Our Development Plans Part III

Today we want to discuss the point where the Revenue Model intersects with the user community. Yesterday we noted that the power in which the strategic and tactical control was exercised was within the user community. That if the industry needed to change, that change would need to be initiated by the user community in order for the software to change and then the industry could change subsequently. There is an important component of the Revenue Model that ensures that the user community remains independent and enabled to make these changes. That they don't become blind sleepwalking agents of whomever will feed them.

Ideally you want the user community to be able to think of the changes and the needs of the industry, and act before the demands are realized by the producers. Providing the software just in time when the producers needs are being realized. This requires the user community to be very aware of the issues and opportunities that are present in the oil and gas industry. That they are able to plan and execute what is required and deliver that in the software when it is needed.

It also has to be stated that this can't be done in an environment where the user community is looking for its next meal. It would be of particular concern as to what the cost of that next meal would be in terms of what is agreed to. This is not how the user community should be run. The compromise and distortions in the direction of the user community that would occur so that it could be fed would lead it to be of little value to those outside of the group that was feeding it.

That is why the Revenue Model has been developed in the manner that it has. The user community is one of the major costs of the development of People, Ideas & Objects. And it is the nature of the user community, and its ability to meet the demands of the producers in its unique way that is of value to the producers. That is why it needs to be funded in the manner as specified in the Revenue Model. Assessing fees and penalties based on production is a fair and reasonable means of raising the funds for development. Collecting fees and penalties from 2010 forward from all producers ensures that no producers are able to avoid providing their share of the costs of development. Everyone participates based on their production profile and from the same point in time. Therefore no producer undertakes a greater share in the development than any other producer. Early participation will however eliminate future penalties.

As can be expected, there will need to be representation from all corners of the industry in the user community. In order to capture the needs of the industry the user community will have to look like the industry in most every way. And there will be significant opportunities for people within the user community. As I see that and the service providers being two areas that are dynamic and innovative for at least the next decade. As it should be asked of the user community what will the applications look like in ten years. It will be as a result of their input that answers that question. A truly interesting journey.

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

Our Development Plans Part II

The Detailed Specification is the output of the resources that we are seeking in this next phase of development. Will consist of the detailed information of what the system will consist of in its first commercial release. It will be the result of the collaborations of the user community in determining their wants and needs in the oil and gas industry. Consisting of screenshots and process management information. It will be user defined information that is captured in a number of software development tools.

The key deliverable to give the developers will be the “user story”, from Wikipedia

In software development and product management, a user story is one or more sentences in the everyday or business language of the end user or user of a system that captures what a user does or needs to do as part of his or her job function. User stories are used with agile software development methodologies as the basis for defining the functions a business system must provide, and to facilitate requirements management. It captures the 'who', 'what' and 'why' of a requirement in a simple, concise way.

Defining the needs of a system of the size of People, Ideas & Objects needs to go through this process of the Detailed Specification to help manage the scope of the application. What is necessary in the application can not be left open ended when the developers sit down and begin their work. There must be a defined product that they are setting out to complete. That is one of the purposes of the Detailed Specification.

Capturing the needs of the users, the producers, the Joint Operating Committees, the service providers and the service industry into these specifications will also eliminate the redundancies in developing similar systems for similar needs. The output from this phase of development will be large. The more people that we have looking at the output of this phase and the more errors that we can correct, the better the systems will be and the less overall costs.

It is imperative that people understand that People, Ideas & Objects are user driven developments. We have chosen this methodology as this provides the highest quality of systems available. Participation should be looked upon as an opportunity to make a difference in the development of the industry, its profitability and its innovativeness. How the industry solves its problems and addresses its opportunities should be as a result of the actions taken by the user community to change the software to meet those challenges. Users are in control of the tools that make the industry what it is.

This is the importance of user communities in the near future. What they may have looked like in the past was more predefined by the softwares needs or the organizational context. With the People, Ideas & Objects user community the organization is defined and supported by the software. And the user community defines the software. So the shoe is on the other foot as they would say. I think that you can see with the Preliminary Specification how the software definition redefines how the industry operates. This power is being placed in the hands of the user community. User community participation is now at the top of the food chain.

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

Our Development Plans Part I

Once we have secured the budget to complete the developments of the Preliminary Specifications. The next stage in our development. We will begin the determination of the detailed work of what the initial software release will look like. This Detailed Specification will be the result of the user communities involvement and the result of many hundreds of man years of work. It will detail in very specific terms what the systems will do and how they will do it. Based on the Preliminary Specification and the user community needs, which includes the participating producers. It will provide the means or the specification for the first iteration of the software.

Participation by the producers in this phase of the development will be critical. The changes that are being made as a result of Preliminary Specification are significant. It is imperative that a producer and Joint Operating Committee be part of those changes from the beginning. When they have an opportunity to participate and have input into those changes. Waiting for the second iteration to participate may be too late. By then producers who have been using the software may be considering changes that are based on the changes in the first iteration and these changes will be too much for a producer that did not participate in the first iteration to handle. Locking out those who did not participate by way of a business model that is too complex to change too.

The other aspect is that participation enables the producer firm to make the changes to their organization that will work with the software. Allowing them to ease into the integration as opposed to having to remake the organization all at once.

Participation in the developments of People, Ideas & Objects software will be the beginning of the producers use of these new software development capabilities that are a necessary aspect of the producers capabilities. This capability will be a new tool in the producers strategic and tactical arsenal. One that allows them to approach the opportunities and issues on a much larger scale than what they are currently able to approach.

I think that one thing that we will find in the future is that the impact of change will be dramatic. There won’t be subtle changes anymore. The upside as a result of changes will be significant. And the impact of inaction will be very detrimental. We may be seeing that already in the marketplace today. A producer that chooses to proceed into this type of future without the tools to deal with the organizational context may be subjecting themselves to the unnecessary impact of inaction.

Participation in the software developments from this point forward should therefore be something all producers subscribe to. The Preliminary Specification prescribes a cultural shift in the ERP systems that is sound. A business model that is developed for the oil and gas industry. The risks in participating are the time and costs that could be potentially lost, however the upside could be significant. There are opportunity costs and other savings that are real today that are not available in the current corporate model. Based on any reasonable criteria a producer would decide to join, but then there is the bureaucracy.

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

An Industry Wide Reorganization

I might have stated in yesterday’s post that the changes made as a result of implementing the Preliminary Specification were small. I’m sure everyone appreciates my humor. There is little in terms of anything in oil and gas that is not changed as a result of the Preliminary Specification. And many of the changes are significant. This is what we are dealing with. Today technology is disintermediating all industries and it is the Preliminary Specification that is rooting out the bureaucracy in the oil and gas industry. In addition however, we are moving closer to our cultural norm, the Joint Operating Committee. It is therefore a positive change on both of these fronts.

