The Preliminary Specification Part LXXI (R&C Part XIII)

Throughout the Preliminary Specification we have discussed the role that specialization and an enhanced division of labor will have in the oil and gas industry. In order to expand the output of the industry we must expand the division of labor. This applies to the areas that fall under the Research & Capabilities and Knowledge & Learning modules as well. It will be imperative that the user of these modules understand their basic needs are going to be met through an expansion of the division of labor and further specialization of the work force.

In a July 2009 paper written by Professor Richard Langlois entitled “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups” noted that gap filing was the process of expanding the division of labor.

Let’s take a closer look at the nature of the “gaps” involved. Adam Smith tells us in the first sentence of The Wealth of Nations that what accounts for “the greatest improvement in the productive power of labour” is the continual subdivision of that labor (Smith 1976, I.i.1). Growth in the extent of the market makes it economical to specialize labor to tasks and tools, which increases productivity – and productivity is the real wealth of nations. As the benefits of the resulting increases in per capita output find their way into the pockets of consumers, the extent of the market expands further, leading to additional division of labor – and so on in a self-reinforcing process of organizational change and learning (Richardson 1975; Young 1928). p. 7

This process doesn’t stop at one iteration. When the producers are looking at what they need to expand their production they can turn to the marketplace of ideas in the Research & Capabilities module. When the marketplace is free to develop their ideas and to earn the rights to those ideas then they will take the risks within that marketplace. The producer will be the one who benefits as a result. (That assumes that the entrepreneur that builds the product or service also benefits commercially.) Here is the evidence of that.

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

Nothing is more uncertain then the future of the oil and gas industry. Therefore to rely on central planning is to capitulate the frontier. And I would argue that their will be two types of producers in the very near future. Those that are operating on the frontier and those that are not. Therefore the need to establish an application module such as the Research & Capabilities module of the People, Ideas & Objects Preliminary Specification is a necessary precursor to the establishment and support for this market. To suggest that sophisticated markets such as the ones we are discussing in this module will be able to spontaneously arrive are too much of a leap of faith. Software holds a significant role in our lives and we need to begin taking control of the means of its production.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part LXX (R&C Part XII)

We live in interesting times. The Internet has had a remarkable impact on our lives in the past ten years. As we look forward, that impact has only begun. When we talk about the impact that the Internet will have on the capabilities of an oil and gas producer, we need to consider some critical factors in those capabilities. This post deals with those critical factors and how they are implemented in the People, Ideas & Objects Research & Capabilities module of the Preliminary Specification.

The purpose of a bureaucracy in the age of the Internet not only seems wasteful, it is. The pace of everything is slowed to a cumbersome and cluttered existence that defies common sense. The Preliminary Specification considers the Internet as an inherent given. Aligns the nine frameworks of the producer around the Joint Operating Committee. Automates the work that computers do best and keeps the work that humans do, the decisions, the ideas, and the collaborations front and center in the modules. To do otherwise would be a waste of the opportunity that is afforded to us by the Internet.

One of our top two research providers, Professor Richard Langlois wrote a book a few years ago that we reviewed as part of our research. The first chapter was entitled “Progressive Rationalization” and today’s quotes are from that chapter. In this first quote he notes the correlation between “new economic opportunities” such as the Internet and the “organizational structure”.

Economic growth is fundamentally about the emergence of new economic opportunities. The problem of organization is that of bringing existing capabilities to bear on new opportunities or of creating the necessary new capabilities. Thus, one of the principal determinants of the observed form of organization is the character of the opportunity – the innovation – involved. The second critical factor is the existing structure of relevant capabilities, including both the substantive content of those capabilities and the organizational structure under which they are deployed in the economy. p. 13

If we look at the first critical factor, the new economic opportunity, which in our case is the Internet. According to Langlois the “problem of organization is bringing existing capabilities to bear on new opportunities or of creating the necessary new capabilities”. The “character” of the Internet is that it enables the collaboration within the Research & Capabilities module as we have discussed to date. Recall in yesterdays discussion we noted that “ideas beget capabilities beget action”. The facilitation of ideas and actions are the two areas where the Research & Capabilities module enable the user to interact and engage in the community, the producer firm and the industry.

The second critical factor that Langlois notes “is the existing structure of relevant capabilities”. And here the People, Ideas & Objects Preliminary Specification has a distinct advantage in that we are isolating the short and long term perspectives of the producer firm between the Joint Operating Committee and the producer firm itself. By using the Joint Operating Committee in this fashion we are building on that innovation by leveraging the innovation of the Internet.

In this last quote from Professor Langlois he reflects on centuries of historical change and the manner in which that change came about.

In highly developed economies, moreover, a wide variety of capabilities is already available for purchase on ordinary markets, in the form of either contract inputs or finished products. When markets are thick and market-supporting institutions plentiful, even systemic change may proceed in large measure through market coordination. At the same time, it may also come to pass that the existing network of capabilities that must be creatively destroyed (at least in part) by entrepreneurial change is not in the hands of decentralized input suppliers but is in fact concentrated in existing large firms. The unavoidable flip-side of seeing firms as possessed of capabilities, and therefore as accretions of habits and routines, is that such firms are quite as susceptible to institutional inertia as is a system of decentralized economic capabilities. 

Economic change has in many circumstances come from small innovative firms relying on their own capabilities and those available in the market rather than from existing firms with ill-adapted internal capabilities. Chapter 5 will reconstruct the New Economy of the late 20th and early 21st centuries along exactly these lines, once again adding nuance and historical texture. If the antebellum period reflected the Invisible Hand of market coordination, and if the late 19th and early 20th centuries saw the rise of the Visible Hand of managerial coordination, then the New Economy is the era of the Vanishing Hand. p . 14

The battle lines have been drawn. Its the Internet vs. the bureaucracy. I have certainly tipped my hand as to who I think will win this war.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part LXIX (R&C Part XI)

During our first pass through the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification we noted that the nature of the modules would enable the users to initiate, at any time, commercial actions on the ideas and activities in these modules. This post deals with those actions that can be generated from those ideas and activities and the importance of this module as an ERP system module.

