The Issues With Natural Gas Storage Part I

How much of today’s natural gas price decline is attributable to the record storage volumes. In the past, to aid in deliverability of natural gas during peak demand, producers invested in storage to aid in the delivery of natural gas. This was to offset the risk of not being able to meet the demand for natural gas on those cold winter days. With so much electricity being generated by natural gas, shortages would lead to critical electrical energy shortages. In the beginning, and with the cyclical nature of natural gas, producers found that natural gas storage was a good business to be in. Buy the product in the summer at low prices and sell it during peak demand in the winter at higher prices. Soon thereafter there was a boom in building natural gas storage facilities. And with all booms the inevitable fallout in terms of the potential earnings. The producers, who were the initial investors eventually sold their interests in the natural gas storage facilities to what become a new sub-industry of providers, the natural gas storage providers. Today we live with the legacy of these transactions. And I think the natural gas storage issues are the real source of the natural gas pricing issues. The first step to correct this is for the producers to be able to shut-in their marginal production, and the second is for the producer's to take indirect control over the natural gas storage marketplace.

In order for the innovative oil and gas producer to take the first step as described above. They would need to subscribe to People, Ideas & Objects and build the Preliminary Specification. It is within the Preliminary Specification that we enable all producers to use what is called the “decentralized production” model and discard the “high throughput production” model that is currently used. The decentralized production model is defined by Professor Richard Langlois in his book The Dynamics of Industrial Capitalism as.

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

What the Preliminary Specification does is move the production and overhead costs from the producer firm to the Joint Operating Committees. This then provides the opportunity to reorganize these tasks and processes, and focus them on their specialization and division of labor across the industry. So that production accounting, royalty accounting, and lease rentals etc can be focused on the most efficient and effective process and be billed directly to the Joint Operating Committee for the fees for these services. Where production accounting is focused on the specific region for the gas plant. Or royalty accounting is specialized on the unique characteristics of one royalty jurisdiction. Or the lease rental process is the most efficient and effective due to its scale and scope across the industry. How this then affects the decentralized production model is that during times of shut-in production, due to low natural gas prices, because these charges are billed directly to the Joint Operating Committee, the costs of production and royalty accounting are not incurred or billed to the joint account. Achieving the decentralized production models objective of making most costs variable and only the costs of capital uncovered during times when production was marginal and shut-in.

If all of the innovative oil and gas producers were able to take the marginal production off of the marketplace by following the decentralized production model in the Preliminary Specification. Then they would have completed the first step in obtaining control of the natural gas prices. But this will not be enough until they deal with the inventory in storage and that will be the topic of tomorrow's post. This first step is critical in the prolific era of shale technologies. With the ability to flood the marketplace with oil or gas with high deliverability fields. The need to invoke production discipline across the industry is a must. The marginal cost must become the floor at which any and all fields can be sold at. Selling below the marginal cost must become culturally unacceptable in the innovative oil and gas industry.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Alberta's Premier Alison Redford

Last night residents of Alberta were provided with an update from Premier Alison Redford on the upcoming April 1, 2013 provincial budget. Apparently an oil pricing situation in the province has become an issue to the government in terms of their ability to balance the books. And they announced that they may now be projecting a deficit of $3 billion Canadian for 2014. (The Alberta Government owns the majority of the mineral rights in the province on behalf of the Alberta residents.) This is news for a province that has traditionally been conservative in their spending and have run surpluses and have a variety of savings accounts that total at least $20 billion.

The issue apparently comes about as a result of the differential that the producers are receiving on their oil prices. West Texas Intermediate (WTI) is down to the low $90 range from what the Alberta Government projected of the low $100 range. Which is not material, however, since September 2012 the differential on Alberta production has grown to upwards of $40 so that producers are only receiving $50 for their oil production. This is as a result of the markets in the U.S. being satisfied with other imports and internal production and an inability to get the Canadian production out of the province.

We are all familiar with the Keystone XL pipeline issues and the delays in the approval by the Obama administration. Having this pipeline to the states would alleviate the problem and ensure that the producers received the WTI prices less the tariff for the Keystone XL pipeline. But I am not so certain that President Obama will approve the pipeline now that he has been re-elected. It was delayed on the belief that if he was re-elected that he would then approve it because he would not have to deal with his left wing base. I think he didn’t approve because he fundamentally doesn’t agree with the oil sands and will ensure that that oil doesn’t make it to the Gulf coast.