Should people be concerned for their jobs as a result of the changes in the Preliminary Specification? Only if they are not productive or part of the solution. Those that are cogs in the wheel of the bureaucracy should begin to consider where they will fit into a new dynamic and innovative industry. One in which the old ways of CYA and other such antics will provide less upward mobility. There is a role for everyone, and I think an enhanced role. There is a decidedly stronger division of labor between what the computers will do and what the people will do in the Preliminary Specification. The computers will do what they are good at processing, storage and the like. And people will have to move to the higher forms of work that are needed to be done. The innovations, collaborations and thinking that computers can’t do. That’s the future that I see.

The organizational context that exists in the industry today is the same that existed in the 1960’s. The only difference is that it is a little faster as a result of computers. There has been no innovation or rethinking of how the industry has been organized in the last fifty years. And maybe its the same as when the industry began. Does that not seem a little strange in light of the changes that have occurred in society? Isn't it time that we looked at the ways that we structure ourselves from an industry point of view? There is significant value in moving to the Preliminary Specification. Only the bureaucrats stand in our way.

We need to leave many of our preconceived notions of what and how we do business today. The Preliminary Specification provides the flexibility for producers to capitalize on the opportunities and deal with the issues that exist in the industry today, and those that will arise tomorrow. It is a fundamental redesign of the industry, the producer firm and the Joint Operating Committee. It also impacts the service providers, a sub-industry that is developed as a result of the changes in the Preliminary Specification and the service industry.

So much of what we need to do has to be pre planned and implemented into the software that defines and supports our organizations. Things can't “happen” the way they used to when so much is dependent on software. Without the software there to make it happen, nothing will happen. Spontaneous order, an economic principle from the 1930’s, may have seen its last days.

The Preliminary Specification and the People, Ideas & Objects software development capability provides these tools to the innovative and profitable oil and gas producer. Its a different world, one where access to the kind of software defined in the Preliminary Specification can make a dramatic difference to the outcomes of the oil and gas producer.

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

Organizational Flexibility

When we look at the oil and gas industry in terms of the organizational context. Today’s corporate model provides little flexibility in dealing with the issues and opportunities of the industry. The approach that a producer can take in how they deal with a problem is limited to the resources that are within their sphere of influence. In other words they can only control those issues and opportunities that are available to them through their own people. In terms of approaching the natural gas pricing issues, or the availability and long term resourcing of earth science and engineering resources they can only do what they are able to do with the resources they have at their disposal. They are organizationally constrained by the corporate model that limits their actions to those within their own four walls.

The Preliminary Specification in many ways opens up the producer firm and Joint Operating Committee to a type of collective action that can be undertaken on behalf of the industry. Whether that is by removing natural gas production from the marketplace without the associated financial losses being incurred. Or benefiting from the specialization and division of labor that is used across the industry. There is a greater number of tools available to the producer and Joint Operating Committee as a result of the use of the Preliminary Specification than with the use of the current corporate model.

This collective action requires the producer or Joint Operating Committee to act in their own best interests and have faith that other producers and Joint Operating Committees will do the same. An example would be their belief that the efficiency and effectiveness of using service providers who use specialization and the division of labor will provide better services for oil and gas administration and accounting functions. Then they could realize the benefits of greater service offerings and lower costs of operations, something that has been missing from this area for years.

Producers have certainly tried to benefit from the specialization and division of labor within their organizations. The problem has been that the demands are so specific and the data set are so small. Each producer has had to build the capabilities needed to meet the requirements of an oil and gas producer operating in the 21st century. If we take the capabilities that are built within each producer firm and replace them with an industry wide capability that is provided through a variety of service providers. Then the efficiencies and effectiveness can begin to be built within industry wide capabilities for the benefit of all producers who participate.

The transition from the single producer capability to the industry capability would be seamless and simple. It would start with a service provider specializing on a process such as eligible capital costs for gas cost allowance purposes. As individual companies release their work to the service provider, the service provider becomes more specialized, taking on greater volumes of work. Producers begin to see the effectiveness of the overall industry capability and begins to release more processes to other service providers. Until such time as the majority of the administrative and accounting processes of the oil and gas producers and Joint Operating Committees within the industry are being handled by service providers.

The organizational flexibility that is provided as a result of the changes that are discussed here generate the $94 billion in opportunity costs for the 2012 calendar year. They may seem like small changes however the implications, and the capabilities that are gained as a result of these changes are substantial.

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

Innovation, A Methodology of Production Allocation

In yesterday’s post I asked the question of how the production would be allocated when the natural gas prices were higher than the marginal costs. In an ideal marketplace the demand would be higher than the supply for the commodity and the majority of the production would be cleared by that demand. However with the shale gas formations prolific nature, that may not be the case and there may be surplus capacity in terms of deliverability in the marketplace. This would keep natural gas prices, in an environment where the Preliminary Specification was operational and therefore there was no downswing in pricing, around the marginal cost with surplus capacity available at all times. So the question remains how does the marketplace allocate the capacity in terms of production.

The answer to the question is that the producer that was most innovative would be the one that would always be on production. They would have the lowest costs of production and they would therefore be profitable at all times and could sustain production profitably under any scenario. It is those producers with unique and specialized skills in the earth science and engineering domains that will dominate the production of natural gas. As they will be the most profitable. Innovation is the means of competitive advantage for the oil and gas producer.

The Preliminary Specification is designed around the principles of innovation. What an innovative organization consists of and what an innovative oil and gas producer requires in order to compete in an innovative industry. Key modules for the implementation of these principles are the Research & Capabilities and Knowledge & Learning. They have been based on the research of Professors Giovanni Dosi, Richard Langlois and others in terms of what is necessary for an innovative organization.

An example of the innovation capabilities within the People, Ideas & Objects Preliminary Specification is the Work Order system. What will be needed in the industry for it to become more innovative is the amount of research that is undertaken. We see like minded groups of producers working together conducting research in the earth science and engineering disciplines becoming a common practice. This type of activity has been systemic in the industry for many years. What is needed is an order of magnitude more of this in order to solve the problems of the industry. To help in that the Work Order provides an interface that allows the producers that desire to work together to sponsor and create these working groups without the traditional bureaucratic nightmare that they cause. When the financial facilities enable and support the initiatives of the industry, innovation can be fostered at a much faster rate. These are the types of “things” that are undertaken in the Preliminary Specification.

Most importantly People, Ideas & Objects move the entire industry towards the cultural influence of the business. That is the Joint Operating Committee. By moving the compliance and governance frameworks of the hierarchy into alignment of the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee. We achieve a speed, innovativeness and accountability in our organizations. It is this cultural shift that provides the greatest benefits to all that work within the industry. With the Preliminary Specification we will finally be recognizing the unique nature of the industry in our business dealings and be able to accommodate its needs.

