People, Ideas & Objects Response To a Request for Proposal, Part VIII

 Information Technology

Our next organizational structure that defines the way in which oil & gas producers operate in the Preliminary Specification of People, Ideas & Objects, our user community and their service provider organizations is the Information Technology environment and the revolutionary impact that these have had on business in terms of enhanced productivity, performance increases and leveraging value out of a firm's business model. The promise of additional performance and productivity enhancements are available as these technologies have matured and are more integrated to provide their consumers with substantial value. 

The key technology today and the one that we’re leveraging in this community is the establishment of cloud technologies. Introducing a shared and shareable cost model across its users. This is how People, Ideas & Objects et al sees Information Technology materially affecting the performance of producer firms. With cloud computing, instead of incurring large capital, infrastructure and operating costs to acquire their IT capabilities, users are able to access these needs as a variable monthly operating cost, variable based on usage. The shared and shareable cost model doesn’t just end there. The producer's users are provided with the most recent applications and the quality of technology service and support is enhanced through an enhanced and constantly evolving definition of specialization and division of labor. Cloud computing is expanding throughout the business community due to the capability of accessing the IT resources that businesses need and want. One that provides a lower overall cost, yet provides the full value of IT that would otherwise demand that each company invest in unique capacities and capabilities outside of their competitive advantages, and demand significant corporate resources and focus in order to build, achieve and maintain.

 People, Ideas & Objects see cloud technologies as revolutionary to oil & gas. Having oil & gas producers accessing the same state of the art IT capabilities, capacities and infrastructure at low, variable and affordable prices will enable the opportunity for producers to participate in the anticipated future performance, productivity and value enhancements that they choose to. We also see a further extension beyond the IT infrastructure, software, service and support. We have adopted the shared and shareable cost methodology of cloud computing and applied it to the oil & gas administrative and accounting processes and functionality conducted in the Preliminary Specification software, our user community and their service provider organizations. Introducing the Cloud Administrative & Accounting for Oil & Gas service to North American producers.

If we look at the difficulties of “what, how and why” producers are consistently unprofitable. We see high overhead costs incurred within each producer that are what we consider to be the secondary cause of a systemic lack of corporate profitability. Building the necessary administrative & accounting capacities and capabilities, particularly in this regulatory environment, is costly to achieve and maintain. It’s also incurred individually by each and every producer on an independent and isolated, or unshared and unshareable basis. These are not core strategic competitive advantages. We are faced with the same issues that the earth science and engineering resources are faced with as a result of their advancement of specialization and the division of labor. The need for the resources to cover each and every aspect of the corporate administrative and accounting demands has or will soon breach the commercial capacity of all producer firms. I would assert that happened decades ago. People, Ideas & Objects' multi trillion dollar value proposition should show that the need for attention in the area of managing the business more effectively and efficiently is necessary, desirable, achievable and tangibly valuable. A shared and shareable business model through our Cloud Administration & Accounting for Oil & Gas will attain variable administrative and accounting state of the art capabilities and capacities. Providing lower costs from two distinct perspectives that are unavailable in the current business model. From an overall industry and individual producer perspective, a lower cost due to the shared and shareable nature of these services. And, due to their conversion to variable nature overhead will only be incurred when profitable production is attained. These are just a few of the methods from our focus on providing oil & gas producers with the most profitable means of oil & gas operations. 

When we listen to customers who have implemented Oracle Cloud ERP applications within their organizations there are a number of consistent messages coming through that I find interesting. The first is their roles as senior management and officers of their firms change to begin dealing with the prospective changes that are coming in the quarterly release or upgrades of the Oracle Cloud ERP offering. These are now in the area of around 200 individual additions per quarter. Note, additional changes will be made when the Preliminary Specification is operational in addition to this volume of Oracle changes. 

People, Ideas & Objects would ask, based on the selection of which ERP solution is determined by the Board of Directors, how many of these quarterly changes will be the concern of the producers senior management and officers, or be handled on their behalf by our user community and their service providers. The majority of these changes would be handled by the user community under the People, Ideas & Objects et al model and implemented, maintained and supported by the service providers. With input from the producers being funneled through to the user community, consolidated and optimized from the producers point of view. Let’s call this a shared and shareable senior management and officers role. Ensuring effective and efficient management of the producer's processes, both from a time, effort and cost perspective. Which brings up an important question. Who can effect change of this entire ERP ecosystem as proposed by People, Ideas & Objects et al? It is the greater oil & gas economy and most specifically the producers who our users who have the power to make those changes will look to for input of any and all information. Our user community are deaf, dumb and blind to any others, however share my allergy to bureaucrats. Our developers are deaf, dumb and blind to all others except our user community. 

The traditional approach to having a unique ERP system that caters to the needs of a specific industry is to customize the vendor's application to do so. This is frowned upon by Oracle and recommended not to be done. People, Ideas & Objects have adopted Oracle’s policy in our user community and service provider licenses. Stating that all customizations of the application are to be avoided at all costs. This certainly seems to be at odds with what it is that we’re doing. The point is subtle and is a unique characteristic of the Oracle Fusion Applications. Other than Workday they are the most recently written applications of all ERP systems. They were the first to be written in the Java Programming Language which introduces the full object model to those applications. Providing the characteristics of inheritance, encapsulation and polymorphism. The Fusion Applications are supported by Fusion Middleware which is an enhanced Java Server with expanded function and process management that is generic and written by the Oracle Fusion developers. This is the base of the Oracle Fusion Applications. It is also the base of any “additions” that are written to provide industry specific application capabilities to the Oracle Fusion Applications. Enabling People, Ideas & Objects to embed the oil & gas industry features directly into the Oracle Fusion Applications through the Oracle Fusion Middleware as “additions.” 

This is opposed to the industry customizations which would traditionally sit on top of the ERP application. Oracle’s method avoids a key difficulty in the environment where the needs of the users are dynamic and changing. Any system changes at the Cloud ERP, or Fusion Application ERP level are therefore not going to break any of the customizations that sit on top, as there will be nothing there. The new quarterly release of Oracle features will be embedded with the “additions” from People, Ideas & Objects and therefore, as they too are Java object based, independently updated as well with their own new and unique features, unaffected (encapsulation) by them without any of our additional developer involvement. Yet, I am satisfied that our application code base is separate and distinct from the Oracle Fusion Middleware and Fusion Application code. Maintaining full control over the Intellectual Property that is a key source of People, Ideas & Objects competitive advantage. I have to mention another unique characteristic that will soon be available to the Oracle Fusion Applications and Middleware. A feature that they’re calling “Fusion - Future Zero Down Time.” Seems self explanatory. 

This next point is one of contention between the IT community and those within the business community. It is a method of implementation that is becoming increasingly the norm and the more successful method of ERP implementation. It goes by the name that I’m fond of and captures it most effectively, that is “rip and replace.” I subscribe to it simply for the time element of the roll out of the Preliminary Specification when completed in its commercial release. Please note it is the domain of our user community and service providers who will be planning and conducting the implementations for each of their individual processes themselves and of course the producer firms. At this time rip and replace is the most appropriate implementation methodology for a rebuilding process.

Time is the demand that should be focusing the minds of the producers on dealing with their shareholders issues of accounting integrity, accountability, tier 1 ERP systems use and the melting down of their financial position due to absolutely no capital structure. People, Ideas & Objects primary issue is that we are conducting this across the North American producer marketplace. Therefore the need to focus the energies of the industry on this task will need to be a priority. Both from a software development and implementation point of view. Otherwise the industry will just melt down and oil & gas will have failed in its primary role of providing affordable energy to the North American consumer. North American’s will become dependent on foreign sources of energy to meet consumers' needs. And as we’ve noted the most powerful economy in the world is also the largest consumer of energy. These foreign sources of oil may therefore deprecate us from that traditional economic role. 

People, Ideas & Objects have chosen to pursue our user community, research and Intellectual Property as the three areas of focus for our competitive advantages. Note that none of these involve the development of the software code. We’ll own and provide the software code that is derivative of the Preliminary Specification and our Intellectual Property. We have contracted all of our software developments to Oracle Corporation. Their services division are well versed in their ERP products and are ready and capable. We believe we would need to dedicate at least a half decade in order to assemble a team of the size capable to deal with this project and then an unknown amount of time necessary to turn them into a functioning capable team competent to put out the quality of software necessary. We’ve been working on the development of the user community since the first quarter of 2014. A task we’ve assigned as our priority since then and one that differentiates our product offering in terms of quality. Time is not the commodity available to the producers at this stage. The time we’ve invested in developing our Intellectual Property and most importantly our user community will offset industry needs tremendously. Contracting Oracle in this manner extends this time advantage. Focusing on the IP and our user community aspects of this project will be a better use of our time, resources and skills. It is also where we see the value in the software business. It is consistent with our belief that specialization and the division of labor will need to be applied to all aspects of the economy and by doing so we are able to do a better, more productive job.

