Langlois on Dosi and Lazonick

An interesting debate has begun between Professor Giovanni Dosi and Professor Richard N. Langlois. Dosi's 1988 "Sources, Procedures and Micro-economic Effects of Innovation" was the key document I used in the preliminary research report. Professor Richard N. Langlois has taken up the majority of writing and thinking on changes in business' organizational structure which was used in defining the Draft Specification.

Professor Dosi, Alfonso Gambardella, Marco Grazzi, and Luigi Orsonigo submitted a new paper a few weeks ago entitled Capitalism and Society. I have reviewed the paper and found nothing of real interest in it. It suggests that the large organizations have not been impacted by Information Technologies. A very provocative research topic but one that I think is limited in its scope. The research is based on a review of Italian and French firms. I am certain that there is not a substantial amount that can be related to the rest of the world. Old Europe doesn't change, they have the same firms occupying the top wrung of the corporate latter for over 50 years. Nothing changes much there.

Nonetheless much of the underlying premise for Dosi et al's research was based on Professor Langlois research, and specifically his paper entitled "The Vanishing Hand". This was a document that I reviewed here. Professor Langlois writes a response to Dosi et al that helps to clarify his position in writing about the boundaries of the firm and organizational change. Here is the focus of the discussion.

The Dosi et al. paper takes issue with the Langloisian point of view. The authors adduce statistical evidence on changes in the size‐distribution of firms and industrial concentration in the advanced economies over the past few decades that contradicts the notion that there has been a significant movement toward market coordination of the advanced economies. They argue that, if anything, organizational complexity has become greater in the ICT age, requiring industrial enterprises to engage in more, not less, organizational interactions, as distinct from market interactions. Indeed, they raise the possibility that organizational complexity, and hence the challenges for the visible hand of managerial coordination, may be greater across vertically specialized firms in the New Economy than it was within the vertically integrated firms of the Old Economy. (Lazonick 2008, p. 1.) p. 1

Nonetheless this is a finding that challenges Langlois' theory and the core underlying thinking of this software development project. I have suggested, and the Draft Specification reflects, that the "market" definition is the Joint Operating Committee (JOC) which imputes the volumes of suppliers and contractors involved in the service businesses, and the producer represents the firm.

Lanlgois cites IBM as his example of how Dosi et al misinterpret him. In the 1960's IBM was able to provide the soup to nuts type of computing experience that purchasers appreciated then. The majority of components were manufactured in-house by IBM. Today the situation has changed significantly as a result of the Information and Communication Technologies (ICT). Yes there are large businesses just as there always will be. However, the methods used to develop products and build them have changed substantially.

As an example I would select Apple which considers themselves to be a software development company. Their competitive advantage is in developing software that is substantially more "user friendly" and functional then other software. When it comes to hardware, Apple has not manufactured a computer for many years. They involve themselves in the design and secure manufacturing capability from other firms that specialize in chips, hard-drives, assembly etc. The iPod and iPhone are similar in that Apple notes on the product that it is designed in California, assembled in China and uses mostly Japanese parts. Therefore Dosi et al's argument that ICT has not changed the make up of firms is incorrect. They are predominately organized around the contract, which denotes clearly that the firm uses the market to attain their competitive advantage.

Charles Sabel and his collaborators have begun looking into the nature of the relationships that characterize the New Economy (Gilson, Sabel and Scott 2008; Jenne john 2007; Sabel and Zeitlin 2004). And what they find is not common ownership or hierarchy but rather a “form of contracting [that] supports iterative collaboration between firms by interweaving explicit and implicit terms that respond to the uncertainty inherent in the innovation process” (Gilson, Sabel and Scott 2008, p. 3). The New Economy may be highly organized. But it is fundamentally contractual, in a way that large Chandlerian multi‐unit enterprises are not. These latter, properly understood, are indeed fading away in a world of extensive, capable, diversified markets.

The Draft Specification uses much of Langlois thinking in its overall architecture. The best example I can think of is the use of the producers five year Capital Expenditure budgets. These budgets are aggregated by region and displayed in a fashion that enables the "market" of suppliers, the Schlumbergers, Halliburtons and Joes' Welding to peruse and determine what the producers may need in terms of their future spending. This information in the hands of the market will then enable innovative solutions to be proposed to the producer when the contract is sent out for bidding. Bringing a new capability to the firm with a perspective that is not limited to the firms current quarter.

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These companies don't deserve your respect.

As you can tell they haven't earned mine. They have sat back and done nothing about the markets demand for energy. Economists frequently say that prices tell the markets many things. Today the prices are shouting many things, but these companies management can't, or chose not to here them. They have done nothing other then endow themselves with complacency, inactivity, stock options and retirement benefits. Following the money reveals that they have been richly rewarded for their inactivity.

Faced with the overwhelming facts that I have presented in this web log. And the many proposals I have made to industry on systems supporting the JOC. They have done nothing. 37 McKinsey articles, 26 Articles from Professor Richard Langlois, 45 Calls to Action, publication of a future technical vision, etc. Codifying of all this research into a draft specification of eleven modules. The only response is the comment "not at this time".

The draft specification of eleven modules that are so fundamentally different from what is available today. Fundamentally different in that it sets out a course of action in making the producer companies innovative, increases industry wide capability and addresses many of the key issues facing the industry. But that requires effort on behalf of these companies.

Led by uninspired people with uninspired goals these companies have languished to the point where they are indistinguishable. Royalties are up, another reason to do nothing. They should be preparing for moves into the Beaufort Sea, the Arctic, offshore. Increasing the internal infrastructure necessary to explore. Instead they do the easy targets, the coal bed methane and shale oil. Have they no vision, drive or ambition?

I am unable to convince them of the merits of this research and software development. It's time for the shareholders of these energy companies to show the management the door. Either that or watch their investments wither away through dilution from management, declining reserves and ultimately declining production.

Does anyone believe inaction is the right approach? Are these managements able to foresee the future is different than what I have proposed here. Are they able to provide an alternate vision of how this industry has fundamentally changed? No they haven't. This series of entries showing the extent of the abuse of stock options, should provide you with an understanding that the direction we are traveling is not going to present any new opportunities for the companies or the shareholders that own them. All the opportunities involve stock option compensation and retirement of the fat and lazy management. If you doubt this after reading this series you may have a future in oil and gas management.

And what has my competition provided? SAP has stated that they want the upstream producer to get closer to the customer. Which is the most dramatic example of how SAP does not know anything about the upstream oil and gas business. Oracle is off doing something with the application vendors they purchased and the world is not holding it breath. I wouldn't either.

