Continental energy policies...

I have been meaning to write about the changes in the global energy marketplace for some time, President Bush's state of the union address makes this a priority.

I am frequently reminded by various events in the world that the American oil and gas service industry and producers are being pushed out of the regions where generally they are not welcome. The Chinese come into the areas where the Americans are not welcome and are able to pay the same for the leases and most importantly do not expect that the African, Middle Eastern or other countries adopt the moral and ethical standards of the U.S.

This has repatriated most of the global Houston based service industry to focus on North America. Is it any surprise that the Americans have also just recently noted the value of Alberta's tar sands.

President Bush's state of the union objective of reducing dependency on foreign oil is possibly not an internally generated expectation as it is a global reality. The Chinese and Indian demands for energy can be met within their own continents by the middle east, Russia and from the continent of Africa, what do they need the Americans for.

Traditionally the Americans technology has been superior to the rest of the world. This may be the case still, however, at what point does the rest of the world grow away from the U.S. technology and cultural expectations. The realization that now is as good as anytime is the current thinking throughout the world.

Now that the focus on oil can be given specific goals and objectives to meet the presidents demands, the gas industry needs to be given similar objectives. Watch for the arctic to become progressively more important in the next 2 years.

The point of this entry is the overall realization that meeting the energy demands of the U.S., China and India are difficult enough, the realization that it needs to be done on the basis what can be done on the North American continent only makes it more difficult. If Bush really expects that alternative energy sources will provide a buffer, then we really have a challenge in front of us.

It's about the "individual"...

This summarizes what many of the public and private thought leaders around the world are thinking.

Business is in for some big surprises. The world has changed, and the organizations haven't. It is simply a matter of "Change or Die". Most organizations are gladly lining up for the later point. Dying is not an honorable choice, it is just the best choice for the individuals that make up that organization. Many are frightened by the prospect of the future, others are not so concerned. Either of these two groups sees their long term sustainability in their salary and benefits, and have chosen to ride these changes from a "safe" vantage point.

The source of innovation is individuals. As I noted in a prior entry everyone and anyone who is motivated to build better oil and gas ERP style systems, based on the organizational structure known as the joint operating committee, are more then welcome to participate here. They not only are welcome, they are desperately needed. A role for everyone exists during and after all of these changes.

These evolving and changing corporate organizations provide those that may be concerned about their future with a familiarity to this new world order. An opportunity to make a valuable contribution. It will be all of the individual contributions conducted during their "safe harbor" within the dying organizations, that will show them how they can and will participate in the future. They only need to see where they'll fit into this world.

Today I am noticing a trend that seems counter to logic. The majority of these changes are being orchestrated, motivated and driven by government policies and leaders. Not involved in a life and death struggle that the corporate institutions are involved in. They can see clearly the need for change. What they also see is the bureaucracy of the corporate organization is redundant and resisting the necessary changes to make their economies innovative and prosperous.

Here is the newly elected leader of Germany speaking at the World Economic Forum.

• "What kind of order do we need so that all can benefit from the fruits of the economy? The Creative Imperative is the answer. Politicians must shape the conditions in which people can have the freedom to develop the best ideas which release the creative imperative. There is a need for a new social market economy. The most dignified market and social economy needs to believe in the mature citizen that can exercise responsible freedom to translate innovative ideas into action... Our target is to make Europe the most dynamic continent. But to turn the creative imperative into real innovation, that is something that we must not give up on as our future prosperity depends on it..."
• Angela Merkel, German Chancellor
  

Cuts through a lot of bureaucracy and vested groups. The writing is on the wall for corporate leaders. Resistance is futile ;-) the corporate hierarchy is finished. I understand that president George Bush will be discussing this point in his state of the union address on Tuesday. This hopefully will be one of his stronger speeches, there is nothing like the American economy when there are looming economic, competitive threats.

Something serious to think about...

The article discusses a frustration on the over reliance on the use of the graphical user interface device, the KVM. (Keyboard, video, mouse).

I think that the Genesys systems that are we talking about building here, could be so much more interesting on the basis of "what" and "how" the interfaces could be developed for the users. Think about it.

Focusing on productivity...

The title of this blog will lead you to an article from McKinsey entitled "Capital discipline for Big Oil". I will also be referring to a report published by Raymond James for their clients. The article if you can source it from Raymond James is entitled;

• The World Needs the Oil Sands of Canada, Global Oil Consumption of 60 billion barrels in the last two years, yet no confirmed giant oil field discoveries.

In this article Raymond James notes that consumption of energy vs. large discoveries are running at a factor of 10:1. An unsustainable situation. The one major discovery in Brazil would provide all the world's energy needs for only 8 days. The Knotty Head discovery by Nexen in the Gulf of Mexico is drilled to 34,189 feet, stands in 3,500 feet of water, and just to make things interesting, is subject to hurricanes. Remarkable and commendable.

Globalized market demands for energy expect the producers to innovate from this base. The challenge is daunting. But oil exists in the minds of oil men. With the commodities prices today, the motivation to fulfill the needs of the market will be met.

Innovation is highly dependent on engineering and earth sciences. As with most engineering problems, time is the factor that determines the results. To increase the engineering problem solving performance, it is necessary to increase the number of engineers and geologists in the business. This will solve the energy shortages that we may see in the near future. But well trained scientists are at a premium due to the existing demand from all industries, not just energy. Therefore, where are the scientists going to come from.

I believe fundamentally in the collaborative environments that are available today. (Read about microformats and structured blogging here). People can solve problems that are difficult, better, faster and in ways that could only be imagined a few years ago. I believe this is a revolution in problem solving capabilities. A collective wisdom is built based on the collective understanding of the participants which quickly percolate to the surface and becomes obvious to objective observers and participants.

Whether the well is being drilled to 34,000 or only 3,400 feet, the amount of science that goes into the decisions made has to be cutting edge. It is the scientific cutting edge that will be advancing in the next 3 to 10 years at a pace that will truly astonish. How will a company, built on an organizational model designed to deal with the business issues of the 1930's, during a time when computers and calculators had not been concieved, sustain the necessary science and technical capabilities of this future environment?