If directors believe these ERP developments can be done within their organization then why haven’t they happened? Our scope of application development in the Preliminary Specification would be considered equal to what each and every one of the producers would need to undertake if they chose to continue to go it alone in the unshared cost model. The main difference is in terms of scale. To acquire just the depth of understanding and detail necessary of the Oracle ERP Cloud offerings would require the same costs being replicated across the industry in each and every one of the producer firms, assuming producers had a timely, oil & gas, workable, profitable business model. I could be reading things differently in terms of timing and expectation of the producer investors and bankers. 2015 was when investors began to express their discontent with the industry at large. The industries lack of performance, accountability and transparency were identified as issues by them at that time. I would never have assumed that the better part of a decade of inaction was a tolerable amount of time. 

I should state here that the bulk of this RFP Response is being written as a derivative of the one that I wrote specifically and is entitled “To the Board of Directors, Our RFP Response…” in late June and July of 2021. I raise this point as after 17 years this blog receives a high distribution across the North American producer population. Yet not one phone call or any other method of communication was used by any of the producers at that time to contact People, Ideas & Objects. A unanimous…, we all know the slang term that was implied here.

I personally have been working on bringing ERP systems to the oil & gas market for thirty years. Our first attempt in 1991 failed in 1997. This initiative began in 2003 and there have been other failures. There are few ERP providers available in the market today and nothing else that is a dedicated development towards oil & gas with a tier 1 provider. The benefit that I’ve gained from this latest initiative is that copyright law is now upheld in all marketplaces and I’ve secured what it is I’ve developed. My point in this is to suggest that oil & gas companies have mistreated the vendors of oil & gas ERP systems development in the three decades I’ve been involved. Much as it has mistreated the service industry, its investors and bankers, not saying anything about their current and former employees. The need to financially support these initiatives from the primary revenues of oil & gas sales is now a result of this mistreatment and a reality that has yet to be realized by producers. Just as there are no oil & gas producer investors, there are no investors that are interested in anything associated with oil & gas. 

To the point of Intellectual Property. It is the basis of all software. No software vendor is going to violate another's Intellectual Property. SAP or any other reputable company would adhere to those principles as that is the basis of all of the value of their firm. It does them no good to be violating others IP. Therefore the producers will be left to develop their own systems and may, or may not adhere to respecting Preliminary Specification and People, Ideas & Objects Intellectual Property. That would be their choice and we would transition from an operational software company to one in which we ensure our IP is respected. Alternatively each producer could come up with their own methods of ERP software development and fight it out amongst themselves as to who owns what. This is after the money necessary to fund all those developments has been spent and the IT resources that were consumed in the process are sent on to their next industry with all the other service industry resources to find gainful employment elsewhere. As I’ve stated, administration & accounting are not distinct competitive advantages of the producer firms. 

Although I feel highly productive today, that will not be the case in thirty years. Who’s coming into the field with the scope and scale of opportunities that are being presented in the marketplace that these producer bureaucrats have created. What Intellectual Property will those that enter in thirty years bring, and conversely after consideration of People, Ideas & Objects et al, what IP can they bring? It may be surprising for producers to learn that there are other industries that are dynamic and exciting right now. I can conclude that I am stuck with the consequences of my choices and am able to live without regrets of what I’ve done. I doubt those that follow me will feel the same after they’ve put in the three or more decades of effort necessary to generate that first penny of revenue from oil & gas producers. And that assumes People, Ideas & Objects will make it to that point. Conversely, who do I appeal to now that the Boards of Directors have failed to act and fund the Preliminary Specification? Alternatively, the better question may be who do producers go to for funding in the future when its proven directors don’t care about investing in their organizations profitability, or even oil & gas?

Throughout our writings we have alleged the accounting conducted by producers over the past four decades, and particularly the profitability reported, is specious. That overhead and other costs are handled inappropriately. Depleting cash on a chronic basis and raising serious governance issues that have now resonated throughout the investment community and elsewhere. This accounting allegation of ours is that the specious accounting methods conducted throughout the industry have been obscured through poor ERP systems that were deliberately created through producers' bureaucratic mismanagement. Governance over the quality of the accounting and the companies systems has become an issue at the level of the board of directors in the last few years. Due to a direct ask by their investment community. There are no tier 1 ERP systems providers selling oil & gas systems today and more importantly, outside of People, Ideas & Objects et al no interest. Again, SAP sells an oil & gas system to producers however it is inadequate for oil & gas. A valid question may ask, how much of these producer issues are attributable to poor SAP systems? It has not been the case that there was no opportunity for producers to participate in the development of these systems. 

A purpose built oil & gas ERP system will need to be developed on a tier one systems vendors platform in order to implement a governance model that will satisfy the investment community. People, Ideas & Objects uses Oracle Cloud ERP. The unquestionable leader in ERP systems according to Gartner. With our Preliminary Specification, our user community and their service provider organizations we’ll be providing a comprehensive and complete oil & gas solution in our Cloud Administration & Accounting for Oil & Gas software and service offering. One that provides a comprehensive value proposition in the form of reducing the infrastructure, operation and maintenance of each producer's overhead costs. And turns what remains of those costs to variable, based on profitable production. 

People, Ideas & Objects Response to a Request for Proposal, Part VII

 Markets

In terms of the Preliminary Specifications marketplace modules, we have the Financial, the Petroleum Lease and Resource Marketplace modules. Each replicating the three primary markets of which a producer is actively participating on a daily basis. Seeking to profitably and innovatively apply their distinct competitive advantages of 

• coordinating the markets of earth science & engineering capabilities 
• their land & asset base. 

The Petroleum Lease Marketplace module is as one could imagine. An opportunity to post, bid, purchase, sell mineral rights and producing properties in the marketplace that exists and is replicated virtually within the Petroleum Lease Marketplace module. Everything from the opportunity to participate in a joint venture to establishing and ensuring the surface rights payments is fully supported by the Cloud Administration & Accounting for Oil & Gas of the Preliminary Specification. Our ERP product sits on top of Oracle ERP Cloud which includes their tier 1, Oracle Fusion Applications that Gartner rates as the highest quality offering. These oil & gas Marketplace modules include the data of the Federal, State, Provincial, Freehold and Offshore leases. An opportunity for industry to consolidate on a dynamic platform which uses proven tier 1 technologies with the constant support of the service providers maintaining transaction administration and accounting in a standard and objective manner. 

This will be enhanced with the constant iterative design and development being undertaken by People, Ideas & Objects user community and developers on a permanent basis and available through our Cloud Administration & Accounting for Oil & Gas service. Whereas if a jurisdiction reviewed and changed their royalty rates at some point, in terms of either the rate or method calculated, producers would not need to concern themselves with the administrative or accounting aspects of those changes. The user community, developers and service providers would have them covered and implement the necessary changes in the software and services in a timely and accurate manner. Producers would only need to deal with the issues regarding any revised royalty costs and performance consequences. 

As with the Resource Marketplace module we see many changes in this oil & gas marketplace. Which I would think producers would welcome at this point as financing is next to impossible for producers and particularly the service industry. Moving to the Joint Operating Committee as one of the Organizational constructs of the dynamic, innovative, accountable and profitable producer is achieved in the Preliminary Specification. We noted that the movement of the knowledge to where the decision rights were held, which is the Joint Operating Committee, enhances accountability. It's here that the Financial Marketplace enhances that accountability with the board of directors' interaction with their current and prospective shareholders and bankers. A review of the Financial Marketplace modules specification would be the best source of information to capture an overall understanding of the module. There is also the standard and objective nature of the accounting that is conducted throughout the Preliminary Specification and the service providers. Consider if that would satisfy some of the issues that investors and bankers have raised regarding their investments and loans in the industry? Whereas with the Preliminary Specification everything being produced is profitable and the producers are seeking to maximize their profits by shutting in unprofitable production. 

The demos for the Marketplace Interface were prepared by the underlying technologies that are available to us. These were prepared over a decade ago. Much has developed in the technological environment since. There are many points that I would argue that are different today which include.

• The work from anywhere and its enhanced productivity of employees.
• The co-mingling of professional and personal lives, the reduction of redundant travel times and archaic rituals has had a marked increase in the performance of white collar workers being engaged over a 12 to 14 hour day. 
• Zoom induced hell. (The demand to always be on camera.) 
• Turning cameras off for peace of mind is now a necessity to this ball and chain. All to satisfy one’s immediate supervisor's demand for command and control through continuous mandatory attendance.
• The lack of ERP tool support availability.
• Search, contracting, buying, selling, financing, billing, paying, marketing etc. What is currently being done in the ERP area of oil & gas vs what could be done in a hybrid ERP with a marketplace interface could not be more stark. Oil & gas is in the dark ages.
• Proliferation of bots. Both good and bad. Note, Oracle’s Cloud ERP now has “good” bots that fight the “bad” bots that may be attempting to get in. 
• “Always there” capability. 
• The establishment of permanent, virtual real estate for your bot’s and organization. 

