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. 

OCI Resource Marketplace Module, Part V

 Software Development's Role

We now turn to the capabilities view of the Preliminary Specification. Capabilities are such a critical part of innovation and we have the Research & Capabilities module that focuses on the producer firm's capabilities. But what are they and where do they reside? We have shown how the Preliminary Specification would provide the capability to suspend production in the “Marginal Production Threshold Interface,” until the marginal costs of production are realized by the commodity price. By using the “decentralized production model," production and overhead costs are all variable, such as Production Accountants costs. These costs would not be incurred without profitable production. Maintaining firm profitability and saving reserves for a time when prices are better etc. This capability resides in People, Ideas & Objects software's ability to coordinate these actions. To the point where it’s asked which is more valuable? The oil & gas asset, or the software that makes it profitable? 

We have listed the firm's capabilities in the Research & Capabilities module. They are accessed through the Knowledge & Learning module by the various Joint Operating Committees. We have used the football analogy to describe how they are formulated and deployed through a variety of interfaces. However, we have not discussed the "Dynamic Capabilities Interface" pages. Let's first be clear, it is the Joint Operating Committees that employ the engineers and geologists from their various firms that run the project. These committees dictate why these modules are configured that way. The "Dynamic Capabilities Interface" contains information that is used to manage the service industry members in the Resource Marketplace.

But first let's identify the differences between what exists today and what needs to change in the People, Ideas & Objects Preliminary Specification. Professor Richard Langlois' research includes Transaction Cost Economics (TCE). The market model requires transactions between separate economic units. These transactions create “friction” in terms of the resources necessary to process the transaction itself. Therefore in the past, to avoid transaction costs, firms hired people as employees to perform a variety of tasks and only told them what was required in exchange for a paycheck. This mitigated the cost of paying someone $5.00 to type a letter each time it was needed for that task to be completed etc. By automating transactions with current Information Technologies, Langlois et al assert that transaction costs, such as paying an individual $5.00 for typing a letter, can be reduced to an immaterial amount. This discussion is particularly pertinent to the changes being made to the producer organizations' administrative, accounting and overhead resources being reorganized into service providers. This is also happening at a time that coincides with the fact that the hierarchy's scope of operations has spanned to an impossible level. The hierarchy must now make a choice, either fully integrate and take control of all means of production, or decentralize and let the market provide for the means of production. The Preliminary Specification assumes the latter. Through the Resource Marketplace module, the producer firm and Joint Operating Committee will be able to access and coordinate market capabilities. From Professor Langlois’ “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.”

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

And

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

In the Preliminary Specification, some of the elements have been captured in the interfaces. Additional interfaces would include the “Transaction Design Interface” in the Accounting Voucher module. And in the Resource Marketplace module we have discussed the three interfaces; the “Actionable Information Interface,” “Supplier Collaborative Interface” and the “Gap Filling Interface.” Each of these would be used in some fashion in the discussion of moving to a “decentralized production model.” There are however, many more elements of this research that we will discover and develop as we continue.

During the Preliminary Research Report I coined the phrase that “SAP is the bureaucracy.” Nothing turns an organization into cement like a good old fashioned SAP implementation. What an innovative oil & gas producer needs is an organization that remains open and flexible to innovation. It also needs software development capabilities as proposed by People, Ideas & Objects. As we continue our review of capabilities, this discussion will focus on the need for organizational flexibility in terms of capability. This is to accommodate innovations within the oil & gas producer, Joint Operating Committee and service industry organizations. A capability, similar to shutting-in production until prices recover, will be brought to the producer through the Resource Marketplace module of the Preliminary Specification.

First, the Joint Operating Committee is the key Organizational Construct of an innovative oil & gas producer. Having the legal, financial, operational decision making, cultural, communication, innovation, and strategic frameworks aligned with the compliance and governance frameworks is necessary. To have the Preliminary Specification built as software with a fully supportive user community, and service provider organizations will ensure that innovative producers' needs for change are met. To have all of this available without a dedicated long-term software development capability to accommodate the needed changes in the organizational structures of innovative oil & gas producers would only restrict future oil & gas organizations in the manner that software does today. And these software development capabilities are indeed necessary according to Professor Richard Langlois’ capabilities research.

