A Quick Journey Down the Work Order Part II

This is the second and final post of our quick summary of the work order. We are reviewing this element of the Preliminary Specification to show the ability of the organizations systems effect on the producers innovativeness.

As I indicated the ability for an accountant to follow on with the necessary accounting for these transaction requires significant recreation of the “deal” and time of the parties who conceived of the deal in the first place. A bureaucratic waste of time. The interface of the Work Order should be sophisticated enough to be able to capture the substance of the deal in whatever permutation and combination that is conceived of by the originators. I understand the myriad ways that these can be done and the difficulty in making an interface that captures these. That I don’t think is the difficult part. What I think would be the difficult part would be to make an interface that provides these services in a manner that is simple and easy to use, and captures the deals substance. I, however, know it can be done, and the reason it hasn’t been done is that the budget for software developments like these have not been set out. Its at times like these that people should revisit our revenue model and rethink People, Ideas & Objects approach based on our projected budget.

Continuing on with the scenario of using the Work Order system across multiple producers. I will use this scenario to show how the Partnership Accounting modules integrated nature with the other modules of the Preliminary Specification provides value to these ad-hoc working groups. Also why they are such an important element of innovation in oil and gas.

We used the scenario in the context of engineering, however it could just as easily be used in the area of geology or any other area of oil and gas interest. It could also include the supplier or vendor marketplace to form a working group in that area. The importance of the way the Work Order works is that the producer or participant is able to designate how they are going to participate in the working group. Prior to their approval they are to allocate the source of the funds and where the costs will ultimately go as a result of their participation. This being conducted by each participant or producer in the working group, all within the same interface for the same Work Order in the People, Ideas & Objects Partnership Accounting module.

One of the most obvious areas that this interface will interact with the other modules is the Security & Access Control module. Access to the Work Order will need to be unlimited for a certain point in time and then need to be closed to everyone but the existing members of the working group. This will need to be an interesting point in time when the search for participants reaches a threshold and the people feel the substance for a working group exists. Then only those who are within the working group, or are subsequently granted direct access are able to participate directly in the working group.

With the Security & Access Control module we also inherit the Military Command & Control Metaphor that allows the people to impose a chain of command across the working group. This might be something that they want to do if they have a difficult task or a large group of people. The opportunity to do so is available to them if they so desire as this is part of the Security & Access Control modules core functionality.

The designation of the source of the funds and where the costs will go is coded directly to those accounts. This has the Work Order taking on elements of the Accounting Voucher module in terms of how it operates. Each producers accounting system will be charged, upon approval of the Work Order, according to the way in which they have coded the Work Order. Therefore in that instance it will take on many of the attributes of the Accounting Voucher module.

I see these working groups, as we have called them here, as an important element of how an innovative oil and gas industry identifies and solve the problems that it faces. Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? Clearly some companies are more effective at this process than others, but this research in oil and gas asks, is there a means for an organization to provide a quantum increase in its ability to innovate that leads to higher trajectories of performance based on production revenue per employee?

Having these working groups spawn at will without the bureaucratic and accounting logistical nightmare that they instill today will be an important first step in making the industry more innovative.

The complexity of the relationships within the Joint Operating Committees has to be captured and accounted for in the Partnership Accounting module of the Preliminary Specification. Whether we are talking about the various forms of contribution that a producer may make to the joint account, or how they may participate in a working group, the bureaucratic machinations of the accounting for these transactions can’t stand in the way of innovativeness of the producers.

The freedom to participate is inhibited by the fact that the business arrangements are difficult to capture and account for. What is needed is the ability to develop software that captures the substance of the manner in which the contributions are being made, and then the manner in which they are accounted for. That is the purpose of the Partnership Accounting module, to support the innovative oil and gas producer in the innovative actions they need to participate in. Once again Professor Giovanni Dosi points out specifically the need for the business aspects to support the technical aspects of the business.

