That's going to hurt.

What a difference a day makes. This credit crunch is now in its last moments before total seizure. I hate to be the one to be the bearer of bad news, so I won't. This crisis is the biggest opportunity that mankind has ever faced. We are now moving at lightening speed from the total collapse of the old economy that we depend upon. To be replaced by the hugely productive economy based on Information & Communication Technologies.

What we are facing in the oil and gas industry is that all of our assumptions about the future are being turned up-side down. Companies such as Canadian Natural Resources Ltd will cease to exist in as little one year. The gas production and prices, and the oil production and prices as reflected in these articles are collapsing, on a temporary basis, slaughtering firms like CNRL's revenues. On the costs side, the ability to do anything operational in the short term will be impossible due to the lack of cash to pay people. These companies, like CNRL who have a Working Capital Deficiency of $3.2 billion, are toast. And if investors followed my advise they would have sold out of their positions and waited for the fire sale of oil and gas assets to start in earnest very soon.

The bureaucracy is dead, long live the producer.

That is if they had the systems necessary to organize themselves. And that is where "Innovation in Oil and Gas" comes into play. We need to rebuild the industry based on the Joint Operating Committee (JOC) and the Draft Specification. To do nothing on this front will reduce us to barbarians fighting over the littlest things. Without the systems to support organizations, people and society we will regress to barbarianism. I thought this was a good news entry? Well it is and I just want to reiterate an important point of what our actions need to be. Here is President George W. Bush's comments after singing the bail out on Friday.

In October 4, 2008 Sunday Herald the following comments were made. They resonate with essentially the same things that I am saying here about what will happen to the banking system in Europe. There article too is a positive one when you see their point of view.

While it is unlikely that we are going to see a return of the era of the Captain Mainwaring-style bank manager, the culture of spivvery, and high-pressure sales that has permeated most British banks will also certainly become a thing of the past.

In its place we are going to see a banking system that looks much more like the "utility" model which Britain had in the 1950s and 1960s. It will be a low-risk banking system, and one where the profits are going to be much lower than they were in the 1990s and the noughties. Credit rating agency Standard & Poor's says that "the survivors are going to be those banks that have learned and applied the lessons to live with new realities, not those which hanker for a past that no longer exists".

Financial regulation is also going to be tightened up, as banks cannot be granted a liberal safety net by the taxpayer and expect to go back to the loosely regulated free-for-all that existed before. Ian Blackford, former managing director of Deutsche Bank and head of its Dutch equity business says: "Our political leaders now have a responsibility to put in place regulation that prevents this crisis ever happening again.

"There needs to be a far-reaching debate on how regulation should work and at what level. These are global problems and they require global solutions. Capital, after all, is mobile."

At a dinner in Edinburgh last Thursday Michael Howard, the former leader of the Conservative Party said that Britain needs to return bank supervision to the Bank of England, where it was housed prior to 1997.

In the long term, these sorts of changes are going to be hugely beneficial to both business and society. It will mean that rather than the abuse of customer relationships that has destroyed most people's trust in their banks, the banks will once again recognise that their main role is to serve their customers rather than to enrich themselves and their shareholders.

One London commuter said: "Outside the City bubble, many people are shocked to find that bankers, once serious folk you'd doff your cap to for a loan, are in fact bonus-fuelled casino operators. What a mess."

The writing is on the wall. We have work to do and that is to define the Preliminary Specification. As mentioned we are looking for 100 people to help identify this system. It is derivative of the Draft Specification and I have established reasonable deadlines for this work to be completed. Please understand as well that I will only be able, at best, to have 1 out of every 20 people who reply, through this process, to sign on. Nonetheless there will be significant opportunities for everyone as soon as the Preliminary Specification is completed. Please be patient. Help me raise the needed revenues for this project, and join me here.

Technorati Tags: People's Change Pig Perez Specification

The Future of Capital.

Bruce Nussbaum who writes the "Innovation Design" blog for BusinessWeek has a fascinating article on the effects of the soon to completely collapse Wall Street. Entitled "Congress Readies to Vote on the Financial Package -- Get Ready for the Post-Wall Street World." Of which I encourage that type of thinking, I also recommend subscribing to his blog as it is always rich and strong with content. The starting paragraph of the current Rotman school magazine frames his point of view quite nicely.

BY THE DAWN OF THE 21ST CENTURY, a revolutionary change had taken hold in the realm of value creation: physical and financial assets were no longer the key factors of sustainable competitive advantage. Instead, leading companies like Dell, GE and Procter & Gamble depended on superior human and knowledge assets for their competitive edge. p.3

I have, and always will, assert that Intellectual Property (IP) is the only thing of value in the new 21st Century Organization. Either you own or have access to IP, is something that should be the first order of building a "new" business offering in your chosen field and industry. This is why my attitude regarding the Wall Street problems is to let them fail. As Professor Carolta Perez says, financial capital has done its job. It built the Information & Communication Technologies, now product capital has to rise out of the ashes of the financial capital industry. Financial capital is a badly over built industry that is primarily redundant to the needs of the world. When you see the panic that is occurring and understand that productivity in the U.S. is up in the second quarter by 4.3% on an annual basis. You see the dichotomy of the world in which we live. The old is collapsing like the former Soviet Union, and the new economy is now big enough and strong enough to lift all boats.

I’ve said it before: business people don’t need to understand designers better; they need to be designers, designing organizations in which capital of all types wants to congregate. As evidenced by the work of our own Richard Florida, their role is not unlike that of the mayor of a great city, who creates an environment in which multifaceted communities can all agree on one thing: that they wouldn’t want to be anywhere else. p.3

The entire magazine is devoted to these concepts. I highly recommend downloading the magazines from the Rotman school. As I read these three latest issues I may find more valuable information that I will post up on this blog.

Technorati Tags: People's IP Community Trends Innovation

Project Charter - Preliminary Specification

Based on the Draft Specification, this community will complete the following tasks in publishing the Preliminary Specification. Ideally the number of members of the community defining the Preliminary Specification should be up to 100 individuals. They will have a broad background in oil and gas in all professions, geographic regions and organizations, including service industry businesses.

The most important attribute of these people is they should be leaders in their field and well versed in the oil and gas industry. These People are accessing this work on the basis that their leadership skills will provide a sound Preliminary Specification, and develop a cornerstone of the "Community of Independent Service Providers" offering to the producers. They are expected to develop the Preliminary Specification on the basis where their cost of time is incurred on their behalf as an investment in defining and developing that service offering.

This investment by the leadership of "Community of Independent Service Providers" is the basis of the beginnings of these organizations. They will be able to provide users (upon approval) of their organizations to
this software and service offering. Where the People, Ideas & Objects and producer companies are their clients. The costs of Users in the Detailed and Final Specification will be fully funded before any work is started.