Technical and scientific decisions made by the participants of the joint operating committee are the companies scientists and managers of the scientists. Aligned by the same financial motivations, what would it take to have them all tied together electronically? How significant would the time savings be over the traditional means? The time spent waiting for the meeting to be arranged through all the conflicting schedules. Aggregating to one physical location could instead being handled collaboratively. Decisions would be made quicker, more effectively and asynchronously using today's Internet technologies. How many more decisions and actions can be taken through a collaborative environment.

How much opportunity is lost in a scenario such as this;

• Seeking approval to test a new idea or theory on a dry hole. The geologist realizes that the time necessary for the joint operating committee to meet and to decide if the theory should be tested, gives up realizing the rig will release in 5 hours. In the traditional environment, these opportunities are lost. Collaboratively, a learning experience is gained.

Before any of this can happen, the capability to write the software to support the JOC. And this requires a dedicated team of software developers to work with the scientists and engineers to develop the business tools within the software. I noted in a prior post how Oracle and SAP's technical specifications are being developed. How do they deal with these types of scenarios? What are they offering the oil and gas industry?

In addition to these types of time benefits of a collaborative environment. An effective environment would limit the amount of time engineers spent in their vehicles driving to work and back. Two hours a day is too much time that is being wasted when it is aggregated by all of the scientists employed in the industry. Synchronous telephone calls do not document these decisions or their associated transactions.

Oil and gas exploration and production operations are not operated on a 9:00 to 5:00 basis. The need for monitoring and managing of these operations in Genesys' collaborative environment will be managed more effectively. Based on the decision makers asynchronous availability, which is virtually any time. Genesys provides a dedicated oil and gas software development team at the disposal of those oil and gas scientists and engineers that need the software development support. The support of a system that documents these decisions, their results and the associated commercial transactions that are the natural implications of those decisions.

So if we assume that the Genesys portal is developed, in time, the decisions that are made electronically would manage much of the business attributes of those decisions. Complete accounting data about the assets and historical operations would be available to the authorized members as required.

Action-able items would also be part of the Genesys system. The ability to decide on the well location through interfaces with other systems like Accumap. Which wells should be drilled and when, capital budgets that were previously agreed to and subsequently generate the appropriate AFE's and begin the process of documenting the decision and collecting the costs. The contracts for the drilling and completion operations would be counterpart executed electronically by dully authorized officers. Operations would be monitored over key variables of interest based on the type of work being done, personal preferences and authorization level. All these attributes could then be reported to the engineer on an electronic portlet / dashboard. Wherever and when ever the scientists need the information.

I kind of side tracked there to get a vision of the systems capability out. What the McKinsey article discusses is the effective use of the surplus cash that is being generated in oil and gas companies. They suggest that like so many oil booms before this one won't be to much different. What they suggest is that oil and gas companies maintain their traditional capital budget discipline and either buy back shares, declare dividends or invest in future capabilities and capacities with the surplus cash. This last point really resonates with me for the obvious reasons.

Sir Tim Berners-Lee, and the semantic web

The founder of the World Wide Web talking about the semantic web, on MIT video. Another video that is worthwhile viewing, requires a fair amount of technical understanding.

Sir Berners-Lee starts off with a definition of "Emergence" and its needs:

• lots of individual things
• simple interactions
• common interactions

noting that standards are needed for these "needs" to let emergence occur. Stating that "emergence occurs when the individual things are organized to recognize and communicate with other things."

At the time of the development of the World Wide Web, Berners-Lee stated the following.

• URI is global identifier, having one is good
• URI schemes have different properties
• HTTP scheme allows publish and lookup
• HTTP allows many data formats
• HTML is a language for hypertext
• ... but links not typed (Refer back to my "Vision" entry here for an understanding of typing.)
• RDF + OWL + etc for knowledge representation. (Italics noting these were added later)
  

Today, integrating the semantic web to enable and to integrate data across enterprises is the objective.

But ...

• What about "typed" links?
• What about help from machines?
• What about data?

Establishment of the metadata Resource Description Framework (RDF) standards was passed by the W3C and is used throughout the web. It enables companies to deal more accurately with the data they have, to find associated data, and most importantly, the ability to interchange data between trading partners. Hence the importance of this blog entry to the general audience of the oil and gas community that is forming here.

I want to stress the importance of viewing this video. In it Berners-Lee states that standards are fundamental to the effective and efficient functioning of this opportunity. Noting specifically that the ability of certain individuals or groups to control the standard for their own benefit is a possible outcome of the process.

Being a troll is not what this blog is attempting to do. It is attempting to build the community in such a way that the joint operating committee becomes the central oil and gas focus of an oil and gas producer. That there are large vested interests aligned against this principle is another story. This community has to be built around the needs of the 3 groups that need such an application. That being the software developers, employees / workers / consultants, and producers / investors.

I don't want to leave anyone out of this community and would note. The large organizations have the Oracle Fusion and SAP applications to support their organizations. And they are motivated to continue with them. However, this community is about the individuals that are interested in developing the best applications for oil and gas and that includes the individuals that may be beneficiaries of the good salaries and vested pensions of the large bureaucracies.

With respect to the W3C standard ontology of the joint operating committee. The standard will be one of the initial deliverables of this communities efforts. They will also be public domain. Any copyright issues associated with me licensing my intellectual property to make that happen will be done. The only condition I will insist upon is that this community is supported by the producers by some form of long term commitments. Spinning these standards out with a perpetual license of my copyright is probably the most effective means of dealing with this for the long term.

One of the valuable points of the web discussion of Berners-Lee is his representation of how simple this really is. At least he makes it sound easy, and it is, and should be. This is an excellent educational video from the founder of the World Wide Web. One of the things that he does in his rambling style, is provide a good example of why these ontologies are so important.

