In the beginning...

What would we do without the Joint Operating Committee. It was in August of 2003 that I was preparing my proposal for my master’s thesis and it was on using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. I finished that work in April of 2004 and rewrote it for commercial publication in the May 2005 Preliminary Research Report. It has been a roller coaster ride since. What we were able to provide in the May 2005 Preliminary Research Report was that the Joint Operating Committee was the natural form of organization for oil and gas and that innovation can be reduced to a quantifiable and replicable process.

Since that time it has been an effort to undertake the research necessary to solve the following. If we moved 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 what would it look like and how would it work? This research was extensive and began with this blog in late 2005 continuing on into the summer of 2012. It was in August of 2012 that we finally published the Preliminary Specification, the 175,000 word eleven module summary of what that system would look like in the oil and gas industry.

The implications of using the Joint Operating Committee are significant. I don't think any position within the oil and gas industry will remain unaffected by the changes from the software. By developing this software we move away from the current corporate model. Which is a contrived and makeshift organizational construct that is patchwork and make do. To one, the Joint Operating Committee, which is the unique and natural way in which the industry has used to deal with the partnerships that are systemically used in the industry. We are moving directly in line with the culture of the industry and the Preliminary Specification has a certain harmony as a result. Things are done with the understanding that that is the way they are done in the oil and gas industry.

There is also a focus on the business of the oil and gas business. When you analyse the current corporate model the focus and drive of much of the administrative and accounting needs are on the tax, SEC and royalty needs of various external stakeholders. With the Preliminary Specification the focus is on the business of the oil and gas business with the compliance and governance being as a result of the activities in that business. Not a driving force in the business.

It has been a year since the publication of the Preliminary Specification. And as I noted a few days ago the acceptance of the marketplace has been better than expected. It is our first year in a ten year plan to have the system operational in the oil and gas industry. And by all accounts we are on track. We are continuing on in our second year with the same activities as we were in the first. Getting the word out that the Preliminary Specification can solve the operational concerns of the oil and gas industry. And provide the most profitable means of oil and gas operations. With natural gas continuing to disappoint, and many producers seriously looking at what they can do about it, maybe they will begin to see some of the solutions that we have put forward here as the way forward for the 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.

A Dynamic and Independent User Community

One thing we should note here is that we haven't discussed any of the technologies that are available in the marketplace. And we certainly will not start now. We are focused on the business issues of the oil and gas industry. And the associated needs of the service industries and service providers that are in support of the oil and gas industry. We are a software development firm and we will provide the technology that meets the business issues that the user community demands. That is our focus. Not on the technology.

We have discussed in previous posts how the user community will provide us with the direction in terms of what, why, where, when and how the software needs to be. That this user community will be dynamic and mirror the activities and thinking that is occurring in the industry itself. That is what I would like to see. The user community having the ability to know what the industry will want and need and to anticipate those needs, and have the software delivered to the producers and service providers just in time. This is what is possible today and I set this as an objective of the user community to achieve.

In a dynamic and innovative oil and gas industry, a dynamic user community with a software development capability as defined by People, Ideas & Objects is what will be required. The foundations of the oil and gas industry will include the user community and software development capabilities. They will be a critical part of the industries needs in the 21st century. We see today that with the ability to resolve the natural gas pricing issues, the Preliminary Specification provides a framework for the user community and the software development capability to address the needs of the industry in the future. And it all comes down to the Joint Operating Committee as the key organizational construct. Recognizing that has been the critical piece that has been missing in the software up until now.

Taking this infrastructure and putting it on its own financial footing is a key part of its ability to becoming dynamic and independent. As defined in our Revenue Model we can not be subjected to disruptions in our funding for either the user community or the software development capability. Disruptions in funding could divert our focus, or affect the capabilities of either group. It is in the best interests of the oil and gas producers to review the Revenue Model and understand how we address the funding of these groups and avoid these issues.

The fact of the matter is, is that software and the user community will be taking up a much larger role in our lives in the future. What has happened in the software development community for the past 50 years has been a great experiment. There have been advantages for certain but the real value is about to be realized. What we are beginning to realize is there is a maturing of the technologies. What was once potential is now doable. And the infrastructure is there to accommodate what is doable. So now we will see what was possible only a few years ago become the norm. And that will require that we have a stable and healthy user community and software development capability that we have been discussing here. For without these things, the industry will find that the issues and opportunities that seem to be at their fingertips, just can't otherwise be resolved or realized.

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.

