OCI Petroleum Lease Marketplace, Part I

 Introduction

The Petroleum Lease Marketplace is the most interesting marketplace module as its objective is to replicate virtually what the physical oil and gas marketplace is. That begins with Petroleum Leases.

When we replicate the physical oil and gas marketplace, the Petroleum Lease is the source document that is the common denominator of all activity and ownership within the industry. Any physical oil and gas assets will be attached to some lease, agreement, rights or concession granting the holders the rights and privileges of ownership, lease or rental. These are the things available in a marketplace. They are what is purchased and sold, bargained and traded for. They are the things people are recruited to provide services for. A marketplace is a dynamic and evolving commercially oriented hub of activity. That is what we replicate in the Petroleum Lease Marketplace.

When we look at the types of work carried out in the Petroleum Lease Marketplace we see a large group of administrators working within different areas within a producer firm. Whether it be the Land or Legal department, Production or Exploration Administration staff or Accounting people, all of these groups have an interest in the information, people, assets, documents, processes and functionality contained within the Petroleum Lease Marketplace.

These groups are concerned with the information and data contained within the module. Its accuracy, access, and use by those within their firm, but also within the Joint Operating Committees that their firm has interests in. Most of this data will be similar to their firms' partners' data. A significant amount of the data has been generated cooperatively and collaboratively by those partnerships, as well as through the involvement of regulatory bodies.

For example AFE’s, Mail Ballots, agreements, are generated through interactions by each participant in the Joint Operating Committee. How much of this data and information could be held by the Joint Operating Committee with an interface to each firm? This is a question that should be answered with significant research during software development. To answer that question, we need to answer who those people we mentioned, the Land, Legal, Production and Exploration Administration and Accounting staff work for. The implications would be significant. In the Preliminary Specification these resources are reorganized into service providers owned and operated by our user community members.

One of the greatest opportunities in developing this system is to address the division of labor and specialization. To take these people’s work and reorganize it across the industry. This is so that it was focused on the Joint Operating Committee but very specialized in their tasks. And apply those skills across the entire industry, a geographical region, or another classification. This could increase oil and gas industry productivity and cost savings. That is to say that an individual would work for a process that is billed to 1,000 Joint Operating Committees that represent 200 Companies. By doing so the industry's profitability is materially enhanced by making these costs variable, based on profitable production. Ensuring the industry realizes People, Ideas, and Objects' $25.5 to $45.5 trillion value proposition. 

When we conducted our research, Professor Langlois noted that the expansion of the division of labor and further specialization were through "gap-filling." Work that wasn’t being done before, could-should-would, be nice if it was done now. The process of putting a person in place today might seem simple. However, what about the user community and software development capability to support that person in their newly created position? As I’ve suggested before, should we consider these administrative positions from the point of view that these people will work for a process? As opposed to any one company or Joint Operating Committee?

Employing the marketplace metaphor in the modules that make up the People, Ideas & Objects Preliminary Specification was deemed necessary. There had been discussion of exchanges and web services in the past and those never quite captured the reality of what was possible. I think exchanges are technological solutions to resolve non-existent business problems. While the marketplace is a business reality. A reality that we can build a virtual technical environment that emulates the marketplace. A difference in how we approach building these systems.

The next aspect was to determine what marketplaces existed in oil and gas that the technology would need to replicate? Firstly, the marketplace for financial resources, the marketplace for people, vendors and the service industry, and finally, P&NG leases. We developed three modules that replicate these three markets within the People, Ideas & Objects Preliminary Specification. These are marketplaces backed up by a user community and software development capability that can evolve the applications as these markets evolve.

Introducing the Material Balance Report

The working interest distribution for production from a well is fairly straightforward. Other than the changes that might occur such as before and after casing point elections, before and after payout, acquisitions etc, the values remain relatively constant over the property's life. However, for gas plants and related facilities the distribution of production to the owners of the facilities is anything but constant. This brings into play a multitude of different ways to treat ownership of production and processing costs. The manner in which accounting for that production and processing costs is of material concern to the owners of those facilities. It is the difference between earning a profit. Inability to comprehend the scale of the problem has led many to disrupt facility owners' operations.

The problem comes down to the fact that there are two methods to calculate the working interest distribution of the product throughput through the facilities. One is to take the literal chemical reality of the situation. The other is to take what is agreed to by the owners and operators of the facilities in the Construction, Ownership & Operation (CO&O) agreement. The two worlds could not be more different. When it's different, the agreed-to situation rules the day. The facts of the agreement are dynamic and create unique variances. These variances depend on the situation that day. Irrespective of the production allocation, the Material Balance Report, a key report of the Partnership Accounting and Petroleum Lease Marketplace modules of the Preliminary Specification, will still balance. It will also balance with other reports. The issue is the facility owners or producers whose products are processed through that plant or facility. Will have either sold or purchased product, or conducted some transaction with their production at that facility that needs to be accounted for.

To handle that day-to-day activity there needs to be an ability for the plant owners to account for the transactions occurring within the plant based on the CO&O. Relying on the Partnership Accounting module will be part of what they will use for plant accounting. However, because they can’t take a literal working interest distribution and have to rely on a dynamic distribution based on the CO&O, a special algorithm will need to be built within the Petroleum Lease Marketplace to deal with the CO&O. This algorithm captures the production allocation methodology used in agreements. This algorithm will be dynamic depending on the gas composition, production factors and activities at the plant, but it is also not fixed. The algorithm is updated monthly. As new wells are brought on, new functional units are built, new products are sold to new purchasers etc. These need to be considered as part of the algorithm.

In the current accounting world these “algorithms” are managed within spreadsheets. Not my favorite place to put critical business information. I think that the user community can embed these algorithms within the system so that they are more “mission critical” and less subject to human error. People, Ideas & Objects Material Balance Report contains these algorithms. 

As a plant owner the days of major changes are not over yet. There are still equalizations to calculate. These equalizations are sometimes run monthly, but mostly annually. They are done to correct owners' over- or under-utilization. If an owner owns 25% of the facility, they will not be billed for their throughput. However, at the end of the year it was determined that their actual throughput use was 29%. Therefore, they would need to be charged processing for that 4% capacity beyond their ownership percentage. These calculations would also have an “algorithm” within the Petroleum Lease Marketplace for the Partnership Accounting module to use.

I would reiterate that this is an area of extreme importance to oil and gas facility owners. Handling these transactions appropriately is how People, Ideas & Objects approaches this issue. Due to a variety of reasons, comprehensive software engineering of this process has not been undertaken until this proposal. See also the discussion of the Material Balance Report in the Partnership Accounting, Accounting Voucher modules and in the background section of this wiki. 

Specialization and Division of Labor

Discussion of how People, Ideas & Objects software development will support the division of labor and specialization in the Preliminary Specification. This is especially relevant to the Petroleum Lease Marketplace. We discussed earlier in this module that the Joint Operating Committee determined where the data would reside. And hence where people work in the industry. Is the data stored by the Joint Operating Committee or by the producer? This was to be determined by the community based on their research. We also noted that with the division of labor and further specialization of the people that work in the industry, it required that individuals not work for a specific producer or Joint Operating Committee but instead work for a process that was billed for example as a service to 1,000 Joint Operating Committees representing 200 firms. This discussion assumes that in both situations, the data is stored at the Joint Operating Committee. Cloud Administration & Accounting for Oil & Gas process management, as proposed, is a dedicated team of people working for multiple Joint Operating Committees.

When we consider the global experience and understanding of oil & gas industry employees, currently, we have a large number of professionals with diverse experience and understanding of the industry. When we think of the future, in order to deal with the ability to handle increased volumes of work, we generally feel that there is a need to increase the overall experience and understanding of the industry. But is this necessarily the case? With the division of labor and specialization we can rely on the level of experience and understanding of a few that understand the entire process. We can assign the specifics to those that specialize in their own domain. With each person taking responsibility for their part of the process, at a high level of understanding, the entire process is managed with efficiency and understanding. This aggregates the skills of everyone involved in the process. This is the advantage of specialization. And it enables the industry to handle increased processing throughput at the same resource levels.

If we assume a group that processed all the lease rentals for all the Joint Operating Committee and producers that used People, Ideas & Objects' proposed software applications. And this group was a very specialized team of 20 people. They were supported by the People, Ideas & Objects software development team and our user community. How would you divide that work to make it more efficient? Would it be based on the producer or Joint Operating Committee? It may be based on the rental due date and geographical location. One thing is for certain, the way the work was organized would be fundamentally different from the way lease rentals are organized within each firm and Joint Operating Committee today. No matter how large the producer is, and therefore the specialization that this service provider could provide would reduce lease rental processing costs. It would also increase the quality of the service, data and information. This is how we need to reorganize many industry processes. 

