OUR PRELIMINARY SPECIFICATION MAKES SHALE COMMERCIAL. THROUGH AN INNOVATIVE BUSINESS MODEL SUPPORTING THE JOINT OPERATING COMMITTEE, WE PROVIDE OIL AND GAS ASSETS WITH THE MOST PROFITABLE MEANS OF OIL AND GAS OPERATIONS, EVERYWHERE AND ALWAYS. ENABLING THEM TO ACHIEVE ACCOUNTABLE AND PROFITABLE NORTH AMERICAN ENERGY INDEPENDENCE.
OIL AND GAS’ VALUE PROPOSITION IS AT A MINIMUM, LEVERAGED TO THE POINT OF 10,000 MAN HOURS PER BOE. WE KNOW WE CAN, AND WE KNOW HOW TO MAKE MONEY IN THIS BUSINESS.
The first allocation of user community funds will be to the Joint Operating Committee User Budget category. Here we have allocated 22% of the user community budget for a range of $73 - 146 million. This works out to a range of 220 to 440 man years of work for the user community. It is important to take this budget allocation into context. These are the costs associated with the needs of the producer in its prototypical form based on the decentralized production model. Where the producer is stripped down to the C class executives, earth science and engineering resources, land and legal and support staff. It should also be pointed out here that the earth science and engineering resources, as well as the former administrative and accounting resources, which are now the service providers, each have their own user community budget allocations. These budget funds may be subsequently pooled to approach joint software development initiatives. Initiatives such as the Material Balance Report which have the producer firm and the service providers interests.
One of the first concerns of the Joint Operating Committee User Budget category of resources has to be the Security & Access Control module of the Preliminary Specification. How much of this budget will need to be allocated to address the issues and opportunities that are addressed here. We are providing access to the right information to the right people at the right time in the right place on any device. This includes access from multiple producers resources accessing information within the various Joint Operating Committees that they have an interest in. We thankfully are able to rely on the strength of a variety of Oracle products at various layers within their technologies to assist us in making these opportunities possible. The difficult issue that is presented by the Preliminary Specification is the high levels of collaboration and integration that is being conducted by the various producer firms in the Joint Operating Committee. And everyone knows what I mean when I talk about the issues that are presented by the pooling concept and general high levels of collaboration through the product. What I expect from the user community is the ability to take these difficult requirements and make them effective in an environment where the user is enabled and supported in an environment that is constructive and informative. Not one that has the user accosted by constant warnings and pop ups that violate the sense of what a good system should provide. This is your system, don't expect anything but the best. If the developers don't deliver what it is that you want, tell them to do it again until they get it right.
It is with that point that I want to note a number of positions that fall under the development budget. These specific positions are called the Product Owner. We currently have budgeted 25 of these positions and their role is to represent the user on the development team. If I didn't have a job already I would want to be a Product Owner as they are empowered by the user community to ensure that their needs are met. These people are your “man on the inside” so to speak. There will be a product owner for each of the eleven modules, one for the user interface, and so on.
And its not limited there. Additional resources will be provided to the user community based on their needs. We are developing People, Ideas & Objects to be user based software developments. This is not our objective for just the beginning, it is the objective for the life of the software. We expect to see significant change in the innovative and profitable oil and gas marketplace. This change will need to be accommodated by changes in the software and services that are provided by People, Ideas & Objects, the user community and the service providers. A constant level of change that will require the efforts of what we call this “gap” or sub-industry between the oil and gas producers and the technology companies like Oracle.
It is at this point that I would like to note that the user communities will be comprised of a large variety of sources. Although some will definetly come from the oil and gas producers themselves, that isn’t the case for all of them. There may be some of the people who will have been moved to the service providers as a result of moving to the decentralized production model. Or from the service industry itself. The broader and more diverse the user community that we are able to build, the better the software that we will be able to build for them. That is our focus and that is our desire.
Therefore that will be one of the first things the user community will need to begin to do. Is to determine the amount of budget that is necessary to meet the needs of Joint Operating Committee User Budget category for the Security & Access Control module. Understanding the scope of the issues, and that it includes the Military Command & Control Metaphor I have estimated the budget requirements in the range of $7 - 14 million 21 - 42 man years. It is important to remember that these estimates will be finalized upon completion of the initial phase of the development work. This is a $200 million phase that will determine the scope and scale of the project in its first commercial iteration. It will also determine the costing of each module based on defined user requirements.
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. And don’t forget to join our network on Twitter @piobiz
We have with the Preliminary Specification a vision of how the industry should operate. We now need to involve the user community in the developments to ensure that the vision captures the needs of the community. There are millions of people who work in oil and gas today. Doing thousands of different jobs. Each job takes on average the better part of a year to learn. We need to capture this knowledge and understanding within the software in order to accommodate the needs of the users. That is the task that we are undertaking in the development of the People, Ideas & Objects software.
We have made a variety of assumptions in coming up with our budget for the development of this software. These assumptions include the following. One user hour is required for each hour of development work. 1,000 to 2,000 man years of development time, and 1,000 to 2,000 man years of user community contributions. Costs of these developments and contributions are at $185.00 U.S. per hour. If you are able to contribute to the user community and maintain your job with your producer, congratulations. I would expect few people would be full time user community representatives. And there are 1,800 hours per year of available time per man year.
The costs for only the user community are therefore in the range of $333 million to $666 million for the project in its first commercial release. It is undetermined at this time how many years this will span. Of these costs the allocations to the various different sectors are as follows.
Joint Operating Committee22%$73 - 146 million
Compliance (Tax, Royalty, SEC)12%$40 - 80 million
Service Industry 12%$40 - 80 million
Service Providers 25%$83 - 166 million
Accounting Firms 17%$57 - 114 million
Engineering & Earth Science 6% $20 - 40 million
Contingencies 6% $20 - 40 million
The reason that People, Ideas & Objects pays the user community for their involvement is twofold. First the scope of this undertaking is too large to be asked to be done on a volunteer basis. We need to rely on a dedicated, professional user community to define the needs of the innovative and profitable oil and gas producer. Both in the beginning and on a continuous basis. Secondly, the payment to the user community is made to acquire the Intellectual Property rights to the work that is done by the user community. People, Ideas & Objects as my licensee is acquiring these rights on my behalf. Then they’ll be used to generate the revenues necessary from the producer firms to support the users and developers.
Over the next few days we’ll go over each of the seven line items and detail what they involve and how these monies will be expended. People, Ideas & Objects are introducing significant levels of change within the oil and gas marketplace. Some of these costs are as a result of those changes taking place and the user community preparing for the systems that will be needed to support that change.
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. And don’t forget to join our network on Twitter @piobiz
We come to the close of 2013 and our first full year with the Preliminary Specification in place. We spent most of the year discussing the content of the Preliminary Specification and fully exploring the implications of its use. Clearly it has value to the marketplace. Now that it has been updated and edited I don’t feel too bad making my readers persevere through it. It is ready for prime time.
In the new year things will change from a product focus to how that product will be implemented in the marketplace. This will detail how the budget will be spent and who will be involved. We have the “what” clearly defined in the Preliminary Specification. We now have to detail the “how” it will be implemented. Needless to say this will involve you the reader as this will touch on every aspect of the oil and gas industry. Most of the business will be new business and the level of opportunity will be unprecedented. So if you have an interest in anything associated with the user community, software development or the service providers stay tuned.