ERP system modules have traditionally been focused on recording transactions and reporting those transactions to the various users of the information. To do that is still required of an ERP system but if that is all that we are doing then we are missing so much of what an innovative oil and gas producer needs. In the sense of a Research & Capabilities module, the need to deal in the marketplace of ideas is where the producer needs to have a presence and understanding of what is happening in the oil and gas and service industries. Participation is mandatory for success in a world where the speed of ideas and their implementation will be weeks and months, not years or decades.

An application that fulfills the needs of a producer in this manner has to have the input and contributions of all the other producers and the service industry as well. The applications installation is multiple industry, not just within one producer. The perspective of the user in some instances will be a window on the industries that are available to them. Now what is needed is the ability to have the systems that can initiate actions on those ideas and actions of interest to each of the users of the Research & Capabilities module.

We noted in our first pass of the ability to right click while in the Research & Capabilities and Knowledge & Learning modules any idea or action of interest. This would bring up a menu of items where the user could select the ability to initiate a Work-Order from the Resource Marketplace module, initiate an AFE with a partner in a Joint Operating Committee, etc. The point in mentioning this is from both McKinsey and Harvard Professor Carliss Baldwin. First quote is from McKinsey.

Productive professionals make big enterprises competitive, yet these employees now increasingly find their work obstructed. Creating and exchanging knowledge and intangibles through interaction with their professional peers is the very heart of what they do. Yet most of them squander endless hours searching for the knowledge they need, even if it resides in their own companies and coordinating their work with others.

Once they find something of interest the user of the Research & Capabilities and Knowledge & Learning modules should have the full scope of an ERP application at their disposal. The ability to initiate any action of a commercial nature would take the idle capabilities of the producer firm or the Joint Operating Committee and put it to use. As Professor Baldwin notes.

Changing routines, competencies or capabilities based on knowledge must cause firms to have shifting knowledge boundaries. The span or scope of knowledge available to a firm will change over time as required by its changing activities. But theories based on knowledge cannot directly explain the location of transactions. First, the domain of transactions is a domain of action: goods are made; services are performed; compensation is paid and received. But actions enter the knowledge based theories only indirectly: knowledge begets capability and capability begets action. The actions themselves lie outside the scope of these theories. 

These quotes capturing the importance of embedding these two modules within the People, Ideas & Objects Preliminary Specification. Without the ability to initiate the actions within the organizations the capabilities will be trapped. In a world where the software needs to be built to identify and support the organization first, these are important considerations.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LXVIII (R&C Part X)

Lets review from a high level the process that is managed by the Research & Capabilities module of People, Ideas & Objects Preliminary Specification. The module has an interface to a marketplace where people, firms and service providers actively post their ideas for new products and services to help in the exploration and production of oil and gas. This marketplace provides the producer firm with the ability to explore new ideas and participate in their development with other producers. As time passes and the capabilities of the producer develops, they are able to deploy these enhanced capabilities through to their various Joint Operating Committees through interfaces in the Knowledge & Learning module. What we are creating in the Research & Capabilities module is a window on the marketplace of ideas.

Now what is so significant about ideas. First its one of the few areas that computers are unable to provide any assistance in. People are the necessary ingredient in idea generation and application. The second important aspect of ideas is that we are going to need a lot more of them. The volume of ideas that are necessary today are an order of magnitude higher then what were required a generation ago. And the volume will need to be an order of magnitude higher in just a few years time. That is the nature of ideas.

If the innovative oil and gas producer is going to be iterating on the science and technology of the oil and gas industry. They will need to participate in a marketplace that is very dynamic. One that deals in every kind of idea, good, bad, brilliant, dumb or new. For if today it takes one idea to build one unit of value, tomorrow it will take two ideas to hold that value, and five ideas to build another unit of value. Such is the nature of where we are heading. If you’re not participating in the marketplace of ideas then you wont be participating in a market of value.

We are seeing the respect for ideas beginning to be reflected in the marketplace. Google’s acquisition of Motorola was a defensive move to shore up their patent portfolio. A $12 billion move. I have been overtly critical of the manner in which the oil and gas industry has treated the service industries Intellectual Property (IP). This must change and they must begin to respect the ownership and development of IP if they are to benefit from a marketplace of ideas. There is no one who will participate in a marketplace if they see that the oil and gas producers will not respect their IP. If they risk their IP being poached by their very customers, then they will not participate, and therefore the marketplace for ideas will stagnate. At which time, if that stagnation where to occur, the producers could call the service industry greedy.

Seeding the promising ideas with funding will be another role the producers will have to undertake. However, since they will be respecting the IP of the owners they will only have to fund one project, not several “me too” copy cats. This will allow the owner of the product or service to fully leverage the oil and gas producer marketplace for their product or service and hence, not have to rely to heavily on initial funding.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LXVII (S&AC Part VI)

This post discusses the manner in which authorizations, roles and responsibilities are handled in the Security & Access Control module of the Preliminary Specification. Although we have moved beyond vacation season, we should also discuss, the topic of delegating the authority and responsibility during absences, which is something that can come up at any time.

As background we should recall that each individual would have different access levels and authorizations in terms of access to the People, Ideas & Objects systems. Assuming different roles and responsibilities would impute different access levels to data, information, processes and functionality. On top of that, the Security & Access Control module is the key module for imposing the Military Command & Control Metaphor throughout the People, Ideas & Objects application modules. This structure, particularly in a Joint Operating Committee, would work to weave the multiple producer firms under one chain of command. It also provides an interface to ensure the coverage of all the processes were “manned” to ensure compliance, governance and overall completeness of the process.

Throughout the Preliminary Specification there is the perception of a heightened role for technology in terms of enabling the authorization to conduct operations within the system. That is to say the ability to do things and get things done is through the collaborations with partners and to authorize actions through participation in the processes managed by the systems. This participation dictates that the designation of the roles in the Security & Access Control module “means” more then just data access; but also imputes authority and responsibility to undertake actions on behalf Joint Operating Committees and / or producer firms.

Consideration should be given for whom has authorization to sign an AFE or who can sign for a payment. In a system such as People, Ideas & Objects, will there be the need for any paper? In order for the system to operate it must respect a chain of command or structure that imposes some authority and responsibility to those within the organization who have that authority. I know, (he says sarcastically) we’ll use the Military Command & Control Metaphor (MCCM). As it has been stated here before the MCCM is to be used throughout the Joint Operating Committee and the producer firm for these reasons.