Internalization and routinization in the face of the uncertainty and complexity of the innovative process also point to the importance of particular organizational arrangements for the success or failure of individual innovative attempts. This is what was found by the SAPPHO Project (cf. Science Policy Research Unit 1972 and Rothwell et al. 1974), possibly the most extensive investigation of the sources of commercial success or failure of innovation: Institutional traits, both internal to the firm - such as the nature of the organizational arrangements between technical and commercial people, or the hierarchical authority within the innovating firm - and between a firm and its external environment - such as good communication channels with users, universities, and so on - turn out to be very important. Moreover, it has been argued (Pavitt 1986; Robert Wilson, Peter Ashton and Thomas Egan 1984) that, for given incentives and innovative opportunities, the various forms of internal corporate organization (U form versus M form centralized versus decentralized, etc.) affect innovation and commercial success positively or negatively, according to the particular nature of each technological paradigm and its stage of development. p. 1135

Capturing the context of the deals made in both the Joint Operating Committee and working groups as described here in the Preliminary Specification can’t be done on an historical basis. What is needed is for the software to be sophisticated enough for the dealmakers to be using while formulating the deal, to capture the substance of the deal, so that it will be used to allocate the costs and charge their accounting systems for these costs when they are incurred. Then and only then will the accountants have a chance of keeping up with the speed and innovativeness of the industry as it is contemplated here.

This is the necessary part of the People, Ideas & Objects software development team and most importantly, the user community. It won’t be too difficult to capture the multiple and myriad ways in which a deal can be formulated. The algorithm will be complex but with time and money it can certainly be done. The real difficult aspect of making this critical part of the Partnership Accounting module work is the user interface. Having the ability of the user to intuitively use the module to capture their understanding of their part of the deal, capture it in the People, Ideas & Objects system and account for it on that basis. That is what is necessary to make this innovation possible.

There was one area that I thought that we needed to go back and clarify. It was in the area of budgets for the work that might be done in various projects through the Work Order system or in AFE’s. I thought that we should add another data element to the budgeted information, an “Unallocated Budget $” which reflects the amount of the budget that has not been spoken for.

We discussed previously how a number of producers would collaborate on a project to conduct some research. The Work Order system of the People, Ideas & Objects Partnership Accounting module enabled the producers, who may not have been affiliated in any form or fashion until this working group was formed, to be able to form and contribute to the project. The capturing of the meeting of the minds was the objective of the Work Order system, in that it would capture the manner of each producer's contribution and method of payments at the time the project was being formed. This enabled them to be free of the bureaucratic difficulties that come along with participating in these types of working groups. The accountants have a capacity to make participation in these more difficult than they are worth, and therefore, the working groups are avoided. The reason that we have to cut through the bureaucracy and encourage the use of working groups is that participation in these types of activities are critical to an innovative oil and gas industry.

The way that the interface for the Work Order will work is there will be two elements to the accounting interface. One will be the accounting for the costs. This will list the costs of the working group and your working interest share based on your participation rate. Fairly simple so far. The second element is where the problems come about. The participation can be funded from a variety of different sources and contributions. Some will have a key piece of research that is the foundation of the project. Some will contribute time and some will be able to contribute cash. The combinations and permutations are really unlimited. The one constant in these contributions is that they all have budgets. The second element will identify the source of funds or contribution that is to make up your participation in this working group. It will need to be determined if that means cash will be transferred from your firm to others by simply clicking on a box in the interface. Once all of the producers have completed their interfaces the balancing of the Work Order will be attempted with any variances worked out to determine who will make up any shortfalls. Once all the shortfalls are resolved the work can begin.

The issue of the budget is the point of this discussion and remains somewhat outstanding. How does the user know that the account that they want to draw from still has budget dollars available? We need to have some numbers available to the user that tells them the amount that is in the account, the budget for the account, and the amount that has been committed to other working groups but has not been expended yet. Enabling the user to not overextend that account and find that they can not use it when the time comes to pay the bills. And once they have made a claim on those resources, by selecting that account for use in a Work Order, that their Work Order will have a priority claim on those budgeted resources. Therefore when the user in a Work Order or AFE in a manner such as described here, sources a budgeted amount for use in a working group, that budgeted amount, upon approval of the Work Order, is allocated to that working group.

These are the beginnings of how the Work Order system will provide the innovative oil and gas producer and Joint Operating Committees with the ability to increase their innovativeness. The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

A Quick Journey Down the Work Order Part I

As a small example of how the Preliminary Specification enables greater levels of innovation I want to point out the Work Order Systems interface. It provides the opportunity for producers to collaborate on the earth science and engineering disciplines in terms of projects and working groups. The projects and working groups are something that are believed to be a critical aspect of what an innovative oil and gas industry will need to be involved in. Therefore for the next two days we will provide an understanding of how the Preliminary Specification handles these.

