Our Preliminary Specifications 10th Year, Part III

 Although the demand for natural gas in the summer of 2022 is high due to the heat wave in the southern states. Deliverability remains at record volumes and inventories are building in North America to the point where the prospect of freezing in the dark in northern states and provinces will not be an issue this winter. However pricing of natural gas will reflect some of the dynamics occurring in the global markets as a result of the European situation. This applies to both the oil & gas commodities markets. Europe will be struggling in terms of securing its energy for the winter. Their natural gas supply has been curtailed and we see their inventories deteriorating rapidly. (See the graph of European inventory projections under a variety of scenarios.) Recall last year, natural gas prices reacted strongly to the demand in the European market at that time, yet the inventory levels were still within the historical average. Whether that was a feature of demand destruction or LNG being diverted to Europe is unknown. Whatever mitigated their inventory drawdown in late January and February of 2022 is assumed to continue to be in play throughout this year. Therefore the situation in Europe will be difficult. What follows in terms of consequences for North America will be high prices as our inventory levels are potentially put in jeopardy for the long term. The question I would ask is, are we a year behind the events that are occurring in Europe? Much of the U.S. LNG deliveries to China are being diverted to Europe. Russia will no doubt fill the needs of China through the pipeline they commissioned a few years ago, which is now operating at only 20% and is massive in terms of its throughput. Shifting the prior European gas as best they can. LNG has not only made natural gas a commodity priced on a global basis this winter, it appears to be taking on characteristics of a fungible commodity. 

What we’re about to face in the winter of 2023 could potentially be disastrous in both oil & gas commodities. The fact of the matter is that it's no one's fault. Assessing blame and pointing fingers from now on will be futile and counterproductive. At the same time it’s the producers responsibility to act. If consumers find producers to be “muddling through” with their “alleged” profitability through the roof, it will not go well for the producer population. What I see in terms of dealing with this potential issue, as is consistent with the “muddle through” philosophy, is nothing. If in the midst of this we see handsome stock options and bonuses declared for our good friends the maggots, celebrating the good job they’ve done, a unanimous declaration of victory that which bonuses would reflect, would ostracize them from polite society.

Then if we consider on the other hand what it is that producer firms can do… What if the service industry is in the condition that I’ve alleged through my writings these past years. There is a culture and history that producers have used and abused the service industry in both the boom and bust cycle. What motivation will lead an oil rig investor to invest in a new drilling rig when the last one they invested in was cut up for scrap metal because the producer wouldn’t pay their drilling invoice for another 15 months. Halliburton, Schlumberger and Baker Hughes are pursuing global deals as their priority. What will make them focus back on North America? Speaking of priorities the movement of field equipment and operators from all the shale formations to the Permian is occurring as we speak. Indicating that these overall service industry shortages may cause deliverability problems soon.

In terms of the engineering talent that was employed in oil & gas and was sent packing when the producer consolidated, rationalized, downsized or accommodated the virus / bust cycle. Producers turned their back on these people, what will motivate them to return to oil & gas now that the one good year out of six happens to need them. Will they just drop the new industry that adopted them after they were orphaned? This could apply to much of the talent throughout the oil & gas producer staff and particularly those in the field for the service industry. There’s a problem of monumental proportions that will demand hard work of the type they don’t do in their newly chosen industry after they were forced out and had to look for new careers. 

Many are stating that the investors will have to get involved. Why? They didn’t sell out, they only stopped investing more. Producers are “profitable,” at least from the maggots perspective, and their cash balances should provide for the ability to do anything they need! This assumes their finances are in order and they can employ some kind of miracle rehabilitation of the damage they’ve caused to their firms. However, once again why would the producers investors put more money in? 

Thankfully they’re the dynamic, innovative, accountable and profitable oil & gas producers that they are. Sorry that’s not the culture of the industry. They’ll claim that but we all know different. They’re wholly incapable of acting. “Muddle through” is not a slogan, it's a culture that CEOs and Chairman preach in the morning and evening to their people all the way down to the receptionist, mail clerk and switchboard operator. Readers appreciate my creative license. This centralized, soviet style organization will watch out their windows as the days pass for the order to come down telling them to act. The fact of the matter is if you can take ownership of the problem, then you have the capability to solve the problem. Therefore the question has to be what is the status of the maggots ownership of this problem? How will they solve the problems that have manifested themselves over the past four decades during the next six months or sooner?

The world is a dangerous place to live not because of the people who are evil but because of the people who don’t do anything about it. 