Irrespective of the situation in the states, the Canadian producers should never have put themselves in this situation. They learned in the mid-1990’s that take-away capacity in the natural gas business was what was required to increase the pricing for natural gas. When they built the Alliance pipeline this provided much relief to a congested production market. That same congestion is happening again in the oil markets on a much larger scale. They should have begun dealing with this situation earlier by attempting to get the Keystone XL built earlier, and, building pipelines to the west coast for markets in the far east. Hindsight is 20/20 however they have been advertising they have the second highest reserves of oil in the world. Is that their sole responsibility is the production end of the business?

We see with the recent termination of Mr. Randy Eresman, CEO of Encana Resources that he a) didn’t have the fight in him, and b) felt that the capital markets demand too much in the short term. This short term thinking is very prevalent that is for certain. Nothing focuses the mind like the quarterly demands for performance. But that does not preclude you from making sure that the long term perspective of the firm is taken care of as well. No one is excusing you from leaving the long term perspective alone. It must be taken care of as well. And that is something that the Canadian producers, as a whole, have let slide for so long it has become culturally ingrained throughout their part of the industry that no one concerns themselves with the long term. So projects like People, Ideas & Objects Preliminary Specification will, as it stands today, probably not have a Canadian component to it.

If the province is experiencing such a large hole in their financing I can only imagine what the Canadian producers are experiencing. The Premier said if the differentials continued it might cost the province $6 billion. Losing half of the revenue on any oil production for the oil and gas producers would most certainly put them into a loss situation. And the total loss in revenue could be in the tens of billions. More than enough to finance the development of People, Ideas & Objects Preliminary Specification from just the interest on those losses.

The Supplier Collaborative Interface.

We move from the Actionable Information Interface to the Supplier Collaborative Interface within the Resource Marketplace module of the Preliminary Specification. What the Supplier Collaborative Interface provides is a means for the innovative producer to deal with the uncertainty that is inherent in innovative procedures and dealings with the service industry. A collaborative wiki where the industry wide contributions of what and how the service providers new product or service has seen through its early beginnings to its early implementations. So why are we developing the Supplier Collaborative Interface? I think that most people understand that doing the same thing over and over is easy. Making the organization alter its routine is difficult and when a change is introduced is when the trouble begins. If we could just leave things the same then we would be better able to produce the oil and gas that we need. Unfortunately those days are gone and the routine in oil and gas is anything but. Professor Dosi notes the following point about this difficult situation.

Organizational routines and higher level procedures to alter them in response to environmental changes and / or to failures in performance embody a continuous tension between efforts to improve the capabilities of doing existing things, monitor existing contracts, allocate given resources, on the one hand, and the development of capabilities for doing new things or old things in new ways. This tension is complicated by the intrinsically uncertain nature of innovative activities, notwithstanding their increasing institutionalization within business firms. p. 1133

Tension and the uncertain nature of innovative activities says it well. The ability for the producer to mitigate these through the Supplier Collaborative Interface is the reason for this critical interface of the Resource Marketplace module. Using the Supplier Collaborative Interface will enable the Joint Operating Committee (JOC) to maintain a focus on the scientific and business uncertainties of the innovations they are implementing. In many cases the people within the JOC will be implementing the technology or innovation for the first time. The supplier and vendor may be still troubleshooting aspects of the technology. The need to be able to collaborate at a high level during this process will be essential through this period of both business and technical risk and uncertainty. Professor Giovanni Dosi notes;

However, even in the case of “normal” technical search (as opposed to the “extraordinary” exploration associated with the quest for new paradigms) strong uncertainty is present. Even when the fundamental knowledge base and the expected directions of advance are fairly well known, it is still often the case that one must first engage in exploratory research, development, and design before knowing what the outcome will be (what the properties of a new chemical compound will be, what an effective design will look like, etc.) and what some manageable results will cost, or, indeed, whether very useful results will emerge. p. 1135

So with respect to all of the interfaces that are in the Research & Capabilities, Knowledge & Learning and Resource Marketplace modules regarding the development of new technologies and capabilities. The actual implementation of the technologies from a business and technical point of view is done predominantly by the JOC in the field at the time it is first used. Having this Supplier Collaborative Interface available to deal with the risks and uncertainty in an innovative JOC is a must have requirement for an ERP systems provider to include in their systems.