The legacy of this "path-dependent” history, we will argue, has been a tendency (albeit an imperfect tendency) to respect an implicit dichotomy between the production aspects and the exchange aspects of the firm or, to put it another way, between production costs and transaction costs. p. 5

In the Preliminary Research Report we noted Dr. Wanda Orlikowski's Model of Structuration, which is based on Dr. Anthony Giddens' Theory of Structuration, and by extension states that software defines Organizational Constructs. Therefore, within Orlikowski’s Model of Structuration, I assert that ERP software applications define, support and constrain organizations. Professor Langlois found a similar finding in his research.

Seldom if ever have economists of organization considered that knowledge may be imperfect in the realm of production, and that institutional forms may play the role not (only) of constraining unproductive rent-seeking behavior but (also) of creating the possibilities for productive rent-seeking behavior in the first place. To put it another way, economists have neglected the benefit side of alternative organizational structures; for reasons of history and technique, they have allocated most of their resources to the cost side. p. 6

If we want an innovative oil & gas industry, the first thing we should do is ensure organizational flexibility. Flexibility is necessary to ensure that we do not constrain ourselves unnecessarily, to define and support the behavior that we desire. This is the role that ERP software plays in the 21st century. People, Ideas & Objects brings this capability to the oil & gas industry. 

Coordination of Markets

Professor Richard Langlois researches the boundary between firms and markets. The Preliminary Specification relies on the Resource Marketplace module to provide capabilities to the producer and Joint Operating Committee from the marketplace. This is represented by the oil & gas service industry, subsequent tiers of industries and service provider organizations. How this boundary is formed, and its definition, determines the oil & gas industry's economic organization.

[I]t seems to me that we cannot hope to construct an adequate theory of industrial organization and in particular to answer our question about the division of labor between firm and market, unless the elements of organization, knowledge, experience and skills are brought back to the foreground of our vision (Richardson 1972, p. 888).

We have briefly discussed the determining role transaction costs have in how a firm operates. If transaction costs are high, the firm will seek to mitigate transaction costs by hiring employees to handle the tasks. This will reduce the number of transactions to a few paychecks. If transaction costs are low, as we are now seeing with Information Technology, the ability to source the work from the market, from the lowest cost producer is the ideal choice. Professor Langlois notes.

Production costs determine technical (substitution) choices, but transaction costs determine which stages of the productive process are assigned to the institution of the price system and which to the institution of the firm. The kinds of costs are logically distinct; they are orthogonal to one another. As a result, issues of economic organization - such as the boundaries of the firm - cannot turn on considerations of production costs. Present-day theory has not only brought into this view but has arguably reinforced the separation. p. 10

In a nutshell, firm boundaries cannot be defined by production costs. In order to organize its production, the industry will use transaction costs to determine whether the producer or the market generates the production cost. With the makeup of the oil & gas industry. Conducting detailed, logistically complex field operations in remote regions. Since conducting these operations internally has never been an option, defining the boundary between the firm and the market is not contrary to industry practice. We are applying Professor Langlois' theories to the oil & gas industry culture and determine the appropriate way forward. I think however, that the conceptual model of transaction cost economics considers that there will be “thicker” markets and an increased volume of transactions contemplated between the producer firms, Joint Operating Committees, and the marketplace. Thicker markets than the current service industry configuration. Using People, Ideas, and Objects et al Cloud Administration & Accounting for Oil & Gas software and services would result in these "thicker" markets developing. These are considered in the Preliminary Specifications Resource Marketplace module.

There is also the impact of changes within producer firms. Having the producer's footprint reduced to C class executives, earth science and engineering resources, and some legal support. With the remainder of the administrative, accounting and overhead resources being reorganized into an industry wide, variable cost capability provided by our user communities member led service provider organizations. These service providers will bill on the basis of our task and transfer networks. Transaction costs will be negligible due to the use of the various Organizational Constructs in the Preliminary Specification. These include specialization and the division of labor, the sharing of non-rival cost infrastructure, and the use of information technology.

Theoretically sound, but... That brings up the question of how are the capabilities needed to undertake significant and complex work coordinated? From Professor Langlois' paper 

As we will argue in more detail below, there are in fact two principal theoretical avenues closed off by a conception of organization as the solution to a problem of incentive alignment. And both have to do with the question of production knowledge. One is the possibility that knowledge about how to produce is imperfect - or, as we would prefer to say, dispersed, bounded, sticky and idiosyncratic. The second is the possibility that knowledge about how to link together one person's (or organization's) productive knowledge with that of another is also imperfect. The first possibility leads us to the issue of capabilities or competencies; the second leads to the issue of qualitative coordination. p. 11