Albert Einstein 

What the maggots will be learning in this process is that consumers will not concern themselves about the prices they’ll have to pay. They’ll be concerned about the availability of the commodities they need. They’ll be concerned about why their country is no longer energy independent. And they’ll be concerned that their oil & gas industry has become so incapable. 

When it comes to deterring the difficult issues in the oil & gas industry, People, ideas & Objects have demonstrated their will in terms of the commitment and perseverance to take the fight to these bureaucrats. We have also demonstrated the requisite capabilities in terms of identifying the issues and offering solutions to those issues. Solutions that are now desperately needed and unfortunately the industry is in its eleventh hour and have no alternatives. We are ready, willing and capable of solving these issues in the mid-term. We have sought to mitigate the time required to deliver our product to the market and to do so successfully. With our user community and their service provider organizations configured on the basis of the ERP software defined in the Preliminary Specification we have taken ownership of this issue. Accordingly we’ll have the capability to resolve it. Being a proponent of the DFQ let me ask, would the producer firms be able to take ownership of the problem by adopting the Preliminary Specification?

We however operate in the domain of the administrative and accounting disciplines of the North American producer population. We have no understanding, resources and no capabilities to offer outside the domain of the administrative and accounting realm. What is necessary is the inclusion of all aspects of the industry, of which we have no focus or desire to be involved in as it is outside of our understanding. These too are critical issues. The question is what will the maggots do about this winter when the difficulties become acute. What is clear is that there’s no common interest between the maggots and the other constituents in the greater oil & gas economy. There are elements of faith and trust between the oil & gas producers and its consumers. However the leadership in these other areas outside of administration and accounting is not evident to me at this time and must also be involved.

What should be obvious, and should not have to be stated, is that whatever is stated by producers today will need to be brought forward in the time frame that is meaningful to the consumer. Actions will need to be undertaken successfully based on any claims that are made. Producers need to understand that consumers now understand the issues that People, Ideas & Objects have been working to remediate with our Preliminary Specification, our user community and their service provider organizations. Consumers have seen the cliff they’ve unfortunately been placed at and are not going to accept any excuses, blaming or viable scapegoats as remedies. Action is being demanded and if it isn’t provided in a timely manner through the consumers expectation of legitimate energy independence this winter then I don’t understand what can be stated at this time to better represent the difficulty maggots have created for themselves. 

It’s as if all that has been stated either correctly or incorrectly by the producer firms exists as bedrock, public domain assumptions. The litany of reasons that producers will be held to account by consumers will be the tragedy that maggots will forever regret. Here is just a small sample. 

• We’re profitable at $30 stated the producers, so what’s the issue now asks the consumer?
• Shale is prolific, so what’s the issue now?
• The United States is energy independent, so what’s the issue now?
• We’re innovative, so what’s the issue now?
• Clean energy is our future, what were you thinking?

And so on. Calling the local painter to find out how to get out of accidentally painting yourself into a corner won’t provide any answers. Finding someone outside of People, Ideas & Objects et al to rescue you will be futile, trust me on that. If this seems too onerous to contemplate, then the easy way out will be for them to explain to all concerned why the situation has gotten so out of hand and how did they let it get there? Specifically, what was the motivation behind what will appear to everyone the damage and destruction caused by them? Why have they done what they’ve done? Was it just for their own personal benefit?

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.

Our Preliminary Specifications 10th Year, Part II

 What outcome could a rational bureaucrat expect if they chose to participate in the development of the Preliminary Specification? As we noted in our prior post, the alignment of interests against these bureaucrats is comprehensive and complete, only their direct reports will be feigning any support. There’s nothing to be gained and everything to be lost for them to engage with People, Ideas & Objects on the development of the Preliminary Specification. Therefore engaging in a scorched earth policy that ensures they are the ones that secure possession of everything including the candle sticks is the only rational policy objective that will motivate, appeal or make any logical sense to them. The alignment of the bureaucratic cultural mindset across the North American producer population was noted in the prior post to be in perfect harmony throughout. As an extension of this alliance that does not fight and fritters away the value that had been accumulated over the many generations before them. Bureaucrats will not fight against the aggressive posture and allegations that People, Ideas & Objects have asserted and it is reasonable to assume that much like cats, they can’t herd themselves in this direction. Leaving me with the opportunity to rename these producer bureaucrats with the more appropriate term of maggot’s. As we know maggots infest, don’t fight and leave nothing but the carcass. 