We are discussing the role that the Work Order system would have in clearing up the administrative minutiae of the accounting related issues of the Partnership Accounting module in the Preliminary Specification. I want to continue on with that discussion and ask what that has to do with innovation? Lets look at the Work Order system from the perspective of a successful producer who is active in the marketplace and has developed an earth science and engineering capability that scores well in terms of Revenue Per Employee. The CEO is approached by one of the engineers who hears of several other producers who are conducting a study on something of interest to your firm. They are looking for other participants to join in and you want the engineer that brought the news to join in the project. Assuming everyone of the producers was using the Work Order system they would be able to pool the resources they have within the Work Order that was setup to manage the project. You were able to commit to a 10% share of x costs and would offset those costs with your engineers time and use of office space and some computer resources. (Note all costs are pre-approved and budgeted from other accounts.) With the Work Order you were able to make these commitments subject to the other 90% being committed to, and then your approval would be automatic.

We have here the means of which the people who are working within the industry to commit to programs and projects in a manner that is natural to their business. This is the way that the systems should be working today. What we have is an impediment to the operator in the industry who feels that participation in the study with the other producers would be worthwhile, however, the accounting and approval nightmare will haunt him for the next three quarters and subject him to such regulatory oversight as to question his moral integrity. So instead the project doesn’t get proposed, funded, participated in or done.

In Professor Dosi’s paper “The Sources, Procedures and Microeconomic Effects of Innovation” he discusses the role that such administrative minutiae have on innovation.

The discussion will aim to identify (a) the main characteristics of the innovative process, (b) the factors that are conducive to or hinder the development of new processes of production and new products, and (c) the processes that determine the selection of particular innovations and their effects on industrial structures.

In our example the financial resources are there. The motivation exists within the organization to do a spectacular job on the project. What happens is the bureaucracy gets in the way and slows things down and makes it a task that requires superhuman effort to even try. And maybe one or two projects will get done each year on the basis of sheer will. But what is needed is the ability to conduct a volume of projects that is far in excess of one or two, and that is beyond the scope of the organizational context as the producers are organized today. Without the ERP systems to define and support these innovative processes, these processes will not spontaneously appear.

Let’s continue on with the scenario that we have been discussing regarding the Work Order system in the Partnership Accounting module of the Preliminary Specification. We discussed how one producer could participate in a study with other producers by setting up a Work Order to capture their involvement. Their contribution involved one engineer, some office space and computer time. That they would contribute some cash was also a possibility as they signed on for a total of 10% of the projects projected costs. I want to talk about the other producers involvement and how the Work Order system, being a multi-organizational system, is able to capture the different ways in which each producer will participate and account for these differences within the People, Ideas & Objects Partnership Accounting module.

The emphasis is once again on the ability of these producers to innovate. The collaborations and interactions between producers and participants in the industry will be the source of many of the innovations that occur in the future. The impediment to doing these as a result of the bureaucracy and the current suite of accounting systems in use in the oil and gas industry is what I want to draw a contrast to in this scenario using the Work Order. Its time in this day and age that the systems become as complex and as sophisticated as what is being described here so that the innovation in the earth science and engineering disciplines can occur. Professor Giovanni Dosi expands on this point further in the following quotation.

Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

Within the project that the producers want to participate in. Some want to contribute a variety of different resources, some have specialized capabilities that are critical to the project and others are more or less along for the ride and are willing to participate by paying cash. Some have an AFE that has been approved that can direct the funds to pay for their participation. Some will incur the costs as part of their annual payroll budget for engineering. Still others have a working interest partner that are willing to share the costs over a number of Joint Operating Committees. The combinations and permutations of how a Work Order gets financed and funded are unlimited when we consider the number of different ways producers can participate.

Now to have a Work Order system that takes the information from these various parties and assimilates the understanding of the deal from the five or six people who have the “meeting of the minds” to initiate this project is the critical point in which to start. Each needs to codify their understanding of how their participation of the costs are funded and costed to their People, Ideas & Objects Partnership Accounting modules Work Order. All of the participants are using the one Work Order that is shared across all of the producers. This agreements understanding needs to be captured within the Work Order system prior to its approval by all of the producers. Much like an Accounting Voucher in the Preliminary Specification the costs need to be coded, but also the sources of the funds need to be identified. This way the system can process the charge within the firm in the manner that it was expected to be. For any charges that are above the threshold that a firm was willing to commit to, that imputes that another firm's cash commitment would be provided to cover those costs. The Work Order should make these cash transactions between these producers as a result of the approval of the document. The point of the exercise is that once the Work Order is approved, the understanding of the deal, as captured by the interface, is executed.