As we move into the second year of our ten year plan we find that our ambitions are once again put in check. It would be nice to start some development work, however the bureaucracy are still in control and are not in anyway interested in seeing this project develop. These are times when we need to be patient and keep our powder dry and our candle lit. Our time will come when our ability to fight the bureaucracy will lead to our success in the marketplace. If I had set out to complete what we have achieved in the first year of our ten year plan I think I would have been accused of being delusional. We really did have a good year in the marketplace. And with that it is best to wish you all a Merry Christmas and a prosperous New Year. We'll see you all back here on January 6, 2014.
(Please note that the assessment fees for 2014 have been set at $2.00 per barrel of oil equivalent.)
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 Preliminary Specification is an eleven module ERP (Enterprise Resource Planning) software system designed for the innovative and profitable oil and gas producer. It uses as its key organizational focus the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the industry. By moving the compliance and governance of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve a speed, innovativeness, accountability and profitability that is necessary in the era of insatiable energy demand.
Keep in mind while reviewing the Executive Summary and the Preliminary Specification that it is People, Ideas & Objects claim that we provide to the oil and gas producer, as our competitive advantage, the most profitable means of oil and gas operations. And we do that in the following six fundamental ways.
1) Our Value Proposition
We are the lowest cost ERP systems provider in the marketplace. That is by charging for the one time costs of software development, plus an element of profit as our fee structure. Therefore the industry is only paying for the one time cost of software development.
2) Specialization and the Division of Labor
If we review the Preliminary Specification there is a defined restructuring of the industry that takes place throughout the modules. The oil and gas producer is a stripped down version of itself that has the C class executives, earth science and engineering resources, land and legal, and minor support staff. And that’s it. The rest of the producers needs are provided by service providers. And each of these service providers are focused on one process, or one element of a process using the industry as its client base. So for example there would be a lease rental payment processor that handles all of the industries lease rental payments. Where the cost of the lease rental payment, and the billing for the lease payment processor is billed directly to the appropriate Joint Operating Committee. Not to the individual producer.
What the advantages of moving to a system or methodology such as this is the lower cost and efficiency. The costs associated with the lease payment processor would be a small percentage of what is incurred by the industry today. By focusing on the most efficient way to process lease rental payments, and only lease rental payments, the processor would become so specialized as to reduce the time and effort in administering these tasks as to be a small component of the costs today. In Adam Smith’s pin factory, his research yielded a 240 fold increase in productivity from the changes that he made in the process of making pins. Having the lease rental payment process, and most particularly the administrative and overhead processes in the industry subject to this type of analysis, complete with a software development capability as proposed by People, Ideas & Objects, similar results in productivity would be attained.
3) Capability to Remove the Marginal Production
With the costs associated with exploration and production, its no surprise that producers are reporting losses on operations. What is surprising is that producers have done nothing to mitigate the overproduction that has caused the decline in natural gas prices. The reason for this chronic overproduction is the producers have to generate the revenues to cover the overheads they incur in the “high throughput production” model they employ. This model has the overhead costs of the producer firm being incurred whether there is production or not, and as a result, it makes their operation a high cost operation, even at full production. At lower production volumes it skews their earnings and their overhead costs appear out of place.
In the Preliminary Specification the “decentralized production” model is employed. As we mentioned in the second point above, the service provider charges for their services directly to the Joint Operating Committee the costs of their service. In most cases if there is no production, there is no charge for the overhead item and neither the producer or the Joint Operating Committee is incurring any of the overhead during times of shut-in production. Therefore the only costs that are not covered during times of shut-in production are the costs of capital. The producer can therefore shut-in production that is not meeting the marginal cost and save those reserves for a later time. And keep that production off the market until the prices rise to the point where they cover the marginal cost.
If producers across the industry follow this process then prices would not have the significant declines that we have experienced in the last number of years. If the downswing in natural gas prices were averted by way of a fifteen percent reduction in production volumes, the total revenues and profits of the industry would have been $94 billion higher in 2012 than what they were. Making the production that would have continued exceed the marginal cost and be profitable, and for that production that was shut-in, no loss on operations would have been incurred because there would have been no overhead or production costs.
4) Innovation for Profits
As the fourth element of our competitive advantage of providing the innovative oil and gas producer with the most profitable means of oil and gas operations. We focus on innovation as the way in which to enhance the profitable nature of the producer. Innovation for profit, particularly from the science basis of the business, is the successful perspective for the 21st century oil and gas producer. It is within the DNA of the Preliminary Specification how the processes of innovation are identified and supported that enhance the ability of the innovative oil and gas producer. From Professor Giovanni Dosi.
In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.
5) Lower Costs of Exploration & Development
The oil and gas industry needs a successful, dynamic and innovative service industry in order for it be successful, dynamic and innovative. Today we have producer firms accusing the service industry of being greedy and lazy due to the high costs that are being experienced. There is a gap between what is required and what exists. The Preliminary Specification works to mitigate this conflict by addressing the issue of how the producer firm deals with the generation and management of ideas in the service industry. Currently the producers ignore the rights of the ideas developers and as time has passed, the number of companies that have initiated new products, services and competition have dwindled. Leading to the situation today where the producers have a limited number of participants who have the pricing power on their side.
It is through the Preliminary Specification that the producers begin to respect, sponsor and support the ideas of the service industry. In this way the marketplace will respond with new and innovative products, services and competition. Through a variety of interfaces in the Resource Marketplace and Research & Capabilities modules the producers are able to participate and lead the creation of new and better products and services by clearly expressing their needs.
When the oil and gas industry has a successful, dynamic and innovative service industry supporting the oil and gas industry then the profitability of the oil and gas producer will be enhanced, further contrasting People, Ideas & Objects business model to the current bureaucracies.
6) Earth Science and Engineering Resources
It is through the use of innovation, specialization and the division of labor that we leverage the earth science and engineering resources of the producer firm. As with the fourth and fifth point above, investments in innovation are undertaken with the express intent to return a profit. Innovation on the sciences of oil and gas are the express purpose of the modules within the People, Ideas & Objects Preliminary Specification.
In terms of specialization and the division of labor, the producer firm must approach the issue of the limited resource base of earth science and engineering resources. People, Ideas & Objects have developed the pooling concept to eliminate the unused and unusable surplus capacity that is trapped within the silo’s of each bureaucracy. In addition we have used specialization to reorganize certain skills within these professions to service providers who can specialize on the specific skill. It is with the pooling and specialization that the demand for engineers and geologists will be more manageable in the insatiable energy era.
A quick note about software
All of these components of our competitive advantage require the software known as the Preliminary Specification to be built. As we learned in the Preliminary Research Report (2004), software defines and supports the organization. Without the software to run the industry as described above, it will not happen.
The Preliminary Specification is a development phase that will determine the scope and detailed requirements of the system in its first commercial release. “What” will the system do and “how” will it do the things that it sets out to do. These specifications will be as a result of user community input and be detailed and comprehensive. The budget for this phase of the development is set at 5 - 10% of the total overall budget and estimated to be $200 million and 200 man years of producer contribution to the user community. Producers are a key aspect of the user community and should consider joining to ensure that the system considers their needs. Waiting provides no cost advantage and there will be disadvantages to those that do not actively participate. Please review our Revenue Model for more information.
Hosting of the People, Ideas & Objects application, and Oracle modules, will be via the cloud computing architecture. Please review our Hardware Policies & Procedures for further information on how these affect the producer firms.