Sir Anthony Giddens theory of structuration, which was a part of the preliminary research report, states that organizations, society and people need to move in lock step or there will be failure. Society and people want to move ahead, organizations are holding up the show and causing all three to fail.

They have isolated themselves from any form of criticism and pursued their personal strategy of sloth, wealth and retirement at the expense of shareholders and society at large. They appear to me to be shut-ins as opposed to productive members of society. Where is the outrage? Failure is the only way to describe it. Join me here.

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McKinsey on Organizing for Value.

McKinsey have been able to provide a solid foundation for this software development project. This will be the 37th McKinsey article I have reviewed! (Click on the title for access to the document.) When it comes to organizational change and the impact of IT, McKinsey has invested heavily in this mega-trend and consistently gets it right. In applying this article to the oil and gas producer, strong support is given to the use of the Joint Operating Committee (JOC) as a key organizational construct of the industry.

This organizational blind spot, often combined with an excessive focus on short-term earnings, can produce unfortunate results, in our experience. Managers end up optimizing earnings goals at the expense of long-term growth and value creation. “We typically spend 80 percent of our time figuring out how to squeeze the economics, and only 20 percent on actual strategy, without numbers to back our decisions,” says one executive. Some readily admit to cutting back on value-creating projects in order to meet short-term earnings targets.

This is the systemic problem that all public companies face. Don't meet you targets for the quarter and you will be punished. Managing to these criteria becomes the focus and strategy that drives the management to perform at its best. It certainly leads many companies to focus on optimization at the expense of innovation and long term value generation. However, McKinsey are hitting on a key point with their definition of "value cells".

As a rule of thumb, value cells have standalone economics and must be relatively “homogeneous” in regard to their target market, business model, and peers—that is, they must have one target segment, one country or region, or one group of products. The trick is to create financial analyzes, such as P&L statements, as if a value cell were a stand-alone business. This is normally not done in a classic divisional structure, where each division’s financial's are an amalgam of different products, markets, and costs relating to shared assets. A useful litmus test is determining whether a value cell could be sold and whether there would be a clear market price for it.

A JOC does all the things that McKinsey define as required for a value cell. But their is more, McKinsey intimate that the value cells are somewhat separate from the divisional organization structure. Just as I have defined the boundaries of the firm and the JOC in the eleven module Draft Specification. The firm undertakes the role of establishing and attaining the financial targets, whereas the JOC develops the innovative ideas and builds value for the long term.

Value cells can easily coexist with the organizational structure of a division, which might need to take other factors into account, such as geographic proximity or economies of scale in common functions such as production plants, supply chain, or sales networks. As an overlay on an existing structure or a lens through which to view existing businesses, however, the cells facilitate strategic decision making.

An oil and gas firm may have hundreds of JOC's, this would cause the management workload to increase substantially. Not so McKinsey say;

In our experience, a company of above $10 billion market capitalization should probably be managed at the level of 20 to 50 value cells, rather than the more typical three to five divisions.

and

While managing so many value cells might appear to increase the CEO’s workload, the reverse is often true. Focusing more on single cells actually reduces complexity because managers find it much easier to identify and monitor the two or three operational metrics that truly drive performance, as well as to make decisions in a more straightforward way. In essence, the CEO can use value cells to take out a “disintermediation layer” between actual business decisions and the corporate planning process. Instead of aggregating strategies and economics into complex divisions and then spending lots of time understanding the overall strategy and performance, the CEO can take a larger number of more rapid, more specific, and more radical decisions at the value cell level.

This makes intuitive sense. The logic in using the JOC in the oil and gas industry is substantial. It is the financial, legal, operational decision making and cultural framework of the industry. Participants in JOC are motivated by financial rewards therefore concurrence can be easily attained. Today's Information and Communication Technologies (ICT) also enhance the expanded use of the JOC. In the Draft Specifications it is stated explicitly that the management role would increase in the redefined boundaries of the firm.

It’s worth noting that a value cells approach is meaningful only if a company has the courage to follow up on decisions to invest or divest. Managers must regularly scrutinize cells that destroy value and divest them if turnaround plans don’t materialize. They must nurture high-potential businesses aggressively and continuously. If competitors devote far more resources to a given business, for example, the real choice is exiting it or doubling down on the investment—not adapting marginally.

This however does not mean that our four little piggies can double down on their stock options. Which appears to be the only strategy in play. This next quote from McKinsey imputes the level of change that needs to be adopted within an organization. To benefit from value cells requires some major systems, organizational and people changes.

And that is what we have done in the eleven module People, Ideas & Objects Draft Specification. Our motivation is to focus on innovation within the JOC. That is what the commodity prices are telling the producers, and providing the financial resources for, to innovate. As everyone generally agrees, the easy oil is gone and an earth science and engineering based capability is the new methodology of earning value in the oil and gas industry. As science and innovation come to influence each other, the speed of change will accelerate. The firms in the industry have lost the ability to keep up with the market demand for energy. Without the systems to support any organizational changes in place, we are relegated to manual systems or utter failure.

Using value cells to emphasize value management requires some obvious implementation challenges—creating better data, exerting pressure to collaborate, adopting incentives that reflect the value created per cell. The real change of culture and mind-set requires even more: instilling business managers with the feeling that the new process gives them more freedom and more resources for good ideas.

We also live in a time where the technologies, based on the People, Ideas & Objects Technical Vision, will conspire to overwhelm the unprepared producer with information. Recall that Nobel Laureate Herbert Simon stated "a wealth of information creates a poverty of attention."

Focusing corporate and divisional decision processes on value and growth isn’t simple, particularly when the activities that create value are embedded in large divisions. Companies that adopt a finer-grained, granular approach can better identify and manage their value creating assets.

The performance of the oil and gas producers stock option compensation costs is the only thing spectacular coming from these firms. They have abused the trust of the investors and poorly prepared their firms for the changes brought about by the commodity prices. Potential retirement is liberating them from responsibility. The oil and gas industry has changed fundamentally? Someone should tell the management.

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Deja vu, all over again.

A number of years ago I did some analysis on Petro Canada that remains some of the most popular content on this blog. I thought since they did not make any material changes as a result of the analysis. I would just link the posts in this one entry.