Tomorrow we will continue our discussion of this important topic of how innovation is initiated in the oil and gas industry. The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

A Brief Synopsis

The Preliminary Specification is an eleven module software application that is designed to support the innovative and profitable oil and gas producer. It will be built with Oracle technologies on top of Oracle Fusion Applications. Its key organizational construct is the industry standard Joint Operating Committee, the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. By moving the compliance and governance frameworks of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee. The Preliminary Specification achieves a speed, innovativeness and accountability in the producer firms and Joint Operating Committees.

This simple alignment has significant repercussions across the industry. Hardly any position that is involved in the day to day of the oil and gas industry is unaffected by the changes of moving to the Joint Operating Committee. This includes the oil and gas industry and the service industries that support the oil and gas producer. It also affects what we call service providers, a new sub-industry of process oriented organizations that provide services to the oil and gas producers and particularly, the Joint Operating Committees. These service providers are critical to the changes made in the industry to increase its profitability.

Innovation in the earth science and engineering disciplines are enabled in the Preliminary Specification. The research that preceded the Preliminary Specification determined what was needed in an organization in order for innovation to be enabled. These elements have been implemented into the software that is the Preliminary Specification and will be available to the producers that use the software. Innovation is as much an engineering discipline, and it can be reduced to a defined and replicable process if the organization is designed to enable it. The Preliminary Specification has taken this approach.

One of the key elements of the Preliminary Specification is the use of the “decentralized production model.” Use of this model enables us to provide the industry with the majority of the $94 billion in 2012 opportunity costs. It sees the producer firm stripped down to the C class executives, earth science and engineering resources, some legal and support staff. The remainder of the firms resources are allocated to service providers who are focused on the industry wide process, or subprocess. There they can apply the toolset of the division of labor and specialization to the global or industry wide data set as their client base. Billings for their services will be charged directly to the Joint Operating Committees in the month they are incurred.

The real value of the “decentralized production model” comes about when the Joint Operating Committee decides to shut-in production due to commodity prices not meeting the marginal costs. It will be at that time, when there is no production, that none of the associated overhead that is usually incurred by the service providers would be processed. And as a result no billing for that month will be sent to the Joint Operating Committee for the usual overhead costs. Therefore the property will have no production, no production costs and no overhead incurred during times it is shut-in. Only the costs of capital will be uncovered. This will reduce the downside to commodity prices as it reduces the commodities supply. And it reduces the losses on the property that would otherwise have to be added to the reserves costs to be made up in the future. If the industry were to adopt the Preliminary Specification they could mitigate the current natural gas pricing declines and deal with the prolific nature of the shale gas formations.

These are just some of the highlights of the Preliminary Specification. There are many more contained within its 175,000 words and the pages of this blog. I would encourage you to have a look and see for yourself if this is something that the oil and gas industry needs for today and the future.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Some of the "What" and "How"

When it comes to the future organizational configuration of the oil and gas industry. “What” and “how” are the two key questions to ask in terms of its configuration. The Preliminary Specification uses the Joint Operating Committee as the key organizational construct in order for the industry to focus on its innovative and profitable needs. Those would be a large part of the answer of “what” is required. “How” it obtains these is through the Preliminary Specification and maybe most importantly, through the cultural ways that the Joint Operating Committee is used throughout the industry. We are moving to the cultural norm of the industry as the key organizational construct, and building the systems that identify and support that organization and culture. A radical shift in the way the industry is managed, to one that is consistent with the industry makeup.

Change within the industry is happening at a rapid rate and the current bureaucracy are at a loss to deal with the issues and opportunities. The earth science and engineering capabilities are moving faster than the organizations ability to address the changes. The best example is the shale revolution bringing on deliverability issues that are unidentified and unaddressed by the bureaucracy. We would expect that once the earth science and engineering resources are unencumbered by the bureaucracy that they will accelerate their capabilities even further.

The constraints to these resources may not be obvious at this time but there would be many. The critical resource constraints of time and money are controlled by the bureaucracy and they are expert in allocating the limits of time and effort. In an industry based on engineering principles, time and effort is a principle of unlimited expenditure. However, the unnecessary cutting off of time and effort in the time of the shale revolution and other discoveries is a destructive process, not one in which builds value. The future of the industry will be based on innovation in the earth science and engineering arenas and will be profitable to those that can compete on the principles in these disciplines.