Establish deadlines for the Preliminary, Detailed and Final Specifications of the People, Ideas & Objects application modules. I propose the following on the basis that our $180,000 budget is raised through donations from producers. (Proposed time-lines.)

• Draft Specification                 Published August 1, 2008.
• Preliminary Specification        Publish May 31, 2009
• Detailed Specification            Publish November 30, 2009 (Commence Software Development)
  
• Final Specification.                Publish April 30, 2010

General overall task of the Preliminary Specification are to define the scope of the People, Ideas & Objects application modules.

• Geographic Scope.
• Minimum Scope: is established as North America and the North Sea.
  
• What other jurisdictions regulatory and compliance requirements fit within the minimum scope.
• Maximum
  Scope: is established as all jurisdictions that produce oil and gas and are willing to support their regulatory and compliance development costs for their jurisdiction.
• Scope of Functionality.
• What priorities and dependencies exist in bringing the application to market in its minimum form. (This is an iterative software development application.)
• What "scale" related issues will this application require in terms of
  
• Technology
  
• Architecture,
  
• User capability,
  
• Community development etc.
• Define in detail the functionality necessary for Release Candidate v 1.0.
• Organizational Requirements.
• Define how the People, Ideas & Objects communities are supported in their regions.
  
• What unique strengths and advantages does the firm and development provide.
• What are the weaknesses and threats of this development and firm.
• Define the expectations and demands of the producers in developing this application.
  
• Refine People, Ideas & Objects Business Model.
  
• Define roles and responsibilities of the Users in the development of this software.
  
• Who holds authority, whom reports to whom. What "hierarchy" is needed to organize the Users.
  
• Define the requirements in terms of policies and procedures of the "Community of Independent Service Providers" qualifications and capabilities necessary to support the software in the producer firm. 
• Process Definitions.
• Define and map all processes in draft.
  
• Algorithm Research.
• We have some algorithms in the modules that are state of the art. Particularly in the Accounting Voucher and Partnership Accounting.We need to establish a group that is focusing on those algorithms development. This Specification should detail the needs of that group.
  

Project Deliverables

This is a creative process in which these Users will be able to fill in areas where the Draft Specification has missing components. The Users are not limited in any fashion in terms of the numbers of modules and
the areas they need to develop.

Detailed tactical and strategic analysis supporting the commercialization of "Release Candidate 1.0".

Preliminary Unified Modeling Language (UML) based on analysis conducted. (Please note UML is also a deliverable in both the Detailed and Final Specifications. Users will have access to the Petroleum Producer Data Model (PPDM) operating on Sun Microsystems Project Hydrazine.

Please note I have purposely kept this Preliminary Specification detail as broad as I can. The People who are this community should exercise the judgment and authority necessary to further define the Preliminary Specification as they require. 

Technorati Tags: People's Algorithms Specification Development

A Community of Independent Service Providers.

With the preparation of this next years fiscal budget. I made the call to recruit 100 individuals to be involved in this first phase of development. These people will be involved in taking the Draft Specification and adding many of the necessary details for when the developers begin the job of the applications development. The deliverable will be the Preliminary Specification which will have rounded out many of the missing details in the Draft Specification and seek to provide creative solutions to the problems they discover.

Who are these people? They are the ones that are currently employed in the oil and gas industry, or have retired and have many years experience. They are the people that have worked for an oil and gas firm in all the different capacities and professions. Landman, accountants, geologists, engineers, field staff and many who were employed in the traditional energy service industry. People who understand and can articulate their point of view on the differences in using the JOC as the key organizational construct.

What exactly will they be doing. Building off the Draft Specification and taking it to the "Preliminary Specification" stage. This may include gathering the details of the various regulatory and compliance requirements of an application, working within the scope of the oil and gas marketplace as they define it. Adding their creative ideas of how an application should provide support to an oil and gas firm. I think it is only reasonable to establish a minimum scope of operations being North America and the maximum is any energy jurisdiction. The one advantage here is the Joint Operating Committee (JOC) is culturally systemic the world over.

These people will also be the critical first group that will join People, Ideas & Objects. What I expect is that they will be the first, or in on the ground floor of the opportunities that will develop for themselves and others. What I expect will happen is they will also be charged with developing the "Community of Independent Service Providers". Who will develop within their own businesses the service capabilities that will work with the software in the oil and gas firms. This first and foremost should be looked at as a business opportunity they can build in the new economy.

One hundred people sounds like a lot, and in many ways it is. However, they are all not going to be full-time. Recall as I have mentioned in the budget I expect this time to be invested by them in establishing their "Service Provider" operations. (In subsequent years work on the software will be fully compensated.) The broad diversity of the service offerings that have to be developed to augment the software is their domain of operation. By signing the license and registering with this community is how to get started. Recall all participants (users, developers, project managers and oil and gas investors) are entitled to leverage off this software applications intellectual property in their own service based offerings. The first 100 that participate in developing the Preliminary Specification will naturally have a significant head start in starting their service operations. People, Ideas & Objects provides the software and the developers, the Users provide the problems and our clients needs.

Where these people will be located is anywhere they are needed. Based on the scope that they decide they will be able to establish Service Providers in their region as they see fit. None of these licenses are exclusive, and therefore being first has substantial advantage. They are also the ones that will establish initial contact with the producers in preparing them to move to the system when it is operational. This marketing will be done jointly by People, Ideas & Objects and the Service Provider. We will be using some form of Salesforce.com applications to ensure that the oil and gas firms are managed by one Service Provider who will sub-contract the work for that oil and gas firm. I will reiterate, being first has substantial advantages.

When should they sign up? What's wrong with now? Follow the process as described here, please note that we need senior oil and gas individuals, this is not something I don't think anyone should attempt that does not have 10 years of oil and gas experience. Not to discourage anyone, but the detail in the Preliminary Specification will be somewhat high level but detailed, if that makes any sense. So please follow the process and sign up as soon as you can. In a lot of ways I think this opportunity fits the somewhat tech savvy early or soon to be retiree of the industry.

If I have not mentioned this next item on the blog before I would not be surprised. It is in the private wiki as one of the project policies. Users, Developers, Project Managers are compensated for their time, however, People, Ideas & Objects will only contract for 110 days out of each calendar year. The reason for this is to increase our scope of understanding of the industry by essentially doubling the number of people in the project. And ensuring that the individual is also actively engaged with the oil and gas firms through their Independent Service Offerings. Learning, anticipating their needs and guiding the developers in the development of the solution to those needs.

I have talked about the response that I have received from the oil and gas companies. I would certainly not wish this treatment on anyone else. Therefore I should state that all of the operations in the wiki and this work of the first 100 will be in complete confidence. Access to the wiki is through the People, Ideas & Objects account that will be provided. The communications are all encrypted in https. Therefore if you were to be using the wiki in your office your boss would never know. (Not that I would encourage that, but I would certainly endorse it.) The only way that your "boss" may find you are involved in this project is if s/he is a participant in this project. There is no need for anyone to be associated with this project and as such be affected by the companies apparent insistence that it not be built.

