Sunday, May 25, 2008

Constrained Organizations

In a follow up post to the "Unconstrained Prices", I thought it might be a good time to reiterate the reasons that I see for the ever escalating oil and gas prices. Energy production is driven by the earth science and engineering disciplines. As one would expect, over a given period of time the science and engineering will be subject to new discoveries and findings, leading to further enhancements of the underlying sciences. Innovation plays a key role here in that the new sciences bring about new innovative uses, and in turn, lead to new science. This is the key area of long term value add in the oil and gas industry. A producer that is able to apply the science and ideas to the problem at hand will, over time, increase their production and reserves. I'd like to call this the "Capabilities Approach" to the oil and gas industry.


If we reduce the competitive nature of the industry down to this Capabilities Approach. We see the interactions and understanding of the industry as it developed over the past 100 years. Someone figures out how to drill deeper, then the subsequent wells expose more oil bearing formations and hence more opportunities for increased oil or gas production. As time has passed the more lucrative and "big" ideas have been applied in broader areas, and for longer periods of time.

As we have learned from Stanford Professor Paul Romer's new growth theory, "more" ideas are needed to progress forward from the current base of understanding. The supply / demand for these ideas is not linear, but logarithmic, and occur at a much faster pace through their life cycle. Enter the classic bureaucracy and realize its efficiencies are based on expansion of the underlying activity (growth) and continuous process improvement. Change, and particularly scientific and engineering change, are the hierarchy's deficiency. What we need is a new form of organizational structure that will support and enable the industry to compete in this dynamically changing and high demand marketplace. Until such time as we can change the performance dynamics of the organizational form for the oil and gas industry, prices of commodities will continue to rise.

It is these comments and ideas that I have asserted in this blog for the past few years. They are a direct result of my thesis that provides evidence that the Joint Operating Committee is the method of organization of the innovative energy producer. We need to start building the software that I have specified in the 11 module People, Ideas & Objects application and unleash the potential of the sciences for the betterment of society. I find these ideas are consistent with many of the industries leadership. The International Energy Agency recently made some comments that reflect these concerns.

The IEA states that by 2015 there will be a shortfall of 12.5 million boe / day.

"Future crude supplies could be far tighter than previously thought."

"Reflects an increasing fear within the IEA and elsewhere that oil producing regions aren't on track to meet future needs."

"The oil investments required may be much much higher than what people assume."

My personal favorite;

"This is a dangerous situation."

"We are optimistic in terms of resource availability, but wary about whether the investments get made in the right places and at a pace that will bring on supply to meet demand."

Yet nothing is done by these bureaucracies. They know what the problem is, there is just no motivation for them to make the necessary changes. Record profits at Exxon Mobil mask the 10% production declines. We need to consider who's responsibility this problem is, as the companies are unwilling to do so. After all it is not they who will be suffering with energy shortages but society in general.

On the other hand, and what I truly do not understand is that the $135 prices are rewarding those that find and produce the energy. This is an entirely new dynamic for the industry, when will we see the companies that are able to outperform the current crop of producers? The answer to that question unfortunately is not soon. Until this software is built to organize the efforts of the industry, our choices are limited to the status quo or manual systems. Join me here.

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Tuesday, April 29, 2008

Draft Specification - Financial Marketplace Module

I am pleased to submit to the community the draft specification of the Financial Marketplace Module. This is the sixth of eleven modules, and last of the three marketplace modules in the specification.

What may not be obvious at first glance of this specification is the Marketplace makeup of the module. Financial resources are critical to the energy industry because of the intense capital nature of the business. This marketplace therefore provides a number of means for the innovative producer to manage the cash resources of the firm and apply the budget discipline at a finer level of focus, the Joint Operating Committee.

One thing that is very obvious about this module is the radical nature of how the nuance of committing capital amoungst the partnership is handled. Offering a multitude of options for the innovative oil and gas producer and eliminating many of the issues associated with raising money.

I have purposely provided a very light sketch of the Financial Marketplace Module. This is not my area of expertise, and many of the users in this community will better understand the open opportunity the module provides. I think the seventh module to be published will be the Compliance & Governance Module.


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Monday, April 21, 2008

Unconstrained prices.

We have seen the price of energy increase by rather large amounts over the past 6 years. One would have to think that the upper limit of what is reasonable has to be near.

Oil and gas is unique in that it is the only resource that has a finite value. There are only so many volumes of oil and gas that ever existed. Like wood, wheat or rice it is not renewable, and like gold, silver and platinum not reusable. Once oil and gas is used its irretrievably lost. These attributes are what make them unique to other commodities.

The other aspect is that they are expensive, but more importantly difficult to find and develop. Conceptually the energy industry is the most difficult from a science and engineering point of view. As we have progressed through the cheap energy era, we now find ourselves in the era of difficult energy.

The pace at which the consuming public has learned the dynamics involved in the industry and its pricing has increased. The point that I want to make in this entry is that oil and gas prices are no longer constrained by the idea that there are easier to produce alternatives. The market has always generally believed that corn, wind and solar would replace the "dirty" oil used to power the SUV. That the future of the world's energy sources would now suddenly be clean, cheap and environmentally friendly.

The lesson that has been difficult to learn is that we can't use our food for fuel. Rice, wheat and corn are being disrupted and it is the food supplies of developing nations that suffer. Secondly the volumes of energy consumed in the alternative energy manufacturing process are higher then what is produced. And finally solar and wind, as they stand today, are prepared to take on less then 1% of the total supply of energy

So where may we see the price of energy go? If my suspicions are correct, we may ultimately see the price of oil reach $650.00. Within the next three months we may see $175.00 / bbl and we should consider that cheap. Cheap because it will only lead to temporary shortages.

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Sunday, April 13, 2008

Draft Specification - Resource Marketplace Module

For every serious challenge facing the world. There is someone with a big idea. That big idea needs to be nurtured. It needs to be explored and analyzed in order to bring it to life.

And design is at the core of that innovation. There isn’t a problem in the world that a great designer can’t solve.” Quotation from an Autodesk commercial.

The Resource Marketplace module is the second of three marketplace modules in the People, Ideas & Objects specification and the fifth of eleven. The key focus of this module is on providing a forum for electronic commerce. The Resource Marketplace works with the Accounting Voucher Module to optimize the contract, division of labor and mitigation of transaction costs.

A summary list of the published modules.

Draft Specification - Security & Access Control Module

Draft Specification - Petroleum Lease Marketplace Module

Draft Specification - Partnership Accounting Module

Draft Specification - Accounting Voucher Module

Draft Specification - Resource Marketplace Module.

Possibly the largest impact of this module is the management, with the Research & Capabilities Module, of People's Intellectual Property (IP). If we are to succeed in finding larger volumes of energy to meet the worlds demands we are going to need to solve a variety of difficult problems. Whether those problems are in engineering, science or business the individuals that will ultimately prevail need to be motivated to do this difficult work. The motivation is the ability to earn the rights to the expression of the idea, the patent or trademark.