• XML - a registration document contains a single license number field
• RDF - a car has a unique license number
• Therefore, semantic data is much more reusable
  

He then states the critical difference between the web that most people know and use, and the one that he and I are discussing in the video and this blog;

• "Making the web of hypertext links which is useful for people, to a web of concepts that is useful to machines"

Citing the possible scenario where an individual, who wants to find the best snow tires for his car, within 5 miles of his home, that fit his vehicle, and the costs and time necessary to have them installed. This query should be easily done on the semantic web with only two lines of text.

That to achieve this type of complex information aggregation only requires the "triple". A simple reduction of any "thing" and defining it in the ontology by "subject" "property" and its "value". So in the prior example the "car" "license" "HWX 149" defines the "thing", which is unique representation of a vehicle is HWX 149. But putting these definitions on the web, machines can derive information and understand the meaning or semantics of the information.

Berners-Lee goes on to note, that this metadata is not a relational database, its not a tree like what XML is designed to do, its a primordial soup, its a web of very complex data, and the concepts around that data. This accurately reflects the effect that Java has in "typing" of objects and why that language has such a strict requirement of typing. If this sound overly complicated or theoretically impossible. Consider that I see up to 10 dimensions that Java objects can represent. So yes a three dimensional web of data and concepts is a close representation of the possibilities.

With the combination of relational theory as defined by Dr. E.F. Codd, the semantic web by Sir Tim Berners-Lee and the Java programming language by Dr. James Gosling, one has the tools to truly change the world. Add the components of WiMax and IPv6. I think we can change the performance of an oil and gas producer in such a dramatic fashion that the world will have the energy it needs. So join this community, contact me through this blog, I'll send you my thesis that started all of this and then we can all go from there.

Tight gas supplies...

The title of this blog will take you to the BBC where they are reporting that all gas supplies to Georgia have been cut off. Georgia is accusing Russia with sabatoge as a result of a series of explosions.

Also the politics of energy is being played, everywhere.

Oracle Fusion, a.k.a. as the competition...

Oracle has announced that the Fusion code base, the consolidation and rewrite of Oracle, PeopleSoft, J.D. Edwards and Siebel systems is half finished. That is, the specification for the applications has been finalized.

Noting the oil and gas specific application consists of;

• "Oracle provides solutions for asset management, project management, and joint-venture accounting integrated with world-class financial, supply chain and customer relationship management. As a result, companies can impact costs and asset management regardless of fluctuations in oil and gas or refined product prices."

The competition, consisting of SAP, is alleged to have been ahead with its NetWeaver technology in that re-architected system. Their oil and gas solution provides the following;

• SAP for Oil & Gas provides integrated, open solutions for more than 97% of FORTUNE 500 oil and gas companies -- and over 750,000 users -- supporting fundamental business requirements and upstream, midstream, downstream, and marketing processes. Plus, SAP for Oil & Gas is powered by the SAP NetWeaver platform, laying the foundation for new cross-functional business processes.

I'm sorry but I can't tell what either applciation is selling. Comfort in knowing that all of your competition will not have a competitive advantage based on their technology?

I would also be concerned about using a system that is supporting the internal bureacracy, and not even mentioning the interactions of the partnerships I have.

Cisco President, John Chambers

A worthwhile view of a successful CEO is John Chambers of Cisco. His presentation on MIT video is one that should be viewed. One comment he makes in his presentation, around the 15 - 17 minute mark is:

• Productivity growth at 5% is doable.
  
• What investment drives productivity growth greater then 2.2%, long term, 52% of the productivity increase is attributable to investment in networked IT with process change.
  

If productivity levels greater then 2.2% are attributable to networked IT with process change, then the capital budget should reflect this. Is this being done in oil and gas? Should it be?

Friedman, "The world is flat"

I have the following comments and observations regarding Thomas Friedman's presentation on MIT video. The video provides a summary of his book, "The world is flat." The MIT video site is providing lots of material these days, you should check it out.

Friedman's thesis is that the world is entering a new form of globalization that is in its third iteration. The first two era's established countries and then companies. This third era, the one we are in, is focused around the individual. This perspective shrinks the world from small to tiny.

Friedman suggest there are 10 days that flattened the world.

1. The fall of the Berlin wall simultaneously with the development of computer graphical user interfaces.
2. Netscape went public which commercialised open and standard protocols. Is also responsible for the .com boom, and bubble. A boom that saw $1 trillion in fiber cable laid around the world. This glut of fiber connecting more people together, enabling communications never imagined before.
3. Workflow. Applications linking to applications. People are able to work together like never before. Multiple forms of collaboration being made available. This is a trend that I am attempting to bring to oil and gas. Elimination of the silos also known as companies.
4. Y2K Outsourcing showed the world that other countries, such as India had comparable skills that were as close as the person next to you.
5. China became a signatory to international trade agreements. Or as Friedman calls it, offshoring.
6. Open Source, a form of collaboration. Friedman thinks this may be the most fundamental innovation the world will ever know. I tend to agree and would add, the fuel is the Java programming language, and Dr. James Gosling's brilliance that made this. (How he managed to develop this in a time when the universities computer resources had to be booked and punch cards read is another wonder.)
7. Supply chaining. Optimization, such as WalMarts, continues in all industries.
8. Insourcing. "UPS your world synchronized." Where UPS doesn't just deliver.
9. Informing. Accountability and transparency, if you can handle the data volume.
10. The steroids of the Internet, wireless and voice over IP. My vision including IPv6, Java and asynchronous interactions.
    

A convergence of these flattener's first occurred in 2000. Friedman suggesting that a global platform of commerce and capabilities was realized and fully operational.

A second convergence occurred that is making horizontal of the vertical. Organizations focused on the individual within a collaborative environment are more productive then the traditional hierarchical bureaucracy.

The third convergence is the realization that India, China and the former Soviet Union share structural competitive advantages that can and do directly compete with our best and brightest.