I suggest that, in general, innovative search is characterized by strong uncertainty. This applies, in primis to those phases of technical change that could be called pre-paradigmatic: During these highly exploratory periods one faces a double uncertainty regarding both the practical outcomes of the innovative search and also the scientific and technological principles and the problem-solving procedures on which technological advances could be based. When a technological paradigm is established, it brings with it a reduction of uncertainty, in the sense that it focuses the directions of search and forms the grounds for formatting technological and market expectations more surely. (In this respect, technological trajectories are not only the ex post description of the patterns of technical change, but also, as mentioned, the basis of heuristics asking “where do we go from here?”) p. 1134

Separation of the business from the science and the operations was maybe something that could happen in the past. Today and in the future, with the high costs of innovation, the ability to troubleshoot the innovation from a science and business perspective seem to be more of the same thing. I certainly can’t foresee how we can continue to parse the two perspectives from the operation and send the respective “departments” their section of the operation. There has to be a better way and that begins with the Supplier Collaborative Interface. Where the users within the JOC are able to deal with the risks and uncertainties at the time they can be resolved, both from a business and science perspective.

It is in the Resource Marketplace, Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification that we have mapped complex innovation processes of the innovative oil and gas producer. These processes reflect the dynamic nature of both the producer and the service industry during this highly complex era of oil and gas exploration and development. In our discussion of the "Supplier Collaborative Interface," the interactions that will need to occur to complete the last parts of the innovative processes. But there is more for the Supplier Collaborative Interface as it works with the other interfaces in the other modules that have been mentioned.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Talisman Energy Announce Layoffs

Straight from the 1980’s Talisman Energy’s President and Chief Executive Officer Hal Kvisle has promised to cut General and Administrative costs by 20% or $260 million. I guess that means about 20% of their staff will be shown the door. I can’t think of a more wrong headed direction to take the firm. It’s obvious that Talisman is going to report a bad quarter, which is going to lead to a very bad year. But that has nothing to do with the size and cost of the G&A that it is carrying. It has to do with a fundamentally outdated business model. One in which it continues to sell gas at well below cost.

Talisman has a choice. It could adopt the business model inherent in the Preliminary Specification and begin the developments to make themselves innovative and profitable.

The Actionable Information Interface.

We have been discussing the interactions between the service and oil & gas industries. And how these interactions need to improve to lay the groundwork for a dynamic and innovative oil and gas industry. As we mentioned yesterday a critical element of these interactions are the Intellectual Property that make up the service industries products and services. What is therefore necessary to initiate the development of those products and services is detailed in the research of Professor Giovanni Dosi.

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.

In addition to the funds necessary to finance innovation there are what Professor Giovanni Dosi calls “technical trade-offs.” These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas and the service industries, People, Ideas & Objects would assert that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

Within the Resource Marketplace module there is the Actionable Information Interface. It is simply a database that is maintained by each company, both producers and service industry representatives, that detail their “actionable information”. If a drilling company were interested in purchasing a new rig then they would list this information in the Actionable Information Interface with the expectation that they could develop interest from producers in that region who would be appreciative of the additional capacity. The drilling contractor could then solicit contracts that would aid in securing financing for the new rig and all of this could be communicated through the Actionable Information Interface. What is different is that this is a central repository for all of this information. One could arguably search for this information today, however, since its centralized within one interface, certain information can be imputed from it. For example what would a service industry entrepreneur determine from the review of 200 producers actionable information? This is the beginning of innovation. And with knowledge and collaboration being part of the technical tradeoffs, the source of triggers to new paradigms in the oil and gas and service industries.

The expression of what is needed by the producers will help the service industry prepare the solutions the oil and gas industry needs. However the role of the producers in this process does not end with just the actionable information. They must actively engage with the service industry by endorsing promising ideas, help to commercialize products and services and as we discussed yesterday, respect the Intellectual Property that is being developed. Sitting back and waiting for the service industry to provide the producers with what they need, without the involvement of the producers, will only bring more of what they have now, dissatisfaction. Information about the Actionable Information Interface is contained in the Resource Marketplace module of the Preliminary Specification. There are also interfaces in the Research & Capabilities module that provide similar elements of how the producer develops their capabilities.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Change in the Resource Marketplace.

