Talisman Energy Announce Layoffs

Straight from the 1980’s Talisman Energy’s President and Chief Executive Officer Hal Kvisle has promised to cut General and Administrative costs by 20% or $260 million. I guess that means about 20% of their staff will be shown the door. I can’t think of a more wrong headed direction to take the firm. It’s obvious that Talisman is going to report a bad quarter, which is going to lead to a very bad year. But that has nothing to do with the size and cost of the G&A that it is carrying. It has to do with a fundamentally outdated business model. One in which it continues to sell gas at well below cost.

Talisman has a choice. It could adopt the business model inherent in the Preliminary Specification and begin the developments to make themselves innovative and profitable.

The Actionable Information Interface.

We have been discussing the interactions between the service and oil & gas industries. And how these interactions need to improve to lay the groundwork for a dynamic and innovative oil and gas industry. As we mentioned yesterday a critical element of these interactions are the Intellectual Property that make up the service industries products and services. What is therefore necessary to initiate the development of those products and services is detailed in the research of Professor Giovanni Dosi.

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

In addition to the funds necessary to finance innovation there are what Professor Giovanni Dosi calls “technical trade-offs.” These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas and the service industries, People, Ideas & Objects would assert that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

Within the Resource Marketplace module there is the Actionable Information Interface. It is simply a database that is maintained by each company, both producers and service industry representatives, that detail their “actionable information”. If a drilling company were interested in purchasing a new rig then they would list this information in the Actionable Information Interface with the expectation that they could develop interest from producers in that region who would be appreciative of the additional capacity. The drilling contractor could then solicit contracts that would aid in securing financing for the new rig and all of this could be communicated through the Actionable Information Interface. What is different is that this is a central repository for all of this information. One could arguably search for this information today, however, since its centralized within one interface, certain information can be imputed from it. For example what would a service industry entrepreneur determine from the review of 200 producers actionable information? This is the beginning of innovation. And with knowledge and collaboration being part of the technical tradeoffs, the source of triggers to new paradigms in the oil and gas and service industries.

The expression of what is needed by the producers will help the service industry prepare the solutions the oil and gas industry needs. However the role of the producers in this process does not end with just the actionable information. They must actively engage with the service industry by endorsing promising ideas, help to commercialize products and services and as we discussed yesterday, respect the Intellectual Property that is being developed. Sitting back and waiting for the service industry to provide the producers with what they need, without the involvement of the producers, will only bring more of what they have now, dissatisfaction. Information about the Actionable Information Interface is contained in the Resource Marketplace module of the Preliminary Specification. There are also interfaces in the Research & Capabilities module that provide similar elements of how the producer develops their capabilities.

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

Change in the Resource Marketplace.

Change is one of the common elements in the Preliminary Specification. Change on a grand scale. The Resource Marketplace module is one area where we see a fundamental change in the manner in which the producers and service industry participants interact and depend upon each other. In yesterday’s post we noted the producers and service industry were not innovating and no new entrants were moving into the service industry. One of the reasons for this is that the Intellectual Property rights to the service industry innovations are not well respected by the oil and gas producers.

The big problems in oil and gas are not going to be solved until the incentive structures are aligned towards those that solved the problems. Who is going to spend the time, effort, energy and resources to solve the next big problem and secure it with today’s Intellectual Property laws if the oil and gas industry will just ignore the fact that someone took that time, energy and resources to do so. Today, in the service sector, the oil and gas industry exploits the lack of identifiable Intellectual Property (IP) by more or less ignoring it and passing it around to other firms in the service sector and its competitors. This lack of respect to those that developed the ideas has brought about a situation where the service providers have ceased to innovate or sponsor any new start-up firms as competition. The result of this is that producers are the ones that are losing, as they are unable to have their needs met by a diminishing overall capacity in terms of the service industry.

What is necessary is for the innovative oil and gas producer to focus on their key competitive advantages. Those being their land and asset base, and their earth science and engineering capabilities. The capabilities in terms of field products and services are best left to the service industry to build their competitive advantages upon. And if they have developed some new and innovative product or service it should be respected and dealt with as in the manner that the laws provide their owners. Then people within the service industry will see that if they spend the time, effort, energy and resources on their next idea; that they will be rewarded by the oil and gas producers when and if their product is successful.

Too many times I have seen the producers act in this fashion against what is their long term self interest. Sacrificing their long term benefits of an innovative and dynamic service industry for the short term gains of exploiting someones ideas. This only discourages people from solving the big problems. At a time when there are the issues that face the oil and gas industry today. Having a strong, innovative, dynamic and competitive service industry is a necessary element of the success of the oil and gas industry. But this will not happen without the oil and gas producers first recognizing the Intellectual Property rights that are the law in North America. Additionally the CEO’s of the producer firms need to stand up and state that they won’t accept this type of activity from their firm in the future. This needs to be a policy that starts from the top and becomes a culture of the oil and gas industry.