This leaves People, Ideas & Objects, our user community and their service provider organizations, the service industry, staff of the producers, investors, bankers and most particularly the consumers, what we collectively consider our customer base, with an interesting dilemma. In Winston Churchill’s “The Second World War,” Volume 6 entitled “Triumph and Tragedy” we find the relevant quote to our situation in the fall of Poland. 

After pointing out that the German plan to set up defence points would result in the gradual destruction of the city, the broadcast ended by reminding the inhabitants that “all is lost that is not saved by active effort,” and “by direct active struggle in the streets, houses, etc., of Warsaw the moment of final liberation will be hastened and the lives of our brethren saved.”

Who now has the authority to ensure that all is not lost by ensuring the active effort is made to save this industry, or would they be saving our economy, our standard of living or civilization? People, ideas & objects  have identified the issue and its solution in the form of a viable, workable business model. In combination with our user community and their service provider organizations we’ll be providing the ERP systems, administration and accounting on the basis of the Preliminary Specification in what we’re calling Cloud Administration & Accounting for Oil & Gas. However there is so much more that needs to be done outside of the domain of People, Ideas & Objects et al efforts. Time is of the essence, where is this leadership and sense of urgency? 

My day to day discussions with those in the oil & gas industry are remarkable for their consistency. The industry may be undergoing an existential crisis as I’ve described which contrasts the maggot's calm and reasoned approach to the situation in their simple utterance of “muddle through.” I would argue the destruction and frittering away of the value of an asset each month for decades may be described as an opportunity cost, and as a result would rightfully not be a concern of management, however that argument needs to be reevaluated by producers. This is evident in the fact that as the monthly losses are incurred at each and every property in North America, we are moving into the second decade of the Preliminary Specification. Of which I am able to report that I have had zero expression of interest in the development or interest in the remedial efforts necessary to establish the most profitable means of oil & gas operations, everywhere and always, by any and all of the North American producers. It is the fact that the Preliminary Specification disintermediates the maggot's from their lofty positions and power that is the issue to them. Enhanced profitability in the form of the Preliminary Specification as an ERP system, which is standard fare for any organization, is demanded by the investors to be from a tier 1 provider such as Oracle Cloud ERP, would attract interest from any common sense business person. Therein lies the conflict.

The methods used in the Preliminary Specification to develop the value needed in producer and industry organizations are the proven, time tested business methods other industries have benefited from. We first of all move the culture of the industry away from the corporate model managed by the bureaucrats to the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks of the industry. Increasing the organizational speed, accountability and profitability. Introduce and exploit the concept of Professor Paul Romer “New Growth Theory” in his paper “Endogenous Technical Change.” Where the accounting and administrative resources are built on an industry wide capacity and capability and made to be shared and shareable turning them variable, based on production. Reducing the costs of each producer having to replicate the same unshareable, uncompetitive capability and capacity. And in turn, expanding on the Cloud Computing efficiencies by providing our software and service as the Cloud Administration & Accounting for Oil & Gas. The third method we use is the introduction of high levels of business automation, and the capacity and capability to iterate upon these principles on an ongoing basis. Another method in which value is generated is through the use and exploitation of further and continuous specialization and the division of labor. The only proven method of generating value in organizations. All of the four methods mentioned to this point are unquantified in our value proposition as the impact is subject to too many variables to determine their monetary impact. There are many other methods contained within the Preliminary Specification that bring substantial value to all concerned and can’t be qualitatively or quantitatively identified either, such as the two major processes of innovation. It is reasonable however to assume that they’ll be foundational reasons why the North American consumer is provided with a profitable, independently sourced, abundant and affordable means of their oil & gas needs. Dare we ask what the maggot’s are offering?

One of the methods in which we’re able to build value and quantify the amount is through the decentralized production model of the Preliminary Specification. Ensuring that all production in North America is produced profitably at all times. Also known as running the industry as a business. This is done through the price maker strategy that is detailed in the Preamble of the Preliminary Specification. And can be quantified in the region of $5.7 trillion dollars over the next 25 years. The elimination of the producer's assumption that investors will pay for all the capital costs is replaced by the Preliminary Specifications ability to ensure profitable operations which imputes the internal generation of the cash necessary to fuel the needs of the capital expenditures in a capital intensive and mature industry. This displacement of funds over the next 25 years is valued by others as $20 to $40 trillion dollars. Once again the focus of turning a business focus to the business of oil & gas for the first time in a half century does generate value.