Looking at the establishment of IT in other industries where technology has been embraced we can ask some interesting questions. Why is there such volume on the stock exchanges today? What are all those algorithms doing? It’s been more than two decades that they’ve existed. How is it that NASA, Ford and GM can all be collectively outperformed by Elon Musk? And how is it that oil & gas is generally and rightly regarded as having many of the best science and engineering Information Technology available to it. Yet its business is about to be thrown on the trash heap of history? 

The economic principles of markets and price discovery are two of the mechanisms by which North America has advanced its overall quality of life. Adoption of these within the oil & gas industry are therefore a necessity and the Preliminary Specification has done so as part of the structures that define and support these industries. Our decentralized production models price maker strategy relies on the principle of oil & gas commodities being priced based on these satisfying the economic definition of a price maker. The need for producers to produce only profitable production, after full consideration of all of their costs on a timely and accurate basis, is how they’ll operate under our ERP system and service provider offerings. Using all of the information contained within the commodity markets price, (production, inventory, consumption, reserves) to determine profitability and ultimately what will and will not be produced. It is the same mechanisms that are involved in every transaction involved in a free market. 

From the Preliminary Specifications Resource Marketplace module we quote from a paper written by Professors Richard Langlois and Nicholas J. Foss entitled “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.” they note.

The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 21

And

If by contrast, the old configuration of capabilities lies within large vertically integrated organizations, creative destruction may well take the form of markets superseding firms. History offers many examples of both. p. 21”

And

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

We first need to discuss two components of how I see one of the marketplaces in oil & gas. The reliance on the field service industry providers to extend the producers capabilities and capacities into their regions of interest. For producers to own and operate their own field infrastructure would otherwise be an impossible impediment and constraint towards progress. The second component is the history of abuse and disrespect that producers have displayed and presented to the service industry over the past forty years. And particularly since 2015 when the producers recognized their financial difficulties were amplifying. The assumption that oil & gas is a boom / bust industry has been accepted over the long term by these producer bureaucrats. All other industries sought to work these issues out of their businesses and industries many years ago. It is this continuing acceptance that has left us with a legacy of maybe five good years out of the past thirty five. Officers and directors don’t understand this point as they’ve experienced thirty five years of excellent compensation. 

Producers assume the service industry needs to adjust to the boom / bust trend in lock step with the producers. There is an implied assumption that the service industry, like the oil & gas industry itself, enjoys revenues as a primary industry and therefore continues business as usual during the bust cycles. The diversity of the service industry offerings, and their coverage across the various regions of their operations throughout North America spreads them relatively thinly. As secondary industry participants they are not as resilient as the producers believe them to be. The collapse of their revenue streams into the low teens in terms of percentages has been devastating.

Now the consequences of this downturn have destroyed much of the service industries capacities and capabilities that were once available to producers. This decline in support since 2015 on top of the cumulative difficulties administered the many decades prior by oil & gas producers has created the situation where it will be difficult for many of them to survive. The largest service industry providers have left the continent as a result of the abusive treatment they’ve received. Therefore working out the boom / bust cycle through our price maker strategy will go a long way to rectifying this issue in the long run by providing a stable environment, or constant level of demand for which the service industry can prosper. However, investors in the service industry have had it for the remainder of this millennium. They invested in good faith and were abused by the producer firms. They’ve witnessed the equipment they invested in being cut up for scrap metal to pay the light bill and taxes on the shop. This was primarily due to the producer bureaucrats determining they could get away with leveraging additional field activity by not paying their bills for 18 months after the jobs were completed. As their last source of capital necessary to keep the show continuing. The dilemma today is who’s going to provide the financial resources for the service industry to recapitalize itself and reestablish the capacities and capabilities that will be necessary for a self-sufficient and profitable oil & gas industry? The Resource Marketplace module engages the producers and service industry participants in constructive discussions regarding the business of the business of the oil & gas and service industry business. 

This is what’s known and understood in the market today, it’s not news. Producers will expect the service industry to dance for their dollars just as they’ve always done. If People, Ideas & Objects are correct and no one’s going to play that game, what would be the result. I would point to the example of the history of the ERP providers in oil & gas over more than the past three decades. I can report there is still no consideration whatsoever of a second chance these first tier ERP providers will be riding to the rescue of the producer firms. Why, they feel the industry is too complex, too costly and there are not enough producers to be able to negotiate their sales prices fairly. The last two tier 1 ERP providers left in 2000 and 2005, as documented on page 17 of our White Paper, due to the inability of producer bureaucrats to pay for their software development in advance. Producers have never paid for any ERP systems anyways, so why start? 

Producers have had over a decade to invest in the Preliminary Specification to make their organizations profitable and to avoid this inevitable, predictable and disastrous outcome but didn’t. Not a penny has been spent on People, Ideas & Objects at any point. Therefore producers will be paying for all of the costs of the Preliminary Specifications development and user community in advance. The need for skin in the game is the apt approach when so many ERP providers and their investors have been betrayed so comprehensively. This will be the necessary approach throughout the oil & gas producers industry-rebuilding process.

As the producers sit upon the primary industries revenues they so enjoy. (And mostly for enhanced, innovative, executive compensation. I do question what's in those capitalized overhead accounts we never see.) Officers' and directors' inactions have consequences which have been wholly detrimental to everyone else in the industry. They will no doubt argue, rightly, this does not remind them of what markets and price discovery should look like. Correct, it's what’s necessary after the destruction of the markets they’ve caused. It is the rebuilding process. These facts on the ground are what bureaucrats refuse to consider or admit. Until they do the industry will be plagued with problems. And they’ll never admit this, what they will do instead is they’ll just leave which is the historical action other bureaucrats have taken in other industries since 1929. Which is possibly what they’re doing in their transition to clean energy. Taking the oil & gas revenues with them. These issues need to be dealt with and I am unaware of any other solution. The need to rebuild these industries brick by brick and stick by stick must be financed by the only means available. The primary industry revenues of the oil & gas industry. Facilitated through the Preliminary Specifications decentralized production models price maker strategy and active participation in the development of the industries that support the Primary industry of oil & gas. Or in other words, ultimately the consumers. Granted there will be those within the service industry that will continue to scrounge for the pennies falling from the bureaucrats pockets. However, that does not create the dynamic, innovative, accountable, profitable and energy independent oil & gas industry that we need.

People, Ideas & Objects Response to a Request for Proposal, Part VI

 Innovation

The reason People, Ideas & Objects et al needs to be concerned about the startup to junior sector as much as any other classification is purely for the fact the industry’s rebuilding will be done on an innovative basis. Innovation is the basis of the Preliminary Specification. It enables People, Ideas & Objects, our user community and their service providers to achieve our two opposing objectives of providing oil & gas producers with the most profitable means of oil & gas production everywhere and always, and providing consumers with the lowest possible cost of an abundant energy supply. We do this with our decentralized production models price maker strategy that ensures all production is produced profitably. Including Exxon’s, Shell’s and that startup oil & gas firm that began this morning. And to do so innovatively to ensure that the ever escalating costs of oil & gas remain affordable to consumers and the commodities production profile and reserves continue to expand. Achieving profitable, North American energy independence.

Enter two variables that were not available in prior decades and centuries. The cloud computing era with the maturation of the overall technological infrastructure that is best represented by the Internet. We are at the infancy of what the Internet can provide. And the second variable being the “service” aspect of our user communities service providers. It was discovered in our research that the level of innovation that is attributable to the small and medium sectors of an industry were as substantial as the larger sectors. Although the larger sectors contributed large amounts in total spend it was no greater than the effect of what the other sectors contributed. Professor Giovanni Dosi was one of the key sources of research that we used to determine the framework necessary for an innovative oil & gas industry. Innovation within a science and engineering based business is therefore an inherent part of both these demands for profitable operations and consumer affordability. 

Professor Giovanni Dosi was one of our sources of primary research in the area of innovation. His paper “Sources, Procedures, and Microeconomic Effects of Innovation” September 1988, discusses and asks what are “the sources of innovations opportunities, what are the roles of markets in allocating resources to the exploration of these opportunities”?

People, Ideas & Objects research in oil and gas focused on these points: 

• The main characteristics of the innovation process. 
• The factors that are conducive to or hinder the development of new processes of production and new products.
• The processes that determine the selection of particular innovations and their effects on industrial structures.  (p. 1121). 

There are two major issues identified by Professor Dosi: 

• The first issue is the characterization in general of the innovative process.
• And second, the interpretation of the factors that account for observed differences in the modes of innovative search and in the rates of innovation between different sectors and firms, and over time. (p. 1121). 

Professor Dosi then makes the statements that, 

• The search, development and adoption of new processes and products  in market economies are the outcome of the interaction between: 
• Capabilities and stimuli generated with each firm and within the industry of which they compete. (p. 1121). 

The purpose of People, Ideas & Objects research in oil and gas was to focus on the organizational capability of the firm. It was also emphasized that innovations are based on both the firm and the industry. Coordination of the capabilities and stimuli of both the firm and the industry would therefore need to be advanced through changes in the organizational structure of both.

• Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers, and so on;  (p. 1121). 