Having an organization that supports this type of producer will be the organization that we set out to build today. It will be the organization that we set out to build the software that identifies and supports that organization. If we set out to build that software today we can have that industry tomorrow. It’s that simple. These are the steps that need to be taken in the 21st century for the innovative and profitable oil and gas industry. It doesn’t happen by chance anymore. That was in previous generations. The world has become too complicated to leave it to chance. There are too many vested interests that are working against the best interests of everyone to have the right things happen.

With the opportunity costs being $94 billion for the calendar year of 2012. The time is well past due that we begin down this road. The costs of these developments are incidental to the costs that the industry is already incurring by employing tired and outdated modes of organization. The Information Technology revolution is here for the oil and gas industry and its name is the Preliminary Specification, brought to you by People, Ideas & Objects. These are bold claims based on innovative ideas inherent in the Preliminary Specification. Ideas such as using the Joint Operating Committee as the key organizational construct and many others.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Recalculating the Opportunity Costs

It is reasonable to assume that the bureaucracies yet unannounced “Behemoth” system will maintain the organizational layout that has served them so well since the 1960’s. Why not keep what has been in place for fifty or more years for fifty years more. The fact that the overhead burden is making the industry less dynamic and incapable of dealing with natural gas deliverability issues is of little concern to the bureaucracy themselves. Thinking of new ways, or even changing to the Preliminary Specification which provides a solution to the problem, would be counter to their best interests.

It will be interesting to see if the Preliminary Specification can overcome the inertia that is the bureaucracy in the oil and gas industry. We have quantified the issue at $67 billion for the 2012 calendar year based on the Preliminary Specifications ability to remove the marginal natural gas from the marketplace and effect an increase in the overall price. The impediment to doing this is the producers overhead structure is fixed and as a result looks distorted when there is any reduction in production. Therefore they continue to produce at capacity and take the price declines as an industry trend in which they have no control over. The problem is that the industry recently indicated that they would recommend a price of $6.70 per mmbtu as what the industry would want for a healthy natural gas business. I had calculated the $67 billion opportunity costs for 2012 at $5.50 per mcf. If the industry needs the higher price then we would need to remove an additional five percent of the production and therefore the opportunity costs would be in the range of $94 billion for 2012 alone.

In theory the Preliminary Specification is just an idea the bureaucracy will say. And without “Behemoth” they have no response to the idea. And remember, they will have to respect that idea when they go to build “Behemoth” as the “ideas” inherent in the Preliminary Specification are copyrighted. So how will they find a solution to these natural gas pricing issues that they have lived with and have not recognized now for almost three years. It has become pretty obvious, and I have to say that the bureaucracy is pretty bold these days. The question will remain how much longer will natural gas prices remain depressed using the business model that the bureaucracy is employing?

If you look at the U.S. Energy Information Administration chart for Monthly Dry Shale Gas Production you will see that this natural gas pricing problem will not go away with the prayers of the bureaucracy for one more cold winter. Since January 2007 production has shot up from about 2.5 BCF / day to approximately 27.5 BCF / day today. That accounts for almost 40 percent of the U.S. marketplace. The point is that all the gas, whether it is conventional or unconventional, needs the $6.70 / mmbtu in order to be profitable. With prolific formations such as shale gas, a new business model is needed in order to produce the natural gas at a profit.

And the Preliminary Specification is that business model. It reduces the producer to the C class executives, the earth science and engineering resources, some legal and support staff. The remainder of the resources are allocated to service providers who are focused on industry wide processes. This focus enables them to use the scope and scale of the industry wide client base to use the division of labor and specialization to provide the most efficient and effective solutions to their clients the Joint Operating Committees. Therefore when the Joint Operating Committee determines the property is to be shut-in due it not meeting its marginal costs, the costs of the service providers are not incurred and the properties production and overhead costs are not incurred during times when production is shut-in. Only the costs of capital are uncovered during times of shut-in production. This removes the marginal production from the marketplace and therefore reduces the downside swing in natural gas prices. And stops the losses that would otherwise have to be added to the reserves costs. Losses that will not have to be made up or earned in the future. A far more reasonable business model, but one that requires that the Preliminary Specification be built in order to define and support the innovative and profitable oil and gas producer.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

It's the 1960's

As much as we discuss the concepts of the division of labor and specialization. They are an important tool kit of the Preliminary Specification in providing value to the innovative and profitable oil and gas producer. Looking at the organizational structures of the oil and gas industry today does not reflect too much in terms of differences from the oil and gas producers of the 1960’s. You would have thought that in those fifty years there would have been some changes. It is appropriate to ask today is this same organizational structure the one that will provide the value generation for the industry in the future? If not then the tools of the division of labor and specialization are the means in which to generate that value.