How does the division of labor expand? That is to say, this lease rental process continues under the service provider group identified above. They find that if they made a small change in the way they process a certain element, they could save x%. In addition, by adding this attribute producers would have a better product. Changes in the process in this instance are the result of information reorganization. This is the process of "gap filling". The problem today is that most processes are highly automated through software. And People, Ideas & Objects are taking Preliminary Specifications process automation further. Therefore the ability to change a process is heavily dependent on a software change. Which in the current environment is impossible. People, Ideas & Objects provide our software development capability, our user community and their service provider organizations. A comprehensive service that fills a gap and supports the needs of the dynamic, innovative, accountable and profitable oil & gas producer. Therefore the ability to make a change in the process and have the software updated to accommodate the process change is readily available. 

Making these software development changes at one service provider makes the process manageable. As opposed to the methods currently used within each producer firm which provide no efficiency. In today’s environment, software development changes are not efficient. In addition, there is no scale in terms of division of labor and specialization applied to a single producer's lease rental activity. It is also assumed in the People, Ideas & Objects example that the data is stored at the Joint Operating Committee. Therefore, the amount of lease rental data held by the Joint Operating Committee in today’s case is relatively negligible. This provides more support for centralizing the lease rental process under one service provider through our Cloud Administration & Accounting for Oil & Gas.

By introducing service provider organizations through our user communities, we are initiating these types of process services.This is how the industry needs to reorganize itself to achieve efficient processes in the future. Lease rentals are only one example of many possible processes that could be handled in similar ways. In fact, all the administration, accounting, and overhead processes would be handled this way. Innovative oil and gas producers have as their distinct competitive advantages their land and asset base, and coordination of the market for earth science and engineering capabilities. The efficient development of internal administrative processes will not provide producers with a competitive advantage or disadvantage. By developing processes in the manner that People, Ideas & Objects propose, all producers have access to the most efficient and cost effective administrative management. And it is one of the cornerstones of how we provide oil and gas producers with the most profitable means of oil and gas operations.

Different Perspectives on Data

There will be a large percentage of public data within the Petroleum Lease Marketplace. For example this data will include the lease documents themselves and reflect who the lessee is and the mineral rights held. Although this information is public in nature, readily available from the lessor's website, there is not much reason to hold it public in the Preliminary Specification from a producer perspective. Access to producers' or Joint Operating Committees' data and information through the People, Ideas & Objects application modules via a publicly accessible interface does not exist. Although the data and information may be accessible elsewhere, it is not available unless the individual has direct access granted through the Security & Access Control module.

Next there are areas where data and information are considered "partnership" or Joint Operating Committee in nature. We have discussed the research project our user community will undertake in the Preliminary Specification. This is to determine if data will reside within the Joint Operating Committee or the producer. This is an effective example of where the issue resides. If the agreements, leases and AFE’s are the same for all the producers why not store them within one location in the Joint Operating Committee and have access by the authorized producers? Everyone works from the same documents. Here’s where Industrial Command & Control will need to be sophisticated enough to enable the appropriate users from different producer firms to access these documents. Another consideration for our user community research project.

Then there is private information that the producer generates that serves strategic and tactical concerns. This will be for producers only. The discussions could be related to one of the agreements that shouldn't be included in the "partnership" category. How does a firm maintain access to this critical information and ensure it doesn't leak to someone it shouldn't? Please review the “Two Types of Data" section of the Security & Access Control module. 

The Preliminary Specification also provides many valuable opportunities regarding aggregated data publication. In the context of producers' capital budgets. If producers maintained their expected capital budgets in reserve report format within the Petroleum Lease Marketplace, would they be interested in publishing that data in aggregate through the Resource Marketplace module? This data would be scrubbed of all pertinent proprietary information and only represent dollars, general geographical area and account classification. This information would provide the Resource Marketplace with information as to what the marketplace would look like in the near future in terms of producer demand. This would enable service industry participants to plan to meet that demand. And would provide the service industry with a better understanding of their customers. 

Proponents of "big data" and other technologically focused solutions to business issues claim they yield value for their clients. I am unaware of any tangible results. Producers' inability to organize their data is one of the impediments to moving forward from failed status quo operations. Much of the data, and particularly the financial data at the Joint Operating Committee does not exist which is accurate or reliable in terms of determining profitability. It is issues such as these that People, Ideas & Objects need to contend with in addition to the Preliminary Specifications feature set. 

OCI Resource Marketplace Module, Part IX

 Organizational Constructs

Included within the Preliminary Specification is a cultural change to improve performance and profitability. This culture is defined, supported and provided through seven Organizational Constructs that People, Ideas & Objects include throughout the Preliminary Specification. Two of the Organizational Constructs evident in the Resource Marketplace module are the Joint Operating Committee and Markets. However the other five also play a role in the module. The following is a brief discussion of how the Organizational Constructs individually impact the Resource Marketplace module.

Markets

The Resource Marketplace module emulates the variety of marketplaces oil and gas producers participate in North America. The focus is on the resources of the oil & gas producer, the service industry and a means to expand the scientific and engineering capacity and capabilities of the greater oil & gas economy. Service industry representatives are the means by which producers extend their organizations across the North American continent. They provide the technical expertise necessary to participate and expand in oil & gas exploration and production. 

As producers have discovered in 2023 their prior inability to recognize the critical role the service industry plays in the success or failure of their organization has become a critical issue. One that I’m hesitant to prioritize. After profitability, the lack of long-term earth science and engineering talent or the rebuilding of the service industry, each would hold the top priority in the normal course of business. The fact that each of these and other issues holds the same urgent priority is testament to the quality of self-serving officers and directors of the producers we’ve been provided with. 

The long term treatment of the service industry as a cost that needed to be beaten down at every point while the producers continued to fritter and waste the opportunity to maximize their revenues through “muddle through,” “putting cash in the ground,” and “building balance sheets" is the ultimate level of incompetence that I can ascertain. The service industry is currently without faith, trust or goodwill in anything producers attempt. There will be those that jump at the sign of a dollar bill, as is always the case. However this is not the service industry necessary to ensure profitable energy independence. And it is not how a dynamic, innovative, accountable and profitable oil & gas industry will be resurrected from this disaster. 

The Resource Marketplace module provides the means to rebuild the service industry, and elsewhere. As part of that rebuilding process, oil and gas producers must communicate and participate actively. Expressing their needs clearly will help to define the supply of what entrepreneurs in the service industry need to do to meet future producer demand. The cost of this rebuild and redevelopment will be borne by the producers themselves. They broke it and they will fix it. As evident in 2023 no one else is stepping up to do so. No one trusts producers will not destroy what isn’t theirs again next time they run oil & gas prices into the ground. Therefore, if producers have some skin in the game, maybe they'll show some respect for the service industry. 

Joint Operating Committee

The Preliminary Specification recognizes the Joint Operating Committee as the key Organizational Construct of a dynamic, innovative, accountable and profitable oil & gas producer. It is an opportunity to adopt the natural culture of oil & gas exploration and production over the past century. Additionally, it is an opportunity to align the administrative, accounting, compliance, and governance processes with that culture. Founded on the principle of partnerships, oil & gas has used the Joint Operating Committee as the organization to deal with the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. It is standardized throughout the industry and all capital and operations are conducted through it. 

Accounting and management have been diverted from this reality for two similar reasons. The first is the introduction of computerized accounting that focuses on the corporation as the entity of concern for the bulk of the administrative and accounting functions. The second reason is that compliance and governance is focused on the corporation. Therefore you have two sets or groups interested in pursuing two different organizational objectives from the same assets. Owned by separate entities and virtually divorced from each other through geology and engineering difficulties. In the confusion performance and profitability are lost.

Through the development of the SEC’s Full Cost accounting methodology and the Ceiling Test. Misinterpretations of producer firm goals and objectives were developed. Shifting from performance evaluation to asset value. Producing the "build balance sheets" and "putting cash in the ground" claims of recent producers. 

People, Ideas & Objects, our user community and their service provider organizations' use of the Joint Operating Committee shifts accounting and administration into alignment with the producer firm's exploration and production. Enabling each Joint Operating Committee to report comprehensive financial statements each month that detail the property's performance. A task that is not possible today and the primary cause of financial issues in the industry. These issues can only be resolved by reorganizing producers and the industry through the Preliminary Specification. 

Specialization & Division of Labor

Throughout the Preliminary Specification there is a revised organizational structure in oil & gas. Our user communities service provider organizations enable producer overhead costs to be converted to variable costs based on profitable production. This is due to enhanced specialization & division of labor throughout the greater oil & gas economy. Only then will the oil & gas industry improve its performance trajectory. 

Specialization and the division of labor have been responsible for all economic value since Adam Smith published the Wealth of Nations in 1776. This value was enhanced through oil & gas in the twentieth century by applying mechanical leverage to enhance individuals' output. To the point where today each barrel of oil is mechanically leveraged between 10 and 25 thousand man hours per barrel. Producing an equivalent work force 27 to 68 times today’s world's population. People, Ideas & Objects believes the demand for energy and the ability to leverage this more effectively will be part of the human condition. As mechanical leverage drove prosperity in the twentieth century, Intellectual Property leverage will drive prosperity in the twenty-first century.