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

Discussing Natural Gas Prices

The persistence in natural gas prices is contrary to what we were led to believe by the bureaucrats who run the oil and gas industry. It was believed that they had fixed the problem and that prices were to resume their continued increase throughout the summer months and into the winter. We can draw a number of conclusions from the fact that the natural gas prices have not behaved in the manner that the bureaucrats set out in their annual reports and annual general meetings. That is that the problem that is at the heart of the low natural gas pricing situation remains unaddressed, and the bureaucrats do not have a plan.

I am at a loss to find any discussion of the natural gas prices and the impact they have on the industry. We know that these prices are not sustainable. That they are creating losses at all of the producers. Yet in terms of a discussion of what to do about the problem there is nothing. This would be acceptable if the problem was of a short term nature. One in which the prices would turn around on their own and resume their traditional pricing structure of say 6 to 1 in terms of the oil price. The reality of the situation is that the short term perspective does not consider that there has been a fundamental change in the marketplace. That change being the shale gas reserves and deliverability in the North American marketplace.

So as the bureaucrats pray for something to happen the natural gas prices continue to keep producers on a starvation diet. What is needed is a plan. A plan for the long term. For as soon as the prices rise above the marginal cost there will be an abundance of production to meet that demand. So how will the producers allocate their production? And how will a natural gas producer make money in the business in the future.

The Preliminary Specification enables the producer to deal with the environment where natural gas prices are variable and may dip below the point where they don’t cover the marginal cost of production. Allowing the producer to shut-in production until prices return to the point where a profit can be made. This is done through a variety of changes we make in the way that business is conducted by the producers and Joint Operating Committees.

First we take the producer and strip their organization down to the core consisting of the C class executives, engineering and earth science resources, some support and legal staff. The remainder of the administrative and accounting resources are deployed into service providers who are focused on the processes across the industry. Their use of the industry as their client base enables them to use the toolset of specialization and the division of labor to efficiently and effectively provide for the needs of their clients, the Joint Operating Committees. Each month the service providers will bill the Joint Operating Committee for their services. If the property was shut-in during the month, then no service fees are incurred and no billing is created. Leaving the property without any production, administration, accounting or overhead charges for the month. The only costs that are uncovered are the costs of capital.

The producer therefore does not incur any additional losses on their reserves and contributes in a significant way to the increase in natural gas prices by removing production from the marketplace. Downward swings in the natural gas prices will be limited to the marginal cost of production. Production discipline by the producers will be imposed as losses on production are far more detrimental than shutting in of production. Using the marginal cost as the point where production ceases will limit the losses in the industry.

During times of shut-in production the producer can focus on that shut-in production and innovate on the earth science and engineering domains to bring their marginal costs down and return the property to profitable operations sooner. This is the plan of how the Preliminary Specification would operate in the natural gas business with the shale gas reserves. It would seem to me to be a better plan than that which the bureaucrats are selling.

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

A Quick Review of Our Revenue Model Part VII

People, Ideas & Objects focus is on its users and the business issues and opportunities that they face in the 21st century. We are not providing “new” technology for technology's sake. With respect to our revenue model, technology has a substantial impact on our product delivery.

Traditional ERP vendors in the oil and gas marketspace have “sold” a solution to the oil and gas producer and then supported the application through an annual service contract. These competitors are selling a product that does not consider changes to the business environment. Contrast that to the People, Ideas & Objects revenue model that is dynamic in that we are focused only on changes in the business environment. It is these changes that are the source of our revenue stream. Without changes to the software, there would be no developments and no fees would be assessed in the current year by People, Ideas & Objects.

It is a fundamentally different point of view. The traditional ERP vendor is constrained by their code and their customers. Any changes to the code needs to be populated to the variety of customers who use their software. Therefore there is resistance to change by the vendor. People, Ideas & Objects uses the cloud computing infrastructure where changes can be populated to the user base quickly and efficiently. We are oriented to the changes in the oil and gas producers business environment. It is these changes that drive our revenue.

Our focus is to provide a software development capability to the oil and gas industry, service providers and service industries. One that enables the industry to make the changes necessary when the business opportunities and issues arise. We believe that proceeding through the 21st century without a team of committed and capable software developers that are working in the core ERP area will seem reckless in a few years.

Effective 2013, commitments from producers / investors for their participation in the Preliminary Specification are being solicited. When People, Ideas & Objects have received commitments totalling the Preliminary Specifications estimate, we will call on those commitments to begin the process of development. We are looking to secure resource and financial commitments. The financial commitments are based on your current production profile. We also ask that for each $1 million in financial commitments, 2 man years of user community contributions are committed to the project.

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

A Quick Review of Our Revenue Model Part VI

Another element of our Revenue Model is the means in which People, Ideas & Objects is capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects is taking a project management perspective in providing this software solution to the marketplace. The differences in our capital structure are significant, with our Revenue Model being a critical element in defining and supporting these differences.

The fact of the matter is, by having user based developments defined and supported by various communities. To then have various venture capitalists, or other groups involved in a traditional capital structure, influence whether or not the software was built to specification is too large of a compromise to be viable. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users; making it more of a project management type of venture.

To be clear the scope of People, Ideas & Objects is beyond what venture capital groups would be willing to fund. That is to say if the producers / investors are unwilling to invest in this software development, based on the value proposition put forward, no venture capital groups would touch this type of venture. Amortizing the costs of this development over the production profile of the industry is our value proposition. Complicating our capital structure only complicates and compromises the deliverability of the software.

To suggest that People, Ideas & Objects can be structured without the traditional involvement of investment capital might be naive for me to consider. However I do know, that it would be naive to suggest that the systems as described in the Preliminary Specification could be built with the influences of a traditional capital structure. Therefore, it is with that in mind, and to ensure that the Preliminary Specification captures the full scope of the technical and geographical concerns of each subscribing producer / investor. That producers / investors would be wise to support these developments to ensure their concerns remain the appropriate priority of this software development.

One area where our capital structure is not a concern is in the hosting of the application on the cloud computing infrastructure. I have addressed these needs by separating these business concerns from the software development activities. As I have documented in our Hardware Policies & Procedures, the hardware infrastructure is directly managed by the producers / investors themselves. The purpose in structuring the hardware in this fashion is to eliminate the producers / investors regulatory concerns in running their ERP systems, and to ensure that all parties have a vested interest in the infrastructure. In the process of meeting those concerns the business of the firm that hosts the application will have its own capital structure that will not in any way affect or influence the software developments or communities of People, Ideas & Objects.

We have talked about the risks of becoming blind sleepwalking agents of whomever will feed us. An issue when we are discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require a new approach to funding these software developments. It serves no one's interests, People, Ideas & Objects, the Community of Independent Service Providers, Users or Producers / investors to proceed without dealing with this issue. It is best to identify these conflicts and compromising situations now, while the influences are manageable.

