Economic Improvements

Since 2008 the financial markets have been providing no end to the difficulties in our economy. In a capital intensive industry such as oil and gas the global financial meltdown has had significant implications. Producers continue to experience difficulties in terms of raising capital from both the debt and equity markets. These financial recessions are usually long term cycles and can last five to ten years. Well its been five years now and we have no sign that there is any substantial pickup in the global economy. There are two things that I am seeing in the economy that will create difficulties for those that are unprepared in the coming few years.

The first is that markets appear to be beginning to roll over. That is interest rates are no longer dictated by central banks, but by the markets themselves, and they want a return. Or in other words interest rates are rising. If the oil and gas producer found it difficult to find capital in the past five years, it may be more difficult if they have to compete with market rates. This will also have adversarial effects if the producer is heavily indebted as the ability to service the debt will become more costly.

It has been an exceptionally long period of time that the Federal Reserve's Zero Interest Rate Policy has been in place. Wise individuals and companies should have taken the past five years to reduce their debt burden and build their balance sheets. This should have included the sale of assets and trimming of the organization to be able to handle the inevitable rise in interest rates. I say inevitable because it is inevitable. The Federal Reserve can only do so much for so long. And the market, which is so much larger and more powerful than the Federal Reserve, will eventually decide that they have had enough of zero interest rates.

We should look to this as the first step in a healing market. The fact that interest rates are rising is a sign that the animal spirits are starting to show themselves again. The fact that grandma and grandpa want more on their T-bills means their feeling secure again and want to stop eating dog food. For the unprepared producer, of which I see a fair number of, this will be painful. These animal spirits are the second aspect of the marketplace that I see rising.

There is however a conflict that needs to be worked out in the marketplace in the next year as a result of these two items. The rising interest rates will have a dramatic effect on all asset classes on a global basis. How will this affect the animal spirits, and will they be strong enough to offset the higher interest rates. I think they will as we are entering a new phase in which the economy is beginning to develop real value from new organizational methods.

It is my hypothesis that 2008 was a result of the fact that the bureaucracy as a form of organization has ceased to build value. Like the former Soviet Union and its collapse was a result of a defunct method of organization. The bureaucracy is going through the motions and not responding to the needs of society. This hypothesis can be debated. What is happening now is that the replacement to the bureaucracy is beginning to show itself. It is the Information and Communication Technologies that are able to replace that bureaucratic form of organization. And although they are not in place as of yet. They are seen to be the method to move industries forward and build value. Just like People, Ideas & Objects Preliminary Specification.

So is the Information and Communication Technology revolution really here? And can it lead to the animal spirits that will offset the increase in the market rates? I think we’ll find out fairly soon.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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 Improvement in our Quality of Work Life

With so much discussion of the elimination of the bureaucracy. And the installation of systems that will reduce the overhead burden of the oil and gas producer. Its not surprising that some people are concerned that People, Ideas & Objects Preliminary Specification spells the end for their long term employment and career prospects in the oil and gas industry. It does not take a lot of imagination to see the administrative efficiencies will require less people in the traditional roles that an oil and gas producer employs today. And I would agree with that. But I would also ask are those roles the ones that we really want to hang onto for the long run. Is there not some things that we could be doing better with our time?

There has always been a concern that computers would take away peoples jobs and leave us with nothing to do. And that is the concern that is being expressed today. And just as we don’t post to ledgers, or add up endless columns of numbers, today’s tasks will fade into the distance as well. Taken over by computers as we move to the higher quality work that is necessary for us to increase the productivity of the oil and gas industry with the same resources we have today. For that is the real constraint. We can’t rely on any greater volume of people in order to staff up for any increase in demand or higher level of activity. We must rely on higher levels of productivity from the same resource levels we have today.

