All Roads Lead to Coase

I have had the opportunity to review this jewel of a video "Markets, Firms & Property Rights" by Professor Ronald Coase. Scratch the surface of any of the research that we review on this blog, and Coase's 1937 book "Nature of the Firm" will be there. He makes an interesting comment that I had not heard before. "Markets are creations" and that is what we are doing in the Draft Specification with the Petroleum Lease Marketplace, Resource Marketplace and Financial Marketplace Modules; creating markets.

Overall much of our research review has been on Transaction Cost Economics. Through building the Draft Specification we are able to automate many transactions, but also deal in the value generating activity of designing transactions. In a 1997 Reason Magazine interview Coase made the following comment.

Reason: People are very excited that transactions are taking place much more efficiently than ever before through new electronic means and better communication systems. Are you excited about these trends?

Coase: Yes, because I don't understand them. People talk about increases in improvements in technology, but just as important are improvements in the way in which people make contracts and deals. If you can lower the costs there, you can have more specialization and greater production. So that's what I'm interested in now. By improving the way the market works, you can produce immense benefits, not because it invents new technologies, but because it enables new technologies to be used. Without the ability to make efficient contracts, you can't use these new means. And a lot of effort is going, at the moment, into devising new ways of handling the problems, mainly by the lawyers.

We stand on the shoulders of giants. In Coase's case he won the 1991 Nobel Prize in Economics and celebrates his 100th birthday this year.



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January 2010 Update

This update is to advise of the budget activities around our 2010 Budget & Planning. Our deadline of March 31, 2010 is one third closer then where we were at the start of this year. The amount of interest or contact with either producers or investors and shareholders in oil and gas has been none. We currently have no funding commitments.

To my way of thinking we have but one choice. To start these developments in 2010. The scope of this project can not be undertaken on a volunteer basis, it must have the full support of the industry.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here. Our next update will be on or around February 15, 2010.

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Perez Technology Revolutions II

In the first part of our review of Professor Carlota Perez' "Technological revolutions and techno-economic paradigms" we learned many things about the economic situation we are currently in and how the "Sustainable Global Knowledge Society Boom" will affect us. Specifically how the energy industry has employed the process of innovation in "techno-economic paradigms" and how this could be accelerated using the Information & Communication Technology Revolution (ICTR) as suggested in the Resource Marketplace Module.

Note; as I write this second part, of this second document of Professor Carlota Perez, for just this year. Strategy + Business have published a new article of Professor Perez. It can be accessed here. [There is Exhibit 1 that is included in the document that has a "We are here" point on the "time" axis.] And Professor Carliss Baldwin just released a paper entitled "The Mirroring Hypothesis: Theory, Evidence and Exceptions". It is available here, and both papers will be reviewed on innovation in oil and gas as soon as possible.

5. Technological revolutions and techno-economic paradigms

In this second part of our review of Professor Perez' paper. We learn that her research is based on the impact of technology over the last 300 years.

It is possible to identify five such systems of systems since the initial ‘Industrial Revolution’ in England. Each can be seen as inaugurated by an important technological breakthrough acting as the big-bang that opens a new universe of opportunity for profitable innovation. Such was the case of the Intel microprocessor, or computer on a chip, initiating the information revolution. p. 189

For the purposes of our review of this paper the Internet is the technology that makes the ICTR robust for what Perez calls the "deployment" phase. In Part I of this paper we noted Professor Ludwig von Mises' comments that the Industrial Revolution was the solution to the problems facing society.

What distinguishes a technological revolution from a random collection of technology systems and justifies conceptualizing it as a revolution are two basic features.

• The strong interconnectedness and interdependence of the participating systems in their technologies and markets.
• The capacity to transform profoundly the rest of the economy (and eventually society). p. 189

and

The capacity to transform other industries and activities results from the influence of its associated techno-economic paradigm, a best practice model for the most effective ways of using the new technologies within and beyond the new industries. While the new sectors expand to become the engines of growth for a long period, the techno-economic paradigm that results from their use guides a vast reorganisation and a widespread rise in productivity across pre-existing industries. p. 189

Demands for energy by everyone is escalating. Energy is oxygen to an economy. Any lack of energy to one country or another could have significant negative effects to their economic possibilities. We have seen through the research in this blog that the equivalent man hours of work contained within one barrel of oil totals 18,000 hours. Denial of energy seems to be unfair and unreasonable to those who have to go without. Energy at any price appears to be the deal of this century, and it is. Oil and gas is the business that we are in.