For more then 25 years the oil and gas industry has ceased to conduct any research. Making today's environment ripe for research and development opportunities and making it a use it or loose it proposition. Since they chose to do nothing they won't miss out on any opportunities. In this module specification I also suggest that companies have become too comfortable with using People's IP as if it was free like the oxygen that we breathe. The "Ideas" in People, Ideas & Objects is explained in fair detail in the specification. It is necessary to build a system where people can develop, secure, license, contract and manage their intellectual property. This application is the place where that will happen, have a look.

The next Module to be published will be the Financial Resource Marketplace.

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    Tuesday, April 08, 2008

    Google announces App Engine

    We moved one step closer to the People, Ideas & Objects applications capabilities with the announcement of Google App Engine from Google. Information regarding what the App Engine is, is available here, here and here.

    What this provides People, Ideas & Objects users is the ability to host applications on Google Application Hosting. As one can imagine, Google has a lot of hardware available that at times may be surplus to their needs. This service is being offered as part of the Google Apps for http://www.people-ideas-objects.com/ product. And therefore free to all the users and developers of the community.

    Now they mention that the service will allow only the Python programming environment, but more will be added in the future. I have always considered using Sun Microsystems to run our main app, and that hasn't necessarily changed, but Google Apps Engine provides the users and others to build some of the applications that may be used by a user to provide a greater level of service to their oil and gas clients.


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      Friday, April 04, 2008

      Draft Specification - Accounting Voucher Module

      I am pleased to present the fourth module of the People, Ideas & Objects module to the community. The Draft Accounting Voucher module specification is different then most other modules and applications. It brings an area of strong academic science that until now has been poorly published in other ERP applications. Have a look.

      The next two modules will be;

      • The Resource Marketplace Module

      • The Financial Marketplace Module

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      Monday, March 31, 2008

      Topics of discussion.

      One point that most users will be able to identify with is the recent focus of the industry. For the past year the focus has been on reserves, its land base, its production forecast, how difficult and expensive it is to produce oil and gas, and occasionally the retirement of the brain trust in the next 5 - 10 years. Any topics outside of the realm of these points of discussion is never raised. What about the systems, administration and management of the industry? Are these disciplines no longer considered a part of oil and gas? Is it through the neglect of these areas that is the motivating factor of the need for the People, Ideas & Objects application? Or is this just the natural evolution of the industry to focus on its key value added areas?

      When you think about it, the topics of discussion of the industry are the most serious that they've faced. And the most demanding in their 140 year history. The magnitude of the problems and the seriousness of the issues requires 100% of their focus. Is it any wonder that many areas of traditional concern are falling off the table? I don't think so, and I would suggest the responsibility for action will fall on a different group to provide the systems, management and administration. And as we move forward the Users will become the leaders of this new service industry.

      It is clear to me that the Users must be the lead in the development of this application. They're the only ones that collectively know how the industry operates. To preclude them from development would render this software quality down to that of SAP's and Oracle's. But there's more then just that. In the future what will the role of these users be in the oil and gas? What I'm getting at here is that People, Ideas & Objects application is the beginnings of a new User-driven technical support industry. Where the Users build their own software, manage and administer the day to day in oil and gas, and provide these critical resources as part of their service offering.

      The current focus is not likely to change, and the earth scientists and engineers are off busy with their reserves, land, and production problems. They will need this new service industry to rely on, and will willingly pay for it. The number of people employed is very small for an industry that is in the ballpark of $4.5 trillion in revenue. Over the lifetime of the oil and gas business, the General & Administrative costs have been around 5% of the total. Is it reasonable to assume that this new industry we are talking about is a $225 billion in revenue? I think so, join me here.

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      Tuesday, March 25, 2008

      Thomas Davenport declares a revolution.

      Documenting the differences between the old "Knowledge Management" and the current Enterprise 2.0 (E2.0) type of applications. (Which of course People, Ideas & Objects would be considered E2.0) You can access the article from here.

      Hard to imagine that Thomas Davenport would say such things, but this is a must read article. His most important point is the reaction that is reflected in this quotation.

      Certainly any form of “2.0” movement would require a distribution of power. I have no objections to other groups coming into power, but if I held any power I would not be ready to hand it over because of some new software becoming available. I suspect many senior executives will feel the same way. Most would probably like to get the best ideas of their employees, but they like their own ideas even better.

      The powers that be in oil and gas, I can assure you, are reading from this script.

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      Saturday, March 22, 2008

      Draft - Partnership Accounting Module Specification

      I am pleased to present the Draft – Partnership Accounting Module specification to the community. This is the third of eleven modules that will be published over the next few months. They can be downloaded from here.

      The next module to be published will be the Accounting Voucher.

      Partnership Accounting brings together many of the issues that will be faced by using the Joint Operating Committee (JOC) as the key organizational construct. The module’s key assumption is that producer’s will contribute disproportionately to what their commitment requires. Whether the contribution is in capital, land, intellectual property or technical assets, these contributions need to be valued for the purposes of determining the equalized contribution of each producer.

      We need to do this in order to eliminate the wasteful and redundant technical and management capabilities being built into each and every silo’d company. The oil and gas industry is based on partnerships, represented by the Joint Operating Committee. It is therefore necessary to recognize the shortfall in human resources due to the dual issues of:
      • The planned retirements of the brain trust in the next 5 – 10 years.
      • The ever-increasing demands of earth science and engineering for each barrel of oil.
      This module pools the resources of the producers represented in the JOC. This is to ensure that the required capabilities are sourced from the appropriate resource.

      There is a large amount of this module that consists of extensive algorithms that will make this application difficult to get right. However, I think this module is also an area where the greatest creativity and innovation in how these requirements are implemented. This module is also where the largest numbers of users will have their influence. And will also be one of the major modules that provide the users with the ability to develop their commercial virtual worlds in which they will work from in the decades to come.

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      Wednesday, March 19, 2008

      Tanks half full.

      I have written about Matthew Simmons before. He is the most vocal of all the peak oil theorists and the one that makes the most sense. He recently made a presentation talking about the future of the industry, and like me he sees a very rosy picture for those that work in the industry. (Rosy = lots of work to do.)

      Stating "Winners Win Big!" p.23

      • Implementation of massive "efficiency plans"
      • The oil service and equipment industry
      • The world's engineering and construction companies
      • Companies that can adapt to high energy costs fast
      • All consumer goods who win market share in building prosperity among oil producing world
      I have to agree with all these points. Imagine what someone who is actively employed in the oil and gas industry will be doing. Think of the software tools they will need to make this future a reality. A software application that meets their needs because they were one of the fundamental elements of the development, the user. Join me here.

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      Monday, March 17, 2008

      Change is everywhere.

      Bear Stearns is gone. Doesn't it seem like the financial markets never seem to regain their footings. It appears that unfortunately Bear Stearns had scheduled their first quarter news conference for Monday March 17, 2008. That being today in which they would report large losses, the management chose instead to take $2.00 per share (Down $27 since Friday's close) instead and be taken over by JPMorgan. With over $380 billion in Bear Stearns liabilities, lets hope JPMorgan stays afloat!