If you know of an investor in oil and gas that this project may appeal to. Please forward the URL to their attention and encourage them to commence the financial support of this project. And please, join me here.

Technorati Tags: People's User Proposal Call-to-Action

A new revenue stream.

In the back of my mind I have frequently thought there was a role in this software development project for governments. I have now determined that the reasoning for them to support this project is at least as strong as the argument I have made for the disgruntled oil and gas shareholder.

What's going to happen to the capital intensive oil and gas industry as a result of this credit crisis. Need I say more. It should be anticipated that many projects will be canceled as a result. Maybe even some voluntarily. I think in the first year or so the commodity prices will decline, not substantially from here, but remain depressed as a result of demand destruction. We know this does nothing to the reserve life index other then watch it decline further and further. Therefore I think by 2013 we may see the majority of the capital that was injected in the industry from credit and investors being replaced by the higher commodity prices that provide a reallocation of the financial resources for innovation.

To describe the routine that we will be going through in the next five years is not something that is positive. I hope that everyone can hang on to what they have, but these will be as difficult times, and may be much worse then the great depression. There is a purpose and reason for this pain, and it is so that we are motivated to move to a more efficient future. The quicker we get over the pain the better off we will be.

Why would this downturn be worse? Firstly it's more global then local. The Americans are showing the way, not because they are the worst off, but because they are always the first to see a problem and deal with it. Other countries in Europe, mostly, are in much worse shape then the States and yet, do not have the resilient character to pick themselves up as quickly. Those that profess the doom of the U.S. will be sadly mistaken by the events of the next five years. And how the events that come along will seem to favor the Americans, in which they will dominate the world marketplace for decades to come.

This is a failure of everyone and no one. The economic system that we depend upon is no longer efficient enough to feed and provide for the population. The basis of organizations, the hierarchy is unable to meet the demands of it. This is primarily as a result of its inability to change and innovate, and is a form of organization that is static. The auto industry can't change the cars they provide. The solution in the future will not involve a car. The energy industry can't meet demand for energy and the companies continue to see large declines in their reserves and production. These are the problems that are being represented in the credit crisis. Its an unsustainable way of life based on the way in which business operates. This is to a large extent the failure of bureaucracy, just as central planning was in the former Soviet Union.

In the 1700's Britain's population was around 6 million people. Life was terrible with mass hunger and overpopulation being the critical issues of the day. Professor Ludwig von Mises said the industrial revolution was the solution to world hunger and over population. Mechanical leverage from the industrial revolution provided Britain with the ability to grow to 24 million people and be very prosperous in the 1800's. It is this exact same situation we find ourselves in today. We have to re-organize and become far more efficient to feed and provide for the 6.7 billion of us. This will be done by the Information and Communication Technologies (ICT) revolution.

Non the less, identifying this second stream of revenue may provide a large percentage of the capital necessary to meet our needs. In the Preliminary Research Report it was determined based on the Theory of Structuration of Anthony Giddens and Model of Structuration by Professor Wanda Orlikowski that software defines and supports the organization. The bureaucracies have, or will very soon, lose the ability to organize themselves and function. This is why we need to build this software and why the governments will need to financially support this project. 

After the collapse, if we are to attempt to resurrect the way that things have operated in the past. Then we will be unable to deal with our current difficulties and adjust. This adjustment will be fundamentally different then the previous five economic meltdowns. The last being the great depression. Today we are able to use the technologies to redefine the new organizations and ways that we are going to work. This isn't technology being implemented for technologies sake. This is now a necessity. We can regress completely to manual systems and live like barbarians, or build the systems that will define and support the organizations of our future. A simple choice.

This is where the second form of revenue is established in this software development project. Governments have a vested interest in ensuring their people are not harmed by this credit crisis. It is they who should act in concert with the previously identified disgruntled oil and gas investor. Both of whom are the direct beneficiaries of this application being built, and I am suggesting therefore they are two groups that share the responsibility of making this project real for oil and gas.

Now the government is certainly not only interested in the oil and gas industry. This principle will apply to all industries and in all walks of life. And that broader role is something that these governments should see quickly in terms of reducing the pain of the credit crisis.

So I am calling on the governments to work with the People in this project and provide some of the funding. This is the governments that have centers in their economy that are dependent on oil and gas, such as Alberta, and those that are part of a larger government, the Canadian, U.S. and other jurisdictions. The point I am trying to make is that some governments have a direct interest and some have an indirect interest in making this software available in the marketplace as soon as possible.

Ideally I would like to see the governments contribute the financial resources necessary to cover off the regulatory and royalty requirements of each jurisdiction represented in the application. I would also expect that the governments would provide an element of dollars that are necessary for the overall application.

Can everyone see how the hierarchy and its legacy continue for the next century? This is a time of renewal not of resurrecting dinosaurs. Getting in the car in the morning to drive to work is so unnecessary in the future. Does anyone expect these actions that are defined by using the bureaucracy should remain? I have provided a sound and workable vision of how the energy industry could function in the future. This is represented in the Draft Specification and consists of the eleven modules. Professor Carlota Perez states that the People need to know that the old ways can no longer sustain them before they will move to the new vision. That time is today, September 30, 2008 and this credit crisis will affect us for the next five years. We should move now.

If you know of someone that falls into either of our two primary revenue streams. Please send them the URL to this blog and the URL to this specific page and ask them to consider the role that software can take in making the "pain" that we will suffer less. And join me here.

Technorati Tags: People's Perez Change Software Trends

It's not enough.

The bailout package being discussed in the U.S. is not enough to fix the system. Keep the $700 billion and use it to help build the "new" systems after the failures are purged from the landscape.

Attempting to refill the toilet bowl as it's flushed is, and always will be, futile. The systems supporting our economy are no longer adequate to meet the needs of our economies. The way they are structured is based on many of the principles established in the 1930's depression era. Have we learned anything about economics since then? Has Information & Communication Technologies developed since then? Let the failure occur.

If we read Professor Carlota Perez, who's analysis has shown this is a systemic economic event. That has happened consistently over the past 300 years. We should welcome this decline for the opportunities that it provides. This turning is as violent and disruptive for a reason. Organizations don't change from the old technologies that brought the economies along. They have to collapse in order for the new players and organizations to rise from the ashes.

The entire world economy will be going through the same problems. Europe is stuck in an economy that is static since Margaret Thatcher, and she was only able to bring Britain into the 20th century. With everyone falling, the economic leaders will remain the economic leaders in the next era.