It would also be necessary to be able to assign this authority within the Security & Access Control module during any absence. If someone with authority and responsibility were to be away for whatever reason, or for a short period of time, they should be able to assign their authority to another person to fill that role while they are away. This will ensure that the process isn’t held up during their absence. Delegations of authority have been used for years in larger firms and with a system that imposes the authorizations and responsibilities on specific roles, the ability to temporarily move them down, across or up the chain of command is a necessity to keep the organization functioning.

Lastly we should talk about the interface that helps to identify the missing elements of a process. It would simply show the command structure of the people who are assigned to a Joint Operating Committee or to a process and their related role, authorizations and responsibilities. If someone was to be away then it would show who was taking over their role. It would also help to identify how you could impose the chain of command to fill the void of any vacancies. This would be particularly important if the role or process was needed to be documented for compliance purposes.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part LXVI (AV Part VII)

Just a couple of small points to follow up on in this second pass through the Preliminary Specifications Accounting Voucher. Conceptually I think we may have captured all the significant areas in the published parts of this module. That doesn’t mean that the community won’t have significant changes to the specification, I’m sure they will. Its just that as it stands now, the contribution that I am able to make in starting the Accounting Voucher discussion is conceptually complete, and the remainder will be for further clarification.

We have discussed the point of Designing Transactions in the Accounting Voucher before. It comes to mind that we currently use a basic form of transaction design in oil and gas today. And as I mentioned elsewhere in the Preliminary Specification series, designing transactions is the type of work that is done by Lawyers in most commercial transactions. The transaction that I was referring to was the drilling contract which has a list of the categories of work that is being done during the drilling of the well. Under each category the producer is able to select whom will provide the service, the drilling contractor, a third party or the producer.

With the automation of systems, and the understanding of the other modules contained within the Preliminary Specification. It would be optimal to automate this and other interfaces within the People, Ideas & Objects application; such that the contracts, negotiations, execution and invoicing could be automated to the highest levels. This is the opportunity that the community faces in taking these “ideas” and making them real through the development of this system. That is the reason for the large budget in terms of the Preliminary Specification and overall software development.

The second item I wanted to discuss today was related to that level of automation. Transaction Cost Economics talks about the costs of processing transactions. Where if the costs of processing transactions is high, it is best to centralize them within the firm where they don’t have to be individually itemized. Or if the costs are small then they are best to be provided by the marketplace. By automating transactions we are able to reduce their costs to almost a negligible level. With the costs of transactions being so low, moving transactions to the market is the natural choice for the industry to undertake. And that supports a heavier reliance on the division of labor that we have discussed here and in other modules on many occasions.

So when we discuss the pooling concept in the Partnership Accounting module it is assumed that the costs of these resources will be recorded in an automated fashion in the Accounting Voucher. Reducing the transactions costs is the opportunity that we have and the technology provides the means in which to implement it.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part LXV (AV Part VI)

Its very 1970’s ish to be thinking of a Purchase Order system. The 1970’s is the last time that I can think of any one ever using one. (It certainly might be used in the larger firms, however, I am unaware of this.) The practicality and usefulness of these systems seemed to have vaporized in the 1980’s and no one has considered their existence since. Now we talk in terms of Supply-Chains, however oil and gas doesn’t have a “supply-chain” as the term is used. Supply chains are for retail and manufacturing. Purchasing is for oil and gas.

I would reiterate that the use of a Purchase Order system is something that the user community needs to determine if it wants one. I see substantial value in building one and these posts will attempt to document how that value can be realized.

The Purchase Order system is part of the Accounting Voucher in that it is a necessary part of the processing of any large capital item. The use and application of the AFE, Cost Centre or Lease charge code remains the same irrespective of the Purchase Orders existence or not. There is no change in the coding structure as a result of the inclusion of the purchase order number. The Accounting Voucher relies on the Purchase Order for further approval of the specific contract dealing with a particular vendor on a specific project.

There are a number of cases where the management of the vendor relationship needs to have special considerations. Particularly in oil and gas where the details of the project are specific and large. Engineering contracts for the building of gas plants, pipelines and facilities are some of the examples. Situations where the contract must meet certain criteria and the vendor must qualify to meet those criteria during a bidding process. Its of concern to the producers that the firm that is chosen is capable of undertaking the work that is described. It is not just a lowest cost and the bid wins type of contract bidding process. This overall bidding process falls under the larger Purchase Order process of the Preliminary Specifications Accounting Voucher.

Once the vendor has been selected then the approval of the invoices is subject to the terms and conditions of the contract. Any prepayments or partial payments can be processed on the basis of the strength of the Purchase Order document and the final payment is subject to the satisfactory completion of the contract. If the contract is subject to any hold backs and other conditions, then those would be applied within the Accounting Vouchers payments.

The Purchase Order system is designed to provide the producer(s) with a level of control over large contracts. Something that is done frequently in oil and gas. By managing the bidding process and providing a level of control over the contract in terms of making and controlling the payment process. The Purchase Order, I think is a valuable tool in any producers system. Having these contained within the Accounting Voucher of the Preliminary Specification is the natural placement of these control processes.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LXIV (PA Part XI)

Yesterday we discussed the manner in which the division of labor and specialization could increase the throughput of the engineering and geological capabilities of the oil and gas industry. How the mountains of this type of work could be approached by pooling the technical resources of the producers represented in the Joint Operating Committee. Today I want to talk about how the cost of those resources would be recognized and recovered in the Partnership Accounting module of the Preliminary Specification. What this blog post is also about is the multitude of equalization's that need to be taken into consideration each month for each producer in order to calculate their working interest share of the property. And how the Joint Operating Committee authorizes these funding requirements.

The first issue that needs to be dealt with is who is going to charge for work done at a Joint Operating Committee and why. For that we need to revisit the Work-Order system that is part of the People, Ideas & Objects application modules. Recall that these are based on the AFE, lease or overhead accounts of the partnership and are therefore a pre-approved means of controlling the costs. Without a valid work-order no one can be charging any work to an AFE, lease or overhead account. And with a work order, only the work that is authorized through an AFE, lease or overhead account will be completed.