Additional issues include 

• the conditions controlling occupational and geo - graphical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulations, tax codes, patent and trademark laws and public procurement.) (p. 1121) 

As People, Ideas & Objects would suggest these define an organizational construct that innovation demands in order to either flounder or foster. As both an organizational construct in itself, and as we defined in the Joint Operating Committee as a framework of that construct. What we can impute from this definition of innovation is that it is a defined and replicable process that can be established through organizational design. And this design can be part of the organization's ERP software that identifies and supports that organization and its industry, such as the Preliminary Specification is configured to do. 

Our second source of primary research material came from Professor Richard N. Langlois. Throughout our review of his work we were able to determine the appropriate nature of the organizational design of the producer firm and the oil & gas industry itself. Selecting specific areas of the firm or market as to which the process and its management should fall under. Where the capabilities should reside. By fully implementing the Internet and using Professor Langlois research, which included Professor Carliss Baldwin determination of where exactly that transfer between firm and market should occur. We were able to design the appropriate software tools, such as our task and transfer system that will enable our user community to define which processes to undertake and manage in their service provider operations. Introducing enhanced efficiency in the manner in which the administration and accounting is conducted in oil & gas. 

And building on the other innovations that are rapidly providing value generation such as cloud computing. People, Ideas & Objects, our user community and service provider organizations are able to undertake this through the introduction of our Cloud Administration & Accounting for Oil & Gas. A service that turns the fixed producer overhead into a variable industry based overhead that can be provided to any producer no matter what their size or production profile. Enabling producers to shut-in unprofitable production, and therefore incur a null operation, and only produce profitable properties to maximize shareholder value. A substantial portion of our published value proposition of $25.7 to $45.7 trillion over the next 25 years is attributable to introducing this production discipline to eliminate the damage and destruction that has been caused by overproduction.

Speaking of value propositions that are priced in the trillions of dollars People, Ideas & Objects have started a definitive trend. ARK Investment CEO Cathie Wood suggests that innovation makes up $8 trillion of the current global public equity markets. She also suggests that this will grow exponentially to over $200 trillion in value in the next 8 - 10 years. Moving from a 10% valuation of the total equity markets today to what she believes to be 60% of the global equity markets. All as a result of the effect of technology, its capacity to disintermediate and the introduction of revolutionary business models that will “disrupt the traditional world order.” People, Ideas & Objects published our value proposition in 2012 and have held to those numbers. These same trends are now being seen throughout the greater economy and being quoted by established money managers on Wall Street. What I would suggest regarding the oil & gas industry is that the $8 trillion of Ms. Wood’s estimate doesn’t include any of the innovative values of the producers today. There is none, all the innovation is done in the service industry. And it is undetermined at this point if any of the $200 trillion estimate from innovation will be realized in North American oil & gas. 

Let's set the tone from the point of view of what will be the demands in terms of engineering and geological needs. People, Ideas & Objects have identified substantial capital cost structures that include the costs of:

• Recovery of the past property, plant and equipment account balances, or as we describe them, the unrecognized capital cost of prior production. Whereas if recognized today and these costs were passed to the consumer, would provide incremental cash flow to provide dividends in compensation for the past excessive reliance on investors.
• The refurbishment of the infrastructure as it stands today. 
• The rebuilding and expansion of the infrastructure and production deliverability to attain and maintain energy independence. 
• And finally the looming and escalating reclamation costs of the industries past. 

All of these costs have been and will be incurred by producers as a result of providing for the consumers energy needs. Without a means of passing these capital costs on to the consumers, such as the Preliminary Specification does, they will bankrupt the industry, or their investors under the officers and directors current business model of “building balance sheets” and “putting cash in the ground.” Methods which we believe will be recaptured in any developments done if the industry officers and directors choose to move to SAP or other alternative ERP systems. Taking on the expansion of the infrastructure and production deliverability will be the largest of these costs, and I would suggest the greatest opportunity for all concerned in a dynamic, innovative, accountable and profitable, primary oil & gas industry, and most specifically their associated secondary and tertiary industries. Having the business model and means to deal with these costs needs to be an urgent priority.

The Preliminary Specification has captured this understanding of innovation and incorporated it within the innovations framework of the Joint Operating Committee and Innovations Organizational Constructs. Each of the thirteen modules of the Preliminary Specification are materially affected when we identify the Joint Operating Committee as the key organization construct. That provided us with an opportunity to incorporate this understanding of innovation in the design and reorganization of the oil & gas producer firm and industry. These can be identified by several major processes of innovation within the Preliminary Specification. One of these ensures that innovation and its underlying processes are not repeated by separate and distinct areas of the organization, each year. Attempting the same failed “ideas” repeatedly is not innovation. Another major process of innovation is to enhance the scientific basis of the producer firms and industry as a whole. Moving forward on the basis that an idea that generates a dollar today will only produce ten cents tomorrow. We therefore must increase the volume of ideas generated and incorporated in our work processes to continue increasing our value. Various other processes of innovation have been incorporated throughout the Preliminary Specification based on the primary research conducted by Professors Giovanni Dosi and Richard N. Langlois. Enabling producers to earn the unquantifiable trillions of dollars of increased value that may occur in the decades to come.

People, Ideas & Objects Response to a Request for Proposal, Part V

 Intellectual Property

People, Ideas & Objects are establishing the need to rebuild the oil & gas industry and producer firms as a result of the damage and destruction that has been caused by officers and directors of the producers. Their “muddle along” strategy has instilled a “do nothing” culture that provides a status quo existence that has not and will never show any capacity to change. Even the event of 2015 and all subsequent years in which investors have refused to participate further in the industry has not prompted a response or action. Where does the motivation arise from this environment in order to efficiently and effectively conduct this rebuild? Oil & gas is one of the most advanced science and technologically based industries. One that demands innovation and iterative development of those sciences in order to ensure adequate reserves and production is provided by a dynamic, innovative, accountable and profitable oil & gas and service industry. And to ensure that it always meets the conflicting objective of ensuring consumers are provided with abundant, long term supplies of reliable and affordable oil & gas. 

The importance of Intellectual Property in the oil & gas industry is it will organize innovation. The most productive innovation is when it’s organized under a structure that provides for the market to focus on its development. The North American marketplace established IP centuries ago and we have reaped its benefits. The United States included copyright in its Constitution. Copyright has to be published in order to be earned. Exposing it to the marketplace of ideas where it can be built upon and enhanced by others. It reduces the “me-too” phenomenon that the oil & gas bureaucrats have created and benefited from in order to generate price competition in the service industry, elsewhere and to ensure everyone was rendered “blind sleepwalking agents of whomever would feed them.” Is this the method that an innovative industry is built upon? With bureaucrats sitting on top of the primary industry of oil & gas and using its revenues to endow their favors with the rewards of a penny or two here and there? 

The organizational structure of the new oil and gas industry People, Ideas & Objects et al will be building has Intellectual Property and innovation structured and based on the laws of the land. It will be these laws that define what innovation is undertaken and what is not. The violation of another's copyright or other IP is not allowable under the law so there would be no violators. A self policing mechanism reducing the overall costs of unnecessary duplication of innovation in the industry. Focusing the energy and resources on the development of profitable new products and services. Providing the incentive and motivation for those with the ideas to do the subsequent hard work of making those developments. Fully protected from the IP poaching that’s occurred so often and actively sponsored by the producers officers and directors and which is culturally ingrained in oil & gas today. Not just for today, but for always and everywhere. 

These copyrighted publications also enable an understanding of how things are done. Providing the means of which to build upon that understanding with additional innovations. Intellectual Property therefore provides us with a strong legal structure that encourages innovation, eliminates the costly redundancy of duplication of efforts, educates and provides the necessary legal protection to enable the motivation for the individual to do the difficult and challenging work we can all agree is the foundation of the industry. This applies across the greater oil and gas economic structure which includes all of the secondary and tertiary industries. The 21st century will be known for the leverage of Intellectual Property. Much as last century has leveraged mechanical effort. For officers and directors to be avoiding this or attempting to opt out is foolhardy in the extreme.

What is the motivation for people to develop their “ideas?” Are they not, just as the bureaucrats, in it for themselves and looking to siphon off what they can from the industry? Self interest is a part of every human endeavor. It comes down to whether or not it builds value. Self interested officers and directors have been well compensated while the industry has been destroyed. A contrast due to the fact they’ve not been motivated by the discovery of ways in which they can build value. Intellectual Property is therefore not only a structural organizational component that can enable the means to control the innovation process throughout the industry. The motivation behind the participants is purely from the point of view of building value through the establishment of incremental profitability, reduction of cost, enhanced production deliverability or the expansion of reserves. It is the law, and most importantly of all, proven. The reason the United States dominates in the manner that it does is due to the fact the Intellectual Property laws provide the motivational and organizational principles of how their economy and society operate. It assumes people are Intelligent beings, not serfs like the bureaucrats. It is productive, constructive, focused on generating value and is an overall benefit to society. Otherwise why would individuals do the hard work that’s necessary? By bureaucratic command? As a science and technology business, that is refuted to be second only to the space industry in terms of complexity. What has and what have these bureaucracies been doing under their business model?