So what kinds of work will we be doing when we release the tasks that we do today to the computers of tomorrow. I think the first and most difficult one is innovation. And this requires a structure within our organizations that enables the innovation to occur. And that is what People, Ideas & Objects has built within the Preliminary Specification. The necessary ingredients to enable, support and identify the key elements of innovation within the earth science and engineering disciplines. As these innovations lead to further expansion of the science they will lead to further innovations in a constantly changing and dynamic nature. This will put particular difficulties on all producers and that is where much of the resources need to focus on.

Collaboration within the organization and between the partnership representing the Joint Operating Committee. As the base of the sciences expand the scope and scale will become too broad for one firm to capture all that is necessary. Certainly too broad for them to capture in a commercial environment. The ability to partner with others is a fundamental aspect of the oil and gas business. The future will see a dependence on partners for elements of the earth science and engineering aspects that producers do not have housed within their organizations. This will also open the industry to the ability to organize the earth science and engineering resources on the basis of specialization and the division of labor. Easing the excessive demand for these critical resources.

Thinking carried out throughout the organization. It surprises me at times that the amount of thinking that goes on in the oil and gas industry right now is very limited. Its all about doing. We need to leave a lot of the administrative doing up to the computers and start thinking of better ways to do things. And lets not limit it to just that domain, thinking about the whole scope of the business. A little thought into what and how we are doing what we are doing will go a long way to making the industry more efficient and effective in the long run.

These are the types of things that we will be involved in the future with the Preliminary Specification operational. They are an improvement in our quality of work life. A move away from the redundant and repetitive nature of the work that we are involved with today. Concerns that we are going to lose a large portion of the resources of the oil and gas industry are some of the same concerns that were aired forty years ago when we were one quarter the size we are today. I think we can disregard these concerns and look forward to a far more interesting future as a result of the Preliminary Specification being a part of the oil and gas industry.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

The Revised Competitive Nature of the Oil and Gas Producer

One thing that producers should consider in terms of the developments of the Preliminary Specification. Is the differences between those that will willingly participate in the development of these systems and their deployment. And those that will choose to sit and wait until “more information” is available. With the opportunity costs at $94 billion in 2012 those that choose to wait are setting themselves at a significant competitive disadvantage compared to those that participate.

Lets be honest there will be some effort expended in the development and deployment of the Preliminary Specification. No one said it would be easy. From a producer point of view it will be difficult. It will however be more difficult to take the software to implement within an organization that did not participate in the development of the software. Participation in the developments will enable the producer to have their needs met and capture those needs in the software. It will also make the transition less abrupt and more of a day to day occurrence.

The real value will be when they are operational on the software and they are able to realize their share of those opportunity costs. Then they will have increased their profitability and have opportunities open to them that were unavailable to them before. Opportunities like the acquisition of laggard producers who choose not to participate in the development and deployment of these software developments. In these acquisitions they could acquire the further opportunity costs and other synergies from the takeover of other producers.

What will be established in the industry will be a division between those that are capable with the new Information Technologies provided by People, Ideas & Objects. And those that have chosen, or are unable to deal with the new technologies and business models that are provided. But it will have more competitive impact than just that at the corporate level.

In terms of operations those producers that use the Preliminary Specification will also have advantages. Recall we provide the oil and gas producer with the most profitable means of oil and gas operations. We do this by optimizing their revenues and reducing their costs. Therefore in the field producers using our systems will be able to have greater flexibility in their operations in terms of how they approach their business. For instance, in the acquisition of land they may be more competitive than what others might be able to bid.

The opportunity costs are material in scope and scale. The speed, innovativeness and accountability that is acquired when we move the compliance and governance frameworks to the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee are substantial. Eliminating the bureaucracy and replacing the administrative structure of the organization with the Information Technology management that is available today is the trend that is sweeping all industries across the globe.