For the purposes of this post, we have an example that assumes your firm has contributed two engineers and two geologists to a property that is producing a positive cash flow in the current month. The part-time costs associated with the authorized work was part of an AFE approved by the partnership, and the work order was prepared by one of the producer firms. The hourly costs of these employees is captured in the work order and calculated based on standard costs. These standard costs are then charged to the joint account as represented in the Partnership Accounting module with an appropriate revenue offset for your firm for providing the engineers and geologists. For the purposes of accounting lets suggest we process this accounting entry. The reason for the $900 is the standard costs vs. the actual costs of $1,000.

Dr.     Salaries          1,000.00
Cr. Payroll                1,000.00

Dr.     Joint Account  900.00
Cr. Revenue Offset            900.00

Now when the clearing of the accounts at month end occurs there is also an equalization so that any contribution that any producer made to the joint account can be taken into consideration. These can take the form of whatever is agreed to by the partners and this example assumes that technical resources have been agreed to. The case that we are assuming here is going to distribute the $900.00 in engineering costs to the partners. If you had a 25% working interest share then you would therefore be responsible for and charged $225.00 of these costs. And the Revenue Offset would be processed at 100% or $900.00 as a revenue item. Therefore the net proceeds in the joint account of this transaction would be revenue of $675.00.

Now this example was a cash flow positive scenario and the question needs to be asked what happens when the Joint Operating Committee is in the very familiar situation where it doesn’t have any revenue. This situation remains the same. The net $675.00 in the above example is derived through the payment of the costs by the other partners and that remains the same. This producer would still show a Revenue Offset of $900.00 on their Statement of Expenditures and the net balance would, since it has no revenue, be for a cost, not an income.

How these equalization’s are handled is proposed to be automated through the Work Order system of the People, Ideas & Objects application modules. Capturing the time of the individuals as they worked on the specific approved project would generate the above accounting entries. Then the clearing of the accounts would account for any subsequent equalization’s at months end.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LXIII (PA Part X)

Today I want to spend some more time in the Partnership Accounting module of the Preliminary Specification discussing the pooling of human resources between producers into a Joint Operating Committee. Also discuss the justification for why we need to do the pooling and a bit about the division of labor and specialization in order for the industry to increase its throughput and activity level.

The first point is the most controversial and suggests an alternative way to how the bureaucracy manages their technical capabilities today. Today the bureaucracy builds silo’s of engineering and earth science capacities that are capable of dealing with any and all contingencies that the firm may face. This is a reasonable approach to a difficult business, with the inherent risk profile that oil and gas has, safety is a priority which can be handled in this manner. The problem arises as a result of each and every producer replicating the same capabilities within their organizations. As a result the industry has unused capacity that is unavailable for use at any time and at any place in the industry. At a time when the engineering and earth science talent is at a premium in terms of demand, this hoarding of resources will only continue to escalate.

What if there was a way in which firms could release the surplus earth science and engineering capacity and alleviate the market demand on these resources. Yet still have that surplus capacity available to them. Do this at a lower overall cost and have a higher throughput at the same time. Sounds impossible but that is what is required to solve the problems the industry is faced with today.

If we were able to pool the technical resources from each of the producers who represent the Joint Operating Committee. Then we begin to break down the individual silo’s and the hoarding problem. One of the key advantages of using the Joint Operating Committee is that all of the partners are financially motivated. Consensus is easily achieved because of this and that will continue.

Now I know the difference between a good engineer and a super star. The perception that “our” capabilities are better then “theirs” type of comparisons. The problem will however come down to, in the hoarding situation, no one is left to do the bread and butter engineering that should have been done two weeks ago. Life is one percent inspiration, ninety nine percent perspiration. The bread and butter issues are what need to be taken care of. How the majority of the bread and butter work gets done is the focus of this blog post.

The solution to where the enhanced engineering and geological throughput comes from is where the division of labor and specialization come into play. But first let me reiterate that in this day and age, to manage a process, or to change a process requires that the software to manage that process be built first. People, Ideas & Objects are proposing to build these processes for industry so that these changes can be made. It is not enough to attempt to make the changes in the business without the software. That should be painfully obvious. It was in the Preliminary Research Report that I stated this, and the bureaucracy have interpreted this to mean, by ensuring no changes take place to the software, ensures they are unchallenged in their current role.

To approach the mountains of earth science and engineering work that needs to be done will require a new approach based on the tried and true division of labor and specialization principles. By breaking down the jobs into smaller more specialized components the process can be managed in a way that is faster and more efficient. The productivity of this process would be an order of magnitude more efficient then what is done today. This process would be managed through the Partnership Accounting module with the Military Command & Control Metaphor to maintain the chain of command and authority from the producer firms. What may have taken 6 engineers and geologists on a full time basis may now be done by 35 part time engineers and geologists. These engineers and geologists may be assigned to over 100 properties or Joint Operating Committees. Management of the process, as one can see, is the key to productivity. The point of the exercise would be to get the bread and butter engineering and earth science work completed.

The need to have a system that can cost these resources is what we will discuss tomorrow. How the industry ultimately organizes the bread and butter engineering and earth science that needs to be done, whether in-house, or out-sourced is unknown. However, the ability to manage the process and cost them to the joint account will be necessary.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part LXII (PA Part IX)

We move now to our second pass through the Partnership Accounting module. Now that we have also made our initial pass through the Accounting Voucher we are able to compare some of the similarities and differences between these two modules. That is the topic of this blog post, how in the Preliminary Specification the Partnership Accounting and the Accounting Voucher work together to solve the difficulties in dealing with the accounting issues for the Joint Operating Committee.

The best way to continue to describe the similarities and differences are to pick up the discussion of the Material Balance Report. When we last discussed the report in the Accounting Voucher we noted that the voucher needed to balance the debits and credits as well as volumetrically for material, system and partnership balance. Note that these are all the monthly variables that have to do with either financial transactions or production volumes for the current month. Therefore these monthly variables would be processed through the Accounting Voucher. Also note that these balances are for the 100% working interest share of the Joint Operating Committee. How does the producer know that their share is calculated correctly?

