The Preliminary Specification Part CCXV (PA Part XXV)

In yesterday’s discussion we saw that the accounting costs that are prepared for each Joint Operating Committee are the actual accounting costs incurred for that property, not an overhead allowance as it is today. By moving the accounting and administrative functions to the market, we are able to identify the exact costs to each of the Joint Operating Committees. The other implication is that neither the producer firm nor the Joint Operating Committee has to directly employ or house these accountants within their offices, only accommodate them when and where its required. These are some of the advantages of the Partnership Accounting module of the Preliminary Specification, and modularity in general.

When we have discussed modularity it has been in the context of the eleven module Preliminary Specification. However, it could easily be that we are discussing the concept of the Joint Operating Committee. Each JOC is isolated and exclusive to all other JOC’s. As Professor Richard Langlois noted in his paper “Modularity in Technology, Organization and Society”.

What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to modularity in the design of the organizations that produce such products. p. 1

To have the entire accounting provided by accounting service providers who are not present in either the producer firm or the Joint Operating Committee seems too great of a stretch. Dare I ask when was the last time you saw someone from accounting in an operations environment? Aren’t these people sequestered on their own floors in other buildings for most of the time? A revenue and royalty accounting service provider operating on behalf of several dozen Joint Operating Committees and representing fifty producers would need their own office space to organize themselves in a manner that would provide for the most efficient way in which to do their job. Besides they could always visit. If you wanted them to.

These accounting services are not core to the producers or Joint Operating Committees core competitive strategy. Focusing on the land and asset base, the engineering and earth science capabilities which make up the value proposition is where the time and energy should be expended. Accountants can complete their work through meetings, emails and telephone calls no matter where they are located. The producers objective is to have these accounting overhead items match the revenues within a Joint Operating Committee when the production is shut-in. The decentralized production model will ensure that the operational and overhead costs are reduced during times of shut-in production.

In order to achieve the specialization and division of labor that will provide the efficiencies in their accounting services. The accounting service providers will need to organize themselves in a manner that provides the best service to their customers. These configurations will in no way represent the way the work is done today. In addition People, Ideas & Objects and the user community are designing systems to be as highly automated as possible. That’s not to suggest the role of the accountant is diminished in this environment. Their role will be more high level value added work, not transaction oriented. And they will have the support of the People, Ideas & Objects software development capabilities available to develop new and innovative systems interfaces. Enabling them to innovate and evolve their services to the producers.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCXIV (PA Part XXIV)

Through the process of moving the industry to a “decentralized production” model as we are proposing in the Partnership Accounting module of the Preliminary Specification. We have been able to match the operational and the actual overhead costs of the Joint Operating Committee to the production and revenues of the property. Now we have achieved a dynamic whereas, conceptually, no production would occur in the industry that was not profitable. As the prices declined production would be moved off of the market as it became unprofitable. And as prices rose production would return to the market when it was again profitable. It would be at this point that the market would achieve a certain dynamic that is not present in the marketplace today. And the oil and gas producers would be able to claim that their operations were capable of providing the returns to their investors that were real.

In today’s marketplace the managements focus on cash flow is designed to deceive those that will believe they are productive. However, it is only management that believe that cash flow reflects any value. It is simply a factor of how much cash the firm has generated. Included in that cash is an invisible amount of investment needed to maintain the assets. So although cash flow can be a big number it comes with big commitments as well. Sometime those commitments can exceed the amount of cash that is generated. Yet that never stopped management from promoting their cash flow numbers.

Another key criteria that management hang their hat on is their production targets. Wall Street will punish anyone who does not meet their production targets. It doesn’t matter if the firm is profitable or generate any value, as long as it makes it production targets the stock will rise. We’ve seen companies play this game for the 2 - 3 year run that the firm can do this before it completely runs out of gas. Inevitably the production numbers are missed and the ability to keep all the balls in the air are lost and the whole game collapses. Not only is production off, but the earnings were never there and the cash flow was a hoax as well. This game unfortunately is played by most of the firms. Most don’t get too convinced of the Wall Street analysts influence and maintain a bit of objectivity, however, most do get caught up in the game.

What is needed is for the producer and Joint Operating Committee to focus on the earnings, that is the real earnings of the property. Those based on the revenues less royalties less depletion less operating and overhead expenses, after tax. When a firm focuses on those and leaves the Wall Street analysts to go play by themselves then good things can happen to the value of a property or a producer. The valuation of a property could be based on the present value of its earnings. Having a lot of production with no earnings has no value to anyone. Its an exercise in activity. Any idiot can drill a well and produce oil or gas. It takes an oil man to make money. That’s the tough part of the business, making some money, despite what the Wall Street analyst might think of you.