The energy industry is not immune to these events. We have seen some high profile oil-sands projects canceled for one reason or another. I suggest financing is not available. And as I have suggested CNRL's Horizon project will be one of those eyesores that quietly rusts in the middle of nowhere. When credit systems fail, capital intensive industries such as oil and gas will feel it. What should someone who has worked in oil and gas do after they have been laid off from the oil and gas companies? They should join me here in making this software that will define how the new oil and gas industry is rebuilt. Unfortunately this is the only way that business can make the fundamental changes from era to era.

One thing that is systemic in all of Professor Perez writings is the scope and speed of the new environment that we are moving towards. Very quickly we will see the focus of people move away from the housing and consumer focus that brought the system down. They will now understand and appreciate that the greatest miss-allocation of capital (the past ten years) is over and they can begin building a new and more prosperous life from the ashes. It's time to invest in those businesses that will lead the world out of the old economy.

I noted earlier that the Financial Marketplace may have seemed a bit of a stretch in terms of the changes that were proposed in the Draft Specification. With the events of the last couple of months we see that the banking system is inadequate for our future needs. New regulations and technologies will be introduced into the system that will mirror the changes I have proposed in the Financial Marketplace module. Professor Milton Friedman has this to say about the "crisis" we find ourselves at the beginning of;

Only a crisis-actual or perceived-produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable. Friedman 2002, Capital and Freedom.

This projects pace has slowed to a crawl. I am unable to move the project any further without the financial resources necessary to make this real. If there is any doubt in your mind as to the need for such a "radical" change, it should be put to rest by these recent events, and those that will be coming. If you know of someone in our revenue profile, an oil and gas investor disgruntled by the bureaucracy, send them the URL to this web log and encourage them to keep this project moving forward. And, join me here.

Technorati Tags: People's Change Specification Trends Perez Friedman

Now that Russia has cut itself off from the rest of the world.

Click on the title of this entry to be taken to Bloomberg to view a series of guests discussing the Russian economy.

What happens to their oil and gas production? And more importantly for us, how will that production be replaced. With the lack of capital and a surplus of Kalashnikov's in Russia, I fully expect the Russian people's motivation is the most damaged from the KGB Leader, Vladimir Putin. Therefore it is reasonable to assume, that with no BP or Shell to pick up the slack, that Russian oil and gas production will enter an accelerated steep and possibly never ending decline.

Did Putin believe that the decline of the USSR was a mistake? Does he believe being the sole power of a small inconsequential country is better? Flying planes into Venezuela to be at the command of the little idiot Chavez only shows that Russia may be set for bigger surprises from Putin. These types of activities put Putin in the mad man category.

Russia being the largest energy producer, and its inevitable decline is our (the Wests) problem. This production needs to be replaced and we don't have a lot of time. Maybe we can approach the scale of this problem by using the old bureaucratic standby, but I think the clock is now ticking much faster. If we are going to approach this energy supply problem with the same old organizations throwing more money at it, count me out. I think we need to re-organize and approach the industry from the perspective that the Draft Specification provides.

From now on the problem with energy is that nothing gets better. The problem only grows in size as events take over the pricing of the commodity. The $50 slide in the price gave the consumer the "all clear" and I am certain they'll be back to consuming just as much as they did before. We need to act and the first act in this long and difficult road is to organize the people in ways that can maximize the production and minimize the consumption. These two objectives were forefront in my mind when I was writing the Draft Specification. It is not enough to increase the performance of the industry by 10 or 20 %. We need exponential increases in the performance of the industry. This can only happen by starting from a clean slate.

People, Ideas & Objects needs money. I am frustrated by the fact that I cannot move this project any further by myself. If you know of someone that fits our revenue profile, a disenchanted oil and gas investor who has had enough of the bureaucracy. If so, please pass the URL of this web log over to them and encourage them to commence the process of establishing our much needed revenue.

In systems development you can pick any two criteria out of three possibilities. The choices are cost, time and accuracy of the systems. I have selected time and accuracy as the two most important priorities for this application. The costs are going to be much higher then any of us would like, making my job particularly difficult. Please join me here.

Technorati Tags: People's Failure Sponsors

Offshore drilling ban, banned!

If the political climate remains constant in the states, we can assume offshore drilling to survive the next administration. The American people want offshore drilling for oil and gas to fuel their economy. Add the necessary technical leap that is required to fully exploit the resource potential of the Pacific and Atlantic offshore. On top of the operating environment of the Gulf of Mexico, the Arctic, heavy oil, unconventional gas. Makes North America the most demanding operating environment. Add to it the retirement of the brain trust of the industry, politics and environmental concerns and you have a sizable task ahead.

One of the key developments in the Preliminary Research Report was that systems define and support the organization. What's SAP's plan for the oil and gas industry? Whats their approach for the high energy cost era? Or do they see the industry as unchanged from the $25 / barrel era?

Its at this point where the first reaction will be to spend more money. I think that will be a mistake. Its a systems first world we live in. If we approach this opportunity with the same old bureaucracies, we're not going to get there. (Increased production volumes). Offshore drilling is expensive and I don't expect any increase in drilling for a number of years. The time lines for new offshore production is long, and we have the opportunity to build the systems that will enable a more innovative, science and engineering focused producer. An appropriate competitive advantage for a producer in this new era of oil and gas.

I propose we build this system to ensure the innovation that is possible gets implemented into the industry. As I have stated here before I believe this system could attain an exponential increase in the performance of the producer. Innovation and performance increases are what have been solved through this five year research project. Now its time to build. Please, join me here.

Technorati Tags: People's Energy Funding Offshore Science

Professor Clayton Christensen on MIT video

To be honest I am not a fan of Clayton Christensen's. I find he is standing on the shoulders of giants and not adding much more then a clear message. Lets call him the Oprah Winfrey of innovation. Nonetheless, this video provides some very interesting insights in the topic of innovation and where we find ourselves in the oil and gas industry at this time.

Professor Christensen has written many books all evolving around the theme of disruptive innovation. He sites three ingredients that are needed to develop a disruptive innovation.

Technological Enabler

As I mentioned here a while ago, the real innovation of this software development project is the virtualization of each and every worker in the oil and gas industry. It is impractical and inefficient for individuals who may work for a variety of JOC's and the companies that are represented there, to move from job to job during their day. Although most of the head office staff only have to go a block or two, people in the field would have farther to travel. Impractical by any measure. In order for people to physical meet and discuss the business of the JOC, the industry would be reduced to a standstill while people reconciled their calendars. The virtualization of the working environment and the introduction of Asynchronous Process Management (APM) (a cornerstone of the People, Ideas & Objects technical vision) deals with these two problems.

Business Model

It's not known if Christensen is talking about the People, Ideas & Objects business model or one of the companies in the oil and gas industry today. In terms of this projects business model, in comparison to the big SAP and Oracle applications, we provide a comprehensive vision of how we see the oil and gas industry operating. The Draft Specification captures this vision and provides an understanding of how an oil and gas producers business could operate. Oracle and SAP have made the sales to the oil and gas business, therefore they doubt anyone else would buy it, and that, other then they are not welcomed by the producers, is why they don't show up on the radar screen.

