A Permanent Loss of Accountability? Its Decision Time!

 This post should be considered an amendment to our response to an RFP of July 2021. It is also an increment to our value proposition of $660.6 billion that producers could quickly reclaim on behalf of their investors in the appropriate selection of a tier 1 ERP system. 

People, Ideas & Objects et al take a great deal of pride in the fact that throughout our history of pursuing these critical oil & gas issues. We’ve been able to identify what can only be described as the greatest issue the oil & gas industry has ever faced. We were then able to provide a comprehensive solution in the form of the Preliminary Specification, and do so a decade ago. And this was all done while taking on the best of what the industry could throw at us and without a single penny of their money. What we can all understand is that the officers and directors of the producer firms have personally benefited from the value of the industry, and no one else has benefited as a result of their efforts? Producer firms stand today with a fundamental inability to be profitable at any level of price. Profits are what drive an industry forward for all concerned. Acceptance of a boom / bust cycle is madness and just bad management. Incapable of delivering reliable and secure levels of product for consumers. The only thing producer bureaucrats, the officers and directors are capable of, is generating excuses, blaming others and viable scapegoats.

The Preliminary Specification is a decade old, what if its existence was no longer available, would there be any dividends, stock repurchases or paying off of bank debt by producers? What if the threat of having the option to use the Preliminary Specification no longer existed in oil & gas? The producer firms officers and directors may be on the verge of making what would be an ideal situation for them permanent. What they have and have always wanted is just around the corner and only People, Ideas & Objects, our user community and service provider organizations are standing in their way. Producers have cash streaming in, unaccountable organizations that could overnight and at a whim be involved in a variety of different businesses, with accounting methods that have been accepted by all concerned in the industry for decades, including the CPA firms, and a culture of fill in your own adjective here. It’s decision time as the producers are moving now to seal their legacy of unaccountability and non performance in the selection process of a tier 1 ERP system. 

One of the specific requests and requirements by the oil & gas producers investors is that they implement a tier 1 ERP system, such as Oracle Cloud ERP or SAP. The base of the Preliminary Specification is Oracle Cloud ERP and would therefore qualify for this requirement. SAP is used by a few of the oil & gas producer organizations and they are currently offering their solution as we speak. SAP’s system is designed for manufacturing companies where the ability to organize first, second, and third tier industry product production, just-in-time is attainable. Major auto manufacturers use it and SAP makes them their priority as it does any global manufacturing concern. SAP sells their product to oil & gas producers however does not have an oil & gas solution. On September 12, 2022 SAP will host 11th Annual Conference in Houston and virtually, and have published a white paper to reflect what they’re selling in oil & gas. On page 6 we see they focus on “Paving the Way for Business Model Innovations” indicating they don’t have a plan. However we read on.

• Oil, gas and energy companies pursue a bold vision for 2025 to deliver safe, reliable and sustainable energy products and services focused on the customer and enabled by innovation.
• To do this oil, gas and energy companies will implement new business models with a keen focus on sustainable energy transition. This will include investing in renewables, focusing on retail, electric vehicle (EV) charging at fueling stations, and carbon-cost reduction. 
• To manage the magnitude of data volume through production and operations, collaboration on access to, and analysis of data require intelligent technologies such as AI and machine learning. Connected machines and business processes can help realize industry 4.0 aspirations. 
• Larger oil, gas and energy companies will continue to diversify into adjacent industries such as utilities, solar and wind power, and energy storage.

SAP’s white paper shows the focus on Information Technology to solve the issues facing oil & gas. Touching on all the key talking points, yet we find no instance of the words accountable, accountability or performance. Anyone who knows about this market must stand back and marvel at the success of SAP and its marketing. This white paper and their Houston conference reflects this marketing brilliance which has been stellar and a study for some of the best examples in business. What I see SAP doing here is they’re making public the news that they’re selling unaccountability to producer officers and directors who want to maintain their chronic lack of accountability. Maintaining and permanently securing a lack of accountability in the organization through the ERP software cementing their bureaucratic manner and method of operation for the long term. I’m predicting massive sales of SAP once the September 2022 conference is over. Once SAP is implemented, producers will be defined by their officers and directors in whatever business they may happen to choose that day and built upon the framework of unaccountability that has worked so well for them personally. In terms of “what, how and why” SAP proposes to resolve the oil & gas issues and opportunities there is nothing in their white paper. On the contrary it’s heavily focused on environmentally based clean energy transitions in a “safe, reliable and sustainable” way, continuing with the unauthorized diversion of oil & gas revenues that oil & gas investors created with their investment in the oil & gas business. Profits continue to be irrelevant, therefore producers' money either comes from trees or investors. What should also be stated is that without a defined plan in place, SAP’s system will need to set out to define, design and architect the system. A process that took a decade for People, Ideas & Objects as it does for all appropriately built systems. Then the system will need to be built through the culture that exists today. 

Some might say that it will be difficult for SAP to build a solution in an environment where the Intellectual Property being commercialized by People, Ideas & Objects exists and will therefore need to be avoided. That however will be a bureaucratic feature, and not a bug. The Preliminary Specification will become the excuse that producers will state “we can’t enhance the performance accounting or accountability due to the existing IP that legally has to be avoided.” This may become the latest, and greatest viable scapegoat of all time. When I published in 2004 that organizations were defined, supported but also constrained by the ERP software they used. Producers interpreted that as the point in which no further developments of any kind would be done to any of the ERP systems they used. Cementing their organizations in the bureaucratic stasis that they are. Enabling them to secure their hold on power for a few decades longer. Not looking at the need to establish the permanent software development capability of the Preliminary Specification to ensure continued organizational development. Therefore in 2022 the prospective avoidance of People, Ideas & Objects IP will be a further extension of this same logic that precludes producers from ever attaining any level of performance or accountability expected of them. 

As pertinent background information, I began this adventure in 1991, I spent the first year promoting Oracle to join in the development of client server systems for Canadian oil & gas. This initiative failed in February 1997 as a result of my firm's inability to secure any commitment from oil & gas producers. Or in retrospect, I believe now that producers rejected the system due to the high level of accountability being introduced. Oracle subsequently tried on their own with their own product and found the same outcome, no participation from the producers for the same reasons, and left in 2000. There is an inherent level of commitment evident in Oracle's near decade long actions regarding oil & gas ERP systems that is not evident in SAP’s. A 22 page white paper and three day conference are superficial in comparison to the Preliminary Specifications 3 million word, viable business model and an active user community that began its development in 2014. Accountable ERP systems have been deliberately avoided for at least the three decades of my involvement and those who offered such products have not benefited due to their specific pursuit of enhanced producer performance, accountability and integrity.

Oracle’s market capitalization is now $206 billion and is the premier ERP provider in the world according to Gartner, SAP’s is $109 billion. I do not recall SAP’s efforts to build an oil & gas solution in the manner that Oracle or IBM have. Together Oracle and People, Ideas & Objects can build the Preliminary Specification to solve these critical issues for the oil & gas industry. And do so by first avoiding the issue of these officers and directors of the North American based producer firms and their desire to maintain their systemic lack of accountability. 

Looking at the decision to purchase and implement an ERP system. It’s expensive, it’s time consuming, it affects the management of the firm and tightens the compliance and governance of their actions. It holds the officers and directors accountable for their actions and decisions. Accounting is about the reporting of performance and as I’ve documented throughout these writings the oil & gas producer bureaucrats have morphed the purpose of their accounting to recording value as they’ve chirped in their “building balance sheets” mantra. The ERP decision is made at the board of directors level based on the officers recommendations. Due to the high cost, time and disruption that occurs in the producer firms that undertake ERP implementations, this level of the organization's involvement is mandatory to make the decision. Once the decision is made it would not even be considered again for at least seven years and only if management were dissatisfied. 