There will be those that will choose not to make the changes in their organizations. There is little that we can do for them. However there are many things that can be done for the producers and Joint Operating Committees that know that there is a better way and the Preliminary Specification is that better way.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

The Bureaucracy is Opting Out

Understanding that the probability that our prayers for a cold winter will more likely be answered this year. The bureaucracies plans for the natural gas business can ride through these summer months with the knowledge that this time its different. Their plan therefore will consist of soaking up some sun and enjoying the usual vacation. Don’t forget the usual career planning that includes the family budget and retirement planning. These are the things that occupy the bureaucracy in the natural gas business in these summer months. Don’t get me wrong, I don’t think these things are wrong, its just having a plan for the natural gas business would be something that might add some value.

Its reasonable to assume that in July of 2013 without any reasonable proposal to deal with the natural gas prices, we will continue on with unacceptably low prices for the foreseeable future. This situation will not correct itself with the prolific nature of the shale gas formations. And with more reserves and greater deliverability being brought on stream, the decline in natural gas prices will only become worse from a producer's point of view. Everyone knows what the problem is, they just don’t want to recognize the Preliminary Specification as the solution. That is the bureaucracy doesn’t want to recognize it as the solution.

The bureaucracy doesn’t want to recognize the Preliminary Specification because it kind of leaves them at the curb with their bags packed. There is nothing for them in the People, Ideas & Objects Preliminary Specification and its pretty obvious that their days are numbered. Like so many of the Information & Communication Technologies today, it will get the job done without the fanfare and noise. What has gone on before in terms of Information Technology systems development have been to identify and support the bureaucracy. Is it any wonder that they are not supporting this initiative?

That is why they will never support these developments and why we need to appeal directly to the investors and the owners in the oil and gas industry. It is also why these developments need to be driven by the user community. If the bureaucracy supports the Preliminary Specification then the bureaucracy will have their ways and means implemented within the software. And that is what we don’t want. So in a way they are doing us a big favor by self selecting.

Its as if the bureaucracy will muddle themselves out of existence. Given their lack of desire to address the big problems that they face on a day to day basis, and preference to just muddle along and let the big things just work themselves out. The natural gas prices will motivate the ownership to act to do something about the problem, and the thing that they will do is fund the development of the People, Ideas & Objects Preliminary Specification. Action will become the manner in which the industry addresses its big issues as opposed to inaction and passivity.

When an industry sits and prays for years on end for a cold winter. And does nothing to correct what is evident to all. The era of passivity will have passed. The time for a dynamic and innovative industry is what is necessary. We first however need to build the structure of that industry and define and support it with the systems that will enable that dynamism and innovativeness. That is People, Ideas & Objects Preliminary Specification. And the time is now.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

The Transition Between Business Models

We have been discussing the transition between the current corporate model and the Preliminary Specification. How the differences between these two models do not allow for any compromise and the move to the Preliminary Specification is an all in type of proposition. Where the Preliminary Specification needs to address all of the issues of the industry in a comprehensive nature. Where the service providers are established and their services are able to replace the overhead operations of the oil and gas producers. These are the types of changes that are necessary in order to make the industry more efficient and effective. Oh, and there are those annual opportunity costs which for 2012 were calculated at $94 billion.

And its not that the service providers are being asked to shoulder the bulk of the opportunity costs. The majority of these opportunity costs come in the form of higher natural gas prices as a result of the producers ability to remove the marginal production from the marketplace. Raising natural gas prices to where producers are profitable. The transition to the Preliminary Specification is stark in its contrast between the business models because it has to be. There needs to be a radical remake of the industry for it to begin to deal with the issues that it faces in its future and the issues that is deals with today.

But how much of this transition is going to be foreign to the ways and means of the industry. That is the question we should be asking ourselves and trying to determine the results based on what the structure is as proposed in the Preliminary Specification. The first thing we should consider is the move to the Joint Operating Committee. This is cultural norm of the industry. Everything is based on partnerships and these partnerships all have Joint Operating Committees. They are the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. By moving the compliance and governance frameworks into alignment with the seven frameworks of the Joint Operating Committee we are achieving a speed, innovativeness and accountability in our organizations. This would be consistent with the way the industry partnerships are structured and having the Preliminary Specification aligning, defining and supporting the Joint Operating Committee would be a first in terms of ERP systems.