People, Ideas & Objects are making this application on a development cost plus basis. This application is not sold as an application but as a service. The costs of which are allocated throughout the global oil and gas industry. What was a major cost and effort to host and install Oracle or SAP are tasks borne of the bygone (bureaucratic) era. In addition to the software as a service, the community that is involved in building the software application provide the services to the industry in running and managing the oil and gas producers enterprises, or should I say JOC's.

The costs associated with these activities will be billed by the community members service based organization, and an assessment of a fee for the use of the software. The software will be billed on an assessment basis of x dollars per barrel of oil equivalent per year. At $10 / boe / day a firm with 200,000 boe / day would therefore pay $2 million for their use of this system. This is based on the development requirements as determined by the community.

The oil and gas industries growth strategy and / or business model for the past 30 years has been to muddle along. Great when the oil and gas was easy to find and produce. Muddling along doesn't provide a business model that can compete when the sciences and engineering are the key differentiating competitive advantages. The focus needs to be on the science in order to achieve profitable operations. Science and an ERP application like People, Ideas & Objects.

Someone tell me how a generation of oil and gas companies, reared on muddling along, are going to change their strategy to one based on the sciences in the time that the market needs more oil and gas? They haven't in five years that I have been trying, and Ill bet the ever decreasing size of the producers production will eventually trigger their own Wall Street type of collapse. As Nelson and Winter noted recently, industries evolve, companies come and go.

Commercial System

See Business Model discussion about how this community works.

Christensen goes on to note companies will either reject or co-opt a new technology. I can assure you the oil and gas industry has rejected this technology. I think I have also provided a strong case as to why their demise should be accelerated. This is the task I am calling for the shareholders of oil and gas companies, to withdraw their support of the bureaucracy and fund these software developments to ensure their best interests are managed properly. Otherwise face an uncertain future that may be as tumultuous as what Wall Street is feeling.

"Facilitated User Networks" is the third type of disruptive business model that Christensen notes. Stating they are lower in costs and more effective in terms of performance. I think this software development project meets that definition and criteria, and the oil and gas industry sure needs lower costs and higher performance. Design of the Draft Specification is clear, clean, crisp and concise. Anyone with 5 - 10 years of oil and gas experience can see the way in which the industry will operate and how their role fits within this community and the larger oil and gas environment.

The investors that have traditionally invested in oil and gas are of course the people who know and understand the business. There are others who have attained larger holdings and may have had some influence on the management in the past. These are the shareholders and investors that I think would have an interest in funding this project. If you know of any, and can send them the URL to this weblog, it would be appreciated. This project is now at a stand still until such time as funding is provided. I have established a modest budget to keep the "doors open" but up to this point I have received no indications of any funding. Please join me here.

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Where we're at in 624 words.

The following is a summary of where all the time went. September 2003 - May 2004. The beginnings of the People, Ideas & Objects software development project were based on my Master's Thesis. My hypothesis asked if the oil and gas bureaucracy had become redundant and if so; would the Joint Operating Committee, augmented with today's Information Technologies, provide for a more innovative footing of the oil and gas industry?

The findings of this research confirmed the hypothesis. If a producer was to move the compliance and governance of the bureaucracy to the legal, financial, cultural and operational decision making frameworks of the JOC, a greater alignment of these frameworks would provide for far greater levels of innovation. Additionally it was determined that systems define the organization. In today's business, any change in the organization must firstly be planned and software systems developed to identify and support the organization. Otherwise the organization will be relegated to manual systems.

May 2004 - December 2007 Comprehensive research was undertaken to determine; if the JOC was adopted as the key organizational construct of the oil and gas producer, what would an ERP styled system look like.

January 2008 to July 2008 a "Draft Specification" was published providing an overall vision of the systems modules. The system currently has eleven modules defined in the "Draft Specification" as follows:

• Security & Access Control
• Petroleum Lease Marketplace
• Resource Marketplace
• Financial Marketplace
• Partnership Accounting
• Accounting Voucher
• Compliance & Governance
• Analytics & Statistics
• Knowledge & Learning
• Research & Capabilities
• Performance Evaluation

One of the main reasons the People, Ideas & Objects software application can work is that when embedded in a transaction based collaborative environment, there is no need for the people to physically move from JOC to JOC. Bridging the physical distance between the participants in the JOC is enabled in the virtual transaction based environment of the application, which in turn enables the re-organization.

Since July 2008 I have attempted to make the case that the current bureaucracies are indeed failing and are only operating in managements own best interests to better themselves. Showing that declining reserves and production are leading to lower profits and even losses. Costs are escalating incrementally as project targets slip. Systemically using derivatives on the commodities they produce to prove they have no idea or understanding of what business they are in. During all this time, management have been rewarding themselves for this performance with multi-billion dollar stock option compensation.

August 2008 saw the commencement of the discovery process on how the funding of this project can proceed. Sourcing revenue for this project from the disenchanted oil and gas investor is the most likely candidate for starting the revenue. Unlike management's fleecing of Bear Stearn, Fannie, Freddie and Lehman shareholders, the People, Ideas & Objects software development project provides the oil and gas shareholder with options.

The purpose of this project is to build an environment where the oil and gas investor can produce their oil and gas in the most profitable manner. This is about enabling the industry to evolve at the speed of the underlying sciences. Based on this body of intellectual property, where the software is hosted in the "cloud," and the community of users provide the services to the producers in their own service based offerings.

This software development project needs Users (Oil and Gas workers of all professions), Developers, Project Managers and Oil and Gas Investors. The oil and gas investor has a vested interest in sponsoring this project and providing the funds necessary to build the system. This system provides the investor with an alternative organizational structure to have their oil and gas assets managed by this community. Managed in the most profitable manner where they are able to effectively control their assets in their best interest.

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Shareholder beware.

This current financial meltdown is not an under regulation problem, but an over regulation problem. Although I have issue with the expectation that markets will fix everything, and this may be a symptom of that expectation, the real culprit is the separation of ownership and control within a business environment.

I pulled this reference from the www.adamsmith.org website.

...negligence and profusion resulting from
the separation of ownership and control in a business enterprise.

The author of the article that made that quote brings up an interesting point in the subsequent debate. And that is, the reference to the separation of ownership and control being the Federal Reserve and Treasury Departments recent actions to companies on Wall Street. The Fed and Treasury are certainly not accountable to the shareholders. He makes the following point as well.

There’s a pattern here. The biggest shocks to the financial system have all come from stock market companies. By contrast, hedge funds, which many expected to cause trouble, have been innocent bystanders. These are, generally, owned as private partnerships. So one form of ownership has caused a crisis, and another hasn’t.

