The Preliminary Specification Part LXXIX (C&G Part VII)

We return now for our second pass through the Compliance & Governance module of the Preliminary Specification. We left the discussion during our first pass with an interesting question for industry to consider. I want to now pick up that question again and explore it a bit more and maybe give the idea a little more substance in the Preliminary Specification. The idea was, that with the future of work being more and more self directed, and motivated through performance, and at the same time with the work of computers automating more of the lower level work, how does compliance and governance fit in to this vision.

First of all I see another research project being started for the user community during the Preliminary Specification. To answer this question in one or two blog posts would be miraculous. The fact of the matter is that this is a question that needs to be answered on a go forward basis as a result of these forces coming into play. By asking the question now, and researching the question through the Preliminary Specification we can begin to solve the problem and build the software in the manner that resolves the problem for the oil and gas industry in the long term.

We will be highly successful in building the software described in the Preliminary Specification. And yet have a real mess on our hands in terms of compliance and governance if we don’t have an answer to this question built into that software. That is not what we are doing at People, Ideas & Objects. As much as everyone would like to ignore this difficult area of the business world it is a very necessary part of the business. And by saying that I know I have offended those people who are truly passionate about the business of compliance and governance. And its those people who will know how to implement these frameworks in the manner that solves the problem that we are discussing. As for every problem there are people who have a passion that will drive them to solve it. Such is the manner of user driven software developments.

I know enough of the topic that this can be done in a manner that makes the user aware of the compliance and governance requirements of their actions. Yet not mindlessly warn them with pop up windows every ten minutes of the day. Where decisions can be informed of the consequences before they are made as opposed to after the fact. Where information can be contextually provided as opposed to having being researched. The point of the matter is that the user interface should be a rich environment where the underlying intelligence of the system should be operating and providing much of these requirements. That is if we purposely set out to build it.

One of the other areas that we discussed in the first pass of the Compliance & Governance module was the scope of the regulations that the producer firm was now exposed to. A simple firm, well scratch that, there is no simple firm. A producer is required to meet quite a few different jurisdictions for a variety of different requirements. Staying on top of these requirements is becoming a full time job for many of the people within their organizations. If the trend is for more regulations then the demand for more people will increase, or alternatively, automation of the compliance and governance frameworks will become the necessity.

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 LXXVIII (A&S Part V)

When it comes to what we are given to work with in terms of ERP systems, they can leave much to be desired. If only we could have “this, that and the other thing”, our lives would be so much easier. It seems simple, however, the inertia necessary to overcome just “this” requires the fortitude and political skills of a saint. So we continue on in what can only be described as someones vision of hell. People, Ideas & Objects seeks to resolve some of the issues users are faced with in confronting the “this, that and the other thing” in systems by basing our development in the user community. Inherent in that offering is that we are not conflicted by the traditional constraints of software code and customers. That is to say we only earn our fees based on changes to the software code, we are therefore agents of change, not seeking to obstruct change.

The point that I am trying to make is that when it comes to having the user enhance the developments of the system. People, Ideas & Objects business is motivated from a business perspective to do so. That’s how we earn our revenue. Our point of view is that the software is in a state of constant improvement, driven by its users imagination and needs.

So when the time comes for a user to think that if they had “this, that and the other thing”. They will have a means to effect that change and have it fulfilled through the user community. But this blog post isn’t about that process of change specifically. Its about the stop gap measure that they may want to implement in the short term while they wait for the user community to implement their idea.

For that stop gap measure we turn to the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification. These modules should have the ability, since they have access to the data, to prepare ad-hoc reports that the user can develop for themselves. Granted most of these user developed reports won’t be ready for prime time, however for the purposes of the user they can fit the need in the short term.

The user generated reporting tool should be part of both the Performance Evaluation and Analytics & Statistics modules. And provide the user with a sophisticated graphical user interface to manipulate the data and develop queries. We’ve all seen these tools before and I’m not really suggesting anything new here. What I think is different however is the access to the data will be different. First that the volumes of data will be greater as detailed in our Technical Vision. And secondly that the Security & Access Control module will be providing the access to the data and information to the user based on their privileges.

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 LXXVII (A&S Part IV)

We return to the Analytics & Statistics and Performance Evaluation modules of the Preliminary Specification. This blog post will discuss the danger of these, and as such they will apply to both of these modules. I see this happen many times in oil and gas. Situations where the divestiture of assets is done without the full understanding of how the asset fits into the overall makeup of the organization. These types of situations happen when the performance mindset takes over all rational thought and the highest performance wins over every other consideration. This is the danger of these tools and as we move into a period of a sharper more accurate tool set, that danger becomes more prevalent.

