When it comes to oil, gas and innovation,

This is your one stop blog. I have increased the number of del.ico.us bookmarks and Google Reader "starred" items. I decided this was more valuable then the traditional blog roll. As a friend pointed out to me, I am the filter in terms of quality oil and gas information.

If there is any thing more you may want me to add to the blog, just ask.

Innovation Genesys Java

Wireless, another component of the Genesys technical vision.

Based on the discussion of Asyncronous Process Management (APM) noted here. Looking forward it is fair to assume the volumes of data that an individual will be exposed to on a daily basis has begun its relentless increase in volume and importance. The manner of dealing with data overload by safely ignoring it may soon be over. Whether it is your competitor, litigation or a failure that is a direct result of "missing" some data. The ability to "miss" data and proceed safely is a luxury that is expiring as we speak. This blog entry deals mostly with how the work will be done through the Genesys system.

In the asynchronous environment. The speed and ability to deal with all the processes of one individual will require significant automation. Automation that is necessary in order to fulfill the requirements of their jobs. Those that expect to respond on a one to one basis will have difficulty in co-ordination of the resources necessary to complete their responsibilities. Having employees that were productive generating $4 million per year in revenue will lose their competitive advantages to employees that are capable at $20 - 30 million per year.

For example how much time is wasted in preparing for, arranging and attending meetings? In addition to the waste, there is the "lag time". A period of time that is consumed in order that everyone schedules the something "urgent" meeting for next week. It is the "lag time" that provides the asynchronous worker with their time frame for completion. The ability to discuss things asynchronously is augmented by video to mitigate the time losses and lags.

Wireless (WiFi) is a fairly straight forward technology that exists today. A broader scope of the reception (WiMax) will bring wireless into being more of a common and necessary tool for the people who work in oil and gas. It is my assumption here that wireless will enable working from anywhere at anytime. Increasing the time requirements of the average worker in oil and gas to 24 hours of being on call. Some of the personal benefits include reducing the demands for time and fuel by the average commuter who only needs to go to the office occasionally. This enables the employee to more effectively manage their day to meet their needs.

The primary advantage, however, of having an always on work environment is the ability to do the work when the individual can. Although the user will be available 24 hours a day, the "other" activities in their life can take priority in terms of being addressed. Work is more a natural outflow of the day to day activities. The work being predominately asynchronous in nature, enables the work to be addressed after careful thought and interaction that is dependent on the user's time and availability.

As I indicated at the start of this entry. The "how" this system will operate in a wireless environment is discussed. The "what" that the user accesses wirelessly is all manner of reports, accounting information, journal entries, ledgers and financial statements. These reports are prepared for the monthly accounting of the joint operating committees that the employees are affiliated with. The overall scope of information would also include the engineering and geological data that the producers staff would need.

Vision Technology Java

Emery Lovins on MIT video.

MIT is hosting a variety of lectures and talks regarding energy. First up is Emery Lovins who is the founder and CEO of the Rocky Mountain Institute. Mr. Lovins has far too many awards to list here and I highly recommend clicking on the title of this entry to watch the video. Run time is 1 hour and 36 minutes.

Mr Lovins and some of his staff have written a book "Winning the Oil Endgame" which is available for free. Of note and interest much of what President Bush's recently announced energy policy is derived from these materials, and the forward is written by Mr. George Schultz.

Both the Rocky Mountain Institute and Winning the oil Endgame are excellent resources that should be bookmarked and reviewed frequently.

Dr. Lovins speech focuses on two distinct areas. First the costs of innovations regarding reducing the weight of vehicles mass are far less costly then the fuel they save. Making them economic. The second area of focus is on reducing the demand for oil with alternative sources of energy. The switch grass comments by President Bush seem to have originated with Dr. Lovins and his group.

A third point that I will be spending some time thinking about is that the hydrogen molecules in oil and gas are more valuable then the carbon molecules.

Energy Research Java

Aprils Business Report

Marketing
As reported last month, March was our first month of actively marketing the Genesys project. A target selection process was undertaken, with specific marketing deliverables and objectives being defined. We selected our target, Petro Canada, and began the slow process of revealing that bureaucracies capabilities. Unfortunately we did not receive the response we were expecting. Petro Canada's first quarter provides further evidence of the problems with the hierarchy in oil and gas and we will continue on with our marketing program.