      Shell will be announcing their reserves tomorrow, and I suspect just as Chevron's were bad news we'll see the same problems form Shell. Last week Chevron announced that their reserves are now below the level they were before they purchased Union oil's assets. Recall that was a few years ago and was a moderately sized acquisition. As fast as these energy companies try to move they are constrained by the ability of the organization to change to the greater demands of the higher levels of science and engineering per barrel of oil. The bureaucracy can't keep up.

      Professor Carlota Perez is someone that I have written about on this blog before. Perez is a long range economic theorist of the Schumpeter style of creative destruction. She has been stating the Information & Communication Technologies are going through the "turning" phase in which they will finally take the lead position in creating product value. She also states the financial structure of the economy has become irrelevant and is unable to provide the sustained value generation that is necessary for the future. Check out the 7 other blog posts I have written on Perez here.

      The entire purpose of this blog is to provide a software development vehicle for the User to participate, design and develop the software they need. The software that establishes their role in the new organization of the energy industry, the Joint Operating Committee. As I suspect with Bear Stearns, the current bureaucracies will not have the organizational speed and innovativeness to stay ahead of the difficulties of this new market and its cold brutal realities. Join me here in what Professor Perez calls the future.

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      Friday, March 14, 2008

      Why this software development project needs to be done.

      I am writing the draft specification of the Partnership Accounting Module and it strikes me how and why this software needs to be built. And this community is the only way in which it can be done. Compare the differences and advantages.

      User defined software development

      People need to have an influence in the development of their software. Influence in order to get things done in their day to day. And influence on how to improve them, how to change them and make their jobs easier and more productive. Who else can define, build and use an application like People, Ideas & Objects, as I note below, there is no one else.

      There is an important time-lapse element in the process of this project. A user may find a change is needed to the software due to a bug, a change in regulations or a general enhancement. In this project the user is the key change driver, all they will need to do is ask. Which circumvents the long tedious and ultimately futile current bureaucratic process where really there is nothing that can be changed?

      Who has the authority to make the necessary changes? When a contradiction arises between the vision and the implementation, who can orchestrate the necessary changes? How about the user? The user is the only group of people who have an understanding of the industry in its entirety.

      Top down software development.

      Let’s assume that some of the large producers attempted to satisfy their software needs by hiring a group of developers to build an application for them. Where does the passion and desire to make the application its best come from? IT departments have no interest in developing new applications; they’re busy keeping the old ones running and have no time, motivation or interest.

      Assuming a custom development for a handful of producers was successful. What about the rest of the industry, will they have access to the system? This has been tried in Canada with the application being released and announced dead on arrival early in 2007. What was the problem? Was the user group compensated, where are the vision, passion and drive? Is the IT department the reason that this last application was unusable?

      Having developers work in isolation provides you with some of the nicest code ever written. Without the users actively demanding and communicating to the developer exactly what it is they want and need, the developers will be coding in a cloud. Certainly these developments are not structured to compensate the user for their time, passion or vision. Usually the people are told to use the application after a few days training.

      Legacy systems.

      How many applications were initially developed in the 1980’s that are still in use today? My answer would be far too many. But these applications have been able to generate large percentage market shares because of a familiarity of the users in getting things done. Simply the users begin to understand how the application works and are able to devise work around’s to get their work done. Without large spreadsheets to help this process along, people would be working night and day trying to keep up. Nonetheless, no one is championing the cause to have these relics continuing towards the future.

      The software vendors will do it.

      Software vendors as I have mentioned are constrained by customers and particularly by their code base. They don’t want to change. Although there is strong demand for change, there are no financial resources available for them to do so. It’s a fundamentally flawed business model that the Open Source world sought to resolve and indeed ended. To begin the process of adopting user driven developments would increase their budget substantially. Since they have limited money for developers, it is reasonable to assume they have no money for users.

      This would also apply to SAP and Oracle. Although for other reasons the industry has tried those applications and was disappointed. I doubt that another opportunity would be provided to them.

      The problem.

      Time is now passing by rather quickly. The producers were able to find more oil then they produced up until a few years ago. Now some are finding only 15% of their production with multi-billion dollar budgets. This is a road to oblivion that the producers management seems content with. Their pensions are safe and they have the situation in hand.

      Producers are paralyzed by their own complexity. Incapable of responding to any and all change signals. Yet it is management that may be one group that responds to this opportunity. Holding two opposing views on a topic is apparently one of the things we humans do well. If their retirement is already planned, what about some post retirement consulting fees?

      The solution.

      New forms of organization, such as the Joint Operating Committee as the key organizational construct, work hand in hand with today’s Information Technologies. Imagine an application that covers the whole scope of the industry, where the development and user costs are shared over the entire industry. Where the entire industry has access and the application operates seamlessly like it was built by the people who use it.

      These issues need to be addressed from the start. After the publication of the draft specification, what’s my role in this software development? I have two choices absolutely nothing, and absolutely everything. The scope of this application is well beyond one or even one thousand people’s capacity to understand. The more I would try to involve myself, the more damage that would be done. It’s the user’s software. Another thing I can do is build the necessary infrastructure for the developers, users and the application itself. More processing power, network bandwidth, and money for the users and developers for this work building the People, Ideas & Objects application. A user-driven software application that achieves a new level of organizational performance for the industry. One that enables the innovations in the science and engineering that are needed and beyond the reach of today’s hierarchy. Join me here.


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      Tuesday, March 11, 2008

      Energy, Development, and the Environment: An Appraisal Three Decades After the “Limits to Growth” Debate

      Giovanni Dosi and Marco Grazzi

      May 2006

      This paper is part of the Laboratory of Economics and Management (LEM) working paper series. The cornerstone of the my thesis, that proved the Joint Operating Committee is the key organizational construct of the energy industry, used Professor Giovanni Dosi’s critical work “Sources, Procedures and Microeconomic Effects of Innovation” September 1988.

      Professor Dosi is recognized as one, if not the premier, authority on innovation and his work is thorough and precise. Although he may be hard to read, that is a trait that is shared with most authors of great papers. So let’s dive in;

      Dosi starts off by stating some assumptions that form the basis of his analysis. The most pertinent assumptions provide some insight to the current situation we are in.

      Second, the higher the price for fossil fuels, the better it is in the long run for the world economy as for humankind in general. P.2

      and

      Third, even sky-rocketing prices of fossil fuels alone might not be enough to endogenously induce a sustainable pattern of consumption. P. 2

      The long-term patterns of energy consumption and their sustainability.

      This section sets out the problem that concerns me the most.

      Inanimate sources of work exceeded animal work in the U.S. for the first time in 1870. p. 3

      Not since 1870 has the physical labor of man been the primary driver of economic growth. In the last 138 years we have become so dependent on energy, and its associated efficiency, that there is difficulty understanding how the basic globalized economy would continue to function without energy. For example you have the opportunity to do a days work with a 200 horsepower forklift. If that 200 horsepower forklift suddenly is unusable due to fuel shortages, the alternative is to house, feed and incur the associated costs of 300 men. Without energy we would be reduced to the productivity that was attained in 1870.