"New Growth Theory" by Professor Paul Romer

In his groundbreaking paper “Endogenous Technical Change” Professor Paul Romer, and as described by him in a Reason Magazine article. New Growth Theory is an innovative economic direction for the 21 century. It brings substantial benefits to those who apply it. What Professor Romer describes as People, Ideas and Things in the Reason Magazine article was adopted by People, Ideas & Objects, as we are object-based software developers. When we add the paper's key principle of “non-rival” costs to the reorganization of oil & gas we find that the sharing and shareable nature of the non-competitive attributes of a producer are easily accommodated through today’s Information Technologies. 

When we add Professor Romer's principles to specialization and the division of labor we have a toolkit that will yield untold value creation for dynamic, innovative, accountable and profitable oil & gas producers and the greater oil & gas economy. These are the reasons we have applied them throughout the Preliminary Specification. Why we configured our user community to be our key competitive advantage to ensure that the incremental and iterative development of specialization and division of labor with new growth theory principles can be applied constantly through the development of the Preliminary Specification and its derivative works. 

Professor Romer was awarded the Nobel Prize in economics in 2018 for the development of these ideas. They are valuable and we feel fortunate to have applied them in the Preliminary Specification.  

Intellectual Property

Intellectual Property (IP) is the foundation of the Preliminary Specification. Our three competitive advantages are our user community, Intellectual Property and research. These are how we compete in the ERP marketplace for oil & gas. We believe Intellectual Property will disintermediate all industries in the 21st century. As a result, we can rightly claim that it's not enough to own an oil & gas asset, it's also necessary to have access to ERP software in the form of People, Ideas & Objects Preliminary Specification that makes the oil & gas asset profitable. Use of our Intellectual Property has enabled us to assert the appropriate direction the industry should take to avoid its difficulties and resolve its issues. To eliminate the “me too” nature of oil & gas producers where in the past fiefdoms were controlled through “blind sleepwalking agents of whomever fed them.”  

Marketplaces direct activity based on demand. That is how we’ll get our marching orders and provide the services necessary in the future. By figuring out what the market needs and delivering it. Not mindlessly sitting through meetings and Zoom calls that never end. Where action is rewarded and risk is ever present. 

Information Technology. 

IT has matured over the last decade. Only now is it capable of delivering on the promises it has made for 60 years or more. What can be done today and what needs to be done in the next 25 years will yield the benefits of the work invested in building this infrastructure. Technology needs continue with developing advanced and innovative business models that exploit these technologies. It is now necessary to augment IT in creative and innovative ways to address the challenges of conducting business in the upcoming years.

Enterprise Resource Planning or ERP as they are known today are holistic systems that manage business operations. What they may be called in the future and their makeup will undoubtedly change but their purpose will remain the same. They hold an outsized role in today’s business environment due to their ability to define and support an organization and its culture. The difficulty with this is that they also constrain the organization to that definition as change can only occur once the software is changed. This is the primary reason People, Ideas & Objects is establishing a permanent ERP user community and software development capacities and capabilities, to accommodate change.

Innovation

The complexity and difficulty of oil & gas science is understood by a select few who have dedicated their lives to it. Engineers and geologists work in these sciences daily. Science and innovation depend and iterate upon each other. Therefore producers need to build dynamic, innovative, accountable and profitable oil & gas operations to meet capital markets' expectations. 

Innovative organizations are not accidental. They are purpose-built and designed through a variety of processes that allow innovation to flourish and eliminate its excessive costs. People, Ideas & Objects have defined a variety of innovative processes throughout the Preliminary Specification. These processes are designed to enhance the innovativeness of the producers and service industry. Enabling enhanced collaborations between these industries that are wholly dependent upon one another. 

The primary research used in the development of the Preliminary Specification. Was from Professors Giovanni Dosi and Richard N. Langlois among many others. If producers choose to follow the innovative processes in the Preliminary Specification they can establish a strong foundation for profitability. 

Summary

Oil & gas culture has been established over the past many decades and is embedded in the many generations employed within the industry. Ultimately, we found that the producers' objectives and rationale are incompatible with commercial enterprises. Raised on a dependence on annual infusions of outside capital, this culture has taken on various characteristics that are inconsistent with the future demands of a profitable energy independent industry. This culture is persistent and refuses to accept there’s even an issue. To attempt to change it would be a futile endeavor that would exhaust. 

Financially the current culture has extinguished the value generated in the industry, and all of the subsequent capital raised over the past decades There is nothing left to build on. A comprehensive rebuilding is necessary and that can be done based on the culture of these seven Organizational Constructs. By enforcing an element of an existing Organization Construct, the Preliminary Specification can facilitate the change we desire within the ERP software of the industry. Providing a foundation for understanding across the industry.

Conclusion

The Resource Marketplace module, in combination with the Research & Capabilities and Knowledge & Learning modules is how the dynamic, innovative, accountable and profitable oil & gas producer and Joint Operating Committee acquire their capabilities. The Resource Marketplace establishes thick markets for products and services from the service industries and service providers. Producers and Joint Operating Committee members benefit from these markets. Enabling operational control, innovation and flexibility for the 21st century.

And it is here in the Resource Marketplace module that profitable operations are established. Through the decentralized production model, producers can remove marginal production from the marketplace. This allows them to save those reserves for a time when they’re profitable. When producers can remove their production from the marketplace without financial consequences, the downside risk in both oil and natural gas prices is mitigated. It is here in the Resource Marketplace module that the solution to profitable production of shale oil & gas reserves, or any oil & gas reserves, is attained.

OCI Resource Marketplace Module, Part VIII

 The Marketplace Interface

Originally published in 2012 the Resource Marketplace module contained the Marketplace Interface which is a virtual representation of it, the Petroleum Lease and Financial Marketplace modules. I persevered through the slings and arrows of those who thought this was inappropriate. They didn’t see the value inherent in what I considered the ultimate collaborative environment. Today these virtual environments are attracting significant attention and financial backing to capture both the consumer and business market. In light of what has been discussed about the Resource Marketplace to this point, this interface will mitigate Dynamic Transaction Costs. It will also organize the rebuilding of both oil & gas producers and the service industry. This transition or disintermediation will demand significant information and human interaction to offset the chaos, confusion, disruption and associated costs. It was my intention in 2012 to have this facility available and its value has only grown in its capability, value and appropriateness. When the oil & gas markets are continental, and global in some instances, serendipity and spontaneous order are hamstrung due to the distance between manufacturer and customer. The ability to participate through the Marketplace Interface enables serendipity and spontaneous order. At no time had I contemplated that this interface would be viewed through anything other than a computer screen. Headsets and other devices are not required to use the feature. 

We take a step back to pick up a point in the Resource Marketplace module. It has to do with the “Marketplace Interface” within that module. The point is to highlight the fact that within the Resource, Petroleum Lease and Financial Marketplace modules there is only one “Marketplace Interface.” That is to say that while in the virtual world users can engage with companies for Resource, Petroleum Lease and Financial Marketplace purposes. There would be no reason to have three separate environments. (Please review the Petroleum Lease Marketplace information under “Marketplace Interface” for more detailed information regarding this feature.)

By way of a scenario, a partner of the producers mentions that a vendor is conducting a presentation of innovative technology in the “Marketplace Interface.” Users log in to see what the technology looks like and find their presentation overwhelmed with interest. As a result, users can view and hear everything clearly and see the value of the technology. While there users run into a number of partners interested in testing the technology at one of their facilities. These partners are members of a Joint Operating Committee that the producer participates in. They present the user with an AFE for the costs associated with running the tool and ask that the producer approve their share.

The producer may have a minor interest in the property. The partners are at the threshold of 75% approval necessary to proceed with the project without that producers approval. Nonetheless participation would be constructive and the producer's contribution to the project valuable and they are therefore proceeding with the expectation that it will gain approval. The costs associated with the work are small, yet downtime affects production and revenue projections. Those are the significant issues, as reliability and predictability have been issues at this property. Something that this tool is designed to mitigate. 

Funds are sourced from the firm's Research & Development area as the firm feels the tool will show some promise in other properties. The AFE’s are signed and individuals are assigned to the Joint Operating Committee to work as engineers on this project. What may not be realized in this scenario is that all of this work will be completed through the “Marketplace Interface” through an iPad during breakfast at home. The ERP system will be able to establish the AFE through the partners. The internal communication to approve the AFE, source the budget, assign the roles and responsibilities to the project and participate in the vendors presentation was all done during breakfast through the Marketplace Interface.

(Please review the video under the Petroleum Lease Marketplace).

People, Ideas & Objects and Oracle Corporation

What we expect to gain from the review of the Oracle products in the Resource Marketplace module and the rest of the Preliminary Specification is to add some substance to the Preliminary Specification from the point of view of the generic ERP systems requirements. Using the Java Programming Language, Oracle Autonomous Database, Oracle Fusion Middleware and Oracle Fusion Applications will provide a strong foundation for the innovative oil & gas industry. In 2022 these have been repackaged as Oracle Cloud ERP.