Intellectual Property in the Preliminary Specification Part II

One of the areas that Intellectual Property (IP) will affect the industry will be the way in which everyone who works within the industry is connected to the IP. As IP becomes more important in the day to day of each and every individual in the industry. Their access and use of it will make up their relationship with their employer or customer. That is to say the relationship will be defined by a license for copyright and patent purposes. And contract law for brand management with respect to trademarks.

Users of the People, Ideas & Objects software will be subject to an End User License Agreement (EULA). And like many of the hundreds of EULA’s that you have agreed to in your life these will not form any significant part of your relationship with your employer or customer. The access to the software will of course be free to any user. The access to the producer and Joint Operating Committee data is as a result of having a relationship with them and they granting security access to you through the Security & Access Control module.

That brings us to the user community. People, Ideas & Objects are user based software developments. Our user community will be our competitive advantage in the marketplace. Key to that community is their use of the Intellectual Property that makes up the Preliminary Specification and its derivative works. This will be done through a specific license with each member of the user community and People, Ideas & Objects. It will be this license that defines the relationship with the individual in the user community and their involvement in these developments. This, by their choice, could be a material commercial arrangement in which they establish a foothold in the user community and a service offering as one of the many service providers to the oil and gas producers.

Members of the user community are compensated for their time and efforts in the user community. This is not a volunteer situation where we expect people to contribute time and effort for the community spirit. People will be compensated commensurate with their education and experience on an hourly basis for their contributions. These costs are also part of why our costs are larger than any software development initiative before. No one has based their developments on the user community as we are on ours.

There is another reason that the user community must be paid for the work they do in these developments. It is to acquire the Intellectual Property that is derived from the Preliminary Specification and other areas. This IP must be acquired so that it centralized in one location from a legal point of view. All IP will become part of the copyright that is owned by me. There it will in turn be available to everyone within the user community and service providers through the above noted license that they have been granted. Without this we would have to deal with thousands of IP trolls who would have developed an idea for this or that and would obstruct each and every producer with a license agreement for their idea and an invoice. If you feel your ideas are too special to be handled in this manner then you should feel free to launch a competitor to People, Ideas & Objects. This is the way that we have chosen to deal with it here.

Building a service associated with the software that includes participation in the user community will provide a commercial opportunity that, I think, will be valuable. The oil and gas producers will have the best people providing them with the capabilities to work with the software and to change the software. An ideal situation. If you want to be part of that, that is what I am working towards.

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.

Intellectual Property in the Preliminary Specification Part I

One of the controversial areas, or maybe I should restate that. One of the more controversial areas in the Preliminary Specification is the manner that it deals with Intellectual Property. Intellectual Property is becoming a more important element of what and how an industry operates and that applies to oil and gas, the service and the service provider industries that are the targeted market of the Preliminary Specification. The manner that it deals with Intellectual Property is fully contrary to the manner that the oil and gas industry operates today. That is to say that it recognizes, promotes and markets the Intellectual Properties of others and respects them.

To compete in a technically diverse industry such as oil and gas. And to have that industry foster innovations from everywhere and at all times. Requires that the industry see that the IP that is generated within the industry respected by those that make up the marketplace. That has not always been the case in the oil and gas industry. There is an attitude that companies are better off not recognizing the IP and sponsoring competition based on the IP efforts of others. This strategy may have been successful at one time, however, I think it is questionable in today’s marketplace, and it will certainly be a failure in the future. It takes too much effort to develop on the behalf of the inventor to come up with anything new. That effort is not as easily replicable and cannot just be passed about its competitors. The industry, I think, is better off working with the inventor, developing their capabilities to achieve scale, and obtaining the benefits of the ideas in that manner.

By not recognizing the IP of the inventors in the industry for so long the oil and gas industry has created a larger problem for themselves. Companies and individuals with the ideas needed to move the industry forward see that their ideas won't be respected. That they will be just passed on to their competitors by their customers the oil and gas companies themselves. This has the effect of diminishing the number of startup and innovations within the industry. People know that they will not receive the benefits of their labor. And anyone who has gone through the efforts of developing some IP will tell you, it is amongst the most difficult business process to manage.

After all what are the competitive advantages of the innovative and profitable oil and gas producer. They are their oil and gas asset base, and their earth science and engineering capabilities. Contained within those capabilities are the abilities of their resources to use the abilities of the service industry to conduct field operations. They have to have the capabilities of others to do this work. That is significantly different than having the Intellectual Property necessary to do this work. For example, having the IP for the best drill bits will not provide the oil and gas producer with any competitive advantage over any other producer. However having the capability of knowing who has the best drill bits, where to get them and how to get them delivered provides great value. The oil and gas producer by sponsoring competing firms to “wash” the Intellectual Property of individuals and companies from one firm to another is a useless, time wasting activity with negative long term repercussions.