Within the Resource Marketplace and Research & Capabilities modules of the Preliminary Specification there are a variety of interfaces that provide for the effective and efficient management of Intellectual Property. From the formulation of ideas to the sponsorship of those ideas, there are ways and means for the service industry to be encouraged, directed and supported by the innovative oil and gas producers who rely on and demand more from a dynamic, competitive, innovative and successful service industry.

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

Designing Transactions in the Resource Marketplace Module.

We shift our focus to the Resource Marketplace module of the Preliminary Specification. What we want to talk about is the manner in which the service industry, the oil and gas producers and Joint Operating Committees will interact in the future. This has become an area where there are significant issues being raised and I would assert that it is an area of the current producers Unsustainable Business Model. We will be discussing these points in the next few blog posts, and to start off I want to raise the point of how the Preliminary Specification deals with the issue, by what we are calling “designing transactions”.

First of all lets look closely at the issue at hand. The producers are unhappy with the costs of operations in the field. To deal with the problem it would be in the producers best interest to sponsor some innovations that the service industry should develop, or alternatively, sponsor additional competitors to join the service industry. In both instances the producers choose not to provide any support to any innovative ideas or any new market entrants. Turning thumbs down to anyone and anything other than proven technologies and suppliers of size and scope. This has led them to be able to deal with the same handful of vendors who have willingly taken the criticism of the producers, along with their money. We witnessed this display of the producers accusing the vendors in BP’s Gulf of Mexico spill a few years back.

What we also need to realize is that the service industry marketplace will need to change in order to accommodate the needs of the innovative oil and gas producer. As was also determined in the Gulf of Mexico spill was that BP was ultimately responsible. There is little that a downstream supplier can do to a program that has been poorly engineered from the beginning. The ultimate responsibility in field operations is with the producer, and their means of control is through better engineering. Secondly, the service industry marketplace will be subject to the same specialization and division of labor that is working in other areas of the industry. There is too much work to be done without re-thinking how it is to be carried out. Therefore between the engineering and the service industry there will exist a higher level of transaction oriented activity that falls within the scope of the traditional administrative areas of the oil and gas producer and Joint Operating Committees. This work has been labelled “designing transactions” in the Preliminary Specification.

If we leave it to chance that vendor “a” will provide vendor “b” the details of part c and deliver it in phase 2 and have the transactions and billing associated with these types of relationships all established as expected, then we will be surprised. As the operations become more complex, the transactions will become far more complex. The ability to engineer the transactions before hand is the way in which the costs of processing these types of transactions will be mitigated. The producer can pay service providers to manage these types of transaction handling capabilities. Or, they can have them included as part of their ERP system.

Planning the effective and efficient deployment of transactions and billing processes doesn’t sound like a big labor saving device. Until one realizes the costs associated in dealing with the exceptions within the accounting world are where the real administrative costs lie. There are also significant transaction processing costs in the other departments associated with where the transactions originated and in executive time. And that is just from the point of view of the producer. Saving costs on behalf of the service industry representative will also ultimately be saved by the producer. The ability to plan and design the transactions with a few principles of cost savings and efficiency involved goes a long way to mitigate the costs, clear up the ambiguity and save the costs and frustration involved in fixing problems that are really just poor communication problems. Using the Designing Transactions feature of the Resource Marketplace and Accounting Voucher modules will go a long way in controlling these transaction processing costs.

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

Costs and Strategies Can Be Different.

When we look at the costs and strategies of the participants in a Joint Operating Committee we see these two things that are rarely the same. Each of the producers are pursuing their own strategic and tactical interests in the region and they may not necessarily be consistent with any of the other participants in the Joint Operating Committee. This will lead to different costs of capital and operating, and this fact is recognized and is consistent with the capabilities of the People, Ideas & Objects Preliminary Specification.

One or two of the producers in the Joint Operating Committee may have it as a key region and therefore have invested in infrastructure to support the production in the area. Other producers may be new to the property having recently purchased the property with no other interests in the region. Or, may have been with the property since the beginning but limited their investment to the producing assets. There are a variety of operational possibilities in terms of what could make up a producers interest in the region. These will have an effect on the costs of the property in terms of whether they pay for gas processing, or, are able to use their capacity in a gas plant. Naturally this reflects on the amount and types of capital investments they have made in the region. This also applies to their motivation of expanding their reserves or increasing their throughput. Therefore it is difficult to determine the costs and strategic makeup and motivation of the partners that are resident in the Joint Operating Committee that you are a participant in.

This lack of strategic transparency is something that exists in oil and gas. However, everyone’s motivation should be consistent. And that is to expand the return on investment in the properties that they hold in the region. That way consensus can still be attained with the various different strategies in play. The open collaborative ways of the Preliminary Specification. Particularly within the Knowledge & Learning module provide the opportunity for innovative producers to collaborate on the possibilities that are open to them. This can be done without exposing the strategic direction the producer firm is taking to the other members of the Joint Operating Committee. Assumptions can be made, and they may be correct, however, they may also be wrong. The companies strategic direction can not be interpreted through a more open and collaborative footing within the Joint Operating Committee.