Looking at Oracle Cloud ERP from the perspective of the Resource Marketplace module, we have not discussed what is traditionally called the Human Resource or Human Capital area of the firm's needs. This of course would fall under the Resource Marketplace module as these people are part of the Resource Marketplace. Oracle has a number of products that fall under this category in their Oracle Fusion Applications which we'll discuss. I noticed this statement that shows we are consistent with Oracle’s approach to the marketplace in terms of how their Oracle Fusion Applications are to be used.

Oracle Fusion Human Capital Management is part of Oracle Fusion Applications, which are completely open, standards-based enterprise applications that can be easily integrated into a service oriented architecture. Designed as a complete suite of modular applications, Oracle Fusion Applications help you improve performance, lower IT costs, and get better results. Whether you choose one module, a product family, or the entire suite, Oracle enables you to gain the benefits of Oracle Fusion Applications at a pace that matches your business needs. 

I read this as consistent with our intent to use Oracle Fusion Applications in the following manner. That they are open to additions through Oracle Fusion Middleware. They are standards based and can be used as a service oriented architecture which is another term for “cloud” computing. Lastly People, Ideas & Objects et al are an Oracle customer that “fills the gap” between the oil & gas industry and Oracle technologies.

The first document that I want to look at is a brochure published by Oracle entitled “Oracle Fusion Human Capital Management: The New Standard for Human Capital Management.” Within it Oracle lists the fifteen applications that fall under the Human Capital Management Suite. This next paragraph of the brochure shows that we are in the same ballpark and playing the same sport as Oracle with respect to our Industrial Command & Control. Although the Preliminary Specification has been expanded to include multiple organizations in the Joint Operating Committee and the service industry. Oracle has developed the concept within a standalone organization. 

Oracle Fusion Human Capital Management (HCM) is a revolutionary step in human resources. The core design principle of Oracle Fusion HCM empowers every role in the organization, connecting all segments of a global workforce. It allows organizations to inform, engage, and collaborate with their workforce in ways never before possible. Organizations will benefit from the ability to personalize the application at organizational, business unit, management, and individual levels. These capabilities are fully configurable; are supported out of the box; and ensure data consistency, security, and compliance globally

Reading their documentation I see this emphasis on role throughout. This is a necessary part of Industrial Command & Control, and a critical part of their application suites. Having that functionality already in place will be a strong first step in making Industrial Command & Control a viable solution for oil & gas.

One area we had not touched yet was payroll. Oracle HCM Suite provides these services. What will need to be done is to ensure that earth science and engineering, and any other human resources charged to the joint account, can be charged and recovered through the payroll system. I would think that this is something that Oracle would have thought would be basic functionality however I have not searched for or stumbled upon it yet. Recall that producers seek revenues from oil & gas sales and from the secondment of their technical resources to the Joint Operating Committees. They also seek revenues from research and industry at large. The demand for earth scientists and engineers is expanding. The costs to develop a team in house will be too onerous without direct offsetting revenues from them. For an innovative oil & gas producer, this requires the Preliminary Specifications Partnership Accounting module. Which bills these resources based on a factor of the producer firm's Revenue Per Employee.

I’m intrigued by a grouping of modules within the Oracle Human Capital Management Suite (Oracle HCM Suite) that are somewhat novel and provide the innovative oil & gas user with some unique value. Oracle calls this group of modules Oracle Fusion Talent Management which includes the following modules from the Oracle HCM Suite. Compensation Management, Incentive Compensation, Performance Management, Goal Management, Workforce Directory Management, Network at Work, Oracle Grow and Talent Review. I think it is worthwhile to include the entire Oracle HCM Suite in the Preliminary Specification. That way producers, Joint Operating Committees and service industry participants can use the modules that meet their needs in the most appropriate manner. People, Ideas & Objects will provide our software and our user communities and service providers through our Cloud Administration & Accounting for Oil & Gas software and service. This is consistent with Oracle Cloud ERP architecture.

Grouping applications under "Talent Management" should be obvious in oil & gas. We have a particular issue with earth science and engineering resources which are critical resources for the industry. The expected retirements over the next 20 years, the ability to train new recruits within that time, the increasing requirement for geology and engineering in each incremental barrel of oil, and the expected demand for energy all make these people part of the key competitive advantages of an innovative oil & gas producer. Having software focused on developing and maintaining these resources would be invaluable assistance.

It may be a false assumption that the majority of these resources will be directly employed by the producers themselves. They will be seconded to the individual Joint Operating Committees by the producers that employ them. Their employment contract will be comprehensive and include incentive and bonus compensation based on profitable performance. With that said Oracle has specific compensation related modules in their Talent Management group, Compensation Management, Incentive Compensation and Performance Management. These applications allow the producer to look at compensation from a global and strategic perspective over the competitive landscape. Particularly within the geographical region in which they compete. In areas such as Performance Management the employee has tools in place to guide them through what is expected of them. This is to keep them on track and help them reach their goals.

Speaking of goals there is Oracle Goal Management for the producer to establish goals for the organization and individuals within that organization. In a top down manner the goals of the organization can be pushed down to individual units and groups, and finally to individuals to achieve within the appropriate time frame. There is also a capability for employees to document their career development.

Oracle Network at Work is a tool that establishes a social network within the organization. I would think this might be of value if we had it for the entire oil & gas and service industries. Then the industry could collaborate and share information within a social network. The feature that this would have is that it would be dedicated to oil & gas unlike Facebook which is unfocused.

Oracle provides a software tool to evaluate and prepare for employee review processes. Moreover, the process is in a collaborative environment, which means the people responsible for each individual's performance have input. Oracle Fusion Talent Review does this and helps producers develop the right talent for the right jobs.

Oracle Fusion Workforce Directory Management provides a graphical representation of the organization chart. This is something we need for Industrial Command & Control. The need to extend this beyond the individual organization to include members of the Joint Operating Committees participating producers and service industry representatives would be necessary. The tool provides basic information, including the role the individual holds, their supervisor etc. Exactly what we need to begin to impose a chain of command within the temporary organization established for operational excellence in the Joint Operating Committee.

Oracle has published a paper entitled “HR in the Cloud: Bringing Clarity to SaaS Myths and Manifestos” that I want to review. It deals with issues around hosting the Oracle Human Capital Management Suite of applications in a “cloud computing” environment. 

In a survey Oracle identified that the two most common business processes running on private clouds are Financial / Accounting @ 20%, and Human Resources / Benefits @ 19%. In addition, homegrown applications @ 16%, Inventory / Shipping @ 10%, and Procurement / Purchasing @ 11%. All of these are traditional accounting programs. Making for 76% of all cloud-based applications. The cloud is being used for the purposes People, Ideas & Objects plans to use it for.

It is too early to evaluate the proposed People, Ideas & Objects solution based on Total Cost of Ownership from the perspective of a producer. There are not enough facts available to make decisions based on information that holds up under scrutiny. The oil & gas producer is in a capital intensive business where ERP systems are not material to the enterprise's bottom line. The value proposition offered in our Revenue Model provides the oil & gas producer with the most profitable means of oil & gas operations. It's not enough to own the oil & gas asset, it's also necessary to have access to the software that makes the oil & gas asset profitable.

We have looked at Oracle's identity management and security offerings and included them within the Security & Access Control module of the Preliminary Specification. From a SaaS perspective these tools also provide further value in that privacy laws in the EU and other areas outside of the U.S. are covered by Oracle’s database, identity management and security solutions.

We continue with our discussion of the Oracle paper “HR in the Cloud: Bringing Clarity to SaaS Myths and Manifestos.” Needless to say there are large technical issues and there will be those that won’t be satisfied with the solutions no matter what the outcome of the Preliminary Specification. It is worthwhile to note that many of these features are provided by People, Ideas & Objects as a “single-tenant” solution. This is the superior methodology and how we cater Oracle technologies to oil & gas.

Integration of software is where many difficulties arise. We need to focus on the user to ensure we meet their needs. And to continue to develop service provider organizations that service and support People, Ideas & Objects software for producers. Oracle suggests that developing on products such as Java and Oracle Fusion Middleware allows for further upgrade of the technology when there are additions. This will be discussed further as we proceed through the Preliminary Specification. Please note that everything contained within Oracle Fusion Applications is derived from the Oracle Fusion Middleware layer.

Customization of applications is a fact of life. Oracle does not use customizations and has developed "additions." Additions are made to the Oracle Fusion Middleware layer, in the Java code itself. Using Java's object orientation to embed People, Ideas & Object code directly into Oracle Fusion Middleware code to operate as a single application. Upgrades to either code base do not interfere with the other. This is a benefit of Java, however it enables Oracle, and People, Ideas & Objects will follow their lead, to update their applications quarterly. Creating an iterative and dynamic application development method.