Security & Access Control
What we have with using the Joint Operating Committee (JOC) as the key organizational construct of the innovative oil and gas producer. Is the interactions of many producers and suppliers who are involved in the day to day commercial and strategic concerns of a JOC. What we need to concern ourselves within the Security & Access Control module is that the right people have the right access to the right information with the right authority at the right time and at the right place.
Throughout the Preliminary Specification we discuss one of the premier issues of the oil and gas industry. That being the demand for earth science and engineering effort is increasing with each barrel produced. This is best represented in the steep escalation of the costs involved in the exploration and production of oil and gas. At the same time the critical earth science and engineering resources are somewhat fixed and are difficult to expand in the short to medium term. Add to that, an anticipated retirement of this brain trust in the next twenty years, and the problem becomes of critical concern.
There are few short term solutions to the short fall in geologists and engineers over the next twenty years. It takes the better part of that time to train them to operate in the industry. What we do know are several “things” that are being applied in the People, Ideas & Objects Preliminary Specification. Key to a number of concepts application are what we call the Military Command & Control Metaphor. Which is a method developed in the Security & Access Control module of imposing command and control over any and all Joint Operating Committees, working groups, producer firms or organizations the producer may need to add structure to.
The concept of specialization and division of labor is well known as a principle of economics that brings about greater amounts of economic productivity from the same volume of resources. Given that the volume of earth science and engineering resources are known for the foreseeable future, specialization and the division of labor will provide us with a tangible means in which to deal with the productivity of the oil and gas industry. In today’s marketplace to approach a heightened level of specialization and division of labor, particularly from a scope and scale point of view, without the use of software to define and support it would be downright foolish.
The pooling concept is the solution to the current desire that each producer firm acquires the earth science and engineering capabilities necessary to deal with all the needs of their “operated” properties. This creates unneeded “just-in-time” capabilities for the scarce scientific resources. When each producer within the industry pursues this same strategy substantial redundancies are built into the industries capabilities. Redundancies that are left unused and unusable. What is proposed through the People, Ideas & Objects software application modules is that the producers operational strategy avoids the “operator” concept and begins pooling the technical resources through the partnership represented in the Joint Operating Committee. That way the redundancies that would have been present in the industry can be made available to the producers and used by the producers through an advanced specialization and division of labor.
What these concepts require therefore is what the Security & Access Control module is designed to provide. The system must provide access to the right person at the right time and the right place with the right authority to the right information. With the Military Command & Control Metaphor there will also be a manner in which the technical, and all the resources, that have been pooled from the producers, interact with an appropriate governance and chain of command.
Oracle’s products provide a strong layer of mission critical capabilities in the Security & Access Control module. Although this comes with additional costs, I am certain that no one will argue with the quality and secure knowledge that these products bring.
Resource Marketplace
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, service provider, software and user community generated businesses will be found, contracted, managed and developed through this module. It's simply a virtual representation of these marketplaces. 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. Since 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 or Joint Operating Committee.
Contained within the marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in this virtual marketplace. The scope and size of the Resource Marketplace should accommodate the needs of Exxonmobil and their $250 billion annual operating costs down to the single entrepreneur starting out in the business. To preclude any group, profession, organization, or person from the Resource Marketplace would limit the value available to the industry.
Also, to call this just a Human Resource Marketplace would be incorrect because it would limit the participants in the market. Whatever service, product or solution is provided to the energy industry, from either individuals, those employed by producers or JOC’s, or companies providing services to the producers. This should include Schlumberger and anyone directly or indirectly employed in the energy industry.
It is the use of the Joint Operating Committee and the “Marketplace Interface” by the Resource Marketplace that provides the value to the innovative oil and gas producer. Enabling the service industry to grow thick markets for their products and services. Producers have a role in defining and supporting a dynamic, competitive and healthy service industry. However, before that happens, the need for the software that is defined here in the Resource Marketplace has to be built for the producer, the Joint Operating Committee and the service sector to support these markets.
The division of labor and specialization play a large role in the Resource Marketplace as well. By outsourcing many of the administrative functions from the producer firm to specialized service providers. The producer firm is able to focus on those core competitive advantages of their land and asset base, and their earth science and engineering capabilities. Having the land, accounting, production and other administrative functions sourced from the Resource Marketplace by specialized service providers.
With this change in the administrative function of the producer firms we are able to transition from the “high throughput production” model to the “decentralized production” model where production and overhead costs more accurately match revenues. As a result we are able to initiate pricing related production decisions that better manage the producers oil and gas reserves. What this means is with the service providers focused on the process, such as production accounting, they will be engaged by the Joint Operating Committee not the producer. When the decision is made to temporarily suspend production, the associated costs of production accounting and other accounting, administrative and overhead costs are not incurred.
The Resource Marketplace module is an active participant, as is the Petroleum Lease Marketplace and Financial Marketplace modules, in the “Marketplace Interface”.
Petroleum Lease Marketplace
The Petroleum Lease Marketplace (PLM) is I think the most interesting marketplace module as its objective is to replicate virtually what the physical oil and gas marketplace is. That begins of course with Petroleum Leases.
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 PLM.
When we look at the types of work that is carried out in the PLM we see a large group of administrators working within different areas within a producer firm. Whether it be the Land or Legal department, Production or Exploration Operations staff or Accounting people; all of these groups have an interest in the information, people, assets, documents, processes and functionality contained within the PLM. The primary concern of the people in these groups is the information and data contained within the module. Its accuracy, access, and use by those within their firm, but also within the Joint Operating Committees that their firm has an interest in. Some of this data will be similar to the data that is held by their firms partners, and much of the data has been generated in a cooperative and collaborative manner by those partnerships.
One of the greatest opportunities that we have in developing this system is to address the division of labor and specialization. To take these people’s work and to reorganize it across the industry, so that it was focused on the Joint Operating Committee and very specialized in terms of the tasks that they conduct. To apply those skills across the entire industry, or a geographical region, or some other classification. Which is something that could provide significant increases in oil and gas industry productivity and overall cost savings. That is to say that an individual would work for a process that is billed to 1,000 Joint Operating Committees that might represent 200 Companies.
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 innovative oil and gas producer relies on their competitive advantages of their land and asset base, and their earth science and engineering capabilities. The Petroleum Lease Marketplace is the module that provides the producer and Joint Operating Committee with the tools to build their land and asset base. But there’s more, using the “Marketplace Interface” and the service providers that support the innovative producer. The Petroleum Lease Marketplace provides the producer with the competitive advantages to compete in the 21st century.
Financial Marketplace
With many of the world's financial markets continuing to be illiquid and nervous about certain situations. The capital and debt markets have been very negative towards the oil and gas industry with many of the independents being shut out of those markets. The rise of the Asian Joint Venture is a direct result of the inability to raise any money in the “normal” capital markets. I would expect to see further fall out as the Euro situation seems to be far from resolved, the U.S. is deeply indebted and demanding a lot of capital with only the quasi-government groups in Asia holding any significant amount of capital to invest.
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 and investment 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. My two criticisms of the management are that the velocity at which the management operates at is too slow, and the innovativeness is non-existent. In the financial marketplace the pace of activity will need to accelerate in order to address both of these issues. I think we have addressed these with the changes we have documented in the Financial Marketplace module of the Preliminary Specification.