I became aware of the specific ask for a tier 1 ERP implementation by investors a few years ago and am unaware of how long it has been since it was first requested. What we do know is that unlike the move to clean energy which was implemented the night the investors allegedly asked, and in what I’ve described was an unauthorized manner, we are unaware of any producer investing in ERP systems. On the one hand moving into unrelated, uncompetitive industries, that have no record performance or value generation, no history of success and massive government involvement is done immediately. The producers, officers and directors will be able to justify these actions with the simple viable scapegoat that they’re “saving the planet,” and the reason they’re not profitable is “they haven’t figured it out yet” for their continuing poor performance. Focusing on oil & gas and enhancing its performance doesn’t intrigue them for some reason, recall they abandoned shale as “non commercial” less than 2 years ago. Alternatively enhancing the level of accountability of their actions by implementing the Preliminary Specification, our user community and their service provider organizations is obviously never going to happen if SAP meets the tier 1 ERP requirement demanded by their investors and selected by the producer officers and directors. 

I’ll emphasize the year I started this was 1991, 1992 with Oracle and both ours and their initiatives failed due to the inability of producers to get involved? Yes, that’s a question. This isn’t an issue of the investors that began in 2020 or whenever they first requested the ERP system upgrade to tier 1. This is a culture, a behavior and an infestation across the North American producer population for officers and directors to maintain their enhanced personal financial compensation. It is a necessity that producer firms implement the Preliminary Specification in order to wrest control from the hands of a small cadre of bureaucrats that have found the source of their personal wealth is through a deliberate, destructive and dangerous level of unaccountability. One that has caused enormous risk to now be realized in societies inability to source profitable energy independence from secure, reliable and affordable oil & gas and about to be permanent if they implement SAP’s ERP software. 

I would like to take a moment to speak about those ERP providers that are in the market throughout this time and the stellar efforts they’ve done. It's one thing to avoid the tier 1 ERP providers and maintain the history as I’ve briefly described here. There are a number of ERP providers that cater exclusively to oil & gas that have been in the business for many years and decades. They too have experienced the abuse of the producer bureaucrats who seek deceptive levels of accountability. To suggest these ERP providers have been put on a shoestring diet would be unfair and more appropriate to describe it as a second hand shoestring diet. Never paying for the application itself was a common tactic, only signing a service contract. Never sponsoring any changes to the systems they used. Producer bureaucrats have the systems they want providing them with the obscurity they desire, why would they change that? Ensuring that their accounting and ERP systems were always inadequate. And I say that with all due respect to my competitors who have done the impossible in the most hostile of business environments. And should they have provided the accountability necessary, they too would have been on the outside looking in.

Let me suggest a hypothesis that builds upon the situation that we have today. If oil & gas producers had the appropriate tier 1 ERP providers in place for the past decades of this history. Would the industry have fallen into the financial, operational and political crisis that we see the greater North American oil & gas economy has become today? Is it the lack of effective ERP systems, including SAP, that have reported inappropriate results of producer firms that enabled the industry to fall into the disaster and destruction that it currently is? I’ll reiterate that the lack of effective ERP systems is the deliberate and desired outcome of the producers' bureaucratic officers and directors actions over the course of these many decades. 

The questions producer officers and directors should be asking themselves. Will consumers demonstrate the same tolerance, patience and perseverance that both their oil & gas investors and People, Ideas & Objects have displayed these past years? Or will they want answers sooner and hold producers accountable for their energy demands and whatever else may be on their minds? Will they demand more than “muddle through” as an answer, and who will they turn to to heat their homes and earn their living? Having a permanent, entrenched and SAP supported, unaccountable organization is a greater concern for the consumers than the oil & gas investor. Investors could always sell their interests. I would advise these officers and directors to rethink their approach and ask themselves, just because they can continue with their unaccountable ways, does that mean they should? No one questions that the oil & gas reserves are in place as a result of the shale formations. No one questions the oil & gas producers capacity to spend investor money to increase deliverability. What’s different today is that investors aren’t volunteering for the “dupe” role anymore. And producers never were able to earn “real” profits. History may not repeat itself. Will it be a case of oil & gas everywhere, and not a drop to burn?

In writing this I fully understand the implications of doing so. Making this a self fulfilling prophecy is not what I’m intending to do. I am attempting to show the jeopardy we may realize as a result of cementing the established bureaucracy in a term that will last at least the seven years in which SAP will be current, with much longer term consequences. Who will step up after that to assert themselves if People, Ideas & Objects fails in the market, yet the IP of the Preliminary Specification will need to be accounted for in any future solution? And even if there was someone who felt they could provide a better solution, would they be leading their product forward with enhanced performance and accountability in the manner that both Oracle and People, Ideas & Objects were ostracized and vilified for today?

I also want to clarify, it should not be misunderstood that I’m conceding the point. After 31 years, that’s not even on the table. What I am stating is that the stakes for all concerned will be growing exponentially more difficult in what appears to me to be this next phase of our journey. More difficult for all those associated with People, Ideas & Objects but also for all those who are dependent upon the North American producers in some form. We are heading to what appears to me to be a “quick decision” being made by the producer bureaucrats to adopt SAP based on satisfying their “investors input.” That although it satisfies the general requirement of a tier 1 ERP system. It’s a decision that is made in the best interest of the officers and directors continued, deliberate and destructive lack of accountability and as with so much of their activities is specious. To suggest that People, Ideas & Objects may benefit from the decision made from the producer firms is an argument that doesn’t comprehend the value that’s been destroyed by this deliberate bureaucratic sloth and doesn’t understand the relationship we have with producer bureaucrats.

Recommendation

Nonetheless here is People, Ideas & Objects recommendation to North American producers. Select the Preliminary Specification as the industry standard ERP system. Bold, audacious and justified on the following basis. Today producers may feel they’re sailing on for a good run and do not have to concern themselves with the past. What is evident in their second quarter 2022 financial statements is that there are legacy damages and difficulties ahead. The greatest that I can see is the lack of trust, faith and integrity the capital marketplace holds for the producer firms. Cash flows are strong and support the lofty valuations producers feel that they may have earned through their obstinate “muddle through” strategy. However, these valuations are not being believed, and in most cases North American producers are trading at half those valuations. 

The handful of producers that are able to perform at the level of their cash flow multiples should be participating in the development of the Preliminary Specification as well. Those that are not performing will be the ones who will be desperate for revenue and putting their entire production profile on the market despite the implications to the commodity price. It might be wise to remember the negative $40 prices of April 2020 of which no one individual producer was responsible for. The Preliminary Specification recognizes the Joint Operating Committee and the integration of the partnership will enhance the collaboration and innovation throughout the property, your firm and the industry. 

The selection of the Preliminary Specification may be seen as the producers first step in reclaiming their integrity in the eyes of their investors. There would be value in doing so. As the differential in terms of the cash flow multiple vs. the market capitalization of our sample of 18 producers representing 11.562 million boe / day is $220.2 billion, therefore potentially triple the number for the North American producers. It may be that the capital market is predicting a decline in the oil & gas producer firms, or, is the fact that this is consistent across many quarters more valid? Of the more active traders in these firms markets are the producers themselves. In the first half of 2022 $13.4 billion in share buybacks were conducted. Without the share buybacks how understated are these differentials? I have been critical of these share buybacks and suggest they’d be better off as special dividends. However, this argument seems to be getting through as many of these share buybacks are now being held as treasury shares as opposed to being canceled. A far more productive method.