To add insult to injury, the Fed and Treasury are trying to stop this immovable, and natural force. This is a Republican administration that is based in the Reagan doctrine. Recall that he stated the nine scariest words in the English language are;

We are from the government, we're here to help.

In Saturday's Wall Street Journal, Amity Shlaes says we are following the same failed steps that were taken in the lead up to the great depression. Her article matches the players and their roles between 1929 and today with frightening similarities. Do we really believe that the government is going to be able to solve these business problems?

Within the oil and gas industry we have a different type of problem. The shareholders are being fleeced by the management. Why, because the rules and regulations that are designed to protect the shareholders limit their actions to a few minutes each year. That also assumes that the investor can rally the other shareholders to fight the management. A proxy scenario that is played out in only the most extreme cases.

I have written many times about Professor Carlota Perez. Her analysis shows the results of seven severe global changes in economics. These have occurred over the past three hundred years with the last one being 1929's. She has identified the many stages that an economy progresses, and describes in historical detail the scope and scale of the changes. In a nutshell she has detailed the process of how the old industries die off and the new industries take over as the key in the economy. Her prescription is very accurately being played out on the today's newspaper headlines .

In each case Professor Perez details the important role that financial capital fills in these transitions. Overbuilding of the infrastructure of the next great surge is something that has systemically happened. Whether it was roads, canals, shipping or in today's instance the Information and Communication Technologies. (ICT)

This is a healthy period and one that should be embraced. What the old economy will be doing is falling flat on its face. The scope of the failure according to Perez has to be significant enough "that people know the old ways no longer work". That is the only motivation that people will have to move to the new economy. Financial capital then assumes a much less significant role in the economy. This eventually leads to the crashes and other "meltdowns" that are also systemic with her data and analysis. Product capital, something that barely exists in my opinion, rises from the ashes of the financial capital.

It is my opinion that we have another problem on top of the ones that are being discussed here. That is the management of organizations, companies and governments are invincible. That is to mean they are employed in the act of solving problems for the most part. Lets call this the new oxymoron, the art of management. It may be up to half the people in the U.S. economy are employed in a role of overseer. They can't help themselves but to manage their way out of a crisis. I don't think this was necessarily the case in 1929 and prior economic collapses. At some point, however, they will realize the fact that no one can stop these forces and they are not necessarily bad, and get on with the prosperous future that is in front of the us. Schumpeter calls it creative destruction for a reason. 

Charlie Rose hosted an interview with AIG's former head Hank Greenberg. As a significant shareholder in AIG he feels he should have a seat at the table when discussing any future firm plans. In the video, Greenberg is completely in the dark in terms of how the company is going to be affected, and no one has returned his calls. Amazing. This is not capitalism. The problem here is that we are talking about Hank Greenberg. If he can't get anyone to call him, why would any one call the smaller investors?

The attitude of the Fed and Treasury may have assumed that the time for Hank Greenberg to act was long ago. That he didn't act in a timely manner was his problem, and he should bear the consequences of his inaction. I think that the love affair that Hank had with Elliott Spitzer was probably what distracted him from fulfilling his rightful duties. Imagine that an individual run out of their business for innuendo and rumors from a dirty government official.

Lets be honest here, western society has believed the shareholder was passive. That management were best able to manage the company. These statements, from both perspectives, are now seen as folly. The investor can not sit idly by uninvolved. We all know it doesn't work that way. And more regulations on the management only entrench their useless activities deeper within their untouchable domain. Has anyone heard a single complaint about Sarbane's Oxley lately?

To my point in this web log. The oil and gas investor can see clearly how they are being treated, and their prospects of future treatment in this environment. They are also the leaders in this capital intensive industry. The money has to go first to make things happen.

Here is what I recommend for the oil and gas investor to do in the next five years.

• Start funding this project.

Our budget for this year is only $180,000 and that can be shared amongst many investors.

• Get out of the oil and gas companies that you own now.

Oil and gas has to transition from the old era to this new era. Picking the winners and losers is impossible. People, Ideas & Objects is the new era of how an investor can manage their investments. Actively, much like a hedge fund that was discussed earlier.

• Start picking off some of the properties in oil and gas that will be offered for sale.

The investors lack of investment in these oil and gas firms will cause the financial's to deteriorate. Particularly with the credit tightening that is now ongoing. The energy companies are going to have shortages of cash and the properties will need to be sold to maintain operations.

• Get involved in actively managing these assets by getting involved in the People, Ideas & Objects ERP system and community.
  

Don't let what is happening to Hank Greenberg happen to you. At the very least you should hedge your bets, join me here.

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Google Search Appliance

Google recently did a presentation about their current version of the Google Search Appliance. As with my recent post of how documents work in Google Docs and how I see similar behavior in the proposed People, Ideas & Objects Draft Specification. I will be adding the key points of Google Search Appliance into the Draft Specification.

Some of the key technologies in Google Search Appliance put it in the must have category of any firm. For this project that would include project managers, users, developers, producers and Joint Operating Committees (JOC's). It solves the key concern that I have about enterprise search, that being the right access to the right data.

I recommend that all readers view the entire presentation. It highlights far too many things that are of significant value to this software development project. A few of those highlights are listed here;

• Kerboras based User queries - makes queries recognize the scope of the users authority.
• Single Sign On (SSO) - enables the user to maintain high level security without having to constantly log in.
• Customized authority and authentication - able to build off the Security & Access control module of the People, Ideas & Objects application.
  
• Domain Specific Queries - enables the user to request data from People, Ideas & Objects and only the information within their domain will show in the search results.
• Document level security.
• Key match search provides authority attributes.
  
• Databases (MySQL) - can include data elements from the database as well.
• Related Web Search - search results can include web based results.
• Collections are indexes from Google and are unlimited technically, but overuse has a performance hit. Provides the ability to focus search in specific areas of interest.
• Customizable "front-end" or search page.

With this search capability users will be able to access their data from anywhere and at anytime. Yet provide the JOC and producer companies the user works for with a trusted source of search technologies.

Keeping on the topic of Google and their technologies. The addition of multiple languages to this application presents a very difficult technological issue. I have set up two projects in the private wiki; the first project will address the scope of the language related technical issue. The other project is to determine if Google's Language API can provide the translation from English to the other languages that may be used by users in the People, Ideas & Objects application.

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How will Oracle and SAP approach the oil and gas market.

Oracle and SAP have their systems installed in many of the top oil and gas producers. Encana for example uses a variety of Oracle products, which I believe include J.D. Edwards and PeopleSoft. Makes you wonder why are they're hiring developers to build their OilCo and GasCo consolidation software?

One of the critical competitive advantages that we currently have in People, Ideas & Objects is that we are not constrained by the existence of operational software code, and customers operating from that code base. Moving in the direction that the users want and need have no consequences in terms of time, money or effort. Change is dynamic at the beginning of the project and therefore, it is important to consider as much as possible for inclusion into the preliminary through to final specifications.