If our focus is on the properties ability to generate a profit. And based on the shutting in of any unprofitable production, the property will only produce a profit. Therefore, how do we ensure the property always produces by lowering the costs of the properties operations. That is the next step in the ability of this “decentralized production” model to make the Joint Operating Committee the innovative framework of the oil and gas industry. With this understanding and operation the engineers and earth scientists will be able to turn to the Knowledge & Learning module of the Preliminary Specification to determine what capabilities exist within the producer population represented in the Joint Operating Committee. To see if there is any operation that they can conduct to enhance the profitability of the property. In essence each property is standing alone as its own unique cost centre. Being evaluated as its own separate business based on business values and expectations.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCXIII (PA Part XXIII)

In yesterday’s post we conveniently reorganized the accounting services provided to oil and gas producers. Such is the way of the 21st century technologies. Closer to the practical realities of the day we find that many of the accounting functions are driven by standards of practice. These standards of practice are critical elements in the market supporting institutions necessary for the accounting firms to operate in the manner that was described here yesterday. It is the capabilities of the accounting marketplace, the skills, knowledge and experience that the Joint Operating Committees will acquire through what Professor Richard Langlois and others call Transaction Cost Economics. A good summary of the concept is provided in Professor Carliss Baldwin and Kim Clark’s paper “Where do Organizations Come From? A Network Design Perspective of the Theory of the Firm.”

...objects that are transacted must be standardized and counted to the mutual satisfaction of the parties involved. Also in a transaction, there must be valuation on both sides and a backward, compensatory transfer - consideration paid by the buyer to the seller. Each of these activities - standardizing, counting, valuing, compensating - adds a new set of tasks and transfers to the overall task and transfer network. Thus it is costly to convert even the simplest transfer into a transaction.

However, within a system such as the Partnership Accounting module of the Preliminary Specification. The costs associated with standardizing, counting, valuing and compensating a new set of tasks and transfers into a transaction are minimal due to the advanced use of Information Technologies. These costs are incurred by both the service provider and the Joint Operating Committee and are for their mutual benefit. If the accounting service provider is posting a journal entry for this months revenue for a number of JOC’s, then the costs for that transaction are minimal once the initial engineering of the systems are complete. The value comes about for the service provider in having their billings being generated by these transactions being processed during the month.

The user and Producer need to deploy knowledgeable in their own domains, but each needs only a little knowledge about the other's. If labor is divided between two domains and most task-relevant information hidden with each one, then only a few, relatively simple transfers of material, energy and information need to pass between the domains. p. 17

and

Placing a transaction - a shared definition, a means of counting, and a means of payment - at the completed transfer point allows the decentralized magic of the price system to go to work. p. 22

We have discussed how the People, Ideas & Objects Preliminary Specification is designed to accommodate the needs of the producers, the suppliers and vendors in the service industry, society and individuals. These accounting service providers will need special accounting interfaces in order to process their work with the producer firms and Joint Operating Committees that employ them. For instance, if a Production Accounting service provider is providing services to all of the Joint Operating Committees at three major gas plants then they might want to have special interfaces that display the information in different formats to what any one of those individual JOC’s or producers might want to look at the information. These types of interfaces will be to support the further division of labor and specialization that is a founding principle of the way in which the accounting firms were organized. To expect that they will fit within the generic system configuration of what a “producer” needs would be probably incorrect. This being another reason that People, Ideas & Objects provides a dedicated software development capability to the innovative oil and gas industry is a necessity.

We have also discussed in the Accounting Voucher module the design of transactions. This work of determining where the point of the transaction should occur is part of that process. It is more complex and detailed then it appears and if done appropriately it can have significant process efficiencies on both the producer or JOC, and service provider sides of the transaction.

The most significant fact about this system, is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on... Frederick Hayek (1945)

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCXII (PA Part XXII)

As we noted in yesterday’s post the transition to a “decentralized production” model in the Partnership Accounting module of the Preliminary Specification would enable the innovative oil and gas producer to match the operational and overhead costs to any decline in revenues due to a shut-in of production. By using accounting service providers, predominately through People, Ideas & Objects Community of Independent Service Providers (CISP), the various Joint Operating Committees would be able to control their costs in the event that commodity prices were unfavorable. Today we want to discuss the configuration of those accounting service providers and how they will fulfill the needs of the innovative oil and gas producers.