Technical Architecture
We have subscribed to Google Analytics and are able to map out the response to the blog entries. This a comprehensive tool that provides significant advantages for our marketing plans.

• Revenue to the end of April: $0.00
  

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

• 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
• Ingres Open Source database and part time DBA, Total requirements = $57,500.
• Collabnet. I would like to have a generous budget for this critical tool. Provides the code management, community process, project management and issue management. Budget includes tools, appropriate setup and consulting services. Total requirements = $34,500
• General and Administrative, first 6 months of operation Total requirements = $69,000
• Membership in W3C Total requirements = $9,500
• Project management and development = $300,000
  
• Total Capital and Operating budget, 2006... $484,000
  

Notes:

• Sponsors, producers, and user contributions 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 means minimal work is being done.

Business-ReportMarketingJava

Petro Canada's first quarter.

Our favorite company Petro Canada filed its first quarter report this week. Unfortunately no response was forthcoming from the company regarding my criticisms of 2005, so we'll just keep working on that. Since the company proceeded through the annual meeting and did not address these issues we have acquired some history, and they are now in a fixed position regarding their comments to shareholders.

The first quarter is not looking good to me. Petro Canada is now in what I would call a desperate situation, and I have to say that things are worse in 2006 then 2005, here are my concerns. I will elaborate on them further in other postings.

• Why were the Syrian properties sold.
  
• Syria earned $152 million profit and was sold for $645 million. Was this a fire sale?
• Allegedly the property was "mature"?
  
• Earnings from continuing operations were $54 million however,
  
• After deducting the downstream operations, Petro Canada lost $40 million.
  
• Maybe it was these assets that were "mature"?
  
• Without the cash from the Syrian property sale, Petro Canada would have only had $428 million in cash. Not the $1.073 billion as stated.
  
• I am also concerned why the firm has such large accounts receivable. $1.372 billion accounts receivable should recognize the additional $480 billion that was sold under its securitzation program. On that basis total accounts receivable would be $1.852 billion or 42% of the first quarters sales.
  
• If Petro Canada did not sell the Syrian property and securitize the Accounts receivables they would have had to restate cash to $(52) million as a shortfall.
  
• Was cash the reason the property was sold?
• The excessive compensation of the management continues in 2006, without missing a beat.
• General and administrative costs are up 22% year over year.
• $65 million in stock based compensation was recorded.
  
• Total options now issued = 21,823,525 shares at $49.18 U.S. = $1,073,281,451 U.S.
  
• $227 million in forward futures contracts recorded for the quarter. (I've listed the hedges here as I believe the only reason the hedging is done is for management appearances.)
  

The ability to raise additional cash has to come into question. The loss of Syrian assets will have a significant effect on 2nd quarter earnings and cash flow. The continuation of the excessive levels of compensation may become a glaring sore spot for the company. I do not know of a manner in which these management costs are justifiable, particularly based on this performance.

Recall that my purpose in providing this analysis is that the hierarchy, or in Petro Canada's case the management, has failed in the traditional form of organizational structure. Proof that the failures are occurring is evident to me based on this analysis. The criticism is directed at Petro Canada because they are by far the most representative of the concerns that I have for this industry.

Marketing Petro-Canada Java

People and Processes.

In my recent entry regarding Asynchronous Process Management I did not mention the manner of the communications. Consider that the processes that are being asynchronously managed could be any one of the four following types.

• Person to Person.
• Person to Process.
• Process to Person.
• Process to Process.

These methods of asynchronous process management provide an unlimited capability in managing a process as I had mention here.

Process Asynchronous Java

Asynchronous Process Management a cornerstone of the Genesys technical vision.

It has been a while since I posted any information regarding the technical vision stated here. Each of the four elements of this vision will be broken down and expanded upon individually in the next few weeks.

Today I want to start this review with the Asynchronous Process Management (APM). Asynchronous communications are like a letter where the reader has ample time to reflect and respond. Synchronous communications are like telephone conversations in that the communication itself engages its participants in real time. Asynchronous Process Management (APM) is the style of communication applied to the variety of oil and gas processes that require interaction through a number of different individuals, disciplines or producers. The Java Programming Language can engage in transactions that are asynchronous in nature and as a result reside as real objects with tasks and processes that may take many days, weeks or months to complete, based on the individual responses throughout the process.