Three convergences makes this the "mother of all inflection points" Friedman stating that we have never seen the type of changes that will occur as a result of this. Nothing in history will compare. Quoting a conversation that he had with HP's Carly Finorina "everything we call the IT revolution, that was just the sharpening of the tools. What we are about to really see is the real IT revolution".

System security

The first and foremost requirement of the system is to architect and implement high levels of security and reliability into the system. Doing this as the first item is critically important to its reliability, validity and use. This system, the Genesys portal, needs to be highly secure and reliable, but will have the additional attributes of ensuring the integrity of the data, the validity of the person, and many other issues.

First of all this is an open source development project. As we know Linux is open and free, enabling anyone to write any code to the base, however Linux does not get any viruses like the ones that Microsoft, a closed system, is plagued with. The user needs to review the code and understand what is happening in the application if that is necessary. This enables any company or person to achieve higher levels of understanding as well as the security to know their data or information is being managed properly.

The term free in open source does not mean that their is no financial cost. It denotes the freedom of the application to be reviewed and progress as is required. It is free to do what it needs to do. The best way to describe free in this instance is free like a puppy.

Second the application will be hosted on the grid. For me to set up and manage the appropriate servers and network infrastructure for this application would be redundant. A contract will be managed between Genesys and Sun Microsystems to host the application on their grid. This gives users the highest levels of infrastructure quality that exists at any time in the world. As time passes the user will also appreciate that no unauthorized use will occur. That would include myself. Why would I need producer or user related information or data?

As we discussed in previous entries Java was the language that will be used to develop these applications. This provides significant security and reliability value. Genesys will pay the licenses for the use of Java and therefore inherit the current installed base of infrastructure that is available today. I am not aware of any violation of the security architecture that Dr. Gosling implemented as one of the key and initial requirements of the language. This also taps into a significant base of developers that are in Java full time. With the infrastructure and tools that are available today, the development of systems has become very fast and very powerful.

With the open source developer tools provided in the past two to three years, developers have the infrastructure and tools they need to do anything, literally. And at absolutely no cost. This will lead to a revolution in applications in the coming years as these capabilities mature and are released on projects such as Genesys.

Without going into to much detail, these issues are not unique to Genesys and there are many groups that are working on the security issues of other industries applications. This is one of the benefits of Java, as things are discovered they can easily be shared within the Java Community Process and included in any application that uses Java.

Layering security onto closed applications after the fact does not work. We have Microsoft to thank for the proof of that statement. Building applications on top of a secure environment is the only way in which to ensure that the security and reliability are strong enough to provide the user with the data quality and integrity they need today and in the future. That is why the first specification is the security system, or security environment.

My comments regarding Dr. Newton's presentation...

Applying much of what Dr. Newton says in his "Brunel Lecture" to the oil and gas industries joint operating committee, reveals the following points.

Engineering is key in the future. The application of the sciences to the existing commercial problems will be the source of many of the needed innovations. Extraordinary technical challenges are faced by the oil and gas industry as the production in many fields matures, and the demands of growing economies continues to compete for the world's energy resources.

Dr. Newton notes, "User inspired basic research" (The highest quality research.) includes characteristics of:

• small group sizes
  
• are passionate towards shared goals
  
• focus on project level activity
• shared vision
• yet compete for a common goal

This is also an excellent description of the characteristics of the joint operating committee. Is it any surprise that the JOC are populated by engineers? Noting that the engineering and science based technical issues are not the problem, its the:

• policy
• legal
• organizational
• cultural
• social

impediments to the engineering issues. Engineers have to cut through these, the common theme throughout is the Information Technology, measurement and instrumentation.

The joint operating committee is a standalone organizational structure that deals with these explicitly. If the organizational structure of the joint operating committee was recognized through the ERP software these engineering issues could be more effectively approached and resolved.

Having a community form around this blog is the opportunity to develop the systems that support these structures. Dr. Newton notes that a "societal scale information architecture" is required. Stating its all about information and Information technologies.

Solving big, one of, engineering problems is one of the U.S. key competitive advantage. How the oil and gas issues are approached by engineers needs to be revised to enable greater speed and innovation.

Dr. Richard Newton, CITRIS

I reviewed the MIT Video entitled The Brunel Lecture,
Presented by: Dr. A. Richard Newton
Dean of the College of Engineering, and Roy W. Carlson Professor of Engineering, University of California, Berkeley.

During 1999 Dr. Newton lead the foundation for the "Center for Information Technology Research in the Interest of Society" (CITRIS), Institute at Berkeley

CITRIS' mission is:

• "Inventing and applying technologies to the solution of large - scale societal grand challenges."

Dr. Newton starts the presentation by noting the significance of a comment made by Greg Papadopoulous, CTO Sun Microsystems

"If the 20th century was the century of big science, then the 21st century must be the century of the engineer - the global challenges we all face simply demands it."

CITRIS is dedicated to studying the engineering challenges that we face today. Projects that are considered engineering "one offs" conducted by geographically disparate groups requiring high levels of reliability. The institute is composed of 4 California campuses of Berkeley, Davis, Merced, and Santa Cruz

I highly recommend readers review this video, requires RealPlayer, viewing time is approximately 1 hour, 10 minutes.

MIT video on innovation...

The title of this entry will provide you with the URL to a website that MIT has established to distribute videos of much of their intellectual property. The "Democratizing Innovation" by Dr. Eric von Hipple, Professor of Management and Head of the Innovation and Entrepreneurship Group, MIT Sloan School of Management has a number of very interesting perspectives regarding innovation.

Some noteworthy points I found in his discussion are as follows:

Dr. von Hipple defines two types of innovation and categorizes them as follows.

• An innovation is a user innovation when the developer expects to benefit by using the innovation.
  
• A manufacturing innovation is when manufacturing firms expect to benefit by selling it.
  

