Partnership Accounting Part V, production volumes.

Up to now we have discussed many aspects of the unique Partnership Accounting requirements of using the joint operating committee as the central organizational focus. The nature of the oil and gas business is unique in many ways and this Partnership Accounting discussion captures many of the issues that an oil and gas system needs to address.

• Daily and monthly volumes defining a period of time.
• Spec vs raw, products and by-products.
• Processing and gathering fees based on (non) ownership.
• Imperial vs. metric reporting standards.
• Nominations, comingling of gas.
• Working interest owners earning different production values.

I suggest that adding these requirements to an already elaborate Production Accounting algorithm is going to be a challenge for the entire information technology world. However, it is also something that can be done. The only impediment is money.

Some history of how the industry has developed, and the influence that these historic attributes play. Once an agreement has been in place by the partners, a general framework of understanding how the operation is then established. These frameworks are legal agreements that are explicitly supported by the norms and culture of the oil and gas industry, both locally and internationally. These organizations in Canada include the Canadian Association of Petroleum Landman (CAPL) and the Petroleum Accountants Society (PAS).

Once these agreements and frameworks are in place, this is the precise point in time that real life conspires to make things complicated. These frameworks have also placed a number of processes in the hands of the companies to deal with these real life anomalies. Mail ballots, Construction, Ownership and Operation (CO&O) agreements define in detail what exactly the operation is. Company A will use Company B's gathering facilities for $4.50 / 103M3 etc. Sales agreements are defined between each individual producer with nominations being a process of balancing the sales and production processes. These also create unique accounting requirement for the property in the long run.

The influence of management here is significant. Each company has differing strategies for the area and each are attempting to optimize their assets. In other words differing perspectives of the same data and information. The compromise and details of each partner in each issue creates the unique accounting requirements for each partner for each asset. This system is being built to accommodate these needs. What is unfortunate is that this is the point that SAP, our competitor, wants the producer to get closer to the customer! I have worked in oil and gas for almost 30 years and I am still unable to find a "customer" as SAP defines here, and after many search parties have been lost, I am giving up in the search for an oil and gas customer.

By way of an example, I as an operator in a major area have the desire to expand the throughput of my gas plant. By drilling in other regions and zones, gathering of additional gas that may now be commercial. The land is held by another firm that has no facilities around the area and are beginning the process of searching for partners. A few years later our new partnership has made a significant gas find. The production is a rich gas stream that also happens to be sour. One company has an invested infrastructure to deal with their production, the other partner has only his production. These two firms will realize substantially different metrics regarding their investments in these properties. The partnership accounting for the joint operating committee has to consider these issues and attributes in a never ending evolution of the accounting requirements. Can you say Java?

What this Genesys system will do is provide the richest environments for managing these issues. In discussions regarding the Accountability Framework with SEC Chairman Christopher Cox it is noted that he is using XML to create a metadata standard for managing the accountability of companies reporting for SEC regulations. In essence using the power of the computers today to enforce compliance as opposed to the human influenced methods today. Genesys is developing the W3C standard for oil and gas reporting. As our budget includes $9,000 for membership in W3C for this purpose, then nothing will happen in this area until these funds are secured.

If the facility needs to account for the literal chemical composition of its aggregate production, almost impossible in a large facility, then that could happen. Or alternatively the legal framework could override the requirements of the actual production, very common in large facilities and less so in small ones. Most likely, the joint operating committee (JOC) will need to select a hybrid solution from the Genesys system in order to deal with the unique strategies and production requirements of each producer represented at the JOC.

Another certainty in this is the dying hierarchies are more then satisfied with their SAP software. SAP explicitly supports and recognizes the management, therefore becoming the ultimate software tools for bureaucrats and self serving pigs, like Petro Canada.

Technorati Tags: Accountability, Christopher-Cox, Genesys, Java, Partnership-Accounting, Petro-Canada, SAP, Technical Vision

May Business Report

Marketing
What a difference a month makes. Our marketing program has moved into its second phase with the recent convictions of Skilling and Lay. Petro Canada continues to provide ample material for analysis and comment, and we are anxiously awaiting the companies second quarter results. The results of this marketing are beginning to provide the exposure that we seek, particularly locally.

Through Google analytics we are able to find out many things about our audience and have begun to understand what information and commentary they are seeking. I am intoxicated by the numbers of visitors. Blogging is truly an impressive development.

I have started to use the Technorati service to help evaluate this blog's performance. We are still jumping around a fair amount, however this last month we have seen our ranking jump from the low 900,000's to the low 700,000's. Not bad for a six month blog, and considering the total number of ranked blogs has jumped to almost 42 million.

I have in mind the idea of setting up an occasional "guest" blogger that could participate on occasion. The problem is that the tone of the marketing campaign causes the volunteers to cringe a bit. Seeing how the industry has treated me and the need to go to such extents is generally understood and agreed too, they don't want to volunteer their head to the chopping blog.

Content
We set out to see what kind of pace we can attain in terms of the frequency of blog postings. With the stated May objective of writing one article per day, I am now putting this in place for the long term. The discipline to write one story per day is a rather torrid pace for one individual. But it has an indirect effect of increasing and focusing the quality and value of the entire process. Therefore I want to try and establish a new guideline for June, that being of 8 posts per week, and, one per day as new minimums in posting.

My Favorite entries.
Im adding a new component to the month business report. My favorite entries for the past month. I have to say a few jump out at me as being critical in the development of this solution. They are:

• SEC Chariman Christopher Cox's use of XML tags to administer the future accountability framework of regulated markets.
• The numerous volume of Calls to action being heard around the world.
• Adoption of environmental concerns and solutions as a key component of this blogs writings. That the software defines the organization. That we are designing the software now to increase the innovative performance of the oil and gas industry, and, improve the atmosphere.
• Layering of the military command and control structure.

Technical Architecture
No changes to the overall technical architecture were made in May 2006. GlassFish continues to soar in terms of its acceptance and value to the community. As the first Java Enterprise 5.0 server it has access to a broad market, but the response to GlassFish seems to be so much more then that. Sun has begun the process it seems of reuniting the Java community after many years of competing servers such as WebSphere and Bea's offering.

I remain fairly firm in my use of AJAX. I think this technology needs to mature and move away from the JavaScript underpinnings. I would prefer to see a JCP authorized dynamic language (Groovy) fill the role that JavaScript does in AJAX. Since Genesys' focus is on the server side, with associated applications providing the user facing geographical components, AJAX style language hybrids may be able to fill a need in the future.

I started using ecto as my blogging tool. Scary powerful stuff. Once you get used to it, it can reduce your time requirements substantially. I would also like to find a tool that can evaluate my writing and make recommendations on its readability performance. If anyone knows of a good tool like that I'd be pleased to know.

Budget

• Revenue to the end of April: $0.00

June 1, 2006 budget items. (All costs are in U.S. dollars and include the 33% premium for the development copyright fee.)