Not every industry can fit into the standard configuration of an application. Users help keep the focus on needs. Additions through a dedicated software development capability like People, Ideas & Objects and our user community are necessary. In addition, each producer is unique. The need is to have each producer run their own version of the Oracle stack of technologies and the People, Ideas & Objects software. This is done in their own virtualized instance of the Cloud Administration & Accounting for Oil & Gas service. This is what is called "single-tenant." 

Through the use of Oracle Fusion Middleware these additions survive the upgrade process. Therefore the ability to have regular software upgrades of Oracle technologies will not disrupt the People, Ideas & Objects modules, and our updates are isolated from their code. Speaking of upgrades the need to manage the upgrade process for Cloud Administration & Accounting for Oil & Gas takes on an increased priority. Making sure the appropriate change management procedures and policies are in place. The appropriate testing, training of the user base and a host of other related issues need to be considered before the technologies are upgraded. Coordination will be easier, but it must be done carefully in light of producers' needs and end users' understanding of how the applications are used.

When it comes to performance and reliability, cloud computing architecture is a matter of applying the proven rules of specialization and division of labor. It is far more efficient and effective to have the technologies for hundreds of producers handled by the specialized skills of Database Administrators, Network Specialists than having each of those producers provide support for their technical architecture.

One of the key outputs of the Preliminary Specification is the initial geographical scope of the People, Ideas & Objects application modules. This will involve which jurisdictions it will calculate royalties for, which jurisdictions it will meet for securities purposes, and what currencies it will recognize etc. In essence determining the minimum level of functionality to meet users' requirements in the first commercial iteration of our application. Oracle Fusion Applications are global in scope. Providing the producer with a strong base of functionality to determine the initial scope of the Preliminary Specification.

Within the Resource Marketplace module of the Preliminary Specification there is a need to provide service industry participants with software solutions that interact with producers and Joint Operating Committees. In the area of Human Capital Management, a part of the Resource Marketplace module is our Industrial Command & Control. Where service industry firms participate in field operations conducted by Joint Operating Committees. They need to be able to participate and fall-in within the chain of command established within the temporary organization established for the operation being conducted. Therefore the need to access some of the modules of the Oracle Fusion HCM Suite and others will be part of the Preliminary Specifications offering.

And there will be other aspects of the service industry representatives' business that will need to be included in the Preliminary Specification. Looking at Oracle Fusion Financials and Oracle Accounting Hub there are services provided for just this purpose. Recall that we have some unique aspects of the Resource Marketplace module that involve the service industry. And one of those is the ability to design transactions. The cloud is therefore essential for these software services to be operational and accessible to service industry representatives.

It is not to suggest that we are delivering the same full accounting services we provide to the producer firm and Joint Operating Committees. We are not that familiar with the service industry to provide that level of service. However, Oracle Fusion Accounting Hub provides the means to interface their accounting systems with the People, Ideas & Objects systems. That way they can utilize the services we offer and fully integrate their systems to service and support the innovative oil & gas producer and Joint Operating Committee in its needs.

Oracle Fusion Financials modules include General Ledger, Accounts Payable, Accounts Receivable, Payments & Collections, Cash & Expense Management and Asset Management. These are the generic financial applications included in the Preliminary Specification. Where they reside within the specification is not material to the discussion as they will be separate modules much like the fourteen modules in the Preliminary Specification. By using modular theory we gain full use of these Oracle Fusion applications without the complexity of integrating them within any specific module itself.

The days when we could generate excitement over charts of accounts and journal entries are probably behind us. Oracle Fusion Financials can handle the unique needs of the Preliminary Specification. Based on Oracle's Database, which is the leading database and market leader. And the result of what Oracle claims to have invested in Fusion technologies since 2005 of over $20 billion. And based on Java, the leading programming language. In terms of technological architecture this will provide a foundation for the innovative oil & gas producer through the next several generations or iterations of the inevitable IT churn.

The user base for People, Ideas & Objects needs to be as wide as possible. What is clear in this discussion is the role that service industry providers have in making this application so much more valuable through their interaction. So whether it is a producer, service industry representative or participant in a Joint Operating Committee, a geologist, engineer or accountant, everyone and everybody needs to be included in making the People, Ideas & Objects Preliminary Specification theirs.

Providing these products in the Preliminary Specification is a must have and therefore I have included them in the Resource Marketplace module. Service industry needs are critical to the success of the innovative oil & gas producers. Although we are not as confident in understanding their business. And their businesses are far more diverse in terms of industry definitions. We need to provide the most effective software services to the services industry. In all Preliminary Specification modules we have defined high levels of collaboration. Whether it is here in the Resource Marketplace modules Actionable Information Interface, Supplier Collaborative Interface or the Gap Filling Interface. Collaboration within the producer, Joint Operating Committee, oil & gas industry and service industry is robust. Now some of those collaborations, like those in the Supplier Collaborative Interface, are available to the public. And others are for a specific audience. How can users be assured that their collaborations are held in the confidence they are intended to be? And in what form will these collaborations take, and what systems are used to conduct these interactions? These are all valid questions that will be answered in this discussion.

Today’s collaborations are more than just textual interactions. There is video, chat, social media and images. Within the Preliminary Specification I would like to see the ability to capture a video meeting of the Joint Operating Committee and record the participants and their votes for further reference. This way members could be situated wherever they are at the time of the meeting and still participate through their computer or an iPad. Voting on different decisions presented with a menu of items. Their votes are logged and the outcome sets in motion the activity decided upon.

Oracle through their Fusion Applications provides these levels of collaborative services as part of ERP software offerings. It will not be necessary for the Joint Operating Committee members to move outside of the People, Ideas & Objects application modules to gain this level of collaboration. It will be available as part of the application itself. The following quotations come from a white paper entitled “Oracle Fusion Application Overview.”

"Web 2.0 Collaboration: Today’s workforce relies on online collaboration to get work done. Whether they use chat, discussion forums or web conferencing to communicate and make decisions, Web 2.0 collaboration technologies have previously been disconnected from enterprise applications. Integrating Web 2.0 collaboration directly within the application has several benefits:

• Productivity: Instead of searching for the relevant employee in a separate online directory, initiating a session through a separate Web 2.0 application, a Web 2.0-aware enterprise application can provide a direct link to the other participants in the decision, and single-click access to online communications with them.
• Context: A Web 2.0-aware application can integrate the business context with the discussion, and capture the decision details for future reference.
• Security: The channels that the application offers directly are sanctioned and secure, in contrast to the third-party programs that employees commonly use for non-professional communications."

It is within this area of collaboration that innovations will begin on Cloud Administration & Accounting for Oil & Gas software and services. In our review of Professor Giovanni Dosi we learned that technical trajectories were influenced by abundant and affordable commodities. People, Ideas & Objects assert that the two commodities that affect oil & gas technical trajectories are knowledge and collaboration. Having an ERP system that provides high levels of collaboration will enhance the innovativeness of the oil & gas producer and the overall industry. And let's not forget the ultimate collaborative interface, our “Marketplace Interface”.

In previous passes through the Preliminary Specification we have discussed the Purchase Order system that is part of the various modules. In the Resource Marketplace module, access to the service industry is one of the key attributes of the module. Therefore, the Purchase Order system will be an inherent part of that module. In this case Oracle has a suite of modules called Procurement in Oracle Fusion Applications. That suite includes the following modules: Purchasing, Self-Service Procurement, Sourcing, Procurement Contracts, Supplier Portal and Spend & Performance Analysis. As all of these modules provide substantial value to the innovative oil and gas producer, they will be adopted within the Preliminary Specification.

There may be some demand for supply chain tools by oil sands producers. They’ll pay their share of the budget to develop the Preliminary Specification at the same cost per barrel of oil of production as any other North American-based producer. As our price maker strategy will affect their production positively. And conversely if commodity prices do collapse they’ll have the appropriate justification to state they’ve contributed to the market. They'll need to continue production due to the inability to scale or shut down their facilities. There will be no free riders. 

There will be a variety of People, Ideas & Objects modules that access Oracle Fusion Application Procurement modules during their operation. Within the Preliminary Specification we have employed modularity theory in both the technology and the organizational design. From a technological point of view modularity provides us with the ability to take advantage of the services of a module. This is without diving too deeply into the module code. In a paper entitled “Oracle Fusion Applications: The New Standard for Business” Oracle describes the benefits of modularity in the following fashion.

The maximum benefits of SOA can only be gained by placing services at the heart of an application that takes a modular approach to module and process design. That way, processes can be reconfigured to meet the evolving requirements of the business at a detailed level. Any extensions can be developed as additional services, without touching the source code of the core application. 

When the Resource Marketplace module wants the “Marketplace Interface” to generate a Purchase Order with another vendor, the service is populated within the interface from the Purchasing module in the Oracle Fusion Application Procurement Suite. These are some of the benefits of modularity in terms of technologies. Modularity in organizations is a primary benefit of further division of labor and specialization.

Purchasing activities may be limited to producers undertaking large and complex projects. However, I think that all producers can benefit from these services. Even though a project may not be as significant as some of the other projects undertaken in the industry, they are material to the producer firm or Joint Operating Committee conducting them. And as such, they would benefit from having a Purchase Order system and related facilities provided to help manage the contract, transaction and relationship with the service industry provider.