Innovation is a necessity for the oil and gas industry. That is a fact and it must become systemic throughout the industry. Innovation is also an engineering discipline that can be enabled or disabled by the organizational structures and systems that a producer or Joint Operating Committee uses. The Preliminary Specification is built around the necessary organizational and systems elements to identify and support innovation within the producer firm and Joint Operating Committee. That does not guarantee innovation within the oil and gas producer firm or Joint Operating Committee, it just won’t hinder it. If the resources are within the organization to fuel innovation, then they will have the organization and systems that enable that innovation to occur.

Stripping the producer firm down to the earth science and engineering focused organization that the Preliminary Specification does. And moving the accounting and administration of the producer firm and Joint Operating Committee to service providers that are focused on the process that is industry wide in scope and scale. Enables the producers and Joint Operating Committees to focus on innovation and the science. And leaves the service providers to focus on their specialization and division of labor of their tasks.

These are changes that are necessary for the industry to compete in the 21st century. They can make the choice to build the Preliminary Specification and proactively deal with their future. Or they can continue on in the manner that they are today and be fully disintermediated. Either way I don’t care as I see the Preliminary Specification being the solution for the industry which ever road they choose to take.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Cost Control by the Service Providers

In addition to not taking any shortcuts in terms of the approach to the development of the software for the Preliminary Specification. There are the changes that are needed for the service providers to form and begin delivering their services to the oil and gas producers and Joint Operating Committees. These service providers do not exist today. Entrepreneurs need to establish them and begin the process of building them. These businesses will be a significant opportunity for those that have the ability and capability to form these firms. These firms will need to be in place for the oil and gas producers and Joint Operating Committees to be fully functional with the Preliminary Specification. Again there are no shortcuts from our current structure to the one in which the industry needs to move to.

It is within the service providers that we have discussed the fact that the cost control for the overhead costs of the oil and gas producers is shifting to. They will be undertaking the burden of the costs of overhead that was previously the domain of the oil and gas producers. And with the producers having the opportunity to shut-in production and reduce their costs, the reduction in costs is realized by the service providers. These costs being realized by the service providers appears unfair and unreasonable at first until one realizes that they, the service providers, have full control of the costs and have within their domain the ability to deal with these costs. Understanding that the industry may not be operating at 100% capacity at any month will become the new normal and the means to manage the day to day of the service providers activity levels. They have their budgets and they have other tools in which to shift their costs and deal with the potential declines in any of the producers production volumes.

Consider the effectiveness of a service provider that is dealing with a portion of the Texas Railroad Commissions royalty calculation. Their base of data is the entire state of Texas in terms of the number of producers who are their clients. This is due to the specialized nature of their service. With only 10% of the states natural gas volumes shut-in for marginal pricing concerns, and this being considered the new normal. This does not materially disrupt the service providers revenue stream. If the service provider budgeted for these situations then the situation would be a normal part of their business and they would have considered these in these in their staffing levels and other areas. The service provider having full control of their costs throughout the year.

Contrast this situation with today’s producer and their ability to control their costs. Without the ability to specialize and use the division of labor in such a way as the service providers. The producer has had to build a capability within their organization that has the ability to deal with all of the accounting and administration needs of the producer. A decline of 10% in the production volume does not affect the fact that the producer still requires the full accounting and administrative capabilities that were present at 100% capacity. Therefore the producer firm has no capabilities whatsoever to deal with the costs that are associated with the accounting and administration of their firm.

This is the difference between the two business models. One provides the ability to deal with the costs associated with oil and gas production and operations. The other, the corporate model does not. The current structure is old and tired and needs to be retired. We need to develop the Preliminary Specification and begin the creation of the service providers that will provide these services to the oil and gas producers and the Joint Operating Committees.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

There are no Short Cuts

Let’s assume for a moment that the support from the industry for the Preliminary Specification existed and we were proceeding with its development. The pressure would be on the user community to focus on the areas that provide the oil and gas producers with the greatest value generation. And we have been noting here that that is in the area where we can raise the natural gas prices above the marginal costs. The problem is that the Preliminary Specification is a comprehensive solution that affects all aspects of an oil and gas producer, the service industry, the service providers and most of all the Joint Operating Committees. It is also a solution that addresses more than just the natural gas pricing issues, and although these other areas may not be as materially pressing at this time, they need to be addressed in a timely matter as well.