We also discussed a “template” that contained information that was used to process the monthly variables. The wells that production was from. The contracts production was sold to, and the functional units that process fees may have been charged on, etc. These 100% share constants are part of what are contained within the Petroleum Lease Marketplace module and represent the whole contracts. They are pulled from the Petroleum Lease Marketplace module, or elsewhere, to populate the “template” that reside semi-permanently in the Accounting Voucher.

Now the Accounting Voucher, in the instance of the Material Balance Report, is a Joint Operating Committee voucher. Therefore the clearing of the accounts will be to each of the producers and they will each have access to the Accounting Voucher. The Partnership Accounting working interest share constants, which is similar in its makeup to the “template” in the Accounting Voucher, are a check and a balance for the Accounting Voucher calculations and each individual producers share to ensure that their interests are being calculated correctly in the Accounting Voucher. Since they are based on their understanding of the agreements as represented in the Petroleum Lease Marketplace module, there should be no variances. However this is oil and gas, if there was a variance then the producer would be notified before the voucher could be closed. [Note. Since we are developing these systems we will be using one data element to populate all three modules.]

The extent of this verification will be limited to the level of constants that the producer would have chosen to have populated the “template” in the Partnership Accounting module. The system won’t go out and look for the variables elsewhere. Therefore the level of system verification can be as high or as low as the producer feels comfortable with by populating the Partnership Accounting “template” with as many constants as they feel necessary. On the other hand the Accounting Voucher needs the full template of information in order to correctly process the information in the current months voucher. It is not an option or system verification as it is in the Partnership Accounting module.

I think that to have a variety of systems checks and balances on the calculations are a necessary part of the Partnership Accounting module. In the hands of the People, Ideas & Objects software development team, and user community I think this area of the module could become quite sophisticated, and as opposed to just tripping up the closing of the Accounting Voucher, be quite helpful in determining a number of accounting related difficulties to focus on. We discussed some of those possible accounting related areas in our previous posts on Partnership Accounting.

If a variance should arise in any area there would be a reason for it and upon further investigation probably lead to some adjustment. Any changes to an agreement that your firm was not made aware of would show up immediately. The data within the producer firms could not get out of line for more then the current month without large variances showing up somewhere. This system of checks and balances working in an automated fashion, if the data was updated appropriately, then the various instances of the data would be updated in the “template”, therefore leading to no variance. Once the “template” was setup, the user would only need to deal with any variances and work to resolve them. Ensuring that the producers accounting was being processed appropriately and the focus of the accounting resources was only on the issues that were of material concern.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part LXI (FM Part VII)

I just want to take a moment to reiterate the Preliminary Specification series that I am publishing over these next few quarters is designed to initiate the process for the community. Earlier on it was thought that the community would be able to use the Draft Specification and the research that was contained within the blog. However, I think that by producing this series it is more organized and easier for the community to get a handle on the complexity of the processes and functionality of the modules. I think with this series, the Draft Specification and research the community will be able to get a solid start on the Preliminary Specification when it begins.

In today’s post I want to discuss one of the key differences that is occurring during the transition from the easy era of energy development to the current more difficult energy era. In the Preliminary Research Report I was critical of a what I called a banking mentality in the investment attitudes in oil and gas. Where, similar to a bank, one could invest your money in oil and gas and expect an annual 10% return on somewhat of a guaranteed basis. This banking mentality had arisen, I suggested, as a result of the poor energy prices in the 1980’s and other difficulties in the business in the early 1990’s.

Now some may think that I am contradicting myself from yesterday’s post by stating that this banking mentality is only the market dictating an expected return. I would suggest the two are different. Investing only to participate in the types of returns that a bank is able to compete with imputes that the industry has no risk profile. That everything is invested for the expected cash flow that will provide for the return on a proven basis. This is how the industry was run, with essentially no risks taken. Looking at the heads of successful oil and gas companies found financial people, lawyers and accountants as CEO’s. People who could relate to the commercial end of the business and deliver on the promised returns. Engineers and geologists toiled in obscurity.

Contrast this to the times of the 1960’s and some of the 1970’s when the industry was actively exploring for new fields. Investments were being made for the purposes of the long term prospects of the firm. The cash flows of the firm were worked on, however, the prospecting was the key to the future. I see today, in this difficult energy era, as being more similar in terms of investment attitude to the 1960’s and 1970’s time then the 1980’s and 1990’s. An era that is based on the earth science and engineering capabilities of the producer and what can be done in terms of discovery, and the production of reserves. A time when the engineering and geological minds were running the firm, and the accountants, finance and lawyers were in their designated support roles.

The bureaucracy that brought you the banking returns of the 1990’s are still running the show today. (Lawyers are a sticky bunch.) For them to become the team that will discover and produce the energy in this new earth science and engineering focused era can’t happen. There is no such metamorphosis. Until such time as the engineers and earth scientists move to control the firms and establish themselves in full control of the firms will this transition be complete. And we might only be at the beginning of this trend. Although I have seen a number of geologists as CFO’s, a trend that I think is very positive.

In terms of the Financial Marketplace module, as an investor, I want to know who has the best team and the best capability in terms of their earth science and engineering talents. In terms of how that potentially, as an investor, can make me money is significant. These geological and engineering teams potential to find large volumes of oil and gas reserves, and have those values realized overnight is of significant interest to me, as an investor. It is therefore necessary I think that the producers have some ability to promote their exploration and development team, prospects, capabilities and opportunities in the Financial Marketplace module, subject to regulatory compliance of course.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LX (FM Part VI)

Our previous post reflects how the Preliminary Specifications Financial Marketplace creates the environment where speed and performance are rewarded with the ability to have the financial resources available when they are needed. A key focus of that marketplace will be on the return that is provided to the investors, and how the producer remains focused on providing the highest returns, and the delivery of those returns.

The first item of information that a marketplace should tell a producer is what is an acceptable rate of return for an investment in oil and gas. This is the criteria that all producers should use to evaluate their oil and gas investments. If the rate of return or capital allocation does not exceed the markets expected rate of return then the project should not proceed. There is no more important factor or information that a producer needs to know. The producers discipline and methodology in its capital allocation is how the successful producers succeed. This blogpost is how the Financial Marketplace module incorporates the calculations of return on investment and capital allocation in the Preliminary Specification.