1. . Project management and development = $300,000
2. Sun Grid The first thing we need is a home for the code. The grid provides everything we need in this instance, and the Grid that I selected was Sun's. At $1 per processor hour, a very affordable way to secure the resources we need. I think that our first years requirements would be amply satisfied with 10,000 hours of processing for the remainder of 2006 calendar year. Total requirement = $13,300
3. Ingres Open Source database and part time DBA, Total requirements = $57,000, Collabnet, I would like to have a generous budget for this critical tool. Provides the code management, community process, project and issue management. Budget includes tools, appropriate setup and consulting services. Total requirements = $34,000
4. General and Administrative, first 6 months of operation Total requirements = $60,000
5. Membership in W3C Total requirements = $9,000
6. Total Capital and Operating budget, 2006... $484,000

Notes:

• Sponsors, producers, and user contributions and donations are accepted.
• Please recall that this community is and will be supported by the producers. Based on an annual $ assessment per barrel of oil. For 2006 the assessment was fixed at $1 per boe per day per year.
• A company such as Encana in Canada would therefore be expected to support the community to the tune of $700,000 for the 2006 calendar year.
• These Monthly Business Report budgets are being proposed on a pay as you go basis for 2006 to support the community and ensure the community develops in the manner that is expected.
• Your donations are greatly appreciated, no donations mean no development work is being done.

Technorati Tags: Business-Report, Call-to-action, Christopher-Cox, Environment, Genesys, Glass-Fish, Java, Marketing, Military Command, Petro-Canada, tagname

"That Jarring Gong," Part X

 Torts

Let’s begin by refreshing our memory as to what’s involved in Tort law.

A tort is an act or omission that causes legally cognizable harm to persons or property. Tort law, in turn, is the body of rules concerned with remedying harms caused by a person's wrongful or injurious actions.

If someone were to sue an officer or director of a producer firm for willful misconduct, a tort, then to succeed would demand the following:

To win a tort case, three elements must be established:

• 1. The defendant had a legal duty to act in a certain way.
• 2. The defendant breached this duty by failing to act appropriately.
• 3. The plaintiff suffered injury or loss as a direct result of the defendant's breach.

It is People, Ideas & Objects' contention that producer officers and directors did breach their legal duty of care to act in their shareholders' interests. Since 2015, shareholders have been unable to influence officers and directors to act appropriately, leading to material losses during the structural breakdown of natural gas prices. As of December 2023, this has resulted in $4.1 trillion in revenue and/or gross profit losses that would have otherwise been realized. Alternatives were proposed in the marketplace to mitigate these specific issues; however, producers chose not to address them.

People, Ideas & Objects also assert that producer officers and directors may have misrepresented the facts of their situation by promoting their financial statements as representative of their performance. Their arguments over the past decades about “building balance sheets” and “putting cash in the ground” are not performance-related and are antithetical to the going concern concept. Corporate strategies of “muddle through” have been broadly adopted, eliminating the innovative and competitive structure of the industry. Sitting on one's hands and doing nothing is considered the natural complement to spending being profitable. People, Ideas & Objects began discussing these and other issues as far back as our March 19, 2006 post entitled “Petro Canada Earnings.” That discussion stands up today and represents their focus and drive then and now.

People, Ideas & Objects Argument

Throughout this period, from that early 2006 post to today, one theme has driven our work: chronic and systemic overproduction of oil and gas in North America on an unparalleled scale. Overstated assets lead to an equal amount of overstated profitability. Let's call that the “motive.” Overstated profitability leads to investors rushing in to capture those earnings. Let’s call that the “means.” This overinvestment in productive capacity leads to overproduction and further erosion of the economic “price maker” characteristics of oil and gas.

The “opportunity” is detailed coherently in the March 19, 2006 blog post entitled “Petro Canada Earnings.” Their officers and directors made out handsomely in the 2005 year, even though their profits were down a billion dollars from the prior year. Such is the way it goes. This is only to document the annual lottery and benefit that has come to be expected by officers and directors. At the same time, we have consistently raised the issue of overhead and noted that 85% of it is capitalized to property, plant, and equipment. Spending is profitable, first of all. Second, capitalization hides the details. We have noted the nature of these overhead expenses and how they are beyond reasonable when it comes to the officers' and directors' burden.

The consequences of their overhead policies and the difficulties they cause include their working capital. Cash is consumed in the capitalization process, leaving producers seeking new money to cover overhead each month. Yet no action was ever taken, as covering their “overhead” costs appears far more important than the cash resources to the firm. This “cash” issue is detailed as early as our “Is It Naivety” March 28, 2019 blog post. Yet “muddle through” was their approach in dealing with working capital drainage?

“We’ll Be Profitable at $XYZ”

Unconcerned with much of anything that has to do with reality, producer officers and directors soon realized that what they said through the producers' non-officers or directors' staff to the press could be excused. This became the means to present the idea that producers were working hard, innovating, and ensuring they maintained their hard-earned profitability during times of rapidly declining commodity prices.

From August 2013 to February 2016, crude oil prices declined from $102.15 to $23.58. This was not of concern. Producers remained profitable throughout the period, declaring profitability at every price point: $80, $60, $40, down to $23.58. At no point was there any accountability or justification made to support these claims.

The difficulty is twofold. First, the majority of any real savings were due to the abuse of the service industry. Cutting industry activity levels in half caused pricing softness in the drilling and fracing firms. Then, deep discounts averaging approximately 50% ensured the service industry's revenues dropped to 25% of what they were a few quarters ago. These revised pricing estimates made it onto the purchase orders and into the capital budgets of the producers. Future costs were reflected here and factored into the "what if" scenarios conducted on the reserves reports. Their objective was to minimize capital expenditures and materially increase bookable reserves through proposed spending.

What we have is commonly referred to in the industry as "recycle costs." These costs have nothing to do with the historical accounting costs that will actually show up when reported. When well over 95% of the capital asset inventory is operational and carries historical costs, why would producers quote the potential, possible, or even imaginary level of profitability from "recycle costs?" This is a difficult question to answer as to where it should be classified: Is it part of means, motive, or opportunity?

What’s My Point?

This is the culture of the North American oil and gas industry, a culture shaped by the SEC’s 1970s Full Cost method of accounting. This method allows companies to lump all expenditures into property, plant, and equipment, shifting the purpose of accounting from measuring performance to reporting value. Assets could be reported up to the limit of the petroleum reserves' value, incentivizing spending to reach that limit. The only concern was the “ceiling test” write-down, which required an impairment to be recorded when asset values exceeded reserve values, bringing assets back in line with reserves. Thus, the ceiling test marked the point where a producer was swapping investment dollars for even smaller amounts of output.

Most of the time, this made the industry appear profitable the more it spent, leading to "muddle through" as the only competitive differentiator between oil and gas producers. Today, the industry's commercial performance sits at about 25% of what is necessary to sustain itself. For decades, it has hoodwinked investors with specious financial statements that have no basis in reality, performance, or validity. These statements, however, do show the industry is “well built” and has lots of “cash in the ground.”

The culture in the industry knows no different. Considering that the most competitive posture would be to have no assets valued in property, plant, and equipment (because they earned abundant profits to recognize those costs) is not part of their thinking. The officers and directors are the ones responsible, accountable, and in control of the firm's resources to ensure this did not happen. They have ignored shareholders' calls for action since 2015 and have disregarded market offerings such as People, Ideas & Objects that could remedy these issues. Therefore, they are responsible to their shareholders for the losses incurred, starting with the $4.1 trillion in revenue losses from natural gas price structural degradation.

Making Our Case!

From October 11, 2023, to May 1, 2024, People, Ideas & Objects presented our case through 44 blog posts under the “Notice” label, focusing on lost revenues and opportunities in natural gas over the past. We documented the revenue loss attributable to the deterioration of natural gas price structures since 2009, where the traditional heating value of 6 to 1 fell to as much as 50 to 1 in early 2024. Comparing the differences in value between 6 to 1 and realized gas prices, we identified $4.1 trillion in revenue losses and a lost opportunity to rehabilitate this pricing structure through LNG market expansion.