Producers / investors are expected to fund the software developments on the basis of their production profile. Rental fees are assessed on all producers / investors starting January 2010. This eliminates the possibility that some producers / investors will pay disproportionate shares of the development costs through early participation. All producers / investors will be required to have their rental fees, and penalties, paid in full from January 2010 to the current year in order to access the applications. These methods and penalties eliminate all incentive to delay and avoid financial participation by producer / investor firms.

Financial participation is how the communities are supported and hence able to avoid the trap of becoming blind sleepwalking agents of whoever feeds them. People, Ideas & Objects are user focused developments. The choices that a software development project can prioritize are many. Users are one, technical efficiency another and there are many other possibilities. For users to support the producers / investors to focus on their competitive advantages of their asset base, oil and gas leases and earth science and engineering capabilities. Users need to have the software tools and means of production, (the financial resources to build those tools) within their control.

This discussion does not preclude the producers / investors participation in these communities. Producers / investors, on the contrary, are critical elements of the user community. These developments will need their full participation and contribution. What is necessary to proceed is the appropriate “political environment” in which users are able to define, build and use the software tools they need to do their jobs.

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

A Quick Review of Our Revenue Model Part V

This post seeks to clarify People, Ideas & Objects revenue model and provide an understanding of the flow of funds within the associated communities. Needless to say all the funds flow from the Producers / investors, however that is where the money is. I’ll break down the general flow to show how each of the different groups are sustained over the long term.

To start we need to clearly identify the three different groups that are supported by the producer firms. These groups include (1) People, Ideas & Objects, (2) the user communities and (3) the Community of Independent Service Providers (CISP). The need for this financial support is as follows.

People, Ideas & Objects assesses an annual rental on all producers / investors for access to the software applications, software development, cloud computing infrastructure and the user communities involved in the development. These funds are assessed based on an annual rental for each barrel of oil equivalent of the producer / investors. This rental has been set at $1.00 per barrel of oil equivalent for the 2010, 2011, 2012 and 2013 calendar years. Producers with 100,000 barrels per day of production would be assessed $100,000.00 for anyone of those years. In addition, assessments are due and payable by March 31, of each year. Producers / investors are subject to a 300% penalty for any late payments. All producers / investors are required to pay the rentals and penalties from 2010 forward.

Funds are distributed from People, Ideas & Objects to the users groups themselves for their participation in the development of the software. These users are the producers employees or consultants that define and design the systems they and the producers / investors want and need. People, Ideas & Objects are user based software developments.

The third group that receives direct funding from the producers / investors is the Community of Independent Service Providers. This community is engaged by the producers / investors to handle many of their specific systems related needs. Accounting systems integration and training are a few of the areas where the CISP will be used most often. These are also part of the larger group of service providers who handle the administrative and accounting functions of the producers. Funds for these groups are outside of the People, Ideas & Objects Revenue Model.

What happens to these funds is also important to note.

People, Ideas & Objects incurs the costs associated with the hosting of the infrastructure for running the application and software development environment. We also have the developers on staff who are working with the Community of Independent Service Providers and user groups to define and enhance the systems they need and want.

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

A Quick Review of Our Revenue Model Part IV

We start off with recognition that China is now the world’s number one consumer of energy. That the demand for energy in the next several decades will be insatiable. And the somewhat fixed number of earth scientists and engineers will have substantial business opportunities addressing this world demand. It will be through a reorganization of these fixed human resources, by having People, Ideas & Objects software applications define and support enhanced divisions of labor and specialization, that this demand for energy will be satisfied.

Building systems that deal with the commercial interactions between the producer, society and the individuals that work in oil and gas, and the service industries, is beyond the direct concern of the producer. Yet, are a necessity of basic operations. If we agree that the competitive advantages of the producer firm are based on it’s unique composition of oil and gas leases, physical assets of the firm, and application of the firms earth science and engineering capabilities. The producer will remain involved and focused on the development of efficient software systems to identify and support those competitive advantages. Much in the same manner as society and individuals will work to develop those same systems to meet their needs.

Therefore, the producers / investors decision to financially support these developments affect society and individuals. The producer firm receives 100% of the direct revenues from oil and gas sales. Allocation of a portion of these oil and gas revenues towards an initiative like People, Ideas & Objects can not be evaluated based on its competitive return at the producer level. Everyone is familiar with one or more software development or implementation projects that were terminated as the result of a lack of long term funding. These failures have little to do with the quality of the project or the people that were behind it. Over time the sense of urgency that the project may have put forward fades as does the financial support. Approaching a project with the scope of People, Ideas & Objects, without having an answer to a fading sense of urgency would be a failure.

The question therefore becomes, how does the revenue model of People, Ideas & Objects 1) sustain these communities throughout the development cycle and 2) provide these communities with the software tools they need to expand economic output? We provide this by way of the inherent promise or guarantee of this project. That being, this software development, and associated communities, provide the innovative oil and gas producer / investor with the most profitable means of oil and gas operations. The profitable nature arising as a result of the expanded oil and gas output, based on the enhanced division of labor enabled with the People, Ideas & Objects application, and, the value proposition we have put forward.

The specifics of how we provide our guarantee of the most profitable means of oil and gas operations is contained within the Preamble to the Preliminary Specification. The producer firm can specialize within their domain of the earth science and engineering aspects of what an innovative producer requires. The majority of the administrative and accounting functions will be provided through service providers who are focused on the process and are using the industry as their client base. This specialization and division of labor by the service providers and the producers provides the profitable means of operations for the oil and gas producer in comparison to today’s business model. It however also opens many opportunities for the producer to manage their operations in ways that address the issues and opportunities of the 21st century. These were quantified for North American operations at $94 billion in opportunity costs for 2012.

To achieve this specialization and division of labor between these organizations, individuals and within society will not occur spontaneously. If the oil and gas industry wants to achieve the next level of organizational efficiencies, such as what is defined in the Preliminary Specification. It must be defined and supported in the software that is used within the domain of the organizations, individuals and society that benefits from it. We have reached the limits of the gains that can be achieved by spontaneous order. It must be a deliberate act undertaken by the producers to move to the next level. Only then can the economic output of the industry expand for all concerned.

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

A Quick Review of Our Revenue Model Part III

We now apply and extend Professor Jurgen Habermas’ 1960’s theory of different knowledge interests. Building on our discussion of People, Ideas & Objects value proposition, and targeting the oil and gas producers / investors as the sole source of revenue, this post will delve into the difficult question regarding what we need these systems for.

Are we developing systems that manage the commercial operations of an oil and gas producer / investor? Of course we are, but that does not address the societal and individual needs of these systems. If we continue to look at just the needs of the producers and investors, then we are leaving many needs unaddressed. Society and individuals are critical elements of a successful oil and gas industry. For example society benefits by having producers and the service industries efficiently interact and develop profitable operations, and individuals create innovative solutions to the demand they see for their services. Overall organizations, individuals and society benefit by an increased and expanding division of labor and specialization. In today’s globalized, high technology workplace, an expanded division of labor and specialization can be more efficiently created through a software development capability like that described by People, Ideas & Objects in its Preliminary Specification.