SAP and Oracle have to look at the oil and gas marketplace with the idea that they have successfully sold the application in the marketplace. What is their upside in terms of new revenue sources? What type of application can be sold into the market, and specifically how would it compete with this People, Ideas & Objects user driven initiative? What mode of organizational structure would be used to model the innovative oil and gas producer? I can only think of the bureaucracy and the Joint Operating Committee. Since this project holds the intellectual property of using the JOC, they are precluded from competing on that basis. SAP as I have said many times before, is the bureaucracy. And therefore any justification to replace Oracle or SAP's current software applications would need to address how it's not a waste of time, money and effort.

Please note this decision to replace the application is at the discretion of the users of this project. If they decide tomorrow to scrap the project and start anew that is fine with People, Ideas & Objects. We are not selling a software application over and over again. Our revenue is based on our Intellectual Property, the cost of developing the application and a percentage for maintaining and profiting from our development capabilities. The costs of this development is therefor substantially lower then the aggregate revenue streams of our competition. 

Which I guess that leaves two options for a producer that wants to shed their bureaucratic ways. Either pool the industries financial resources in the People, Ideas & Objects application, or hire a few hundred developers each to do some custom in-house work. The latter probably makes the least sense when we consider the current bureaucracies are faced with declining reserves and production, increasing debt loads, quarterly losses and retirements of the brain-trust. But then I am rather biased about that.

This project has to find new sources of money and leadership to fill-in the many voids of the overall vision. If you know of someone who could help to financially support this project please do what you can to bring their attention to this. Ninety-five percent of the ownership of the oil and gas industry is held by individuals. Individuals who are the investors, users and developers of the People, Ideas & Object application. Join me here and lets build this software.

The PayPal button on this website will gladly take donations that can further us along in the road we are headed. Even if you can only contribute $10.00 we will be that much further ahead. Join me here.

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McKinsey 2008 Web 2.0 Survey

Article 39 of relevant McKinsey articles sees the publication of their annual survey of "Web 2.0" technologies in business. What is clearly evident in this survey, is an enhanced level of interaction between suppliers, vendors and producers in the oil and gas industry, is enabled by Web 2.0 technologies.

A fundamental component of the Draft Specification is the redefinition of the boundaries between the firm and market. One of the objectives is that oil and gas producers must rely more heavily on the markets to better anticipate their needs. This is an extension of the logic that a producer researching and developing their own drill bits is wrong headed, and would be a comprehensively uncompetitive behavior. The competitive advantages of an oil and gas producer resides in their land base; and knowing what earth science and engineering capabilities exist within their organization, and joint interest partners organizations.

Building redundant duplications of capabilities in each silo'd company presents the industry with a critical shortage of these key human resources. If, based on the Joint Operating Committee's (JOC's) established partnerships, the producers pooled their resources, the unnecessary duplication of capabilities within each firm is eliminated. Releasing these resources to address the growing science and engineering demanded within each barrel of oil. This pooling also addresses the potential issues raised around the retirement of the industry brain trust.

Companies report that they are using Web 2.0 both within and outside their walls -- to forge tighter links with customers and suppliers and to engage employees more successfully. p. 1

How the Web 2.0 technologies enable the JOC and the producers that represent them is not so much of a technology issue as it is an organizational issue. The unique characteristics of the energy producer have always been addressed through the JOC; whereas the compliance and governance of the hierarchy has monopolized the attention of software vendors. This no longer needs to be the requirement.

I much prefer the term Enterprise 2.0, Web Services or Service Oriented Architectures (SOA) then Web 2.0. The intent is the same. However, I feel Web 2.0 addresses the consumer more then business. Call it what you will, according to McKinsey's survey companies are beginning to respond to the potential competitive benefits.

However, fundamental changes are beginning to take place among the satisfied companies as a result of their ambitious use of Web 2.0. These companies are not only using more technologies but also leveraging them to change management practices and organizational structures. p. 2

This is reflected in the attitudes towards Web 2.0 technologies. Writing a blog was perceived as a waste of time, now blogging is becoming more main stream as a form of idea communication. According to McKinsey's survey these technologies will begin to involve transactions. This may seem far fetched today, however, there really is no technical difference in a web enabled ERP system such as People, Ideas & Objects Draft Specification and one that Oracle or SAP sell. The differences are not IT related in nature, but our choice of which organization we define and support.

Following last year's pattern, Web Services (software that makes it easier to exchange information and conduct transactions) remains the technology with the highest level of use among respondents across all regions. Respondents also rate Web services as the most important tool. p. 4

The next step will be the innovative application of these technologies in the various primary industries. This is the primary focus of the People, Ideas & Objects application modules. Modules that enable innovation and solve the problems the industry faces today.

Innovation. Successful companies already use Web 2.0 for business applications such as communicating with customers and suppliers; soon they may use it to drive innovation. p. 10

I wish to appeal to those that have an interest in making this software development project real. If you know of a producing company, or an oil and gas investor that is interested in sponsoring this project, please email the URL of the web log to them and join me here.

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JavaScript and Java Applets.

I have expressed my concerns about exposing this applications client side to any JavaScript. JavaScript is unable to carry the freight in such an application as this software development project will demand. JavaScript has traditionally been buggy, non-standard and too functional for its own good. I have changed my mind about potentially using JavaScript on the client. The reason for this change is that I know we may not get there from here. Where there is, is accurately captured in this video.

This video discusses the effect of using small amounts of JavaScript in a browser window, or in our case a Java Web Start application. The upgrade is primarily to do with Java and its Applets, not JavaScript. These changes in Java will be what sets off an entire new revolution of client-side computing. With the applications architecture being Java and JavaFX the users of this application will be provided with an elaborate interface that will establish new paradigm's and methods of user interaction. I think this is just the beginning. Many different directions can be taken on the client side as a result of these technologies and we will see robust, stable and secure client side processing that befits the users of this application. It is therefore time to adjust our thinking regarding JavaScript.

Up until now we had incorporated Google's Widget Toolkit (GWT) to render the necessary JavaScript code from Java. No actual JavaScript was to be hand written and that provides an acceptable level of JavaScript associated risk in the People, Ideas & Objects application. Does leaving the coding of this functionality through GWT still provide us with the types of technologies that are demonstrated in the video? I don't know, as the video was using some technologies that are not generally available today, but the presenter was talking throughout about a Java to JavaScript bridge. Possibly Sun has incorporated many of the same technologies as Google's GWT. Either way these new ideas are employing JavaScript in a very small role that has very limited actual work. (Messaging)

I feel reasonably safe with these technologies such that I am not willing to give up on any of the upside of the associated benefits.