The Resource Marketplace module received a more detailed review of the Oracle Cloud ERP offering than anywhere else in the specification. This was a cursory review at that. Our user community will be responsible for becoming familiar with their area of expertise with the Oracle Cloud ERP offering and what they can do with it, how they can enhance and build more dynamic, innovative, accountable and profitable producer firms from. The discussion of Oracle’s offerings was brief in order to introduce the conceptual model we are building in the form of the Preliminary Specification. People, Ideas & Objects Preliminary Specification stands on the shoulders of the giant Oracle Cloud ERP platform. 

As the premier ERP product on the market today, Oracle Cloud ERP will remain unchallenged in that position for many years to come. All North American producers will gain the quality systems necessary to move into what is unquestionably the most challenging time in their history when the Preliminary Specification is added to Oracle Cloud ERP. By adding our user community and their service provider organizations, we can ensure quality and change are accommodated. Establishing an environment that promotes a culture of oil & gas profitability everywhere and always.

OCI Resource Marketplace Module, Part VII

 Market Supporting Institutions

It is clear that the oil & gas industry will need comprehensive systems of People, Ideas & Objects to achieve the objectives we've set out for the innovative producer. These will require the support necessary to ensure that the supplier / vendor gains as much from the system as the producers. These comprehensive systems are the types of market supporting institutions that need to be developed for the innovative oil & gas industry to move forward. Our user community service provider organizations are built on concepts developed by Professor Richard Langlois called Industrial Districts. Another of our top researchers, Professor Carlota Perez’ concept of Small Knowledge Intensive Enterprises. We will discuss these concepts further in the Resource Marketplace module. From Professor Langlois’ paper “Innovation Process and Industrial Districts.”

While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1

When it comes to field operations, keep in mind that vendors / suppliers have been the focus of cost overruns. This has been caused, according to the producers, by the greed and laziness of the suppliers and vendors. What that does in the marketplace is exactly the opposite of what is optimal in terms of a highly efficient field operations marketplace. Professor Langlois notes that we need to strive to achieve "embeddedness" in an Industrial District. This is supported by People, Ideas & Objects and our user community service providers.

When accompanied by close social relationships, tight geographical proximity may affect innovation in ways that are less common in more highly dispersed environments. For example, an awareness of common problems can encourage several firms, or their suppliers and customers, to seek solutions, leading to multiple results that can be tested competitively in the market. These outcomes can then be relatively easily diffused among firms in the Industrial Districts (ID) because of embeddedness in a common environment. The obverse of this commonality of inspiration and ease of transmission of knowledge, however, may be an inordinately inward focus that results in an ignorance of or disdain for innovation processes in other regions or in industries not represented in the ID. Furthermore, there may be a relationship between the degree of embeddedness in the industrial district and innovation. It has been suggested that innovation increases as embeddedness increases up to a point, and that beyond that point further embeddedness results in reduced innovation performance at the firm level (Uzzi, 1997; Boschma, 2005). Thus, depending on circumstances, participation in an industrial district can either encourage or impede innovation. pp. 1- 2

An innovative oil & gas industry has to depend on an innovative and high performing service industry. Oil and gas producers must build the necessary infrastructure to support the service industry deliberately and thoughtfully. So much of the toxic environment between the two industries is due to oil & gas producers blaming cost overruns on vendors in field operations. This environment differs 180 degrees from where oil & gas producers need these relationships. It is the producers' responsibility to get these relationships back on track. It will be through the development of the Resource Marketplace module in the Preliminary Specification that the service industry will be able to see the legitimacy of the producers' intent to rebuild the industry supporting infrastructure necessary for innovation to develop.

As much as we’ve discussed the role Adam Smith’s theories of specialization and division of labor will have at the producer level, they will have a similar impact in the field. To help these companies better understand these principles would be our user community service provider organizations who could consult to these firms and help them develop their organizations. From Professor Richard Langlois’ paper “Innovation Process and Industrial Districts.”

Because of their structure, industrial districts offer important benefits in innovation processes. For one thing, the high levels of differentiation and specialization allow firms, in the Smithian fashion, to focus on aspects of the supply chain in which they are especially competent. p. 5

To me it's intuitive what Professor Langlois is talking about. In a hostile environment, you work to rule. No one volunteers for anything, and everyone does their job adequately so they don’t get fired. The fact that the well didn’t find any commercial gas isn’t anyone's problem. On the other hand, when everyone pulls together as a team...

Strong ties (Granovetter, 1973) among workers, including managers, can increase the amount of information available to firms and the readiness of people to share what they know when relationships gain a dimension of friendship to counterbalance the competitiveness among firms. p. 5

When embeddedness is strong, the creation of communities of practice (Wenger, 1998; Brown and Duguid, 2000) generates competences that, although possessed by individuals, are collective in that they are based on a set of practices that is common to all members of a community. These competences (both tacit and codified) can transcend firm boundaries and become characteristics of an entire industrial district. As Marshall (1975, 197) wrote of nineteenth century Britain, “To use a mode of speaking which workmen themselves use, the skill required for their work ‘is in the air, and children breathe it as they grow up.’” p. 6

To clarify, it will be the producers who rectify this situation. They will need to build industry supporting institutions that will enable the types of environments that will foster innovation and competition in the service industry. Innovative oil & gas industries must develop a highly innovative and competitive service industry. This begins with the interfaces and systems we describe here in the Resource Marketplace of the Preliminary Specification. One that mitigates the chaos, confusion and high levels of Dynamic Transaction costs that occur during periods of transition from disintermediation, rebuilding and oil & gas current status.

Relationships within industrial districts therefore lead to diffusion but also to the creation of new knowledge through shared preoccupations. Because many people or firms can work on a problem simultaneously, a number of different solutions may be found (Bellandi, 2003b). The result is a larger and stronger "gene pool" within the sector (Loasby, 1990, 117), with the further advantage that solutions that are originally regarded as competing may turn out to be complementary and well-suited to different niches within the district.  p. 7

I want to revisit the “Gap Filling Interface” of the Resource Marketplace and add some elements of our recent discussion of the service industry. It would be fair to state that the service, and the oil & gas industries have remained somewhat static in their makeup of how they’re organized. Specialization and division of labor, serendipity and spontaneous order have stopped since SAP integration.

Producer firms' officers and directors reign over the service sector like Roman Emperors. Putting thumbs up or down on an innovation based on whether they have an immediate need for it or not. In addition, they expect solutions to spontaneously exist when problems arise. This entire development process has devolved to the point where little is being done. It ranks on par with the oil & gas companies suggesting to the service industry to "let them eat cake." No money is provided to research and develop products, only tried and tested products and services are accepted, and only “large” firms are used. And then the producers complain about cost overruns. From Professor Langlois’ paper “Economic Institutions and the Boundary of the Firm: The Case of Business Groups.”

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

In the Resource Marketplace module of the Preliminary Specification we have developed the “Gap Filling Interface.” A collaborative tool that users can input where they see a gap that needs filling within their firm, their Joint Operating Committee, a service provider or anywhere within the greater oil & gas economy. It is the expression of a well articulated need, supported by additional comments of others expressing their interest or disapproval. Providers can then review the interface to determine if there is a service or product demanded similar to theirs. This service or product they can configure and provide to the producer firm, Joint Operating Committee or service provider. The problem today is that the issue may be in Pennsylvania and the solution is sitting in Midland, Texas. With such large distances between problems and solutions we need to ensure that we have the means to focus the expression of the need in an appropriate forum. This is where problems and solutions meet. The “Gap Filling Interface.” Re-introducing serendipity and expanding industry throughput.

The situation is similar when we look at it from the other perspective. Those that have developed a solution to a gap and want to market it to the broader market can post it to the “Gap Filling Interface” for those to see. Again with the problems and their solutions being separated by geography it is necessary to build a specific forum to capture people's attention for this purpose.

Ideally, with oil & gas producers providing the kinds of industry supporting institutions we've been discussing. The service industry will have developed thick markets where the ability, and capability, to fill these “gaps” both in the service sector and the producer firms themselves will be more readily available in a dispersed market. Providing oil & gas producers with the most profitable means of oil & gas operations. Rebuilding the industry on the basis of a dynamic, innovative, accountable and profitable oil & gas producer.

The underlying assumption, normally unspoken, is that relevant background institutions — things like respect for private property, contract law, courts — are all in place. Whatever transaction costs then arise are thus the result of properties inherent in “the market” itself, not of inadequacies in background institutions. There is generally a tacit factual or historical assumption as well: that the relevant markets exist thickly or would come into existence instantaneously if called upon. p. 3

An Industry in Transition

One of the conclusions in the Preliminary Research Report was that the oil & gas industry was transitioning from a “banking” mentality of earning guaranteed returns on investments, one based on the scarce energy era where financial survival was the key to success. To an era of abundant oil & gas reserves based on advanced science and innovation in the earth science and engineering disciplines. These are the determining factors in producer survival and success. Today those two cultures clash as the relics of the scarce energy era attempt to restructure to compete on the scientific frontier. Added to this transition's difficulty is the industry culture, as represented in the failed legacy of the officers and directors of the producer firms, and their last ditch attempt to assert a purpose in life. 