Petro Canada Q2 Earnings
Petro Canada Piles it on Again
Petro Canada's accountability framework
Oil and Gas Reserves of Petro Canada
Top 10 Management Excuses from Petro Canada
Petro Canada Garage Sale continues
Petro Canada's First Quartile
Petro Canada Definitions
Maturation of Petro Canada
Petro Canada Options
Petro Canada news management
Petro Canada is more disturbingPetro Canada Series
Petro Canada Executive
Petro Canada
Petro Canada Definition of Value
Anti-Petro Canada
Petro Canada Some Clarifications
Petro Canada's Conflicting Statements
Petro Canada's Reserve Report
Petro Canada Earnings
Petro Canada Believes 


Enjoy!

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15 TCF of Natural Gas

That was the volume of gas that Shell bought from Duvernay Oil Corp. The purpose of this entry is to provide a little more about the understanding of reserves.

Way back when the geological survey determined that Canada would potentially produce 150 TCF of natural gas. Updates to the survey show that Canada has produced a little over two thirds of what they once had.

Now Duvernay comes along and discovers 15TCF of gas? The question is, is this 10% of the 150 TCF or is it an addition to total 165 TCF. The answer is "I don't care". Reserves have taken on a distorted meaning in the Peak Oil crowd. They are meaningless in determining what the future potential of an entrepreneur can do if they truly understand the business. While the Peak Oil crowd and Cambridge Energy Research Associates were reviewing reserves, Duvernay got down to the business at hand. Getting down to the business at hand is available to everyone, everyone who is not so glazed over by the value of their stock options.

Technorati Tags: People's Exploration Innovation Research

Nexen reports it's losing its mind.

Reading Nexen's second quarter financial results press release; leaves one with the feeling all is well "Nexen reports solid second quarter financial results". Yet Bloomberg reports a rather poor performance, and the stock is down over 10%. How's this? Bloomberg in their opening paragraph.

July 17 (Bloomberg) -- Nexen Inc., the Canadian producer that gets most of its output from oil fields, said second- quarter profit rose 3.3 percent as stock-based compensation costs blunted higher crude prices.

Makes it very clear that the management were celebrating the latest round of stock based compensation. Another $300 million for the piggies, and $380 million for the shareholders. That seems fair doesn't it? If these little piggies can't boost their profits by more then 3.3 percent at a time when oil prices are up, then they never will. All the upside from the increase in oil prices is clearly deemed as the valuation of further stock based compensation. I suggest the shareholders show them the door.

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NOC's Don't Explore.

First of all, a quick comment, price volatility is not a welcome trend. The price of oil in the world is moving up and down in a rather violent manner the last few weeks. This is a precursor to some major upswing in the price, so hang on this might get really rough.

I find it amusing that the companies are not even listed in the call to action by the former Secretaries of Defense, State, Commerce and Energy. The companies have cruised to the point where even the politicians are not expecting anything from them!

Back to the key topic of this post. One of the key complaints of the oil and gas companies is that they are being kicked out of the countries that manage their energy assets through "National Oil Companies" (NOC's). Countries such as Saudi Arabia and Venezuela. To expect an exploration mindset from either Saudi Arabia or Venezuela is wrong headed. They're only interested in the efficient and effective management of their countries energy resources. Because of this the oil and gas companies should not have any competition from NOC's. (Wasn't that in the movie "Apocaplypse Now" "NOC's don't explore"). Sitting in the corner and crying is not a proper posture for these oil and gas companies. Or do pigs squeal in the corner.

If as I had suggested in my review of the book "Profit from the Peak", these companies don't know how to explore, can't explore and are not able to organize themselves to explore. I say sure they have exploration departments; but the people there are only picking up their companies leadership position in having their retirement homes bathrooms wallpapered with stock certificates. If they are doing nothing but squealing and lining their pockets why don't we send them to the slaughter house?

Is an exploration mindset necessary? Would it provide the discovery of new oil and gas fields? You be the Judge. In Calgary, Duvernay was purchased this week by Shell for $5.9 billion. Never heard of Duvernay Oil Corp? I can assure you not many have. They started in 2001 from nothing and this is their story:

Duvernay Oil Corp. is an aggressive Alberta based oil and gas company with an aggressive activity plan for future growth. The company is engaged in exploration and development of natural gas and crude oil emphasis on the deeper, western portion of the western Canadian sedimentary basin in Alberta and Northeastern British Columbia.

Reading their annual report for 2007 will reflect that exploration is their core focus. If you download the report, look at the awesome pictures on page 2. Aggressive innovation is Duvernay's middle name. And the map on page 13. That little map contains the work of probably a few genius level geologists life-time of work.

Therefore a start-up focused on Alberta and BC can earn $1 billion per year? That's what exploration is about. I'm tired of the noise and smell of the oil and gas companies that I have highlighted as pigs. Lets get rid of them. Join me here.

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And this little piggy...

Up next in the shocking level of stock option compensation, is Nexen. Their 2007 based compensation was $175 million "in the money" and $465 million "in the money" stock options issued and outstanding. For a total "in the money" compensation of $640 million. The total of the four oil and gas companies is now $3.36 billion. You tell me if you think its excessive.

Company	Stock-Options	Market Cap
Canadian Natural Resources	$1.53 billion	$50.6 billion
Petro-Canada	$492 million	$24.5 billion
Encana	$698.2 million	$62.8 billion
Nexen	$640.0 million	$19.3 billion
Total Producers	$3.36 billion	$157.2 billion
Apple	$873 million	$151.9 billion

I have stated here that these companies had the opportunity to address these problems almost five years ago. What has happened since then is an inability of these firms to make their targets in terms of production volumes. This has occurred on an almost systemic basis with each company reporting that there are material cost overruns and scheduling problems. More or less these companies can't keep up to the demand for energy. Can't keep up because they are too bureaucratic.

But there's more. Over the course of time we have seen the problem escalate in the world. That wasn't of any concern of these companies. Indeed we have seen the slackening of their pace and a deadening of their sense of urgency. Confident in their abilities to control their environment from any serious criticism of their performance. They became bold in their actions and believed they were entitled to these stock options. Stock options that became valuable from increases in earnings from higher prices. High prices that masked the declines in reserves and production. After all it was working. They are now that much closer to their retirement, a retirement that will be far more comfortable. This was their special reward for gracing the oil and gas industry with their presence. Don't do anything and be richly rewarded.

The consequence of their greed is reflected in this article from ASPO USA:

The CIA reports that there are 266 “nations, dependent areas, and other entities” on the world today. During the last few weeks at least 90 of these are reported to be having continuing serious or very serious energy shortages. The number of countries with energy problems may be much higher as the CIA also reports that 94 of the world’s nations are islands many of which are so small they are rarely heard from but are almost certain to be suffering from $140 oil.