Difficult work needs to be undertaken in a complex science and technology based industry in a 21st century business environment. Oil & gas is a critical necessity for the health and prosperity of our economy and way of life. One in which the environment and organizations we are presented with today can be assessed as wholly inadequate to meet those needs both today and the future. And what is potentially more difficult is they’ve shown no propensity to even recognize any of its issues or the need to make any changes. There is a need for significant development in all aspects of the greater oil & gas economy during this rebuilding period. A method of organization will be the first element necessary for a solution. However we have to address the issue of how that organization is formed and the subsequent pieces are put in place. The need to understand “how” those that are involved in this rebuilding will be motivated to do this hard work and where they can fit in is addressed in the Preliminary Specification. This is accomplished through the adoption of Intellectual Property as an organization construct that is defined and supported by the software and services People Ideas & Objects et al propose in this response to an RFP.

People, Ideas & Objects, our user community and their service provider organizations focus on providing all North American oil & gas producers with Cloud Administration & Accounting for Oil & Gas. Including the startup, small and junior oil & gas producers to ensure they’re provided with the full capacities and capabilities of the Preliminary Specification. This is due to the critical role and nature of their existence in terms of their dynamism and innovativeness. Currently we have a market in oil & gas where the officers and directors point to the startup to junior producers as causing the difficulties we’ve seen in the industry. In fact they may have become the officers and directors most recent, viable scapegoat! Our focus is appropriate, and we’re able to ensure these producers are able to enter the industry with far less barriers to entry by establishing all producers with the means to generate a second source of permanent revenues from day one. A ready market where the demand for earth science and engineering resources will be made available through the Preliminary Specifications Work Order, Resource Marketplace, Research & Capabilities and Knowledge & Learning modules. Providing them with the cash necessary to pay their mortgage, their Internet, to work from home and skip past the dog food aisle for their families nutrition. Introducing them and their experience, skills, knowledge, and ideas that form their capabilities to the broader oil & gas marketplace. We also eliminate that impossible wall of never ending overhead costs that consumed investors dollars year after year as the base of fixed overhead of the small to junior producer. Which is and has been the cause of their demise today. It didn’t matter how good their technical skills were, that’s not what determined their success or failure as a startup oil & gas producer, it was if they could get past that wall of base overhead costs. 

Officers and directors have known the Preliminary Specification establishes a strong foundation for which the Intellectual Property of individuals within the industry. This value becomes available to those original authors, innovators and entrepreneurs which is in turn marketed to the oil & gas producer firms whose distinct competitive advantages include the coordination of the markets earth science and engineering capabilities and their land & asset base. This is provided through the Preliminary Specifications Resource Marketplace, Research & Capabilities and Knowledge & Learning modules that were published in final form in August 2012. From the Resource Marketplace module I summarized the point as.

Another key point is the tearing down of the basis of Intellectual Property (IP). An industry such as oil & gas which is based on its earth science and engineering needs. After all, it is a business based on science. If we are to expand the capabilities in science and innovation in the industry. We are going to need to solve many very difficult problems. And as we progress, the volume of ideas needed will be an order of magnitude of what is required today. These problems cannot be solved in an environment where there is no upside for the individuals to solve them. Addressing the motivation to solve these problems and enabling the people to earn the rights to the Intellectual Property within the People, Ideas & Objects application modules is the first step in making the necessary industry wide changes. This therefore will turn the oil & gas industry into a far more dynamic business.

With the oil & gas industry fundamentally destroyed as it is, its IP is also in disarray. The capabilities and capacities that are derived from it are deteriorating as we speak. Making this an IP gold rush in the industry, to save it from the bureaucrats. However, check your employment contracts they may have clauses that state while working for them all of yours is all of theirs. Consolidated producers' difficulty is that none of this is published and the act of publishing is how the copyright is earned. Patents and trademarks are defensive, in that they protect what is known of your IP at a point in time. Copyright is offensive and allows expansion of one's Intellectual Property through the creation of derivative works. Copyright does not secure for you the rights to an idea. It only provides you with the monopoly rights to the expression of that idea. Implying it must be pursued and maintained much in the manner that I do here. 

The point of individuals earning the Intellectual Property rights is of particular interest in an industry that has its earth science and engineering capabilities, and land and asset base as its distinct competitive advantage. These seem diametrically opposed in terms of how they would function. What People, Ideas & Objects are suggesting is that there is no need and no benefit in having the producer firms own any of the Intellectual Property that supports “what, how and why” the industry operates. We need to address the motivation of how the industry progresses, how science and technology progresses innovatively and quickly. And address why this hasn’t been the case. 

This Intellectual Property section of our RFP Response is ripe with conflict and contradiction. We stated earlier that the science and technology of shale was the most advanced, yet belittle the development of it over the past years. The contradiction is that I’m only suggesting oil & gas producers are in a static state. The development and implementation of shale technology would have been introduced decades earlier if the producers were able to keep up with the progress that was being made in the service industry. It is there, in the service industry where all the innovation and development has occurred. There is no benefit in a producer owning any IP on a drill bit. And we are extending the deployment of IP more broadly to the sciences of geology and engineering. What have been the bottlenecks to the further development of the industry these past many decades. 

Business is changing quickly. Intels dominance in the market is now a constraint that is causing them to lag the market in consequential ways. As the dominant manufacturer of processors, theirs has been deemed a redundant business model. The business value is no longer in the manufacture of processors, it's in the design of them. Contract manufacturing is a commodity business where others are finding profits and opportunities in that area where Intel can not compete. In terms of design being the value, that is now the case and people should read the summary of Ampere Computing’s Leadership Team that now has one of the most powerful processors available. Oracle (a major shareholder) has declared they’re moving their cloud offering to Ampere processors, which Oracle’s Cloud is offering today. 

This is the new business world and there are new business models. It comes down to one word, the individual. To organize society today, with its global reach, can no longer be done in a spontaneous manner. There is no serendipity when individual A meets individual B 1,000 miles away on the Internet through software providing them the means to conduct their business. Software defines and supports this style of organization. Without People, Ideas & Objects none of this oil & gas vision will come about by sitting and waiting for the phone to ring. At least it hasn’t happened yet.

The question also needs to be asked: why is it that Apple continues to innovate consistently? Although their products are more costly, they earn in excess of 80% of the profits of the mobile phone industry, they bring incremental value to their customers through the innovativeness they provide. They too rely on Intellectual Property as the basis of their value. They in fact consider themselves a software company that sells hardware in order to bring about that customer value. Again, software defines and supports their organization. Who would run a company that sources their handful of products from a number of countries that total in excess of 3.5 billion in population? And then have the gall to snap their fingers and say “now innovate.” It doesn’t happen without software.

For producers to be doubling and tripling down on their failed vision is the method chosen to resolve the oil & gas industry and producer issues by the current officers and directors. Raising the viable scapegoat that it's the small producers who are overproducing in order to meet their bank payments causing the disaster in the industry today. When officers and directors raise this argument we see the source of their own future demise. For them to admit the overproduction issue is attributable to their own actions would never cross their minds. Everything is always someone else's fault. Should they be successful in implementing SAP or other means to secure their method of organization and management this will most certainly continue.

We’ve defined our alternative vision in the Preliminary Specification and would note that it’s in stark contrast to the clean energy vision that producers and SAP are attempting to transition to. Disintermediation is best defined as the removal of the bureaucracy and red tape that is rendered redundant through the use of the Internet. Although the world is unaware of “how” and “what” the producers current consolidation driven vision will operate as, or any details, we can only speculate as to why it’s being done when all other industries are, and not by choice, finding efficiency in the decentralized methods of organization and disintermediation through technology. People, Ideas & Objects have repeatedly stated the fact that each boe provides 10 to 25 thousand man hours of equivalent labor, or 28 to 71 times the entire global population. Officers and directors capitulation of shale resources for clean energy should be seen as irresponsible when we understand that it’s the world's most powerful economy that is the largest consumer of energy. Why aren’t the officers and directors seeking to make shale profitable? 

Due to the demands for earth science and engineering resources in the near future. We’ve discussed how specialization and the division of labor are being used in the Preliminary Specification to deal with these associated resource demand issues. Conceptually we have implemented the pooling concept where the ability to have the Joint Operating Committee assigned with the available technical resources of each of the producer firms would be how the property was managed from an earth science and engineering perspective. The pooling concept being the replacement of the operator role. Establishing the second source of revenue for the producer and its supporting administrative infrastructure in the Preliminary Specification. We have also implemented the necessary governance model to support these resources with the appropriate organizational structure to ensure effective operations across the producer and each of their Joint Operating Committees. 

