level of activity that happens between producers. As the capabilities of the producers are developed, the need to interact will expand and the systems the firms use will need to support these transactions. The ability to support them will have to be done on an “as they happen” basis, as the historical accounting approach will be too costly and disruptive. The need to have the interfaces to the People, Ideas & Objects application modules will need to be developed with the user in mind. Think about iPhone and iPad type of applications and interfaces that are part of the Partnership Accounting module.

Innovation is the objective that we are seeking to develop in the producer firm. It is the difficult and costly element that will drive the organizations focus. The accounting and systems need to be a critical part of that, and be active in supporting this innovation in the Partnership Accounting and other modules.

The development of the Community of Independent Service Providers is also an area that should be kept in mind when considering these software developments requirements in the Preliminary Specification. Is there a better way to develop the interface for a service provider for conducting production accounting on a wholesale basis? These types of opportunities are also the key considerations of the user community during the development of the Preliminary Specification. The division of labor and specialization are keys to a more productive oil and gas industry. And software will both enable and constrain the division of labor and specialization.

Tomorrow we will begin our third pass through the related Accounting Voucher 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.