Our current corporate model which focuses on the compliance and governance elements of the business have become distortions of what the innovative and profitable producer should be. The bureaucracy have become well briefed in the requirements of Sarbanes Oxley and other requirements and have these concerns front and centre in terms of their priorities. The business of the business, the Joint Operating Committee, is of little concern and is generally ignored. The focus and concern is of the corporation as a lone entity operating as a single entity. Its partners are non existent and the business of the business is as foreign to them as the people who reside in the earth science and engineering departments.

This separation and division of the organization between these two groups has been growing for the past fifty years. And is unnecessary. Compliance and governance should be the result of the focus of undertaking the business of the business. So what is the bureaucracy doing? A reasonable answer to that question is that it is a make work project. Much of what their domain of operations consists of can be automated and their role in the organization eliminated. But then that is why they are fighting so hard against People, Ideas & Objects. They don’t want anyone to hear this. Moving the compliance and governance frameworks into alignment with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks is earth shattering. This alignment will have profound effects on the performance of the organization.

Adding to this alignment the division of labor and specialization that the software development capability that People, Ideas & Objects provides will bring further efficiencies and effectiveness. All economic development has occurred as a result of the changes made in the division of labor and specialization. To take the next step, from the organizational focus of what we have been trapped in since the 1960’s, needs the further definition being defined in the software. If you want to make a change in our organizations you must make the change in the software the organization uses first. Only then can the organization change.

The bureaucracy are aware of this and have used this knowledge to secure their future. They have not and will not sponsor any changes to the software as that would impose changes on their franchise. A very convenient situation. Do nothing and your salary and retirement benefits are assured. You only have to persevere through the brutally boring and increasingly maddening day to day.

The financial crisis showed us that the old ways were not working any more. As soon as we recognize that fact and make the changes that are necessary we can begin building value again. And the first step in building value is to organize ourselves for success.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Supply and Demand of Industry Technical Resources

Another key issue that the Preliminary Specification addresses is the shortfall in the sourcing of earth science and engineering resources. It is believed that the staffing of these key people will be in a shortfall for the foreseeable future. The difficulty is that you just can’t train additional resources in the short term. It takes decades and the number of people that are oriented to these professions are limited. Therefore a solution to this problem is difficult to prescribe and the cause of the shortfall would be complex. Here is how the Preliminary Specification sees the issues and how it has resolved the problem.

Much of the difficulties comes about as a result of the designation of one of the partners in the Joint Operating Committee as the operator. The producer who is operator is usually the operator of many properties and has developed their earth science and engineering capabilities to meet the demands for any and all contingencies that might occur for any of the properties that they are responsible for. In this day, with the broad scope and scale of the earth science and engineering specializations this is a very difficult aspect of a producers internal capabilities development. They are required to have just in time capabilities that are available for contingencies that are not budgeted for or planned. Building these organizations requires that they have at any time unused and unusable surplus capacity within the earth science and engineering disciplines to meet their overall demands.

Replicating this same organizational development across the industry in each producer we have additional unused and unusable capacity developed in each of these producers. So that on an industry wide basis there is substantial unused and unusable earth science and engineering capability that is unavailable to be used as a result of the way in which the industry organizes themselves around the concept of operator.

If we also look at the future of these organizations we understand that specialization and the division of labor is one way in which to resolve the shortfall and increase the productivity. However, if we apply these principles to the operator model we will find the scope and scale of the capability of the producer firm to expand further, and only exacerbate the problems that we are facing today. Specialization and the division of labor are a necessary aspect of the solution however what is needed is to resolve the method of organization and the elimination of the concept of operatorship.

Within the Preliminary Specification is the concept of pooling which has been developed to replace operatorship. It sees that the partnership which is represented by the Joint Operating Committee pools their technical resources to make up the earth science and engineering capabilities that are necessary. Each participant in the Joint Operating Committee are focused on different specializations in terms of their earth science and engineering capabilities. And as a result with the pooling they are able to cover off large areas of the necessary capabilities needed. Additional resources can be sourced from the marketplace. These being more of the generic or non critical tasks.