Taking shortcuts and focusing on only the issues that are present in the current mindset are two of the dangers that we need to address in the developments of the Preliminary Specification. If we look at the scope and scale of the application we can see that taking the approach of addressing only one issue will be highly counter productive and lead to failure in the long run. Much of the Preliminary Specifications ability to solve the issues of the industry is due to its comprehensive nature and the ability to provide the key elements to the issue. These key elements can’t be cherry picked and brought about for one issue, or alternatively bring forward just the key elements necessary for one issue to be resolved. It just can’t be done that way.

The move to the Joint Operating Committee is comprehensive in its nature. Moving the compliance and governance frameworks of the hierarchy to the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee is a complete change in the oil and gas producers makeup. It is a disassociation of the corporate model and an adoption of the business model that is inherent in the Preliminary Specification. There can be no shortcuts between the business models for the purposes of acquiring the value that is available from the business model in the Preliminary Specification.

Just as other industries are being disintermediated by technologies and innovative business models. There are no shortcuts and there are no compromising choices. It is one or other. You either win with the new one, or atrophy and die with the old. That is the only choice that you have. And I would suggest that that is the choice that the oil and gas producers will be faced with in terms of dealing with People, Ideas & Objects. You're either with us or you're not.

The opportunity costs of $94 billion for the calendar year of 2012 are probably something that will remain with us for the time that the corporate business model remains in place. The bureaucracy does not have a solution for the natural gas business. They do not recognize it as an issue as it doesn’t affect their salary or pension benefits. The profitability of the industry is maintained as long as the oil prices remain high enough to offset the losses in the natural gas business and that should be satisfactory for the investors. That is the bureaucracies attitude and mode of operations and that will continue from now on. Therefore it is reasonable to assume that we will see these opportunity costs on an annual basis for the foreseeable future.

The choice is to begin the developments of the Preliminary Specification and all that entails. Understand that there are no shortcuts and that we must address all the issues of the industry within the application modules. That way we can deal with the future of the industry in the appropriate manner and identify and support the innovative and profitable oil and gas producer and Joint Operating Committee.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Three Marketplace Modules

There are many other elements in the Preliminary Specification. In addition to recognizing the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. The Preliminary Specification has three marketplace modules. The Petroleum Lease, Resource and Financial Marketplace modules. Each dealing with one critical component of the producers needs of petroleum leases, resources and capital. These marketplaces seek to replicate the marketplace that exist and provide interfaces to the producer to interact and participate in these dynamic marketplaces.

When we are replicating the physical oil and gas marketplace, the Petroleum Lease is the source document that is the common denominator of all activity and ownership within the industry. Any physical oil and gas assets will be attached to some lease, agreement, rights or concession granting the holders the rights and privileges of ownership, lease or rental. These are the things that are contained within a marketplace. They are what are purchased and sold, bargained and traded for. They are the things that people are recruited to provide services for. Generally a marketplace is a dynamic and evolving commercially oriented hub of activity. That is what we are replicating in the Petroleum Lease Marketplace.

The types of documents that are generated within the Petroleum Lease Marketplace are somewhat self-evident. (Recall we are including Land, Legal, Production Admin, Exploration Admin, Accounting and Others in the classifications.) Most of them are created in collaboration with the participants of the Joint Operating Committee and include: Authority for Expenditures (AFE"s), Capital Budgeting (Firm and JOC), Construction Ownership and Operating Agreements, Mail Ballots, Daily Drilling Reports, Lease Bonus, Lease Rental, Lease Taxes, Areas of Mutual Interest are some of the forms, processes and attributes of the Petroleum Lease Marketplace Module. A more detailed specification will be the result of the communities contribution and commitments.