I am frequently confronted by those who believe these opportunity costs are tertiary to the industry's pursuit. I argue these are not opportunity costs; they are the responsibility of the officers and directors to maximize and realize shareholders' asset values. This is value leaking out of the bottom of the bucket, not a mere possibility. These concerns fall well within the domain of what an oil and gas producer should pursue and are necessary to make shale commercial. Distractions toward clean energy and a focus on “building balance sheets” will cause such leakage to occur.

These are not unknown unknowns. They are within the control and fiduciary duty of oil and gas producers. Addressing them requires only the most basic business understanding. The misguided culture of idle navel-gazing and pretense, driven by "muddle through," has led to these issues being neglected. Failing to address them in the market, while pursuing other unrelated, unprofitable industries where oil and gas producers hold no competitive advantage, constitutes willful misconduct based on misrepresentations to shareholders.

Officers and Directors Liability Insurance may be canceled due to this litany of purposeful degradation. Insurance firms may successfully accuse producers, officers, and directors of willful misconduct on many levels.

• Late 1970s the SEC regulates oil & gas producers to adopt Full Cost accounting. Officers and directors misinterpret this as license to overstate asset values.
• As noted, overstated assets create equal amounts of overstated profits. Attracting investors seeking the enhanced profitability, overinvestment therefore leads to overcapacity leading to overproduction, or unprofitable production.
• Oil & gas are “price makers” from an economic perspective. No readily available substitutes, small changes in supply / demand have enhanced impact on prices. 
• Oil overproduction is documented in a July 27, 1986 Calgary Herald article causing oil prices to collapse from $30 to $10.
• Deliberate SEC overstatement of assets formulating a culture of “spending is profit” and “muddle through” begins in oil & gas.
• Misrepresenting financial statements based on value, not performance.
• Corporate strategies begin to incorporate bankruptcy. Chesapeake declares a $25 million pre-bankruptcy bonus, and returns officers to manage the new organization. 
• Natural gas prices began their permanent structural degradation in January 2009.
• Preliminary Specification published in August 2012
• Publication provides proof officers and directors knew of market alternatives.
• Investors suspended further support of oil & gas producers' capital structures in 2015.
• People, Ideas & Objects published a July 4, 2019 white paper: “Profitable, North American Energy Independence -- Through the Commercialization of Shale.”
• Receives broad distribution yet producers refute the Preliminary Specification as unworkable as shutting-in production will damage formations. 
• April 2020, ten months after the publication of our white paper, oil prices hit negative $37.00. Subsequently 25% of world oil production is shut-in.
• August 2020 producers capitulate on the viability and commerciality of shale. Transition to pursue clean energy in an unauthorized corporate redirection. 
• Undertaken throughout the industry.
• Producers shale interests are disposed of. Such as Shell’s.
• Oil & gas service industry realizes they are no longer a concern to clean energy producers.
• Resumption of 25% of global oil production, producers report no damage to any formation was reported anywhere. 
• Realizing the unauthorized nature of their transition to clean energy and shale appearing better in the rear view mirror. Producers return to oil & gas.
• People, Ideas & Objects ran our “Notice” series of blog posts documenting in detail these points and calculating the $4.1 trillion revenue losses in natural gas prices. 
• Interestingly SAP sales to oil & gas producers have increased markedly since October 2023.
• SAP will sell you an oil & gas ERP system. However SAP does not have an oil & gas ERP system.
• During this period People, Ideas & Objects realized the unbelievable waste being generated in LNG exports arising from the comprehensive mismanagement of LNG.
• Producers did not understand and did not implement the appropriate means to sell natural gas beyond the Henry Hub as their point of sale. 
• All the export sales of natural gas that was shipped via LNG was priced based on Henry Hub prices. Not their ultimate point of sale in either Japan / Korea or the Netherlands.
• Paying for the refrigeration and shipping costs would have provided them with the opportunity to rehabilitate the domestic natural gas price back towards its 6 to 1 heating value factor. 
• Upon publishing our finding the industry undertook rapid action to sign agreements to do exactly that.
• However, contracts were not for existing facilities. Not for facilities under construction, or facilities that had received regulatory approval, or facilities that had achieved the point of approval for the decision to build the facility!
• The volume of these contracts was so significant that President Biden announced that no new LNG facilities would be approved during the remainder of his administration. 
• This and other callosal blunders by officers and directors shows the catastrophic breakdown and cataclysmic failure of their administrations are not happenstance, isolated, inconsequential or acceptable. This is disqualifying, and those responsible need to be dealt with urgently.
• Personally I find the capitulation of the political landscape of the oil & gas industry to the politicians, the environmentalists and others abhorrent. Playing the victim, silence and whining that so and so did such is comprehensively unacceptable. Standing up and selling the value the industry provides is the last thing on their minds. They are weak, afraid and their opponents understand this. While at the same time expressing an extreme lack of care and duty towards their shareholders.

The Consequences

Shale has to be the greatest endowment of value known to mankind. It is undoubtedly the reason that the North American economy will be unconstrained in its ambitions in the 21st century. Shale was mapped out by the U.S. Geological Survey in the late 1800s. The service industry is responsible for the development and implementation of the methods, procedures, tools, and equipment that made production a reality.

However, shale has been fundamentally destroyed by the officers and directors of North American oil and gas producers. They have capitulated on this endowment, and we should hold them accountable. The immense value represented in shale oil & gas and the amount produced cannot be accounted for anywhere. Investors are disenchanted and have stopped supporting the producers' capital structures. The service industry is but a shadow of its former self, heading at light speed into a black hole. No one wants to work in oil and gas as a career choice, and those remaining are there for the money and benefits. Yes, shale has been mismanaged.

Officers and directors do not deserve the time of day based on this record. They knew what was happening, were apprised of alternatives, refuted them with untrue statements, and abandoned the industry to pursue the most unaccountable, unprofitable, and uncommercial path known to man in the clean energy industry. People, Ideas & Objects have proven they consistently fail to grasp the most basic business concepts. Opportunities such as LNG market development have been left to others to siphon off that value. There is no previous example of failure as comprehensive and tragic as what has occurred in oil and gas today. It is incomprehensible how officers and directors have ignored their investors' lack of support since 2015. There is no more critical message that can be sent to a firm!

But that’s not all. What happened to the value built before the officers and directors arrived? Where is the additional money taken from investors? What about all the money invested in the service industry? Where is the cumulative value of all those careers spent working diligently to ensure the industry was profitable, secure, and reliable? There is nothing left for anyone now. Most of it was wasted while those responsible, accountable, and in control ensured everyone knew they were in charge. And the vision they propose today is consolidation? This is counterproductive to all other decentralized initiatives successfully implemented in the last two decades. The Internet may be the one opportunity for the industry to get back on its feet, yet they want to use the old Soviet Union's methods—a method that shows they will be more obstinate and stuck in their ways than before because they’ll have more bureaucratic control.

Conclusion

The tragedy will ultimately unfold when society's economy and political influences are dictated by those who supply North America with its oil and gas. North America is the most powerful economy and the largest consumer of energy. Few see the immense amount of oil and gas being shipped in pipelines, ships, tank cars, and trucks. They don't realize the global consumption of 100 million barrels of oil daily, nor do they see what’s in their vehicle's tank until they pay for it and feel the cost is too high for the little they received. They believe that covering their roof with solar panels or seeing windmills across the landscape will replace oil and gas, failing to grasp their insignificance.