It therefore seems unreasonable to be constrained by energy. The bureaucracy has brought us to this level, and we have prospered, now we need to move faster and more innovatively. Using the ICTR to enable greater deliver-ability of oil and gas is what is possible.

Thus, a technological revolution can be seen more generally as a major upheaval of the wealth-creating potential of the economy, opening a vast innovation opportunity space and providing a new set of associated generic technologies, infrastructures and organisational principles that can significantly increase the efficiency and effectiveness of all industries and activities. p. 190

People, Ideas & Things as Professor Paul Romer has stated similar points in his Reason Magazine interview.

6. The structure of technological revolutions

Oil and gas involves science. Earth sciences and engineering disciplines are the source of where the value is created and held in the industry. Innovations are based on the sciences and in turn fuel scientific discovery, just as discoveries lead to future innovations. How can this value generating process accelerate?

It is at this point, when the argument of the secretive ways of how the bureaucracy deals with ideas is noted to be decidedly counter productive. The process of hiding ideas has the negative effect of not identifying whom is responsible, and hence the reduction of monetary benefits to the discoverer.

If you believe that the next great innovation in oil and gas is going to pop out of some one's office, you might be waiting for a long time. The pursuit of ideas is hard and risky work. If an engineer thinks that he can provide the industry with a 2% gain in productivity by using his new idea, then he / she should be entitled to earn the rights too that idea as reward for the difficult, difficult work.

In the current bureaucracy "knowledge" is held by no one. If someone comes up with a good idea in new drilling technology; then the bureaucracy will sponsor three drilling companies to implement it. Great if your one of the three drilling companies, not so good if your the individual who thought of the idea and were not rewarded. That is the old way of doing business.

The Research & Capabilities Module replaces these secretive ways of the energy industry from a science and engineering perspective. To a proposed method in which the discoveries populate the Module immediately upon discovery. This does two things. First the individual is recognized with the discovery and earns the rights to his / her intellectual property. Secondly these innovations are known within the industry on which others can build upon.

Energy producers should be concerned with their two competitive advantages. One their land and physical asset base. Two, the capabilities they have within the earth science and engineering disciplines. If someone down the road just came up with an innovative way to engineer greater production, then hire them or their consulting firm to work on your assets and augment your capabilities.

We'll stand here at this point with no further development in the sciences and engineering of oil and gas until such time as those who spend the time, effort, money and energy to develop a new idea are recognized and appreciated by the oil and gas producers. If you think a budget-driven bureaucrat will be the one who breaks the next big idea, keep dreaming. Perez has the following to say.

The interconnection of the technologies of a revolution takes place at several levels.

• They stem from the same areas of knowledge in science and technology and use similar engineering principles.
• They require similar skills for their design and operation—quite often new ones.
• They stimulate the upstream development of a common network of suppliers of inputs and services as well as interdependent distribution outlets.
• Their dynamism is mutually driven through very strong inter-linkages, often being the main market for each other (the more growth and innovation there is in computers, the more growth and innovation there will be in semiconductors and vice versa).
• Their diffusion generates coherent patterns of consumption and use so that the learning in one system facilitates the learning in the next and the installation of conditions for the use of one set of products becomes an externality for the next (once electricity comes to the home for lighting and refrigeration, it facilitates the adoption of radios and vacuum cleaners). p. 191

To reiterate the oil and gas industry will be the prime benefactor by eliminating this blind dark ether of where all good ideas disappear into. Oil and gas companies must become the consumers of ideas, not the destroyers.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Perez Technology Revolutions Part I

In our recent review of Professor Carlota Perez' work. We determined that now is the point in time when the Information & Communication Technology Revolution (ICTR) has begun. Where the last 40 years in communication and computer technology were the installation period. A time when things are developed and installed but still have not all of the associated technologies operating in the marketplace. This last point being reflected clearly in the development of the Internet in the 1990's. Without the Internet their would be no ICTR, and until computers could be developed to the level they are today, the benefits would not, and could not, commence.

Professor Perez has also documented what changes will occur as a result of the ICTR, based on her review of the former industrial revolutions and similar economic phenomenon. These changes include significant upheaval in the markets of existing firms. This upheaval due to the greater efficiencies of those firms built on the new technologies. Professor Perez shows these market upheavals are the 2008 financial crisis, and the 2000 dot com meltdown.