One thing that is unique about the Preliminary Specification is the Strategy Interface within the Petroleum Lease Marketplace module. It contains the strategy that is held for the participants interest in the Joint Operating Committee. This may not seem to be too innovative of a feature within an ERP system, however, until you realize that each Joint Operating Committee within the producer firm has its own unique strategy. That’s correct the existence of one size fits all corporate strategies ceased to be effective some time in the past century. The innovative oil and gas producer must maintain multiple strategies for their properties at all times. Each property must be able to employ their own unique strategy in order to optimize the assets or reserves of that property. Generic corporate strategies are inappropriate for the 21st century and you must have an ERP system that can accommodate these needs. People, Ideas & Objects Preliminary Specification provides the ability to maintain unique strategies for each and every Joint Operating Committee through the Strategy Interface in the Petroleum Lease Marketplace module.

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

How the Intellectual Property Works.

In my previous post I noted how the Intellectual Property that is derived from the Preliminary Specification will form the basis of the competitive advantages of an industry that will form to fill a gap between the oil and gas producers and the technology providers. Today we want to discuss how that Intellectual Property (IP) is managed and is made available to the users and producers. First of all I am the beneficial owner of the IP that is the Preliminary Specification and I have and will only license one firm to develop systems for the oil and gas producers. That firm is People, Ideas & Objects. This will enable the producers to focus their energies and resources on one solution and not be diverted or diluted by pursuing multiple “me-to” type of solutions.

Producers pay for the use of the software and access to the IP through the Revenue Model. These revenues will support the user community, software development, hardware infrastructure, and delivery of the software services to the producers. Other costs associated with training, accounting integration, etc., will be additional costs that are incurred with members of this new industry. Users are not charged for the use of the software. They are provided access to the software through their employer / client, the producer firms.

People, Ideas & Objects are user based developments. Having systems built without the collective knowledge and understanding of how and what the industry operates is of little value. Individuals know how to do their jobs, however, there are hundreds of unique positions within oil and gas. The only way to capture that knowledge is through user based involvements. Users are therefore a critical aspect of development and a major aspect of the IP that is brought to the table. However, it is derivative of the Preliminary Specification. Therefore users involved in development will be granted a license where they are provided unencumbered access to the IP that is the Preliminary Specification in exchange for the IP rights to any and all of their contributions to the development.

This will ensure that the IP that makes this new industry is available to everyone in an unencumbered manner. That access to all of the IP by the user base remains freely available to all of the users. And producers are assessed a reasonable fee for the use of the IP. It also assures that the IP does not become fragmented and subject to various trolls who come up with portions of IP that they can charge producers for on a scattered basis.

Having the IP managed in this fashion provides this new industry with a unique competitive advantage. It provides us with the ability to raise the revenues to pay the users for their ideas and contributions to the software development. All users are paid for their work here. Producers are protected by dealing with one and only one software development team that is focused on providing them with the solutions they need. The industry can not afford to engineer multiple solutions of the scope and scale of the Preliminary Specification. The industry can not afford to deal with IP trolls that are more of a nuisance and provide no value.

Lastly having the IP resident in the oil and gas industry provides no value for the users or producers. Without the management of the IP in this manner there is nothing People, Ideas & Objects can leverage, we need to generate revenues based on the IP.

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

An Industry Based on Intellectual Property.

One of the things that we learned in our research was how the process of specialization and the division of labor expands over time. How do the changes occur and what signals are given for people to make the changes to expand the division of labor in an efficient way. We learned from Professor Richard Langlois that “gap filling” was the way in which specialization and the division of labor increased. When someone saw that a task was not being done, that would be of value if it was done, and the task was filled by someone then the process was complete. In an ever continuing process of improvement the division of labor and specialization continue to expand.

That is until ERP systems like SAP were developed. Then firms encased their processes in concrete in the interpretation of what SAP considered state-of-the-art. And no changes were ever able to be made again. This is why the industry needs to adopt the People, Ideas & Objects software development capability. To free themselves from the SAP encasement and allow themselves to freely innovate on their processes. And to expand on their specialization and division of labor to ensure that they realize the benefits from these powerful tools. In the Preliminary Research report I termed the phrase “SAP is the bureaucracy”. The management of the industry have used that knowledge to ensure they maintain SAP as their ERP system. In that way their franchise will never be challenged.

When it comes to gaps that need filling I see a large one between the technology industry that traditionally provides the ERP systems and the oil and gas industry. What I think needs to happen is that “gap” needs to be filled by an entire industry. One that is based on providing the technology solutions to the oil and gas producers, based on a fundamental understanding of the oil and gas industry. Not an industry that is based on selling the latest operating system or version of the database, but the Preliminary Specification or accounting integration that meets the needs of the innovative oil and gas producer. One that provides the software training or user support that understands oil and gas as fundamentally as the users themselves.