When I proposed this idea in September 2003 and subsequently published the research results in May 2004. These two dates were not the only times I marketed to these companies. I have contacted those within the industry, and particularly the four pigs I've already mentioned, (Petro Canada, Encana, Canadian Natural Resources, and Nexen) on an annual and semi-annual basis. The last time being December 11, 2007. I always received the same response of "not at this time". Well of course not, they hadn't retired, and who wants to work hard?

Well the time has now past by any reasonable measure. And the management have proven that they are not capable of acting in any constructive way, other then for themselves. Therefore I appeal to the investor class to take action and fund these software developments. Create the necessary alternative organization for you, the investors, to able to manage your assets.

Do we have to wait until their are riots in Europe, Canada and the U.S. before someone dispatches these people to the pig sty? Is $4 gas enough? I don't think so, we have a lot of pain heading our way due to these selfish people. What more do we need to realize that the same old muddling along just isn't going to work. Join me here.

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Apple, my favorite tech company.

Apple is a company that has risen from the ashes in 1997 to a stellar performer and one of the top four technology companies. Only Google, IBM and Microsoft are larger in terms of market capitalization. Apple had a market cap of approximately $700 million in 1997. Today it is $153.3 billion.

Here is a firm that has taken the world by storm in one of the highest profile industries, and in ten years turned itself into a juggernaut. I'll bet their stock based compensation must be stratospheric. Not really Apple recognized $242 million in stock based compensation for 2007 and $631 million in unrecognized compensation for a total of $873 million.

So here we have what has to be the greatest story of a company rising from the ashes and building 219 times their 1997 values. Apple is 2.4 times the size of Encana (the largest oil and gas company that I have highlighted in this stock option review). Only Apple is capable of approaching the values of the stock option feeding frenzy of these producers. We know that Apple's management generated $152 billion in shareholder value to earn their stock options, what have these oil and gas companies done to deserve theirs?

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The last 2 Draft Specifications!

Draft Specification - Performance Evaluation
Draft Specification - Analytics & Statistics

Two plus nine equal's eleven. These specifications are now the communities to take and build upon. The draft specifications are in a way a codification of my vision of what could be, and the research that I have conducted on the organizationally constrained producer companies.

I can not tell you how good it feels to have completed these.

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User friendly development tools.

The other day I wrote about how the Users involved in this community could get an understanding of how the modern development tools operate. Although new and innovative development tools is a major part of the ways and means that our work is changing. I now think that the perspective that I had, community of users looking at the development tools, is putting the cart before the horse.

In many ways it is the development communities responsibility to show their tools and help the Users understand what is being done. New interfaces, applications and perspectives that are designed to help the user to communicate with the developer what it is they are thinking.

These IDE's (Integrated Development Environments) have come a long way in the past few years. You can develop code faster and better then one could imagine only a few years ago. But what is being developed? Is the limit of these IDE tools somewhat constrained to where the developer understands the problem? A developer who is able to communicate and deal with other developers who share that point of view, and hence create a consensus on what action to take.

User based developed applications, such as this People, Ideas & Objects application, are generally larger, more complicated, and technically feasible. But, unproven mostly as a result of their size. Are these tools able to support the user? A user who knows what their job consists of and is able to communicate what it is they want or need. What if the developer is unable to understand why business users are demanding some of the things that they ask. Developers understand the science and engineering of systems. However, do they stumble on some of the more advanced business concepts used in today's companies?

I left a comment on Geertjan's blog on this topic. He is involved in the community that deals with the direction of where NetBeans is heading. And is one of the people that runs the NetBeans podcast. If this community of like minded business users could meet with his community of NetBeans developers. Would the users be able to improve not only applications but tools as well?

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Matthew Simmons calls to stop the witch hunt.

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

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

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

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

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

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

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

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

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

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

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

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

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

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More Pigs at the Trough.

Stock options again. This coming from the company Mr. Murray Edwards started, Canadian Natural Resources. Recall he was one of the most vocal about the royalty increases by the Alberta government. I posted that comment "Like a Bully in the School Yard".

Anyway this management scores on the higher end of options based compensation. I've calculated their total "in the money" stock options as $1,338 million as of the end of 2007. They also provided $193 million "in the money" for stock options tendered in 2007. For a whopping $1.53 billion in stock based compensation as at today's stock price. All for a decline in annual production of 8,200 barrel? Imagine what it could be like if they increased production. I'm still calling on the investor class to fund this software development project. In turn the investor would have an alternative organizational structure to break up this noisy feast.

Technorati Tags: People's Management Failure Peak-Oil

Profit from the Peak.

The end of the oil game and the greatest investment event of the century.

Profit from the Peak is a book that I've been wanting to review for a while. An interesting premise is suggested in the sub-title. From some of the blogs that I follow it sounded like it may provide for an interesting read.

A little background on myself. With over 25 years of experience in the oil and gas industry I could see this "Peak Oil" energy train wreck starting. In August 2003 I came up with an idea on how to solve it. And in September 2003 started the research into using the oil and gas industry standard JOC (Joint Operating Committee) as the key organizational construct of the innovative oil and gas producer. If we moved the compliance and governance that the hierarchy managed, with the legal, financial, operational decision making and cultural frameworks of the JOC. We would achieve an alignment in all five frameworks that would enable the science and engineering needs of the industry to be the focus, and mitigate the effects of Peak Oil.

What does this mean. As most people know oil and gas is made up of partnerships between companies. This is to reduce the risks inherent in the business, and because the aerial extent of many of the properties, multiple owners work together. Since its beginning this has been the culture of the industry. And as one can imagine their are legal documents, financial distributions and operational decisions made with the input of the producers in the JOC. What isn't done is the competition to this software development project, SAP, Oracle and Qbyte, haven't a clue what a JOC is. Their focus is on the compliance and governance and therefore only provide the producer with at best 20% of the functionality.

The other major finding that I published was the software defines and supports the organization. Noting that SAP is the bureaucracy. To change an organization, one must first change the software. If we want innovative oil and gas producers, we need to build the software first. Or be relegated to manual systems. So this is what I have written about since the publication of my research in May 2004 and the posts in this blog. But enough about me lets review this book.

The first point I want to make is based on the following quotation in the Introduction and its associated implications. And regarding this graph entitled "Worldwide Oil Production".