I’m asking for a choice to be made. We either go with those whose performance is what we know, and live with them, “accepting the reality that all countries are the same and paying our fair share for once.” Chanting their woke agenda along with them. Or we change to a dynamic, innovative, accountable, and profitable oil and gas industry with People, Ideas & Objects Preliminary Specification, our user community and their service provider organizations. 

Time has been wasted and the point of what I have been writing about is as plain and obvious to anyone who cares to look. We can document the destruction of the producers' officers and directors; however, if we continue without any action from here, it will be more than this small, select group of individuals who will be responsible for the tragedy that we realize. 

The executioner is primed.

This headline showed up in the Calgary Herald the toay. It's taken me the better part of a day to refocus;

Brewing shareholder revolt puts Petro-Canada in hot seat.

It's been quiet from the point of view of our Piggies. Although Petro Canada reported losses for the last quarter of 2008. I have been waiting for more information to come in before I post anything. But this news article trumps anything that I could have written.

It seems that I am not the only one that is holding their nose as a result of the smell around here. The shareholders are not pleased either. Listen to this little tidbit.

The integrated oil company’s poor performance has riled its shareholders, including the Ontario Teachers’ Pension Plan, which is said to be preparing a 13D regulatory filing with the U.S. Securities & Exchange Commission. That filing may signal a push for a change of control.

I think I'm going to put my pot on simmer and watch this one develop on its own. I also have a very interesting idea of what I think is happening at CNRL. Something seems to be developing there with the recent dumping of the firm by Fidelity, and now they are not going to report their quarters earnings until March 5, 2009? Conoco Phillips, ($68 billion market cap.) which I think is a bit bigger then CNRL ($18 billion market cap.), accountants have managed to get their financial's out over a week ago. Accountants at CNRL must need more sleep.

Something is seriously wrong at CNRL, and based on my November 10, 2008 suggesting the "questionable" nature of their third quarter report, I sense we're in for a surprise. I'll even give a little hint, it's on the Horizon, so stay tuned.

Technorati Tags: People's Pig Management Failure

Hagel & Brown, Pull models, Part l

John Seely Brown and John Hagel lll have written another excellent paper entitled "From Push to Pull, Emerging Models for Mobilizing Resources." (October 2005) These two researchers continue to impress me with their leadership capability in this new technology frontier. As I have stated here before, they have been pushing these themes now for over 5 years that I am aware of and continue to be the leading edge thinkers.

The final paragraph of the introduction captures much of what I believe and write about in this blog.

"By mastering the techniques required to make this new model work, companies will be well positioned to create substantial value. Those who adhere rigidly to the old model will likely destroy significant value." Hagel & Brown p.4

Contrasting the efforts of Petro Canada in this blog is designed to provide a real life example of what this blog is attempting to solve. If the "pull" model of innovation and creativity were operational in the oil and gas industry, this commentary would have achieved its objective. However, there is ample resistance to these changes. Many vested interests have aligned against these ideas and Petro Canada to me provides the greatest contrast to what this blog is not proposing. If by reviewing this Hagel and Brown document, we can gain additional insight from these two top notch researchers it will be well worth the effort.

Forces that are driving the search for alternative mobilization models, Hagel and Brown identify 5 forces that undermine the push model.

• Increasing uncertainty.

Push models require stable environments. "In today's environment it is harder to deploy resources in anticipation of demand." p.14 Oil and gas producers seem to be unable to agree on why the high energy prices persist. I believe they are a fundamental reallocation of the financial resources to encourage and reward innovation. The companies themselves seem to believe they are a temporary aberration.

• Growing abundance.

With bigger markets, involving more competitors and shorter product cycles. China and India have joined the Former Soviet Union and eastern block countries in consumer based economies. The production from these areas is substantial and the markets are immense. All of these markets will demand greater volumes of energy.

• Intensifying competition.

Outsourcing of secondary tasks like accounting. Push models are overwhelmed "by extended business processes." p.17 The authors are essentially noting the interdependent nature of the supply chains are growing longer and more diverse. I fundamentally believe that the joint operating committee configured with the proper software is the best way for the industry to deal with these "extended business processes". The complexity of the supply chain, the diversity of the offerings leads to greater opportunities for innovation.

• Growing power of customers.

Hagel & Brown cite iTunes and other applications that are effectively disintermediating large portions of distribution channels. Due to the oil and gas industry being capital intensive I don't see the risk of disintermediation, however, the efficiencies that can be had with better systems is something that the industry needs to consider today.

• Greater emphasis on learning and improvisation.

Training is replaced by coaching and apprenticeship. The retirement of the oil and gas industry veterans will need to occur after their tacit knowledge is captured.

Pull Platforms.

I believe it is a testament to both Sun Microsystems and Dr. James Gosling that so much effort and time has gone into providing Java with superior exception handling capabilities. It is not by accident that pull platforms are identified by Hagel and Brown as heavily relying on exceptions to the standards.

"Pull platforms are designed from the outset to handle exceptions, while push programs treat exceptions as indications of failure." p. 22

and then go on to say;

"Because of loose coupling of modular design, pull platforms can accommodate a much larger number of diverse participants. The more participants, the more valuable the platform becomes."

Although this may currently run against the more secretive culture of the oil and gas industry. The demands for energy are now insatiable and remove the competitive nature of the industry. This competitiveness is, I think, going to be replaced by coopetition.

Pull platforms have the following characteristics which work to encourage creation and use.

• Find

All the necessary resources are available at the critical time they are needed. The authors note WSDL (Web Service Description Language) an XML description of a resource. Just as I have noted the value in XML tags here before, WSDL provides an automated manner of discovering new resources.

• Connect

With other participants of resources as required through elaborate networks. The technologies that are available today are designed to provide greater participation. Participation with like minded groups that are able to identify and resolve issues in the oil and gas industry.

• Innovation

Provide a more flexible environment to innovate with the resources made available to the producers.

• Reflection

Recombine and improvise with much more rapid feedback regarding their impact.

I will cut the conversation at this point and pick up the rest of this document in another post starting with "Exploring the layers of pull platforms."

Technorati Tags: Genesys, Hagel&Brown, Innovation, Energy

I found this quote on Good Morning Silicon Valley.

It speaks to the one identifiable risk I think exists in blogging.

"The problem I am concerned with here is not the Wikipedia in itself. It's been criticized quite a lot, especially in the last year, but the Wikipedia is just one experiment that still has room to change and grow. ... No, the problem is in the way the Wikipedia has come to be regarded and used; how it's been elevated to such importance so quickly. And that is part of the larger pattern of the appeal of a new online collectivism that is nothing less than a resurgence of the idea that the collective is all-wise, that it is desirable to have influence concentrated in a bottleneck that can channel the collective with the most verity and force. This is different from representative democracy, or meritocracy. This idea has had dreadful consequences when thrust upon us from the extreme Right or the extreme Left in various historical periods. The fact that it's now being re-introduced today by prominent technologists and futurists, people who in many cases I know and like, doesn't make it any less dangerous."

-- Jaron Lanier sees hazards in the hive mind

I have felt that in the collaborative environment the drive for consensus can overcome all obstacles, even the truth. And although I am guilty of applying this in my criticisms of Petro Canada I am basing my attacks on the theories of Dr. Thomas C. Schelling's works and most specifically "The Strategy of Conflict" for which he received the Nobel Prize for in 2005.

I can assure you as the copyright owner I am aware of the danger that the Mr. Lanier speaks of. I can also ensure those involved in these developments that I will exorcise this from of discipline in this blog and software development project if the problem should develop.