When we talk about the Community of Independent Service Providers we are highlighting their independence from any one specific producer. With the elimination of the designation of “operator” from any one specific producer in the Joint Operating Committee no accounting, production administration or exploration administration is provided to the Joint Operating Committee in a dedicated manner as it is today. This creates a fundamental change in the manner of how the work is approached in the industry. It is liberating when we consider the use of technology that is available today and the standardization of the processes that has occurred in the oil and gas industry. A Joint Operating Committee is therefore free to engage a service provider to fulfill these administrative duties, independent of any one specific producer.

From the accounting perspective we have already talked about the Production Accounting role and how that could be specialized to the point where a service provider is working in one geographical area for a large number of Joint Operating Committees. That is the most logical manner in which to organize that type of work. We have also discussed the royalty accounting requirements. And how a service provider would be able to specialize on that specific legislation enabling the Joint Operating Committees that use that service provider to pay the lowest possible royalty obligations. And we have talked about an accounting service provider that specialized in the compliance requirements to the SEC. The point being that we are seeing a further break down in the types of accounting service providers that are specializing on a variety of different criteria for the oil and gas producers. This is the required next step in the evolution of the economic output of the oil and gas industry. The further division of labor and specialization are the only means in which an economy can expand its output.

The recording of operating and capital costs for the joint account will not take too much of a specialization for a service provider to acquire. Most smart phones can now code an invoice to a fairly high level of detail. The interaction between vendor and producers is something that can capture the high levels of detail that are needed in an ERP system. Particularly one in which we are setting out to design. The real value for a service provider might be in the area of transaction design which falls under the Accounting Voucher module. Another area might be in Audit’s and reviews.

With the specialization of individual service providers based on unique accounting specialities. [I’m not familiar with production or exploration administrative needs and therefore can’t comment on those.] A Joint Operating Committee would engage these service providers to provide for the services that are required for their property. There they could choose a Production Accountant who is located in the region. A revenue and royalty accountant who is known for their ability to keep royalties down. And if the price of natural gas drops to the threshold price determined by the Joint Operating Committee, to where the facility will be shut-in, these accounting service providers are not engaged during that time and incur no billings for the property.

The alternative is for each producer to hire the necessary accounting staff as they do now. This is bureaucratic and wasteful in that it builds capacities in each firm to handle x contingencies. The problem is that each firm only needs those capabilities for a few hundred hours a year. Its time to look at alternatives, and the time to look is when we are designing systems for the Joint Operating Committee.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCXI (PA Part XXI)

Traditional oil and gas accounting systems have sought to identify the costs of operations and allocate those costs to the rightful owners. And those will be some of the objectives in the Partnership Accounting module of the Preliminary Specification. We are also seeking to transform the producers from a “high throughput production” model to a “decentralized production” model where the costs of operations decline in line with revenues. Then if production is shut-in, the costs incurred will track revenues. This is necessary in the highly volatile pricing situations the commodity markets get themselves into. As Professor Langlois describes the model.

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. p.58

Recall in the Petroleum Lease Marketplace we have the “Marginal Production Threshold Interface” that enables the partners within a Joint Operating Committee to agree on a pricing point where production would be curtailed. We have also discussed in the Resource Marketplace module the use of the Production Accounting role in terms of how the costs of those resources would be reduced to zero in the case of shut-in production. What we haven’t discussed in detail is the need to charge the Joint Operating Committee directly for the charges of the Production Accounting service provider. This will be a change as a result of using the Joint Operating Committee and the elimination of the “operator” designation on any one specific producer.

Many of the costs that might have been incurred by the “operator” as administrative overhead and were to be covered by the various provisions of calculating overhead allowances for the operator will be eliminated in the future as a result of using the Joint Operating Committee. These costs may be incurred by any one of the producers in the Joint Operating Committee. Either directly by their staff or through a service provider. Either way they should be directly chargeable to the joint account. Costs such as production and revenue accounting, or partnership accounting in general is a cost of doing the business of the JOC. There would also be costs associated due to the administrative areas of the production and exploration activities done on the property.

What we have learned from our review of Professor Richard Langlois is that transaction costs and the markets are the ideal situation in which to source the capabilities the producers need. That would be the case for these administrative roles as well. By hiring individuals in a dedicated fashion would incur the costs during the time that production might be shut-in. By hiring service providers the costs associated with these administrative duties would be reduced to zero when the production was shut-in. Attaining the “decentralized production” model in terms of the operating and administrative costs of the property.