"Lead users" are users that have needs that "foreshadow general demand in the marketplace". I identified the three audiences that this blog is directed at, the systems users, developers and the oil and gas producers / investors. I perceive each one of these three categories fall into the first classification of Dr. von Hipple's "user innovation", and therefore restate "the developer, user, producer / investor" are the driving need and beneficiary of the Genesys portal.

I extend this thinking beyond the first commercial build of the application, and want to express a critical point. The system will never be static, an example of a constantly evolving web service. It will develop and evolve to meet the most demanding of "user innovations." This blog is building that community.

A second point of Dr. von Hipple is that these users:

• "expect to obtain high benefit from a solution to their needs. Only lead users innovation form the basis of new products and services, usually within the community." Noting that 77% of all innovations are sourced from users.
  

and

• "Three quarters of all manufacturing innovations fail."
  

The final and most satisfying point of Dr. von Hipple is that "user communities replace manufacturers." SAP, Oracle and other "manufacturers can't compete against a community. It, or should I say this system because of its community orientation, will succeed.

This community is the right thing for the future of the energy industry, those that choose to work in this industry and the energy consumers.

Lets go.

That there, is the forest...

I am referring to comments made by Wilf Gobert of Peters & Co in the Calgary Herald on January 12, 2006. Some of the facts that he points out are certainly surprising. I will note these facts first, then discuss the point of this blog entry.

The Canadian Oil and Gas producers are capable of drilling 26,000 new wells during 2006. This is in contrast to the 6,000 to 8,000 wells that the industry drilled in each of the years throughout the 1990's. He also points out that 2003 was the first year in which the Canadian producers were unable to increase their natural gas deliveries.

These are frightening statistics. If we are drilling almost 4 times as many wells and we are not able to increase our production, then something seems to be amiss. Gobert goes on to note the following.

• "But he said the real problem is not cash, but the critical shortage of skilled labour and developing the infrastructure to get commodities out to the markets that are very eager for the products that we produce."

This is the background data to support Gobert's statement, and the headline in the paper that a "Natural gas crisis on horizon: analyst."

Peter's & Company are Canada's largest investment banker. Wilf Gobert has been with the company since the beginning and as vice-chairman would be one of the most powerful individuals in the industry. My opinion would be that his company would be an effective marketer and only reflect what their clients, the producers, are saying. For him to reflect on this point is evidence to me that the industry has finally awaken to the point that we can not, as it stands, do more work.

The newspaper article only states the problem, no detailing of the symptoms or a possible solution. Nor does it note that we are logistically and organizational constrained and provides no further recommendations or how to alleviate the symptoms.

This precise issue was noted in the May 2004 "Plurality" document I published. (Interested readers can email me their address for a free .pdf copy.) In this document I note the bureaucracy was the root cause of this issue and as a result the ability to move and change was limited.

I also noted that the bureaucracy was explicitly supported by the oil and gas ERP software. Stating that "SAP is the bureaucracy." Therefore, to change the organization requires that the software be changed. For industry to undertake to develop these systems for themselves through Genesys.

As the beneficial owner of the copyright for this document I can, and have, monopoly rights to this concept. An excellent summary of copyright law can be provided here. And in summary;

• A copyright provides its holder the right to restrict unauthorized copying and reproduction of an original expression (i.e. literary work, movie, music, painting, software, mask work, etc.) Copyright stands in contrast to other forms of intellectual property, such as patents, which grant a monopoly right to the use of an invention, because it is not a monopoly right to do something, merely a right to prevent others doing it.

I have exercised these rights by providing written notice to Oracle, SAP and IBM that they are not authorized to breach the copyright. This, as is noted in the excerpt does not stop them from proceeding, but I would point out two important points.

1. They are not motivated to breach anyone's intellectual property, as that is in essence of their primary revenue generating assets. (i.e a slippery slope.)
2. You do not want to be dealing with the valid copyright owner to ask permission, after the fact.

Licensing of the copyright is possible and encouraged, there just hasn't been the recognition by industry that the issue exists. Now with the reflection made by Wilf Gobert of Peters & Co, the bureaucracy realizes their focus on the trees and unable to focus on the forest, has let this issue manifest itself. I am now delivering the message that the bureaucracy shoot itself, not the messenger.

Clearly the bureaucracy and competitive software offerings have failed the industry. This failure is now costing the consumers substantially more for their basic energy needs. And placed in jeopardy the future of the industry by focusing on this quarters performance instead of the long term health of the industry.

It is therefore my opinion that they be fired!

"Third Generation Globalization"

The title of this blog is the URL to The Kaufman Foundation. They have published a research report that I found on Fortune's innovation blog site, the research report of interest is down-loadable when clicking on the link "Collaborative Advantage Report".

This research report should be added with the Harvard and McKinsey articles noted in this blog earlier. Kaufman's authors note the generals are usually actively planning for their last War, whereas, the next War is not necessarily well understood.

The main point of the research report is the "weakening of the National and Regional Innovation Systems". The United States is in jeopardy of losing their advantages through the inability to collaborate and create a "world based on the free flow of science and technological brain power".

This issue of the weakening of the science and technology underlying the innovation is a result of a self fulfilling nature of the following four points.

• "The Bandwagon Syndrome", where outsourcing is seen as competitive advantage.
• "The Snowball Effect", where the more outsourcing that is done, leads to greater volumes of outsourcing.
• "The loss of Positive Externalities", where the capability to innovate is slowly eroded by outsourcing.
• "The rapid rise of competing innovation systems", noting the explicit desire of China and India to build centers of innovation excellence, whereas the U.S. systems are ad-hoc, entrepreneurial based.
  

Noting the value of "Collaborative Technology Advantages" the Kaufman research states three goals need to be identified and implemented.

1. Develop national strategies in order to compete with the centers of innovation in China and India.
2. Develop immigration and access policies to allow the inflow of greater collaborative researchers.
   
3. Develop a science and technology based education system that teaches collaborative competencies.
   

I highly recommend you read the report as it dove-tails nicely with much of what is and will be said in this blog. In terms of the need for the oil and gas industry to adopt these recommendation, hopefully this blog will be seen as the first step in the direction that the Kaufman report states.