The future requires that we are able to provide for the markets demands for energy. The financial crisis is providing relief in terms of overall global economic growth. Eventually the increase in demand for energy will resume and that is not something that we can currently contemplate. What we have proven here in the Financial Marketplace module is that the innovative oil and gas producer will have more efficient capital structures. Those structures lead to the overall performance of the producer and the Joint Operating Committees they participate in. We need to get our head around this energy demand situation and start to deal with a solution. Muddling through just seems to be too much of a risk.
A note about the “Marketplace Interface” that is a critical component of the Resource, Petroleum Lease and Financial Marketplace modules. The “Marketplace Interface” is a virtual representation that the user has of each of the marketplace modules. It uses avatars where firms and producers establish a virtual representation of their firms offerings. This provides a means in which people have to conduct their business virtually as well as through the traditional means. The avatars are supported through the People, Ideas & Objects ERP system that provides them with the ability to conduct any and all operations that they are able to conduct in the Preliminary Specification modules. It is the ultimate collaborative interface. The following video is a demonstration of the technology by the project owners Project Wonderland.
(Please review the video below.)
Partnership Accounting
The Partnership Accounting module is a pure “accounting” module from the traditional sense, however, I think there are many attributes and concepts in this module that make it unique and of interest to everyone in the industry. The standard list of output from an accounting system is provided and this is standard fare for any software provider in oil and gas. And the user community will fill this list with much more. As we will see in subsequent discussions the difference in the People, Ideas & Objects software application is substantial in that the Joint Operating Committee is treated as the partnership that it is. It also recognizes that the costs of the property for each of the producers within a Joint Operating Committee are as unique as the strategies that are employed.
When we talk about the scope of operations that would be managed under the Partnership Accounting module I would say that it includes just everything. Simply the cut-off would be the inlet to any refinery. Therefore the total scope of any upstream oil and gas operation. Let me be more specific about that from the point of view of geography and type of operation managed by the People, Ideas & Objects application.
If we look at the North American oil and gas infrastructure we see a variety of oil and gas installations designed to serve both producers and consumers of oil and gas. Wells, gathering systems, gas plants, pipelines, storage facilities etc. At each point along these systems there may be additional deliveries of product, or sales of product or products inventoried. What seems to be an obvious and simple business becomes incredibly complex when it's realized that each asset may be owned by a Joint Operating Committee itself and hold product on behalf of owners of other Joint Operating Committees. This summary glosses over the incredible complexity of this business when the volume of transactions that occur in these businesses make it an important part of the oil and gas operation.
Critical to controlling the business is the “Material Balance Report” that is part of the Preliminary Specification. It is the central document that so much of the subsequent process activity is based upon. If someone is to be charged for storage of butane for example, or if someone is to be charged a marketing fee for delivery of product to a customer. Or simply if a sale of a raw gas stream is deemed to have occurred at the wellhead. The Material Balance Report captures these transactions and initiates the flow of documents that need to be generated. It is these documents that also need to be captured and generated in the People, Ideas & Objects Preliminary Specification. To state this as simply as possible is that the scope of the Partnership Accounting module captures all of these activities for all of these facilities as its purpose. Each Material Balance Report must balance. And each reports inputs and outputs balance to other Material Balance Reports. The key to the Material Balance Report is that it provides a means to ensure that the volumes that are reported are factual. Which is the necessary requirement for much of the subsequent process automation.
As we explore the Partnership Accounting module further we see the reasons why we are taking such a broad scope of operations into considerations. It would be an understatement to state that the Material Balance Report has been poorly served by IT. To approach it from a global perspective that includes production operations, accounting and the other areas that depend on this information would be “ideal,” however, the complexity of the business has always been in the way. The engineering of software has never been available to approach the type of problem that this area presents. I think it exists now. And I think that the Partnership Accounting and Accounting Voucher modules of People, Ideas & Objects provides the vision of how this engineering solution solves this problem.
We also introduce the “Work Order” in the Partnership Accounting module. The “Work Order” enables producer firms to participate in informal and ad-hoc working groups to conduct studies and research. These informal groups are able to be established and formed without the traditional accounting nightmare that they have normally created, that are the impediment to their formation. An innovative oil and gas industry needs to have these studies and research working groups form and develop in order to expand the overall science of the industry. The “Work Order” is also an internal cost control mechanism that producers and Joint Operating Committees can rely on to manage their projects.
Accounting Voucher
We now shift our attention to the Accounting Voucher module. The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. They both being accounting modules, it is natural that they have high levels of integration. The Accounting Voucher is unique in that it brings to the producer the ability to design transactions and the Material Balance Report. These are not innovations that the producer will use to become more innovative but are provided to ensure that the innovative producers processes are actively defined and supported through out the People, Ideas & Objects application modules. When the business is a science, as it is in oil and gas, it would be in the producers interest to remain open and flexible in both its scientific and business approach. The Accounting Voucher and Partnership Accounting modules provide that organizational flexibility.
The manner in which these two modules operate is the Accounting Voucher captures the transactions. Partnership Accounting reports on the transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process that is familiar and traditional in the accounting world.
We noted in the Partnership Accounting module how the Work Order enabled the producer with the ability to form and participate in working groups. Providing a flexibility in participating and accounting for these working groups. This flexibility is what is being sought after in the rest of the producer firm and Joint Operating Committee from these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to a producers innovation as much as the Research & Capabilities or Knowledge & Learning modules do.
The People, Ideas & Objects Accounting Voucher Module will provide the means for the application to “manage the disparate inter-dependencies of modularity theory and Transaction Cost Economics.” That is a summary application of Professor Baldwin's comments and theories. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the People, Ideas & Objects application. What this means is it’s necessary for people to cease in processing transactions, by way of automation, and move toward the definition and design of transactions to optimize the business of the producer and Joint Operating Committees performance. Designing transactions is best described in the Preliminary Specification as coordinating the marketplace.
As a result of the pooling concept that is a basic assumption of the People, Ideas & Objects Preliminary Specification. Some of the Accounting Vouchers will be open to charges from multiple producers represented in the Joint Operating Committees that your producer firm is a participant in. The revenue, capital and operations of each of the Joint Operating Committees accounts are open to the direct debit and credit charges of all of the participants in the JOC.
The pooling concept has been developed as a replacement to the “operator” designation that currently exists. The ability for each producer to have the just-in-time capabilities available for all the properties they manage requires, on an industry wide basis, to have unused and unusable earth science and engineering capabilities. The ability to pool these critical resources from participating producers into the Joint Operating Committee releases these hoarded unused and unusable capabilities. The pooling concept also implies that some producers will provide other resources to the property in disproportionate amounts to their working interests. All producers need to contribute the skills, knowledge, experience and ideas that they have in an innovative oil and gas industry. Therefore each of these producers need to have the ability to charge their capabilities to the joint account. All charges are subject to the AFE or Work Orders budget requirements and cost control remains the domain of the Joint Operating Committees.
Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs. It is People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated or constrained by the administrative ease in which the producer operates.
The same can be stated for the Material Balance Report. If the producer is confident that the deal that was conceived is accurately captured in the Accounting Voucher. And the operation is therefore also reporting a substantial profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved.