Technorati Tags: Accountability, Conflict, Energy, Genesys, Intelectual-Property, Petro-Canada, Thesis

Is Petro Canada's executive compensation fair or reasonable?

No, but then again Mr. Ken Lay and Mr Jeffrey Skilling have been found guilty of 6 and 28 counts respectively of Fraud, Conspiracy and Insider Trading.

You be the judge.

Technorati Tags: Bureaucracy, Compensation, Conflict, Energy, Petro-Canada, Wharton

Another day, another call to action.

The Wall Street Journal continues on its tradition of producing some of the finest articles. This one about the relatively new Securities and Exchange Commissioner (SEC). Mr. Christopher Cox. Not only has the new commissioner have a great name, but he also has a good idea that dovetails well with what this blogs purpose is.

"Build software that manages the accountability framework, then alignment with the financial, legal, operational decision making and cultural frameworks is achieved. The recognition that these frameworks are defined and constrained by the Joint Operating Committee are how the producer achieves the speed, innovation, capability and adaptability to meet the markets demand for energy." (Quoting myself here.)

Mr. Christopher Cox is interested in doing the same for the entire world's financial trading markets, which as SEC commissioner is his responsibility.

By making the types of comments that Commissioner Cox states in the WSJ article. It is clear to me that he is not only on the right track but will resolve the largest administrative nightmare of the public company reporting process. To me how Sarbanes-Oxley gets resolved from here is difficult. To make any major amendment to it would make it appear as the framework has become unmanageable and invite the Ken Lay's, Jeffry Skilling and Petro Canada's back for more hollowing out of the investors wealth.

How Sarbanes-Oxley legislation is eliminated from the process is by eliminating the need for the 800 plus forms to a handful of standard tags in the Extensible Business Reporting Language. I can only thank that the Commisionner understands the technological capabilities and can apply it to the SEC. I have spoken of meta tags and meta data before, however, I'll leave it to the inventor of the Internet, Sir Tim Berners-Lee to describe why Mr. Christopher Cox's and Mr. Paul Cox's (me again) ideas are workable.

When I speak about the demise of the bureaucracy I am saying the same thing that the Commissioner is saying here. He is laying the groundwork and infrastructure of how investors will be able to manage their assets in the future. Note that I did not state the Investors can manage their companies, but the Investors Assets.

That an investor could purchase an interest in a well, and as such have the entire accountability framework in alignment with the financial, legal, cultural and operational decision making frameworks as captured and defined by the regulation and the software that defines the Joint Operating Committee, and that working interest then is a tradable asset on the worlds exchanges, then we are talking about the new society.

If I have not made it clear at this I point, I'll state it explicitly. Genesys and this blog have adopted the SEC's XBRL tag library. Wow, so now we'll be compliant with the SEC, that was easy.

Technorati Tags: Accountability, Bureaucracy, Call-to-action, Christopher-Cox, Compensation, Energy, Genesys, Java, Petro-Canada, Plurality, Thesis

Adaptability, Sun may have something there.

I pirated the Sun CEO's comment that "adaptability" is a key component in business. I noted in an earlier entry that Petro Canada would be unable to adapt to an explorationist mindset due to the bureaucracy. Adaptabililty vs bureaucracy. That will be a major part of the new frontier. In pirating this new definition of the term "adaptability" I now realize that there is some underlying significant meaning.

When added to today's other critical business components of Speed, Innovation and Capability; adaptability establishes new performance criteria for individuals, societies and organizations.

One of the major discoveries in my research was based on Dr. Anthony Giddens Theory of Structuration. That society, people and organizations need to move and progress together, or there will be failure. It doesn't take a lot to realize the troika that Giddens defined is currently out of synch. With the bureaucracies of the organizations impeding the progress of people and society. That a failure will occur due to this non-synchronous state is a given, and I am betting that the bureaucracies will be dispatched to the trash heap sooner then most can imagine.

Dr. Wanda Orlikowski built upon the Theory of Structuration when she defined her Model of Structuration for Technology. Dr. Orlikowski's model asserts that a fundamental component of society is technology, that technology provides a duality and therefore is a constraint or inhibitor to successful advancement of society people and organizations.

I asserted in the development of my hypothesis that;

"hierarchical organizational structure(s) is(are) an impediment to advancement of the oil and gas company and society in general".

My research built upon the Theory of Structuration, Model of Technology Structuration and hypothesis to determine that "SAP is the bureaucracy". That organizations are defined and constrained by the software that supports the organization.

The purpose of this blog and the developments at https://genesys.dev.java.net/ are to define an organizational structure of Speed, Innovation, Capability and Adaptability in the global oil and gas industry.

Technorati Tags: Adaptability, Bureaucracy, Exploration, Genesys, Java, Petro-Canada, Structuration, Schwartz, Sun

The new energy economics...

[Energy]

A few housekeeping items that I wanted to comment on. These provide a bit of a common thread I'll summarize at the end.

Firstly, the price of gasoline continues to rise due to the seasonal consumer demands and the overall global demand for oil. (Click on the title for an interesting gas price summary in the New York Times.) Understanding energy is the fuel of the economy, we have seen that India and China have been able to sustain a labor based energy advantage in the globalized economy. This labor advantage has many countries concerned for their long term ability to compete. The U.S. has significant competitive advantages to sustain their economy in the face of these challenges, their key advantage may be the low gasoline prices their consumers enjoy.

With Europe's small population base, their ability to compete with China and India are limited. Europe also has a poor ability to compete in the horsepower, or industrial economy, due to the high taxes they assess on gasoline. The U.S., I think, has it right. By limiting the amount of taxes on gasoline provides the U.S. with an overall lower cost associated in generating horsepower.

I expect to see this will become a competitive advantage that most western governments will realize they are hurting their industrial infrastructure by assessing gasoline taxes. The gasoline tax cuts would be attributable to a further increase in demand for oil, hence further oil price increases. Could this thinking become the manner in which labor and energy is valued? Where the 8 hour shift of one man in China being the basis of the same value of one gallon of gas? Therefore to generate 1 horsepower for 2 hours (the cost of gas) vs 8 hours manual labor (the cost of food, tools, training, etc) being approximately the same.

Secondly, I wanted to create a new analogy to the saying that "If a tree falls in the forest...". And revise this to read, "If a natural gas compressor detonates in the field, will the commodities traders in Chicago hear it?"

Third point to make today is Einstein's calculation of E=MC2. This may be the most profound innovation in the oil and gas industry. If the mass of one atom is multiplied by the square of the speed of light, then one atom of C (Carbon) has the potential to power one person's needs, maybe for a lifetime. The source of the energy issues that we have today could be mitigated by the acceleration of our ability to more efficiently use each molecule of energy.

Since the 1960's we have seen how we produced 200 bhp for the average "Pony" car, and today provide the same 200 bhp in the family car that is longer lasting, more fuel efficient, and much smaller in displacement and pollutants. Does the aggressive exploitation of E=MC2 provide real competitive, and structural advantages for the North American automobile manufacturer?

Finally, this past weeks death of Casper Wienberger has started a variety of reflections of the 1980's energy pricing policies. Long lines of consumers at the gas pumps in the 1970's was quickly replaced by collapsed oil prices in the 1980's. Casper Wienberger was defense Secretary in the Reagan administration. History shows that he and Reagan were successful in breaking the Soviet Unions back by bankrupting it through spending for the alleged "Star Wars" initiative. At the same time the administration was dealing with the Saudi's who willingly flooded the market with oil and orchestrated the collapse in prices during the mid eighties.