That would be one of the fundamental aspects of the competitive advantages of the people who work within this new industry. Their understanding of the oil and gas industry. Having worked and educated in the primary industry itself would give them a fundamental hands on understanding of the oil and gas business. Another aspect of their competitive advantage would be their abilities when it came to the technologies that are available today. Clearly some people “get them” and have a propensity to work within the core technologies of Java and Oracle databases that preclude large portions of the population. And there would be more. These people would have a third competitive advantage in that they would be licensed in the Intellectual Property that makes up what the industry is based upon and is derivative of the Preliminary Specification.

The current management of the industry do not accept that the Intellectual Property (IP) that People, Ideas & Objects has developed is needed as a competitive advantage for this new industry. They feel that the IP should remain within the oil and gas industry. I naturally disagree. The competitive advantages of the innovative oil and gas producer are its land and asset base, and its earth science and engineering capabilities. The IP that supports its internal processes doesn’t fall within the domain of their competitive advantages. I would also argue that the benefits of having the Preliminary Specification based IP managed in the manner that is proposed enables the industry to benefit in ways that are significant in terms of cost and quality. These will be the topics of tomorrows discussion.

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

The Work Order System for Operational Control

In this our second post to discuss the Preliminary Specifications, Partnership Accounting modules, Work Order system. We look at the tight operational control aspects of the system and how it enables producers and Joint Operating Committees to control the costs associated with the work that is undertaken within the various projects that have been approved. First of all, it should be noted that the Work Order system is not just for ad-hoc working groups and research projects that we noted yesterday. They are also for the type of work that is undertaken in Joint Operating Committees everyday. When an AFE has multiple aspects of a construction project to be undertaken and requires the ability to have budget, chain of command, Job Order, governance and cost control as part of each phase of the project, the Work Order system is a natural addition to the attributes of the AFE or cost centre.

How the Work Order operates is that the individuals who are assigned to work on a project are given the Work Order number to use when they are working on the project. While they are working on the project the system will accumulate their time and their costs will therefore be billed to the AFE or cost centre that is affiliated with that Work Order. Keying the Work Order number into the persons phone, iPad or computer will be all that is required to ensure that accurate records are kept. This would include people who work for the producer firm, members of the Joint Operating Committee, field staff and service industry representatives.

A critical part of the Work Order system is the Job Order system. A method of issuing and documenting the authorized activities within the scope of the Work Order. When a certain decision is to be made, then people will look to the Job Order system for the authorized documentation of when that decision was made by the authorized individual. Only then will the activity take place. What we learned in our research into innovation is that tight operational control is highly consistent with an innovative footing. Having a historical record of this operational control helps to identify the sources of issues. But more importantly from an innovation standpoint. This historical record can also be used to determined what the source of the success was.

The Job Order system in connection with the Military Command & Control Metaphor (MCCM), which provides a flexible chain of command over any Joint Operating Committee or working group. Gives the additional operational control that is necessary for the innovative oil and gas producer. The MCCM which is a part of the Security & Access Control module is able to span multiple organizations and can be used to ensure the groups remains accountable and focused on the objectives of the project.

Lastly the Work Order can be used for internal purposes within the producer firm itself. We have discussed in the Research & Capabilities module how the earth science and engineering capabilities of the firm are being charged to the various Joint Operating Committees. How the producer firm develops and generates revenues from both oil and gas production, and from the delivery of its capabilities to the various Joint Operating Committees it has an interest in. The ability to capture the time and billing for this work is through the Work Order system of the Partnership Accounting module.

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

The Work Order System for Innovation.

While we are in the mood to talk about accounting, or at least that is to say we have been talking about accounting. We should discuss the Work Order system that is part of the Preliminary Specifications Partnership Accounting module. One of the objectives of the Work Order system is to enable innovation in the oil and gas industry. Another objective is tight operational control over the activities within the firm and Joint Operating Committee, and we will discuss this objective in tomorrows post.

Our research in innovation taught us many things about the processes of innovation and the things that enable and impede these processes. When we consider the competitive advantages of the oil and gas producer are their land and asset base, and their earth science and engineering capabilities we see that science is a key part of their competitive advantage. We learned that science and innovation stimulate one another and therefore anything to increase the innovativeness of the industry would increase the scientific basis as well. We also learned that "knowledge begets capability, and capability begets action." Therefore the scope and scale of research in the earth sciences and engineering disciplines conducted by producers must increase substantially in the future. What we know is opportunity doesn’t always knock in pre-approved or nicely organized packages. It can be organizationally messy. The opportunity to participate in a study or working group rarely is as a result of being a participant in a Joint Operating Committee or fixed relationship with another producer. It is as a result of some serendipitous happening. Therefore what the innovative oil and gas industry needs to have is a means to deal with these opportunities by participating in them in an efficient and effective way. A manner that does not have the bureaucracy, which impedes them today, get in the way from them forming and destroying the producers participation. Therefore People, Ideas & Objects developed the Work Order system in the Partnership Accounting module.