What if the following scenario was the case. Producer bureaucrats ceased to be subject to the whims of the commodity price swings and learned to build value everywhere and always through the implementation of the Preliminary Specification. 

• How much of that $220.2 billion for our sample of producers and $660.6 billion for the industry differential would be reclaimed by proceeding with People, Ideas & Objects et al? 
• How much larger would that differential grow if producers selected SAP? 
• If officers and directors choose SAP does that prove People, Ideas & Objects allegations of deliberate and destructive lack of performance and accountability? 
• Are these concerns of the producer officers and directors? 

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Accounting Voucher Part 3

 Purchase Order Systems

It's very 1970s to be thinking of a Purchase Order system. The 1970’s is the last time that I can think of anyone ever using one. (It certainly might be used in the larger firms, however, I am unaware of this.) The practicality and usefulness of these systems seemed to have receded in the 1980’s and no one has considered their existence since. Now we talk in terms of Supply-Chains, however oil & gas doesn’t have a “supply-chain” as the term is used. Supply chains are for retail and manufacturing. Purchasing is for oil & gas. I would reiterate that the use of a Purchase Order system is something that our user community will need to research to determine if the need and desire exists. I see substantial value in building one and seek to document how that value could be realized.

The Purchase Order system is part of the Accounting Voucher as the necessary part of the processing of any large capital item. The use and application of the AFE, Cost Center or Lease charge code remains the same notwithstanding the Purchase Orders existence or not. There is no change in the coding structure as a result of the inclusion of the purchase order number. The Accounting Voucher relies on the Purchase Order for further approval of the specific contract dealing with a particular vendor on a specific project.

There are a number of cases where the management of the vendor relationship needs to have special considerations. Particularly in oil & gas where the details of the project are specific and large. Engineering contracts for the building of gas plants, pipelines and facilities are some of the examples. Situations where the contract must meet certain criteria and the vendor must qualify to meet those criteria during the construction process. It's of concern to the producers that the firm that is chosen be capable of undertaking the work that is described. It’s never the lowest cost and the bid wins type of contract bidding process. This overall bidding process falls under the larger Purchase Order process of the Preliminary Specifications Accounting Voucher.

Once the vendor has been selected then the approval of the costs are subject to the terms and conditions of the contract. Any prepayments or partial payments can be processed on the basis of the strength of the Purchase Orders document and the final payment is subject to the satisfactory completion of the contract. If the contract is subject to any holdbacks and other conditions, then those would be applied within the Accounting Vouchers payments on an automated basis.

The Purchase Order system is designed to provide producer(s) with a level of control over large contracts. Something that is done frequently in oil & gas. By managing the bidding process and providing a level of control over the contract in terms of making and controlling the payment process. The Purchase Order is a valuable tool in any producer's system. Having these contained within the Accounting Voucher of the Preliminary Specification is the natural placement and method to automate many of these control processes. See also the Resource Marketplace module for discussion of the Oracle Purchasing and Procurement module that has been included as the base of the Preliminary Specification. 

Two Distinct Sources of Revenue

Professor Giovanni Dosi’s paper discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Professor Dosi’s theories that make them directly applicable to oil & gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil & gas firms search, and production of hydrocarbons. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products' costs and / or capabilities beyond that of the competition. Professor 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.

The producer firm is committed to developing their earth science and engineering capabilities with the understanding that they advance their competitive advantages, and earn a return on their investment in them. How within the People, Ideas & Objects application does the producer earn a return on their investment in these capabilities? Certainly through enhanced profitability of their land and asset base. However, with the Preliminary Specification this long term value adding process is augmented through direct charges to the joint account in order to generate and sustain the capabilities in the short term. That is to say that the earth science and engineering resources that are pooled into a Joint Operating Committee, have been assigned a specific role within the Industrial Command & Control and whose costs are captured in the Partnership Accounting module and are therefore producing a “revenue” stream for the producers capabilities.

The question then becomes what is the charge for the individual during the time they’re working in the Joint Operating Committee. It will be easy to determine the hours that have been worked in the various JOC’s through the Work Order. The hourly rate charged would need to include a number of factors. The skills of the individual, the technical resources of the producer firm that is at the disposal of the individual, and also a measure of the level of innovativeness of their producer firm, say something like Revenue Per Employee that reflects the overall effective productivity of the firm. 

The net result of this is that the revenues generated from this second revenue stream should at least cover the costs of the producer, and in some cases will have captured a return on their investment on the capabilities they’ve developed within their firm. To proceed on any other basis would be unreasonable.

It comes down to the question of what business is it that the producer is in? Are they in the business of generating profits from producing oil & gas, or are they in the business of generating profits from providing geologists and engineers to the operations they have an interest in? If we look at the competitive advantages of the producer it is the land and asset base, and the earth science and engineering capabilities that they apply to that asset base. Clearly both production and capabilities development are within the scope of the competitive advantages of the oil & gas producer. And to a large extent the costing of the technical resources is not fundamentally different from what occurs today. In today’s market, the operator is provided with “overhead allowances” for the capture of some of these costs. The difference from today and what is proposed here is that the elimination of the concept of an operator by “pooling” the technical resources committed to the Joint Operating Committee by its participants to acquire the necessary overall capabilities. The direct costing of these technical resources that approximate the producers revenue per employee value as a replacement to the operator overhead allowances. One that will more directly reflect the value of the contribution and the costs that are incurred.

To take this opportunity to charge the costs of the capabilities of the producer firm and earn a return on investment may be an issue that some will have with the concept. In a world where the market for engineers and geologists is highly competitive. Where producers are assessed on their performance based on their Revenue Per Employee, a competitive, measurable factor. The acquisition of additional technical resources is a difficult process that has investment performance implications to the firm. The ability to at least offset some of the overall costs of the technical resources helps to mitigate the investments in the short term. This is the purpose for enabling the direct billing of technical resources to the joint account in the Work Order of the Accounting Voucher. (Detailed further in the Background section of this wiki.) The means in which to maintain and sustain these competitive resources for the long term by recovering their costs from capital and operation activities.

When we get to the Research & Capabilities and Knowledge & Learning modules. We will see the development of these capabilities from an innovative point of view that takes on a different perspective. The ability to capture the costs of the development of a firm's technical resources as a competitive investment, and have them as a source of revenue here in the Accounting Voucher is established. Looking at the development of the producer as it exists today, it is somewhat of a paradox as to which is developed first, the land base or the capabilities. With the ability to have the capabilities to generate its own immediate source of short term revenue this paradox is resolved in the short term.

Some may suggest that these costs offset the production revenues of the Joint Operating Committee that would have gone to the producer anyways. And that may be true. However, in a world where the demands for the technical resources are expected to be as significant as some suggest. The need to deal with the problem on a wholesale basis, as the People, Ideas & Objects pooling concept does, is a requirement, and secondly, the assumption that each of the producer firms will develop their technical capabilities may be proven to be false. The cost of the capabilities incurred by the producers will also be realized by the Joint Operating Committees where they’ll be challenged to earn a profit to maintain production. Accounting is concerned with accurate and timely recording of costs, this recognition is therefore appropriate.