The Soviets needed hard foreign currency to fuel their "Star Wars" level defense. Initially this was easily attained through the abundance of energy of the Former Soviet Union (FSU). However, when the energy prices collapsed, so did the bankrupt and corrupt communist regime of the Former Soviet Union. The Saudi's went along with the plan because they were in direct energy competition with the FSU. The house of Saud was also concerned with Iran and Iraq being supported by the FSU and the Saudi's wanted them out of the region.

Lastly putting these disparate threads together, by having producers drill more wells is the mindless (Petro Canada) solution to our energy problems. Energy problems that have been with us since the 1970's and are far worse as a result of the unintended consequences of the aggressive removal of the FSU. Don't get me wrong, I am as pleased as punch the FSU is gone.

We are however, behind the eight ball in terms of where the energy market should be, and the next decade will deal with these issues in remarkable ways. I certainly am doing my part here for the producers that need appropriate software built for these new market realities. I for one hope that Petro Canada's management can stop lining their pockets with shareholders money and start dealing with these issues as a responsible and practical organization. But don't get me wrong here either, I doubt the management can. Like the FSU in the 1980's their days are numbered.

Shell's van der Veer get's it.

First off I need to declare that I am a Shell brat. My father was employed with Shell Canada for over 33 years and became one of their happy annuitants. I have been raised, fed and clothed by his work at Shell, by far the best oil and gas company in the world. This is for one and only one reason, it hires the best people. I am only disappointed that I was unable to work for Shell during my career, however, I look back fondly at the times in high shool that I worked in the mail room after grade 10 and their geological lab after grade 11.

Van Der Veer has captured the proper perspective and attitude for the oil and gas industry.

Energy demand will double between now and 2050,” van der Veer said today in a presentation at a Houston energy conference. “People like to have electricity and they like to drive in cars.

This is not a political issue, it is not a business issue, its a responsibility of the oil and gas industry that needs to get done. Doubling the demand for energy is probably correct, irrespective, it is our duty to meet the markets demands. What we have been consumed with these past 10 years is maintaining the status quo stock options, bonuses, salaries and perks for management. At least that is the case in CNRL, Petro-Canada, Encana and Nexen, our four little pigs. 

Does anyone suggest that we maintain the hierarchy until 2050? Of course not. Why is it acceptable, in this time of change, that we keep the failed and ineffective bureaucracy? Other then the bureaucracy hanging on to its failed ways, no one would reasonably suggest that the bureaucrats continue on to 2050.  Things are certainly different at Shell.

The Hague-based Shell, the world’s third-largest oil company by market value, is among a handful of petroleum producers that isn’t cutting spending this year on exploration and refineries in response to the $105-a-barrel decline in oil prices.

Keeping the past alive is for those that think our best is behind us. Join me here, and lets continue the journey to at least 2050.

Technorati Tags: People's Change Organization Strategy Trends

A bad attitude towards locals.

Reading yesterday's Calgary Herald I see a trend that continues to shape the oil and gas industry in Canada, in a negative way. I mentioned in an earlier post the response I received regarding the research that was the basis of this blog's copyright. How I was promptly shown the street, informed that the industry only conducted research with large firms like Cambridge Energy Research Associates (CERA) and that CERA was ultimately hired to conduct the research based on my intellectual property. Thankfully I was able to publish the results of my research before Cambridge, and as a result, earned the full rights to the copyright and associated intellectual property.

Is it a lack of confidence or disbelief in our own capabilities that causes an industry to look outside for its own research and decision making. What I found disturbing is that it is not just the industry but also the Alberta Government. They hired a Texas based firm to review the prospects of building a super refinery in the province for around $10 billion. The results of the Texas based consulting firm was that Alberta did not have the capability to undertake such a task.

I find this rather insulting. That we have the industry "leadership" deferring to our competitors to determine the activities in this province is bad enough. To have the Alberta Government doing the same is regrettable. So forget about courage and leadership, just defer the decision to those that may have vested interests in building their own super refineries, and have them make the decision for you. At least you will have covered you ass.

This is the reason that this project is now a global operation. Little if anything can be expected from these "local business leaders". Which makes this whole situation kind of ironic, instead of working in developing things together, lets just defer to strangers why we shouldn't do anything.

Technorati Tags: Genesys, Petro-Canada, Innovation, Energy

The IEA gets it.

The IEA has as their guiding principle "Energy Security, Growth and Sustainability through cooperation and outreach." This is the appropriate position for every energy consumer or producer. As consumers we should not limit ourselves in any manner. Acceptance of a lower standard of living, or a future that is constrained by energy, is a defeatist attitude and capitulation of the benefits of globalization.

As a producer the efforts to fulfill that promise to the consumer now comes with extremely attractive financial incentives. Isn't it too bad that the industry, which is at record levels of capital expenditures, is moving backwards in their production volumes. As is painfully obvious to most, the organizational methods of the industry do not enable them to participate in this market for much longer. This is not a job for the bureaucracy.

You can however mark me as surprised when I read the following in the Australian Business;

The IEA's outlook resonated with the views of oil company executives at an industry conference in Madrid, who said the red-hot oil market reflected deep-seated pessimism about the industry's ability to open the spigot to satisfy rising demand.

The industry actually kind of admitted they understand the problem. I have certainly made it clear that the producers management lack the motivation to do anything about it. And it will be the investor class that needs to fund these software developments in order to provide them with an alternative form of organization for their oil and gas assets. This quotation from a number of faceless executives at a conference is the first tangible recognition that a problem exists. We however, do not have the time to wait for these companies to do something about it. Our first act should be to axe the management of these failing firms.

Perhaps one of the most disappointing figures to emerge from the IEA report was its assessment of oil production by nations outside the OPEC cartel. Non-OPEC supply was "paltry to say the least", said Mr Eagles, the IEA's head of market analysis, and had been revised down since last year's market report. He said crude supply from non-OPEC countries would remain at or below 39 million barrels per day over the next five years, though it would rise after 2013.

The Wall Street Journal noted the following in their blog;

Project delays averaging 12 months, coupled with global average decline of 5.2% - up from 4% last year – are the factors behind these revisions. Over 3.5 mb/d of new production will be needed each year just to hold global production steady. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream — to assure that the market is adequately supplied,” stated [IEA Executive Director Nabuo] Tanaka.

And Yale comes in with the following;

Global leaders fret about climate change and economic growth, throwing out blame in many directions. But finding fault or inequities does little to solve the problem of rising demand for energy and a declining supply, argues Chandran Nair, founder and CEO of the Global Institute for Tomorrow. The bottom line is that the world economy has become too dependent on fossil fuels.

It is tiresome to be reading these quotes about the problem. If you read the 2007 annual reports the companies could not be happier with the situation. They had the opportunity to do something about this almost five years ago. When I proposed this software development solution in September 2003, an idea that they clearly understood, and an idea they stole from me and handed over to Daniel Yergin's company, Cambridge Energy Research Associates to research. Isn't it also ironic that Daniel Yergin's "unprecedented 16 million barrels" of new production never showed up? Good thing CERA's 220 PhD's were'nt as quick as I was in publishing.