What the Work Order system allows the innovative producer to do is to participate with others who they may not have a formal relationship with, and still access the full power of the AFE, Budget and means of allocating costs. Meaning there is no Joint Venture agreement of any kind between these firms, and there is no intent to form any such agreement. It is only two or more producers or individuals who may have an interest in certain characteristics or interests in some aspect of the underlying sciences that they want to know more about. And in their broader discussions have found like minded individuals who also want to participate in some substantial research that would be very valuable to each of their firms. They all agree on the scope and scale of the project, a budget for the costs and who should lead it. They also agree on what contributions should be made, with some just paying cash and others providing people and resources. Currently these types of activities are of limited use due to the bureaucratic nightmare that they cause and that needs to cease in an innovative oil and gas industry.

What the Work Order provides is the participants with the means to capture the meeting of the minds in terms of what the deal is that they have struck. It also enables them to allocate the source of the budgeted dollars they will use. The employees time will be sourced from the exploration departments payroll costs, the cash will be accessed from company b’s Research AFE and company c will be allocating some of their overhead budget to absorb the costs. When they agree on the project, at the beginning, they capture the deal in the Work Order, they approve it, the resources are then allocated as agreed to, and the accountants will happily process the charges knowing exactly why the costs were incurred and the money sourced. For more information review the Work Order section of the Partnership Accounting module.

For an innovative oil and gas industry to be on the leading edge. These types of research projects and working groups will need to be as commonplace as desks in an office building. The reason they are not is due to the nightmare that would cause the accountants. The Preliminary Specifications Work Order system provides the ability to deal with these problems at the beginning of the project and in a manner that is consistent with the users needs.

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

Production, Revenue and Royalty Accounting.

In Friday's post we discussed the Material Balance report and how it enabled the automation of the production, revenue and royalty accounting processes. Today we want to discuss the implications of that automation in terms of the specialization and division of labor of the people who work within these processes. Throughout the Preliminary Specification we are using these tools to leverage the value that people bring to the innovative oil and gas industry.

The first area that specialization and the division of labor can be applied is Production Accounting. Their role in using the Material Balance report would be significant as they, I think, should be organized into service providers that are based on geographical regions. That way a number of gas plants, the gathering and production that are associated with them would all be handled by the production accounting service provider. Which would ideally be located within the region that they are working. That way they would have a hands on understanding of the “what” and “how” of the operations. During the process of building the software from the Preliminary Specification we will work with these service providers to identify these processes and build the software they need to conduct these services. Included in that software will be the task based billing that will automate their billing to the producers. So that when they complete an operation then a charge for that Joint Operating Committee will be made at the end of the month. This will also, since we are using the decentralized production model, not trigger a production accounting billing during a month when there is no production. Eliminating the overhead charges for production accounting during times of shut-in production.

We discussed yesterday how the Material Balance report was able to ensure that the volumetric information in the People, Ideas & Objects software was as critical as the financial information. This is to ensure that the volumetric information is secure, reliable and mission critical so that automation can be built off of the information. The Production Accounting service provider who is working in the region. Who is working on behalf of all of the Joint Operating Committees who are located within those gas plants. Has provided an objective and historical interpretation of the Construction, Ownership & Operation agreement, and all associated agreements. These production volumes now form the basis of the Revenue Accountant service providers efforts. Here we may have differences in the makeup of the revenue of the Joint Operating Committee. Each participant may have a sales agreement for their own product, or they may all have sales under one agreement. Therefore the situation in terms of how to handle the process is different than with the Production Accounting service provider. The unique nature of the sales contract signals that the service provider should be hired on the basis of the producer firm that has the interests in the various Joint Operating Committees. Again these Revenue Accounting service providers will have the ability to work with our developers to define the process and build the software with People, Ideas & Objects that bills their services to the Joint Operating Committee for the services completed. And if there is no revenue during the month then the associated services would not have occurred and the charges would not have been billed.

Lastly we have the Royalty Accounting service providers that will be ideally organized based on their specialization in certain royalty regulations. Having unique knowledge and specialized skills in the administration of royalties that ensure the royalties paid by the Joint Operating Committees are the lowest possible. These service providers will be large in terms of the number of people they employ and therefore will be able to specialize in terms of the types of services they provide. They will be able to minimize the royalties, the largest costs of any producer, paid. Due to the service providers size they will be able to work with People, Ideas & Objects and develop software that is unique and specific to the needs of the Joint Operating Committees royalty needs.

There exists today a strong skill set in the production, revenue and royalty accounting field. The problem is there are systemic shortages of these people. Using the tools of automation, the division of labor and specialization in the manner that we have above will help to mitigate these issues. It will alleviate the tasks of reworking the information again and again and permit the people to do the higher level work of planning, thinking, innovating and deciding. And leave the simple work to the computers. That is as soon as we lock down and secure the volumetric information.

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

The Material Balance Report.

It is within the Petroleum Lease Marketplace module that many of the key variables for the Material Balance report are held. The Material Balance report is part of the Accounting Voucher and Partnership Accounting modules of the Preliminary Specification. The report is designed to balance the production, transportation and delivery of oil and gas for the producers and Joint Operating Committees. The report will contain some valuable characteristics that ensure the producer and Joint Operating Committees production remains in balance and is consistent with standard industry field practices.