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

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

The primary point that the Financial Marketplace module is making is that there are competing interests and motivations in the industry in attempting to get things done. With different strategies being deployed by different partners within a Joint Operating Committee, is it any wonder that the financing of a project can ever fall into place. What the Financial Marketplace module proposes is that instead of the property being funded by several different company bankers, each taking a working interest share claim against the firm. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the property. Aligning of the bank financing to the innovative oil and gas producers and Joint Operating Committees legal, financial, operational decision making, cultural, communication, strategic, innovation, compliance and governance frameworks.

Today that may or may not be an objective or opportunity worth pursuing. However, I think that the freedom of having the attributes of the Financial Marketplace module still reside within the oil and gas market, and possibly even more as a result of the financial meltdown of 2008. Why? The demand for capital will continue to be strong, and the supply will continue to be tight. What we seek to prove in this module, is that through its use we can provide the innovative oil and gas producer and the Joint Operating Committee with the ability to ensure that their capital structures are more efficient than what can be attained in any other system.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Competing on the Business Model

There has been some discussion in the marketplace regarding the impact that Information Technologies are having on the greater global economy. These are some of the effects that People, Ideas & Objects Preliminary Specification are bringing to the oil and gas industry. We however are not focused on the technologies themselves as the change agent or as the elements that are providing the value to the oil and gas user, producer or Joint Operating Committee. We are depending on a competitive business model that competes on the basis of a fundamental value proposition that is business focused and creates value for people, organizations and society.

These are interesting times when new and innovative business models can be identified and supported by today’s Information Technologies. We have seen many industries disintermediated in the last decade as a result of the changes in technology, but most importantly the value generated by new business models. I don’t think that any industry is immune from the power of these technologies and business model innovations. And that would include the oil and gas industry.

If People, Ideas & Objects claim that the Preliminary Specification can provide $94 billion in opportunity costs for the 2012 calendar year. We are either delusional or have a business model that fits the disintermediation mold. I think it is the latter. As natural gas prices continue to look weak and head into the slow summer season, time will tell if the bureaucracy have fixed their business model. Or we can change to one, the Preliminary Specification, that enables the producer to deal with the natural gas prices and begin to manage the oil and gas business appropriately.

I feel it is inevitable that the changes from the Preliminary Specification will be made to the business of the oil and gas business. Does anyone foresee the bureaucracy dominating the industry in the year 2020, or how about 2030. As it stands now that will be the case as they are unchallenged in their control of the industry. Unless and until the investors can have the Preliminary Specification funded and built, the bureaucracy will maintain their control over the industry until those time horizons arrive. There is nothing stopping them.

It would be constructive to proceed with the development of the Preliminary Specification as an industry despite the consequences to those that are affected. However those that are affected have opposed these ideas, have known of them for almost a decade, and have forwarded no resources towards these initiatives. On the contrary many initiatives have been sponsored by the bureaucracy to obstruct and derail this initiative in the past decade. They have chosen to fight these ideas not to constructively work towards solutions.

Now is the time that the industry must make a choice. The bureaucracy has a history of how it has managed the industry. It also has a plan on how it will continue to operate the industry. We have proposed an alternative business model with a compelling value proposition. The future awaits the bold and the brave. There is much work to be done and we need to begin these efforts to make the oil and gas industry innovative and profitable.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

A Quick Journey Down the Work Order Part II

This is the second and final post of our quick summary of the work order. We are reviewing this element of the Preliminary Specification to show the ability of the organizations systems effect on the producers innovativeness.

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

Continuing on with the scenario of using the Work Order system across multiple producers. I will use this scenario to show how the Partnership Accounting modules integrated nature with the other modules of the Preliminary Specification provides value to these ad-hoc working groups. Also why they are such an important element of innovation in oil and gas.