If the producers management thought it was such a good idea to spend money on the idea of using the Joint Operating Committee as the key organizational construct in September 2003 with CERA, doesn't this prove they are guilty of allowing this situation to occur? I repeat the management are not realizing this situation in a conference today. Matthew Simmons has been warning about it for almost a decade. These companies are not acting in anyones interest but the self-absorbed managements. Take any companies stock options and calculate the amount they "are in the money" and you'll see how effectively the scam has worked.

For example taking our favorite company in Canada, Petro-Canada, has options that "are in the money" for $410 million. And total 2007 option based compensation (Using $53.62, their end of year price) was $82 million. Just to make sure they don't seem too greedy, they did issue $255 million in dividends. (Note this was a topic of discussion on this blog in 2006, so it is fair to say the management did know about this.).

Technorati Tags: People's, Organization, Failure, Governance, Yergin,

Easy Come, Easy Go.

Or is it.

I documented the $3.3 billion in stock options for the four little piggies, (Encana, CNRL, Nexen and Petro-Canada.) in a posting dated July 16, 2008. As of Friday's October 10, 2008 closing prices the value of those options now total $57.2 million. (Values based on 2007 weighted average options and prices.) The problem is that the investors in these companies have experienced a far more substantial haircut in their share holdings. (Piggies are down 53.4% to 65.5%).

From my point of view these alleged management types are better understanding the market and the scope of their greed. This provides justice to those who were so slovenly in the past. I wonder what Monday's trading will have in store for these wonder pigs. Recall they were in the forefront of rewarding and congratulating themselves for the higher stock valuations from commodity price increases. Therefore we should ensure that they are also compensated for the damage to these companies from the decline in commodity prices. These pigs brought that upon themselves, and in the future these management should understand that you reap what you sow.

But wait, not only are they incompetent, they have also lost their motivation. I wonder if they'll quit before anyone has the chance to be fire them? I've always believed a firm that loses greater then 53.4% of their market value is considered a non entity. That large of a loss in a firm is a reflection of the future of the firms opportunities. All the Kings Horses and All the Kings Men. (Ricky Gervais provides some insight and comedic relief.) 

The investor class is now forced to act in recovering their assets and value. Kick these bastards to the curb and lets start building the oil and gas industry for the 21st century. As I said these managements are now unqualified, unmotivated and unproven to hold the offices they occupy. They have damaged the firms to the point where they will be walking corpses for the next several decades, and that is being optimistic. Fire the bunch, you certainly can't trust them. I don't trust them, as any group of companies that would attempt to steal ones Intellectual Property, as these firms attempted to take the idea of using the Joint Operating Committee, are crooks.

Pig courtesy of http://designedtoat.com/pig.htm

Technorati Tags: People's Pig Call-to-Action Management Failure

Matthew Simmons calls to stop the witch hunt.

I have to credit Mr. Simmons with the fact that he is the individual that turned my thinking towards solving this problem. He is the leader of the Peak Oil theorists and his recent CNBC video reflects his sense of urgency. He states lets stop the witch hunt and get on with it.

I would tend to agree with him however, the bureaucracies that are endowing themselves in the trough today are the same people and companies that have ostracized me from the oil and gas industry. I feel fair is fair. I was certainly on topic when I wrote the following in my May 2004 report to them.

It is suggested in this research that the speed that a bureaucracy can adapt and change is inadequate for the operational demands of a future oil and gas operation. Innovation within the oil and gas industry will be required in order to keep up with the natural and increasing rate of decline in production. Where the sciences of geology and applied sciences of engineering, which cover a broad range, will need to progress substantially in the next 10 years in order to achieve the demand requirements of the North American energy consumers. p. 71

It is these same bureaucracies that now point to the accelerated depletion as the reason for their loss of production. Again this is not something that they are becoming familiar with today. If I wrote about it May 2004 I can assure you that it was common knowledge at the CEO, CFO and COO level throughout the industry.

Secondly, who does the energy consumer turn too. I say we follow the money. These companies have 100% of the revenues from oil and gas sales. It is they that could have, AND SHOULD HAVE, done something. In their attempt to steal this idea from me, after I made my September 2003 proposal to them, is evidence that this idea had legs in their minds. That is the point in time in which they should have realized their ILLEGAL ways and done something positive. Nonetheless, and irrespective of the past, if they have known about this for almost 5 years, why have they done nothing?

The fact of the matter is the companies know the investor class has no alternative but to turn to them. In this day and age doing any change in the organization requires the software to be developed first. I know they know this because I was the one that told them. In my May 2004 preliminary research report it was stated in the review of Dr. Anthony Giddens and Dr. Wanda Orlikowski.

Dr. Orlikowski’s structurational model of technology proposes two key aspects: the duality of technology and the interpretative flexibility of technology.

"The duality of technology means that technology is the product of human action and assumes structural properties: it is physically constructed in a given context and socially constructed through different meanings."

"The interpretative flexibility of technology suggests that technology is continuously constructed in social and physical ways, that there is a time space discontinuity (development is separated from use in both context and time) in traditional models, and that individual and social factors influence users working with and shaping technology."

I say let the witch hunt begin! These companies have done nothing since 2004 to earn the benefit of the doubt. They knew the problem, they tried to take this idea and manage it themselves, and they know the investor class can only turn to the management. And they have known all these things for the past 5 years.

So lets toss another log on the fire. Encana Corporation paid "in the money" stock options worth $490.7 million and has options remaining that are "in the money" by $207.5 million. Now remember, I only distributed the research proposal and preliminary report to firms with head offices in Calgary.

These three (Petro-Canada, Canadian Natural Resources and Encana) have endowed their managements with a total of $2.7 billion in stock based compensation.

Join me here, and lets cast these pigs from the trough to the mud pits.

Technorati Tags: People's Management Peak-Oil Failure

Nouriel says the "D" word.

This week we have been able to focus on the community that needs to form here. A community that needs to build the People, Ideas & Objects ERP styled software systems that are desperately needed for the oil and gas industry. Today we have a fairly strong dose of negative economic news, and I submit these latest articles to provide the support for the changes that are needed. If we don't act, we will be in a much more dire situation then we currently find ourselves.

First is Professor Nouriel Roubini states the "D" word. He also states that the five top U.S. Banks are insolvent. Nouriel may be the most famous economist due to his precise calling of this economic decline. Noriel has provided very sound quantitative and qualitative analysis of what is happening economically. Prescribing some of the remedies that are necessary to offset this decline. When he starts using the "D" word, I think it is very serious point. His most recent interview was on Wednesday with Bloomberg News "On the Economy" with Tom Keene at the Davos, Switzerland World Economic Forum. I highly recommend listening.

Next is the earnings of the oil and gas producers. Conoco Phillips fired the first shock in the season by reporting a loss of $31.8 billion for the fiscal 2008 year. Wow, must be a problem there.

Lastly the news comes from Forbes, Occidental Petroleum's Chairman finds that the current pricing structure is inadequate to cover the cost structure.

"The current oil and gas industry cost structure is higher than what the current product prices can support," said Dr. Ray Irani, the company's chairman, who said the company would lower its 2009 capital spending budget to $3.5 billion to protect its returns.

Hm must be a problem there. Just a note, I don't think I will be reporting on any more oil and gas company earnings outside of the Pigs. (CNRL, Nexen, Petro Canada and Encana.) Conoco is a well run firm, however, that is in the context of last centuries performance. The Pigs are deserving to get stuffed and I'll continue on as they release their losses.

The need for this community is evident, and is on display in almost every business article written today. The economic decline is going to get much worse, the oil and gas companies are being questioned with their own survival, and the need for this community to form and get on with the job of building the next generation systems AND organizations is now, please join me here in doing these critical tasks.