First of all there are no more confidential, in my opinion, information then these calculations. Particularly the capital allocation can be a complex algorithm that is usually contained within multiple spreadsheets. Centralizing these calculations within the Financial Marketplace module would be opportune as its managed by the Security & Access Control module and general access to the historical accounting data. There is however much more to the decision making process then just the numbers. The managements discussion, based on the calculations is sometimes the important feature. Therefore having robust features for discussion throughout the calculations of return on investment and capital allocation will be necessary. This might best be represented as a black board feature of the module.

There is more to the process then just blue sky thinking and number crunching too. What I am suggesting here is that the process of capital allocation is an art as much as it is a science. The process needs to be rigorous and thorough enough to ensure that every rock has been overturn and inspected. That process can and should be automated to the highest level in the Preliminary Specifications Financial Marketplace module. It is up to the individual producer to either follow the process or to ignore it, as much as they do the capital allocation process today.

Astute readers will note the obvious contradiction that is inherent in the Financial Marketplace module. You have to love the contradictions. Doesn’t the speed we discussed yesterday contradict the deliberate pace of the capital allocation process described here? No, that is to say it shouldn’t, or they should be one in the same. Having the speed that was described yesterday was desirable only if you had some measure of control. The control is attained through the capital allocation process that is described here. These two forces, speed and control, are in the hands of the management of the firm and are reflected in the performance of the assets. The marketplace will see this performance and respond appropriately and that will be reflected through the Preliminary Specifications Financial Marketplace module.

Another contradiction might be suggested that with banks funding Joint Operating Committees on a semi-autonomous nature, this will interrupt the capital allocation process and affect the return calculations of the firm. We discussed this in a previous blog post on the Financial Marketplace module. That banks funding the Joint Operating Committee as opposed to taking general claims against the individual producers. Would be more motivated and aligned to develop the individual property. This might be contrary to the producer own capital allocation processes. That is true, however, since they are using borrowed money to invest in that Joint Operating Committee they are leveraging the investment of the producer. Therefore the actual return to the producer “should be” leveraged to the point that it would exceed the markets expected return.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LIX (FM Part V)

Here at People, Ideas & Objects we frequently state that we are moving the compliance and governance frameworks of the hierarchy into alignment with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategy frameworks. We are doing this to achieve greater speed, innovative capabilities and accountability. This post is to discuss how some of that speed is achieved, by reducing the financial constraints and the time required that financing has traditionally taken in oil and gas.

In our previous pass through the Financial Marketplace module. We discussed how banks could finance all the producers within a Joint Operating Committee. As opposed to today’s method of each producer having their own banker. This would provide a focus for the bank that is unconstrained by any other properties or concerns. We also discussed, with the technology automation that is available today, that both the producers and the banks could automate most of the increased logistical banking requirements that this would cause. I also suggested that the disenchanted oil and gas investor might be better served by providing them with the ability to invest directly in the property, giving them the opportunity to circumvent the bureaucracy. A bureaucracy that has provided no upside on 400% energy price increases. And lastly that these changes, made through the Financial Marketplace module, provide a focus for the alignment of the financial interests to the Joint Operating Committee to achieve some of that speed, innovative capability, and accountability.

Now lets explore that speed aspect. The Financial Marketplace module is one of three of People, Ideas & Objects marketplace modules. That imputes a line of communications is open between the financial marketplace and the producer firm that is above and beyond that of the compliance requirements. It is therefore going to have to be authored by the senior people of the firm who know what it is that they are authorized to state. The current investors who have an interest with the producer would be able to source historical accounting data and information on their investments from the producer from the Partnership Accounting module. Future plans and investments, the difficult situations to discuss, could be published and promoted in the Financial Marketplace and meet the regulations requirements for full disclosure. Thereby giving no investor or group any unfair advantage in terms of quality of information.

The point of the marketplace is the opportunity to establish significant and rich relationships with investors and bankers of all shapes and sizes. Make no mistake, the ability to attract capital will be on the basis of performance, for that there is no alternative. However, the speed and effort at which a producer is able to raise the funds necessary to develop their assets depends on the quality of those assets and the quality of the relationships they have with the investment community. The Financial Marketplace module helps to establish a stronger relationship with the investment community, therefore in a significant way increasing the speed at which you can approach the oil and gas business.

In a capital intensive industry, financing is a critical issue for any producer. In an industry where innovation is providing significant value add, and with escalating capital and costs of operations the relationships with your investors need to be of premier concern in your business. Speed will become a major criteria on how you will be evaluated in the marketplace. If you as a producer are unable to perform in terms of competing, or participating at the speed of the marketplace, you will be left behind, very quickly. Reputation has a permanence to it that is difficult to change. Financing can give you a head start and the ability to participate at the speed of the marketplace, and maybe even set the pace for those to try and follow. The speed at which a producer is able to execute would be reflected in the Financial Marketplace module. Transparent marketplaces are a two way street. And it is here that I think the Financial Marketplace module will enable those producers with superior performance to attain a real speed advantage.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part LVIII (PLM Part VIII)

In today’s post I want to talk about the data and information that is contained within the Petroleum Lease Marketplace (PLM) module. Much of the collaborative information that is generated by the partnership representing the Joint Operating Committee is generated and stored in the PLM. This would include agreements, leases, AFE’s, etc. Access to this data would be based on the users need to know and would be based on the data’s nature of being either public, partnership or private in nature.

There will be a large percentage of the data within the PLM that is public in nature. This data will include the lease documents themselves and reflect who the lessee is and the mineral rights held. Although this information is public in nature, that is its available from the lessor’s websites, there is little reason to hold it public from a producer point of view. Access to a producers or Joint Operating Committees data and information through the People, Ideas & Objects application modules via a public interface doesn’t exist. Although the data and information may be accessible elsewhere, it is not available unless the individual has direct access granted through the Security & Access Control module.