Research & Capabilities
The Research & Capabilities module enables the producer firm to structure a division of labor between those people that will develop the research and innovations within the producer firm (Research & Capabilities), and those that will implement the innovations within the Joint Operating Committees (Knowledge & Learning). This is one of the major processes of innovation that is carried out in the module. Another major process is that it provides the innovative oil and gas producer with the ability to move the knowledge and capabilities to where the decision rights are held. This module is at the core of the innovative oil and gas producer. Identifying and supporting the key elements of “what” and “how” innovation requires. The Research & Capabilities module is the focus of the producers competitive advantages of their earth science and engineering capabilities.
There are a variety of interfaces in the Research & Capabilities module that enable and encourage the innovation, and develop the capabilities of the producer firm. These capabilities are ultimately captured in the “Dynamic Capabilities Interface” which is the key to both the Research & Capabilities and Knowledge & Learning modules. What the “Dynamic Capabilities Interface” does is capture, document and enable the deployment of the capabilities of the producer firm. These are the knowledge, skills, experience and ideas of the firm. The deployment of these capabilities is by way of their pertinent geological zone, or geographical area, and as a result these capabilities will be populated into the various Joint Operating Committees that meet that criteria in the Knowledge & Learning module.
The objective that we are fulfilling in the Research & Capabilities and Knowledge & Learning module is we are moving the knowledge to where the decision rights are held. The Joint Operating Committee is the operational decision making framework of the industry. With the current method of designating one of the producers in the Joint Operating Committee as the operator there is an attempt to move the decision rights to where the knowledge resides. In the Preliminary Specification we have eliminated the concept of the operator and replaced it with the pooling concept and therefore are able to align the frameworks of the Joint Operating Committee with the compliance and governance of the firm. This requires that we move the knowledge to where the decision rights are held. By doing so we eliminate one point of conflict between the partnership represented in the Joint Operating Committee and the producer who was formerly designated operator.
Knowledge & Learning
We now move onto the Joint Operating Committee focused Knowledge & Learning module of the Preliminary Specification. This module shares many similarities to the Research & Capabilities module, and in fact is populated with the capabilities from that “Dynamic Capabilities Interface” as its base of information. Recall that the objective that we are working to achieve is to move the knowledge to where the decision rights are held.
As I noted the Research & Capabilities module should be organized based on geologic zones. This is so that the information that is pertinent to each zone can be separated into its own “packaging” within the Knowledge & Learning module. Additional ways in which data may be sorted in the Research & Capabilities module might include geographical location. Where all the vendors who operate within a certain geographical location are referenced only in those regions in the Knowledge & Learning module.
With each Joint Operating Committee being concerned with one or a handful of geologic zones. The focus of the Joint Operating Committee can be limited to just those specific areas and or capabilities. What is particularly different about the Knowledge & Learning module, however, is that the information that is contained within the module is aggregated from multiple producers. Any of the producer participants who have information contained within their Research & Capabilities module will have that data and information for those geologic zones of that specific Joint Operating Committee populate the Knowledge & Learning module.
With the potential to have multiple companies contributions of research and capabilities about that zone. It is important to have the information organized within the Knowledge & Learning modules in a manner that when multiple producers data is merged, use of the data is probable. Each capability contains the knowledge, skills, experience and ideas of the people who are part of that producer firms and the service industry representatives. People, Ideas & Objects have developed the football analogy where the decision makers are presented with a list of these capabilities in the "Dynamic Capabilities Interface" and can select and deploy them in much the same fashion as the head coach in a football game.
As we have learned “knowledge begets capability, and capability begets action." Quotes are from Professor Richard Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.”
Indeed, the job of the entrepreneur is precisely to introduce new knowledge. The “Circular Flow of Economic Life” is a state in which knowledge is not changing. Economic growth occurs at the hands of entrepreneurs, who bring into the system knowledge that is qualitatively new – knowledge not contained in the existing economic configuration. p. 27
Here we begin to see the role that people take in the makeup of the oil and gas industry. And to sum it up is to state that it is everything. One also needs to consider the role of computers in these “actions” and that it amounts to not very much. People, Ideas & Objects divides the jobs between what people do well, the thinking, generation of ideas, leadership, collaborating, deciding and learning and leaves the memory and processing to the computers.
There has to be a mechanism by which new knowledge enters the system. And that mechanism cannot be rational calculation, for as David Hume (1978, p. 164) long ago observed, “no kind of reasoning can give rise to a new idea.” p. 27
There is much to be done in the industry and a lot of it involves blazing new trails. The hard work is what the people will need to be involved in doing. The challenges and opportunities are of historical significance and will require the dedication of a lot of people.
What has been done already has the sharp-edged reality of all things which we have seen and experienced; the new is only the figment of our imagination. Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. p. 27
Analytics & Statistics and Performance Evaluation
The Performance Evaluation and Analytics & Statistics modules have similar interfaces, the Performance Evaluation is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user based tools that enable analytical and statistical calculations run against the data and information that are contained within the People, Ideas & Objects ERP systems and other unstructured data. Providing users with the ability to analyze data in new and innovative ways in seeking value for their firm or JOC.
The types of data and information that are prepared and presented in these modules is dependent on the individual users and will in most instances be unique, based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will come up with the next great innovation we should expect that it will come from anywhere. Part of the process of innovation is discovery of the problem and we all see the situation from different perspectives. Therefore the point of view and the innovation will depend to a large extent on those different perspectives. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. Professor Giovanni Dosi notes.
Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.
Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are hard to discover and we need to be able to evaluate them and assess them based on their impact and their ability to build value. What sometimes appears to be a good idea can also sometimes become an area where the firm could be exposed to unnecessary risk or loss. Having the historical data available is necessary, however, in the 21st century it is also necessary to have these advanced analytical tools available to analyze that data.
In the Preliminary Research Report, People Ideas & Objects determined two important findings. One was that the process of innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. And two, that the Joint Operating Committee is the key organizational framework for innovation in the oil and gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firm are critical.
Work in the 21st Century will be different. The tools that people will use will need to be different as well. The Performance Evaluation and Analytics & Statistics modules are the beginning of these new era tools for the way in which people need to work. We frequently speak of specialization and the division of labor in the Preliminary Specification. There is also a specialization and division of labor between what the people and computers will be doing and that is reflected here in these two modules. Computers will be responsible for the storage and processing, and people will be responsible for the thinking, the ideas, the decisions, the creating, the collaborating, the innovation and the many other things we do well. Much of these things being generated based on the facts that are determined through the Performance Evaluation and Analytics & Statistics modules.
Compliance & Governance
Compliance & Governance, the module everyone loves to hate. It is my hypothesis that it is here, at compliance and governance, that everything went wrong. What I mean by that is in the 1960’s when the first computers were being introduced into oil and gas companies. The question was asked what will we do with them. And of course the answer was accounting. Then as they became ever more powerful and more capable they began to add more tasks to their duties and added the natural follow on concerns of tax, royalty and compliance. Soon the culture became focused on those “compliance” requirements of the “firm” and the Joint Operating Committee became something that was used over there. Soon after this engineers and geologists began speaking a different language to the “business” types. Divisions grew and the business of the business was focused on the corporation and its need to file the appropriate paperwork to the appropriate agency in the appropriate time frame on the appropriate colored form.
Anyway the real business of the business, the Joint Operating Committee somehow survived and if we align its legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks to the compliance and governance frameworks of the hierarchy everyone can start speaking the same language as the engineers and geologists and start to get some real business done. And as People, Ideas & Objects research has shown this would provide the oil and gas producer with greater speed, innovation, accountability and profitability.