The Preliminary Specification recognizes and encourages the efforts of the inventors and those within the oil and gas industry with marketplaces for their ideas. A place where ideas can begin and find a market quickly. And a place where oil and gas producers can find new ideas that will help them to be more innovative.

Dealing with IP in the manner that the industry is today is counter to the way that society is moving. IP is becoming stronger and industry needs to deal with this fact. These changes implemented in the Preliminary Specification are therefore necessary for the innovative and profitable oil and gas producer to compete and prosper in the 21st century.

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.

Shale Gas Reserves

Wikipedia lists Canada and the United States as holding 1,238 trillion cubic feet of estimated recoverable shale gas reserves. That is a fantastic number that is beyond recognition of anything that we are dealing with before. The volume of proven natural gas reserves is 386 trillion cubic feet. Current consumption of natural gas is 29.9 trillion cubic feet per year. Therefore there are approximately 41 years of reserves of natural gas at current production rates. Without shale gas, there would be 13 years of reserves at current production rates. One can certainly see why the natural gas prices are so low, however, the economics of supply and demand are not in line with the business needs. What this abundance requires is a new business model. One that considers how the industry will produce these reserves profitably.

It would be reasonable to assume that the shale revolution is not finished. As innovation occurs more reserves will be moved into the estimated recoverable and proven categories. Another area that sees an abundance of reserves in the United States is coal. The U.S. has the greatest coal reserves in the world. This is important as they offer a competitive alternative to natural gas in the $3.00 to $4.00 range. Natural gas has many other competitive advantages and should command a premium in the marketplace, making the industry realize its recommended price of $6.70 / mmbtu as a minimum.

$6.70 is a world away from the prices that are being realized by the producers today. And they are not something that companies are going to experience in the near future either. There are no plans or ideas in which to deal with the issues of the natural gas marketplace. More shale gas production is coming on stream everyday. Making the problem even more difficult.

Producers are structured to maintain their capabilities in terms of the administrative and accounting requirements of the firm. And those costs need to be covered by cash flow and that requires production. Otherwise the performance of the company looks top heavy with staff. Laying off staff only diminishes the capabilities that are otherwise necessary for the company to maintain irrespective of the production profile. Therefore companies within the industry continue to produce at capacity.

The alternative in the Preliminary Specification sees a few changes in the way that the industry operates. Instead of each company building individual silos of capabilities for administrative and accounting capabilities. The industry as a whole builds the capabilities for administration and accounting. This is done by moving the resources of the producer, outside of the C class executives, the earth science and engineering resources, some legal and support staff into service providers. These service providers are focused on individual processes and subprocesses that enable the service provider to use specialization and the division of labor to bring efficiencies and effectiveness to their customers, the Joint Operating Committees. By charging the Joint Operating Committees for the costs of these administrative tasks, the producer is enabled to shut-in production if commodity prices drop below the marginal cost. When production reaches the point where it becomes marginal and is shut-in. All of the administrative and accounting charges from the service providers cease for the period that the production is shut-in. Leaving only the costs of capital uncovered. This also removes the marginal production from the marketplace, putting an effective floor on the natural gas prices in the future.

Proceeding further into the 41 year life of the shale gas reserves. Without the ability to deal with the marginal production as prescribed in the Preliminary Specification is foolhardy. Producing gas is not an activity that we undertake as if we were in daycare. Its a business. And we need to approach this new era with a business model that will enables the industry to make the types of profits that recognize the risks associated with it.

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.

One Down, Nine To Go

I’d like to take a moment to recognize that the Preliminary Specification is approximately one year old. Looking at the blog I posted the last of the final specifications on August 9, 2012 and established the wiki on August 22, 2012. And what a year it has been. I am pleased at the response that the Preliminary Specification has received. It could have gone one of two ways. It could have fallen flat and languished in obscurity. Or as it has done, grown throughout the oil and gas industry. We have seen tremendous growth in the number of people who are viewing the material. The ideas are beginning to resonate.

The marketplace for these ideas seems to be predominantly in North America. Fully 79% of our audience is derived from there. Europe collectively comes in a strong second place with the rest of world being more random than anything definitive. China is nowhere to be found. I often wonder what it would take to distribute these ideas as far and as fast without the Internet. It would not be possible, and we are benefiting to a great extent.

I expect that the leadership with respect to the development of the Preliminary Specification will begin in the United States. And we will continue to concentrate our efforts there. As we dovetail with the objective and goal of attaining energy self sufficiency for the continent. Organization is the first step in such an enterprise.