What's an employee...

With the introduction of the context of time in the prior blog entry, the opportunity to ask 'what's an employee' in this future context seems the most interesting point to discuss. Whether these changes take the full twenty years to develop is debatable. I would suggest the day to day pressures for change are building faster then the capacity to deal with them.

The pressures to perform the duties required of an employer have becomes progressively more difficult each year. The demands on time far exceed the average 40 hour week that was deemed 'standard' in the sixties. The future was supposed to afford the 30 hour work week, and provide a more leisurely life style.

The expectations of a shorter work week was the natural progression of time expectations until the mid eighties, since that time and for a variety of reasons, the thought of a shorter work week is no longer considered in the lexicon of the oil and gas employee. The obvious shortages of employees aged 35 or less only makes this work situation ever more difficult to approach. The market demands for more energy and the increased level of effort necessary for each barrel of oil found and produced are real difficulties that need to be addressed. Where will the human resources come from to deal with these issues.

The frustration of the employee is only made more acute when the performance of the firm is dependent on the dynamics of the business market and ever accelerating business cycles. Loyalty towards the producers is superficial with a tacit understanding by the employees that the pension and other benefits may expire with the next acquisition.

Taking into consideration that China and India have now effectively placed one billion new workers on the global market, the value of physical work will seek an average cost around the globe. There are also fundamentally two different types of work that will be done in the future. Work that enables the computers to do what can be done by computers and work that cannot be done by computers, or physical labor. The queues for these two lines have begun forming, the oil and gas industry needs both, which line will be for you?

There are three distinct audiences for this blog.

• Employees or workers involved in the exploration and production of oil and gas.
  
• Developers working to provide the solutions to enable the employees or workers.
• The oil and gas producers themselves to provide the development resources. (Please note the subtle difference between the oil and gas company and oil and gas producer. Will there be a "company" in this future?)
  

The oil and gas worker, in the very near future, will not drive to the office for the meeting, they will conduct all their business in a manner that the physical location will not be an issue or even relevant. Where the work may be done at any time during the day and will involve the use of the Genesys portal I am discussing here in this blog. The oil and gas worker will not rise to the work of one employer for 10 hours a day, but will log on to these systems throughout their day and ply their skills for as many as 50 different joint operating committees and hundreds of producers.

It is with the active development of these systems, in terms of defining and providing valuable ways and means of doing the job in this computer enabled future. For the Genesys portal that we are discussing here is the future employer of the oil and gas worker, no matter where they are located or what their skills may be. It is the location of the developer to review and improve the open source code, and most importantly, the Genesys portal will be where the investor or producer turns to manage their business.

Those that may have noted the contradictions and conflict in the statements that I have made in this entry, I would point out. Using classic dichotomous thinking, analysis of these contradictions and conflict will point to the solution. These contradictions and conflict also identify the revolution that this blog declared in the "Web 3.0" entry, is very real, primarily because it is about the people.

In 20 years, the bureaucracy...

as represented by the hierarchy, will be;

1. A forgotten remnant of the 20th century.
2. In full command and control of the oil and gas industry.
   

This is the choice that is being made today. The response of the oil and gas industry is to select item #2.

I think that's wrong, and that is the point of this blog.

Who would Henry Ford hire...

One topic of discussion is the effect that information technology and innovation have on the various roles of society, organizations and people. According to Structuration theory by Dr. Anthony Giddens, society, organizations and people all move in lock step with one another. Any distortion in the progress of one over the others will lead to a failure. This theory was further advanced by Dr. Wanda Orlikowski with her application of Structuration to information technologies. Noting that technology was an element of society.

Therefore the progress of society, based on the influence of information technologies, will be faster then organizations or people. However, I think the progress of society, as dictated by the technologies will not exceed the speed at which the people can accept it. The hours worked, the productivity of "some" countries, are creating pressure on people to respond and they are turning to the technology to keep pace. That leaves the organization as the odd man out in this troika we are discussing.

This blog is dedicated to innovation and the application of technology in support of the oil and gas industry standard Joint Operating Committee. Now with Harvard University and McKinsey Consulting having joined the discussion. Stating that the collaborative tools are available to eliminate the hierarchy, (my interpretation of their words) and stating these technologies need to be used in order to sustain any competitive advantage large organizations have, is the final evidence needed to prove this application of Giddens theory of Structuration.

With this preamble regarding structuration, I want to ask, what effect did Henry Ford have on society, organizations and people. Clearly the type of worker that Ford employed after the invention of the assembly line was fundamentally different then what he needed before. The role of the organization was changed with the explicit and radical thinking that included paying his workers better wages, because it was in Ford's best interest as it directly affected the number of people that were capable of purchasing a car.

The optimization of work around the assembly line took the better part of the last century to unfold. A century to develop information technology related innovations will seem like a luxury as the pace of change accelerates and a century of innovations are compressed into what I would suspect to be a decade.

What kind of worker is needed in this networked, virtual world of information technology and innovation. Ideas are not 9 to 5. What more is there, other then the pursuit of ideas, ultimately? Just as Ford today is challenged by its competitors effective use of the assembly line, and is in jeopardy of facing its own demise, what roles need to change, how do people act and react?

Who would Henry Ford hire, and what would he do?

Financial allocation of resources for innovation.

Higher oil and natural gas prices are a reallocation of the financial resources to facilitate the needed innovation. The market demand for energy shows no sizable or foreseeable decrease. Structural competitive advantages, based on energy, are becoming evident for any country involved in the competitive globalized markets. The U.S. is the largest consumer, however, they are also by far the most efficient consumer of energy. Their GNP / barrel of oil is much higher then in any other country. It is these metrics that the countries will need to factor into their competitive landscape.

The money necessary to stimulate the energy production for the future is now being distributed to not only the producers, but also to the suppliers involved in servicing the industry. These financial resources are the fuel for future scientific advances. At the same time, the need to ration the consumption of energy is provided through the regular market mechanisms of supply and demand.