Miscellaneous

One thing that we’ve not been able to discuss regarding the Accounting Voucher module of the Preliminary Specification, is that the module is used for entry of all transactions for accounting purposes. Whether it is through the Material Balance Report, which is encapsulated within its own voucher, or a simple accounts payable voucher, everything that will be entered into the People, Ideas & Objects system is through an Accounting Voucher. And there will be different types of vouchers for different types of charges. Each with their own voucher series numbering. (For example all Material Balance Reports will be 200,000 series.) Business is also, in many cases, repetitive. The ability to reuse any Accounting Voucher as a template for subsequent months will be a feature of the People, Ideas & Objects Preliminary Specification. 

Conclusion

One of the basic assumptions of the People, Ideas & Objects Preliminary Specification is the pooling concept that is used to replace the “operator” designation in use today. Therefore many of the participants in the Joint Operating Committee will be actively participating in managing the property on an ongoing basis. As a result some of the Accounting Vouchers will be open to charges from multiple producers represented in the Joint Operating Committees that the 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 ability for each producer to have the just-in-time earth science and engineering capabilities available for all the properties they manage requires them to have unused and unusable surplus capabilities. These unused and unusable capabilities, on an industry wide basis, are leading to unnecessary resource shortages that are no longer affordable. Specialization and the division of labor will need to be employed by the producer in terms of their earth science and engineering capabilities. The ability to pool these critical resources from participating producers into the Joint Operating Committee releases these otherwise hoarded unused and unusable capabilities. People, Ideas & Objects 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 & gas industry. Therefore each of these producers need to have the ability to charge for their earth science and engineering capabilities to the joint account. All charges are subject to the AFE, Lease 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 asks “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 innovative inputs. It’s People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated and constrained by the administrative ease in which producers operate. 

This administrative ease can also be stated for the Material Balance Report. It is within the Accounting Voucher where the Material Balance Report is embedded within the Accounting Voucher itself. Inheriting the capabilities to balance the financial aspects of the voucher, but also the volumetric information. It is at that point, when the volumetric information attains the integrity of the accounting system, that the automation of the various processes based on the volumetric data can begin. 

If the producers are confident that the deal that was conceived is accurately captured in the operation, it’s appropriately reported through the Accounting Voucher and throughout the Preliminary Specification. And the operation is reporting a substantial and consistent 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.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Accounting Voucher Part 2

 Designing Transactions

One area of the Accounting Voucher where the Preliminary Specification is different is the concept of designing transactions. We should spend some time on defining what it is that we’re speaking of. Where accountants will be spending their time in the future is designing transactions and leaving the processing, mostly through automation as a result of the design of the transactions, to the computers. If you’ve been reading the Preliminary Specification you’ll have an understanding of the methods of organization of the marketplace and the producer firm and how the Joint Operating Committee interacts with these. It will be with that understanding that we can begin to understand the concept of designing transactions. So let us begin with a simple description of the transaction's makeup. From Harvard Professors Carliss Baldwin and Kim Clark. 

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

Let's use a scenario where a group of producers have several producing wells of natural gas with some liquids production. They are situated next to a large gas plant that processes their gas in exchange for the liquids and markets their gas on the spot market. In this scenario we are evaluating these properties from the perspective of implementing them into the Preliminary Specification. We begin by analyzing the production accounting elements in the Accounting Voucher with the related Production Accounting Service Providers. The Production Accounting Service Providers assess their fees on the basis of a unit of work incurred during the production month for any of the many processes involved and however our user community configures the software during the development of the Preliminary Specification. At each point they’ll assess a fee for their service based on transaction design principles. The transaction designs contained in the Preliminary Specification that our user community developed, provides the automation and the related service provider then goes through their billing process and at the end of the month, when profitable production has invoked that process, produce their invoice for their services to their Joint Operating Committee clients based on the work output rendered. This implies our user community designed their work flow from a transaction design point of view. Professors Baldwin and Clark. 

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

and

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

Again if there is no production there is no basis for the Production Accounting Service Providers billing. Fulfilling the Preliminary Specifications decentralized production model objective. This scenario shows how the Production Accounting Service Provider needs to design their transactions to produce the desired result, conduct their service and automate their billings. Additional transactions are designed from the process of gas production, sales of the natural gas, royalties and payment of the processing fee are all similarly designed into the Accounting Voucher. This is the role of the Accounting Voucher for the producer firm and Joint Operating Committee. Automation of the business processes of the innovative oil & gas industry through transaction design. The fact of the existence of production itself is creating an information unit that triggers the appropriate service providers to conduct their operations on the Joint Operating Committees behalf. 

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

The Accounting Voucher has the “Transaction Design Interface” that provides a worksheet for accountants to design transactions. There is a defined process of analysis of how to break down these transactions and we will get into that as we proceed through the development of the Preliminary Specification. It is important to recall at this point that each Accounting Voucher is used as a template for subsequent months. So once a transaction is designed, it will be reused, and built upon through the implementation of it as an Accounting Voucher template providing the automation that is invoked each month of production which is supervised through the service provider organizations.

The role of the Accounting Voucher in determining the source of the market or the firm as the originator of the transaction is minimal. However, it has a role in ensuring the costs of these transactions are minimal and are a source of both the producers, as represented in the Joint Operating Committee and service industries profitable operations. If there was a simple way to describe this purpose of designing transactions it would be as a tool to coordinate the firm or Joint Operating Committees use of the market. This conceptually falls between transaction costs economics, capabilities and transaction design. All three are areas that Professor Richard Langlois has included within his area of research. We have also used Professor Carliss Baldwin for her work in transaction design. Professor Richard Langlois in his paper "The secret life of mundane transaction costs."

However, a new approach to economic organization, here called "the capabilities approach," that places production center stage in the explanation of economic organization, is now emerging. We discuss the sources of this approach and its relation to the mainstream economics of organization. p. 1

and

"One of our important goals here is to bring the capabilities view more centrally in the ken of economics. We offer it not as a finely honed theory but as a developing area of research whose potential remains relatively untapped. Moreover, we present the capabilities view not as an alternative to the transaction-cost approach but as a complementary area of research" pp. 7.

The Accounting Voucher module of the Preliminary Specifications transaction design takes the accountant away from the benign scorekeeping role to the role of active participant in the operation. One that looks at the market from the point of view of how best to coordinate the various elements and provide the greatest value add to the firm or Joint Operating Committee. In Richard Langlois “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization"

A close reading of this passage suggests that Coase's explanation for the emergence of the firm is ultimately a coordination one: the firm is an institution that lowers the costs of qualitative coordination in a world of uncertainty. p. 11

And this is maybe one of the important considerations of the work that we do here in People, Ideas & Objects, our user community and service providers. Is the realization that each producer firm and each Joint Operating Committee are going to be unique. That due to their makeup they’re going to be different in material ways. Innovation will have a dramatic scale in how it is measured against each firm or JOC. Specialization and the division of labor, other aspects of the changes being imposed on producers will demand a high diversity in terms of their makeup. The approach will be anything but cookie cutter. 

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of cooperating individuals. p. 17

Therefore, according to the research of Professor Langlois the transaction costs will be an immaterial item in comparison between firms or Joint Operating Committees. That is to say that they will be the same in all instances. And People, Ideas & Objects have asserted that they will be immaterial due to the application of standardization through Information Technologies. However the differentiating costs between firms and JOC’s will be these costs of coordinating the market. Making the Accounting Voucher module a critical tool in the ability to offer the producer firm the most profitable means of oil & gas operations. 