The area that I foresee APM playing a strong role is in the joint venture billing, or as I have re-stated, the Partnership Accounting methods. Specifically how the reporting process is updated amongst the partners. We need to consider the number of ways that a producer may contribute to the joint account. I have limited these contributions to capital, leases, intellectual property, human resources and operational capabilities. There may be more types of contributions that can be discussed at a later date.

Each month an accounting of the property is required. I have suggested that this process should be accelerated and lets assume that we bring this up to a weekly process. The example will involve the drilling and day work for a well that was rig released 3 days ago. The example will start with the completion and distribution of the Daily Drilling Report, then the Vendors Invoice, comparison to the Drilling Contract, and finally distribution of the Joint Venture Billing to the partners and final resolution through payments.

You are the successful geologist in a productive well drilled just last week. You as Chairman of the Joint Operating committee have assumed operatorship of the property and are in receipt of the last information required for the Daily Drilling Report. Filing of the report in the file system (noted here) populates the report to the authorized partners and authenticated users of the information. Due to the security of the information you know that none of the information about the tight hole will be leaked to any third party.

Completing that task the Drilling Contractor submits a finalized invoice based on the drilling contract. Comparisons are run between the current invoice and pre-paid invoices to the Drilling Contract. The system kick's out an anomaly in the mud and tubing used, and the invoice is approved subject to the holdback of the costs in the mud and tubing algorithm. This is then sent to the various partners through a weekly joint venture billing process.

For the purposes of the example, we should assume that there are only two other partners. One whom is the original P&NG lease holder, and geologist by training that promoted the deal based on his theory, the other providing the capital to drill the well where as the operator provided the operational expertise and drilling rig availability.

Based on the agreement that was put across by the geologist partner, the recognition of the lease, the capital, the capability and drilling contract are all assessed in determining the working interest distribution of the new well. The Chairman then sends the partners their agreed to share of the final drilling contract. As with all invoices there is a net 30 day payment requirement that would apply to both the drilling contractors invoice and the Statement of Expenditures.

Each partner peruses the invoice based on their agenda's availability. As the individuals time comes free the system offers the opportunity to review and approve the joint venture billing invoices of the operators that manage their properties. And on the 15th and 22nd days the two other partners approve the invoices for payment on the due date of the 30th.

On the 30th the invoices are paid with the automatic transfer of the funds from bank to bank based on the approval of each partner earlier that month. These payments are aggregated by the system and the operator then approves the payment of the invoice to the drilling contractor.

What we have in essence done is provided the cost justification and process management of one of the key processes of oil and gas. This is carried out in the paper based world industry wide with little variation. The process mentioned here is entirely electronic based on the Genesys Web Services provided. Each time the opportunity or need occurs the process is re-awaken to complete another element of the overall process, based on the relative criteria of each individuals decisions.

When the original invoice is approved by the operator it is automatically forwarded to the partners, who wait to peruse it on their time availability, upon review, which would include a comparison to the drilling contract in this case, would see that the tubing and mud reconciliations have some outstanding issues would accept them in to their Genesys Web Service and pay them at the appropriate time.

Each aspect of the process is being completed when it is convenient or required to be completed. Which ever is the latter. Java's asynchronous capability and exception handling are the most robust of any system. Their ability to conduct these types of operations asynchronously so that people are reduced to making the key decisions in their own time frames is the desire of the Genesys system.

I think that the ability to build on this concept requires that other elements of the technology vision to be brought about and discussed in the next week or two. As the asynchronous methods are able to build on the Java objects, Wifi and IPv6 component's of the vision. Until then we'll leave the discussion here.

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.

Sun Microsystems is our key supplier...

Reading the technology entries of this blog will provide an understanding of the significance of Sun Microsystems in this development project. Sun has prepared an offering that I find compelling, complete and all within their one shop. Something that no other firm does. IBM uses Java and Linux, HP and Dell use Windows and Java.

Apple and Sun are my two favorite companies. This is primarily based on their understanding of providing the user with the entire environment. Sun offers Java, Solaris, Grids, Servers, Workstations and Storage. Everything a project like this needs. Not only do the offer these items, they own them, and they are the best offerings in the business. The only area they do not have a footprint is on the desktop. Apple's domain.