      Freeman and collaborators at the Science Policy Research Unit at Sussex – argued that growth could continue, provided that the two following conditions were to be met: (a) a combination of institutional changes that led to different paths of world development (with more emphasis on sustainability) and (b) a re-orientation of world R&D so that environmental objectives could be given higher priority (see Freeman [1992]). P. 4

      We live in difficult times with problems that have many challenges. As difficult as it is to accept the two conditions that Dosi has listed above, I am unable to argue that there are alternatives. Dosi et al however notes the following optimistic point;

      In fact, in our view the Club of Rome warnings massively underestimated the powers of technological progress with respect to the access to / exploitation of natural resources. P. 4

      I have written before about the ability of the oil and gas industry to surprise on the upside with their performance. Oil and gas exists in the minds of oil and gas people. And I believe that given the right set of circumstances producers will surprise on the upside once again. However, I think that the structured hierarchy is the impediment to the global economy realizing the potential of these oil and gas people. Using the hierarchy is difficult to achieve “more,” and I just don't see how they can do it. It is applying last centuries thinking to this century’s problems.

      The view that greater economic activity inevitably hurts the environment is based on static assumptions about technology, tastes and environment investment (IBRD [1992], p. 38). P. 6

      This point is clearly evident in most people’s lives. If we were to continue on with the engine types that were built in the 1960’s and 1970’s we probably would have perished by now. But we didn’t and that fact is evidence of Dosi’s point here that the technology that is available today can solve many of these problems. As one can tell, I happen to think the current Information Technologies have only begun to provide for the world in this sense. And based on what Dosi says we’re in luck…

      First, one tends to observe positive income elasticities for environmental quality; second, structural change in production and consumption toward “good” environmental friendly directions tend to be associated with higher per capita income; third, information on environmental consequences of economic activities increases with income levels. pp. 6 – 7

      Does this assert that the U.S. and China will create less waste from more resources as their economies expand? I think it does and that seems to be consistent with Dosi’s thinking. I think the U.S. uses a lot of energy, but is the most efficient user of energy on the basis of GNP per unit of energy. Review of graph 8 and 5 are provided after Dosi’s point.

      The bottom line is that technical progress – possibly together with structural change – has barely succeeded in stabilizing and even marginally decreasing energy consumption per capita, in high income countries: see figure 8 and 5 for the U.S. evidence. However demography heavily plays against any stabilization, let alone reduction of total energy consumption and of emissions in the environment. p. 11

      Some – including the so-called IPAT model (standing for “Impact Population Affluence per capita Technology: cf. Ehrlich and Holdren [1971]) and other (see Shi [2003], Cole and Neumayer [2004], Dietz and Rosa [1997]) – do indeed account explicitly for demographics effects. The estimates – it turns out – yield elasticites which are in the neighborhood of one. Hence, other things being equal, even neglecting the effects on both energy consumption and emissions of growing per capita incomes, one should expect at least their doubling over the next three decades as a sheer effect of population growth. p. 12

      Point well taken, the damage is cumulative.

      What can technical progress do? And where does it come from?

      If we turn now to document the progress of the North American automobile, which is the one area that can achieve benefits. We see the 10 mpg 1960's pony car replaced by its high teens mpg current version. We have reduced the amount of pollution produced in a substantial way. Yet, as I understand it the automobile still only uses 20% of its energy consumed on forward motion. Most is lost through heat. If we were to capture

      60% of the energy that we used we could conceptually reduce our consumption by two thirds and reduce our environmental impact. It is obvious the 20% figure is substantially more then the vehicles of the 1960's. I believe this is the most promising area of where we can achieve the benefits we desire. Maybe the innovation will come as a refinery discovery, or simple retro-fit of some device in each vehicle, or maybe I am out to lunch here. Something needs to be done. And I would expect half of the energy savings to come from consumers and one half from producers.

      Can technological advances reduce energy use and emissions in such a way to compensate the effect of both per capita income growth and demographics? p. 12

      Dosi is not as optimistic as I.

      We have already seen that energy-saving changes in production techniques appeared to have significantly contributed to the fall of energy intensity of GDP – at least at relatively high levels of development. Could the rate of technological progress be

      increased to the extent of providing a full compensation for growth and demography? The answer we suggest is largely negative. p. 13

      Still under the “inducement” rubric, public regulations have turned out to be a rather effective means of influencing the patterns of energy use and of emissions. In a curious paradox in the literature and in a good deal of policy debate one has both underestimated the environmental impact of the negative externalities stemming from production and locomotion and correspondingly overestimated the cost of regulation. p. 14

      I would not recommend any changes to regulations. Although they are believed here to be more effective, I think the market will find its way through use of the market prices. Dosi lives in Italy where regulation may be more effective, by his estimation, and more acceptable. Here in gas guzzling North America we consider regulation is a bad word.

      There is a general lesson here: imported price shocks might exert an important influence on the energy intensity of particular energy sources but dramatic changes in their use can only be made possible by the emergence and diffusion of new technological paradigms: in the case of electricity generation these are plausibly nuclear power and, eventually, photovoltaic and nuclear fusion; and, in the domain of locomotion, hydrogen-based means of transportation. p. 14

      The higher energy prices are sending information to producers and consumers that invoke billions of decisions each day. This is the most effective way to deal with the energy concerns. Recall that without energy we are reduced to a lifestyle consistent with the year 1870. Price shocks have only begun in this process.

      Indeed, technological advancement has reduced, for a given level of consumption of energy, the need for manufactured capital. Nevertheless, this trend has been counterbalanced by a corresponding trend in mechanization, which has substituted capital to work of manpower or animals. p. 15

      Some Policy Suggestion by way of a Conclusion

      The following policy suggestions I think stand on their own. Much of this thinking is new, to me at least, and should garner your serious consideration.