To start lets agree that there are different types of producers or Joint Operating Committees. Some have ownership interests in plants that have capabilities to process gas production and some don’t have the ownership interests. Those that have the capabilities have certain contractual leverage with those that don’t have the capabilities and that can be used in one of two ways. The by-products, propane, butane and condensate can be purchased from the producer by the plant owner or the producer can pay a processing fee to the plant owner. Either way the accounting for the production will be fundamentally different. These differences need to be captured and reported in the Material Balance report. As each unit of production, gathering system, functional unit or processing facility is a stand alone reporting unit with its own Material Balance report. Each report must balance the inputs and outputs, and must balance with the adjoining facilities.

What is unique about the Preliminary Specification is that the Material Balancing between facilities will be reconciled between producers. Using the information that is also reported for sales contracts and royalty regimes we will be able to determine the overall production for a region. When we match that with the production that is reported by the individual producers we will be able to determine if there are any shortages or volumes over reported. This is a critical first step in ensuring that the volumetric integrity of what is reported by the producer is correct. The “reporting” world can’t be out of step with the “physical” world in any material way and this overall balancing will ensure the next phase of what we do with the volumetrics is possible.

The next phase of the Material Balance report is to embed these reported volumes within the ERP system itself. This is so that the volumetrics are subject to the same basic rules of the system as the accounting information is. So that for example, what is in inventory must be removed from or added to inventory through an accounting voucher in the Accounting Voucher module. Denoting that every volumetric transaction in the Material Balance report will have associated Accounting Voucher entries in the financials. This level of automation is only possible when we have the assurance that the volumetric information is valid.

Automation of the entire production, revenue and royalty process is only possible when we have settled the volumetric process. There will still be a multitude of volumetric reporting errors, amendments and changes that can and will be made throughout the system. However, they will be automated as well. As volumetric changes are made the associated financial accounting changes to the various accounts will also be amended because we know that the system remains in balance and the amendments are therefore necessary.

Automation of these processes around the Material Balance report in the Preliminary Specification is necessary for the innovative oil and gas producer. Today there are significant costs incurred in managing these processes by the bureaucracy. Tomorrow we will discuss the management of these processes through the division of labor and specialization.

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

The Marketplace Metaphor.

Just a note regarding the discussion we had yesterday. When we discuss the specialization and division of labor of the service providers, as in the case of the lease rentals process. The work that we will undertake during the Preliminary Specification phase of development. Will include the determination of the process that the lease rental service providers will use. It will also include the types of software that we will be developing for them. That is the type of work that we are doing here in the Preliminary Specification.

In today’s post we are discussing the Marketplace Metaphor that is used in the Petroleum Lease, Resource and Financial Marketplace modules. Each of these marketplace modules use the concept of a marketplace for the producer firm and Joint Operating Committee to engage in the various communities and marketplaces they have an interest in. Participation and collaboration in marketplaces is what private enterprise is about. What the Preliminary Specification provides is the ability to capture the activities in the marketplaces virtually, and enable the recording of transactions and the overall support of the marketplace.

One of the key enabling technologies in the virtualization of the marketplace is Open Wonderland. A Java based technology that was originally developed by Sun Microsystems in their research division. Participants, which would include anyone who is active in the oil and gas or service industries, would access the portal to conduct their commerce virtually through these facilities. Each participant would in turn be supported by the full power of the Preliminary Specification by right clicking their mouse and having the ability to pull down menus, or selecting features from specific tiles on their screens. Here is a video of the Open Wonderland technology.

The physical facilities that exist within the virtual environment are easily created by those that want to establish some real estate. So for a bank that does business in oil and gas they may want to establish branches throughout the virtual environment where their employees would be available to help staff of oil and gas producers or Joint Operating Committees to resolve their needs. Or service industry representatives who need space to demonstrate their services. The point is that its a virtual representation of the marketplace that is fully supported by the Preliminary Specification. And there are not three marketplaces within the Preliminary Specification. Each of the marketplace modules, the Petroleum Lease, Resource, and Financial Marketplace modules access the same virtual environment.

The benefits of having this technology active in the Preliminary Specification are many. The time and travel savings of individuals will be incrementally better. The quality of the collaborations between participants will increase due to the close virtual representations. And with the support of the Preliminary Specification, the dynamic nature of the market will be experienced.

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

Specialization and the Division of Labor in the Petroleum Lease Marketplace

The Petroleum Lease Marketplace of the Preliminary Specification is the place where innovative oil and gas producers and Joint Operating Committees will go to build their land and asset bases. Just as the Research & Capabilities module will be used to develop their earth science and engineering capabilities. These two modules are at the core of the innovative producers competitive advantages. It is also the hub of many of the source documents that originate throughout the modules in the Preliminary Specification. What is different and unique about the Petroleum Lease Marketplace is the marketplace metaphor that we use with it, the Resource and Financial Marketplace modules. We will discuss these more tomorrow. Today I want to discuss the elements of specialization and the division of labor as they relate to the Petroleum Lease Marketplace module.