Change is one of the common elements in the Preliminary Specification. Change on a grand scale. The Resource Marketplace module is one area where we see a fundamental change in the manner in which the producers and service industry participants interact and depend upon each other. In yesterday’s post we noted the producers and service industry were not innovating and no new entrants were moving into the service industry. One of the reasons for this is that the Intellectual Property rights to the service industry innovations are not well respected by the oil and gas producers.

The big problems in oil and gas are not going to be solved until the incentive structures are aligned towards those that solved the problems. Who is going to spend the time, effort, energy and resources to solve the next big problem and secure it with today’s Intellectual Property laws if the oil and gas industry will just ignore the fact that someone took that time, energy and resources to do so. Today, in the service sector, the oil and gas industry exploits the lack of identifiable Intellectual Property (IP) by more or less ignoring it and passing it around to other firms in the service sector and its competitors. This lack of respect to those that developed the ideas has brought about a situation where the service providers have ceased to innovate or sponsor any new start-up firms as competition. The result of this is that producers are the ones that are losing, as they are unable to have their needs met by a diminishing overall capacity in terms of the service industry.

What is necessary is for the innovative oil and gas producer to focus on their key competitive advantages. Those being their land and asset base, and their earth science and engineering capabilities. The capabilities in terms of field products and services are best left to the service industry to build their competitive advantages upon. And if they have developed some new and innovative product or service it should be respected and dealt with as in the manner that the laws provide their owners. Then people within the service industry will see that if they spend the time, effort, energy and resources on their next idea; that they will be rewarded by the oil and gas producers when and if their product is successful.

Too many times I have seen the producers act in this fashion against what is their long term self interest. Sacrificing their long term benefits of an innovative and dynamic service industry for the short term gains of exploiting someones ideas. This only discourages people from solving the big problems. At a time when there are the issues that face the oil and gas industry today. Having a strong, innovative, dynamic and competitive service industry is a necessary element of the success of the oil and gas industry. But this will not happen without the oil and gas producers first recognizing the Intellectual Property rights that are the law in North America. Additionally the CEO’s of the producer firms need to stand up and state that they won’t accept this type of activity from their firm in the future. This needs to be a policy that starts from the top and becomes a culture of the oil and gas industry.

Within the Resource Marketplace and Research & Capabilities modules of the Preliminary Specification there are a variety of interfaces that provide for the effective and efficient management of Intellectual Property. From the formulation of ideas to the sponsorship of those ideas, there are ways and means for the service industry to be encouraged, directed and supported by the innovative oil and gas producers who rely on and demand more from a dynamic, competitive, innovative and successful service industry.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Designing Transactions in the Resource Marketplace Module.

We shift our focus to the Resource Marketplace module of the Preliminary Specification. What we want to talk about is the manner in which the service industry, the oil and gas producers and Joint Operating Committees will interact in the future. This has become an area where there are significant issues being raised and I would assert that it is an area of the current producers Unsustainable Business Model. We will be discussing these points in the next few blog posts, and to start off I want to raise the point of how the Preliminary Specification deals with the issue, by what we are calling “designing transactions”.

First of all lets look closely at the issue at hand. The producers are unhappy with the costs of operations in the field. To deal with the problem it would be in the producers best interest to sponsor some innovations that the service industry should develop, or alternatively, sponsor additional competitors to join the service industry. In both instances the producers choose not to provide any support to any innovative ideas or any new market entrants. Turning thumbs down to anyone and anything other than proven technologies and suppliers of size and scope. This has led them to be able to deal with the same handful of vendors who have willingly taken the criticism of the producers, along with their money. We witnessed this display of the producers accusing the vendors in BP’s Gulf of Mexico spill a few years back.

What we also need to realize is that the service industry marketplace will need to change in order to accommodate the needs of the innovative oil and gas producer. As was also determined in the Gulf of Mexico spill was that BP was ultimately responsible. There is little that a downstream supplier can do to a program that has been poorly engineered from the beginning. The ultimate responsibility in field operations is with the producer, and their means of control is through better engineering. Secondly, the service industry marketplace will be subject to the same specialization and division of labor that is working in other areas of the industry. There is too much work to be done without re-thinking how it is to be carried out. Therefore between the engineering and the service industry there will exist a higher level of transaction oriented activity that falls within the scope of the traditional administrative areas of the oil and gas producer and Joint Operating Committees. This work has been labelled “designing transactions” in the Preliminary Specification.