Next there are areas where the data and information would be considered to be “partnership”. This of course being data and information that is directly related to the Joint Operating Committee. We have discussed the research project that the user community will undertake in the Preliminary Specification to determine if the data will reside with the JOC or with the producer. This is a good example of where the issue resides. If the agreements, leases and AFE’s are the same for all the producers why not store them within one location in the JOC and have access by the authorized producers. Then everyone is working from the same documents. Here’s where the Military Command & Control Metaphor will need to be sophisticated enough to enable the appropriate users from different producer firms to access these documents. Another consideration for the research project of the user community.

Then there will also be the private information that the producer generates that will be for strategic and tactical concerns, that will be for the producers eyes only. These discussions could be regarding one of the agreements that should not end up in the “partnership” area. How does a firm maintain access to this critical information and ensure that it doesn’t leak out to someone that it shouldn't?

The Draft Specification also asked an interesting question regarding the publication of aggregated data. It was in the context of the 3 - 5 year capital budgets of the producers. If producers were to maintain their expected capital budgets for the next 3 - 5 years in AFE format within the PLM, would they be interested in publishing that data in aggregate through the Resource Marketplace module. Now this data would be scrubbed of all pertinent proprietary information and only represent dollars, general geographical area and account classification. This information would provide the Resource Marketplace with information of approximately what the marketplace might look like in the 3 - 5 year time frame so that they could plan to meet the expected demand. Valuable information from a supplier industry point of view.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.


Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part LVII (PLM Part VII)

In this post I want to discuss the manner in which People, Ideas & Objects software development team will support the division of labor and specialization in the Preliminary Specification and particularly in the Petroleum Lease Marketplace (PLM). We had discussed in the previous parts to the PLM that the determination of where the data would reside, and hence where the people would work in the industry. Would the data be stored within the Joint Operating Committee or the producer. This was to be determined by the community based on their research. We also noted that with the division of labor and further specialization of the people that work in the industry required that maybe individuals might not work for a specific producer or Joint Operating Committee but instead work for a process that was billed for example as a service to a 1,000 JOC’s representing 200 firms. This post assumes that both situations, the data is stored at the JOC, and a process is managed by a dedicated team that employs the people who work for a variety of JOC’s representing many producer firms, are the case.

When we consider the global experience and understanding of the people that are employed in the oil and gas industry. We have many people today with a diversity of experience and understanding of the industry. When we think of the future, in order to deal with the ability to handle the greater volumes of work, we generally feel that there is a need to have a wholesale increase in the overall experience and understanding of the industry. But is this necessarily the case. With the division of labor and specialization we are able to rely on a level of experience and understanding of a few that understand the entire process, and assign the specifics to those that can specialize in their own specific domain of understanding. With each person taking care of their part of the process, at a high level of understanding, the entire process is managed with an efficiency and understanding that aggregates the skills of all of those people within the process. This is the advantage of specialization. And it enables the industry to undertake greater processing loads with the same resource levels.

Now lets assume for a moment that you had a group that processed all the lease rentals for all the JOC’s and producers that used People, Ideas & Objects proposed software applications. And this groups was a very specialized team of 20 people who were supported by the software development team and user community that People, Ideas & Objects is based upon. How would you divide up that work to make it more efficient? Would it be based on producer or JOC? I don’t think so. Probably on the basis of rental due date, or maybe geographical location. One thing for certain the way that the work was organized would be fundamentally different then the way that lease rentals were organized within any firm or JOC today. No matter how large the producers size. The specialization that this service provider would be able to present would reduce the costs of lease rental processing and also increase the quality of the service, and the data and information that was presented. This is how I think we need to begin reorganizing some of the processes the industry depends upon. Here’s why.

How does the division of labor expand. That is to say, this lease rental process continues on and they find if they make a small change in the way they process this element of it, then they could save x% of time. This is the process of “gap filing” which makes inherent sense. Then the  boss says ok, sounds great go do it. The problem today is that all of our processes are highly automated. And the way that People, Ideas & Objects are talking in the Preliminary Specification these processes will be even more automated. Therefore the ability to change a process is heavily dependent on a software change. Which in the current environment is next to impossible. People, Ideas & Objects however are marketing a software development capability. One that is available for the purposes of gap filing and supporting the user community needs. One that is designed to support innovation. Therefore the ability to make the change in the process and have the software updated to support the process change is available. The larger issue of having this done once at the lease rental service provider makes the process manageable. As today, having to do this within each firm doesn’t provide the efficiencies that with tomorrows division of labor and specialization can provide, there isn't the volume of lease rental activity. It is also assumed in this example that the data is stored at the JOC and therefore the amount of lease rental data that is held at the JOC is relatively negligible, providing more support for centralizing the lease rental process under one service provider.

People, Ideas & Objects has introduced the concept of the Community of Independent Service Providers to initiate these types of process services. I think this is how the industry needs to reorganize themselves in order to attain the efficiencies and quality processes in the future. The example of lease rentals is only one of possibly hundreds of processes that could be handled in similar ways. The key competitive advantage of the innovative oil and gas producer is their land and asset base, & application of their earth science and engineering capabilities. The efficient development of internal administrative processes are not going to provide any producer with any competitive advantage or disadvantage. By developing processes in the manner that People, Ideas & Objects proposes provides all the producers with the most efficient and cost effective means of administrative management.

I’ll say it again. Unfortunately the current bureaucracy have chosen not to join us in this vision of the future. They are fully vested in the status quo and will have none of this discussion of organizing the industry in more efficient ways. It is for the C class and investor class to direct the flow of funds towards People, Ideas & Objects to begin the process of making this vision real.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part LVI (PLM Part VI)

In this our second pass through the Preliminary Specification, we turn now to the second marketplace module, the Petroleum Lease Marketplace (PLM). In our previous posts of the PLM I tried to impress upon you the importance of the user vision of the three marketplace modules. Having done so, I am now free to discuss the PLM from an oil and gas point of view. Today’s post will discuss the importance of the working interest distributions, particularly in the facilities areas, and how they need to be handled in the People, Ideas & Objects application modules. This discussion will include the Partnership Accounting, Material Balance Report and Accounting Voucher modules.