So here is to the fulfillment of the vision of Scott McNealy. I always looked to him more as a Chairman then as a CEO. Now as he hands the CEO position over to Sun's President Jonathan Schwartz we're seeing a continuity of the vision and the horses to take the market with their offerings.

I will leave the reasons why Scott McNealy has such a profound effect on the market place to his worthy successor Jonathan Schwartz. Click on the title of this blog for his entry recognizing that "The Network is the Computer".

Exploration vs. Exploitation the subtle differences.

What is the difference and why can't exploitationist make money as explorationists. There is a critical difference in comparing a firm that makes money exploiting oil and gas reserves and another firm that explores for reserves.

A funny thing happened when the oil and gas prices declined overall in the 1980's. Companies learned that to make money at $20 per barrel. The ability to exploit what was known within their properties was the key to their success. Larger firms were able to enhance their fields production through in-fill drilling and testing of what was known to exist. The time and the manner of making money in the manner of an exploitationist has expired.

The ability to earn profits at $20 required that an oil and gas company lay off the majority of their engineering and geological staff. They were not required in a world where it was determined that the drilling locations were between the two existing wells and the same depth as the others. This has been the successful oil and gas companies forte for the past 20 years or more. Accountants, businessmen, lawyers and "managers" began occupying the CEO's seat and these firms were run on risk profiles that projected windfall profits by controlling costs at $20 oil prices.

An explorationist determines where and how reserves are found on the basis of scientific theory. These theories are usually formulated over several years and take the geologist decades and sometimes lifetimes to prove their hypothesis. In a nutshell these are the very rare geologists that are generally credited with some major discovery. In Canada we have people like Arnie Nielson who discovered the Pembina field and eventually went on to run Mobil Canada, Dr. Hriskivich who found Rainbow pinnacle reefs and Ram River for Acquitaine, or smiling Jack Gallagher of Dome fame. This list is fairly long and all were handsomely rewarded for their discoveries. It is believed in the geological profession that only 3% of all geologists find any oil or gas in their career.

The explorationist was treated as a pariah and run out of the companies in the low cost environment of the 1980's. In many instances these "explorationists" sought refuge in smaller firms eking out marginal earnings competing in $20 oil. Or as consultants for relatively mundane tasks, compared to their training as rabid scientists.

The firm that made money exploiting in the 1990's at $20 per barrel in general terms can no longer make money at$75. Doesn't make sense I know, but using our marketing example of Petro Canada, I'll explain my point. After running the explorationists out of the firm in the 1980's the mindset became business as usual. The ability to find exploitable reserves was augmented by the abilities of the service companies that developed new "Horizontal Drilling", "Top Drives", "Coiled Tubing" and other innovations that provided value for the exploitationist. These technologies could be amortized over vast inventories of known reserves and profitably make money. It is fair to assume that the $20 oil, the world over, is gone for ever.

The service companies innovations that I mentioned also lead to the more rapid depletion of the reserves that were available. What used to produce for ever at 10 barrels a day is replaced by the horizontal well that produces 100 barrels per day for 6 years. Many of these exploited fields are now close to the end of their productive lives.

Here we are in 2006 with the following scenario.

1. The easy oil and gas reserves are gone.
   
2. The remaining reserves are being exploited too quickly for the markets needs. Creating a false sense of security as to the overall productive capacity of the world petroleum marketplace.
   
3. And all the geologists that could find oil and gas are twenty years older and generally have forgotten what the industry knew in the 1980's. Now in their pre-retirement years they have no desire to pick up the craft again.

So we leave the burden to the current population of recent university graduates that "may" be able to think like an explorationist and find some oil and gas reserves. I recommend we employ the shot gun approach of hiring as many as we can and setting them to their task.

In my opinion there has never been a more serious problem that the world has faced as the energy problem we have today. We are producing faster then we are replacing reserves, we have lost the ability to find new fields and do not have the intellectual talent to meet the needs of the marketplace in the next 10 years. How this gets resolved is with a lot of pain and $25 / gallon gasoline.

Companies such as Petro Canada are unable to operate in these environments and I think they have even given up trying. As I indicated here, here, and here they have systemically failed in every criteria of a successful oil and gas firm. Their inability to tell the truth covers the facts as I had revealed them. The accountants and lawyers are able to smooth over the issues and present a reasonable facsimile of an annual report. It will be interesting to see how the firm performs in the next 3 years, as it may be within that time frame that the firm runs aground permanently.