Two other interesting aspects of Intellectual Property are first, what’s known as the safe harbor provisions. Why don't producers turn around and launch a lawsuit against these copyright holders? This would be an unfortunate world where “big” ruled the earth and we serfs would be the drones who were forced to cooperate with their every command. The safe harbor provision states that you can not launch a lawsuit against the copyright holder. Secondly, the division of tacit and explicit knowledge. Tacit knowledge can not possibly be captured or written down. Only explicit knowledge can. Therefore it is up to people to take the explicit knowledge they have and apply their tacit knowledge as a service to support their IP and generate their value. These are as important as the IP itself. Just as People, Ideas & Objects user communities service provider organizations deliver our software and their tacit knowledge to the producer firms. 

People, Ideas & Objects Response to a Request for Proposal, Part IV

Specialization & the Division of Labor

Since 1776 the only basis of increased value generation is the expanded definition and use of specialization and the division of labor. Adam Smith proved in his research that reorganizing a pin factory around specialization and the division of labor between the individual workers, augmented through proficiency, automation and mechanical advantage, the output of the factory increased 240 fold. Today the inverse of this is true. Software and most particularly ERP software has sealed organizations in a definition that is unchangeable through any means other than changing the software process definition. This aids the status quo configuration of producers when they don’t sponsor or initiate any change in the ERP software that they use. Choosing instead to focus on engineering tasks such as cost cutting in an attempt to generate business value. If we are to meet the consumer's demands for energy in the 21st century it will be a result of an “all of the above” energy strategy. For the next several generations the largest component of the energy makeup will be oil & gas. Therefore to deal with these issues and opportunities demands that we increase the throughput of the industry substantially in order to meet the increasing demands of the North American marketplace. 

It is therefore necessary to ensure that we proceed from this point forward with the defined capability and capacity to enhance the ERP software used in North American oil & gas. And to do so in order to facilitate an increased level of specialization and division of labor that is iterative and constantly evolving. People, Ideas & Objects provide for this and are configured specifically to ensure that this is the case. Our business model is dependent on change. We generate revenues on the basis of the software development changes initiated by our user communities interactions with industry. Our user community will be available everywhere and always on a part-time basis to work with our developers to make the changes they’ve identified while working in their service provider operations. These service providers will be configured to deliver the explicit knowledge that's captured in our software and the tacit knowledge provided of their services. Our user community members are therefore on the ground in the industry on a day to day basis in the administration and accounting of the producer firms. They are the exclusive, licensed individuals that are the only group authorized to make changes to the underlying Intellectual Property of the software. Our developers are aware of no one else in terms of who provides their input. In other words our user community members have the power necessary to ensure that the processes they manage provide for the most profitable means of oil & gas operations everywhere and always. User community members are the only individuals that own and operate a service provider. If anyone in industry wants to know who they need to have their issue resolved, they’ll only need to engage the pertinent user community member. Who do they call today, or at SAP if our suspicions of the officers and directors actions are correct and they’re in the process of selecting their solution?

The advantages that People, Ideas & Objects Preliminary Specification brings for all producers is significant. Ours is a solution that is to be used by all of the producers in the North American industry. Whether that is Exxon or the producer firm that conceptually began at the breakfast table this morning. This also applies to any and all other types of secondary and tertiary industry firms involved in the greater oil & gas economy, no matter their size. However, in the categories of the junior and startup oil & gas producers, the advantages we provide put their organizations in the driver's seat in terms of how they’ll prosper and grow. They’ll have distinct competitive advantages over the methods of organization provided under today’s business model. These are brought about through the reorganization of the administrative and accounting resources of the producer firms into our user communities service provider organizations. And the implementation of our Cloud Administration & Accounting for Oil & Gas service provided by them. 

The producer organization that we define and support in the Preliminary Specification set out to employ and deploy much higher levels of specialization and division of labor. We feel the overhead costs of the producers demand these be dealt with by making these organizations more efficient through the application of an advanced, and continually advancing, specialization and division of labor. We also turn their overhead costs from a fixed, producer based capacity and capability, into a variable, industry based capacity and capability, their variable behavior being based on a Joint Operating Committees ability to produce profitable production. One of the reasons for the high overhead costs of each producer (up to 20% of revenues, not the 1 to 6% reported on financial statements) is that all of their capacities and capabilities are replicated within each producer firm in an unshared and unshareable form. Today these accounting and administrative capabilities and capacities are purpose built within each producer organization to meet the demands of the various stakeholders, tax and regulatory requirements and it is these high overhead costs that are the secondary cause of the lack of profitability throughout oil & gas. Overhead costs do not form any part of a producer's distinct competitive advantage.

What the Preliminary Specification defines and supports is a reallocation of the producers administrative and accounting resources into the individual service providers who are headed by one of People, Ideas & Objects user community members. Our user community and their service providers are independent businesses that are specialized on one administrative or accounting process and conduct that process on behalf of the entire industry as their client base. Whereas if that Joint Operating Committee was producing that month, under our decentralized production models price maker strategy, we can reasonably assume it is therefore profitable. Upon production the processes that are specifically administered by each of the service providers will be invoked through our task and transfer network, processes undertaken and their associated billings for each process will be charged directly to their Joint Operating Committees. If it’s not profitable then the property would be shut-in and none of the service providers would receive any data from our task and transfer network and therefore no processes will be conducted and subsequently no service provider billings will be rendered. The shut-in property does not incur a profit or a loss, but a null operation. In either scenario overhead costs are covered in the current period through either profitable operations or the fact the cost behavior is variable under the Preliminary Specification, and as a result not incurred. 

There are many benefits for producers to begin their operations in this manner. First they will reach their optimum profitability when losses are no longer diluting profitable properties. Whether that is at 25% or at 100% of the producer's capacity. When all costs are variable, production will be profitable at any volume of their production profile. This will preserve their oil & gas reserves for a time when they can be produced profitably. Those reserves will no longer have to carry the incremental costs of the losses that would otherwise have been incurred if they continued to produce unprofitably. Keeping the commodity as reserves can be seen as an affordable means of storage where the subsequent costs of production and storage are zero. The commodity markets will find their marginal price when unprofitable production is removed from the marketplace. Increasing the value of all the producers' production by realizing the marginal price across their production profile. Producer officers and directors assert this is collusion. If making independent business decisions based on detailed actual, factual, standard and objective accounting information that is determining profitability is collusion, it is no wonder producers are incapable of profitability? 

During 2017 the officers and directors realized their collusion claims were moot; they stated unequivocally that they could never shut-in any production, it would cause the formation to “fold over on itself” or other specious arguments. That is until they ran the oil price down to negative $40 in April of 2020. The refineries had to tell them they wouldn’t take anymore, forcing production to be shut-in. Upon resumption of production the formations reflected there was no damage anywhere. These are just some of the many reasons for the Preliminary Specifications implementation. Oil & gas commodities are price makers, not the price takers the officers and directors assumed they were for all these decades. One critical aspect of a price maker is that they only bring on new production when it’s profitable. The method we’ve developed is detailed further in the Preliminary Specifications Preamble. 

Overall our decentralized production models price maker strategy invokes a high level of production discipline within the North American oil & gas industry. Achieving maximum profitability can only be gained through the fact that unprofitable properties dilute corporate earnings. Therefore the need to ensure they are fulfilling their primary task of maximizing profitability becomes the predominant method of production discipline. In order to compete in the capital markets of the 21st century will be much different than what it was in previous years. With technology and other industries providing growth opportunities, for oil & gas companies to continue to assert they are in a growth mode precludes them from that competition. They are a primary industry with commodities that are subject to the price maker principles of economics. An industry where shale reserves have changed the game from scarcity to abundance. This will also affect the producer's capital allocation and capital discipline. Capital investments will only be made with the assumption or demand that they be immediately profitable, and why would they invest in them if they can’t achieve that criteria. This invokes a far different criteria as to what is done in the industry and we can cast the foolishness of “building balance sheets” and the like to the scrap heap. Balance sheets are the fallout consequences of managing the business, not an objective.

Cash demands in the industry are currently one of the producer's pressing difficulties. A consistent theme that has defined a cultural dependence on annual outside capital infusions. This is due to all of the producer's costs outside of operations being more or less capitalized and then recognized as depletion over the course of several decades. This includes the capitalization of large percentages of overhead and interest. By not recognizing overhead costs in the current period producers are therefore able to more easily declare a specious profitability. However, the cash that was consumed in those overhead costs is not returned in the current period in the prices of the commodity charged to the consumer. These overhead costs currently sit as assets on the balance sheet in property, plant and equipment, or as we call them “the unrecognized capital costs of prior production,” for the next few decades before they’ll be realized as depletion and returned as cash. Therefore the search for new cash each month to replenish the cash float has been the producers issue for the past number of decades. When investors were willing, this was not an issue with the annual top up of investors dollars being priced to cover these costs. Now the reality of their specious accounting haunts them daily as they try to find new cash sources to cover the basic overhead costs of their operation. Working capital has been and will continue to be a crisis in the industry under the current business model. No matter what commodity price is attained. 