And

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

If we consider the Research & Capabilities and Knowledge & Learning modules “Dynamic Capabilities Interface” as the starting document for how the firm can achieve a task. The actual implementation is in either the Research & Capabilities or Knowledge & Learning modules “Planning & Deployment Interface” which brings in the capabilities from the “Dynamic Capabilities Interface,” the Industrial Command & Control for the resources seconded to the project, and what is not clear in either of those modules, yet, is the resources from the Resource Marketplace module that will be the elements that complete the work in the field. A producer firm or Joint Operating Committee resolves Coase's qualitative coordination concern in the "Planning & Deployment Interface". It is ERP software as represented in People, Ideas & Objects et al that holds the producer firm organization, Joint Operating Committee and industry structure and definition. As a result, these are also constrained without defined permanent software development capabilities. This is necessary to avoid organizational deficiencies in a business model. 

Innovative oil and gas producers have their land and asset base, and coordinating the market for earth sciences and engineering capabilities as their distinct competitive advantages. What the Resource Marketplace module of the Preliminary Specification provides is the means for the producer and Joint Operating Committees to coordinate those capabilities from the marketplace. By integrating the Resource Marketplace module, we will make the supplier a key contributor to the producer's or Joint Operating Committee capabilities.

At this point we have the suppliers and vendors maintaining the key contact information for their firms in the “Vendor / Supplier Contact Database.” This is done to increase the accuracy of the information and reduce the time required for each of the producers to maintain the vendor contact data necessary and do so with each resource who may use that information. What will be required is for the producer to select the vendor as the supplier that the firm will use; either as a producer, or in one of its Joint Operating Committees. This tagging or designation method will be determined through a process that the People, Ideas & Objects user community determines. Upon selection in the “Vendor / Supplier Contact Database” it will bring in a variety of other vendor supplied data that will assist the user in the “Planning & Deployment Interface” of the Research & Capabilities or Knowledge & Learning module. Data such as their key field staff, operational staff and roles within Industrial Command & Control etc. This will also provide access to their calendars and other information if the resources were selected in the “Planning & Deployment Interface.”

What this denotes, and so much of the Preliminary Specification requires, is that the People, Ideas & Objects system is not a stand alone software application for one firm. It is a holistic industry-wide solution that spans the oil & gas industry and service industries that support it. In order to achieve this type of integration, it requires the level of cooperation reflected in the People, Ideas & Objects user community and Revenue Model.

The question also becomes how does the energy industry acquire its capabilities? For some time it has employed a hybrid market / integrated firm strategy that leaves it openly critical of its suppliers and vendors and is not working. Professor Langlois notes.

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

The consequences of economic change in oil & gas are clear, but where they will end is not.

If a profit opportunity requires a configuration of capabilities different from what already exists in the economy, the Schumpeterian process of creative destruction may be set in motion. p. 21

It is stated clearly in the Revenue Model of People, Ideas & Objects. Our core competitive advantage is that we provide the innovative oil & gas producer with the most profitable means of oil & gas operations.

Officers and directors of producers have caused significant destruction. To suggest that the Preliminary Specifications interfaces and the methods of innovation that are used in the Preliminary Specifications Resource Marketplace, Research & Capabilities and Knowledge & Learning modules will operate in an environment that is similar to what the oil & gas industry operates in today misses the point of how the industry will have to reorganize itself to undertake the workloads of the future. Advanced specialization and division of labor where increased throughput can be achieved from the same resource base. Most specifically, industry earth science and engineering resources. Additionally, it covers the service industries oil & gas field operations and service providers' administrative and accounting functions. How the task is completed today may be fundamentally different from how it is completed in the near future. 

Coordinating this group of disparate individuals and organizations falls under the Joint Operating Committees. Reliance on the market is the only conceptual model for the future innovative oil & gas industry. It is almost certain that attempting this task without software that identifies, defines, and supports innovative processes will lead to failure. Professor Richard Langlois in his paper Capabilities and Governance noted the following two points.

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

And

In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints [or software] as one's competitors is unlikely to translate into having the same costs of production. Generally, in such a world, firms will not confront the same production costs for the same type of productive activity. p. 18

Coordinating costs, and how that coordination is conducted are about to change. It will be those producers that participate in the People, Ideas & Objects user communities that will gain the greatest advantages. They will have their unique needs met, and be able to reorganize themselves to accommodate the software, and optimize their role in coordinating their capabilities. Producers' competitive advantages reside in their land and asset base and through the coordination of the earth science and engineering market. In a working paper entitled “Organizing the Electronic Century” Professor Langlois states.