Compliance & Governance is the eleventh module in the eleven module Preliminary Specification. It’s also no accident that I added Compliance & Governance last, as the question that should be asked is. How are we going to ensure compliance to all the regulations for all the module specifications that we have discussed so far? And I would assert that is why these are user based developments. But seriously, one thing governments seem to be fond of today is regulations on oil and gas companies. With Information Technology enabling various governments to issue technical business rules, technical specifications, XBRL syntax’s and other technological frameworks for these regulations. The ability to write these “frameworks” only seems to have encouraged them to write even more regulations. The larger point is that these frameworks do provide software developers with distinct advantages in enabling the regulations within the software.
As we had indicated earlier regarding the user communities determination of the scope of the People, Ideas & Objects application. Part of that determination of scope will include which regulations it will need to be in compliance too. With so many jurisdictions requiring compliance, each transaction may need to be assured to be in compliance with multiple jurisdictions. Add to that the transaction may be generated through a Joint Operating Committee owned by a variety of producers. And those producers may be composed from an international background and the Compliance & Governance module takes on an enhanced importance.
From the point of view of a producer maintaining the database and applications for all of the compliance frameworks that you have to be concerned with is a difficult task. The number of people you need to have to keep your applications up to date is significant. However, People, Ideas & Objects, as one software developer acting on behalf of the industry as a whole, the job becomes much more specialized and therefore manageable. Then again if we were building these applications with the purpose of serving an industry we will use the division of labor and specialization to manage these tasks in a way that would significantly lower the costs of compliance, and increase the quality of the producers compliance.
I foresee just the royalty compliance requirements of these applications potentially including many dozens of different jurisdictions. To approach this from a software engineering point of view as a sole producer is not cost effective in the least. To consider these costs are replicated across each producer firm, then we begin to see the costs of compliance escalating to the levels that they are today. There is another way, and that is what is being proposed here in People, Ideas & Objects, along with the many other innovative ways we are proposing to deal with the issues of the oil and gas industry.
Here we have the beginnings of compliance and governance for the innovative oil and gas producer and Joint Operating Committee. What we need to do is to deal with the compliance of an innovative oil and gas producer with the tools of the 21st century. Those include automation, specialization and the division of labor. And in terms of governance, we can begin to provide the producer firm with the appropriate operational governance that is consistent with the demands of innovation. For we have learned that innovation does not arise from sloppy compliance and governance.
Oracle Corporation
The Preliminary Specification details the modules, applications, processes and functions of the Oracle Database, Java, Oracle Fusion Middleware and Oracle Fusion Applications that have been specified and will be used.
Miscellaneous
People, Ideas & Objects is soliciting commitments to fund the completion of the first phase of development, the Preliminary Specification. This phase has been estimated at $200 million and 200 man years of producers contributions. Producers interested in supporting these developments should review our Revenue Model and contact me here.
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.
People, Ideas & Objects Preliminary Specification provides a vision of the future oil and gas producer. One that is based on the industry standard Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation, and strategic framework of the industry. When we take the compliance and governance frameworks of the hierarchy and align them with the frameworks of the Joint Operating Committee we attain a speed, innovativeness, accountability and profitability that is desired in our oil and gas organizations. The Preliminary Specification is an eleven module ERP software system that defines and supports the use of the Joint Operating Committee and marketplaces as the key organizational constructs of the innovative and profitable oil and gas producer. People, Ideas & Objects competitive advantage is that we provide the oil and gas producer with the most profitable means of oil and operations. This vision is comprehensive and is detailed in the 175,000 words contained within the modules of the Preliminary Specification.
The next twenty years in the oil and gas industry will be the most dramatic in its history. The demand for energy will ensure that prices remain high. And with so many people joining the middle class we need to consider how the industry approaches this insatiable energy era. Will the current bureaucracy be the solution? The financial recession has us locked in a perception that is backward looking and we can’t see the opportunities that will soon be upon us. Does that future involve an Information Technology perspective that is just a cost, or should it be a vision such as the Preliminary Specification stands today?
After all, as you will see, we are not talking about minor changes to the floor plan for accounting. We are exercising wholesale changes to the oil and gas industry by adopting the Preliminary Specification, and fully utilizing the Joint Operating Committee. Change that is as significant as that which is represented by the change in energy prices and the global demand structure we face. Based on the research of Professor Giovanni Dosi and applied to the oil and gas industry, he asserts that the makeup of industries and companies is attributable not only to the endogenous force of competition. Innovation and imitation also make up the fundamental structure of an industry. “Market structure and technological performance are exogenously generated by three underlying sets of determinants.”
Each of the following three components are evident in the marketplace of an oil and gas producer today, as reflected in:
The structure of demand.
Satisfying the insatiable demand of the global energy marketplace is critical to the advancement of all societies. American and western as well as Chinese and developing societies face real challenges in sourcing adequate long term sources of energy. The long term demands on the energy producer have never been so great.
The nature and strength of opportunities for technological advancement.
The nature and opportunities for technological advancement lead one to believe mankind has never faced the level of opportunity and acceleration that is possible today. The industrial mechanization of the past 100 years combined with the prospective mechanization of intellectual pursuits combine to markedly appreciate the value of human life. The availability of energy will be a critical element of this advancement.
The ability of firms to appropriate the returns from private investment in research and development.
The oil and gas industry is moving closer to its earth science and engineering principles. Innovation, research and development in both the producer firm and the market are and will become more commercial in nature. It is on the basis of success or failure of these factors that will determine the success or failure of the producer firm within the industry.
The role of software in society is becoming more pronounced. Today we are still in the beginning stages of what can be done. For an industry such as oil and gas to continue without the software development capabilities that People, Ideas & Objects is proposing, and the organizational structure focused on the Joint Operating Committee, the prospects look dim. It is People, Ideas & Objects claim that we provide the innovative oil and gas producer with the most profitable means of oil and gas operations. And we do. First by providing our software through the most cost effective manner. That is charging our subscriber base for the one time costs of our software developments. A fundamentally different value proposition. And secondly, that in order to attain a higher level of economic output requires that the oil and gas industry employ higher levels of specialization and division of labor. To organize that specialization and division of labor requires the use of the software specified in the Preliminary Specification. There is no other means in which to organize a higher level of specialization and division of labor. The bureaucracy is tapped out. Therefore our claim to the most profitable means of operations is valid. The only manner in which to move from the high levels of organizational methodology we currently enjoy, is to design and support a more sophisticated specialization and division of labor. And that is detailed in the Preliminary Specification. We need to take control of the production of the software, to take control of the means of energy production. That is what People, Ideas & Objects user based software developments is about.
When it comes to undertaking a large project such as People, Ideas & Objects Preliminary Specification. And we have costed the project in the area of $2 to 4 billion in its first commercial release. Is the need to maintain a sense of urgency for the people involved through to the end of the project. As we know, most of the people will remain motivated as long as the money keeps flowing. So how do we ensure that the money keeps flowing? It is through the fact that we provide the most profitable means of oil and gas production that we can motivate the producers to maintain their sense of urgency in keeping this project funded and moving forward to its conclusion. The alternative is the bureaucracy and we see how well they’re doing. In the future it may not be enough to own the oil and gas asset. It will also be required to access the software that makes the oil and gas asset profitable, that is the importance of software in tomorrow’s society.