The Preliminary Specification enables this pooling through a number of collaborative interfaces and particularly through the Research & Capabilities and Knowledge & Learning modules. The overall strategy being the deployment of the right information by the right people at the right time. This is how we see the demand and supply of earth science and engineering talent rebalance itself for the long term and the producer address the needs of the energy consumer.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Scope of the Service Providers

I commented that one service provider might be employed in providing the royalty calculations for the Texas Railroad Commission in yesterdays post. That would be a fairly broad scale and scope for one service provider to undertake. And with the royalty process being made up of a variety of sub-processes I would think that many of the sub-processes would be able to be managed by their own service providers. Taking the division of labor and specialization a step further. The point of the exercise is that with the industry being approached as one client in terms of the data set, the process and its management will provide ample opportunity for the service providers to expand on the service and provide it at the lowest possible costs. Having the royalty processes managed by a variety of service providers would be the optimal solution in my opinion.

We have also discussed the capability with the People, Ideas & Objects Preliminary Specification to have the costs of these service providers, for the overhead incurred, charged directly to the Joint Operating Committee. So that when the property is shut-in these costs are not incurred and the property has no production or overhead expenses. It is important to note that the actual charges for the overhead costs are charged based on standards and are created based on tasks and units of work that are completed within the system. When the service providers are working on their processes they may not know that your property has been shut-in as it is not pertinent to their work. However, because the system is generating the invoice for the Joint Operating Committees for the unit of work in the tasks completed by the service provider, no invoice would be generated for your property for the months that your property is shut-in. This will not take the conscious attention of someone to turn off the billing for your property.

The service providers revenue may be diminished by the amount of the service fees for the months of shut-in production. However, it may be that only 10% of the production will be shut-in at anytime during the year. It won’t be a difficulty for the service provider to manage their budget on an annual basis to accommodate these fluctuations in their revenue. This will be a cost associated with the business and can be dealt with in the normal course of business. It will be necessary to ensure that the service provider does not move to a monthly fee for service in order to smooth out their revenues. As that would defeat the entire decentralized production model that the industry is working to establish through adoption of the Preliminary Specification.

In one example of how this would operate would be with the service provider who determines the eligibility of capital costs for gas cost allowance for the Texas Railroad Commission. They would have as their domain all of the capital costs that were incurred by the clients who use the People, Ideas & Objects systems. And have worked with the developers to define very clearly the cut-off between eligible and ineligible capital costs according the regulations of the TRC. Each ineligible item is reviewed by the service provider to ensure its ineligibility and this validation notes a completed task within the system. At the end of the month the tasks are summarized by the service provider and the billings are prepared and sent to the appropriate Joint Operating Committees. In this case a small charge for the review of the capital charges eligibility for gas cost allowance is automatically generated on the basis of the unit of work completed in the task network.

And that is all that that service provider does. So in terms of eligible capital costs based on the TRC, they could write the book. The producers using the system are assured they are paying the lowest possible gas royalties and that they are calculated correctly and at the lowest possible costs due to the efficiencies of the system. This is how I see the processes managed in the industry with the Preliminary Specification.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

Dealing With the Producers Overhead Burden

In yesterday’s post we discussed the approach that People, Ideas & Objects were taking in providing software solutions to the oil and gas industry. One that is more consistent with an approach of a Google in terms of its size than what has been seen in the past. What has happened in the past has been very technologically focused and limited in its scope and scale in terms of its functionality. Our proposed budget is an order of magnitude larger than anything that has been developed in the industry to date. This is necessary to address the impact that using the Joint Operating Committee has on the producer, the service providers and the service industry. It is also as a result of the greater role that Information Technology plays in the day to day, and strategic aspects of the oil and gas industry.

Information Technology should not be seen as a cost but as a strategic tool to aid in all aspects of the business. People, Ideas & Objects claim that we provide the producer with the most profitable means of oil and gas operations. And we do, which can be proven by reviewing the Preamble of the Preliminary Specification. There is no other way in which the industry can organize themselves to attain the benefits that are defined in the Preamble. Software is a necessity in today’s society and it is certainly a necessity in terms of defining and supporting the innovative and profitable oil and gas producer.