... while transaction cost consideration undoubtedly explain why firms come into existence, once most production is carried out within firms and most transactions are firm-firm transactions and not factor-factor transactions, the level of transaction costs will be greatly reduced and the dominant factor determining the institutional structure of production will in general no longer be transaction costs but the relative costs of different firms in organizing particular activities. p 19

We have been discussing the Accounting Vouchers “Transaction Design Interface” and its purpose as a tool to coordinate the use of the market. We want to ensure that the efforts in coordinating the market are consistent with the objectives of the firm or the Joint Operating Committee and don’t conflict with the objectives of those who are initiating the work in the Research & Capabilities or Knowledge & Learning or other modules. As we can see coordination through the Accounting Voucher of the Preliminary Specification is focused on the business end of the transactions, not on the operational side.

The first question that most people will have is why are we concerned with the coordination of the markets in the Accounting Voucher? Here Professor Richard Langlois made the following comment in response to a question in his “Vanishing Hand” paper. 

Here again, I think the problem is one of conceptual imprecision. It is perfectly common, and often unobjectionable, to contrast a market and an organization, that is, to contrast the institution called a market and the institution called an organization (such as, notably, a firm). But the opposite of “organization” in the abstract sense is not “market” but disorganization. More helpfully, the opposite of conscious organization is unplanned or spontaneous coordination. In this sense the market-organization spectrum (and similar spectra one could imagine) are arguably orthogonal to the planned-spontaneous spectrum. One could well wonder, as I have (Langlois 1995), whether large organizations do not in fact grow far more as the unplanned consequence of many individual decisions than as the result of the conscious planning of any individual or small group of individuals. And it is certainly the case that, as Alfred Marshall understood, both firms and markets “are structures for promoting the growth of knowledge, and both require conscious organization” (Loasby 1990, p. 120).

In this day and age, with such large distances, geographic, size, language and other considerations between vendors and producers, leaving the coordination of the markets to “spontaneous order” is asking too much of human ingenuity. Particularly with the focus of the industry to a further division of labor and specialization, where the risk and reward of oil & gas operations are so great, market coordination or transaction design will be a critical and necessary task to be carried out. Each operation may be the result of more people being involved, specialization and the division of labor will have an influence here. Once again it is not from an operations point of view that we are attempting to influence the operation, it is from the business point of view. How will the transactions and business be captured in such a manner that the firm and Joint Operating Committee are incurring the lowest possible costs of the most efficient methods of these business transactions? 

As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. In other times and places, notably in less-developed economies or in sectors of developed economies undergoing systemic change, gap-filling requires other forms of organization — more internalized and centrally coordinated forms. p. 6

and

Let’s take a closer look at the nature of the “gaps” involved. Adam Smith tells us in the first sentence of The Wealth of Nations that what accounts for “the greatest improvement in the productive power of labor” is the continual subdivision of that labor (Smith 1776, I.i.1). Growth in the extent of the market makes it economical to specialize labor to tasks and tools, which increases productivity – and productivity is the real wealth of nations. As the benefits of the resulting increases in per capita output find their way into the pockets of consumers, the extent of the market expands further, leading to additional division of labor – and so on in a self-reinforcing process of organizational change and learning (Richardson 1975; Young 1928). p. 7

We’ve seen over the course of the past number of decades that the speed and capacity for change by producer firms is poor. People, Ideas & Objects have asserted this is attributable to the bureaucrats desire to maintain low levels of accountability through poor ERP systems. Today organizations are defined and supported by software, and most particularly their ERP software, and they are therefore constrained by them. The Preliminary Specification has chosen the market to deal with this issue as opposed to cultural difficulties of change and historical performance of the firm as the other choice. There needs to be a means in which to affect a new trajectory in the performance of the producer firms and it is specialization and the division of labor which is the only proven method to build any economic value since 1776. This can best be accessed through the market which provides the added benefit of disrupting the producer firms bureaucratic culture. A culture that is counter to profitability and one that must be dismantled. The addition of transaction cost economics and these tools will augment the ability to enhance the transition and facilitate the performance trajectory necessary to achieve profitable energy independence in North America.

In the determination of the firm or market as a choice for the producer firms to use as the means of production, the question in oil & gas is academic. The geographic and technical diversity necessary to operate within the North American oil & gas marketplace, on the basis of the many levels and types of operations a producer could specialize upon, even in today’s market. The answer has and always will be the market. There is significant conflict and contradiction in the relationship between producers and the service industry as a result of the treatment the service industry has been subjected to over the past number of decades. It is suggested the producers will need to make a deliberate effort to remediate and rebuild the capabilities and capacities that are necessary in order to provide profitable energy independence in North America. 

The starting point of this rebuilding process for our user community is as follows. If we recall in the Resource Marketplace module the vendors and suppliers are maintaining their own contact data. Within that data is their key personnel that include their field staff. They should also be including their key business personnel for the purposes of the “Transaction Design Interface” to collaborate on these interfaces. In addition, their billing information and banking data, as well as other critical data and information that will help the producer firm or Joint Operating Committee efficiently coordinate and process the transactions they’re involved in. Lastly a collaborative interface should be provided for everyone within the Accounting Vouchers vendor pool to discuss how the transaction is designed and the template that is used by the specific vendor. Needless to say the involvement of our development of software for the service industry will begin here. Please see the Implementation page of this wiki to review the budget and more of the details.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Accounting Voucher Part 1

 Introduction

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 specific accounting voucher templates such as 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 producer's processes are actively defined and supported throughout the People, Ideas & Objects application modules.  When the business is a science, as it is in oil & gas, it would be in the producer's interest to remain open and flexible in both its scientific and business approach. The Accounting Voucher and Partnership Accounting modules provide this organizational flexibility.

The manner in which these two modules operate is as follows. 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’s familiar and traditional in the accounting world.

We noted in the Partnership Accounting module how our Work Order provided producers with the ability to form and participate in working groups. Providing 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 producer's innovation as much as the Research & Capabilities or Knowledge & Learning modules provide.

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 just 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.

Vouchers, Open To All Within the Partnership

One of the implications of using the People, Ideas & Objects system is that each partner within each Joint Operating Committee will have authorized access to the pertinent Accounting Voucher during the time that a Voucher is either open or closed. Each of the producers involved in the Joint Operating Committee are therefore able to access the Accounting Voucher and have costs / revenues distributed to the other partners involved in the Joint Operating Committee based on the AFE or operations budget. This is one of the key differences that we discussed in the Petroleum Lease, and Resource Marketplace modules. Partners are all contributing to the joint account as equal participants with the role of “operator” being relegated to a thing of the past. (Note too of course, that each participant is able to charge their own account with their own 100% charges. These charges are to their private accounts and therefore not seen by any of the other participants.)

Cost control becomes an issue when everyone is able to charge freely to the joint account. A careful reading of the previous paragraph reflects that I didn’t state “charge freely." Cost control comes about as a result of the traditional budgetary control of AFE and the Work Order system that we’ve discussed in the Partnership Accounting module. Without pre-approval by the partnership nothing is able to be processed by the People, Ideas & Objects software applications. And as we’ve seen in the discussion of the Security & Access Control module, few will have the authorization to “charge freely” to the joint account in any form or fashion. With the traditional ability to charge to an AFE or Cost Center, and possibly during the development of the People, Ideas & Objects Preliminary Specification, our user community determines there’s a need to have a purchase order system, ensuring that an appropriate bidding and contracting process is in place, no unauthorized amount will be accepted in the system. There is also the fact that each voucher needs to be approved for payment before any money is expended and that approval would need to consider the budget authority of the Joint Operating Committee.