There’s math, and then there’s strategy. The situation we see where the oil and gas firm that runs into difficulty financially, or operationally begins to rationalize their asset base. They think they need to raise money by selling some assets. So they naturally think they’ll sell some of their “mid-stream” assets. The gas plants, gathering and processing facilities that earn only a fee for service on the customer products processed. When looked at these assets from a financial performance point of view they don’t come close to even being on the right street where the ball park is on. Therefore they get sold for the high replacement cost that they would receive and the seller thinks they made a good deal. The fact of the matter is that the majority of the smaller producers may have been selling the C3+ products directly to you for fire sale prices because they have no capacity to deal with them. You being the only one in the area with processing facilities were able to negotiate a very good bargain and acquire the majority of the natural gas liquids in the area for literally the royalty costs. Now that the plant is sold those products are lost and that production is gone to the new owners of the plant.

The majority of the oil and gas producers that I have seen and studied take a while to fully understand what exactly is happening. What seems to be a jumble of activity for no apparent reason can, upon further study, become a symphony of brilliance assembled by someone of such great vision it can be truly breathtaking. Selling a gas plant out from the middle of this shows that the seller can’t see the vision and the assets are no longer going to perform as expected. Having tools like the Analytics & Statistics and Performance Evaluation modules in the hands of people who may not fully appreciate the vision of how the firm was built could have detrimental effects to the overall health of the firm.

If we go back to something we reviewed a while ago about the decision rights we review this quotation from Professor Richard Langlois.

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 9

In People, Ideas & Objects we have moved the knowledge to those with the decision rights, which reside with the Joint Operating Committee. And as opposed to contradicting ourselves, we find clarification of this issue in the following fact. The decision rights held by the Joint Operating Committee are the operational decision making authority. The strategic decision rights are held by each individual producer regarding each of their working interest shares. Therefore there is no risk that the property is going to be “harmed” in any material way by making a strategic decision in the Performance Evaluation module. It is beyond the scope of the authority of the Joint Operating Committee. It is fair to assume that the scope of the authority of the decision made through the Performance Evaluation module will be limited to the operational concerns, and be mitigated on the downside in the short term. That is to say any negative decision would be reversed as soon as it is realized.

I think it would be worthwhile to have a strategy review “attached” to each decision based on the Analytics & Statistics and Performance Evaluation based decision. That the decision has some analysis that is purely qualitative to counter the quantitative elements of the module. If this could be embedded into the module in some fashion that made the analysis for documentation purposes that would build value in these modules specifications.

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 LXXVI (K&L Part VII)

In this second pass through the Knowledge & Learning module we have focused on the ability of the Joint Operating Committee to mimic the attributes of the small oil and gas firm. And detail some of the interface that will be built in the Preliminary Specification for the learning aspects of the module. In this the last post for the second pass through the module, but certainly not the last to deal with the Knowledge & Learning module. I want to tie up some loose ends on the matter of learning, capabilities and knowledge.

In the end the choice of whether to use the market or to vertically integrate is a purely academic exercise. In oil and gas the choice to depend on the market is a given and there is little practical application in the alternatives. What our discussion has been about is more to learn from the discussion of how we can establish processes of learning from using the marketplace. In a period of rapid change with high levels of innovation we are going to be stretched in terms of our capabilities, knowledge and capacity to learn. These areas are the focus of the Research & Capabilities and Knowledge & Learning modules. As the business of the oil and gas business is managed through the interfaces of these modules, the People, Ideas & Objects application will need to identify and support the user through these difficult and somewhat costly processes. As noted in Langlois’ paper “Transaction Cost Economics in Real Time”;

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121

and

Ultimately, the costs that lead to vertical integration are the (dynamic) transaction costs of persuading, negotiating with, coordinating among, and teaching outside suppliers in the face of economic change or innovation. (Teece, 1986). pp. 115 - 116

and

But in cases in which systemic coordination is not the issue, the market may turn out to be the superior learning engine because of its ability to generate rapid trial and error learning. p. 124

Tomorrow we will start our second pass through the Analytics & Statistics module.

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 LXXV (K&L Part VI)

In following up on yesterdays post, its important to point out the context of what the Joint Operating Committee will be learning. To do that we turn back to the definition of where the boundary of the firm and market is defined. The Joint Operating Committee must rely on the market for a majority of the work that is done in the field. I understand that this depends on the size of the facility and it will vary based on the types of operations and a variety of other conditions. We can all generally agree that a producer will not be conducting their own water hauling. The point being there is a fine line where the market is the optimal point where the JOC is operationally more efficient to rely on the market to provide the product or service. In oil and gas that definition, or market boundary, is usually that the market provides the majority of the work in the field.

In Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time” he notes the following constraints will be imposed on the oil and gas producers in the JOC as a result of their dependence on the market.

The firms learning ability will depend on its internal organization. And the learning ability of the market will depend on technical and instructional factors, as well as on the learning abilities of the firms it comprises, considered both individually and as a system. The remainder of this paper is devoted to considering these two learning systems in slightly more detail. More specifically, it will set out some preliminary generalization about how the level of capabilities in the firm and the market - and the nature of change in those capabilities - effects the boundaries of the firm. pp. 111 - 112

What the contractors know, and what they think they know may be not relevant to your property. We discussed the fact that the general rule is that the operations being conducted are reduced to the understanding of the least experienced individual on the crew. How do we avoid the general rule being applied to any detailed operation. And how do we avoid what are called the motivational and cognitive paradoxes from becoming the “mindset” of the contractors on this or any Joint Operating Committee.

As background the motivational paradox arises from the production bias. That is, users lack the time to learn new applications due to the overwhelming concern for throughput. Their work is hampered by this lack of learning and consequently productivity suffers. The cognitive paradox has its root in the assimilation bias. People tend to apply what they already know in coping with new situations, and can be bound by the irrelevant and misleading similarities between the old and new situations. This can prevent people from learning and applying new and more effective solutions.

To add an extra layer of complexity to this process. Recall that we have changes that are being made in the marketplace as a result of the gap filling process seen in the Research & Capabilities module. This being an application of the division of labor and specialization process that deals with the overall organization and efficiencies of the industry that will have a direct effect on the makeup of the contractor and the learning processes in this module.

These issues become the concern of those users of the Knowledge & Learning module of the Preliminary Specification. In an innovative oil and gas industry change will be the constant variable that needs the attention of everyone concerned. Highlighting and prioritizing the main concern of the property will become what is commonplace today. And that is the concern. How do we maintain the awareness and attention that is necessary of everyone to learn what is needed.

Within Langlois’ paper I think we see the answer to the problem detailed within this blog post and noted yesterday in the review of Langlois’ definition of Dynamic Transaction Costs.

"F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs." p. 104

The answer is, there will be large, in comparison to what is incurred today, Dynamic Transaction Costs expended by the Joint Operating Committee through the Knowledge & Learning module of the Preliminary Specification. This is a strategic necessity whose alternative is for the producers to move all of the operations in-house and manage them internally. Not a viable alternative. If we identify what these Dynamic Transaction Costs are in the process of incurring them and record them as such, then we can deal with them and learn from them. That may be the first step in learning what to do with the learning costs in this high change and high cost era of oil and gas.

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 LXXIV (K&L Part V)

What is it that the people who work for a Joint Operating Committee know? Where does a person that has just been assigned to the property learn what is important about it in terms of how its run? Where is this history kept, who maintains it, and how is it accessed? We have discussed the knowledge area of the Knowledge & Learning module of the Preliminary Specification, I want to shift the discussion now to the learning area.

Lets first review Professor Langlois’ definition of Dynamic Transaction Costs.

"Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firms capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them." p. 99

Our efforts in the learning section of the Knowledge & Learning module must be to reduce the Dynamic Transaction Costs of the Joint Operating Committee. This objective may be contrary to the times that we find ourselves in. Change is the one constant, learning to adapt to that change is critical. Recognizing the high costs associated with Dynamic Transaction Costs therefore has to be handled from a strategic point of view. This post will initiate the discussion and begin documenting how the learning section of the module is configured to capture this data and information.

We now turn to a quotation from Professor Sidney Winter in his paper “Deliberate Learning and the Evolution of Dynamic Capabilities” to define some of the risks we face in the changing environment of the innovative oil and gas producer.

In a relatively static environment, a single learning episode may suffice to endow an organization with operating routines that are adequate, or even a source of advantage, for an extended period. Incremental improvements can be accomplished through the tacit accumulation of experience and sporadic acts of creativity. Dynamic capabilities are unnecessary, and if developed may prove too costly to maintain. But in a context where technological, regulatory, and competitive conditions are subject to rapid change, persistence in the same operating routines quickly becomes hazardous. Systematic change efforts are needed to track the environmental change; both superiority and viability will prove transient for an organization that has no dynamic capabilities. Such capabilities must themselves be developed through learning. If change is not only rapid but also unpredictable and variable in direction, dynamic capabilities and even the higher-order learning approaches will themselves need to be updated repeatedly. Failure to do so turns core competencies into core rigidities (Leonard Barton 1992).