We have discussed the capabilities of the producer, the Joint Operating Committee and the service industry. We have also discussed how the Resource Marketplace module of the Preliminary Specification coordinates these. This is to develop a dynamic, innovative, accountable and profitable environment for all concerned. We have put the responsibility for service industries market supporting institutions squarely on the producers. The reasons for that are obvious in that they are the primary benefactors, they are the primary industry that collects the revenues that support the service industry. They broke it, they get to fix it. It is therefore necessary that oil & gas producers use this money to encourage this market to grow and develop as thick and responsive markets as possible. From Professor Richard Langlois' paper “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups.”

The second hypothesis, which has resonances at least as far back as Gerschenkron’s famous “backwardness” thesis (Gerschenkron 1962), is that the way an economy responds to the problems of coordinating economic development depends not only on its own institutions and capabilities but also on institutions and capabilities elsewhere. It depends not only on an economy’s own history but on the history of other economies as well. The force of this observation is that an economy at the frontier of economic development (however we care to define that) is likely to respond to the coordination problem differently than an economy lagging behind that frontier. Specifically, an economy at the frontier is arguably more likely to rely on decentralized modes of coordination. This is so because uncertainty is greater at the frontier — uncertainty about technology, organizational form, market direction. p. 18

And what we need are people to think their way through uncertainty, chaos and confusion. Having the appropriate information to deal with the situation at hand. I have been a strong critic of the “best practices” phenomenon that has developed over the past few years. This quote from Professor Langlois reminds me of copying others' "best practices."

Indeed, traditional command-style economies, such as that of the former USSR, appear to be able only to mimic those tasks that market economies have performed before; they are unable to set up and execute original tasks. The [Soviet] system has been particularly effective when the central priorities involve catching up, for then the problems of knowing what to do, when and how to do it, and whether it was properly done, are solved by reference to a working model, by exploiting what Gerschenkron . . . called the “advantage of backwardness.” (Ericson, 1991, p. 21).

Best practices reflect the staleness of bureaucratic methods. If not for the increase in commodity prices over the past few years, we should wonder what they would have earned. Best practices don't generate a profitable operation. Only the culture of a dynamic firm in a dynamic industry focused on delivering their primary purpose of profitability will deliver that. These are culturally and legally driven answers. In the Preliminary Specifications Organizational Constructs we have stated that the Intellectual Property is part of the U.S. Constitution. A legal framework establishes responsibility and a cultural understanding of free markets exists. Such as “buyer beware,” “the customer is always right” and “you broke it, you fix it.”

One area we have not discussed in terms of capabilities in the Resource Marketplace module of the Preliminary Specification. Is where authority and responsibility for any field operations falls as a result of the revised boundaries of the firm and market. If we have dynamic markets providing innovative products and services to the producers and Joint Operating Committees how does this affect the authority and responsibilities established in business today?

The clearest example of this issue is the BP Gulf of Mexico well blowout. The findings established that BP was 100% responsible for the well blowout, and that clearly reflects the way the business is run. Earth science and engineering resources are within producer firms, and Joint Operating Committees, to design and engineer operations to meet the safe and profitable operations of the oil & gas facilities. Without an appropriate engineering design there is little that a vendor can do in the field with a program that is destined to fail. With the changes being made in the Preliminary Specification, where reliance on an innovative Resource Marketplace for service industry products and services, nothing will change in terms of this responsibility. The engineering staff at the oil & gas producer or Joint Operating Committee will have more choice in terms of products and services in terms of what they can do in the field. Additionally, a second point is the reduction in bureaucracy within the producer firm. From Professor Richard Langlois' book “The Dynamics of Industrial Capitalism.”

History is never kind to historicists, of course; and the facts of the last quarter century have made life uncomfortable for those who would project the Schumpeter-Chandler model into the present. It has become exceedingly clear that the late twentieth (and now early twenty-first) centuries are witnessing a revolution at least as important as, but quite different from, the one Berle and Means decried and Schumpeter and Chandler extolled. Strikingly, the animating principle of this new revolution is precisely and unmaking of the corporate revolution. Rather than seeing the continued dominance of multi-unit firms in which managerial control spans a large number of vertical stages, we are seeing a dramatic increase in vertical specialization — a thoroughgoing “de-verticalization” that is affecting traditional industries as much as the high-tech firms of the late twentieth century. In this respect, the visible hand, understood as managerial coordination of multiple stages of production within a corporate framework, is fading into a ghostly translucence. p. 7

All aspects of the industry are affected by moving to the Joint Operating Committee as the key Organizational Construct. Nothing remains the same as a result. Management will have less influence on the day to day operations of a dynamic, innovative, accountable and profitable oil & gas producer. They will be involved in the direction of the firm's needs in terms of its distinct competitive advantages of its land and asset base and the coordination and development of its earth science and engineering capabilities and capacities. Legally this does not affect their authority or responsibility either. Engineers are qualified and regulated in terms of qualifications and certifications. If they sign their programs, they have their career on the line. This to me is worth substantially more than the controls a manager may have established.

In highly developed economies, moreover, a wide variety of capabilities are already available for purchase on ordinary markets, in the form of either contract inputs or finished products. When markets are thick and market-supporting institutions plentiful, even systemic change may proceed in large measure through market coordination. At the same time, it may also come to pass that the existing network of capabilities that must be creatively destroyed (at least in part) by entrepreneurial change is not in the hands of decentralized input suppliers but is in fact concentrated in existing large firms. p. 14

Substantial change, creative destruction and innovation throughout the service and oil & gas industries. That is what is required to resolve the problems of the day. It's important to remember that doing so is as Professor Langlois states “Economic growth is about the evolution of a complex structure (Langlois 2001).” p. 6

OCI Resource Marketplace Module, Part VI

 Change Management

Among the many areas of research Professor Langlois has undertaken is modularity. Modularity builds on the boundaries between the firm and the market and is one of the reasons the Preliminary Specification has fourteen modules. Modularity's primary advantage is managing change. Changes can be managed by isolating their impact to one module. Professor Richard N. Langlois wrote in “Modularity in Technology, Organization, and Society.

Modularity is a very general set of principles for managing complexity. By breaking up a complex system into discrete pieces - which can then communicate with one another only through standardized interfaces within a standardized architecture - one can eliminate what would otherwise be an unmanageable spaghetti tangle of systemic interconnections. p. 1

People, Ideas & Objects impact is beyond just the software proposed to be developed. Organizations such as the producer firm, the Joint Operating Committee, the service industry participants and the service providers are all impacted by the modules in the Preliminary Specification.

What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to modularity in the design of the organizations that produce such products. p. 1

And

Why are some (modular) social units governed by the architecture of the organization and some governed by the larger architecture of the market? p. 2

It is in our Revenue Model that People, Ideas & Objects assert that these software developments are not just for oil & gas producers. They are for individuals, society, and the greater oil & gas economy. To focus only on the producers misses some of the “who” we are developing these systems for.

The set of design rules that guide social interaction are what we can generally call social institutions (Langlois 1986). These rules determine (among other things) the extent to which, and the way in which a society is a modular system. The desirability of modular design is a theme with a long history in the theory of social institutions. Adam Smith long ago proposed a decentralization scheme based on what he called "the obvious and simple system of natural liberty," by which he meant a system of private property regulated by common law and subject to minimal central administrative intervention. On the economic level, this approach would lead, he believed, to economic growth spurred by innovation, learning, and an ever increasing division of labor. pp. 14 - 15

And

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place," he wrote, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its order. We must solve it by some form of decentralization"(Hayek 1945, p. 524). p. 15

When a user is working in the Resource Marketplace module. Whether they are in an oil & gas producer, a Joint Operating Committee or a supplier / vendor. The scope of what they are dealing with is limited to the Resource Marketplace. Modularity provides interfaces to the other modules when necessary. However, dealing with just the data, processing and functionality of the Resource Marketplace enables the module to deal with many issues within that marketplace, the key variable it can deal with is change.

Under some circumstances, the benefits of modularization may not be worth the cost. For example, a system whose environment never changes may not have to worry much about modularization. p. 8

And

In a world of change, modularity is generally worth the costs. The real issue is normally not whether to be modular but how to be modular. p. 11

Software development issues and opportunities fall within General & Administrative costs. The costs associated with this are not integral to the competitive advantages of producers of their land and asset base, nor are they an integral part of the coordination of the market for earth sciences and engineering. Yet they are critical to providing the producer with what People, Ideas & Objects assert in our Revenue Model as the result of our three core competitive advantages. Providing the most profitable means of oil and gas operations for oil and gas producers. It is the oil & gas producer that needs to be focused on sustainable profitability in order to access the abundant financial resources necessary to rebuild the industry and approach this challenging future.