Basic cash management would have indicated this to the officers and directors many decades ago. (I wonder why they never changed these methods? I’m sure they must have had their reasons! Other interested parties should ask these probing, and revealing questions.) With the Preliminary Specification recognizing overhead in the current period as part of the operation, capturing that in the price charged to the consumer, return of the cash to the producer will occur within that production month. That however assumes profitable operations are conducted and all costs are accounted for appropriately. I’m on record, and allege that hasn’t happened. Calling the producers accounting specious and deliberately deceptive. I do at times wonder what costs are contained in capitalized overhead that no one ever seems to be aware of? Both in terms of their size and composition. I do know each account never breaches the level of materiality during the annual audit, but outside of that these state secrets seem to me to be the reason that officers and directors have never changed these methods despite the negative consequences they cause and the Preliminary Specifications availability since August 2012.

Our user community and their service providers are involved in the delivery of the explicit knowledge that will have been captured in our ERP software and the tacit knowledge of the individuals within each of the service provider firms. Fulfilling the role of the accounting and administrative needs of the producers with a variable, industry based accounting and administrative capacity and capability. We are delivering these in what we’re calling Cloud Administration & Accounting for Oil & Gas. Building and leveraging the same principles of specialization and division of labor that deliver the extreme value proposition of cloud computing.

With the clear objective of rebuilding the industry brick by brick, and stick by stick in a style of rebuilding that will involve a dynamic industry that can be based on a decentralized, connected environment such as the Internet provides. People, Ideas & Objects et al don’t have to break down oil & gas in order to conduct this rebuilding. The rebuilding is necessary as a result of the damage and destruction from the chronic mistreatment industry has experienced at the hands of the officers and directors of the producer firms. Hierarchical strata of advanced paper shufflers is a future failure, best defined. To bring about an ERP system for the industry such as the Preliminary Specification provides; must consider the opportunity of what is commonly referred to as disintermediation. And People, Ideas & Objects, our user community and their service provider organizations abide. 

The nature of this rebuilding process that we’re undertaking is the cannibalization of the processes that have occurred since the investors sent their message of dissatisfaction to producers in 2015. Being solely dependent upon investor cash demanded that cuts in the organization were necessary when the producers sole source of value generation, the investors annual injection of additional capital, was no longer available. Keeping the production processes in place was the priority and those processes that are involved in the early stages of the development of oil & gas were subject to layoffs. Assuming that the situation would be alleviated in the following year and any resources would be recalled. Since the inactivity and abstinence of the officers and directors has carried on for seven years we can assume that the process management has been cut well into the seven year development cycle. Therefore either way, through People, Ideas & Objects et al or SAP the processes will need to be redefined and rebuilt. 

However, bringing one of the most complex systems into one of the most complex industries into the environment of the small and startup, or any producer is foolhardy to consider. How could that ever be a commercial software product? Or be provided to a commercially viable small or junior oil & gas producer? And that is the fact of the issue we stand with today as a result of the officers and directors “consolidation as a solution” and with SAP as an alternative. We need to ensure the future of the industry is in the hands of the oil & gas men and women who will knock down the barriers that stand in their way, just as so many have done before. The constraints and reality of the regulatory, compliance and investment demands are real and an impediment to these needs. That is, if producers could not access the kind of systems necessary to operate in that environment, no matter their size, the capital markets will remain forever closed to them. An untenable barrier today that will be even more so in the near future. It is an explicit request by investors that tier 1 ERP systems be implemented. Therefore all producers need to understand that the production discipline provided by the Preliminary Specification is necessary across all classifications of producer firms. 

Under the Preliminary Specification a startup or junior producer would no longer need to establish the point where they’ll have to generate in excess of $3 to $5 million of free cash flow necessary to offset the annual base overhead of the producer firm. For the administrative and accounting they’ll only be incurring the variable overhead costs of the service providers fees that they use and the costs of the software development assessment by People, Ideas & Objects each year. Recall we noted recently that not only are these overhead costs variable, but if they’re incurred that denotes profitable production, indicating these costs are covered, or the property is not producing and as a result not generating any costs. And there are more attributes of our system that provide benefits for the new oil & gas industry we are rebuilding. 

The Preliminary Specification also implements specialization and the division of labor across the producer firm and most particularly in the earth science and engineering capabilities and capacities of the producer firms. We list this as the first step in our solution for the startup and junior producers. These capacities and capabilities are becoming increasingly burdensome to each of the producer firms due to their unshared and unshareable nature, but for different reasons from the administrative and accounting difficulties mentioned. The costs incurred to maintain these capabilities are growing as a result of the advancement of their science and technological development which demands further specializations be undertaken within each of the producer's capabilities, and critical competitive advantages. We believe that all producers have reached the point where the demands to maintain these capacities and capabilities have expanded beyond the usable population of these technical resources. Or will soon. With the retirement of the brain trust of the industry, and the universities not producing anywhere near the replacement number necessary, a critical shortage will soon demand that these technical resources will become too rare, too costly and too unavailable to maintain, not to mention, expand the deliverability of the North America based industry. 

Consolidated producers will have particular difficulty managing this technical resource when entrepreneurs see the startup opportunities we’re defining here. That is, if only there were an ERP system that provided a solution for the oil & gas startup to deal with the compliance, governance and regulatory environment and be able to access funding! In addition to this limited technical resource supply we also believe that the producers' firms are close to a point now where the costs of their scientific engineering and geology needs are beyond their commercial grasp necessary to maintain their just in time operator status. Nonetheless, a decidedly higher level of specialization and division of labor will be needed in the areas of earth science and engineering. It is the unshared and unshareable makeup of these capabilities that we find the difficulties once again. Producers need these technical resources for a variety of just-in-time purposes, as operators, for their highly technical areas. If we assume that across the industry the utilization rate of these technical resources are at 75% due to their organizational inefficiencies. Then by releasing that other 25% and deploying that unused and unusable capability more effectively we’ll have what I believe to be the second aspect of the solution of these pending and most certainly future difficulties. A one third increase in the capacity with higher output from enhanced specialization and division of labor, providing us a good start to solving this pending critical resource shortfall.

Instead of letting another issue manifest itself into a crisis level issue. People, Ideas & Objects et al have implemented a variety of changes within the Preliminary Specification. The first is to consider the producer firm from the time the Preliminary Specification is operational, to have two sources of revenues. The oil & gas sales and the revenues earned by all of their earth science and engineering capacities and capabilities being deployed and employed in the form of a revenue generating capacity. Whether that be to one of the producers own Joint Operating Committees, or in the consulting of the individual to other producers / Joint Operating Committees, as a client, of which they may / may not have an interest in. Due to the specialization and division of labor demands producers will need to have chosen to specialize or acquire a specific capability on the basis of the distinct higher level specializations and competitive advantages they hold or desire. These producer revenues will then offset these engineering and geological costs incurred and charged to either their Joint Operating Committees or other producer clients. And through this enhanced specialization and division of labor achieve some of the 240 fold increase in productivity that Adam Smith experienced in his pin factory.

In terms of an opportunity in this new oil & gas industry, in which we are building brick by brick, and stick by stick, this second source of revenue should be seen as the initiation of the start up oil & gas producer firms' startup revenues. Granted the startup’s technical capabilities and competitive advantages will be more generic or less specialized than the more advanced firms. These revenues will offset the additional costs of the head office burden not considered part of the administrative and accounting category. And this will apply to all producers no matter their production profile. When producers are specializing on their distinct competitive advantages, and all producers including Exxon, Shell and Chevron will need to do so, the demand for outside technical resources will be required to augment their needs.

In a world where software has to define and support the organizations that exist. This is some of the what, how and why we’re able to provide when the Preliminary Specification is delivered to all producers in the North American industry. Instead of being mere serfs as the officers and directors wish to continue treating the engineers and geologists, they’ll be able to take control of their careers from this point forward. The facility most responsible for this capability of making direct labor charges to the Joint Operating Committee is what we are implementing in the industry is our Work Order. Officers and directors may claim that charging labor directly is already available through the systems they use. Which is true they’re able to allocate some of these labor costs to the field, some are assumed to be captured in overhead allowances which the Preliminary Specification eliminates the use of. However their methods do not provide the necessary features of raising it to the point of making it a defined revenue stream of the firm. And the feature of making it a system that interacts throughout the industry. Allowing for the interactions between the resources they need and where they need them. Subject to the appropriate approvals and governance. Theirs does not enable the second purpose of our Work Order system that enhances the industry wide innovativeness through the establishment of working groups etc. Our Work Order system is able to bill its costs at all times to either corporate overhead, Joint Operating Committee overhead, an AFE or to a lease. Therefore the billable time of the individual engineer or geologist should be deployed within the producer at 100% of the time or not be working for the producer. And this is an inherent part of these people beginning the establishment of their own producer firms which rely on their talents of their much needed earth science and engineering capacities, capabilities and Intellectual Property. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what is the value proposition that you’re offering? We’re only beginning with the what, how, and why the Preliminary Specification facilitates the dynamic, innovative, accountable and profitable startup, junior, intermediate, senior and multinational oil & gas producers.