The working interest distribution for the production from a well is fairly straight forward. Other then the changes that we noted, before and after casing point elections, before and after payout etc, the values remain relatively constant over the life of the well. However, for gas plants and related facilities the distribution to the owners of the facilities is anything but constant. This brings into play a multitude of different ways to treat the ownership of the production and the costs of processing. The manner in which the accounting for that production and the cost of processing is of material concern to the owners of those facilities. In fact it is the difference between making a profit or not. The inability to grasp the scope of the concern has led many to disrupt the facility owners business.

The problem comes down to the fact that there are two different ways in which to calculate the working interest distribution of the throughput of the product through the facilities. One is to take the literal mathematical reality of the situation, the other is to take what is agreed to by the owners and operators of the facilities in the Construction, Ownership & Operation (CO&O) agreement. The two worlds could not be more different. As you can imagine the agreed to situation has to rule the day. The facts of the agreed situation are very dynamic and create variances that are unique and depend on the situation that is in play that day. Therefore rarely is the production allocated on the same basis as the prior day. Irrespective of the production allocation, the Material Balance Report will still balance and will also balance to the various other reports. What the situation is at issue with, is the owners or the producers who have production processed through that plant or facility will have either sold or purchased product or had done some transaction with their production at that facility that needs to be accounted for.

Now to handle that day-to-day activity there needs to be an ability for the plant owners to account for the transactions that are occurring within the plant based on the CO&O. Relying on the Partnership Accounting module will be part of what they will use for the handling of the plants accounting. However, because they can’t take a literal working interest distribution and they have to rely on a dynamic distribution based on the CO&O, a special algorithm will need to be built within the PLM to deal with the CO&O. This algorithm will capture the agreements production allocation methodology. This algorithm will be dynamic based on the gas composition, production factors and activities at the plant, but it is also not fixed. There are changes to the algorithm on a month to month basis. As new wells are brought on, new functional units are brought on, new products are sold to new purchasers etc. these need to be taken into consideration into the algorithm.

In the current accounting world these “algorithms” are managed within spreadsheets. Not my favorite place to put a critical piece of business. I think that the user community can do something to embed these algorithms within the system so that they are more “mission critical” and less subject to human error.

As a plant owner the days of major changes are not over yet. There are still the equalizations that have to be calculated. These equalizations are some times run monthly but mostly done on an annual basis. They are done to correct any of the owners over / under capacity utilization during the year. If an owner owns 25% of the facility then generally they would not be billed processing for any of their throughput. However, at the end of the year it is determined that their actual throughput use was 29% then they would need to be charged for that 4% capacity that they overused. These calculations would also have an “algorithm” within the PLM for the Partnership Accounting module to use.

I would reiterate this is an area of extreme importance to the owners of the facilities in oil and gas. To handle these transactions appropriately is the only manner in which People, Ideas & Objects will approach this issue. As it stand today, I am certain no other software vendor fully comprehends the significance of these points and does not provide anywhere close to the level of functionality as we have proposed in these modules.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part LV (RM Part VI)

In many ways the Resource Marketplace module of the Preliminary Specification is the cross-roads of many of the other People, Ideas & Objects application modules major processes. It is where the Accounting Voucher’s design of transactions will ultimately be exercised. And where the Research & Capabilities overall process of capabilities development will be realized. Maybe most importantly it is a marketplace module where people will be able to buy and sell their ideas for products and services of what the innovative oil and gas producers need. If the Research & Capabilities module is a long term process of maintaining and increasing the earth science and engineering capabilities of the firm and Joint Operating Committees (JOC). Then the Resource Marketplace module is the day-to-day module of implementing the policies from that long term process.

We also see in the Resource Marketplace module some of the efficiencies of using the JOC as the key organizational construct of the innovative producer. And that is an important differentiation of the Resource Marketplace module in comparison to the Accounting Voucher and the Research & Capabilities modules. It is a Joint Operating Committee (primarily) facing module. Therefore it is representative of the many participants of the JOC and therefore will have the influence (industry standardization) of many producers Accounting Voucher needs and Research & Capabilities developments. Optimizing transactions between contracting parties will provide enhanced performance to the overall industry. These changes will not lead to small increments in overall performance, but I believe based on my research into Professor's Langlois and Baldwins theories, will have exponential performance improvements.

Another key point is the tearing down of the basis of Intellectual Property (IP). An industry such as oil and gas which is based on its earth science and engineering needs. After all it is a business based on science. If we are to expand the capabilities in the science and innovation in the industry. We are going to need to solve many very difficult problems. And as we progress the volume of ideas needed will be an order of magnitude of what is required today. These problems can’t be solved in an environment where there is no upside for the individuals to solve them. Addressing the motivation to solve these problems and enabling the people to earn the rights to the Intellectual Property within the People, Ideas & Objects application modules is the first step in making the necessary industry wide changes. This therefore turning the oil and gas industry into a far more dynamic business.

I want to quote some work of Professor Giovanni Dosi’s. Specifically his 1993 article “Hierarchies, Markets & Power” which is a must read for those that want to dive deeper into these subjects. He states a simplistic model of organization will include the following, and I have annotated the area where these are addressed in the modular specification;

• The distribution of formal authority. [The military command and control metaphor.]
• The distribution of actual power in the above distribution [The people]
• The incentive structure. [Innovation, intellectual property, and capabilities.]
• The structure of informational flows. [Security & Access Control Module]
• The distribution of knowledge and competence. [The people] p. 10
• History, so to speak, solidifies into structures which constrain future developments. p 12

The purpose in developing this “Marketplace” is to ensure the future of the industry structure remains flexible and amenable to the changes in the sciences and innovation. But also to attain and maintain the highest performance . And in this next quotation Dosi notes how this will come to be.

Clearly, it is the domain of Schumpeter’s creative destruction’, and of Moore’s (1978) analysis of the social bases of obedience and revolt, to name but two famous examples, and it applies also to the dynamics of economic organizations and institutions at large. p. 13

I’m a big fan of that concept of revolt. What I hope to have been able to put across in the discussion of the Resource Marketplace is the bigger question of how capabilities are generated from markets. Information plays a big role in this and the generation of ideas makes those markets dynamic. Lastly we must rely on the market forces of creative destruction to ensure that today’s bureaucracy loses its hold on the reigns of power (somebody has got to lose), and that we are prepared to have our solution ready.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.