      What is certain in our view is that the cumulative effect of such big and small evolutionary changes will not take care of itself as the most optimistic proponents of “Environmental Kuznets Curve” appear to suggest. Most likely an explosive demography let running until a new “steady state” forecasted somewhere between 12 and 20 billion inhabitants would be sufficient to lead beyond a disaster threshold which in fact some analysts believe that we have already passed (cf. Ehrlich and Ehrlich [1990]). pp. 15 – 16

      Hence, sustainability is looming not for reasons of scarcity as it was claimed three decades ago but in a sense for lack of scarcity – at least with respect to energy availability and consumption. p. 16

      As Nelson and Winter [1982] put it:

      “The processes of change are continually tossing up new “externalities” (remember double clicking any word on this website will provide the answers.com entry for that word) that must be dealt with in some manner or other. In a regime in which technical advance is occurring and organizational structure is evolving in response to changing patterns of demand and supply, new non-market interactions that are not contained adequately by prevailing laws and policies are almost certain to appear, and old ones may disappear. Long-lasting chemical insecticides were not a problem eighty years ago. Horse manure polluted the cities buy automotive emissions did not. The canonical “externalities” problem of evolutionary theory is the generation by new technologies of benefits and costs that old institutional structure ignore.” (Nelson and Winter {[1982, p.368.) p.16

      Second one should consider high prices of fossil fuels as a blessing rather than a curse. Of course there is, associated with it, a serious distributive problem which is not possible to discuss here. However, one should worry even more if some fossil fuels – as especially the most polluting one, coal – remains relatively cheap. p. 16

      Third, it is unfair and unpractical to demand that emerging economies pay the full cost of “greener” patterns of production: only a mix of (i) mechanisms of preferential treatment of “greener” commodities and (ii) international transfer of less polluting technologies is likely to lower the peaks of whatever EKCs, if they exist at all. p. 16

      Fourth, we have mentioned above that massive reductions in the levels of net emissions – to repeat, as such a necessary condition for long-term environmental sustainability – are likely to come only with the development of new technological paradigms. p. 17

      On the grounds of what we know now the photovoltaic appear to be the most promising one, with, maybe, fusion, in a future further away. The emergence of new paradigms, however, generally demands major advances in basic and applied research sponsored to a good extent by public agencies. Massive “mission-oriented” projects in this area by the ensemble of developed countries are an urgent must. p. 17 Finally, possibly the most difficult issue: introduce measure aimed at the fast stabilization of population level well before the “natural asymptotic levels” from current forecasts. p. 17

      The alternative is probably the “evolution towards collapse” brilliantly described by Diamond [2005] in several occurrences of “suicidal civilization” form the past. p. 17


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      Sunday, March 09, 2008

      Google IPv6 2008 Conference

      IPv6 is a cornerstone of the People, Ideas & Objects technical vision, and a critical component of the Draft Security & Access Control Module specification, and for that matter the entire People, Ideas & Objects application. Google held a 2008 IPv6 Conference and have posted several videos of it on YouTube. (Here, here and here.) The last video of the series provides a question and answer forum that is moderated by Google Vice-President Vint Cerf. Vint Cerf is the individual at arpanet that decided on the 32 bit addressing space in IPv4. Additional representation from Google and Cisco and many other vendors discuss some of the issues, opportunities and desires of this future technology.

      An interesting comment about the Apple product line was made by one of the commenter's. Noting that Apple was implementing an inside / outside type of thinking that is inconsistent with the IPv6 protocol's. All Apple hardware and software are IPv6 capable until the user turns it off. As a result you are able to use the technology, for yourself, with the full advantages of IPv6. IPv6 is about peer to peer networking and the elimination of the client-server mindset. Apple's products provide a work around where you can view the screen on your home computer at your work, or anywhere you may be in the world. This is done through making a gateway out of their wireless, and hence making the commenter's point temporarily valid.

      The second video has the Cisco Technology Product Manager Patrick Grossetete stating "There is no reason to make an application that doesn't use both IPv4 and IPv6 today." It is my opinion that most of the applications operating within the oil and gas industry are not IPv6, and I can say this as most of the applications currently in oil and gas are unaware that their is a network outside of the Intranet in which the operate.

      Why is IPv6 a cornerstone of the People, Ideas & Objects technical vision? IPv6 enables 2 to the power of 128 addressing, enabling every device made and ever to be made to have its own static IP address. Enabling the device to be monitored and controlled. Innovation of earth sciences and engineering disciplines are sciences that deal with time, pressure and temperature. Things that can therefore be controlled and monitored. What better way for an industry to have to make this change then through a dedicated software development capability, such as People, Ideas & Objects is offering.

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      Thursday, March 06, 2008

      The Draft Petroleum Lease Marketplace Module.

      Its out and can be downloaded from the old wiki site, or email me for a copy. I'll be moving on to the Accounting Voucher Module and Partnership Accounting Module draft specifications.

      Two areas I thought would be interesting to see get built are a capital budgeting component for each Joint Operating Committee (JOC). Where I draw the analogy to the new Google Health system. A system where individual privacy concerns are upheld. Yet there is some real value in the aggregated data. Particularly from a research point of view. I suggested that if each JOC can agree to a 3 - 5 year capital budget / plan. Then when the information is aggregated across the entire industry. And that information is presented to the vendors, through a Google Earth type of interface. Then we would see the innovative ways that the vendor marketplace could begin to provide those products and services to the producers.

      The other area that is of interest is the live nature of the agreements paragraphs. As each agreement is negotiated certain terms and conditions are captured in the document, and, provide the underlying system with the data and algorithms that will be used in administering the agreement. An important point should also be made that these are just broad strokes of what the systems will need and want. The community now begins to add their input and the real innovation will be seen.

      There are now two draft specifications that have been submitted to the community. The remaining 9 will be completed over the next year. Putting deadlines on the community, as it is just forming seems unreasonable so we will discuss these deadlines as things move along.

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      Tuesday, March 04, 2008

      Open Source is democratic.

      Users and Developers need to think of this system as theirs. For that is what it is. A place where Developers and Users can come together and solve the energy industries problems, through new and innovative software. These development are the beginning of how people will sign-on to the system to do their work. Where the daily commute is replaced by the daily access. Where people are engaged by producers to conduct their administrative, management and business activities on-line, irrespective of their location.

      Not everybody has an idea to contribute and not every contribution is an idea. It will take all different kinds of people to make the application that is needed to do the job. Maybe someone will find through the process of this development they have an effective means of communicating with Developers. And maybe that person will find the freedom and compensation in doing that work more satisfying then their current activities.

      The first thing a User or Developer should do is to process the information necessary to join this community. When enough people have joined then the community should begin the process of nominating people to the Executive Committee and each modules Expert Group. Establish the roles and responsibilities of these groups and establish a time frame in which each will sit. Once these nominations are set, the voting for each position can begin.

      This process isn’t written in stone, it is only my idea of how the development “might” work. If the User community wants a different process then they should adopt it. This is your system. My vision of how this “could” operate is what I have written in the innovation blog and draft specifications. My role now and in the future is to support the community with what it needs to get the job done and be successful. This primarily focuses on sourcing the financial resources from the producers to pay the Users and Developers.

      What I foresee some Users and Developers doing in this community is making the system a cornerstone of their own business operation. Where they may have, or will develop, a firm that integrates the land and accounting information of a producer into these systems modules. Or you may have a business that you conduct an element of the production accounting for a variety of JOC’s. Or possibly a business that provides technical support for a number of producers and / or JOC’s. Some will be one-person operations, and others will have a large staff base. The common denominator of all these businesses is the producers’ needs and the software systems that are being built here by its Users.

      A further clarification of where the beginning and end of these businesses start and stop is that I only have an interest in the software. The software is supported indirectly through these businesses, and it is the business of those independent businesses that makes it stand on its own. The final clarification is that I pay for the User and Developer involvement of defining and building the software, and therefore may be considered by some of these businesses to be a paying customer.