Where we now stand is at what Professor Perez calls the "Deployment" period. Where the value generated by these new technologies lifts all boats. Or as Professor Perez calls it a "Sustainable Global Knowledge Society Boom." We now begin our review of Professor Perez' paper "Technological revolutions and techno-economic paradigms". Her abstract reads as follows;

This paper locates the notion of technological revolutions in the new-Schumpterian effort to understand innovation and to identify the regularities, continuities and discontinuities in the process of innovation. It looks at the micro- and meso- foundations of the patterns observed in the evolution of technical change and at the interrelations with the context that shape the rhythm and direction of innovation. On this basis it defines technological revolutions, examines their structure and the role that they play in rejuvenating the whole economy through the application of the accompanying techno-economic paradigm. This over-arching meta-paradigm or shared best practice 'common-sense' is in turn defined and analysed in its components and its impact, including its influence on institutional and social change.

This is exactly what we need. A road map of sorts of how innovation will be implemented, and how the technologies that are employed to enable this "common-sense" revolution. We know that the future is going to be prosperous, but how, and what will the ICTR look like after it has run its course. That is to say what will the next few years look like.

1. Introduction

People, Ideas & Objects is a reflection that we are Object based developers. "Objects" replacing Professor Paul Romer's "New Growth Theory" of People, Ideas & Things. Using the Joint Operating Committee is the cultural, operational decision making, financial, legal and communication frameworks of the oil and gas industry. The truer that we can sail towards these frameworks, the greater our productivity, as measured in global oil and gas production. Professor Perez begins her analysis of the origins of economic growth.

Schumpeter is among the few modern economists to put technical change and entrepreneurship at the root of economic growth (Schumpeter, 1911, 1939). Yet, strangely enough, he saw technology as exogenous and - together with institutions and social organizations -- 'outside the domain of economic theory' (Schumpeter, 1911, p. 11). His focus was the entrepreneur and his goal was to explain the role of innovation in economic growth and on the cyclicality of the system.

and

This paper will concentrate on technological revolutions and techno-economic paradigms: their definition, the causal mechanisms that bring them about, their impact on the economy and institutions and their relevance for economic analysis. Yet, since these macro phenomena are deeply rooted in the micro-foundations of technical change, the following section will refer to some of the basic theoretical advances made at the micro and meso levels. p. 186

2. Innovation as the dynamic space for the study of technical change

In the May 2004 Preliminary Research Report the key or primary research into innovation was through Professor Giovanni Dosi's "Sources, Procedures and Micro-Economic Effects of Innovation" 1988. There I suggested an application of these "trajectories" as

An excellent example of this would be the discovery of the north-south orientation of horizontal under-balanced drilling in the Jean Marie formation of British Columbia, where knowledge and collaboration lead to a fundamental low cost solution to a technical problem. This simple change, reflecting the effect of the thrust of the Rocky Mountains, has lead to significant findings and deliverability of gas.

Professor Perez notes;

Indeed, the space of the technologically possible is much greater than that of the economically profitable and socially acceptable. p. 186

And points directly to Professor Dosi's earlier works.

The meaningful space in which technical change needs to be studied, therefore, is that of innovation, at the convergence of technology, the economy and the socio-institutional context. That space is essentially dynamic and, in it, the basic concept is that of a trajectory or paradigm (Dosi, 1982), which represents the rhythm and the direction of change in a given technology. p. 186

We see Professor Perez' point about technical trajectories when we understand the north - south orientation of a horizontal leg of a well. Has grown to the point where the multiple fracing of horizontal wells, based on this earlier knowledge, has opened massive deliverability in the shale gas formations.

3. The regularities of technical change: innovation trajectories

It is critical to point out here the development of the multi-frac laterals in oil and gas production. The situation in the May 2004 Preliminary Research Report regarding north-south orientation became common knowledge in the industry in 1997. Why did it take almost a full decade for the common-sense knowledge to develop into the shale gas bonanza that we find ourselves in today?

Changes generally occur slowly at first, while producers, designers, distributors and consumers engage in feedback learning processes; rapidly and intensively once a dominant design (Arthur, 1988) has become established in the market; and slowly once again when maturity is reached and Wolf ’s (1912) law of diminishing returns to investment in innovation sets in. Besides rhythm, a trajectory also involves directionality within a possibility space. That is what Dosi (1982) emphasised when, with the Kuhnian parallel in mind (Kuhn, 1962), he introduced the term technical paradigm to represent the tacit agreement of the agents involved as to what is a valid search direction and what would be considered an improvement or a superior version of a product, service or technology. A paradigm is thus a collectively shared logic at the convergence of technological potential, relative costs, market acceptance, functional coherence and other factors. pp. 186 - 187

The Draft Specification employs this thinking in the Resource Marketplace Module. To accelerate a trajectory necessitates the noted process highlighted in the previous quote. The Resource Marketplace Module suggest that this trajectory is accelerated when the collective understanding of all producers, as reflected in their long term capital budgets, is aggregated and shared in a common interface for other producers and service industry representatives to see clearly what is on the collective producers mind of what is possible in each geographical region.