As one can envision these Joint Operating Committee - Accounting Vouchers can become large as they include the entire month's business of the property. Accountants would be frustrated at month-end trying to get these Vouchers closed if they had to seek approvals and close each of the transactions within the appropriate small window of time of their month end. Needless to say that each transaction within the Accounting Voucher is a small subset of the larger Accounting Voucher and can be dealt with as a stand alone individual item. Seeking its own approvals and authorizations that deal with just the domain of the specific transaction.

What is different in the People, Ideas & Objects Accounting Voucher system vs what exists today is the elimination of the designation of operator. The capabilities for each producer to house the state of the art earth science and engineering resources necessary to run all of their properties within one oil & gas firm is believed to be beyond the scope of what is possible in the future. Our solution in the Preliminary Specification is the further specialization and division of labor of the earth science and engineering capabilities of each producer firm and the pooling of these resources of the partnership within the Joint Operating Committee.

The Material Balance Report

The Material Balance Report is an Accounting Voucher that is unique and has the following characteristics. It is designed to provide automation to the production, revenue, royalties, marketing and other processes of the producer firms and Joint Operating Committees. It is this type of specialized use of an Accounting Voucher that our user community should consider applying to other situations when contributing to the Preliminary Specification.

What is proposed in People, Ideas & Objects Material Balance Report is that for an Accounting Voucher to close it must balance the financial debits and credits, but must also from a volumetric perspective material balance, system balance and partnership balance. Each of these volumetric perspectives are accessed through a different “mode” within the voucher to make the necessary changes to correct any volumetric imbalances or errors from that specific perspective.

The Joint Operating Committee is a thing that exists as a result of legal agreements and in the minds of oil men and women. It therefore doesn’t “own” anything or incur any costs. All of the charges to the joint account must clear in the month they’re incurred to the producers involved. It is the same situation for the volumetric information. The Joint Operating Committee "Accounting Voucher" balances to zero in terms of costs and volumes each month by clearing its charges to the partnership and royalty owners of the property. Clearings are done after the balance. That does not guarantee that the facility will remain in balance. Adjustments and amendments to the Accounting Voucher may occur. These may happen and they can be subsequently balanced and cleared to the partnership accounts in the same manner as before. And that is on an automated basis. The point of the exercise is that you have the business of the Joint Operating Committee captured in the Material Balance Report which is an integral part of the Accounting Voucher. Essentially all three are the same thing, the Joint Operating Committee, Accounting Voucher, and Material Balance Report. An integrity of reporting that is embedded within the accounting systems that are as rigid as debits must equal credits.

We now discuss the contracts regarding the petroleum products produced from a specific Joint Operating Committee. Contracts that would include marketing for gas, oil, natural gas liquids, or contracts for charges for gathering, processing etc. If a stream of product was flowing through a facility, then a contract for processing or sale would be attached to it. The ability to attach the contract to the stream would enable the Accounting Voucher to establish the associated accounting for the gathering or processing of charges / sales for that stream. These charges (invoices) or sales (receipts) are generated in automated fashion by the Preliminary Specification.

The Accounting Voucher is for lack of a better term a template that is built upon as time passes. Each month as the property changes, these changes are captured within each Accounting Voucher and the template is renewed each month with the accumulation of the properties history, the data from the Petroleum Lease Marketplace and other modules. If a new contract was added for the production from a new well, then that contract stream and the new well would be represented in the next and every month's Accounting Vouchers. The Accounting Voucher template documents the changes in the property over time. Providing the base for the subsequent automation of the business processes to be established, tested, debugged and deployed.

Critical to the “definition and design” of transactions is the fact that these transactions are balancing themselves out. If the debits and credits were not in balance at the end of the day, then the automation of the systems and the accountants would not be doing their jobs. The same could be said for the volumetric reporting. If in the Material Balance Reports was out of balance (call this material balance), or were not balancing the inputs and outputs to other Material Balance Reports (call this system balance), or the internal accounting of those volumes to the partners, royalty holders and others were out of balance (call this partnership balance) the accountants and systems would not be doing their jobs. Simply the process of closing the Accounting Voucher will need to consider not only the balancing of the debits and credits from a financial point of view. They will also need to ensure that the material, system and partnership volumes reported in the Material Balance Report are also in balance. Without these systems in balance, the Accounting Voucher will not clear or close.

This imposes another rather strict provision on the quality of the information that is accepted into the People, Ideas & Objects Accounting Voucher module. Precluding the acceptance of a voucher due to the inability to balance a volumetric requirement holds the system up for what is a common occurrence. What if the volumetric information is unavailable in a timely fashion? What if the information is part of the normal amendment process? Then we are left with the traditional accounting methods of dealing with these types of issues. An accrual of the volumes in order to achieve the balancing necessary should be able to be processed in the current month. Most production processes are amended for up to 90 days. These accruals would then be automatically reversed in the following accounting months Material Balance Report. What is different from existing systems is that we are enforcing the systems to volumetrically balance. Not just inputting key variables but imposing and enforcing the facts of what actually happened at the Joint Operating Committee, and if it is subject to a comprehensive Construction, Ownership and Operation agreement, what is agreed to be accounted for before the close of the Accounting Voucher. And by that I mean specifically, from the point of view of either dealing with the contractual arrangement as dictated by the governing agreements as the determining factor for the means of production allocation. Or if the agreement refers to the chemical composition as the basis of production allocation, both of these methods will be available in the Material Balance Report of the Accounting Voucher in an either, or and mixed environment.

The difference may be subtle but the implication is significant. Locking the volumetric balancing, over the long term, into the Accounting Voucher itself enforces the system to follow the volumes as produced and processed. Once this is achieved a certain level of unimpeachable integrity is achieved regarding the production data and the automation of detailed processes based on those volumes can begin and be assured to be based on the facts of the facilities and assets data and information captured in other modules. Any subsequent amendments will correct the record.

There are many aspects of this system's management of these processes that are unique and necessary. The reason they have not been undertaken has been the broad scope and scale of the development undertaken is comprehensive and beyond what the technology could have provided. It is certainly from a budgetary perspective beyond the scale of what any individual major producer would undertake as the value gained would not be there for the individual producer to incur the entire cost, and most certainly well beyond the standard approach of an oil & gas ERP software development solution provider. People, Ideas & Objects are aggregating the North American producers budgets to make these available through our ERP software and the service provider organizations. Turning the cost of oil & gas administration and accounting, which includes the ERP systems development, into a Cloud Administration & Accounting capability for North American based producers. Those with a comprehensive understanding of these processes will fully appreciate the points that I’m making and the implications involved. My understanding of these processes is comprehensive, I know it can be done and we’ll do this correctly. That this undertaking may be one of the most comprehensive features of the Preliminary Specification. Therefore it is done on the basis where the costs of development are shared and shareable, or non-rival, and driven by a user community vision such as we have. Therefore there is substantial value in terms of cost savings to each producer with untold value through application of the specific attributes of People, Ideas & Objects value proposition. 

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Revisions to the Artificial Intelligence Module

Summary

With People, Ideas & Objects, our user community and their service provider organizations we have a powerful combination of proposed capacities and capabilities available for the dynamic, innovative, accountable and profitable oil & gas industry and producers. Assuming our budget is financed at some point in the future. Which I can only conclude at this time will occur as long as the associated difficulties in oil & gas persist. And therefore I believe our funding is certain. When we add to this the incomprehensible list of capacities and capabilities of the products and services of Oracle Corporation. Add to these the models and markets that are built upon the use of the Joint Operating Committee and four other Organizational Construct’s of this Preliminary Specification. We will have a strong foundation in which to begin the resolution of industry issues and ensure that real profitability is earned everywhere and always throughout the North American oil & gas industry. I dare ask what the bureaucrats are offering? And will the cost of their option be any less than the trillions of dollars irretrievably lost so far?