For the past 50 years, we have explored the entire earth intensively looking for more oil. But despite the latest technology and the most elaborate efforts, global oil discovery peaked in 1962 and has declined relentlessly ever since. Generally we are finding less and less oil each year, and for the past 25 years, we have consumed more oil than we have found. In 2006 we found about 6 billion barrels of oil, but we consumed 28 billion, and the trends continue in the direction of increasing demand and decreasing supply. pp xvi - xvii

Although Peak Oil accurately captures where I think we may be in the history of the industry. My opinion is that we have established a high water mark that may be permanent. The graph clearly shows the discoveries peaked in 1962 and have declined since that time.

My question to the authors and everyone interested in this topic. Does this graph mean all the oil was discovered by 1962? Or did the industry stop looking for more oil after 1962. Now this is not an accusation that they purposely stopped exploring. But consider the world had an abundant volume of energy. Prices were in the very low single digits, and the need to "develop" these resources became the focus. This situation was followed by the 1980's and 1990's where low oil prices were causing no end of greif to the producers. The industry more or less cannibalized itself to survive over those two decades. To say that technologies in 1965 discovered all of the oil is an assumption that the Peak Oil theorists may have incorrectly assumed. Based on my current understanding of the oil and gas industry. And the process necessary to explore for oil and gas. The industry generally doesn't have a clue on what exploration is. The generation of oil and gas workers that started in the 1980's and 1990's never experienced an exploration mindset.

The next incorrect assumption of the authors is stated on page 4 of the book.

"Matthew Simmons, the top oil investment banker in the world" p. 4

Now I have read Matthew Simmons for many years and overall he is correct in many things that he states. However he is the worlds top investment banker in the oil and gas services industries. Based on Mr. Simmons comments about the need to publish the worlds reserves data. So that it can be pointed to as the gospel truth of the Peak Oil situation, unfortunately disqualifies himself from making any comments about reserves.

I have now worked in the industry for over 30 years and have gone through the accounting, audit and systems areas extensively. I have been a CFO of small producers and I have looked at my fair share of reserves reports. I can't tell you if the reserves are the greatest thing since Ghawar, or the latest scam. Looking at reserves reports is the same at looking at art. Why would someone pay that much for those reserves, or art, reflect the beauty is in the eye of the beholder. And indeed oil lives in the minds of oilmen.

The same criticism can be leveled against Dr. Daniel Yergin. He claims he and his 220 PhD's on staff have the best global oil and gas reserve data. This prompted him to make the claim in 2005 that "the world would soon see an unprecedented increase of 16 million barrels of oil". If I were you I would dig out some of those paintings your kids made in elementary school, I think I see a market for them.

Some minor criticisms as to the accuracy of some of the claims made in the book. On page 42 of the book it is claimed that "hydrogen sulphide (sour gas)" is in injected into oil formations. H2S is one of the most toxic substances known to man. One breath of it and your dead, instantly. I'm sure the safety concerns of injecting H2S are adequate to assure that no one is doing it.

Enough criticism of this book now lets get on to many of the jewels. On page 49 "Its as though the adults of the oil industry have been forced to sit and watch as the children take control." In reference to the industry being knocked aside by the National Oil Companies (NOC's) desire for control. I can't agree more with that statement, and I'll comment on this later in the review.

On page 67 the authors suggest "Essentially, it looks as though oil majors are running a shell game here, no pun intended. The question is: When will investors figure it out?" They have hit the pile driver on the pile with this one. As I have mentioned many times the management of the producers are acting in their best interests, not the investors or societies in general, with their muddling attitude toward the energy business. One has to take a jaded look at the stock options that are being distributed in many of these companies.

The first knock your socks off comment that is made by the authors, and I have not seen anything like this analysis before, but intuitively believed it to be so. And is the underlying reason why I blame the companies for the risks we now face. Is reflected in this quote;

"A strong man, working hard all day long, can do less work than an electric motor can with 10 cents worth of electricity." and "A barrel of oil contains the equivalent of 18,000 man hours of energy." p. 72

If the fact that the physical labor equivalent of energy is now static or declining doesn't scare you, then you must be a different type of animal. It was in 1870 when mechanical leverage exceeded the labor output of man. The reason we live in such a prosperous world is the fact that we have figured out how to mechanically leverage one barrel of oil so extensively. This however does not mean that we should consume most of it by hurtling a 4,000 lb. vehicle down the highway at 60 miles / hour. I'll have more to say on this point later.

I am not a believer in the scare tactics of the Al Gore's et al. To me climate change is real when the news of the day has video reflecting strange weather occurrences we only ever heard of before. Much in the way that the world thought the Japanese economy would rule the world in the 1980's; when the majority of people saw the world through a Japanese TV. Turn off the TV and go outside, notice any change? Nonetheless, that should not preclude us from coming up with solutions. The authors ring the bell with this next set of suggestions.

"The ultimate culprit is the American consumer culture that is responsible for most consumption in the world. At the end of the day, the culture of consumption must change." p. 88

and

"To heavily invest U.S. tax dollars in renewable energy production in China. Why? Because the Chinese have a chance to build their burgeoning economy on renewables from the beginning." p. 92

Brilliant! Although I would suggest not just the U.S. but the western world should subsidize renewable energy production in China. Not only does it limit the production of the highest levels of CO2 (China), but provides immediate value (reduction in CO2). Changing the western worlds infrastructure is not going to happen as quickly. These two authors should win an Academy Award and a Nobel Prize each for these comments. Its this out of the box type of thinking that we need a lot more of, if there is a climate change problem.

One of the key characteristics of this book is its focus on the facts. When it comes to the renewables, I find the activities in the U.S. so focused on keeping people in their cars that they can't see or think straight. Here the authors note that the value generated by ethanol is approximately equivalent to the inputs of oil. Therefore if the U.S. stopped producing ethanol. People would be able to afford food and a bunch of bureaucrats in Washington would lose their jobs. That's it, you'd have just as much energy. The facts are clear this is a foolish and dangerous game.

I have suggested in my blog many times that the oil and gas industry is in need of a desperate transition. One in which the survival and cannibalizing of the industry in the 1980's and 1990's be replaced by an exploration mindset that hasn't existed since 1962. A move to a science based industry and away from the banking mentality that pervades the incumbent management. The reason this hasn't happened is as I suggest. An organization today that doesn't have the software systems in place to make the transition, will be reduced to manual systems. Something that I know the incumbent management readily appreciate. I have also suggested many times that the investors will need to fund this software development project to ensure that there is an alternative method for them to manage their oil and gas assets.