It’s in the sense of value that we’re all now appreciating and understanding why profitability everywhere and always is so important to the oil & gas industry. Where is it that the money comes from that is necessary to ensure that the oil & gas investor is provided with a competitive return on investment in comparison to other industries in the North American marketplace? Does that money come from new investors in order to compensate older investors for being all around good people? Is this woke indoctrination what has guided the officers and directors of the producer firms for the better part of the past four and one half decades? How else could anyone ever explain the standard fare producer firm going to the capital market on an annual basis to raise their necessary capital budget? When the capitalization of costs of the producer firm includes literally everything they incur as a capital, the culture created is to reload the firm with cash, spend that cash, capitalize for eternity, repeat. When investors realized the nature of the producers' methods, they walked. Then there was suddenly no more cash for the service industry, no more cash for the producer firms staff and therefore layoffs and no more cash to keep the facade operating. Everything slowly ground down. Only the officers and directors / bureaucrats / maggot’s have made good on their time in the industry. This was done because “that is the way it’s done in oil & gas” or “that is the way they were trained.” Which in their mind relieves them of their culpability. If only one or more would jump off a bridge. 

Facts and evidence accumulated over the past decades shows the absolute failure of the maggot’s administration. What People, Ideas & Objects have done is prepare an alternative solution to this catastrophe and that has existed in the form of the Preliminary Specification for a decade. How is it that the maggot’s have been able to continue with their consumption of the value of the industry at the expense of all concerned. I think we addressed that in our prior post by noting that bankruptcy, serendipity, spontaneous order and creative destruction have been corrupted to support the maggot’s enterprise. It also appears to me that they’re entrenched and will not be leaving on their own. They will not suddenly gain the moral courage to do the right thing and set the industry back on its feet with the proper focus on a dynamic, innovative, accountable or profitable basis through development and implementation of the Preliminary Specification. Oil & gas prices are too healthy for them to walk away from their upcoming payday. They’ll be able to sprinkle cash about and make it look as if activity is evidence that the “good times” are here. It will be necessary to ask two questions though. Will it be profitable when the industry is culturally structured to be incapable of doing so? How much value is left to be exploited before the maggot’s hit bone and fly off?

I’ll leave this post with another quote from one of Winston Churchill’s “The Second World War” Volume 5, entitled “Closing the Ring” 

It is always prudent to be on record publicly as having given warning long before the event. This is more particularly true when its scale and gravity cannot be measured. 

And with that I’ll just say it’s a nice day here in early August of 2022. I wonder what it’ll be like this winter?

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.

Our Preliminary Specification 10th Year, Part I

 Today is the 10th anniversary of the Preliminary Specification. People, Ideas & Objects are pleased to be in the position we’re in as a result of our work in resolving the issues in the marketplace for the North American oil & gas producers. Our dealings with producers have been consistently difficult and are ripe with conflict and contradictions. Throughout our history we’ve experienced none of the rational behaviors that we would expect from our approach to providing the most profitable means of oil & gas operations everywhere and always. Why is this? What’s wrong with profitability? Why would you continue to produce a property unprofitably for years or even decades at a time? During this past decade, the developments of these producer firms has been to undertake the comprehensive destruction of their financial, operational and political foundations. They’re now incapable of meeting the needs of their shareholders and bankers, incapable of sourcing the manpower to deal with today’s market demands, seemingly unaware that tomorrow only brings greater challenges, and today’s energy consumers are looking to producers for more at a time when the producers' cupboards are bare. Whatever objective producer bureaucrats were pursuing it will cost society detrimentally and unfortunately put our way of life in jeopardy. I am at a loss to understand what their objective may have been. There was a solution to avoid all of this, and that alternative would have built substantial value for all concerned who have been fundamentally betrayed. Everyone in all corners of the greater oil & gas economy are able to now fully understand and appreciate the reasons why profits are a necessity. And today we can recognize the Preliminary Specification is in its second decade. 

What is the history that brought us to the point where we’re at today? How did we get here and what have been the consequences of the inactions of the North American oil & gas producers. To summarize the status quo as I see it today.