Technorati Tags: People's Community Economics Failure Energy

Why the companies.

In my last post I pointed the accusatory finger for this energy problem, at the oil and gas companies, particularly the majors. The first aspect of the accusation is that they knew, as I had pointed out, that their organizational constraints would limit their level of activity far below the market demands. This may seem a rather harsh point of view, which they should be given the benefit of the doubt about their knowing or not knowing. It was clear to many that this situation was inevitable, I was providing a solution, not identifying the problem.

The management of the companies knowing the situation would become as difficult as it is, undertook to do nothing. They were making money and would continue to do so when the prices went up. This lack of motivation to do anything was the choice of these managers. Show me a major producer that has earned any increase in their profits other then from higher prices.

Educating the public. Even today companies and their industry representatives claim to have no idea why prices are so high. What business are they in, do they mis-understand their markets so fundamentally? What could have been done in the past five years to mitigate the problems we face today? If consumers were given the real facts, would they have gone out to purchase the SUV they feel they are now stuck with? The duck and run from the truth policies of these organizations have allowed John Q. Public to walk blindly into the biggest issue ever facing mankind. The motivation to dip into the trough is strong with these managers.

In September 2003 I published a proposal to the industry to conduct the research of determining if the JOC was the key organizational construct. Given the opportunity to deal with this constructively, the industry represented by Petro-Canada, Encana, CNRL, Talisman and many others, chose to hire Cambridge Energy Research Associates (CERA) to research the idea that I proposed! Shows you the scope of what these people are capable of. And I was not dealing with some low level manager; I was speaking with CEO's of these firms. Luckily for me I was able to complete the research ahead of CERA. In publishing the May 2004 report the only question that was asked was who paid for the research? Well I did, and now I own it lock, stock and barrel.

It's been this last point that really bothers the companies. They have no desire to ever let anyone derive any value from Intellectual Property. It is since this time I have been forced to find employment in other industries. So here the industry was presented with a workable idea that made more sense then anything they had read before. (My words). And they hush it up and try to kill it. Each of these companies struggles with the inability of SAP to do any after sales service, why would they refuse any new idea? And that is the last point that these organizations are culpable for, their efforts to kill this opportunity to solve this problem before it affected the consumers.

These companies are more or less suffering from a grid-lock organization that long ago failed. Recall in 2007 even Exxon lost 10% of their production base after spending an additional $25 + billion in capital. These dinosaurs will never be able to keep up with the decline in their production base and are therefore slowly rapidly dying. So who else, other then the consumers are suffering as a result of the manager’s lack of accountability and motivation? Clearly the shareholders are at a sizable risk as they watch the managers slowly run the company into the ground.

I am calling on those investors to fund the developments of this software development project. A means for which the shareholders could be provided with the alternate organizational systems enabling them to manage their assets. The current oil company managers know that in today's business environment you must have the electronic systems in place first, or you will be relegated to manual systems to run your operation. The managers have their investors over a barrel.

How much longer will these managers be left in control will be determined by the investor class. An investor class that happens to be comprised mostly of John and Jane Q. Public, the people that are now facing the energy problem. What is needed is for them to act as I see no other alternative.

Technorati Tags: People's, Call-to-action, Organization, Research, Failure,

Ray Lane in BusinessWeek

Ray Lane is a partner at Kleiner, Perkins, Caufield & Byers and a former president of Oracle Corporation. He knows what he is talking about. The title of this entry will take you to a Business Week article that documents many important points. Two of these points I want to discuss in this entry.

"The traditional method of selling big corporate software applications as multi million-dollar packages that take years to implement is broken."

"The 70% of startups out there that are trying to do what the big companies do, only better, faster and cheaper - it's a fools errand. The customers would like to buy that from a large company, so their going to lose out." Ray Lane

Surprisingly, perhaps, I think he is right on both counts. The large multi year, multi million dollar packages are the dinosaurs of the software world. Even Petro Canada tried to implement SAP and after $14 million gave up. Its a fallacy that went too far in retrofitting the company to the software.

On the second point of Ray Lane's, stating that the startups will fail, is something that I struggled with at the beginning of this process and something that I think I can also prove is not valid in the oil and gas sector. The two points that I would assert in my defense is that I am the copyright owner of the methods and processes discussed in this blog, and in my thesis. I published my thesis in May 2004. I have tangible evidence that the state of the art thinking was not as advanced as what I proposed in September 2003, and earned in the publication of the Plurality document.

Back in 2003 I concluded that the software vendors could consume themselves competing with new offerings and no one would have been able to secure a competitive hold in the market. The only manner in which to establish a competitive offering, I felt, was to own the intellectual property as the key competitive advantage. The copyright, and other forms of intellectual property were the only sources of value in this new age is the conclusion I came too in 2003, and I believe is the case fundamentally today.

Secondly, if anyone thinks that a large vendor is going to be able to write the code for the Partnership Accounting module that I have spoken about here (to aggregate the stories just click on the Partnership Accounting tag). I think they would be mistaken in their expectations. This needs a clean slate approach and the heavy involvement of the potential and future users.

So on that basis I would agree and disagree with Mr. Lane. Intellectual property is the only method of securing any kind or competitive advantage in this new day and age. Those that attempt to build systems without their differentiation being codified and protected are in my opinion wasting their time. What is required to compete with this software is some fundamentally different basis of organizational structure for the software to define and support.

On an unrelated note, Rod Boothby has an excellent summary of the CTC in Boston with a number of quality links to other blogs of importance and significance.

Technorati Tags: Genesys, Partnership-Accounting, Innovation, Enterprise-2.0

Anne Mulcahy at Xerox.

Anne Mulcahy the long term CEO at Xerox is finally being recognized for the leader that she is. She took on a very difficult job in the ailing Xerox and has made the firm stand on new and innovative product offerings, that resurrect the days of old. (Click on the title of this entry to get a summary from the Business Innovator.)

Quoting her words about being disruptively innovative:

"This is the pain of technology transitions. You can either sit and wait like Kodak or Fuji Photo and fall off a cliff when it happens. Or you can migrate. We're transitioning the light-lens [traditional copiers] out as quickly as possible. If you look at what that's cost us, this company would have been growing for the last three years very nicely. It cost six points of growth in 2003; four points last year. It will cost us probably a point and a half this year. So it's going away... It's always more attractive to stay in the old technology from a profit standpoint. Always. But you'll be going out of business."

It is too bad that here in Calgary the oil and gas industry chooses to treat me as a pariah for offering the opportunity to "migrate" to the new technologies. Now they have the same problems that I identified two years ago in the Plurality publication. Only these problems have manifest themselves to include accounting reporting issues, poor reserves replacements and related issues. To listen to the oil and gas producers they seem to think that higher energy prices are their biggest surprise! What business are they in?

The time to proactively start building the systems focused on the Joint Operating Committee is passing quickly. There remains very little time left to make the transition from the old energy industry to the new. As I have indicated here before, if we had the resources to start tomorrow, we would still take three years to complete the development.

No one can stand up to the concept of using the Joint Operating Committee and refute the logic. Everyone agrees that this is the manner that companies need to proceed with, yet the bureaucracies continue on in an attempt to reward themselves for their success in their businesses. Its the high commodity prices that are providing the "good" earnings guys, not any skill's you may lay claim too. Go back and recalculate what you would have earned at $25 / bbl prices. The sad fact is that many of the companies, like Petro Canada, would be run by court administrators if oil were at yesterday's prices.