Moreover, by taking advantage of a range of capabilities far wider than the boundaries of what even the largest firm can encompass, a network of specialist suppliers and competitors is better able to exploit the value of a complex and potentially modular product architecture. p.160

OCI Resource Marketplace Module, Part IV

 Decentralized Production Model

The Resource Marketplace, and all of the modules of the Preliminary Specification, adopt a decentralized production model. The oil & gas industry operates under a high-throughput production model. These two models are best described in Chapter 4 “The Rise of the Corporation” of Professor Richard Langlois' Book “The Dynamics of Industrial Capitalism” and are as follows.

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. p. 58

By adopting the decentralized production model within the Preliminary Specification the dynamic, innovative, accountable and profitable oil & gas producer gains flexibility in their operations. This allows them to deal with low oil and natural gas prices. This is provided by turning oil & gas producers' fixed administrative, accounting and overhead costs into the variable administrative, accounting and overhead costs of the Joint Operating Committee. 

Within the Resource Marketplace there are service providers who focus on providing services to the Joint Operating Committees in the industry. These service providers are former employees of oil & gas producers who were employed in the accounting, administrative and overhead areas of the firm. They will be reorganized across the industry so that they can focus on the process and apply their skills to their industry-wide client base. With this reconfiguration they'll be able to use specialization and the division of labor to enhance their service offerings to their producer clients 

The innovative and profitable oil & gas producer is reduced to C-class executives, earth science and engineering resources, some support and legal staff. The remainder of the producer's needs are satisfied by service providers who number in the thousands of individual firms and are very specialized in the processes that they handle and the skills that they provide. 

The Petroleum Lease Marketplace module has an interface called the Marginal Production Threshold Interface. This interface enables the Joint Operating Committee to determine when and if to shut-in production due to marginal costs not covered by revenues. When the costs are not covered and the property is shut-in the advantages of the decentralized production model are made available. The Joint Operating Committee holds the industry's operational decision making framework. Therefore, it has the authority to shut-in production to ensure producers remain profitable in all their operations to maximize overall profitability.

The example of how the decentralized production model provides innovative and profitable oil & gas producers with flexibility in their operations is as follows. The production, revenue and royalty accountants would have been removed from the various producers and reorganized into service providers that specialize in specific processes of those tasks. To cover the variety of skills and tasks within production, revenue and royalty accounting, it would include potentially hundreds of service providers. Providing specialized location-specific services to Joint Operating Committees. 

In the case of production accounting there may be a service provider who specializes in one geographical region located in a remote area. This provides them with a hands-on production accounting service to the various Joint Operating Committees and producers in that region. Revenue accountants may specialize further based on the products produced. Each service provider takes the unique requirements for propane, butane etc into consideration. And finally several service providers would have been formed to provide services for the various processes involved in calculating royalties for the various jurisdictions in which oil & gas is produced. 

Each of these service providers developed their services with People, Ideas & Objects software developers through our user community members. That service provider's principal. When activities occur in their network, such as production, efforts are made to complete tasks within the various processes. Successful completion of the tasks triggers billing of production, revenue and royalty accounting services to the Joint Operating Committee. When, as we noted earlier, the marginal threshold is crossed and the property loses money on production, the decision to shut-in the property is made. Then charges for production, revenue and royalty accounting services for the months where no production occurred would not be generated. No billings would be sent to the various Joint Operating Committees. 

This situation would be the same for all administrative, accounting and overhead charges at that shut-in property. It is easy to demonstrate the direct relationship between production and revenue using production, revenue, and royalty accounting charges. Using the Preliminary Specification producer firms would cease all operating and overhead charges during shut-in production, and only capital costs would be uncovered. Capital costs may include minor associated administrative costs such as the costs to process the lease rental payment. 

People, Ideas, & Objects et al.'s ability to make administrative and accounting overhead costs variable, based on profitable production, is a cornerstone of our value proposition. Untold trillions of dollars have been wasted and frittered away since the July 1986 oil price collapse that I attribute exclusively to North American producers. Overproduction is not just the act of over delivering product into a market with the characteristics of a “price maker.” Overproduction can also be defined as unprofitable production, consider the following.