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Coase, the Nature of the Firm, 1937

Professor Ronald H. Coase, a Nobel Laureate in Economics has been referenced in many of the papers that Professor Richard Langlois has written. Since Professor Langlois' work has provided the bulk of the thinking that went into the Draft Specification, I thought it would be worthwhile to go back and look at some of the papers that Professor Langlois has cited as influences in his papers.

The paper that we are reviewing is the Nature of the Firm which Coase wrote in 1937 and captures much of the thinking that won him the Nobel Prize. There is a follow on article to this entitled New Institution Economics written in 1998. I acquired both papers through JSTOR and they are available there to those with access.

Langlois' key attributes in the Draft Specification were the defining of the boundaries of the firm and market, and transaction cost economics, particularly "dynamic transaction costs" which he defines as;

The need to bring otherwise decentralized knowledge together & co-ordinate it especially in circumstances involving learning and the generation of new productive knowledge. Langlois

A Joint Operating Committee (JOC) is represented by many different producers. If we are to eliminate the excess demand for human resources that exists in the marketplace today, and is projected to become much worse with the pending retirement of the brain trust. Then we need to eliminate the redundant duplication that exists from each producer aspiring to conduct all the operations that are necessary within their organization themselves. Specifically what resources are available if we pool the resources of the working interest partners in the JOC.

Implementing the Military Command & Control metaphor that assigns the roles and responsibilities across the organizations in much the same manner that NATO does; the JOC adopts a governance structure that is workable. This is particularly important as the expected volume of engineering and earth science applied to each barrel of oil is increasing each year and is the reason the bureaucracies costs are escalating and their reserves are declining. Based on Langlois dynamic transaction costs, there will be additional costs associated with these activities.

This post being a follow on post of our review of Professor Sidney Winters. In which the definitions of what is necessary for a firm to approach both the short and long term horizons of the business environment. A clear separation of the types of work being conducted on either side of that dividing line or boundary between the firm and market. Coase notes the following with regard to the topic at hand;

Our task is to attempt to discover why a firm emerges at all in a specialized exchange economy. p. 390

I wish to highlight an area of conflict that currently exists in the industry. That is the capital and operating cost escalation in oil and gas is attributable to the "greed" of field suppliers and contractors that want to earn their due when the sun is shining. This may be the case, however, I would suggest that the companies inability to work with the suppliers and treat them as extensions of their organization is the root cause of this cost escalation. The people in the field should be extensions of the producers organizations, they are how the firms can acquire the necessary "local knowledge", by using the market.

The main reason why it is probable to establish a firm would seem to be that there is a cost with using the price mechanism. The most obvious cost of "organizing" production through the price mechanism is that of discovering what the relevant prices are. The costs of negotiating and concluding a separate contract for each exchange transaction which takes place on a market must also be taken into account. pp. 390 - 391

Lets take a look at the business of the metaphorical widget factory. Most of the widgets are manufactured or assembled in-house with staff that are applied efficiently on the basis of their specialization. Their domain of operation is essentially contained within their four walls and they are able to see and realize the obvious and not so obvious. This is somewhat of a static situation throughout the term of the life of the firm. Oil and gas operations are scattered. They are short term operations based on some form of geological theory that is being applied, tested, and some of the time, rehabilitated. The daily production of oil or gas is a 24 hour operation that provides strong cash flow and earnings with little if any human supervision during the production period.

The oil and gas business would seem based on this description to employ the resources of the market on a contract basis using the full extent and value of the price system. To do otherwise is beyond the scope and scale of the producer company. These costs are inherent in the business and as such we should optimize the energy firm in the use and processing of transaction costs. These elements of the Draft Specification are detailed in the Accounting Voucher module.

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

All economic growth is achieved through greater levels of specialization. That is a known fact. For oil and gas producers their enhanced productivity will arise as a result of the effectiveness of implementing this higher level specialization. A tall order when the activity levels and scope of the sciences being applied to producing properties are so high. This is the point that I am trying to make. If an enhanced level of productivity is to be achieved in the industry, the field operations will need to implement and host a greater division of labor. That also applies to the JOC, where the pooling of resources from the participant firms will increase the division of labor at that level.

I now want to focus on the group of individuals that make up the long term view of the operations group contained within an oil and gas firm. These people are actively looking for better ways in which to conduct their operation. Focused on the sciences, they innovate and develop the means and methods for enhanced oil and gas exploration and production. Using the market to implement these, the firm needs to be actively involved in the business development of that market. Such that a speed and innovativeness is attained based on the understanding of the underlying sciences.

How the Draft Specification deals with this particular issue is through the publication of generic data of the producers planned capital expenditures. This interface of the Petroleum Lease Marketplace provides the market with an understanding of what and where the industry will need to be doing in order to achieve their goals. Suppliers are then able to better read what it is that they are expected on a long term basis. Producers on the other hand are able to see through the Research & Capabilities module those ideas of interest. And then engage the marketplace to develop and build those capabilities.

The alternative is to continue along in the muddling sort of way that has brought us to this point. The companies today telling the market place that it is greedy is only making the situation worse. The companies expect the market to read their mind and build the capabilities for the future. To continue to have this being done on speculation is going to further retard the growth of the industry. Holding 100% of the industries revenues and doling them out as dog bones provides a lot of power to the industry. With that power comes the responsibility to effectively ensure that the markets they use are operating correctly. It is my opinion they are not.

It is commonly said, and it may be true, that the new institutional economics started with my article, "The Nature of the Firm" (1937) with its explicit introduction of transaction costs into economic analysis. p. 72

How this of course is implemented is through detailed software applications built specifically for this purpose. This is one of the many opportunities available to the industry from this software development project. Some may say that I am reaching here in terms of the ambition of this module, I believe Coase supports these with the following comments.

In effect it is the institutions that govern the performance of an economy, and it is this that gives the "new institutional economics" its importance for economists. p. 73

and

Economists often take pride in the fact that Charles Darwin came to his theory of evolution as a result of reading Thomas Malthus and Adam Smith. But contrast the developments in biology since Darwin with what has happened in economics since Adam Smith. Biology has been transformed. Biologists now have a detailed understanding of the complicated structures that govern the functioning of living organisms. I believe that one day we will have similar triumphs in economics. But it will not be easy. Even if we start with the relatively simple analysis of "The Nature of the Firm," discovering the factors that determine the relative costs of coordination by management within the firm or by transactions on the market is no simple task. p. 73

Information & Communication Technologies (ICT) are not the solution as much as the means in which new organizational structures are able to resolve and provide these features.

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

The alternative is to continue doing the same things with the same organizations with the same results.

This change will not come about, in my view, as a result of a frontal assault on mainstream economics. It will come as a result of economists in branches of economics adopting a different approach, as indeed is already happening. When the majority of economists have changed, mainstream economists will acknowledge the importance of examining the economic systems in this way and will claim that they knew it all along. pp. 73 - 74

Please join me here for this difficult but worthwhile task.

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