As with all aspects of the Preliminary Specification, the producer firm and the Joint Operating Committee are subject to a comprehensive analysis to determine an appropriate specialization and division of labor. Is there a better way to organize the processes within the industry to optimize the resources and increase the performance of the industry. These tools are being used particularly effectively with respect to the earth science and engineering resources to ensure that the mid - long term shortages in those professions are mitigated. Within the Petroleum Lease Marketplace there are a few areas where these tools are highly effective as well.

The first application of specialization is in the area of lease rentals. To organize the process of managing and paying lease rentals on an industry wide basis is far more efficient than having each producer maintain the resources internally. By organizing the process industry wide we are able to specialize based on the process and bill the individual Joint Operating Committees for the services performed by the lease rental service provider upon successful completion of certain tasks. Tasks such as the payment of lease rentals.

If there were a handful of lease rental service providers in the industry. They would be able to establish highly efficient processes where the services they provided the producers and Joint Operating Committees were second to none. Yet at the same time the costs of these services to the producers and Joint Operating Committees would be far less than what it would cost to manage the lease rentals internally. The benefits of specialization and the division of labor are not incremental, they are exponential. These benefits are not achievable for the average producer due to the fact that they do not have the scale of operations to warrant the investment in managing the process as efficiently as possible. A few geographically located service providers would have that scale.

And there’s more. What People, Ideas & Objects provides is the Preliminary Specification and a software development capability. It is an approach that systems are not static and should remain flexible and open to user requirements. In a scenario where there are hundreds of producers who are wanting to have changes made to their lease rental process this becomes unmanageable and the primary reason that systems remain the same. However, with a only a few service providers, who are focused on the most efficient process, are going to want and need that software development capability to cater to their process developments. To accommodate a handful of service providers becomes much more manageable than dealing with hundreds of producers.

This is how the tool set of specialization and the division of labor are being used in the Petroleum Lease Marketplace to deal with the processes under management in the Preliminary Specification. And these are powerful tools. It should be remembered that the productivity gains achieved by Adam Smith in his pin factory totalled two hundred and fourty times what was found when he first started.

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

Alignment of the Frameworks.

By using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. We adopt the seven frameworks that are managed by that organization. They are of course the legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks. When we then take the compliance and governance frameworks of the hierarchy and align them to the Joint Operating Committee we achieve a speed, innovativeness and accountability within our organizations that is consistent with the demands of the 21 century oil and gas producer. It is through this alignment that the producer is then able to approach many of the operational concerns that are present in the industry. Issues such as low natural gas prices, the demand for geologists and engineers and deal with them effectively as they are handled in the Preliminary Specification.

One of the areas that this alignment of the frameworks generates value is in the Financial Marketplace module. This module provides access to the capital markets and manages the financial resources of the producer firm and Joint Operating Committees. One of the key differences is that it aligns the banking to the assets held by the Joint Operating Committee, as opposed to the producer firm. Instead of the bank taking a general claim against all of the producers assets, the bank will take a claim against the assets held by the Joint Operating Committee. Therefore each participant in the JOC will maintain a relationship with that one bank. Having the banker’s focus on the assets of the JOC and only the JOC aligns its interests with those of the participants in the JOC. There is also only one banker, not a different bank for each participant in the JOC as there is in most of the financial situations today. This alignment provides a focused capability in decisions and other aspects of managing the property that are consistent with the needs of an innovative oil and gas industry.

Some may argue that the logistics of maintaining relationships with multiple bankers for different Joint Operating Committees will make the management of the producer firm too difficult. I would agree that the logistics of additional accounts, checking, deposits and other banking activities would make for additional steps in the management of the property, however, with the state of Information Technology today, these can be automated to the level where they are done through electronic banking.

It is in the operational decision making framework of the Joint Operating Committee that the alignment really begins to pay off. When the Preliminary Specification is aligned as it is in this fashion, decisions can be made with an ease that is consistent with their nature in the Joint Operating Committee. Decisions like when to suspend production due to low natural gas prices can be predetermined based on the calculated marginal costs. When they drop below that threshold the decision can be implemented and the production suspended until the prices return to a point where the property will be profitable. And recall with the Preliminary Specification using the decentralized production model, as opposed to the high throughput production model, the associated production and overhead costs are suspended with the production. Leaving only the costs of capital uncovered during times when production is suspended.

Alignment of these nine frameworks provides significant advantages, such as the two that I have highlighted today. There are also many little advantages that fit under the category that the Joint Operating Committee is the natural way in which the industry operates. We are moving closer to the cultural norm of what and how the industry operates. The Preliminary Specification uses the alignment of the Joint Operating Committee to enable the speed, innovativeness and accountability that we want and need from our organizations in the 21st century.

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

Innovation Versus Information Leakage.

In our last post we indicated that the risk of proprietary information or data loss between firms or participants in the Joint Operating Committee was immaterial and inconsistent with the needs of an innovative oil and gas industry. Today we will explore some of the research that People, Ideas & Objects conducted to enable us to assert this claim, and how the Preliminary Specification provides the Joint Operating Committee the appropriate posture for the innovativeness that is necessary in these times.