We need to strike a fine balance between these two somewhat opposing goals. Strategically control the Dynamic Transaction Costs and maintain an environment of dynamic capability for change and organizational learning. Simple.

The first component of the learning module has to include a wiki styled information repository that contains the operational, policy and management of the property. This will be managed by the Security & Access Control module so that only those that are assigned to the property are able to access the wiki. In addition those that are not of senior levels within the property will have limited access to certain areas within the wiki. Within the wiki will be the entire life history of the property in terms of the information that has been collected. Well files, schematics, reports, agreements, etc. Everything and anything, indexed and referenced in electronic fashion. Recall too the Knowledge area contains the capabilities of the producer firms affiliated with the JOC.

Another section should be set out for “Lessons Learned” in which to document where decisions were made based on actions or activities that occurred of interest. These have a dramatic influence on everyone in terms of their learning and understanding about the property. These items should also be published to each person in the property as well as being posted in a central location. As with the Research & Capabilities module the ability to act on these items in terms of right clicking on them and generating an AFE, a Work Order, a Purchase Order or any of the other documents in the People, Ideas & Objects application modules should be possible based on the users needs. More will also be discussed about these lessons learned in the Compliance & Governance module.

Again it might be argued or asked, why is the ERP vendor so concerned about the operational concerns of the oil and gas producer? The simple answer is that its the business of the business of oil and gas that needs to be supported by the ERP system. And that is at the Joint Operating Committee level in the oil and gas business and the People, Ideas & Objects application. Its not just about debits and credits anymore, its about identifying and supporting the business of the innovative oil and gas producer.

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 LXXIII (K&L Part IV)

In our first pass through the Knowledge & Learning module we saw what the overall process was that this module, and the Research & Capabilities module, was providing the innovative oil and gas producer. That being, the People, Ideas & Objects application modules are a critical part of how product and service ideas are aggregated, filtered and parsed in the service industry. From having a free flowing, post your ideas on an industry wide publication, to generating funding for those ideas, to developing commercial products and services, to oil and gas producers enhancing and developing their internal capabilities, to focusing the right people on the right knowledge in the Joint Operating Committee, and enabling them to learn from what is not known. This overall process is managed through these two modules.

Today I want to discuss how the Knowledge & Learning module of the Preliminary Specification mimics the dynamics of the small oil and gas producer. Something that our research has shown is a necessity in terms of innovativeness.

The first question that we need to answer is; is the small oil and gas producer something that we want to emulate? I think so. In terms of optimizing the reserves of a field I think they have proven they have the skill and capabilities to move quickly and intelligently where the bureaucracy has been slow and cumbersome to identify and resolve issues. The producer firm maintains many of the managerial forms of control that have significant influence on the output of the Joint Operating Committee. And these forms of managerial control include AFE’s and the operational decision making process which are a part of the JOC.

In terms of the nature of organizations, I think we can agree the smaller the organization the more dynamic its performance. We return to Professor Richard Langlois book The Dynamics of Industrial Capitalism; Chapter 1 Progressive Rationalization for the following quote on the topic.

Schumpeter’s account of progressive rationalization takes the form of a contrast between two modes of economic organization, modes roughly cognate to the difference between the small owner-managed firm and the large multi-unit enterprise. Characteristically, however, the issue in Schumpeter is a dynamic one: he is concerned with the respective merits of these two modes of organization not in the static allocation of existing resources but in generation of economic change and growth. The paradox of Schumpeter is that he famously defended, and has come to be associated with, both of these modes as drivers of economic growth. Schumpeter has returned to prominence today as champion of the role of bold entrepreneurs in creating new combinations and redirecting the means of production into new channels, to such an extent that he is revered as an inspiration to the present-day field of entrepreneurship studies (Shane and Venkataraman, 2000). In this (Schumpeterian) literature, the force behind economic growth comes from individuals or small groups of individuals who work mostly outside the established structure of organization rather than from within it. pp. 17 - 18

This is not the same thing as leaving the keys to the Ferrari with your 18 year old son. The Joint Operating Committee is influenced heavily by what the producers have been able to provide through the Research & Capabilities module. They are providing the JOC, through the Knowledge & Learning module, with what is known to have worked and what has failed and provided the best people that they could towards making the project as successful as possible. Now its time, like all good parents, to see how “individuals or small groups of individuals who work mostly outside the established structure of organization” grow and develop the property. To do otherwise requires a 72 hour work day.