The connotation of the economic term price maker has caused officers and directors to conclude that this is collusion. We argue otherwise when the Preliminary Specification uses the Joint Operating Committee and produces standard, objective, detailed, actual, and factual financial statements for each property. Producer firms will definitively know the “real” profitability of each property. A task that is not done today and cannot be done today. And therefore producers will independently decide to shut-in their unprofitable properties to make sure they attain the highest level of corporate profitability when unprofitable properties no longer dilute their profitable properties. Saving petroleum reserves for a time when they can be produced profitably. Maintaining the commodity as reserves ensures they don’t have to carry the incremental costs of unprofitable production. Keeping production and inventory costs lower by not producing and storing unprofitable production. Additionally, ensure marginal production is removed from commodity markets so that the marginal price of the product can be determined. Attaining the marginal price not only for the individual property but for all properties. Any production must provide replacement costs. Investors have stopped doing so and are no longer a source of funding. In a shut-in situation, the producer can use their innovative skills to restore the property to a financially viable state. Profitability is the only fair and reasonable method of allocating production. People, Ideas & Objects decentralized production models price maker strategy provides all the financial resources producers will need to meet their challenging future. It allows them to contribute to society productively and constructively. 

At the bottom of this Wiki Page is a graph from @Soberlook by Les Borodovsky. (My apologies, this Wiki does not place photos or videos appropriately and they are best left at the end of the page.) References to prices, break-even and shut-in prices are based on that graph.

Looking at this from the perspective of the producer's officers and directors. Their total cost of each barrel of oil produced in the various shale formations is $48 to $54. Operating and royalty costs vary between $28 and $37. I would point out that the $18 to $23 in capital costs are based on an allocation of their capital costs across the entire reserves of the property. We’ve argued that this allocation is unreasonable in a capital market where the demands for capital performance are far greater than what can be achieved when a producer cycles their cash through their investments in a manner that retrieves their investment over several decades or more. This is further exacerbated when shale exposes prolific reserves, however it requires additional capital to offset steep decline curves to maintain deliverability. 

To reuse previously invested cash, People, Ideas & Objects recommends that producers retire their capital costs within 24 to 30 months of the property's life. In turn, it provides them with the means to meet their demands for future capital costs, shareholder dividends and bank debt repayments. In addition, they can better match shale's rapid decline rates. This can only be done if the producer sells their commodities at a price above their break even point. This considers an appropriate accounting of operations costs and a reasonable capital retirement. In a capital intensive business, capital would be the majority cost passed to consumers.

Based on the producer's current perspective, this graph shows break-even and shut-in prices. At any point, and as long as the commodity price covers the operating costs, the property would continue to produce regardless of the impact on capital costs. If a dollar of capital costs was returned, or one dollar above the shut-in price, that would enable property to continue production. Only at the point in time where the commodity price dropped below operating costs would the producer allegedly shut-in their production. This is a fundamental misinterpretation of the term break even. It is the reason the industry is struggling and why producers have lost money for four decades. Breakeven is not interpreted here. What the producer assumes is that as long as there is cash flow above operating costs, they’re making money and will continue to produce. What they’re stating is acceptable is that they may not be breaking even, but they’re generating cash flow.

Lately we’ve seen producers continue to produce without considering market prices. Selling oil for almost negative $40 during April 2020 was consistent with selling natural gas at negative prices. Or I guess those are payments for sales and not conventional sales. Or the first quarter of 2023 when natural gas traded in the range 30 to 1 to 40 to 1. Having reduced the price well below their "break even point" for extended periods of time, decades in most cases, is the consequence of officers and directors' inaction. Their behavior is unlimited. Their production discipline is to produce 100% all the time. They believe markets are magical and mythical. The market provides one thing, a price. If the price offered is profitable, produce. No blaming, excuses or viable scapegoats. 

According to People, Ideas & Objects' Preliminary Specification, if we could assume the accuracy of these graph numbers, the property would be shut-in at the breakeven point and below. The reason for this being the production discipline gained through knowing that producing any property unprofitably only dilutes producers' corporate profits. Producing below the breakeven point is unprofitable. Producing below the breakeven point for one producer, in an industry whose commodities are price makers, will drop the price of the commodities below the breakeven price for all producers. If all producers produce below breakeven prices for four decades, you have exhaustion of the industry's value. Times were only " favorable " when investors were willing.

To avoid the allegation of collusion officers and directors would have us believe that they were operating the industry within the law today. Losses of catastrophic proportions have been realized. Displacement of producer's financial resources over the long term is normal business for officers and directors. Imposing the destruction of their firm's assets and the capacity and capabilities of the oil & gas and service industries is the price to be paid. This is a “boom / bust” business. “If the Preliminary Specification is available to operate the business as a business, this is unnecessary and unacceptable.”