First of all the information and data that is being handled within the Joint Operating Committee is of the type that is readily available in other forms. Whether that is production data, the well file, downhole information etc. Most of this information is available, at least in Canada, in the public domain. Strategic, planning and accounting information that is of a sensitive nature is usually of a corporate nature and is not related to any specific Joint Operating Committee. Therefore the concern over sharing of this information in the Joint Operating Committee, and the risk of losing some proprietary information is not material to any one specific Joint Operating Committee.

Next we need to deal with the proprietary earth science and engineering capabilities and the risk that some of these capabilities will be “copied” by other participants during their use in the Joint Operating Committee. Here we look to Professor Giovanni Dosi in his paper “Sources, Procedures and Microeconomic Effects of Innovation.”

Professor Dosi notes that Levin states that the control of complementary technologies becomes a “rent-earning firm-specific asset.” Dosi states “in general, it must be noticed that the partly tacit nature of innovative knowledge and its characteristics of partial private appropriability makes imitation a creative process, which involves search, which is not wholly distinct from the search for new development, and which is economically expensive - sometimes even more expensive than the original innovation, and applies to both patented and non-patented innovations.” (p. 1140)

Therefore the ability, and the capability to copy another firms earth science and engineering capabilities is as significant and as costly as having developed an original earth science and engineering capability. And just as you might fully appreciate the nuance of how to fill a cavity in ones tooth by having a Dentist fill one for you, the development of a capability within an oil and gas producer is not something that can be replicated simply by watching. This is the critical aspect of the oil and gas producer / investors business. To focus on the competitive advantages of their land and asset base, and their earth science and engineering capabilities. Is it deployment of that capability at that property the key to the profitability of the Joint Operating Committee? Or is the hoarding of information the key to the managers empire?

It is through the Research & Capabilities and the Knowledge & Learning modules that the producers / investors capabilities are developed and deployed. These modules take the research that has been conducted and through a variety of interfaces capture and document the capabilities of the producers and enable them to be deployed. But there’s more. With what we have learned about the capabilities of other producers from Professor Dosi. We have captured the capabilities of all of the participants in the Joint Operating Committee, that are pertinent to that facility / formation, and made them available for deployment within that specific Joint Operating Committee.

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

Access Control In the Joint Operating Committee

One of the technical issues that need to be resolved in the Preliminary Specification is the manner in which access control to the data and information is managed in the Security & Access Control module. With the corporate model access control is simple, anyone within the firm can share the information that is developed and used within the corporation. Within the Joint Operating Committee, information may be developed from a variety of sources that specific access control to various members of the Joint Operating Committee need to have. This sharing between participants, or pooling as we call it in the Preliminary Specification, would normally not be permitted in the corporate model as the risk of some proprietary loss would be assumed. Our research has determined this risk of loss is immaterial and inconsistent with the needs of an innovative oil and gas industry. The Joint Operating Committee is the representation of the partnership that has been formed to maximise the profits from the property and assets in which each of the participants share. If a pooling of the contributions can not be conducted it will be because of the bureaucrats managing their turf, not from the loss of any proprietary information. What the Security & Access Control module strikes is a balance between harbouring data and information vs. deployment of the right information, by the right people at the right time.

Politics aside we still have a technical issue with respect to the access control of data and information within the Joint Operating Committees a producer / investor may have an interest in. Organizing around the Joint Operating Committee helps by making it the structure that we are focusing on. We are using the Joint Operating Committee as the basis of determining who has and who hasn't the access control rights. By doing this, it is the Joint Operating Committee that determines who has what type of access control rights. An individual that operates in the oil and gas industry, who uses the People, Ideas & Objects application modules would then be granted the necessary access control rights through the Security & Access Control module to the many Joint Operating Committees that they may be authorized by.

In addition to the specific access control privileges People, Ideas & Objects provide two additional levels of security that offer the producer with additional control. The first is the Military Command & Control Metaphor (MCCM) that was developed in the Preliminary Specification and the Oracle technologies that are used to provide the high levels of security in which all of the modules are operated under. The MCCM provides a means for a Joint Operating Committee to implement a command and control structure over the people that are working within the operation. This span of control includes the service industry representatives when they are conducting some operation. The MCCM includes a definable structure, a Job Order system and a manner in which all operations are documented. Again this structure will span the multiple organizations that the people are represented from.

We have talked about the division of labor and specialization that is used to deal with the various issues in the oil and gas industry. How the producer firm is a highly focused earth science and engineering capable organization. That many of the other aspects of the firm or Joint Operating Committee is sourced from service providers who specialize and bill for their services. These people may also need access to the data and information of the producer or Joint Operating Committee and it is with Oracle technologies that we can provide them with the limited access that they require. With Oracle we can grant that limited access to just the one element of data that they need access too, if that is all that is required. We also have high levels of security and specific access privileges that enable the firms most sensitive strategic and planning data and information is kept secret and for only certain users. All of this information can be determined by reading the Security & Access Control module of the Preliminary Specification.

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