This also marks completion of the first year of our ten year plan. By all accounts it was a very successful year and I am impressed at how easy things have become. It makes the hard work that went into the research and development of the Preliminary Specification seem so distant. This next year will see much of the same as this last year. Building the community, getting the word out until we have some substantial momentum in the marketplace. Then we'll see what the user community can really do.

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.

Alignment With the Industry Goals and Objectives

One of the key aspects of the Preliminary Specification is that it aligns with the goals and objectives of the oil and gas industry on a go forward basis. Particularly in the North American marketplace. The needs of the industry in the next few decades will be particularly acute. The demands will require the industry to push the science of geology and engineering far beyond what is known today. And what is known today has put the industry second only to the space industry in terms of technical complexity. A very complex and dynamic future awaits those that are able to compete in the innovative earth science and engineering disciplines.

How we approach this future is of critical importance. The need to address this point is the first order of business. We can't go into this future operating with the same old bureaucracies and led footed organizations. We are sitting here in our third year of depressed gas prices with no plans and no discussion of this even being an issue! What are we doing? It is astonishing to me that we would continue to proceed with the same old strategy of muddling along with so much at stake and the dynamics of the industry being what they are. This is not your fathers oil and gas industry.

What is needed is an organizational construct or business model like that which is prescribed in the Preliminary Specification. One that can deal with the issues and opportunities as they develop. So that when the natural gas prices begin to decline the collective action of the producers stem the downfall in the prices and the industry as a whole remains profitable. Or one that deals with the appropriate tools of specialization and the division of labor to increase the productivity of the critically short earth science and engineering resources over these next few decades. And these are just todays problems. The Preliminary Specification as a business model for the innovative and profitable oil and gas producer provides the means to deal with the future problems and opportunities as they arise.

Currently the bureaucracies are standing in the way of the progress of the Preliminary Specification. Thats what bureaucracies do. There is little for them in this new business model and they know it. Its not that they have an alternative, its just that the status quo suits them fine. Now is not the time for the oil and gas industry to sit still and stagnate. The need to address the organizational context and business model of the industry is the first order of business and our number one priority. To do anything else would be putting the cart before the horse. We must organize ourselves first. And that requires that we define and support that organization within the software that the industry, the service industry, the service providers, the Joint Operating Committee and the producers themselves use.

Today people don’t see technology as being the effective tool that define and support our organizations. And in a way it isn’t. Its the business model that uses the technology. We need to use these tools of the 21st century to deal with the problems and opportunities of this century. The Preliminary Specification does this effectively. With $94 billion in opportunity costs for the 2012 calendar year we can see the dynamic effect it can have on the industry. With these types of opportunity costs and the ability to approach the future with the appropriate business model the cost benefit analysis is clear.

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.

Our Development Plans Part III

Today we want to discuss the point where the Revenue Model intersects with the user community. Yesterday we noted that the power in which the strategic and tactical control was exercised was within the user community. That if the industry needed to change, that change would need to be initiated by the user community in order for the software to change and then the industry could change subsequently. There is an important component of the Revenue Model that ensures that the user community remains independent and enabled to make these changes. That they don't become blind sleepwalking agents of whomever will feed them.

Ideally you want the user community to be able to think of the changes and the needs of the industry, and act before the demands are realized by the producers. Providing the software just in time when the producers needs are being realized. This requires the user community to be very aware of the issues and opportunities that are present in the oil and gas industry. That they are able to plan and execute what is required and deliver that in the software when it is needed.

It also has to be stated that this can't be done in an environment where the user community is looking for its next meal. It would be of particular concern as to what the cost of that next meal would be in terms of what is agreed to. This is not how the user community should be run. The compromise and distortions in the direction of the user community that would occur so that it could be fed would lead it to be of little value to those outside of the group that was feeding it.

That is why the Revenue Model has been developed in the manner that it has. The user community is one of the major costs of the development of People, Ideas & Objects. And it is the nature of the user community, and its ability to meet the demands of the producers in its unique way that is of value to the producers. That is why it needs to be funded in the manner as specified in the Revenue Model. Assessing fees and penalties based on production is a fair and reasonable means of raising the funds for development. Collecting fees and penalties from 2010 forward from all producers ensures that no producers are able to avoid providing their share of the costs of development. Everyone participates based on their production profile and from the same point in time. Therefore no producer undertakes a greater share in the development than any other producer. Early participation will however eliminate future penalties.