From the eleven modules there is an overall vision of how the innovative oil and gas producer, and the Joint Operating Committee would function in the insatiable energy demand era. I had two comments made to me when I wrote the Preliminary Research Report. The comments were that “this solves every administrative issue in oil and gas for the past fifty years” and “it's an entire new discipline.” Both were related to the significance of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. What I think that we can say as a result of completing the Preliminary Specification is that both of these comments underestimate the significance of using the Joint Operating Committee.
What we have discovered is that it certainly resolves the administrative issues when the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks are aligned with the compliance and governance frameworks. However, when it comes to the operational concerns of the oil and gas industry, it also provides the frameworks and means to solve those problems as well. Whether it is the ability to agree amongst the partnership and reduce production during commodity price declines, or moving the industry to a decentralized production model, where production and administrative costs more accurately match revenues. Or where the innovation is generated through two major processes in the Preliminary Specification, which do not directly conflict with tight operational control. Or how the division of labor and specialization are enabled, defined and supported through the software to provide for the industry to expand its output from the limited resource base of earth scientists and engineers. These are just some of the features of the Preliminary Specification that impact the operations and enable the producers to enhance their organizations. And although they have been used to highlight today's operational issues they will also provide solutions for tomorrow's problems.
Changing the innovative behavior of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy. Producing natural gas at a loss is possibly the beginning of this process. A time of dynamic change driven by the organizational changes focused around the innovative Joint Operating Committee. How can a firm that has been developed in an era of cost control transform themselves into an innovative, dynamic, earth science and engineering capability focused producer? In many cases the will to do so might exist, however, with the speed and unforgiving nature of the business cycle, not much time will be provided to those that attempt the transformation. We see in this world the capital markets reflecting many interesting phenomenon since the financial crisis of 2008. To suggest any trend or definitive result from these would be premature. Its just a different world in terms of being an oil and gas CEO or CFO than it was before 2008.
The Preliminary Specification includes in its definition Oracle Corporation’s technologies. If you read or review any of their material it has a decidedly technological focus. If you mention the Joint Operating Committee within their organization you can hear it echo for a week and a half. They really have no fundamental understanding of oil and gas, and only a basic understanding of business. They have become very specialized in what they do and the products they sell. Such is the nature of the division of labor and specialization. What People, Ideas & Objects are therefore doing is filling a “gap” or creating a sub-industry in providing the business understanding of the oil and gas industry to the technologies of Oracle Corporation. This “gap” or sub-industry between the oil and gas industry and Oracle is something that is needed because the two are unable to speak coherently to each other, they need an interpreter, and that’s People, Ideas & Objects and the Preliminary Specification.
McKinsey Consulting suggest that large populations will be joining the middle class in the next 20 years. This will have a dramatic effect on the levels of demand for energy. If the oil and gas industry fails to respond to these demands due to the bureaucracies lethargic ways, will anyone note that there were alternatives proposed?
People, Ideas & Objects is soliciting commitments to fund the completion of the first phase of development, the Preliminary Specification. This phase has been estimated at $200 million and 200 man years of producer contributions to the user community. Producers interested in supporting these developments should review our Revenue Model and contact me here.
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.
Here we have the beginnings of compliance and governance for the innovative oil and gas producer and Joint Operating Committee. What we need to do is to deal with the compliance of an innovative oil and gas producer with the tools of the 21st century. Those include automation, specialization and the division of labor. And in terms of governance, we can begin to provide the producer firm with the appropriate operational governance that is consistent with the demands of innovation.
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.
Where to begin, lets start off with a high level summary of the Oracle Governance, Risk & Compliance Management Suite of modules. There are three groupings in which the modules are organized, they are Risk & Financial Governance, Performance & Financial Controls and Access & Segregation of Duties Controls. Within these three groups you will find the modules that Oracle has developed in the Oracle Fusion Applications, Oracle Governance, Risk & Compliance Management Suite. We will be discussing the Risk & Financial Governance module with the Performance & Financial Controls being discussed next and Access & Segregation after that. Needless to say these modules have all been adopted within the Preliminary Specification.
To the larger issue of compliance and governance and how a firm gets a firm handle on the growing demand for more regulation. Oracle and People, Ideas & Objects have similar ideas as to how to keep ahead in this difficult area. Oracle asks the following.
No one expects that this is the end of new industry and legislative requirements, so business executives continue to struggle with questions such as: How can we stay on top of regulatory demands while controlling costs? Can we better manage risk to prevent business and compliance failures? How do we achieve better performance while ensuring accountability and integrity?
And it is through automation, Information Technologies and the use of specialization and the division of labor that the innovative oil and gas producer can achieve these objectives of getting ahead of the regulations. As we have proposed in the Preliminary Specification, the producer that participates in the user community has the opportunity to shape the software that they will use. People, Ideas & Objects is user defined software based on the Joint Operating Committee. Giving the producer the ability to remake their organization into an innovative, profitable and performance oriented oil and gas producer.
In terms of Oracle’s Risk & Financial Governance module producers will be able to increase the efficiency of compliance processes, improve the reliability of the financial reporting and anticipate and respond to risk. We discussed the element of risk in the Financial Marketplace module and the assessment of all of the investments based on their anticipated returns. Each of the potential investments have to be “risked” in order to bring the return on to comparable terms that considers the risk. It is here that the the two modules, the Oracle Risk & Financial Governance, and the Financial Marketplace modules will have some cross over. It is also at this point that our two firms have similar attitudes, again, with respect to how the producer attains value. Oracle states.
KPMG's Assurance & Advisory Service Center understood early that value and risk go hand in hand and that performance and risk management should converge to create, enhance and protect stakeholder value. In May 2007, the Institute of Management Accounting further characterized Enterprise Risk Management as aligning strategy, processes, technology, and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value. It considers ERM to be a truly holistic, integrated, forward-looking, and process oriented approach to managing all key business risks and opportunities—not just financial ones—with the intent of maximizing stakeholder value as a whole.
This will be a key insight that the user community will be able to build off of the People, Ideas & Objects Financial Marketplace and Oracle’s Risk & Financial Governance modules.
The Oracle Transaction Controls Governor is an application that is designed to continuously monitor key transactions. It also provides monitoring of data and application modifications. In terms of reviewing transactions, much of the application is programmable and can be set to look for certain criteria. This is done through an interface that is intuitive and easy to set up a control to monitor all transactions for certain behavior. Oracle also provides a library of internal controls that can be deployed if the producer finds them of value. People, Ideas & Objects, working on behalf of our subscribing producers, will also provide a library of these controls that are specific to the innovative and profitable oil and gas producer. These controls output can then be directed to the appropriate individual within the firm to have them dealt with.
Oracle’s Configuration Controls Governor is an Oracle Fusion Application that provides Sarbane’s Oxley compliance to the producer for IT infrastructure configuration changes. When there is a change to your IT environment, the who, what, where and when of the change is sent to the appropriate people within your organization. There they can review the changes to ensure that they were carried out in compliance with the companies policies. The Configuration Control Governor also provides the ability to establish tolerances on fields. So if a user entered a number that exceeded the value of the fields tolerance, the transaction would be rejected.
During our discussion of the Compliance & Governance module we discussed the need for more internal controls. And these transaction and configuration controls will bring an element of the internal controls under appropriate governance. That these are automated helps to provide a strong understanding of the appropriateness of the global transaction base the producer firm has based their financial reports upon. However, they are not the whole picture when it comes to internal controls. And that is where the Oracle Preventive Controls Governor comes into play. Using configurable workflows, Oracle Preventive Controls Governor enables the user to design and implement appropriate internal controls for their firm. This tool provides both contextual and intrinsic policy applications to business processes.