• Producer firms have diminished and in many cases non-existent capital structures.
• Either through chronic losses or specious accounting which saw everything as a capital asset and never recognized as a cost, in a capital intensive industry.
• A capital intensive industry would imply the cost passed to consumers would contain high levels of capital costs.
• Instead bloated asset values are now supported by excessive leverage.
• Abandonment in 2015 by their investors due to the producers inability to deal with their issues of unacceptable profitability and accountability.
• Abandonment eventually by their banks who began to recognize similar issues. 
• An inability to accept the global role of high cost, swing producers in global oil markets. To believe that markets would accept any level of production provided, with no consequences. Never learning the business basics of overproduction.
• Where the great depression was largely caused by overproduction.
• Where July 1986s oil price collapse saw the first of many such commodity price collapses due to North American oil & gas producers' chronic overproduction. 
• I count six “good” years in the industry out of the past thirty six years.
• In 1991 I began the pursuit of what has become several attempts to resolve the chronic overproduction in oil & gas through the implementation of software systems to alleviate the systemic overproduction problem.  
• In May 2004 published the Preliminary Research Report that set the foundation of the Preliminary Specification. A total of ten years of research to determine “what, how and why” the industry and producers would need to operate and eliminate their issues to provide for the most profitable means of oil & gas operations. Leading to publication of the Preliminary Specification on August 9, 2012.
• Throughout the period since its publication producers have only sought to violate our Intellectual Property and at no time did any of them inquire about the solution. 
• July 4, 2019 People, Ideas & Objects published a paper “Profitable North American Energy Independence -- Through the Commercialization of Shale.” The market's reception was very strong, receiving significant distribution. 
• No interest from producers was expressed in the paper’s proposal. 
• We ultimately received the producers final response to the ideas contained within the Preliminary Specification and the July 4, 2019 publication when they allowed oil prices to drop to negative $40 in April 2020. 
• Throughout 2020 and 2021 declarations that shale would never be commercially viable and asset sales of shale properties were announced with many producers exit from that business.
• Maintaining their cultural propensity to bail and abandon prior investments instead of remediate or attempt to make something of their “failures.”
• Alleged “shareholder driven initiatives” to reconfigure the producer organizations as clean energy providers were announced as the new frontier. 
• Overnight they began listening to their shareholders about clean energy? An industry that is scientifically and commercially not viable which was pointed out in our July 4, 2019 publication. An industry with a history of repeated failure, of poor accountability and massive government involvement. A bureaucrats dream. They’ll be saving the planet though!
• Contrast this with the fact they’ve ignored and continue to ignore their investor concerns regarding profitability and accountability issues for almost a decade.  
• For decades producers claimed they needed to make sure that oil & gas prices remained competitive so that alternative energy could never get a foothold. 
• Now it is these same bureaucrats who are taking the producers cash and oil & gas revenues to fund their unaccountable activities in an industry that has never performed even with government subsidies. 
• Choosing an alternative business direction shows they’ve lost the focus and drive to remediate and rehabilitate the oil & gas industry.
• Difficulties in sourcing the field resources necessary have become a primary concern. 
• Service industry providers and their staff have been repeatedly betrayed by producers. Nothing is being done to remediate these relationships. 
• The resulting field capacity and capabilities damage and destruction have severely deprecated the producer's future deliverability. 
• 2022 Lockdowns are lifted and consumption is resumed leading to price increases at the pump. Consumers are concerned about their energy supply.

To assume as we have that this failure is a cultural and behavioral phenomenon developed over the past decades is reasonable and rational. It may also be a limiting assumption in our attempt to understand why this has happened. If we dispatch that they were motivated by rational behaviors, which is appropriate in this situation, we can maybe begin to determine what drove this madness. We can begin to see the dark alleys where these producers officers and directors reside. Can we expand on this small cadre of just the officers and directors as the culprits? What about the investors, do they travel those back alleys too? Apparently not as they’ve been absent since 2015 and have expressed their displeasure with the manner of producer firm operations, accountability and most importantly profitability. Is there any other identifiable group, what about the service industry or the staff of the producer firms? They too have not fared well. Nor has the consumer. It is therefore reasonable to make our first conclusion that the producer's destruction has provided the officers and directors with the enhanced compensation that they’ve documented throughout their financial statements. They were conflicted and only ever in it for themselves. As they’re the only ones we can document that have benefited from this destruction. It is their specious and unrepresentative financial statements that are as useless as their business objectives of “muddle through,” “building balance sheets” and “putting cash in the ground” are. If only we weren’t so frustrated with their performance and just listened to the garbage they were spewing. It was only they who had the requisite authority and responsibility to act. Action via “muddle through” is exactly what they did, even while the Preliminary Specification existed. Which in fairness to them would have caused them significant levels of effort and hard work with no upside in terms of continued personal value generation, feigned innocence and luxurious way of life. 