People, Ideas & Objects Response to a Request for Proposal, Part III

Organizational Constructs

Key to the Preliminary Specifications value proposition is its alignment to six different organizational constructs that impute an understanding and common sense approach of how our system operates. These organizational constructs consist of the Joint Operating Committee, enabling and facilitating the expansion of Specialization and the Division of Labor, Intellectual Property, Innovation, Markets and Information Technology. Developers and users of the system will default to these constructs for the process definitions, frameworks and methods used in order to gain an enhanced understanding of what should be the case and the follow on consequences. Enabling an approach where a dynamic, innovative, accountable and profitable oil & gas producer will be the focus of all who work within the greater oil & gas economy.

The Joint Operating Committee

The first organizational construct that contributes to our value proposition is the use of the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil & gas producer. The Joint Operating Committee is the industry's legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. When we move the compliance and governance frameworks of the producer firm away from the hierarchy and into alignment with the seven frameworks of the Joint Operating Committee, we’ll achieve an increased organizational speed, innovativeness and accountability in producers. Continuing on with the theme of this wiki page of “what, how and why” we do that, these are some of the advantages that are gained.

Adoption of the culture of the oil & gas industry in the form of the Joint Operating Committee is one of the fundamental changes that we’ve made in our ERP system. By doing so we’ve changed everything that is currently done in oil & gas administration and accounting and recognifigured it around what is unquestionably its cultural method of operation. Creating an opportunity to provide a solution to these issues and take this once in an industries lifetime opportunity to move back to the more natural flow of the oil & gas business, focused around the seven frameworks of the Joint Operating Committee.

Our research taught us that when alignment of compliance and governance with operational decision making occurs, accountability is the result. This is intuitively understood. We believe this to be a source of conflict throughout the oil & gas industry today which creates an atmosphere and culture of unaccountable decision making. The contradiction occurs when operators assume the responsibility of managing the Joint Operating Committee based on the need to have the requisite capabilities available to conduct the necessary field operations. The Joint Operating Committee holds the operational decision making authority which is then delegated in the operating procedure to an operator based on the results of voting by its producer participants. A threshold percentage is established for any decision to be passed. Let's assume 60% is the required percentage for approval and the operator has a 33% working interest. Decisions are then made on this basis, AFE’s are issued, funds are spent and the initiative fails. Who’s responsible and who needs to be accountable for the difficulties experienced? We believe this to be the root cause of a related issue we identified in our discussion regarding Specialization and the Division of Labor. When producers have never been held accountable for the day to day individual field decisions that were made, during any period of their tenure at the producer, why would they then be held accountable for any decisions when they’ve assumed the officer or director roles in the firm? Just “muddle through.” It is the culture of the industry which developed over the past six decades that underpins this unaccountability. In its place a culture of excuses, blaming and generation of what we call viable scapegoats is the product of this lack of accountability. To resolve this the Preliminary Specification aligns and implements the Compliance & Governance module to the operational decision making framework of the Joint Operating Committee to establish a new culture of accountability for the decisions that are made.

The next point is related to the accountability issue and to other issues around the resource restrictions that are looming in the earth science and engineering resource supply. Professor Richard N. Langlois was an extensive source of primary research we used throughout the Preliminary Specification. His research is in the area of Industrial Economics and the Economics of Innovation. He raises what he calls the agency issue or rights assignment problem in his working paper “The Austrian Theory of the Firm: Retrospect and Prospect.”

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) who point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 6

Oil & gas has a looming crisis in its ability to source the appropriate level of engineering and geological resources available to it as a result of retirements, low numbers of graduates and higher production throughput. People, Ideas & Objects therefore questioned whether the ability of each producer firm would be able to continue to establish the full suite of their in-house earth science and engineering capabilities and capacities at the level necessary to meet all of their needs, just-in-time, on a go forward, commercial basis. This would be particularly difficult when the solution to the shortfall in resources can only be resolved by a revised specialization and division of labor. Producers would not be able to commercially sustain the burden of a full suite of operator capacities and capabilities with such a diverse demand after specialization and the division of labor. And therefore we concluded the control or agency problem would need to be resolved on the basis of the knowledge being transferred to where the decision rights were held. It is specifically in the Research & Capabilities, Knowledge & Learning and Resource Marketplace, but also throughout all of the modules of the Preliminary Specification that we’ve moved the knowledge of each of the participating producers in a Joint Operating Committee into alignment with its operational decision rights. Where it is then possible to pool the available and specialized technical resources of the producer members of that Joint Operating Committee or available in the specialized market.

A secondary point I would raise is the definition of capabilities. Professor Langlois has provided the following definition from his paper “Modularity in Organization, Technology and Society”.

This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific knowledge'' and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." p. 27

To which we’ve humbly suggested that “ideas” be added to that list. We also have Professor Carliss Baldwin noting that “knowledge begets capability and capability begets action.” 

What will become of the oil & gas earth science and engineering related capabilities and capacities now that officers and directors have cast their future to clean energy. Renouncing shale and casting it to the back seat of the bus where no one will see or hear from it again. Shale being what can unquestionably be the most advanced science the industry has ever seen or developed. Shale technologies will at best develop no further, atrophy or be cast to the four winds. I’ll reiterate that People, Ideas & Objects have a plan to make shale commercial in the energy independent North American market in the form of the Preliminary Specification. Shale is a critical and highly necessary element of North America's energy independence. 

Officers and directors of producer firms have to stop reading the tea leaves as to what they believe investors want. Investors want profits, everywhere and always, and that is all. With their contrived positioning of clean energy and environmental concerns I would ask what is it in oil & gas that will be the new frontier if it is not clean energy? Offshore, the arctic or conventional, maybe heavy oil or any of the other areas producers previously renounced as commercially viable? It is this focus on clean energy that will do more damage to the industry and seal the fate of the existing producers. What message is being communicated to their investors in oil & gas or its related service industries. Let’s assume the service industry is looking for capital for a driller to build a new rig. Their potential investor’s first question would be “why? Producers aren’t focused on oil & gas, it's clean energy.”

In a related manner, if investors haven’t seen any effort by the officers and directors to make shale commercial, don’t see producers investing in their organizations profitability or remediating any of the damages, what message does that send?

People, Ideas & Objects have repeatedly stated the fact that each boe provides 10,000 to 25,000 man hours of equivalent labor, or 28 to 71 times the entire world's population. Producers' capitulation of shale resources should be seen as irresponsible when we understand that it’s the world's most powerful economy that is the largest consumer of energy. Why aren’t officers and directors seeking to make shale profitable and accountable by adopting the Preliminary Specification? It’s reasons such as these that the people who are elected to the boards of directors are given such responsibilities. Selling to energy consumers the immense value they gain from their use of oil & gas and taking the political high ground away from government actors and environmental groups. 

In terms of alignment of the legal framework of the industry. The Joint Operating Committee is the representative organization that is established for the partnership between producer firms in any and all oil & gas properties. It is the standard method in which industry operates and all agreements and understandings are on the basis of the work done through these joint ventures. It is a rarity that a producer firm will have a 100% interest in a property. The diversity of producers in these holdings are necessary to mitigate the producers financial risk and due to regulatory requirements demanding specific land holdings etc in order to drill and produce. Current accounting systems report on Joint Operating Committee activities however People, Ideas & Objects et al have expanded the accounting and administration of these organizations to the level of stand alone reporting entities. Producing detailed, actual, factual financial statements each month for each Joint Operating Committee. It is therefore in that manner that we’re able to evaluate the performance of the property on the basis of its actual cost on a competitive basis of what the North American capital markets expect. By ensuring that each Joint Operating Committee remains profitable on a monthly basis by not overproducing based on commodity price information. 

The need to have standardized accounting is necessary from the point of view of having industry rely on the outcome of these methods. Objectivity is achieved as the ability to deal with distinct situations or “manage” producer's data is counter productive due to the global dependence on the data. Consider the process of balancing the production data across the month, across a gas plant with 1 bcf / day processing. Consideration of the elements and needs of the industry and having them captured in the software is a necessity for this reason. The benefit of this strict interpretation is that when it’s reported that a property is not profitable according to our Cloud Administration & Accounting for Oil & Gas’ standard and objective accounting. The producers in each of these Joint Operating Committees will know it is in their best interest to shut-in the property for the short term. They’ll know the property was assessed on the same basis, the agreements in the Joint Operating Committee, as all the other oil & gas properties throughout the continent and be satisfied with the understanding of the nature of that standard and objective accounting. They will know and be satisfied with the determination of profitability or loss, its impact on their organizations performance, their influence on the processes of determining that standard and objective method and govern themselves accordingly. And therefore increase their organizations performance by only producing profitable properties and to innovatively work within that framework and understanding to increase the value of the property.

It's no longer enough to own just the oil & gas assets. It’s also necessary to have access to the software in the form of the Preliminary Specification which makes the oil & gas assets profitable. We are configuring an industry of successful producer and service industry organizations based on the issues that have caused systemic failures that are and will continue to dictate future difficulties. Non participating producer boards of directors in this initiative will have told their shareholders they’ve opted out of an investment being made in their organizations profitability, accountability and performance.