      But what about the producer, how do they fit into and benefit from this eco-system? Simply they pay to have their systems development done on a cost basis amortized over the entire industry. Unlike SAP and Oracle that repeatedly charge for the software to each company, each company in this system is only paying for their proportionate share of the software development and infrastructure costs. A proportionate share that is being determined as a function of $x.xx per barrel of oil equivalent per year. Whereas if the cost per boe per year is determined to be $1.00 in the first year of development. Then a company such as Encana, which produces 700,000 bbls per day, would pay $700,000 for one year’s access to the system. Each year would be a different value based on the software development needs of the community.

      The point of this is that the total cost of the community is shared over the entire producer base. For Encana to pay $700,000 for these services would be a single digit fraction of what they are paying now. Lets hope they begin to see the value of this methodology and start their participation, which is desperately needed, and provide the funding for this community.

      The methodology being proposed here, where the producers pay the annual cost of software development mitigates the two impediments to innovation. The two impediments are code and customers. As a software company gets more of each, it begins to take on a Herculean task to re-write and update the code. The software vendor then becomes sensitive to the desires of the community and begins to reject changes on the basis that the costs are not supported in their revenue model.

      The producers knowing the software developers potential market is small further aggravate this situation. By limiting the financial resources the producer starves the software developer of the financial resources they need to grow and prosper. A desperate software developer must eat and will do things that are against its best business interest and capitulate to the marketplace.

      The reality of the situation in Calgary is, I think, further aggravated by the lack of investment capital for software development. Who after all wants to invest in the scenario that I mentioned above? And secondly, banking for intellectual property just doesn’t exist.

      These situations are real and manifest themselves in the fact the software stagnates for 30 years with a 70% market share.

      When the financial rewards of exploration and production are as prosperous as the $100 price of oil. Then I think we need to start doing things differently. What I am proposing eliminates these problems and provides a competent software development capability that serves its community. Join me here.

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      Sunday, March 02, 2008

      Google Sites announced.

      A few weeks ago I promised an update on the activities of this project. The most recent news is the announcement of the new application “Google Sites” for Google Apps. I have been waiting for two key technologies from Google, Google Sites and the elusive G: Drive. Seems we will have to wait a little longer for the G: Drive. The reason I have wanted these technologies is to provide the complete environment I think our Users need. With 25GB of email storage for each User and Developer, and now a 10GB Sites database we have everything we need to start expanding on the eleven-module technical specifications and prepare to start developing these applications. Google Sites has a clean interface that provides the complex tools that our users will need.

      What Sites will provide is a forum for the Users and Developers to collaborate on the “what” and “how” of what they need from this application. It will be the Users & Developers who will move the thinking forward, and steer the direction of this project on a day-to-day basis. People wanting to join this project should do the following:

      • Review the archives of the innovation in oil and gas blog.
      • Gain an understanding of how the system will be different and the impact of using the Joint Operating Committee as the key organizational construct. Focus on the various research areas that have been reviewed to date. How the boundaries of the firm lend themselves to the clear definition of the JOC being the market, and the role the firm takes in this new definition.
      • Review and sign the license governing your contributions to the project. (Email me for a copy of the license.)
      • Post a summary of your experience and what you can, and would like to, contribute to the project. These will be put in a Sites database where like-minded Users and Developers will be able to search and discover one another. (Up to 2,500 words.)
      It will be at this point you will receive access to the community and collaborative environment. Issuance of your first.lastname@people-ideas-objects.com email and Sites account will give you access to all these tools.

      The Draft Petroleum Lease Marketplace Module Specification is nearly done. A few more weeks and I should be able to post it. It is becoming clear to me that the Draft Partnership Accounting Module and Draft Accounting Voucher will be the third and fourth specifications to be published. It is very important to remember that these specifications are draft and only represent the “what” and “how” the overall vision of this application and its module operate. These are guideposts for the Users and Developers to work with to expand them where necessary and make them work for them in doing their jobs.

      Recall the overall objective is to ensure that this application provides the energy producer with the most efficient basis in which to operate its oil and gas assets. And that will include the Users who are involved in this project reselling their time and energy to the producers that use the application.

      The energy industry is very much a global business. Rarely do you have a producer that has contained all of its operations in one reporting jurisdiction. The Joint Operating Committee is the global - financial, legal, operational decision-making and cultural means of the industry. Recognizing the JOC as the key organizational construct denotes that the People, Ideas & Objects application and modules will have a global scope of operations. Limiting the geographical scope of the application makes little sense.

      Financial resources from the producers continue to disappoint. However we cannot wait for the inevitable day that they realize they need to be involved in this development project. I will continue to solicit producers for financial assistance and participation. Recall most of the money will be used to compensate the Users and Developers for their time during development.
      I have added three new module specifications to the application. The three modules are:
      • Accounting Voucher Module
      • Analytics & Statistics Module
      • Performance Evaluation Module
      The Accounting Voucher Module is simply recognition that the Accounting Voucher as conceived in this system is a module onto itself.

      The Analytics & Statistics Module provides an interface to the application that enables the User to set criteria and establish ad-hoc reporting of items they are interested in. It will enable the deep analytical view of the data and information that they have access to. It's perspective will be from the firm where management can analyze one or many JOC's they participate in.

      The Performance Evaluation Module provides the JOC a tool that will enable the participating producers with a means to evaluate the property for a variety of generic criteria. Key to the tools use will be the ability to create differing scenario's and the impact they would have on the property.

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      Sunday, February 24, 2008

      "Democratizing Innovation"

      Professor Eric Von Hippel of MIT

      There are two free books that help provide an understanding of how People, Ideas & Objects software development project will proceed. And most importantly the role of the Users and Developers involved. The first book is the above titled and can be downloaded from here. The second book "The Future of Ideas" is also down-loadable, and written by Professor Lawrence Lessig of Stanford University.

      Professor von Hippel's book documents the means to attain the innovation that we seek. In Chapter 1 he provides a summary of the entire book. This summary provides coverage of the points that I want to make, so lets begin.