This transition is necessary and time is wasting. What the industry did learn in the 1980's and 1990's was how to draw down the reserves of a field much quicker then they did in the 1960's. So not only are we not exploring, we don't know how to explore, can't get organized to explore, and, the past exploitation methods are the proverbial brick wall we are about to crash into.

I therefore disregard the comments of the authors made in chapter 6 "Twilight for Fossil Fuels" and suggest that oil lives in the minds of oilmen. On page 120 they note;

Ironically, one of the causes of the receding horizons problems is the very success of the oil and gas industry. Record oil revenues being raked in by oil producing countries of the Middle East are causing a boom in building and expanding their infrastructure.

Imputing, I think correctly, that the U.S. based oil and gas industry has not been welcome in the Middle East, Russia and China. I think it was reflected clearly around the time that Halliburton moved their head office from the U.S. to the Middle East. But was this transition away from western based capabilities a mistake? I believe it was. Since then the industry has had their head stuck in tar. The tar sands I mean. Their herd mentality is noted by the authors.

"In some cases the price of oil itself is stifling oil projects. For example, at Shell's Alberta oil sands project, the cost of producing a barrel of oil, after a planned 100,000 bpd expansion, will be six times higher than the cost when the project first started." and "Depending on a host of factors, the total net energy gain for tar sands production is in the range of 5 - 10 percent." p. 121

But hell, it is seen as the thing to do.

I think the energy executive, if that's not an oxymoron, is beginning to wake up to a brighter future. I note the following from Thursday July 10th's news. The Calgary Herald on Russia's changing attitudes towards western technology. ASPO International notes BP CEO Tony Hayward stating "He said the problem was a failure of supply growth to match demand growth." "Pemex oil output fell by 10% in May." And Total pulling out of Iran due to their fireworks.

The Russians are considering tax incentives for the western based companies! Is this an admission that the western technologies are superior? Russian production certainly leaped when they were invited in, now with Shell and BP more or less financially abused by the Russians the production declines. With Mexican production in steep decline it is fair to assume that the world could benefit from more western based producers and service industries. Iran wasn't expecting to be on the losing side of their missile launches, but western technology walked on a critical investment in Iran.

I would recommend this book to any and all oil consumers where ever you may be. It provides an understanding of the industry and its difficulties. But also educates them to use energy more wisely. In a globalized world we need everything that we can think of. If Ludwig von Mises correctly noted that the industrial revolution was the solution to hunger and over population, IT needs to be the solution to today's problems. Albert Einstein said, that today's problems are not solved by today's thinking. These authors give you the facts so that new thinking can begin to address these problems. I personally think that IT and Segway's are two of the real solutions.

On the topic of alternatives the book provides excellent information about the changing economics of some alternatives. On page 137 they note;

The portion provided by solar and wind energy -- what most people think of when they think about renewable energy -- is a fraction of 1 percent of the total mix.

And bio-diesel has the potential of producing;

400 million gallons a year of bio-diesel. p. 143

Or 26,000 barrels / day. We've probably wasted more energy thinking and talking about bio-diesel then it will ever produce. There are three good alternative energy sources noted in this book. Unfortunately none of these alternatives has the ability to propel a 4,000 pound vehicle down the road at 60 miles / hour. But they are commercial, have huge potential and as the authors note, companies are making money.

Chapter 9 Endless Energy: "Here comes the sun." Starts with a quotation of Thomas Edison "I hope we don't have to wait till oil and coal run out before we tackle that." The future is solar, but the issues are daunting and much research should be put into the field.

The price of solar power has fallen to less than 4 percent of what it was in the 1970's. It is already economically competitive in states where electricity is expensive, including Hawaii, Massachusetts, and New York, and states with good solar exposure and lots of land, like California, Nevada, and Arizona. p. 156

The entire chapter provides the comprehensive review of the solar industry with some very good recommendations on how to get in on the ground floor of this industry. Making Chapter 9 a must read for everyone who lives in a house.

The same can be said about Chapter 10 "Pressure Cooker: Tapping the Earth's Heat" on geothermal energy. And Chapter 11 "Nuclear's Second Act". Nuclear, solar and geothermal energy are now commercial, clean and available to be used in areas where gas and coal are used today. An opportunity to replace the electricity produced from gas and coal and leave those commodities to support industrial mechanized labor, or the 18,000 man hours per barrel.

Chapter 12 "What's Needed: A Manhatten Project for Energy. President Bush is quoted as saying "we need an energy bill that encourages consumption." and Vice President Dick Cheney "Conservation may be a sign of personal virtue but it is not a sufficient basis for a sound, comprehensive energy policy." Then the authors note the result of big government science based programs.

While both projects were famous for unprecedented technical achievements -- the Manhattan Project cracked the secret of the atomic bomb, and the Apollo Project put a man on the moon -- we need to do more than come up with new technology to solve the problems we now face. We also need to rethink and remake our entire infrastructure, our economies, and even our culture. p. 180

A Manhattan Project will only boost the bureaucrats in Washington. This is a global problem. As a part time wanna be economist, I would suggest the market price mechanism is motivating the forces necessary to solve this problem. There was no market for the Manhattan or Apollo projects, I suggest we leave these energy problems to the market to solve.

I therefore disagree with the authors on their call for a Manhattan styled project. And fundamentally agree with the President and Vice-President. If 18,000 man hours of effort are contained in each barrel of oil, then we should encourage its use at any cost. Its a competitive advantage to those who use it most effectively, which happens to be the U.S. The alternative is to hire 18,000 people to do the work of one barrel. Therefore the President and Vice President are absolutely correct.

If we look at the numbers of the oil dollars flowing to the Middle East we will be distracted into believing that we should reduce our consumption. I suggest we start using our heads here and employ the Information Technologies and stop waisting the energy hurtling vehicles down the road at 60 miles an hour. I repeat get a Segway as a supplement to your vehicle. Use it for the short trips (24 mile range on most models) and cut your costs substantially. (Segway's cost less then $1.00 of electricity for that 24 miles). Secondly the Segway runs at 12.5 mph which is 4 mph faster then a car stuck in grid-lock. I repeat, IT and the Segway are the solutions to the problems of today.

On page 193 Carbon Taxes and Cap-and-Trade Systems are introduced by the book;

Carbon taxes are probably the simplest, most effective, and least economically damaging option, because they let the market decide what the best solutions are.

July 11, 2008 the Wall Street Journal wrote an article entitled "Kyoto's Long Goodbye" which addresses these mechanisms silly and wasteful ideas.