Acceptance of this behavior is not the status quo. As indicated, the big cheese in the industry, the officers and directors, stand alone. There is not one representative group of individuals outside of their direct reports that would be supportive of the situation as it stands today. Change is what is demanded and it needs to be undertaken yesterday. What we have however is a well entrenched, highly satisfied group of individuals with all the requisite authority and budget to maintain their hold on power. They are nameless and faceless. Tell me the name of the individual at Suncor who “agreed to leave as president and CEO and resign from the board of directors” on July 8, 2022? It will only be through the deliberate act of their removal from office that we’ll be able to seek any remedy to the situation. Consider the following.

What has been the historical norm established since the great depression is the exit of the management class from the scene when their administration has become untenable. What I would have assumed, and if we could make the assumption here that the traditional message of the investors withdrawing their support as the ultimate message of dissatisfaction and demand for change. Which occurred in 2015 was the point when the producer firms became “untenable.” Why I am writing this in August 2022 is that the traditional tools of a market economy have failed and are being exploited by these bureaucrats to benefit themselves exclusively? 

• Bankruptcy or business failure is no longer possible as all that it does is reinstate the officers and directors and eliminate the angry shareholders. Forces the banks to dilute their loans and start again for the requisite period of time between bankruptcies that is deemed acceptable. The game is played with such skill and brashness now that officers and directors declare themselves pre-bankruptcy bonuses. 
• Serendipity where organizations can change with the times. Unfortunately our advanced, software driven world is securing organizations in metaphorical cement. Only through the active change in their ERP software can organizational change occur. This has been the reason that no change has occurred in any of the producer ERP systems. Securing the bureaucrats' administration in perpetuity. All tier 1 ERP providers left by 2005 and a tier 1 ERP solution needs to be implemented by industry as an explicit demand of the investors.
• Spontaneous order occurs when people can see the opportunity in the market and act. In highly diverse continental markets where people are connected through electronic means the ability to see and to organize markets efficiently and effectively has been rendered obsolete. Things need to be actively pursued in order for them to occur.
• Creative destruction has been massaged from the financial statements of the producer firms. Each producer firm has massive capital cost in the form of property, plant and equipment. These are not representative of the performance of the firm but are an attempt to represent the value of the producers. The homogenization of producers is the result. Each firm is the cookie cutter financial statement of a deemed industry standard that only differentiates on the basis of the size of the production profile. Can you discern from any one of the financial statements who is the hero and who is the zero? Outside of bankruptcy that is. 

Another behavior of these officers and directors that we can reliably count upon is their ability to turtle in the face of criticism or opposition to their (in)actions. Only to eventually resurrect their prior behaviors through the “muddle through” culture they’ve fostered and enabled. Allowing this culture to quickly reimpose the prior unacceptable behaviors. Dishonesty, blaming and viable scapegoating have been the toolkit of the officers and directors these past decades. There have been a litany of reasons that they’re unable to get up off the couch and do anything, things don’t work in their favor or objects are in their way. The defining characteristic of this behavior is that all the producers will be discovered to be singing from the same hymn sheets and in perfect harmony. 

Unfortunately, the way I’ve summarized this situation would be the same way that anyone else outside of this bureaucratic class would summarize it. Unaccountable, uninterested, unprofitable, culturally conflicted, unmotivated, uncaring and with large streams of cash with which they have absolute authority over. The decade of the Preliminary Specification attempt to enable the most profitable means of oil & gas operations, everywhere and always is all the evidence that anyone now requires to discover the otherwise permanent issue our society faces. The inability to appreciate or concern themselves with the fact that each barrel of oil is equivalent to 10,000 to 25,000 man hours of mechanical leverage in the most advanced economy the world has ever known is irrelevant to them. It won’t affect them. 

This is the evidence that exists today. This is the dark and dreary future that they’ve created and sent us down. It could have been so different if the alleged leadership did their job and made the appropriate changes at the appropriate time. 2015 when the investors withdrew their support was unquestionably the point where action was necessary. Now that we face such an issue change needs to be forced upon the producer bureaucrats. They are not responding to the usual forces and they’re not following what has been considered to be the traditional behaviors in times of financial duress in our economy. They are entrenched and have proven to be untrustworthy and unworthy of our continued support. They must be terminated from their positions or forced out in some manner. Or I’ll be here in 2032 etching these writings in stone. I’ve painted many visions here during the time that I’ve been writing on this blog. I don’t know what my accuracy has been in terms of getting it right but I know I’m close. I would hate to be right about that future we all face. 

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.

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.