One thing we learned in our research on innovation is that it requires focus. And that starts with strategy. To apply generic corporate strategies to each property is an attempt to shoe-horn each property into a compromised situation. Each Joint Operating Committee requires its own unique strategy and that should be established by the partnership represented by the people who are assigned to work through their firms. Should the Joint Operating Committees be operated on a semi-autonomous basis as is suggested in this post? According to the research on innovation they have to. That however, does not mean they have to be blind and stupid to the ways and understandings of the companies that own an interest in them.

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. 

Announcing Our 2012 Fees

Its that time of the year where we announce what our fees for the upcoming year will be. Recall in 2010 and 2011 we set our fees at $1.00 per barrel of oil equivalent. For 2012 we are setting our fees at the same $1.00 per barrel of oil equivalent effective January 1, 2012.

All producers are responsible to pay their fees from 2010 onwards. Those producers that have not paid their fees by March 31 of the assessment year are subject to a 300% late penalty in addition to the regular fees. Therefore a producer who wants to participate in the communities on January 2, 2012 would be responsible for a total of $9.00 in fees on their daily production throughput. ($1.00 for each of the three years 2010, 2011 and 2012 and late penalties of $3.00 for 2010 and $3.00 for 2011.) If that producer was producing 50,000 barrels per day then they would be responsible for a total of $450,000.00 in fees for the 2010, 2011 and 2012 years.

Review of our revenue model will help to explain our funding requirements and fee structure. Any further questions can be directed to me here.

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 LXXII (R&C Part XIV)

Yesterdays blog post discussed the need to have the user of the Research & Capabilities module of the Preliminary Specification, be mindful of the division of labor and specialization as they relate to what we call in the module, the “marketplace of ideas”. We also discussed the role of the division of labor and specialization in expanding the output of the oil and gas industry. And how software is the means for us to get there. This blog post will talk about the interface the Research & Capabilities module will need to implement in order to enable the expansion of the division of labor and specialization in the marketplace of ideas.

We learned the process in which the division of labor was expanded was by what Professor Richard Langlois called “gap-filling”. When a job that wasn’t being done before, is then determined that it should be done, is filled with a new person to do that job, that is the division of labor expanding. This process of “gap-filling” can be in the form of both products or services and therefore relevant to the “ideas marketplace” that we are discussing in the Research & Capabilities module of the People, Ideas & Objects Preliminary Specification.

The user of the Research & Capabilities module, and this would apply as well to the Knowledge & Learning module, would be at the leading edge of where the gaps in the industry were showing. Whether that was in a process or in a product offering the user would generally be one of the first to realize the deficiencies in the markets offerings. And those could be deficiencies of what are required by the oil and gas producer, or in the case of the Knowledge & Learning module, the Joint Operating Committee.

Recall the “ideas marketplace” of the Research & Capabilities module provides the opportunity for people with ideas to publish those ideas and earn the rights to them by their publication. It is an industry wide publication and is a source of information as to what is happening in terms of research & development throughout the service and oil & gas industries.

What I see for the interface for the “gaps” is a similar publication site in the “ideas marketplace” of the Research & Capabilities module. That is a listing of the gaps that are seen as product and service gaps prepared by the producers and Joint Operating Committee users of the module. When these user’s see a gap they fill out a web page that details the description of the gap in fairly clear language. These gaps providing an understanding of the outstanding need that the producers are realizing in the day to day management of oil and gas.

People looking from the service industry side can see some of the needs that are being expressed by the producers in terms of services and products they need. Some of these products and services are already in the market, could be available in other geographic regions, or are available with a small modification of an existing service. Or, alternatively if there is a strong expression of need then new products and services can be configured. The market can respond when information is available to provide those that need it.

This two way communication providing each others side of the industry with information that is of significant value in terms of configuring solutions for the innovative oil and gas producer. The gap filling interface can be scrubbed of any proprietary company information so that it is generic in terms of who established the need.

This all sounds like a maybe we’ll try it type of situation where the technologies capabilities have preceded the need. I think not. On the one hand you have the entrepreneur willing to actively participate because they will earn the rights to their ideas. They will also earn those rights in a forum that is dedicated to the marketplace that is for those ideas. Secondly, you have the user of the Research & Capabilities module expressing a need for a product or service to a group of solutions providers in a somewhat anonymous manner. I think for these two reasons this marketplace will be very active and realize very high participation rates.

The one limiting factor to the active participation to this marketplace is the current attitude of the producers towards the ownership of Intellectual Property. We have documented on this blog many times that this must change if the willingness of the entrepreneurial problem solving is to be unleashed in the marketplace. To solve the big problems in the oil and gas business requires the big ideas to be developed. No one is going to spend the time and effort to do that if the industry is not going to respect their rights once someone has earned them. It is time for the producers to make this change.

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 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.