The irony is that Kyoto has handed them every reason not to participate. Europe knew all along that it couldn't meet its quotas, so it created an out in "offsets." A British factory, say, buys a credit to pay for basic efficiency improvements in a Chinese coal plant, like installing smokestack scrubbers. This is a tax on the Brits to make Chinese industries more competitive. Sweet deal if you can get it.

and

It gets worse. The offsets are routed through a U.N. bureaucracy that makes them far more valuable in Europe than the cost of the actual efficiency improvements. So far, Kyoto-world has paid more than €4.7 billion to eliminate an obscure greenhouse gas called HFC-23; the necessary incinerators cost less than €100 million. Most of the difference in such schemes goes to the foreign government, such as China's communist regime.

Lets not chase any bunny trails that lead us down this ridiculous waste of money and energy. Recall that Al Gore hasn't reduced his personal large "carbon footprint", he just offsets his abundant use of energy with these bureaucratic Cap-and-Trade Systems. Enough said?

Gasoline taxes are are also recommended as deterrents to people using too much energy.

Most observers agree that the best, and possibly the only, way to achieve a reduction in the amount of oil used in this country is through the price mechanism, particularly in transportation fuels. It seems a pinch in the pocketbook is necessary to make consumers drive less.

It is well known that the U.S. has the lowest taxes on gasoline in the western world. This is the motivation in the authors desire to raise more taxes. I would assert this is the wrong direction on two fronts. Increasing the cost of fuel will impede the productivity of the U.S. economy. Taxes at high levels, such as in Europe certainly deter driving, however, the U.S. out performs Europe by a substantial margin. This is why China chooses to subsidize the use of fuel in their economy. At 18,000 man hours per barrel, the lowest cost producer will ultimately win. That is China in the developing world and the U.S. in the western world. For example France currently has a per capita GDP that is lower then Mississippi's, the poorest state of the union.

It seems the authors are on the other side of the political fence in terms of how and where the solution to these problems will come from. Thankfully they debunk the Hydrogen fuel source as an alternative. Through their calculations they show that Hydrogen requires 5 energy inputs for each energy output. Not a smart direction to turn. What the authors don't mention is the cost of building an appropriate delivery system that can scale to what gasoline is now distributed as. Hydrogen requires stainless steel in all of its pipelines, tanks everything that it touches. And the cost of that is beyond what we are able to calculate with modern computers.

But then again, maybe the authors and I are not so far off in our expectations. On page 239 under the heading "Never Sell Short Humanity" the authors note;

And that's the true moral of the story: Every crisis -- no matter how dismal it looks -- contains the blueprints for its own solution.

And with that I highly recommend this book. For the average consumer, little is known about the complexity and difficulty in bringing the abundant and valuable energy resources to their door, and place of work. This fact-based book refutes many myths on its own and I have pointed out some of where I think they may be a little short. Given the price of the commodities today. And given the volume of words that are being consumed by the energy issues. The solutions will soon be at hand and society as a whole will be able to profit from the peak.

Technorati Tags: People's Peak-Oil Review Energy Books

Google Eclipse day.

Users who are interested in working with developers may be interested in viewing the state of software development tools available today. Google recently hosted a "Eclipse Day" which showed some of the more interesting developments of that tool.

Eclipse is a free software download. The product was originally donated by IBM. I use NetBeans which is a competitor to Eclipse, and is provided by Sun Microsystems. These tools are competing aggressively and provide an unbelievable level of software development capabilities, for free.

One area that will be of interest to Users is the collaborative nature of development today. We have all heard of software that is developed by people who have never physically met one another. That will be the case for the users and developers of the People, Ideas & Objects applications modules. Both will be able to communicate through the tool, the users not having to read or write any code, necessarily, maybe, but can share many different aspects of their work through the tools themselves.

I prepared a YouTube playlist of the five videos here. Each with about 50 minutes of viewing time. Enjoy.



Technorati Tags: People's Video Google Development

Interesting research at Intel

We are all heading towards cloud based computing. Billions are being invested in centralized processing and storage facilities to offer processing and storage on demand. For Google to run their services requires them to own the most processing and storage power in the world. And has anyone stood up and asked if this an effective way to conduct computer based functions? Well Intel has and the results are surprising.

In a document released yesterday, Intel documents the research they did on the processing and network bandwidth demands of the two prominent methods of computing. Comparing "Virtual Hosted Desktop" with "Embedded Application" which relies on remote processing on a virtual server, to "Stream OS" with "Stream Application" which relies on streaming of operating system software to hardware client platforms.

The results show that streaming the operating system and application to the client platform for user based actions was, from a server perspective, far more efficient. 20 clients accessing the server for these services used only 1% of the servers performance. Whereas the "Virtual Hosted Desktop" solution took up to 45% of the server processing requirements for the same 20 clients. Intel even crippled the script of the test for the Virtual Hosted Desktops to remove the high processing required for graphics. I assume that the network bandwidth of data would be small and therefore incidental to the performance of either method.

Sun Microsystems has moved in this direction with their SPARC based offerings, Solaris and Java products. Using the "Stream OS and Application" method provides us with a reduction in processing requirements, and, an increase in performance on the client desktop. The only caveat that Intel mentioned was the initialization of operating systems on the client side could cause momentary increases in processing and network demands. Suggesting that "if" all 20 clients logged on at the same time, the systems may have performance issues.

This "Streaming" architecture provides the People, Ideas & Objects application with the performance and reliability that is necessary for the users. This architecture also allows us to control all the required software necessary for the user to do their jobs. Such that if there were a bug in the systems we would know about it, and who to fix it.

Technorati Tags: People's, Development, Research, Sun, Specification,

Tailor's to the Emperor

I have not been kind to the Emperor's (the oil and gas companies) in this high energy price era. I more or less follow the money in situations like these. And with the energy companies receiving 100% of the revenues from oil and gas, they are the ones that should have done something about it. With the industry leadership meeting in Spain last week, unaware of how this problem came about, I am reluctant to give them any slack at this point. However, in this entry I will provide the energy companies with a temporary benefit of the doubt, and focus on the SAP and Oracle applications, and more broadly the technology community.

To call these Information Technology companies the designers and tailors of the Emperors new clothes makes for the perfect analogy. Particularly SAP and Oracle who command such fees and mind share in the oil and gas market. These firms are complicit in providing systems that are woefully inadequate for the innovative oil and gas producer.

Being the "big" suppliers of systems to oil and gas does not provide their firms with an excuse to sell systems that are inadequate and inappropriate for the market. No one was ever was fired for recommending these big applications, does not give SAP and Oracle a license to sell something that doesn't fit. It is my opinion that you should at least try to understand the market you are selling to.