We take a look at Oracle Fusion Applications, Governance, Risk & Compliance Suite, Access Controls Governor module. This will be an important element of the Preliminary Specification as segregation of duties (SOD) has taken on an heightened importance in the firm. Whether that is as a result of the regulation or from the need for better governance, SOD offers many advantages to the innovative oil and gas producer. Having multiple people involved in the process from beginning to end ensures that no one individual can manipulate resources of the firm for their own benefit.
Oracle notes the following is also part of the Access Controls Governor modules functionality.
Global regulations are driving organizations to improve the transparency and accountability of financial data, processes, and transactions. Controlling, tracking, and reporting on user activity within the application environment are critical components of compliance.
So apparently big brother needs to be watching. And as good as your internal controls may be, there will always be ways in which the system might be “hacked” in ways that were unknown before. Thankfully Oracle’s Access Controls Governor module is automated and implements the policies based on management's understanding. There is also a library of controls that can be implemented that was developed by Oracle in collaboration with leading audit and consulting firms. As with the libraries that were mentioned, People, Ideas & Objects will maintain a library of these policies for the innovative and profitable oil and gas producer. And the system is not just reporting on violations, it is actively stopping and enforcing SOD when they occur based on those policies. And they can be somewhat dynamic and proactive in their enforcement, stating that no user can be involved in more than two steps of a five step process, and disallowing the user to sign on to another process at the time of assignment.
When preparing policies for implementation the Oracle Access Controls Governor provides a tool for simulating the new policies. Using the historical record of user access as the base of information it can run the new policy against that data to determine what the outcome of that new policy will be. Would there be any new violations, and / or false positives etc? Then they can tune the policy based on the feedback that they get from the tool to ensure that it is catching only the desired situations. Saving costly resources in the future.
From a People, Ideas & Objects perspective the Oracle “Governance” applications that we have discussed help to bring 21st Century internal controls to the Preliminary Specification. When we think of the manner in which the industry will operate with large portions of the existing producers overhead being provided by service providers. And those service providers accessing their work through the People, Ideas & Objects Preliminary Specification. Extension of these internal controls to those individuals will be needed as well. The producer will need to know that these controls are effective in their firm, their Joint Operating Committees and the service providers they hire to maintain their firm.
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.
We have been concerned with the governance over operations, and now we want to look into the governance over the two major processes of innovation in the Preliminary Specification. The first process of innovation is the development of innovation within the producer firm and is a result of the earth science and engineering capabilities being developed. The second process is as a result of the field level innovations that are developed by the service industry and are either product or service related in terms of their offering to the producer or Joint Operating Committee during some operation. Either way it is important that the producer firm have a measure of governance over the developments of innovation for a variety of reasons. These governance elements will again be captured in the “Operational Review & Governance Interface” of the Compliance & Governance module. Quotes are from Professor Richard Langlois paper “Innovation Process and Industrial Districts.”
What is it that the innovative oil and gas producer and Joint Operating Committee will be doing when they are “innovating”? That seems to be a fairly reasonable question and one that would be the founding principle in which the governance over the innovating processes should be based upon. It's here that Professor Langlois provides us with a very good summary for our purposes.
Innovation is based on the generation, diffusion, and use of new knowledge. p. 1
The source, deployment and use of this new knowledge is the “Dynamic Capabilities Interface” in the Research & Capabilities and Knowledge & Learning modules. Recall that “knowledge begets capabilities, and capabilities begets action.” The capabilities that are contained within the “Dynamic Capabilities Interface” are comprehensive and are designed to serve the needs of all of the people that are required for that particular operation.
While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1
and
Relationships within industrial districts therefore lead to diffusion but also to the creation of new knowledge through shared preoccupations. Because many people or firms can work on a problem simultaneously, a number of different solutions may be found (Bellandi, 2003b). The results is a larger and stronger "gene pool" within the sector (Loasby, 1990, 117), with the further advantage that solutions that are originally regarded as competing may turn out to be complementary and well-suited to different niches within the district. p. 7
I could recite more of the elements of the Preliminary Specification as the reasons for the governance requirements in the “Operational Review & Governance Interface.” The point that needs to be made is that the two major processes of innovation need to be reviewed from a high level within the firm. There are many interactions between the firm and the Joint Operating Committee, and the larger service industry that the possibility that all of the valuable knowledge is not codified is high. That is just one of the risks. Another is that the “Lessons Learned Interface” doesn’t capture the failures accurately for further learning. These are necessary to be reviewed to ensure that the knowledge and capabilities, as well as the innovations are built upon for the future.
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.
Within the Preliminary Specification there is a conflict or contradiction that needs to be managed through the Compliance & Governance module. That is the posture that needs to be presented by the people who are members of the Joint Operating Committee towards the service industry representatives. At two different times and two different places during the ongoing operation of the properties the approach towards the service industry may be fundamentally different. At one time the approach will be to have the service industry operate as a free wheeling marketplace where the innovation and ideas are flowing. And then there will be the times when the operations are being conducted and the need for military precision is expected and required to ensure the operations are completed successfully. This Dr. Jekyll and Mr. Hyde routine would give most people, in both the Joint Operating Committee and the service industry, a second look.
On the one hand we have a marketplace and on the other we have operational control. And for many reasons the two may be comprised of the same people operating in different capacities and at different times. The governance issue is; how do we ensure that the operating mode, marketplace or operational control, is the appropriate mode that everyone is operating under? This is of particular concern to the service industry representatives, as so much of the operational control and success of the operation is dependent on their full attention.
The answer to this question comes from the “Operational Review & Governance Interface.” If there is an operation that is currently being conducted by the Joint Operating Committee. And there has been no corners cut or short cuts taken then there will be the explicit knowledge contained in the “Dynamic Capabilities Interface,” the “Planning & Deployment Interface,” assignments under the Military Command & Control Metaphor which will include representatives of the service industry, the AFE, and Job Order. Whereas none of these are required in the marketplace. Therefore the onus is on the Joint Operating Committee to ensure that these tools are used to contrast it from a freewheeling marketplace. And it will be in the “Operational Review & Governance Interface” that the governance over the members of the Joint Operating Committee is imposed to ensure they are using these tools appropriately during their operations.
Operational control and innovation are on two opposite ends of the same spectrum. That however does not mean that they can’t be attained by the same organization. The innovative and profitable oil and gas producer must have both. One without the other is not worth pursuing. The conflict and contradiction will show up in the organization at some point and the need to deal with it becomes a governance issue. The user of the “Operational Review & Governance Interface” will have the tools necessary to ensure that the Joint Operating Committee is able to discern the difference between innovative markets and tight operational control.
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.
Please note throughout these writings our reference to bureaucrats represents the CEO, CFO, COO and directors of the producer firms. These are the people that we see who have the authority to correct these issues and are the individuals responsible for the damage and destruction in the industry.
Please review this software applications Preliminary Specification, in which we provide an overall vision of how a producer would operate using the Joint Operating Committee as the key organizational construct.
If you are interested in joining People, Ideas & Objects user community then please follow this process. Lastly you can contact me at paul.cox@people-ideas-objects.com or Calgary (587) 735-2302 and Houston (713) 965-6720.