When we concern ourselves with the economic output of the oil and gas industry. To expand that output requires that we organize based on greater levels of specialization and a further division of labor. The responsibility for increasing output does not fall to society, individuals or organizations in isolation but to all three. Therefore it is reasonable to state that what we need these systems to address society, individuals and organizations needs. I do not foresee the further development of the division of labor occurring without the active involvement of systems development. In a somewhat deliberate manner where all groups are represented.

If we look critically at the division of labor, and eliminate some of the constraints to expanding it further. Constraints like the limitations of working within one firm or one Joint Operating Committee (JOC). If an individual has the capacity to apply their skills to a task for a geographical region that includes 100 producers and 200 JOC’s, the efficiencies could be substantial. The ability to manage a task in this fashion doesn’t exist within our current organizational context.

Following on the logic of the previous section, where the producer / investor firms are the sole source of the revenue for People, Ideas & Objects and associated communities. Sharing the input of these systems development across society, individuals and the organizations might appear to be inconsistent with the reality that 100% of the funds are coming from the producers.

That’s why the People, Ideas & Objects revenue model shares the one time development costs across the subscribing producers / investors. Just because the producer firms receive 100% of the proceeds of oil and gas sales, doesn't mean that they earn 100% of the revenues of the oil and gas sales. Individuals and society have a role and responsibility in these systems and therefore, these need to be considered irrespective of the desires of the producer firms. We’re not going to develop systems that address the needs of society, individuals and organizations when producers have a disproportionate influence due to their control of the revenue stream.

To sustain this software development requires that we cease being subjected to the individual decisions of one or more producers. A company that chooses not to proceed with the development or implementation of these technologies can not hold up the greater benefit of all concerned. Essentially I am stating that the decision to support these communities needs to be made where appropriate representation considers the needs of all concerned. Looking at the cost benefit analysis of supporting this software from the point of view of only one producer, misses the benefits to society and individuals. For example the 2012 opportunity costs of $94 billion requires production discipline be imposed throughout the industry.

Habermas theories deal with the issues of power, influence and most importantly emancipation. But when it comes to using science or computers to change the relations of power in our society, when emancipation is put forth as a knowledge or development interest, then the question of values becomes more controversial. Who is to be emancipated, and from whom? Who is to lose power, and who is to gain? And how can it be the business of scientists or computer professionals to take part in a political struggle for power?

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

A Quick Review of Our Revenue Model Part II

In the first part of our review of our Revenue Model we established that no one was going to build an ERP system on behalf of the industry. That the only resources that would be available to fund the software developments would be those that are derived from the oil and gas industry itself. Whether that came as a result of the direction of the investors in oil and gas or the C class executives is not determined at this time. The fact of the matter is that the market is too small for anyone to build systems for the industry based on speculation that a market will be there. In today’s post we need to discuss what the motivation will be for these producers to fund these developments. What will compel them to make the efforts to build the systems defined in the Preliminary Specification?

People, Ideas & Objects value proposition is that we provide oil and gas producers with the most profitable means of oil and gas operations. We do this through providing, supporting and defining within the ERP software a business model that enables the producer to be more profitable than any other business model that is available. In comparison to the current corporate business model that is used by the oil and gas producers. We have calculated the opportunity costs for the 2012 calendar year at $94 billion for the North American marketplace. These differences are documented in the Preamble to the Preliminary Specification.

These opportunity costs are the motivation that the oil and gas producers need to fund the development of the Preliminary Specification. The opportunity costs are not available to them in their current corporate business model. To obtain them they must build and operate under the Preliminary Specification. The majority of the gains are as a result of the ability to raise the market prices for natural gas. This is done by the ability to remove the marginal production from the marketplace without the associated losses on operations. A feature of the Preliminary Specification and something that the bureaucracy have proven an inability to deal with.

This value proposition is consistent with the ability of Information Technologies to disintermediate industries. People, Ideas & Objects business model provides a radical ways and means in which to operate the oil and gas industry. Focused on the industry standard Joint Operating Committee it provides the ability to address the issues and opportunities that oil and gas producers face in the 21st century. The Preliminary Specification has been designed to provide the producers with a dynamic, innovative and accountable organization that is also quick. It also removes the bureaucracy from their comfortable position within the industry.

It won’t be by chance that our organizations are able to achieve the attributes described in the Preliminary Specification. Organizations are defined and supported by the software that they use. To achieve a dynamic, innovative and accountable organization will need to be defined in the software first. That is one of the facts that we need to learn. People, Ideas & Objects also provides a software development capability that will enable our subscribing producer firms to take the Preliminary Specification and build on those attributes within their organizations.

A Quick Review of Our Revenue Model Part I

One of the aspects of People, Ideas & Objects that we have not recently discussed on this blog is our Revenue Model. We always refer to it and people have referenced it and reviewed it to see the policies that we have implemented regarding how we fund our developments. I think we should take a couple of days to review the Revenue Model and gain an understanding of the “what” and “how” of these policies.

In terms of a market size the oil and gas producers do not provide a large marketplace for the ERP systems provider. The numbers of oil and gas producers just don’t make up a market of any size in terms of providing the software developer with any pricing or investment leverage. This is contrary to what the producers believe as they think that they are paying high prices for something that is not critical for their operations, but necessary for their corporate needs. And because it has more to do with the firms corporate needs it has to come out of their administrative budgets. Where the prices asked by the software developers appear to be beyond what is reasonable for the producers needs.

This disconnect between the producers and software developers has been going on for as long as there has been software. Many attempts have been made to overcome the difficulties and as we know there are few successes. There are however a significant number of investors who believed that the marketplace for oil and gas ERP systems would be one which provided a good return. Note that I mentioned believed. The belief is legend and the stories are well within the current investment communities memory of why not to invest in the oil and gas ERP marketspace.

What have we seen lately. The fact of the matter is there has been little in terms of innovation in the past twenty or thirty years and there is nothing in terms of ERP software that is coming to market. There is also no support for anything in the marketplace from the producers themselves. The violent response that People, Ideas & Objects has received by the oil and gas bureaucracy reflects that ERP systems are poorly understood. It also shows that this area is not perceived as providing any value to the oil and gas industry.

To the larger point the software investment community is not going to participate in any funding that is not supported by the industry itself. If the industry marketplace is so small when the product is built that they can then treat the software vendor to the fact that they only have the oil and gas industry to sell too. This also has the software investment community running in the other direction. Therefore the funding for any developments has to come as a result of the oil and gas industries own financial resources. There are no free lunches, anymore.

And we have seen with the treatment of People, Ideas & Objects that the bureaucracy is well entrenched. And they are happy with the status quo. And the only threat to their franchise is to have someone establish an alternative to their capabilities with the formation of some software that competes with their ways and means. And they have effectively dealt with that.