Dynamic Transaction Costs

Dynamic Transaction Costs are a unique area of research for Professor Richard Langlois. That is to say I think he’s the leading researcher on the topic. It is a topic that affects us significantly as we operate in an environment where change is the one constant we can rely on. Langlois’ definition of Dynamic Transaction Costs from “Transaction Cost Economics In Real Time” is as follows.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-versa. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

Clearly the oil & gas industry will have significant Dynamic Transaction Costs without People, Ideas & Objects Preliminary Specification. That is to say that they will not have the capabilities they need when they need them if they continue to use SAP in a structured hierarchy. During 2023 it has become evident that this is the case. Since the initial publication of the Preliminary Specification in 2012, the service industry has been hollowed out by the officers and directors of the producer firms. There will be significant Dynamic Transaction Costs incurred throughout the greater oil & gas economy. This is due to the transition to full reliance on the market for resources and the damages realized. Recall we are looking for “thicker” markets to develop as the Joint Operating Committees look to the market for all of its Resource Marketplaces. Let's recall what capabilities are with a quote from Langlois’ “Dynamic Transaction Costs in Real Time,” and the phrase from Harvard Professor Carliss Baldwin of “Knowledge begets capabilities, and capabilities beget action.”

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organization probably begins with Edith Penrose (1959), who suggested viewing the firm as a 'pool of resources'. Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources.Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied 'how to' knowledge useful for particular classes of activities. pp. 105 - 106.

We have noted that when a supplier / vendor is selected within the “Planning & Deployment Interface” of either the Research & Capabilities or Knowledge & Learning modules. Then the associated key and operational staff c/w their positions in Industrial Command & Control would be populated into the interface from the Vendor / Supplier Contact Database. With the knowledge we learned about Dynamic Transaction Costs. We could also populate the “Planning & Deployment Interface” with the capabilities information from the supplier / vendor when it is selected. This information would also be available when needed from the Vendor / Supplier Contact Database. It would be maintained by the vendor, as all the information in that database is.

"In a metaphoric sense, at least, the capabilities or the organization are more than the sum (whatever that means) of the 'skill' of the firm's physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104)." p. 106

There will be a significant amount of information made available to the users of the “Planning & Deployment Interface.” Certainly the information to determine what is required to mitigate the Dynamic Transaction Costs, define any deficiencies and map out a successful project. 

We want to look at the situation from the point of view of the supplier / vendor. We want to see how they provide capabilities to the Joint Operating Committee that employs them. We discussed how much data regarding their service operation is populated into the Joint Operating Committee “Planning & Deployment Interface.”

From the supplier / vendor’s point of view being part of the detailed planning of the program will not be anything too novel. What we are seeking to achieve is for the oil & gas producers as represented in the Joint Operating Committees to have increased reliance on “thicker” markets in the service industry. Greater dependence on an innovative and competitive service industry marketplace is a necessary building block for the innovative oil & gas industry. This is reflected in the People, Ideas & Objects Preliminary Specifications “Ideas Marketplace Blog,” and the decentralized manner in which the industry will operate under the Preliminary Specification. Some may suggest the industry operates in that fashion, but I argue that we are far from that conceptual model. That is evidenced by the level of conflict between producers and suppliers and the lack of competition in the supplier marketplace. This situation is largely due to producer firms. They have consistently prevented the service industry market from operating effectively at critical times. This is reflected in purchasing equipment for their own use, like drilling rigs. They are not working with anything but proven technology, not sponsoring any research, not working with anyone other than those of size. They are not respecting others' Intellectual Property and not paying for work successfully completed until years have passed etc.

Listed as a project on Professor Richard Langlois' website is “The Vanishing Hand” which he describes in his paper “The Vanishing Hand: the Changing Dynamics of Industrial Capitalism” as.

The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates. p. 3

Suggesting that we are moving towards a market-based form of industrial capitalism. One that leaves behind the “visible hand” of hierarchy and management methods. We noted that the service industry had interfaces to the Resource Marketplace module of the Preliminary Specification. Specifically a project management interface that enables the provider to determine and pass their Dynamic Transaction Costs on to the Joint Operating Committee. It is necessary that producers provide the service industry with access to software in this fashion. In addition, it is necessary to offset these costs to enable markets to expand.

As in Chandler, secular changes in relative prices attendant on "globalization" (driven by technology or politics) affect economic organization not only directly but also, and perhaps more importantly, indirectly through changes in technology. Production costs matter as much as transaction costs (Langlois and Foss 1999) Moreover, the kind of transaction costs that matter in history are often not those of the Williamson kind but those I have labeled dynamic transaction costs (Langlois 1992b). Costs of coordinating through markets may be high simply because existing markets - or more correctly, existing market-supporting institutions - are inadequate to the needs of new technology and of new profit opportunities. But when markets are given time and to a larger extent, they tend to "catch up," and it starts to pay to delegate more and more activities rather than to direct them administratively within a corporate structure. p. 5

The oil & gas industry has to consider itself a market-supporting institution for the service industry. There is no primary industry for these providers, their revenues are entirely dependent on oil & gas production. It would serve the oil & gas industry well to remember that they depend on the service industry. There has been so much talk about how greedy and lazy the service industry is from the producers themselves. I can’t imagine how much worse it could get. The attitudes and actions of an innovative and successful oil & gas producer are so far removed from this behavior, we have a long way to go. Transaction Cost Economics in Real Time.

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121

To stay in the domain of the oil & gas supplier and vendor, I will discuss how their increased involvement in the Joint Operating Committee can increase producer profitability. How this organizational conceptual model will help producers and suppliers of the innovative oil & gas industry. From Professor Ronald Coase in the “Nature of the Firm” 1937

Adam Smith explained that the productivity of the economic system depends on specialization (he says the division of labor), but specialization is only possible if there is exchange-and the lower the costs of exchange (transaction costs if you will), the more specialization there will be and the greater the productivity of the system. p. 73

Oil & gas producers' competitive advantages are their land and asset base, and the coordination of the market of earth science and engineering capabilities, to a large extent everything else is secondary to the firm in terms of maintaining a profitable and competitive position within the industry. What is not core to their competitive advantage can be obtained through contract from the marketplace on the basis of the “decentralized production model.” Leaving the “high throughput production” model currently being used behind. From Professor Coase.

This is what I said in a lecture published in Lives of the Laureates (Coase, 1995 p. 245): The costs of coordination within a firm and the level of transaction costs that it faces are affected by its ability to purchase inputs from other firms, and their ability to supply these inputs depends in part on their costs of coordination and the level of transaction costs that they face which are similarly affected by what these are in still other firms. What we are dealing with is a complex interrelated structure." Add to this the influence of the laws, of the social system, and of the culture, as well as the effects of technological changes such as the digital revolution with its dramatic fall in information costs (a major component of transaction costs), and you have a complicated set of interrelationships the nature of which will take much dedicated work over a long period to discover. But when this is done, all of economics will have become what we now call "the new institutional economics. p. 73

In order to achieve a higher level of oil & gas deliverability, oil producers will need to focus on their part of the process in a more specialized manner. And that would apply to the overall industry as much as to any individual producer. Leaving the work they may be involved in today to the marketplace to provide. In the Preliminary Specification, there will be a prototypical producer firm configured with officers, engineers, geologists, geophysicists and a handful of lawyers for contracts and land deals. Supported by support staff. Everyone else is provided through a service contract with a service provider in the Resource Marketplace module. This producer firm will manage their interests in a variety of Joint Operating Committees and participate in the development of their land and assets. Each Joint Operating Committee has acquired capabilities from the Resource Marketplace suppliers/vendors.

It is this reliance on the Resource Marketplace module at both the producer and the Joint Operating Committee that I emphasize in this discussion. Specialization at all levels of the industry will enable the oil & gas and service industries to produce more oil & gas with the same resource base. This is the benefit of specialization and the division of labor. We however, first need to implement an organizational model that incorporates all the industry elements. Service industry and service providers in both the field and the head offices of producers are included. Without that we solve only a small portion of the problem. The point of this exercise is that with the increased output of oil & gas, and the more efficient production of that oil & gas as a result of the market configuration noted above, the oil & gas producer will be more profitable due to the software that identifies and supports this decentralized production model.

The integrity of the software as reflected in the People, Ideas & Objects Preliminary Specification, our user community and their service provider organizations with Oracle Cloud ERP is the organization that holds the greater oil & gas economy together through the process of change and in defining and supporting it in its ultimate manifestation. The discussion to this point in the Resource Marketplace module may appear confusing until it is understood that the objective here is to mitigate the chaos and confusion that will inevitably occur as a result of this process. Producers broke the industry, and will use oil & gas revenues to rebuild it. They will incur significant Dynamic Transaction Costs due to the damage they've authored. There will be no better way to resolve such chaos and confusion than having the right information for the right people, at the right time, on the right device and in the right place with the right authority to access it.