We used the scenario in the context of engineering, however it could just as easily be used in the area of geology or any other area of oil and gas interest. It could also include the supplier or vendor marketplace to form a working group in that area. The importance of the way the Work Order works is that the producer or participant is able to designate how they are going to participate in the working group. Prior to their approval they are to allocate the source of the funds and where the costs will ultimately go as a result of their participation. This being conducted by each participant or producer in the working group, all within the same interface for the same Work Order in the People, Ideas & Objects Partnership Accounting module.

One of the most obvious areas that this interface will interact with the other modules is the Security & Access Control module. Access to the Work Order will need to be unlimited for a certain point in time and then need to be closed to everyone but the existing members of the working group. This will need to be an interesting point in time when the search for participants reaches a threshold and the people feel the substance for a working group exists. Then only those who are within the working group, or are subsequently granted direct access are able to participate directly in the working group.

With the Security & Access Control module we also inherit the Military Command & Control Metaphor that allows the people to impose a chain of command across the working group. This might be something that they want to do if they have a difficult task or a large group of people. The opportunity to do so is available to them if they so desire as this is part of the Security & Access Control modules core functionality.

The designation of the source of the funds and where the costs will go is coded directly to those accounts. This has the Work Order taking on elements of the Accounting Voucher module in terms of how it operates. Each producers accounting system will be charged, upon approval of the Work Order, according to the way in which they have coded the Work Order. Therefore in that instance it will take on many of the attributes of the Accounting Voucher module.

I see these working groups, as we have called them here, as an important element of how an innovative oil and gas industry identifies and solve the problems that it faces. Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? Clearly some companies are more effective at this process than others, but this research in oil and gas asks, is there a means for an organization to provide a quantum increase in its ability to innovate that leads to higher trajectories of performance based on production revenue per employee?

Having these working groups spawn at will without the bureaucratic and accounting logistical nightmare that they instill today will be an important first step in making the industry more innovative.

The complexity of the relationships within the Joint Operating Committees has to be captured and accounted for in the Partnership Accounting module of the Preliminary Specification. Whether we are talking about the various forms of contribution that a producer may make to the joint account, or how they may participate in a working group, the bureaucratic machinations of the accounting for these transactions can’t stand in the way of innovativeness of the producers.

The freedom to participate is inhibited by the fact that the business arrangements are difficult to capture and account for. What is needed is the ability to develop software that captures the substance of the manner in which the contributions are being made, and then the manner in which they are accounted for. That is the purpose of the Partnership Accounting module, to support the innovative oil and gas producer in the innovative actions they need to participate in. Once again Professor Giovanni Dosi points out specifically the need for the business aspects to support the technical aspects of the business.

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

Capturing the context of the deals made in both the Joint Operating Committee and working groups as described here in the Preliminary Specification can’t be done on an historical basis. What is needed is for the software to be sophisticated enough for the dealmakers to be using while formulating the deal, to capture the substance of the deal, so that it will be used to allocate the costs and charge their accounting systems for these costs when they are incurred. Then and only then will the accountants have a chance of keeping up with the speed and innovativeness of the industry as it is contemplated here.

This is the necessary part of the People, Ideas & Objects software development team and most importantly, the user community. It won’t be too difficult to capture the multiple and myriad ways in which a deal can be formulated. The algorithm will be complex but with time and money it can certainly be done. The real difficult aspect of making this critical part of the Partnership Accounting module work is the user interface. Having the ability of the user to intuitively use the module to capture their understanding of their part of the deal, capture it in the People, Ideas & Objects system and account for it on that basis. That is what is necessary to make this innovation possible.

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 previously 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 producer's 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 than 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 their interfaces the balancing of the Work Order will be attempted with any variances worked out to determine who will make up any shortfalls. Once all the shortfalls are resolved the work can begin.

The issue of the budget is the point of this discussion 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.

These are the beginnings of how the Work Order system will provide the innovative oil and gas producer and Joint Operating Committees with the ability to increase their innovativeness. The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.