Not everyone is so enamoured with the ways and means of the bureaucracy. And that is why I keep moving on with this project. The oil and gas investor community has a vested interest in making sure that the funding of this project goes forward and a competitive system is built. They are the ones that are the most affected by this, and they are the ones that will benefit the most. And that is why we need to have the resources of the industry provided to fund these developments. Its in their best interest and no one elses.

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

An Overal Industry Capability

Yesterday we discussed how the service providers would use specialization and the division of labor to focus on the administrative and accounting processes of the producer firms and Joint Operating Committees. Today I want to discuss how that specialization will be used to provide a capability that is much higher than what is attainable under the current corporate business model.

We have seen regulations and the complexity of business processes increase in the past decade. Business, for a variety of reasons, has become more difficult and this trend is certainly not new or something that will abate. The difficulties will most certainly continue to grow and our capacity to deal with them must also change. Education is part of the ability to deal with this complexity. Another aspect of how we deal with it is the methods that we use to organize ourselves. Capturing everything within one siloed corporation, no matter its size, is maybe something that we look to as part of the problem.

Capturing the capability within the overall industry and providing it through service providers is how the Preliminary Specification deals with the ever increasing complexity. This has the added benefit of increasing the overall capability of the resources that are available within the industry. First by eliminating the redundancies that are built up within each producer firm. And secondly, through the specialization that is available to each of the service providers in terms of the specific process they manage.

This is how the industry will acquire the capabilities necessary to meet the needs of these regulations and complex business processes. The ability to specialize to the level that these processes dictate, within the current corporate environment, is too much of a demand on the resources of the producer firm. Extending the resources of each of the producers in the oil and gas industry to meet the ever increasing demands of regulation and complex processes will most certainly be too costly to the producer. This, I think, is also part of the concern that is being expressed by the investors.

Whereas the abilities and capabilities to deal with these difficulties when the overall industry acquires these capabilities is within the sphere of what is possible. Whether you are a startup oil and gas producer or Exxonmobil you each share in the concern of the costs associated with administering in the oil and gas industry. The small producer currently has to bring on substantial overhead just to “open” the doors. Something that they could do by hiring the capability through service providers by using the Preliminary Specification. Exxonmobil would be able to meet its very specialized requirements due to the costs of that specialization being amortized over many producers, not just their own activity.

I would also argue that the level of specialization that Exxonmobil would realize would be an order of magnitude higher than what they currently are experiencing. The level of specialization attained by the overall industry would be particularly high in each of the service providers instance and that would be a significant part of the value added process that they provide. A specialization that would be even greater than what was attainable within the confines of Exxonmobil. And available to all within the industry.

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

Competition Between Service Providers

As a result of implementing the Preliminary Specification. The capability for administrative and accounting functions will reside within the industry as a whole. This will reduce the redundancy of each producer having to build that capability within their own organizations. This will reduce the overall costs of the administration and overhead in terms of the unused and unusable redundant capabilities that are currently built within the industry at each producer firm. What it will also provide is a flexibility in terms of dealing with how the producer chooses to produce. Marginal production can be removed from the marketplace without the penalty of losses on operations.

There is a larger picture here. And certainly we have touched on some of the details with the $94 billion in opportunity costs, and the focus of the investors. The oil and gas industry which has traditionally been required to build the capabilities to focus on the SEC requirements, the tax and royalty requirements, the production and exploration administration, the land administration and accounting demands of the corporate organization. Will instead rely on the capabilities provided to them by a marketplace of service providers that focus on providing these capabilities by managing the processes on behalf of the industry.

And there will be two elements, or two types of organizations that the service providers will be focused on providing these services to. There will be the corporate concerns of the producer firm. And there will be the operational concerns of the Joint Operating Committees. Each entity will be dynamic and independent in their use of the service providers.

That is not to say that there will be a marketplace for eligible capital for gas cost allowance service providers. In almost all instances there will only be one service provider for each process within the industry. And the detail and the precise nature of the process that they will manage will require them to be very specialized. Their focus will be on making their service offering more efficient and effective in terms of its competitive offering. Providing a better service to its customers will be where it focuses its competitive energy. The effectiveness of having other service providers involved in the same process only detracts from the efficiency they can attain in their offering.

The competitive differentiation also arises between the service providers themselves. Although not specifically in the same process the competitive pressures will arise from other service providers efficiencies. There are also the demands of the producers and Joint Operating Committees that will ensure that the prices charged by the service providers are reasonable and in line with the services provided.

Specialization and the division of labor is the toolset that is being deployed here to generate the value for the industry. In order to attain that value the ability to focus on the process is the key to attaining that value. We therefore need to expect that competitive forces will arise as a result of other influences as opposed to the direct competition that we would be most familiar with. Therefore the service provider will enjoy a monopoly in terms of competitive advantage over the domain of the process they manage. This will enable them to pursue specialization and the division of labor over the long term, which is a long term value added process, as opposed to be consumed by the day to day of competing with like competitors. It is these types of differences that we need to implement in the oil and gas industry for the 21st century. Changes that are incorporated in the Preliminary Specification.

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

Investor Concerns About Overhead Costs

The allocation of resources within the industry are possibly one of the largest issues that the investors in the industry are dealing with. They have consistently raised the point that the administrative costs involved in oil and gas are high and need to be addressed. The finer point of their argument is that the ability of the producer to reduce their production does not affect their overhead costs and should. This has become a particularly difficult point with low natural gas prices.

One could argue with a quick review of most annual reports that the amount of administrative costs carried by a producer, that the point is moot. In a capital intensive industry they would have a point. And they do have a point, the payroll burden in oil and gas is not large. And we have shown through our Revenue Per Employee analysis that the majority of the producers employees are carrying their weight in a substantial way. These are all valid points and I don’t think that that is the point that is being argued by the investors. I think they are seeing the redundancy of building similar organizations within each producer firm and there is no sharing of skills or capabilities between the producers. I think this is their frustration. I think that, like me, they see the majority of the people involved in these jobs doing a fantastic job that could maybe be organized better.

It is not the cost of these resources that is at issue. It is the implication of not being able to deal with the costs that is. If the opportunity costs for 2012 are $94 billion it would be agreed by everyone that we should address these. And none of these opportunity costs are to do with reductions in overhead. They are all as a result of increases in the price of natural gas. But they only arise as a result of the ability to deal with the marginal production of any facility. Something we can do as a result of not incurring any of the operating or overhead costs on shut-in production through the Preliminary Specification. This flexibility is what the investors are after.

To have the capabilities to conduct the administrative and accounting functions inherent within the industry. And to have that capability as a result of service providers who are specialized and organized based on a sophisticated division of labor. Would provide a capability that is much higher than any organization that exists today. And that capability would be available to any producer firm or Joint Operating Committee for the cost of a service fee. That is how the industry needs to be organized for the next century.