If we leave it to chance that vendor “a” will provide vendor “b” the details of part c and deliver it in phase 2 and have the transactions and billing associated with these types of relationships all established as expected, then we will be surprised. As the operations become more complex, the transactions will become far more complex. The ability to engineer the transactions before hand is the way in which the costs of processing these types of transactions will be mitigated. The producer can pay service providers to manage these types of transaction handling capabilities. Or, they can have them included as part of their ERP system.

Planning the effective and efficient deployment of transactions and billing processes doesn’t sound like a big labor saving device. Until one realizes the costs associated in dealing with the exceptions within the accounting world are where the real administrative costs lie. There are also significant transaction processing costs in the other departments associated with where the transactions originated and in executive time. And that is just from the point of view of the producer. Saving costs on behalf of the service industry representative will also ultimately be saved by the producer. The ability to plan and design the transactions with a few principles of cost savings and efficiency involved goes a long way to mitigate the costs, clear up the ambiguity and save the costs and frustration involved in fixing problems that are really just poor communication problems. Using the Designing Transactions feature of the Resource Marketplace and Accounting Voucher modules will go a long way in controlling these transaction processing costs.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Costs and Strategies Can Be Different.

When we look at the costs and strategies of the participants in a Joint Operating Committee we see these two things that are rarely the same. Each of the producers are pursuing their own strategic and tactical interests in the region and they may not necessarily be consistent with any of the other participants in the Joint Operating Committee. This will lead to different costs of capital and operating, and this fact is recognized and is consistent with the capabilities of the People, Ideas & Objects Preliminary Specification.

One or two of the producers in the Joint Operating Committee may have it as a key region and therefore have invested in infrastructure to support the production in the area. Other producers may be new to the property having recently purchased the property with no other interests in the region. Or, may have been with the property since the beginning but limited their investment to the producing assets. There are a variety of operational possibilities in terms of what could make up a producers interest in the region. These will have an effect on the costs of the property in terms of whether they pay for gas processing, or, are able to use their capacity in a gas plant. Naturally this reflects on the amount and types of capital investments they have made in the region. This also applies to their motivation of expanding their reserves or increasing their throughput. Therefore it is difficult to determine the costs and strategic makeup and motivation of the partners that are resident in the Joint Operating Committee that you are a participant in.

This lack of strategic transparency is something that exists in oil and gas. However, everyone’s motivation should be consistent. And that is to expand the return on investment in the properties that they hold in the region. That way consensus can still be attained with the various different strategies in play. The open collaborative ways of the Preliminary Specification. Particularly within the Knowledge & Learning module provide the opportunity for innovative producers to collaborate on the possibilities that are open to them. This can be done without exposing the strategic direction the producer firm is taking to the other members of the Joint Operating Committee. Assumptions can be made, and they may be correct, however, they may also be wrong. The companies strategic direction can not be interpreted through a more open and collaborative footing within the Joint Operating Committee.

One thing that is unique about the Preliminary Specification is the Strategy Interface within the Petroleum Lease Marketplace module. It contains the strategy that is held for the participants interest in the Joint Operating Committee. This may not seem to be too innovative of a feature within an ERP system, however, until you realize that each Joint Operating Committee within the producer firm has its own unique strategy. That’s correct the existence of one size fits all corporate strategies ceased to be effective some time in the past century. The innovative oil and gas producer must maintain multiple strategies for their properties at all times. Each property must be able to employ their own unique strategy in order to optimize the assets or reserves of that property. Generic corporate strategies are inappropriate for the 21st century and you must have an ERP system that can accommodate these needs. People, Ideas & Objects Preliminary Specification provides the ability to maintain unique strategies for each and every Joint Operating Committee through the Strategy Interface in the Petroleum Lease Marketplace module.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

How the Intellectual Property Works.

In my previous post I noted how the Intellectual Property that is derived from the Preliminary Specification will form the basis of the competitive advantages of an industry that will form to fill a gap between the oil and gas producers and the technology providers. Today we want to discuss how that Intellectual Property (IP) is managed and is made available to the users and producers. First of all I am the beneficial owner of the IP that is the Preliminary Specification and I have and will only license one firm to develop systems for the oil and gas producers. That firm is People, Ideas & Objects. This will enable the producers to focus their energies and resources on one solution and not be diverted or diluted by pursuing multiple “me-to” type of solutions.

Producers pay for the use of the software and access to the IP through the Revenue Model. These revenues will support the user community, software development, hardware infrastructure, and delivery of the software services to the producers. Other costs associated with training, accounting integration, etc., will be additional costs that are incurred with members of this new industry. Users are not charged for the use of the software. They are provided access to the software through their employer / client, the producer firms.