These factors are defining a completely different set of metrics for the industry. In the past, the most efficient producer was the one rewarded with the most profits. Now the producer who can find the most oil and gas will be the one with the most profits.

Is this the same energy industry that SAP began selling software to in the early 1990's? SAP clearly is the bureaucracy when you consider how the explicit recognition of the internal processes is their key competitive advantage. In the future how much of the internal requirements are augmented by the need to deal more intensely with partners, vendors, employees etc.

The point I am trying to make is:

• The market has realized the importance of energy in the global marketplace.
• The market is reallocating the financial resources to those producers that can compete on these different metrics. (Metrics of advancing the sciences and innovations.)
  
• The market is rewarding those producers with higher profits.

Where is the markets response from an ERP software point of view? Is this the same business that it was 5 years ago when SAP was adequate? What vision of the future is being provided to the energy industry from the ERP software vendors?

The global market economies are demanding a response from the energy industry. And they will respond as they have many times before. Where is the demand for new and innovative software solutions designed to support the innovative oil and gas producer? Are the software providers waiting for the phone to ring, or the knock at the door, where is the initiative, where is the software industries response?

Herbert Simon, Nobel laureate - Economics

'What information consumes is rather obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.'

The previous blog entry provides a scenario of how the technology vision 'may' affect the data requirements of an oil and gas concern. Add to this technical data, the business assumptions underlying the need to monitor the wells and you have either a competitive advantage to be used effectively, or a poverty of attention.

We don't know exactly how this technology will be implemented or the effect of it, and that is the point of this blog. I am attempting to build the ERP type systems that support the Joint Operating Committee. Where a systems development capability that can deal with the energy producers need to change, now and in the future. A need to facilitate the engineers and earth scientists the opportunity to;

• Understand and implement the changes and advancements in their respective sciences.
• Test theories and implement innovative techniques that expand the sciences involved in oil and gas.
  

Without the ability to effectively deal with these two points, the competitive advantage that 'may' occur are going to redefine the landscape of the industry. Winners will become losers and new companies based on this revised understanding will grow to replace those companies that can't compete.

Can the energy industry compete with the ERP style systems that they have now? Will they be able to position their organization for the next business cycle on the basis of a new competitive advantage? Do they have the business systems and software development capabilities that support this scientific environment? Or, does the industry as it stands today, have to fail in order for these changes to be made?

The technology vision's impact on oil and gas.

A previous entry reflected on a vision of what technology was going to provide in terms of an architecture in the near future. Typing of languages, Java's Asynchronous capability, WiMax and IPv6 were converging to make all objects, real or virtually controllable, monitor-able and manageable.

This entry attempts to document many of the opportunities and possibilities that this technology vision may provide to the oil and gas industry. How the systems are built and how the actual technologies are employed will be the topic of future entries and not specifically addressed here. Rest assured the limitation of ones imagination is the largest barrier, not the technologies capability.

If we consider the oil and gas industry is fundamentally dealing in high pressure and high temperature environments located well outside the domain of the visible, it is far easier for a petroleum engineer to determine what is valuable information that should be collected. The moment an engineer figures out some characteristic of the data, downhole tools will be spawned faster then the classic production decline. I believe this is where the majority of the innovation has occurred, and will occur in the future.

Nonetheless, if having even two defined controllable and manageable devices downhole to control some aspects of heat and pressure available to collect data for the engineer or geologist. And in the province of Alberta some larger companies are involved in drilling over 5,000 wells per year. That would be 10,000 devices that are acting in such a manner as collecting and reporting live data, and in turn being manipulated in a manner to optimize the production. Add those 10,000 devices to last years total and the amount of information that is now available is remarkably close to a tidal wave.

As a former accountant / auditor / management type my knowledge of downhole operations is limited. I do know one important fact. That oil exists in the minds of oil men. That they are currently satisfied that there is more then adequate energy for the world for the next century is beyond my unscientific mind. Rest assured they are able to do amazing things when given the opportunity.

They just need the data, a fertile scientific mind and the rest is gas in your tank. This data is now becoming beyond their reach due to the sensitive nature of time and the volume of data they are responsible for. Without a system that can be managed and manipulated at this level, their ability to meet the markets demand for energy will be limited.

How much longer will this system go undeveloped is unknown. The method for the development has now been established in this blog and we await the day the developments receive the crucial final piece, the budget of the oil and gas producer.

A community environment...

This post attempts to define a few things, so I'll state them right off and fill in some of the blanks now and in the near future.

1. The community necessary to support these development is the explicit responsibility of the oil and gas industry to support financially.
2. The method of payment for industry to comply with the needs of the community is through this blog's PayPal button.

Developers will consist of two groups, those within Sun and Oracle, and those that are in the open source community. They will be paid for through the proceeds provided by the oil and gas producers. All associated costs of these development and infrastructure will be borne by the producers from this moment on. A continued lack of industry funding will be the sole reason for the lack of any developments.

The method that these activities are supported is through this blog. Contributions to this development can be made through the PayPal system that this blog now receives. As the copyright owner I am the only one authorized to accept monies from the producers for these developments. I will then pay the developers, Sun and Oracle the necessary fees to ensure that the system is supported.

Assessments are being made on a global basis for these developments. The Canadian components of this system were costed at $85 million, the costs for a global system are sizeably larger. It is with this in mind that a revenue model that can be relied upon needs to be established. This revenue model will be an annual assessment of $1 per barrel of oil equivalent per year. Very affordable and a fair assessment for an oil and gas producer to pay.

Please note the costs of the oil and gas producers employees that work with the developers are to be the sole cost of the producers and are not part of this formula. The employees motivation is the opportunity to have their work completed in a simpler manner then the companies currently require, and as a result may participate at their own costs.

Software only requires one copy to be produced. Therefore the efficiencies of this model are fair and reasonable. For 2005 the total revenue for this system would total $120 million, and a company such as Canada's Encana Energy would need to pay approximately $700 thousand.