In terms of how this affects the people who work in the administrative and accounting fields of oil and gas. The impact would be significant. They would in turn cease to work for one producer and begin to work for many. They would specialize on specific capabilities and become very detailed in their work. Working with large volumes of data and sophisticated systems they would be able to build value for their clients, the producers and Joint Operating Committees who employ them. They may find that at any time their population of data might be reduced by 10% due to the need of the producers to shut-in production due to low commodity prices. This reduction affecting their revenue streams, however, something that they budgeted for.

The investors are asking is there a better way? There has been no response from the industry for years. Now we can point to the Preliminary Specification which I think answers the question for all concerned.

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

How the Preliminary Specification Deals With Overhead

Within the Preliminary Specification we provide the oil and gas producer with the means to deal with low natural gas prices. This is through the reallocation of the resources of the industry into service providers that are focused on the individual processes and subprocesses. Charges for these services are made directly to the Joint Operating Committee. This enables the producer to shut-in their marginal production, and as a result, the administrative and accounting charges from these service providers would not be incurred. Enabling the producer to shut-in production without incurring the losses on operations that they would incur today on shut-in production. And limiting the downside in terms of the natural gas pricing.

This is the solution for the natural gas pricing difficulties being currently experienced in the oil and gas industry. These overhead type of costs however are part of a much larger issue to the investors of the oil and gas industry. The issue is with the high administrative costs associated with oil and gas exploration and production. The Preliminary Specification deals with this issue as well as the natural gas pricing issue. The issue arises as a result of the current use of the high throughput production model that is in use today. The Preliminary Specification uses the decentralized production model as its method of organization.

The differences in these two models is best described in Professor Richard Langlois definition.

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

The current oil and gas producer is tasked with developing administrative and accounting capabilities that are state of the art. That is each individual company, there is no shared resource, each company in isolation must achieve these capabilities in order to attain the necessary requirements in the marketplace. With the level of compliance and governance requirements, the needs of the earth science and engineering requirements of the firm this places a significant burden on each producer no matter their size. This is the high throughput production model and any interruption in production leaves no opportunity to diminish the producers administrative or accounting capabilities.

What the Preliminary Specification does is relocates these administrative and accounting resources on the basis of specialization and the division of labor across the industry. A service provider would therefore have the entire industry as its client base and it would be responsible for the determination of eligible capital for gas cost allowance purposes. The industry as a whole therefore may hold the entire administrative and accounting capabilities that are needed at anyone time and by any one producer. The need for these capabilities will be available for a service fee at any time that the producer requires them. At any time that the producer does not need the services of any specific provider, then that service and its associated fee is not incurred.

What we have done here is we have specialized and divided the labor of the industry in terms of the capabilities of its administrative and accounting functions. These services will be far more capable than any organization that exists today and will be able to solve the most difficult of technical problems. What has also been done is we have removed the redundancy of having each producer building the unnecessary capabilities within each producer firm to accommodate the producers needs in terms of their administrative and accounting capabilities. This unnecessary duplication, like that which we have eliminated in the earth science and engineering resources, is unused and unusable as it stands today.

Freeing up these resources will allow them to pursue the higher level tasks that are necessary in an innovative and profitable oil and gas industry. We need to begin these developments to enable the industry to capture this value and free these resources for the challenging work ahead.

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

Participation has its Benefits

The advantage of using the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. Is that it is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. By adopting this framework as the organizational construct in the Preliminary Specification we are able to approach the issues and opportunities that exist in the industry, such as the current natural gas pricing problems. And the future issues and opportunities that are just around the corner. Such is the nature of the alignment that we achieve between the systems represented in the Preliminary Specification and the organization, the Joint Operating Committee.

This alignment provides a fundamental competitive advantage to those producers who chose to use the Preliminary Specification. Having this alignment will enable them to address the issues of the day and to configure their organizations towards the opportunities they see. It should be noted that those producers that choose to participate in the developments of the Preliminary Specification will receive even greater benefits. They will attain the ability to have the software consider their particular circumstance and include within the definition those unique attributes. In addition they will be able to have those attributes within their organization reinforced through the development of the software. Participation should be considered a unique and one time opportunity for producers within the industry.

Additional benefits will accrue to those who participate when the time comes to be operational on the software. The transition to the software will be seamless and more natural as a result of being familiar and oriented to the changes that will be needed in the organization. Those producers who think they might be best served by sitting out the first iteration might find that those that participated in the first round will have gained the competitive advantages and are already moving the software in new directions that are derived from being operational on the Preliminary Specification. Taking a producer from the bureaucratic ways to the second iteration of the software, without the benefit of being involved in the initial development efforts, as there would also be no basis of organizational similarity, would be difficult. These iterations will be quick, and the organizational development will be approximately equivalent to the speed at which the industry changes.

There is participation and there is competitive oblivion in my opinion. If we can substantiate opportunity costs of $94 billion in one calendar year. This shows the power of Information Technology in its current form. The speed and effectiveness of the technology and organizational developments will only begin to accelerate. Participation in these software developments should be considered a necessary part of the producers core competitive advantage. Would anyone launch a producer firm with the stated purpose of not using calculators or computers. The use, deployment and development of these technologies needs to be part of the core producer firm.

Convincing the oil and gas producers that this is the case will be difficult. They think that drilling more wells will be the future of the industry. And they are hard to argue with. In reality they are not making any money and the day when they can raise money on the value they generate by drilling wells passed a few years ago. Investors are wise to their ways. What is needed is for the industry to get with the times and start looking at what is profitable. Start managing the business as a business and begin participating in the management of that business by getting involved in People, Ideas & Objects Preliminary Specification.

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

A Sub-Industry

In terms of Information Technology infrastructure the People, Ideas & Objects Preliminary Specification fills the traditional role of an ERP (Enterprise Resource Planning) applications space. That is to say that it operates to manage the businesses day to day operations and administrative aspects of an oil and gas producer. But it also fills other key roles in the industry that are not currently handled by any software vendor. Those are the business operations and administrative aspects of the partnerships as represented by the Joint Operating Committee. And the infrastructure of the industry in terms of the interactions, identification and support of the activity between the service industry, service providers, oil and gas producers and Joint Operating Committees.

This infrastructure is derivative of the Intellectual Property that is inherent in the Preliminary Specification. The business model that captures the annual opportunity costs that are valued at $94 billion for the 2012 calendar year is part of that Intellectual Property and therefore will be provided by People, Ideas & Objects from a software point of view and licensed service providers in terms of the services. This is not just a business that is being started, but a sub-industry.

There is a need for this scope and scale in the oil and gas industry today. The oil and gas industry is poorly served by the technology firms. The technology firms are providing good products and services, however, have become so specialized in their offerings that they have little understanding of their clients business operations and needs. This gap between the oil and gas producers and the technology companies is as broad and deep as could possibly be. It is necessary that a new sub-industry form to fill the gap between the oil and gas producers and the technology companies. That is what People, Ideas & Objects and the service providers will be able to do. With our understanding of oil and gas, and technology, and the service providers understanding of their oil and gas clients we will be able to deal with the issues and opportunities that the producers face on a day to day basis and in the long term.