      Chapter 1

      Professor von Hippel starts off with framing the context in which he sees innovation occurring. Defining both User centred innovation vs manufacturer centric innovation. For the purposes of this blog entry, von Hippel's focus on the use of "manufacturers" is consistent with our understanding of oil and gas user based innovation.
      Users that innovate can develop exactly what they want, rather than relying on manufacturers to act as their (often very imperfect) agents. Moreover, individual users do not have to develop everything they need on their own: they can benefit from innovations developed and freely shared by others. p. 1
      This software development project is global in scope, use of the Joint Operating Committee is the cultural norm throughout the industry. The People, Ideas & Objects project is conceived in the open source model and will provide the Users, developers, and producers with innovations developed elsewhere. I believe this is possible and Professor von Hippel indicates how this is happening.
      At the same time, the ongoing shift of product-development activities from manufacturers to users is painful and difficult for many manufacturers. Open, distributed innovation is "attacking" a major structure of the social division of labor. Many firms and industries must make fundamental changes to long-held business models in order to adapt. p. 2
      This very point was addressed in my original thesis. Anthony Giddens is currently more famous as an adviser to British Prime Minister Tony Blair, however, in 1984 he published "The Constitution of Society" which introduces his structuration theory. Structuration suggests that people, organizations and society progress at the same rate, any imbalance in one would lead to failure in the others. I had suggested that the energy industries use of the hierarchical organizational model had exceeded its useful life, and indeed was inhibiting both people and society. I think that we are beginning to see and understand the failures that the energy bureaucracies are having on society. Moving to the industry standard Joint Operating Committee is the fundamental change that is necessary to avoid these failures. How these changes are implemented is through a clean break from the old business model.
      Innovation user and innovation manufacturer are the two general "functional" relationships between innovator and innovation. p. 3
      We need these two types of innovations. One is the systems, developed by its users, that support the innovative energy industry, and in turn support the innovations that need to take place in the earth sciences and engineering disciplines. Professor Giovanni Dosi shows that science is influenced by innovations which in turn leads to new sciences and new innovations. Consumers and producers of innovations may be more a reflection about a point in time rather then an individuals role in the long term. Software systems need to adapt to changes like these. This is what I am setting out to provide to this user community.
      In figure 1.1, the increased concentration of innovations towards the right indicates that the likelihood of innovating is higher for users having higher lead user index values. The rise in average innovation attractiveness as one moves from left to right indicates that innovations developed by lead users tend to be more commercially attractive. (Innovation attractiveness is the sum of the novelty of the innovation and the expected future generality of market demand.) p. 4
      Who these innovation leaders are is unknown at this time. But as this project continues to achieve mind-share in the energy sector, I think we will begin to soon find out.
      Mass manufacturers tend to follow a strategy of developing products that are designed to meet the needs of a large market segment well enough to induce purchase from and capture significant profits from a large number of customer. When users' needs are heterogeneous, this strategy of "a few sizes fit all" will leave many users somewhat dissatisfied with the commercial products on offer and probably will leave some users seriously dissatisfied. p. 5
      A drive that I am attempting to lead away from the generic industry software solutions of IBM, SAP and Oracle. The energy industry is too unique to share any similarities to other industries.
      The social efficiency of a system in which individual innovations are developed by individual users is increased if users somehow diffuse what they have developed to others. p. 9
      Encapsulating the value of today's collaborative Information Technologies.
      When we say that an innovator freely reveals information about a product or service it has developed, we mean that all intellectual property rights to that information are voluntarily given up by the innovator, and all interested parties are given access to it - the information becomes a public good. p. 9
      This is how the second book "The Future of Ideas" written by Professor Lessig's comes into play. If everyone is only concerned about the access rights to their own ideas this entire community will be eventually reduced to a place where only Lawyers will be happy. The licensing model for this project simply enables the free and unencumbered access to the ideas and intellectual property contained within this project. This is derived through myself granting Users and Developers free access to all of the intellectual property. In turn each User and Developer assigns the rights in their ideas and innovations back to the copyright holder enabling immediate re-distribution of the idea. This is necessary to maintain the free access for all concerned, and, that I have a strong position to assess the energy producers for the appropriate financial resources necessary to pay the Developers and Users to do this work.
      Innovation by users tends to be widely distributed rather than concentrated among just a very few very innovative users. As a result, it is important for user-innovators to find ways to combine and leverage their efforts. Users achieve this by engaging in many forms of cooperation. Direct, informal user to user cooperation (assisting others to innovate, answering questions, and so on) is common. Organized cooperation is also common, with users joining together in networks and communities that provide useful structure and tools for their interactions and for the distribution of innovations. Innovation communities can increase the speed and effectiveness with which users and also manufacturers can develop and test and diffuse their innovation. They also can greatly increase the ease with which innovators can build larger systems from inter-linkable modules created by community participants. pp. 10 - 11
      I think that this is by far the best method in which this community should be built and achieve what is possible in this time and place. I would challenge anyone to suggest a more effective means of this communities innovations, and avoid the following.
      Intellectual property law was intended to increase the amount of innovation investment. Instead, it now appears that there are economies of scope in both patenting and copyright that allow firms to use these forms of intellectual property law in ways that are directly opposed to the intent of policy makers and to the public welfare. p. 12
      This discussion is the method that Open Source projects have used in the technology environment. Not all open source projects fall within this category, only what I perceive as the commercially successful ones.
      User's ability to innovate is improving radically and rapidly as a result of the steadily improving quality of computer software and hardware, improved access to easy to use tools and components for innovation, and access to a steadily richer innovation commons. Today, user firms and even individual hobbyists have access to sophisticated programming tools for software and sophisticated CAD design tools for hardware and electronic. These information based tools can be run on a personal computer, and they are rapidly coming down in price. As a consequence, innovation by users will continue to grow even if the degree of heterogeneity of need and willingness to invest in obtaining a precisely right product remains constant. p.13
      and
      I conclude this introductory chapter by reemphasizing that user innovation, free revealing and user innovation communities will flourish under many but not all conditions. What we know about manufacturer - centered innovation is still valid; however, lead user centered innovation patterns are increasingly important, and they present major new opportunities and challenges for us all. p. 17
      Thank you Professor von Hippel for noting these key points and the free access to these important concepts in your book. If we miss this opportunity it will not be as a result of a lack of access to the intellectual property.

      Professor Lessig has a unique understanding of some of the legal implications of the Internet. I recommend reading his book as a companion to Professor von Hippel's book. Lessig's book provides an understanding of many of the issues and opportunities around intellectual property. I think that the most effective way in which these ideas can be populated and built upon are addressed in Professor Lessig's book, and implemented in People, Ideas & Objects.

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      Sunday, February 17, 2008

      Why Sun Microsystems is our vendor.

      This may be possibly one of the most important technology announcements ever made. (Click on the title of this entry for the article.) If it's not the biggest, I can assure you that it is the largest that I've seen and probably ever will. This announcement tells the current bunch running IT the party is over. Pack your bags your out the guard is changing.

      Information Week reports Sun's CEO Jonathon Schwartz states Sun's vision and strategy are now focused on providing support to the start up software firm. In doing so Schwartz expressly calls his current key partner Oracle, the competition.

      Schwartz said Sun is repositioning itself as a disruptive software supplier, using freely downloadable open source code to initiate relationships with developers in young Internet companies. With MySQL in its arsenal, Sun has become "an arms dealer" for the next generation of those companies, said Rich Green, the vendor's executive VP for software.

      But Sun may find itself offending some communities even as it builds new ones. Oracle is an old partner that has sponsored Solaris sales to customers that want to run the Oracle database. By offering free or low-cost MySQL subscriptions, Sun is now a threat to Oracle's database cash cow. "MySQL will work fine alongside Oracle," Schwartz said in response to an InformationWeek question, "but I prefer to focus on acquiring new customers, not on the competition."

      This hurts Oracle. Oracle could see the Open Source writing on the wall and launched a massive takeover of established software vendors. Sun has driven database sales for Oracle for many years. Oracle is now forced to hang its hat on the old generation technologies as the key to their sales growth.