Tomorrow we will discuss how the configuration of these accounting service providers organize themselves to provide their services on the “decentralized production” basis.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCX (PA Part XX)

We begin now with our fourth or capabilities pass through the Partnership Accounting module of the Preliminary Specification. In doing so I have reviewed the text of the previous posts of the module. There was one area that I thought that we needed to go back and clarify. It was in the area of budgets for the work that might be done in various projects through the Work Order system or in AFE’s. I thought that we should add another data element to the budgeted information, an “Unallocated Budget $” which reflects the amount of the budget that has not been spoken for.

We discussed in previous posts how a number of producers would collaborate on a project to conduct some research. The Work Order system of the People, Ideas & Objects Partnership Accounting module enabled the producers, who may not have been affiliated in any form or fashion until this working group was formed, to be able to form and contribute to the project. The capturing of the meeting of the minds was the objective of the Work Order system, in that it would capture the manner of each producers contribution and method of payments at the time the project was being formed. This enabled them to be free of the bureaucratic difficulties that come along with participating in these types of working groups. The accountants have a capacity to make participation in these more difficult then they are worth, and therefore, the working groups are avoided. The reason that we have to cut through the bureaucracy and encourage the use of working groups is that participation in these types of activities are critical to an innovative oil and gas industry.

The way that the interface for the Work Order will work is there will be two elements to the accounting interface. One will be the accounting for the costs. This will list the costs of the working group and your working interest share based on your participation rate. Fairly simple so far. The second element is where the problems come about. The participation can be funded from a variety of different sources and contributions. Some will have a key piece of research that is the foundation of the project. Some will contribute time and some will be able to contribute cash. The combinations and permutations are really unlimited. The one constant in these contributions is that they all have budgets. The second element will identify the source of funds or contribution that is to make up your participation in this working group. It will need to be determined if that means cash will be transferred from your firm to others by simply clicking on a box in the interface. Once all of the producers have completed thier interfaces the balancing of the Work Order will be attempted with any variances worked out to determine who will make up any short falls. Once all the short falls are resolved the work can begin.

The issue of the budget is the point of this post and remains somewhat outstanding. How does the user know that the account that they want to draw from still has budget dollars available? We need to have some numbers available to the user that tells them the amount that is in the account, the budget for the account, and the amount that has been committed to other working groups but has not been expended yet. Enabling the user to not overextend that account and find that they can not use it when the time comes to pay the bills. And once they have made a claim on those resources, by selecting that account for use in a Work Order, that their Work Order will have a priority claim on those budgeted resources. Therefore when the user in a Work Order or AFE in a manner such as described here, sources a budgeted amount for use in a working group, that budgeted amount, upon approval of the Work Order, is allocated to that working group.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCIX (RM Part XXXVI)

We take a step back for a moment to pick up a point or two in the Resource Marketplace module of the Preliminary Specification. It has to do with the “Marketplace Interface” within that module. At the time I was resisting the discussion of the user vision and therefore was not able to discuss any part of the “Marketplace Interface” within the Resource Marketplace module. That’s the first point, the second point is to highlight the fact that within the Resource, Petroleum Lease and Financial Marketplace modules there is only one “Marketplace Interface”. That is to say that while in the virtual world you would be able to engage with companies for Resource, Petroleum Lease and Financial Marketplace purposes. There would be no reason to have three separate environments.

By way of a scenario, you hear from a partner that a vendor is conducting a presentation of a new technology in the “Marketplace Interface”. You log in to see what the technology looks like and find their presentation overwhelmed with interest. Nonetheless you are able to view and hear everything clearly and see the value of the technology. While there you run into a number of partners that are interested in testing the technology at one of their facilities that you also have an interest in. They present you with an AFE for the costs associated with running the tool and ask that you approve it as quick as you can.

You have a minor interest in the property and the partners are at the threshold of having the 75% approval necessary to proceed with the project without your approval. Nonetheless you would like to be a constructive contributor to the project and are proceeding with the expectation that you will gain approval. The costs associated with the work over are small, yet the down time affects the production and revenue projections. Those are the bigger issues, as reliability and predictability have been an issue at this property. Something that this tool is designed to mitigate.

Funds are sourced from the firms Research & Development area as the firm feels the tool will show some promise in other properties. The AFE’s are signed and you are seconded to the Joint Operating Committee to work as an engineer on this project. What is not realized through this scenario is that you completed all of this work through the “Marketplace Interface” through your iPad during breakfast at home. The ERP system was able to establish the AFE through the partners, the communications internally to approve the AFE, source the budget, assign the roles and responsibilities to the project and to participate in the vendors presentation were all done at the breakfast table. In this scenario the paper work was almost faster then the ideas!