People, Ideas & Objects are user based developments. Having systems built without the collective knowledge and understanding of how and what the industry operates is of little value. Individuals know how to do their jobs, however, there are hundreds of unique positions within oil and gas. The only way to capture that knowledge is through user based involvements. Users are therefore a critical aspect of development and a major aspect of the IP that is brought to the table. However, it is derivative of the Preliminary Specification. Therefore users involved in development will be granted a license where they are provided unencumbered access to the IP that is the Preliminary Specification in exchange for the IP rights to any and all of their contributions to the development.

This will ensure that the IP that makes this new industry is available to everyone in an unencumbered manner. That access to all of the IP by the user base remains freely available to all of the users. And producers are assessed a reasonable fee for the use of the IP. It also assures that the IP does not become fragmented and subject to various trolls who come up with portions of IP that they can charge producers for on a scattered basis.

Having the IP managed in this fashion provides this new industry with a unique competitive advantage. It provides us with the ability to raise the revenues to pay the users for their ideas and contributions to the software development. All users are paid for their work here. Producers are protected by dealing with one and only one software development team that is focused on providing them with the solutions they need. The industry can not afford to engineer multiple solutions of the scope and scale of the Preliminary Specification. The industry can not afford to deal with IP trolls that are more of a nuisance and provide no value.

Lastly having the IP resident in the oil and gas industry provides no value for the users or producers. Without the management of the IP in this manner there is nothing People, Ideas & Objects can leverage, we need to generate revenues based on the IP.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

An Industry Based on Intellectual Property.

One of the things that we learned in our research was how the process of specialization and the division of labor expands over time. How do the changes occur and what signals are given for people to make the changes to expand the division of labor in an efficient way. We learned from Professor Richard Langlois that “gap filling” was the way in which specialization and the division of labor increased. When someone saw that a task was not being done, that would be of value if it was done, and the task was filled by someone then the process was complete. In an ever continuing process of improvement the division of labor and specialization continue to expand.

That is until ERP systems like SAP were developed. Then firms encased their processes in concrete in the interpretation of what SAP considered state-of-the-art. And no changes were ever able to be made again. This is why the industry needs to adopt the People, Ideas & Objects software development capability. To free themselves from the SAP encasement and allow themselves to freely innovate on their processes. And to expand on their specialization and division of labor to ensure that they realize the benefits from these powerful tools. In the Preliminary Research report I termed the phrase “SAP is the bureaucracy”. The management of the industry have used that knowledge to ensure they maintain SAP as their ERP system. In that way their franchise will never be challenged.

When it comes to gaps that need filling I see a large one between the technology industry that traditionally provides the ERP systems and the oil and gas industry. What I think needs to happen is that “gap” needs to be filled by an entire industry. One that is based on providing the technology solutions to the oil and gas producers, based on a fundamental understanding of the oil and gas industry. Not an industry that is based on selling the latest operating system or version of the database, but the Preliminary Specification or accounting integration that meets the needs of the innovative oil and gas producer. One that provides the software training or user support that understands oil and gas as fundamentally as the users themselves.

That would be one of the fundamental aspects of the competitive advantages of the people who work within this new industry. Their understanding of the oil and gas industry. Having worked and educated in the primary industry itself would give them a fundamental hands on understanding of the oil and gas business. Another aspect of their competitive advantage would be their abilities when it came to the technologies that are available today. Clearly some people “get them” and have a propensity to work within the core technologies of Java and Oracle databases that preclude large portions of the population. And there would be more. These people would have a third competitive advantage in that they would be licensed in the Intellectual Property that makes up what the industry is based upon and is derivative of the Preliminary Specification.

The current management of the industry do not accept that the Intellectual Property (IP) that People, Ideas & Objects has developed is needed as a competitive advantage for this new industry. They feel that the IP should remain within the oil and gas industry. I naturally disagree. The competitive advantages of the innovative oil and gas producer are its land and asset base, and its earth science and engineering capabilities. The IP that supports its internal processes doesn’t fall within the domain of their competitive advantages. I would also argue that the benefits of having the Preliminary Specification based IP managed in the manner that is proposed enables the industry to benefit in ways that are significant in terms of cost and quality. These will be the topics of tomorrows discussion.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.