      I have documented the two constraints of a software vendor in this blog before. The constraints of code and customers motivate the "established" software vendor to sell the status quo. Change becomes unspeakable in terms of innovation or progress. Old generation software companies had to die in order for change to occur. This has been reflected in IBM's jettison of Qbyte a few years ago. So how does a software vendor compete in this new generation?

      As you can imagine the business model has to change, or should I say has changed. Open Source software shows the way. The code base is never settled. It is in a constant state of development. Go to any open source project and you can select any version of the software that you like. The bleeding edge, the alpha, the beta and a few versions of the supported code base in "stable" condition. Innovation doesn't stop, how could the code? The customers demand that the software be reliable and operate as promised in their firm. Any variation needs to be addressed with very specific processes. And no two companies are ever the same. This is where the constant development model meets the reality of the installation and the software User becomes the key in the Open Source community.

      To many people in the oil and gas industry, dealing with a start-up on such a large-scale project is not something they thought they would have to do. But how else can you approach such a difficult task as is faced by the energy industry as a whole. Can you continue to live with software that was conceived in Germany for manufacturers? If you believe you can then you know who to call.

      Sun's Schwartz has legitimized People, Ideas & Objects as the key to the future generation of IT enabled oil and gas producers. And completely de-legitimized the non Open Source vendor. And in the process has told the Emperor he has no clothes. In my books that is a big announcement.

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      Thursday, February 14, 2008

      Yesterday's thinking.

      Cambridge Energy Research Associates (CERA) are having their annual conference in Texas this week. The CERA / IHS line that a tidal wave of petroleum is about to hit the consumer continues without much basis in fact or reality. Its been too many years of this monotonic claim of theirs to consider the message as valid.

      Irrespective of CERA's message, there are those that suggest more spending is needed. I think more spending has been tried by Chevron and others, and also proven invalid. Doing more and more is rarely the right choice. Change is certainly in the air, it is important to note this point in time is an opportunity for new thinking and actions to take place.

      As Einstein stated, today's problems are not solved by today's thinking. I think it is reasonable to assume that the earth sciences and engineering disciplines have increased in complexity. As the bar is raised substantially for successful oil and gas exploration and production. Eventually the structured hierarchy, which is inefficiently efficient, will prove to be inadequate to meet the needs of the science and the industry. What is needed is new forms of organization where the science can develop within the organizations, and be used effectively to produce more oil and gas. This challenge has been the key issue that has driven the writings in this blog. The research to determine if the Joint Operating Committee can fulfill this role is proven, at least academically.

      The management, and most importantly the system's like SAP and Oracle, have been developed in the old "banking" type thinking of the energy industry. Invest a dollar today, and you'll receive a 10% return on almost a guaranteed basis. This thinking is a product of the excessively low oil and gas prices of the 1980's and 1990's. The business today is more science oriented then the banking orientation can comprehend. The systems that were developed in the past are designed to accommodate the governance and compliance of the SEC, Tax and Royalty regimes. Neither SAP or Oracle recognize the existence of the Joint Operating Committee. Yet the JOC is the legal, financial, organizational decision making and cultural way of the business on a global basis. If we moved the compliance and governance of the bureaucracy to the the four frameworks of the JOC this science and innovation mindset of the industry will be accommodated.

      But there are more benefits to be had. With the systems that are available in today's marketplace. And the current population of oil and gas workers. We can organize in ways that have been proven time and again to increase productivity. Adam Smith's Division of Labor is based on his re-organization of a pin making shop. Smith's reorganization of the pin factory rendered 240 times the volume of pin production. Division of labor is also known as the primary method of how economies grow. Further division of labor holds the greatest opportunity for the industry to deal with the age and retirement of the workforce.

      The times that we now live in are too complex to move to a new organization without the proper preparations being made. Key to those preparations are the software developments that are built to accommodate these changes. Change must first be implemented in the software, or any unprepared change will be relegated to manual systems. I am in the process of publishing the eleven draft module specifications of the People, Ideas & Objects application. This application is under development here to incorporate these ideas and opportunities.

      Ludwig von Mises noted the industrial revolution was the solution to the problem of over-population. We are faced with these same problems today, and I would suggest the Information Technology Revolution will only begin when it is deemed to be the solution to the problem of over-population. For oil and gas, please join me here.

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      Tuesday, February 12, 2008

      New Module's in People, Ideas & Objects Specification

      I have been working on the draft specification of the Petroleum Lease Marketplace Module, which may be finished in as little as one month. A number of ideas were generated by the specification process, and two new modules have been added to the specification. Also, by designating the Accounting Voucher as a module in itself, the specification now includes eleven unique modules.

      Recall that all these modules recognize the Joint Operating Committee (JOC) as the cornerstone of the business of oil and gas. These modules adopt the culture that exists today in oil and gas. And reflect what is in the legal, financial, cultural and operational decision making frameworks. These eleven module specifications embrace and extend these four frameworks of the Joint Operating Committee.

      The original eight modules were specified and detailed in these blog entries here.

      The two new modules that have not been mentioned before are named appropriately "Analytics & Statistics Module" and "Performance Evaluation Module". Just as many may think "what's the difference?" I would answer that the two modules reside in the differing domains of the Firm and JOC. Just as the Research & Capabilities Module and Knowledge & Learning Module are designated to the Firm and JOC. Since my next blog entry will be "A quick summary of where we are at" I will only introduce these three new modules here and follow up with the next posting.

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      Thursday, February 07, 2008

      Chevron's Reserves

      CNN reports that Chevron Texaco's 2007 reserve replacement ratio was only 15% of production. This in spite of $12.2 billion in capital expenditures. Profits of $18.7 billion were attributed to higher prices.

      I published my thesis in May 2004. It was based on the hypothesis that "The corporate hierarchical organizational structure is an impediment to progress and most particularly, innovation." and to "Determine if the Industry Standard Joint Operating Committee, modified with today’s information technologies, provides an oil and gas concern with the opportunity for advanced innovative-ness.” Based on the Chevron, BP, Shell and Exxon 2007 annual reports, I believe this hypothesis has now been proven correct. And the industry business model is fundamentally flawed and terminal.

      For the past two years I have been writing about these theories and asking "what if" the industry did move toward using the Joint Operating Committee as the key organizational construct? And "how" would these changes affect the industry. From this analysis I have been able to publish the modular breakdown of the People's, Ideas & Objects application, and what is necessary to make this application function for the oil and gas industry.

      Amongst the most important needs is the financial resources of the industry to support the users and developers of this application. If now is not the time, when? I would like to think that the work that I did over the past 4 years provides some value for the industry. Particularly from the point of view of giving them a head start on solving their reserve replacement ratios.

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      Tuesday, February 05, 2008

      I'm not getting this...

      BP reports a decline in earnings, and the result is a 5% reduction of their workforce? We saw Shell announce smaller layoffs, but is this how the remnants of the seven sisters will deal with the current energy problems? What will happen next year?

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