Tomorrow we will start our fourth or capabilities pass through the Partnership Accounting 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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCVIII (FM Part XXV)

In this our fourth pass through the Preliminary Specification we are discussing capabilities. Here in the Financial Marketplace module the capabilities of the financial marketplace are provided to the producer and Joint Operating Committee through interfaces such as the “Marketplace Interface” and the “Gap-Filling Interface”. It is through dynamic markets that the innovative oil and gas producer will find that their financial needs are met. And that is the point of this fourth pass, it is that the innovative oil and gas producers capabilities will be sourced from dynamic markets.

This will be the last post of our fourth pass through the Financial Marketplace module. Tomorrow we will be taking a step backwards to pick up some items that were missed in the Resource Marketplace module, and then we will resume our normal progression to the Partnership Accounting module.

I have been critical of the management of the oil and gas producers. They have resisted the changes proposed in the Draft and Preliminary Specifications and have governed as if all is well. It needs to be asked if the oil and gas industry is the same industry when it receives $100.00 for its products when only a few years ago it received $25.00? I’m not of the opinion that it is the same. There has been a fundamental change from a low cost easy energy era, to an innovation focused dynamic producer. The type of producer that operates in these two domains is fundamentally different. The Preliminary Specification is designed for the innovative producer. To make the transition from the easy energy era to the innovation focused dynamic producer will require that we build the Preliminary Specification first. The Financial Marketplace module is a critical aspect of the Preliminary Specification. By aligning the financial framework of the industry with the legal, operational decision making, cultural, communication, innovation and strategic frameworks we will achieve the speed, accountability and innovativeness we desire. In his book “The Dynamics of Industrial Capitalism”, Professor Langlois notes.

As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the doors of the large concerns – which, as in the case of agricultural machinery, also account for much of the progress in the competitive sector – and a shocking suspicion dawns upon us that big business may have had more to do with creating [the modern] standard of life than with keeping it down. (Schumpeter 1950 [1976, p. 82].) p. 2

My two criticisms of the management are that the velocity at which the management operates at is too slow, and the innovativeness is non-existent. In the financial marketplace the pace of activity will need to accelerate in order to address both of these issues. I think we have addressed these with the changes we have documented here in the Preliminary Specification.

Schumpeter’s account of progressive rationalization takes the form of a contrast between two modes of economic organization, modes roughly cognate to the difference between the small owner-managed firm and the large multi-unit enterprise. Characteristically, however, the issue in Schumpeter is a dynamic one: he is concerned with the respective merits of these two modes of organization not in the static allocation of existing resources but in generation of economic change and growth. The paradox of Schumpeter is that he famously defended, and has come to be associated with, both of these modes as drivers of economic growth. Schumpeter has returned to prominence today as champion of the role of bold entrepreneurs in creating new combinations and redirecting the means of production into new channels, to such an extent that he is revered as an inspiration to the present-day field of entrepreneurship studies (Shane and Venkataraman, 2000). In this (Schumpeterian) literature, the force behind economic growth comes from individuals or small groups of individuals who work mostly outside the established structure of organization rather than from within it. pp. 17 - 18

Big, small, lean or bloated with management I don’t care what configuration the producer firm is in. The future requires that we are able to provide for the markets demands for energy. If the financial crisis is waning then the economies of the world will begin to grow again. The increase in demand for energy is not something that we can currently contemplate. We need to get our head around this problem and start to deal with a solution. Muddling through just seems to be too much of a risk.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCVII (FM Part XXIV)

By way of a scenario I want to impart an understanding of how I see the Financial Marketplace modules “Marketplace Interface” providing the innovative oil and gas producer, and Joint Operating Committee with banking and investment dealing products and services.

You are the Chairman of the Joint Operating Committee for an area where you have a mutual interest with five other companies to conduct exploration in some shale gas. After many years of acquiring land and drilling to identify the scope of the reserves your companies have announced a major discovery of significant reserves. A vote was passed by 80% of the participating companies to undertake bank financing by a general assignment of those reserves to fund the gathering, compression and tie-in to a company owned gas plant. It was approved that these funds can be sourced from any bank that is willing to competitively bid for the business.

A specification and a detailed cost proposal has been developed to support the application for funds. Two individuals from the other companies who have participated in the Joint Operating Committee will be joining you in making the proposal to the banks. You have arranged to make the proposal to 16 banks located in New York, London and Hong Kong next Tuesday through the “Marketplace Interface” of the Financial Marketplace module. Three of the banks have relationships with two of the producers that are represented in the proposal.