If the producers where provided with systems that supported the Joint Operating Committee and innovation in general, would the firms have been able to explore and maintain production for the markets demands? Instead they have provided systems that identify, support and entrench the bureaucracy.

There has been a technological revolution in the past 5 years. Has any of these new technologies been integrated into the oil and gas firms? Not that I am aware. It's Stampede week here in Calgary and I can assure you that the marketing arm of these "suppliers" have a good understanding of where their next meal is coming from. Role in another server or two and database licenses for all.

Witnessing this festival of greed during Stampede makes me think I am the only one out of step. Don't solve problems, just sell.

Technorati Tags: People's, Call-to-Action, Failure, Tradition, Trends,

People's value proposition.

In last weeks entry I noted three items that were causing our software development budget to increase substantially. They are;

• Paying the user.
• Undertaking a global scope.
• Employing a 36 hour work day.

This entry will note why these costs are not as onerous as they would be under past software development methodologies. And in turn defining our business model's value proposition.

I am critical of the software development methods used in the past. The SAP and Oracle model have proven successful for their companies, but recall they are applications from prior technology era's. And no one would suggest that the model of "build it and they will come" is relevant today. The two major constraints of an innovative software developer are the code of the application, and the customers that use it. Users that are looking at new and innovative ways of deploying either SAP or Oracle are met with a bureaucratic process that makes changing organizations a much easier task. Upgrading the software comes with high costs and many promises that do little but entrench the vendor further in your organization.

If SAP and Oracle were to spend the required budget to build this People, Ideas & Objects type of application, the producers would end up paying for this code several times over. There has to be a better way.

Why doesn't the oil and gas industry as a whole pay for the ERP system code just once. Why not share the costs of development over the entire industry on the basis of costs plus a percentage for the developer. A developer on this basis would only interest themselves in what makes the software better. And that is the ability to interpret the users demands and build the software they want. If the user wants to scrap a module and replace it with two new ones, based on this proposed business model the developer would be most pleased with that.

This is how I have proposed the People, Ideas & Objects application from the very beginning. An industry wide software development capability, designed and defined by its users, supported by distributing the costs of development across the global producer population. Has their been a software developer that has used this model today? I think Google does it this way and therefore this comparison imputes the development will never stop. The innovative process is iterative and it never stops, why does software development?

It is my opinion that using the Joint Operating Committee in the manner that is defined in the draft module specifications provides me with the competitive advantages that I need to build this software development capability. This advantage is not open to any other software development firm as I have the rights to the ideas secured. This IP based competitive advantage is necessary to ensure that a series of competitive look-a-likes to this development don't dilute the focus to get this right.

In summary this is the value proposition of this software development project.

• Establish an innovative footing for the oil and gas producer.
• Eliminate the constraints of code and customers.
• A "software development capability" based competitive advantage.
• User driven and focused developments.
• Determining and interpreting User needs.
• Charge the oil and gas industry on a software development cost-plus basis.
• Focus the industries actions through management of Intellectual Property.

Join me here.

Technorati Tags: People's, Development, Innovation, Proposal, User,

The IEA gets it.

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

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

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

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

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

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

The Wall Street Journal noted the following in their blog;

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

And Yale comes in with the following;

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

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

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

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

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

Uh, actually it's three applications.

I was running through the options in how the People, Ideas & Objects application modules can be implemented with Solaris 10 and Java. What has quickly become obvious is that the application that we are building is actually three different applications. Categorized on the basis of either a Producer, a Person or a Joint Operating Committee (JOC). Each category having access to the eleven modules of the People, Ideas & Objects through different interfaces.

The Solaris operating system provides containerized virtual instances of the operating system. For all intents and purposes these virtual instances of Solaris are as separate and distinct to the two operating systems running applications in ExxonMobil and ChevronTexaco. A virtual instance of Solaris is created for each person, JOC and producer company. This provides the separation and access of resources to only those who are authorized. Interactions between instances is through the Java enabled transaction management capabilities.

This provides enhanced security flexibility to each person, JOC or producer company. With each virtual instance of Solaris accessible by the owner they can grant access privileges based on Solaris' 50 user definable roles. Root access is available to be granted to a variety of people who need that access, yet it only provides root access to those areas. Audit, compliance and others will be able to access what they need to do their jobs without the risk of granting global root access to people who need it.

Each of these virtual instance will provide a server side MySQL database that manges the data model for their type of user, a person, JOC or producer. I believe this helps in avoiding much of the complexity and confusion that "might" occur if we ran this application as one monolithic instance. One might assume that the hardware requirements would explode in terms of cost and complexity, and this is where Sun has obviously spent some engineering time. And why this will be run on Sun's network.com or cloud computing platform. Each processor could handle 16 virtual instances, and, are able to scale dynamically to use the number of processors any application may demand. Making the decision to use Sun's cloud computing the equivalent of a "doh!" as Homer Simpson would say.

Technorati Tags: People's, Sun, Software, Development, Specification,

Optimists and Pessimists.

Does anyone still believe there is no problem in terms of our energy supply? Other then the companies themselves, I don't think anyone would assert that all is well, carry on. $140 oil and $13 natural gas are telling the market, "Houston, we have a problem."

Now the level of discussion of the problem is increasing substantially each day. Supply and demand focused discussion contrast the optimists point of view, others document the pessimistic scenarios. What this discussion doesn't provide is any focus on a solution.

Organizational changes, supported by the Information Technologies will provide a solution to the painfully slow, bureaucratic oil and gas producer's. Based on the producers comments over the past few years, that all is well, one can clearly conclude they haven't got a clue. What was reasonable performance for any firm in the 20th Century pales compared to the Global expectations of the 21st Century.

The Information Revolution is the solution to the problems of today, just as the Industrial Revolution was the solution to the over-population and hunger of its day. From an energy consumption point of view having x million drivers stuck in gridlock twice a day becomes one of silliest things that we humans do. From an energy consumption point of view, the car whether it is hybrid, electrical or hydrogen (all pipe dreams) is not the solution. The car died with the cheap energy era, get a Segway. Hauling 200 pounds is much more economical and energy efficient then hauling 4,000 pounds.

What are the potential results of a reorganization of the industry? Many times in my career I have been surprised by the collective capabilities of the industry. Several times they have been able to achieve and exceed the impossible in terms of their collective abilities. We need to tap into this collective capability and accelerate it to a speed that will provide the energy marketplace with reasonable volumes of petroleum. Reasonable volumes that a Segway rider could appreciate.

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