The basis of competitive advantage for this sub-industry is the Intellectual Property that is formed around the Preliminary Specification, this blog and elsewhere. Key to that IP is the use of the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. This form of organization is what everything else is derived from and to compete with People, Ideas & Objects someone will have to come up with an alternative form of organization.

This infrastructure will naturally be of the cloud configuration. Having ubiquitous access, anytime, anywhere and on any device will be necessary for any 21st century system. One can see the scope of the application and how the costs begin to escalate to the budgeted total that is defined in the Preliminary Specification. Having industry, the service industry and the new service providers working together on one infrastructure will require a budget of at least that size. I would again emphasize that there is significant value there for the producers.

And we are using that value to motivate the industry to complete this project. There is only one way in which we can earn those opportunity costs. And that is to complete the development of the Preliminary Specification. Organization of the industry in this fashion, and the development of the software will need this motivation in order to ensure that it is complete. With everyone pushing toward that goal. A clear, and well understood goal, that everyone can get behind and complete.

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

Constructive Change to Capture Value

People, Ideas & Objects Preliminary Specifications claim is that we provide the oil and gas producer with the most profitable means of oil and gas operations. This is through an innovative business model that is identified and supported through our ERP system as expressed here. Producers who choose to join the community of users of the Preliminary Specification will find that their competitive position will be enhanced in comparison to those producers who choose not to join People, Ideas & Objects. We have discussed these differences in a recent blog post.

The quantification of these changes from using the Preliminary Specification is the $94 billion in opportunity costs for the North American natural gas marketplace. These are the opportunity costs that would have been earned for the 2012 calendar year. They are in essence the losses that were incurred, and the profits that should have been earned, in the natural gas business, but were not because of the low natural gas prices. The Preliminary Specification provides the ability for all producers to deal with low natural gas prices by removing the marginal production from the marketplace. It does this by reducing the producer to the C class executives, earth science and engineering resources, some legal and support staff. The remainder of the resources of the traditional oil and gas firm are reallocated to service providers who focus on the industry wide process or subprocess. There they are able to apply the principles of specialization and the division of labor to their work and provide the Joint Operating Committees with the most efficient and effective means of administrative and accounting services. These services charge their fees directly to the Joint Operating Committee during the month that the service is incurred. This provides the producer with the flexibility that if they shut-in production for that month, none of the administrative or accounting overhead charges are incurred or billed to the Joint Operating Committee. Leaving only the costs of capital uncovered during periods when the production is shut-in.

This IT infrastructure provides significant competitive advantages to the oil and gas producer. During periods when production is shut-in the property does not incur a loss that has to be added to the reserves and recovered from further operations, making the economics of the property more difficult. And the marginal production is removed from the natural gas marketplace having an effect on the market supply of natural gas. Therefore having an effect on the natural gas prices and returning the prices to the point where profitable production will resume sooner. Companies that don’t participate with People, Ideas & Objects will continue to lose money on operations during production or when they are shut-in. What is needed is this fundamental reorganization of the industry infrastructure to accommodate what is called the decentralized production model, which is part of the Preliminary Specification, and leave the high throughput production model that the industry is currently using.

The time horizon necessary to make these changes is the issue at hand. The vision as it is articulated in the Preliminary Specification is sound. Use of the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer is the necessary ingredient to make all of this happen. What is needed from People, Ideas & Objects point of view is the resources that are spelled out in the Preliminary Specification. In an industry with an annual turnover of $2.5 trillion and opportunity costs of $94 billion you would think that these costs would be incidental. And they are. The real impediment to making the industry profitable as described above and in the Preliminary Specification is the ability for the industry to change.

I have an optimistic point of view on that possibility. The mindless brutality that people are subjected to daily to make things work today would welcome something that makes sense. The Joint Operating Committee is the cultural way of the industry. People intuitively understand it. And the technologies are mature in comparison to what is used in the industry today. That is to say I think we are not taking any technical risk in developing the Preliminary Specification. Therefore my optimism is grounded in what is possible and probable and the industry needs to approach the difficulties that it faces today and in the future with a new structure, and that is the Preliminary Specification.

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

Economic Improvements

Since 2008 the financial markets have been providing no end to the difficulties in our economy. In a capital intensive industry such as oil and gas the global financial meltdown has had significant implications. Producers continue to experience difficulties in terms of raising capital from both the debt and equity markets. These financial recessions are usually long term cycles and can last five to ten years. Well its been five years now and we have no sign that there is any substantial pickup in the global economy. There are two things that I am seeing in the economy that will create difficulties for those that are unprepared in the coming few years.

The first is that markets appear to be beginning to roll over. That is interest rates are no longer dictated by central banks, but by the markets themselves, and they want a return. Or in other words interest rates are rising. If the oil and gas producer found it difficult to find capital in the past five years, it may be more difficult if they have to compete with market rates. This will also have adversarial effects if the producer is heavily indebted as the ability to service the debt will become more costly.

It has been an exceptionally long period of time that the Federal Reserve's Zero Interest Rate Policy has been in place. Wise individuals and companies should have taken the past five years to reduce their debt burden and build their balance sheets. This should have included the sale of assets and trimming of the organization to be able to handle the inevitable rise in interest rates. I say inevitable because it is inevitable. The Federal Reserve can only do so much for so long. And the market, which is so much larger and more powerful than the Federal Reserve, will eventually decide that they have had enough of zero interest rates.

We should look to this as the first step in a healing market. The fact that interest rates are rising is a sign that the animal spirits are starting to show themselves again. The fact that grandma and grandpa want more on their T-bills means their feeling secure again and want to stop eating dog food. For the unprepared producer, of which I see a fair number of, this will be painful. These animal spirits are the second aspect of the marketplace that I see rising.

There is however a conflict that needs to be worked out in the marketplace in the next year as a result of these two items. The rising interest rates will have a dramatic effect on all asset classes on a global basis. How will this affect the animal spirits, and will they be strong enough to offset the higher interest rates. I think they will as we are entering a new phase in which the economy is beginning to develop real value from new organizational methods.

It is my hypothesis that 2008 was a result of the fact that the bureaucracy as a form of organization has ceased to build value. Like the former Soviet Union and its collapse was a result of a defunct method of organization. The bureaucracy is going through the motions and not responding to the needs of society. This hypothesis can be debated. What is happening now is that the replacement to the bureaucracy is beginning to show itself. It is the Information and Communication Technologies that are able to replace that bureaucratic form of organization. And although they are not in place as of yet. They are seen to be the method to move industries forward and build value. Just like People, Ideas & Objects Preliminary Specification.

So is the Information and Communication Technology revolution really here? And can it lead to the animal spirits that will offset the increase in the market rates? I think we’ll find out fairly soon.

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