The inverse situation is provided by the Preliminary Specifications' decentralized production models price maker strategy during 2023 in North America. In an environment where the Preliminary Specification was operational, higher commodity prices would bring about higher production volumes that meet profitability thresholds. Therefore, incremental shut-in properties would be returned to production. Providing the dynamic, innovative, accountable and profitable North American producer with the most profitable means of oil & gas operations. The organizational objective is to satisfy consumer demand for energy with abundant, affordable and profitable energy. The value proposition of a barrel of oil equivalent is 10 to 25 thousand man hours of equivalent effort. Living without oil & gas is impossible in the most advanced society with the most productive economy. Yet, just as producers were forced to shut-in production due to almost negative $40 oil prices, they are required to bring on any previously unprofitable production that would have been shut-in under the Preliminary Specification to satisfy increased demand. Who should we look to for oil & gas? Apparently not the officers and directors. Operating the industry profitably, everywhere and always, would have enabled them to maintain the oil & gas industrial economy's capacities and capabilities. That People, Ideas & Objects were subjected to abuse and punishment for this and other content contained within the Preliminary Specification is evidence that officers and directors knew better. Since they knew our alternative was available, their method of management was threatened. They will need to live with their legacy of inaction.

Officers and directors ran the entire industrial complex into the ground over the past four decades. They also destroyed large percentages of service industries' industrial capacity, eliminating their capital structures. Go find a willing drilling rig investor or banker from a few years ago who saw the drilling rig they invested in cut up for scrap metal. Or a frac provider who had to sell their horsepower capacity. This was while producers whistled their uncaring and inconsiderate tune of “muddle through.” What I consider the equivalent of Joe Biden having the U.S. Embassy in Kabul display the Pride flag while overnight, and without notice exit the war zone. It is now incumbent upon producers to provide the financial resources to rebuild the service industry. The rule is “you broke it, you fix it.” Producers used and abused the service industry and now they’ll need to provide the money and backbone involved in the rebuilding effort, otherwise they’ll only use and abuse it again. Maybe when they rebuild the service industry, they’ll respect it. Producers do not have previously shut-in production, but they also lack the capacity to meet demand in the future. Whether it's a failure to make any real profitability or to meet market demand, we can certainly count on our North American oil & gas producer officers and directors to fail. 

With the costs associated with exploration and production, and particularly shale reserves, it's no surprise that producers report losses on operations. What is surprising is that producers have done nothing over this period to mitigate the overproduction that has caused price declines. This has caused subsequent financial losses, destruction of producers' reserves and oil & gas industrial capacity. The reason for this chronic overproduction is that the producers have to generate revenues to cover the out of pocket costs of the overheads they incur in the “high throughput production” model they employ. This model has these overhead costs for the producer firm whether there is production or not. As a result, their operation becomes high-cost at any level of production. At lower production volumes, earnings are skewed and overhead costs appear out of place. Therefore this behavior of producing at capacity should be expected to continue on both the oil & gas sides of the business. Even despite significant financial loss or inability to meet market demand. Although some producers report overhead costs of less than 2% in many instances this is not representative of the situation. We believe overhead costs range between 10% and 20% of revenues. The difference being capitalized to property, plant & equipment to sit for eternity. These itemized amounts are never detailed or discussed in producers' financial statements. Please see the Preamble section of this Wiki page regarding cash management and more detail on overhead.

It is through People, Ideas & Objects et al’s process that producers can attain production discipline. This is when they realize that maximum profitability can only be achieved by producing profitable production everywhere and always. Therefore, producers are motivated to stick with the Preliminary Specification price maker strategy. Just as all businesses in the capitalist system have followed these principles since the great depression of 1929. The individual decisions of each oil & gas producer, based on an actual, factual accounting of the property's profitability, will determine if the property produces. That is how the oil & gas industry needs to deal with low commodity prices. The inverse of this is also relevant. When commodity prices rise, producers will raise profitable production volumes by returning shut-in properties to the market. It is certain that shale-based reserves will always dominate the oil & gas commodity market due to their prolific nature and flush production. Production discipline focused on profitability can only be achieved through the reorganization of the industry and producers. A reorganization based on the Preliminary Specifications decentralized production model, detailed in the Specialization & Division of Labor Organizational Construct section. Our Cloud Administration & Accounting for Oil & Gas facility we are building makes overhead costs variable. Which enables our price maker strategy to provide for producers and tertiary industries profitability and ensure consumers are always provided with an abundant, affordable, reliable yet profitable source of energy.

A comprehensive description of the decentralized production model can be found on the Background/Decentralized Production Model page of our Wiki.