People, Ideas & Objects have chosen our distinct competitive advantages to be our user community, Intellectual Property and research as the three areas of our domain to focus upon. These are how we earn our profits. We are a commercial operation and we will always be one as we’ve learned, just as everyone in oil & gas has, what the meaning and value of real profitability is. Without real profitability there is nothing but waste and atrophy. To do anything in business the first question should be where does the money come from? It must come from a steady stream of profitability to support, maintain and manage the operation. There is no other sustainable source of capital capable of doing so. To spend others' money on a continuous basis is child’s play in comparison to the challenge of developing and maintaining a profitable business. A culture of profitability has been lost through four decades of today’s methods of oil & gas management.

Introduction to the Artificial Intelligence Module

Within the Preliminary Specification there is the Security & Access Control module that sets out the necessary security and data access to those in the industry. Providing access to the right information at the right time to the right people with the right authority at the right location and on the right device. Two other modules are the Performance Evaluation for the Joint Operating Committee and the Analytics & Statistics module for the producer firm. These modules are tools that build upon the basic data within the greater Preliminary Specification and Oracle applications that will provide value to users. Organizing this data in an integrated manner and permitting two different perspectives of that same data, one from the point of view of the Joint Operating Committee, accessible by each of the authorized members of that property, and the other perspective from the producer firm providing their users with access to their proprietary accounting and administrative data for subsequent analysis. 

Recently we announced that People, Ideas & Objects would be developing as part of the Preliminary Specification, our own data model as a core part of our Intellectual Property. Our data model will be unique to our user communities needs and accommodate the data models used within the Oracle ERP Cloud products. In addition, another aspect of People, Ideas & Objects is the Technological Vision we set out on August 26, 2006 of this blog. It has four components that are in place today, and we feel they provide us with significant differentiation of our product and service offering and will provide real value to the oil & gas industry and producers, enhancing their profitability once implemented. These four technologies consist of Java, Wireless Networks, IPv6 and the application of what we describe as Asynchronous Process Management. We are wirelessly capable today with both WiFi and Cellular networks. Soon we’ll have the addition of space based networks such as Elon Musk's SpaceX StarLink network. As background these four technologies enable the Internet of Things (IoT) in an industry that is based on the earth sciences and the applied science of engineering. Where the chemical components of oil & gas are measured and monitored in terms of pressure and temperature. The capacity and capability to monitor and control an unlimited means of devices throughout the producer's domain. Java and IPv6 enable the addressing capabilities to ensure that the device that is being sought to monitor and control, is the precise device that is being accessed. Java is a highly secure, typed language which doesn’t confuse itself as to which variable is which, etc. IPv6 networks may appear as if they’ve not been implemented, but that is not the case. They are available through Oracle’s ERP Cloud offering. And the most significant IPv6 implementation to date is the cellular phone networks since 4G or LTE. Cellular phones such as Apple and Android devices are IPv6 based devices accessing network voice and data over an IPv6 network.

Therefore it is here we will have the total data set of the historical and proprietary data for the producer firm in the Performance Evaluation and Analytics & Statistics modules. The historical data of each Joint Operating Committee. Analytical tools to enhance the meaning of that data and generate the necessary ad-hoc information that the producer may find of value for their unique competitive advantages of their land and asset base, earth science and engineering capabilities. Although these will be used in ways that are unique and value generating in each of the producer firms, and within each of the members of the Joint Operating Committee. These will be a base infrastructure that’ll be prepared and provided to each of the producers on a continuous basis through the People, Ideas & Objects et al infrastructure defined in this Preliminary Specification. 

There is no production discipline in the oil & gas industry. Therefore it’s not a business and never will be a business without profitable business objectives as long as the bureaucrats remain in place. Production discipline could be imposed by forming a North American cartel, (illegal) or government production mandates where no one is ever satisfied with their allocation or implementing the Preliminary Specification. Only the Preliminary Specifications method of production allocation, based on “real” profitability, provides for a legal, fair and equitable means of production discipline. If the property continues to produce a profit then it continues to produce. Otherwise why would you continue to produce if a properties loss reduces the overall profitability of the producer firm, effectively destroying the value of the properties reserves, adding the cost of the ongoing incremental losses to the costs of the reserves, incurring the costs of production and storage of surplus production instead of holding it as reserves and keeping the marginal, or unprofitable, production off the commodities market to ensure they’ll find their marginal prices. Marginal prices not just for the unprofitable property but all the properties across the North American continent. Markets provide one thing and only one thing, their price and bureaucrats refuse to listen to prices even when they're negative $40. They claim our method of production allocation is collusion. If making independent business decisions based on detailed, actual, factual accounting that determines the state of the individual properties profitability is collusion, then bureaucrats belong back in the former Soviet Union. 

It is our user communities service provider organizations that provide the means to instill the production discipline across the North American oil & gas producers. Service providers are a reallocation of the existing producers administrative and accounting resources into approximately 3,000 individual service provider companies. There the service provider will focus on one process and apply that process across the entire industry's data set. It will be at each of the service providers where the application of the individual process will be conducted on a standard, objective, actual and factual basis across the industry. This will be done as a result of each of these processes being highly engineered during the development of the Preliminary Specification and continuously improved by our user community members in order to meet the requirements of the industry, regulators and all other stakeholders. And of course the producers and Joint Operating Committees needs. Therefore when the time comes to review the Joint Operating Committees individual, complete and comprehensive financial statements for the month, a feature of the Preliminary Specification. And if they find that a property, for whatever reason, is no longer profitable they can confidently conclude the property needs to be shut-in. They’ll know that every other property in the industry has been assessed on the same objective, standard, detailed, actual and factual accounting basis and as a result each producer can accept that the accounting treatment they received on that property was no different in terms of being better, worse than any other property of theirs or other North American based producers. And therefore knowing that the focus of the producer is to maximize profits everywhere and always, any unprofitable properties only dilute their overall corporate profitability as well as collapse the commodity prices across their production profile, they will appreciate the value of this objective accounting information. They will be able to move the property to their inventory of shut-in properties where their earth science and engineering capabilities can be innovatively applied to rehabilitate the property in some manner to bring it back to profitability. All net positives for the producer and industry overall, but also the energy consumers who will be certain of an abundant supply at the lowest possible cost for their energy. 

In summary, once again this infrastructure we’re building is to provide the North American oil & gas industry with the most profitable means of oil & gas production, everywhere and always. As mentioned, on top of this data we have two modules, the Performance Evaluation, and Analytics & Statistics modules that will provide enhanced tools to analyze this framework for their competitive advantage. Building off the detailed, actual, factual financial data of the operation. Not operational or engineering data that has been massaged or allocated and has no historical basis of financial performance. Each producer as a single entity has nowhere near the resources, capabilities or capacity in which they need to be able to begin developing the automation of their business processes, specialization and demands of this environment. An environment that will be a given from a technological architecture point of view. However, we do know bureaucrats are more than capable of muddling through these technical changes. Deliberately maintaining poor quality ERP systems that produce specious accounting with obscure transparency and no accountability have fulfilled their purpose in bureaucratic nirvana.