It quickly becomes evident that there are technical questions regarding the nature of shale gas and the financial situation of company B. You are able to call upon the geologist for the project and the CFO of company B within the “Marketplace Interface” to answer these questions. This however causes you to overrun your time limit and you send the other two participants to the next meeting without you for now. Eventually bank A is satisfied and you return to the second meeting to find that the same questions have arisen. You quickly contact the CFO and geologist and ask them to edit video excerpts from the previous meetings answers, and include them with the proposal to satisfy bank B, and move on in time to bank C and so on.

Two days later you have received offers from 4 of the banks that you visited virtually. However, one of the banks offer stands out to the other three banks, and is accepted by those 80% of the participants in the Joint Operating Committee. The CFO’s, Lawyers, accountants and bankers of all of the participating companies of the Joint Operating Committee are informed of a closing two weeks from today. The closing will be held within the “Marketplace Interface” of the Financial Marketplace module. You have also scheduled the virtual signing of the AFE’s for the project to commence once the closing is complete.

What this scenario shows is the alignment of the financial framework is consistent with the legal and operational decision making frameworks. The decision to leverage the property with debt is the appropriate one from a business point of view. What the scenario also shows is the time required to make this bank debt happen. Even though there are more people involved in the decision making process, because of the number of companies in the Joint Operating Committee, the time needed to deal with everything is compressed and the exposure to the best deal was obtained with minimal administrative time incurred.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCVI (FM Part XXIII)

As we continue to document the capabilities of the various financial communities. And how these capabilities will be sourced from the marketplace by the producer firm and Joint Operating Committees. We see that technology is a large part of the organization. Particularly in People, Ideas & Objects Financial Marketplace module where the “Marketplace Interface” brings everything together. We continue today with our review of Professor Richard Langlois’ “Institution, Inertia and Changing Industrial Leadership.” And discuss whom it is that will find the “Marketplace Interface” the most valuable in their pursuit of oil and gas innovation.

If we look at the scope of the changes that are made as a result of Preliminary Specification they are substantial. The movement to the Joint Operating Committee has a remarkably significant impact on every aspect of an oil and gas concern. Added to that is the use of advanced technology and the innovative oil and gas producers operations are more in alignment with what an innovative oil and gas producers operations should be then ever before. Yet there is no support from the oil and gas companies. They remain trapped in concrete with their SAP installations. Living a bureaucratic life that is so far removed from the oil and gas business it is mind numbing. Adopting any change to People, Ideas & Objects is counter to the inertia that is built within the organization and something that will only happen through the forces of creative destruction.

And institutional change, we argue, can often take place through the more or less slow dying out of obsolete institutions in a population and their replacement by better-adapted institutions - rather than by the conscious adaptation of existing institutions in the face of change. p. 6

Therefore the people that will be attendant in the “Marketplace Interface” of the Financial Marketplace will be those that are able to accept the dynamics of industrial change and begin the process of renewal. Those looking for ways that are efficient and innovative in which to operate their oil and gas land and asset base, and deploy their earth science and engineering capabilities.

Another aspect of capabilities that has recently received a great deal of attention is organizational culture. In practice, not all organizations may be equally able to cope with change, as existing patterns of behavior involving both executives and subordinates may be resistant to change. Organizations develop collective habits or ways of thinking that can be altered only gradually. To the extent that a given culture is either flexible or consistent with a proposed change in product or process technology, the transition to the new regime will be relatively easy. If, however, the culture is incompatible with the needs posed by the change and is inflexible, the viability of the change will be threatened (Robertson, 1990; Langlois 1991; Camerer and Vepsalainen, 1988). p. 9

Can anyone portray a vision of how the existing bureaucracy will survive and prosper in the coming decade? Have these bureaucracies taken any steps to deal with these issues? What is the future of the oil and gas industry? Many questions that can be answered by selecting and supporting the People, Ideas & Objects software development capability and Preliminary Specification.

Teece... fails to note that the inflexibility, or inertia, induced by routines and the capabilities that they generate can raise to prohibitive levels the cost of adopting a new technology or entering new fields. Such inertia can develop to the extent that existing rules are both hard to discard and inconsistent with types of change that might otherwise be profitable. p. 10

I may yet be surprised that one or two of these behemoths might be able to break these chains of their own mindset. However, I’m not holding my breath.

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 (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.