Companies that have not contributed to this program's development will be assessed any past unpaid contributions from this point forward and an annual late fee / penalty. Producers should read the McKinsey and Harvard articles that are pointed out earlier. The risks of "waiting" any longer will have the costs as identified in those articles.

Technology architecture, in a nutshell...

I am a big fan of the open source movement. The developers behind the movement are the best there is. More eyeballs looking at and improving / developing the code the better. Genesys is an open source application. This provides the access that developers from around the world to work on the code for development and improvements.

The method of exposing these developments to the world will be through Collabnet as soon as we can afford the licenses. (See the next entry for news on that front.) Collabnet is a Sun product that is available for other companies to purchase for their developments. Collabnet is what Sun uses for the Java Community Process (JCP) and a similar environment will be created with Collabnet for Genesys.

The licenses used for these developments will be Sun Microsystems CDDL (Common Development and Distribution License). Providing the opportunity to review the code and contribute anywhere in the application. The unique aspect of this license is that any use, whether compiled or via a web service is not permitted without paying the appropriate fees for use. Free to the developers and employees of the oil and gas companies to define and build the systems, and fees for the oil and gas producers to use the system for their employees use.

Another aspect of this system will be that the server, the service and all aspects of the hardware will be based on Sun's Grid. Purchasing processing power on a $1 per hour per processor makes more sense to me then paying and worrying about uptime. Access through out the world will therefore be accessible by anyone with a need for this system. Producers can be assured of high throughput, high processing capability and safe and secure data. Anything less is unacceptable. A unique aspect of this architecture is the only people whom will ever have access to the data is Sun, Oracle and the producer themselves.

Solaris has to be the operating system, there is no question in my mind regarding this open source operating system. By far the best server OS going.

The need for a database will be provided by Oracle on the Sun Grid. More on this later, a decision that is not taken lightly with respect to the history between Oracle and Genesys. Nonetheless, attempts to have IBM express any interest in this is too difficult for the right hand to talk to the left hand. And therefore Oracle gets the work.

Sun has an open source project called GlassFish. It is a Java EE 5.0 Application Server under development. As this will be the first 5.0 Java server, the fit with this project provides a lot of synergies. Since most of the conceptual design being described in this blog will be dependent heavily on asynchronous process', annotations are a requirement, and therefore Java 5.0 is required.

So in a nutshell, that defines the operating system, the infrastructure, the database and the development environment. Pretty easy this development world isn't it. Recall the copyright is held by me personally for the control and capability that is necessary to make this system real, which is what I am doing.

What's a transaction, continued...

We discussed the voucher system contained within this program, and how the "transaction" was redefined in the process as well. This blog entry will be to define some interesting characteristics of the transaction and its behavior.

To process a transaction it is necessary to establish that each and every transaction processed by the system, the world over, will be a primary key for the entire industry. That is to say that the coding structure for the transactions will need to be unique with no duplicates, not only spanning the company, but the entire industry. The code structure of a transaction will contain much of the following:

• Company ID (Foreign Key)
  
• Joint Operating Committee ID (Foreign Key)
• Voucher ID (Foreign Key)
• Transaction ID (Foreign Key)
• Lease ID (Foreign Key)
• AFE (Foreign Key)
• Vendor / Customer ID (Foreign Key)
• Vendor / Customer Invoice # (Foreign Key)
• Amount

Foreign Key attributes would be enforced by the database.

As I indicated in the discussion about the voucher system, other then the differences regarding Company ID's, any of the companies involved in the joint operating committee could post and process the same code to the system. Therefore a duplicate payment check will need to not only be run within each company, but also compare information between the companies within the committee. (declarative referential integrity)

What's a voucher, continued...

In the previous post I mentioned the use of an accounting voucher to maintain the integrity, security and balancing components of the production volumes contained within the system. All aspects of the voucher need to be balanced in order to be posted to the system. This balancing usually defined in the regulations governing the oil and gas industry, Sarbane's Oxeley and / or other SEC or pertinent requirements. This entry will begin to define what a voucher is, and what it is not.

The voucher is a unique entity in this system and provides the majority of the inherent checks and balances of the system. The vouchers and transactions have different meanings and connotations in this environment.

Recall the point of organizational structure on this system is the joint operating committee and as a result the entire manner that things are defined is fundamentally different. Further discussion of vouchers is necessary at this time, and subsequent entries will define what a transaction is. The difference between what a voucher is in many other systems is more consistent with a transaction, and it is important that I define that a voucher is not a transaction as it is traditionally understood it to be.

Let's start by defining what other vouchers in the system do. From monthly production volumes, employee / contractor agreements, drilling contracts, anything and everything that would be of a long term relation with the joint operating committee and or require more then one traditional accounting period to complete. A voucher would be where individual transactions are processed and posted. Processed and posted by any one of the members of the joint operating committee representative firms.

The most important characteristic of a voucher would be its span across the companies that are active / involved in the specific joint operating committee. So that company a, b or c would be able to post a transaction to the joint account, and the voucher verify and distribute the costs / revenues accordingly.

AFE's and leases would therefore maintain their traditional roles of collecting costs and revenues, capital budgets and operate in much the same manner that the traditionally have. Statements of Operations and Statements of Capital. That is as accounts accumulate and maintain the cumulative balances to date.

Vouchers span multiple companies and are associated with one Joint Operating Committee, transactions are transactions that are processed by any of the companies involved in the specific joint operating committee, eliminating the concept of status, somewhat, of operator / non-operator. Vouchers can span multiple accounting periods, usually, and are associated with a business relationship that is contractually based. (Drilling contract, employment contract etc.)

Again I am describing a complex issue with the system and entering new concepts to the oil and gas industry. To add one technical detail that these vouchers, transactions, joint operating committee's, afe's, leases, contracts, individual companies and vendors / customers are all defined in URI's that are approved by the partners. More on this technical detail later.