Just from a specialization and division of labor point of view. And it should be noted that these two tools are the manner in which all economic value have been created. We can’t move to a higher level of specialization and division of labor from the levels we currently enjoy because the software we use has us stuck where we are. We could try and make some changes, but without the software being changed first, any changes will fail. We live in time where the software has to be made to change first before the organizational changes are made. Only then will we have success in terms of the definitions of new specializations and division of labor.

The Preliminary Specification makes heavy use of specialization and the division of labor. In essence the entire administrative aspects of the producers are reorganized to enable a greater specialization and division of labor. One that will enable a focus on the process or elements of a process. And enable that process to be specialized by using the entire industry scope and scale of processing. So for the Texas Railroad Commission there may be one service provider providing royalty calculations for the entire industry. And they will be so specialized as to be able to provide the services to all Joint Operating Committees in a manner that they can guarantee that they are the lowest possible royalties under the guidelines, correctly calculated and calculated at the lowest possible costs.

This type of reorganization across the industry is what is required for the 21st century. The producer themselves need to focus on the earth science and engineering aspects of the industry. For them to be proficient in the Texas Railroad Commissions royalty guidelines, SEC, Tax and myriad other regulations and requirements of an oil and gas producer today, within their own four walls is an administrative nightmare and a cost burden that is destroying the profitability of the industry. We therefore have to turn to the standard tool kit of economic development to deal with this problem. Specialization and the division of labor applied to the administrative minutiae of the oil and gas producer is what is resolved in the Preliminary Specification.

What is needed therefore is a different approach so that these administrative changes can take hold. That requires the software changes first, and that requires a different scope and scale of software development than that which has been undertaken in the oil and gas industry to date. People, Ideas & Objects Preliminary Specification is measured to undertake that scope and scale.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.

A Different Software Development Approach

Once “Behemoth”, the yet unannounced systems development of the bureaucracy, is announced who will lead it? The difficult aspect will come about by trying to secure a unifying vision in which the industry can follow. Or in other words the point that the Preliminary Specification provides today. And remember they can’t use any of our ideas. But the bureaucracy are leaderless and visionless. They will have to strike a committee to determine what the needs of the industry are... And we have all been there, seen that.

One of the benefits of People, Ideas & Objects and the Preliminary Specification is you know where it is that we are going and generally how we are going to get there. The eleven module specification sits on top of the Oracle Fusion Applications and Middleware stack on a cloud computing offering. The software developments are driven by the user community that uses the vision of the Preliminary Specification as their guide towards the final product. The necessary ingredient that is missing from this formula is the financial resources to make it happen. That is what these writings are about and are intended to generate.

The ability to fund the remaining developments are a challenge that is of the highest order. I not only like a good fight, I also like a challenge. The resources are tied up in the industry and harboured by a bureaucracy that sees their survival at stake if the development in the Preliminary Specification proceeds. And they are correct. Our appeal is to the remainder of the industry, and specifically the oil and gas investor who are disappointed with the performance of the oil and gas producers. The scope of People, Ideas & Objects software development costs are beyond the scale of anything that has been attempted before in the industry. This is of concern to the community that we are attempting to appeal to, as they see it as a cost to the business.

These software development costs should be seen as an investment in the business as we are providing the oil and gas producer with the most profitable means of oil and gas operations. In 2012 our business model would have provided an additional $67 billion in profits to the North American oil and gas industry. Bold claims that can be backed up by the review of the Preamble to the Preliminary Specification. Annualized these opportunity costs are of significantly higher value than the cost to develop the software defined in the Preliminary Specification. These costs are indeed incidental.

The scale of these software developments are an order of magnitude higher than what has been undertaken in the industry before. Providing software that is able to meet the demands of the industry will take a higher level effort than that which has been undertaken before. Software development in the past has been undertaken in a variety of ways that could be argued as a “cottage industry” approach. A few people sell a system to a couple of companies, and then try to market it to the rest of the industry. This approach has failed as a business model as the marketing to the oil and gas industry fails due to the small number of oil and gas producers.

Its not that People, Ideas & Objects approach has worked either. But I can assure you there are no more investment houses funding a couple of people with an idea for an oil and gas system. Our value proposition, noted in our Revenue Model, sets out why our approach provides value to the oil and gas producer. What is needed is something close to the Google approach to business. A large software development group. Funded by the ultimate benefactor. Free to the user to use. A different approach on a much larger scale. That is how the issues of the oil and gas industry will be resolved with People, Ideas & Objects software development approach.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.