As can be expected, there will need to be representation from all corners of the industry in the user community. In order to capture the needs of the industry the user community will have to look like the industry in most every way. And there will be significant opportunities for people within the user community. As I see that and the service providers being two areas that are dynamic and innovative for at least the next decade. As it should be asked of the user community what will the applications look like in ten years. It will be as a result of their input that answers that question. A truly interesting journey.

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.

Our Development Plans Part II

The Detailed Specification is the output of the resources that we are seeking in this next phase of development. Will consist of the detailed information of what the system will consist of in its first commercial release. It will be the result of the collaborations of the user community in determining their wants and needs in the oil and gas industry. Consisting of screenshots and process management information. It will be user defined information that is captured in a number of software development tools.

The key deliverable to give the developers will be the “user story”, from Wikipedia

In software development and product management, a user story is one or more sentences in the everyday or business language of the end user or user of a system that captures what a user does or needs to do as part of his or her job function. User stories are used with agile software development methodologies as the basis for defining the functions a business system must provide, and to facilitate requirements management. It captures the 'who', 'what' and 'why' of a requirement in a simple, concise way.

Defining the needs of a system of the size of People, Ideas & Objects needs to go through this process of the Detailed Specification to help manage the scope of the application. What is necessary in the application can not be left open ended when the developers sit down and begin their work. There must be a defined product that they are setting out to complete. That is one of the purposes of the Detailed Specification.

Capturing the needs of the users, the producers, the Joint Operating Committees, the service providers and the service industry into these specifications will also eliminate the redundancies in developing similar systems for similar needs. The output from this phase of development will be large. The more people that we have looking at the output of this phase and the more errors that we can correct, the better the systems will be and the less overall costs.

It is imperative that people understand that People, Ideas & Objects are user driven developments. We have chosen this methodology as this provides the highest quality of systems available. Participation should be looked upon as an opportunity to make a difference in the development of the industry, its profitability and its innovativeness. How the industry solves its problems and addresses its opportunities should be as a result of the actions taken by the user community to change the software to meet those challenges. Users are in control of the tools that make the industry what it is.

This is the importance of user communities in the near future. What they may have looked like in the past was more predefined by the softwares needs or the organizational context. With the People, Ideas & Objects user community the organization is defined and supported by the software. And the user community defines the software. So the shoe is on the other foot as they would say. I think that you can see with the Preliminary Specification how the software definition redefines how the industry operates. This power is being placed in the hands of the user community. User community participation is now at the top of the food chain.

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.

Our Development Plans Part I

Once we have secured the budget to complete the developments of the Preliminary Specifications. The next stage in our development. We will begin the determination of the detailed work of what the initial software release will look like. This Detailed Specification will be the result of the user communities involvement and the result of many hundreds of man years of work. It will detail in very specific terms what the systems will do and how they will do it. Based on the Preliminary Specification and the user community needs, which includes the participating producers. It will provide the means or the specification for the first iteration of the software.

Participation by the producers in this phase of the development will be critical. The changes that are being made as a result of Preliminary Specification are significant. It is imperative that a producer and Joint Operating Committee be part of those changes from the beginning. When they have an opportunity to participate and have input into those changes. Waiting for the second iteration to participate may be too late. By then producers who have been using the software may be considering changes that are based on the changes in the first iteration and these changes will be too much for a producer that did not participate in the first iteration to handle. Locking out those who did not participate by way of a business model that is too complex to change too.

The other aspect is that participation enables the producer firm to make the changes to their organization that will work with the software. Allowing them to ease into the integration as opposed to having to remake the organization all at once.

Participation in the developments of People, Ideas & Objects software will be the beginning of the producers use of these new software development capabilities that are a necessary aspect of the producers capabilities. This capability will be a new tool in the producers strategic and tactical arsenal. One that allows them to approach the opportunities and issues on a much larger scale than what they are currently able to approach.

I think that one thing that we will find in the future is that the impact of change will be dramatic. There won’t be subtle changes anymore. The upside as a result of changes will be significant. And the impact of inaction will be very detrimental. We may be seeing that already in the marketplace today. A producer that chooses to proceed into this type of future without the tools to deal with the organizational context may be subjecting themselves to the unnecessary impact of inaction.

Participation in the software developments from this point forward should therefore be something all producers subscribe to. The Preliminary Specification prescribes a cultural shift in the ERP systems that is sound. A business model that is developed for the oil and gas industry. The risks in participating are the time and costs that could be potentially lost, however the upside could be significant. There are opportunity costs and other savings that are real today that are not available in the current corporate model. Based on any reasonable criteria a producer would decide to join, but then there is the bureaucracy.

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.