The structure of our user community is the means in which the producer firms enhance their ERP software. If they want or need changes to their existing systems, who do they go to in today’s environment, who has authority at the producer, who has authority at the software vendor? In the Preliminary Specification people will only need to speak to the relevant user community member(s). Only our user community is licensed to make changes and prepare derivative works of the Intellectual Property of the Preliminary Specification and any additions. Our developers are licensed to take directions from only user community members in terms of what to develop. They are blind, deaf and dumb to all others. Our user community members population is approximately the same as the number of service provider organizations they own and lead. They are focused on their area of expertise and are applying their specialization, division of labor, quality, automation, innovation, integration, leadership, issue identification and resolution, creativity, collaboration, ideas, design, planning, thinking, negotiating, compromising and using conflict and contradictions to get to the source of the issues as their key competitive advantages throughout their organization. User community members are the principles of the service providers whose role it is to provide their tacit knowledge as a service, in addition to the explicit knowledge that is captured and delivered in the People, Ideas & Objects Preliminary Specifications software.

Artificial Intelligence

Our user community and their service provider organizations are the intellectual framework of the oil & gas industry in terms of accounting and administration. It would be my hope, my anticipation and expectation that one day our user community would provide the industry with the software and services that anticipated the business needs, issues and opportunities that oil & gas faced on a proactive basis. The Preliminary Specifications software would be dealing with what it is that’s concerning the industry. Taking a leadership role in the development of the administrative and accounting of the industry. Therefore leveraging this framework as I’ve described earlier as a natural extension of what it could, but most importantly should be doing. Ensuring that oil & gas remained dynamic, innovative, accountable and profitable everywhere and always. 

Artificial Intelligence always sounds ominous and a highly advanced Information Technology that will be the next solution to all the world's problems. I generally agree with this and believe we should employ it towards resolving the ominous Y2K issue. But seriously, Artificial Intelligence is really nothing more than advanced automation. Breaking a problem down to its simplest form that is definable and manageable in a reasonable scope can be determined through this tool to automate the decision making and other higher level processes. Which is a valuable tool in the right hands, and with the appropriate base of data from a historical accounting point of view. If you Google “baby formula” be prepared to be inundated with ads for baby formula from local and online stores. This is a preliminary application of AI and we see the benefits of such actions in the form of Google’s quarterly profitability. The use of AI is highly dependent on the quality of the data being used. As we’re aware the financial information of the producers isn’t worth the paper it’s written upon. The first priority therefore must be the implementation of the Preliminary Specification in order that the financial data is being captured appropriately and in a manner that will be usable. Providing the base level tools for analytical and statistical analysis as groundwork for the feeding of this Artificial Intelligence module. There is a need to expand this by stating the data, analytical and AI framework of the Preliminary Specification will be a necessity for implementation and use of the Internet of Things (IoT). Where they’ll be able to be working together as a future architecture.

Moving the Artificial Intelligence for ERP domain within the user community and service provider domain therefore is a natural and necessary fit. My thinking on this began as a result of the announcement by Mr. Thomas Siebel and his Artificial Intelligence firm C3.ai Inc. Thomas Siebel sold Siebel Systems to Oracle Corporation a number of years ago. The purpose behind C3.ai Inc is consistent with the theme that is present in the ERP marketplace. Individual companies can spend vast amounts of money and time internally on ERP systems or Artificial Intelligence with no benefit, wasting investment and unnecessary demand on critical AI and ERP resources. Mr. Siebel suggests that there is a 99% failure rate of internal corporate AI initiatives. I would suggest that the level of destruction we’re witnessing in oil & gas today is a result of the inability of bureaucrats to understand their business due to their deliberate atrophy of the ERP systems provider marketplace. If their ERP systems were operating as they conceptually should, would the industry be in the condition it’s in today?

Centralizing the resources of the industry into Artificial Intelligence based ERP developments which will be developed and deployed through the People, Ideas & Objects et al framework is an efficiency that is consistent with our theme of ERP developments. The demands of software development are no longer a capability that can be attained in-house in order to ensure the full scope of the organization's needs are covered. The same applies to AI. Therefore the Preliminary Specifications consolidation of the industries resources on one focused development in an objective, standard and compliant manner offers better functionality and capability at considerably less cost to each producer. Oracle has AI initiatives with their Oracle ERP Cloud, the base of our solution, and we will therefore be adopting those tools. I believe that the addition of this thirteenth module's AI capabilities is a natural extension of our user community and their service provider organizations and an efficient use of industry AI resources. Enabling producers to focus on their key competitive advantages of their land and asset base, earth science and engineering capabilities and to do so profitably. Incurring the time and energy to build the capacity and capability of ERP based AI once, and sharing the cost of development and this initiative's success across the industry. 

But there's more, the demand on AI resources in terms of the practitioners would be too high to ensure that any individual producer was able to attain any level of AI competency or competitive advantage in the industry for ERP based AI. It would duplicate the capability of our user community in this area and therefore answer the question, why is there that 99% failure rate? In a highly risk oriented Information Technological environment, the ability to share that risk and mitigate the failure rate should appeal. 

Yet producers would be realizing AI’s value based on their intuition and creative application of these business capabilities towards their asset base. This ERP based AI module is not distributing the AI to each producer. We are providing the organization and implementation of successful data integration with statistical and analytical tools and standard, packaged Artificial Intelligence frameworks that will have been proven to be valuable in the ERP domain of an oil & gas producer. It will therefore be incumbent upon the producers to take these tools and use them in their interpretation and application against their own proprietary data and business makeup. 

One of the aspects of the Preliminary Specification is that the administrative and accounting burden of each individual producer is substantially reduced as a result of the changes we’ll be instituting. These changes are a result of the burden of the producers' fixed, unshared and unshareable, administrative and accounting capabilities being reallocated to the variable and shared administrative and accounting capabilities of the industry. Variable based on production. Another key attribute that we’re using to reduce the costs of administrative and accounting, yet increase the performance and quality of our offering is by using specialization and the division of labor to be distributed across our service providers. These two elements of the Preliminary Specification will work to enhance the cost performance of the producers as we believe that overhead costs are substantial, and are one of the secondary reasons responsible for producers’ chronic unprofitability. Specialization increases the performance trajectory of the service providers' administrative and accounting resources by increasing their capacity with the same or even fewer resources. We also apply this principle in the area of software development. More importantly is the unshared nature of the current, bureaucratic and redundant spending of the same overhead costs within each siloed producer organization, in areas that are not distinct competitive advantages of producer firms. It is People, Ideas & Objects that are using Professor Paul Romer's “Endogenous Technical Change” and the treatment of non-rival goods. As represented in our application of the Cloud Computing paradigm in offering our Cloud Administration and Accounting for Oil & Gas service.  

A key difference between what People, Ideas & Objects have proposed is that the Artificial Intelligence module is properly constructed after the business models, markets, architecture, infrastructure, functionality, organization and data are assembled. Bureaucrats have been using Artificial Intelligence to enhance their thinking for the past number of years. It has provided no results that we can see or are aware of. In fact it seems to People, Ideas & Objects that AI may have been another viable scapegoat at the time to ensure their investors knew the bureaucrats were on the job. Except they have no usable data. Without that data being organized and managed appropriately what purpose is AI? Oracle has recently stated that IoT may increase a firm's volume of data five fold by the year 2025. It may be a good time for the industry to start concerning themselves with such issues as data and profits. Secondly, each producer spending money on a new initiative that is the “next great thing” is a consistent criticism of ours with respect to the behavior we’ve seen of bureaucrats.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.