A similar interface is operational in the marketplace today. It is the Google Health application that provides high quality security to its users. It also is able to take the information that is made available, in aggregate, to search for possible trends and other information that is generally not available in any other form. Welcome to the 21st century. 

The notions of trajectory or paradigm highlight the importance of incremental innovations in the growth path following each radical innovation. p. 187

4. New technology systems and their interactions

Emphasis on the Community of Independent Service Providers and the User communities is important, not just because it is fashionable. There is a defined and tangible benefit to organizing the solutions to these problems. Individuals such as Einstein, Ford and Edison operated in a time when an individual could single handily make a difference. Today collaboration amoung highly motivated individuals are what are necessary to take us to the next level of what is possible. These actions take place in Marketplaces.

Innovation is usually a collective process that increasingly involves other agents of change: suppliers, distributors and many others, including consumers. The techno-economic and social interactions between producers and users weave complex dynamic networks that are what Schumpeter referred to as clusters. Furthermore, major innovations tend to be inductors of further innovations; they demand complementary ones upstream and downstream and facilitate similar ones, including competing alternatives. p. 188

These clusters of innovation are not represented in the bureaucracy. The ten years needed to go from single to multiple fracs of a horizontal lateral is a long time. We need a far more capable and dynamic means of organizing our approach to the heightened demands for energy. 

The interrelatedness of technologies and of the knowledge and experience bases that underlie their development, together with the infrastructures and service networks that complement them and the multiple learning processes that accompany them, provide externalities for all participants and competitive advantages for the economy in which they are embedded. p. 189

Recall what Ludwig von Mises said about the Industrial Revolution. Quotation from Ralph Raico.

Back in the early 1700's there were slums, people were poor, people died, every possible plague. Mises says you cannot understand the industrial revolution without understanding the western world was undergoing an un-precedented population explosion. For example, England in 1750 had a population of about 6 million; by 1850 the population was 24 million. The question was how would these new tens and tens of millions of people survive? Mises said the industrial revolution was the answer to the population explosion. That's how they survived, by society becoming immensely more productive.

Today society needs the oil and gas industry to be "immensely more productive", there is a lot at stake. If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

More of Professor Perez later this week.

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Account Manager Position

The Account Manager Position is a senior position within the People, Ideas & Objects organization. Senior from the point of view of their understanding of the oil and gas industry, senior from the point of view of how well they understand the producer firm(s) they represent. Note that they are representing the producer firm and not a specific Joint Operating Committee. Ideally these individuals will be seconded to People, Ideas & Objects from the producer that they originated from.

Account Manager's are the conduit between the members of the Community of Independent Service Providers (CISP) and the users that are resident and employed at the producer firm or within a user community. If members of the CISP need clarification on a finer point of the producer's needs, they will contact the Account Manager for that producer who will secure the users necessary to clarify the point. Alternatively, a user who has an idea on how better to do their job can contact the Account Manager who will provide the CISP members and People, Ideas & Objects developers to be at the disposal of those users.

Users can and will be members of the producer firms, and not necessarily part of People, Ideas & Objects. User groups may be comprised of 100% of the producer firms staff. CISP resources are members of People, Ideas & Objects from the point of view that they have custody of the applications current and future software applications design. Starting with the Preliminary Specification and continuing on with tuning and delivering innovative People, Ideas & Objects software products to the industry.

Members of the CISP will source payment for their design and analysis work from People, Ideas & Objects directly. They will also bill the producer firms for the work they conduct at the producer firms on behalf of People, Ideas & Objects. Roles such as training, implementing and assisting the producer staff with the People, Ideas & Objects applications. Users will be compensated for their time in any and all activities by either the producer firms, as a member of the CISP or as a consultant outside of the CISP. People, Ideas & Objects will provide tools in which users can affiliate themselves and organize themselves in generic membership forums.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Hardware Policies & Procedures

Let's talk about that 800 pound Gorilla that's sitting in the room. That is the desire of the management of oil and gas producers to control their data, their software code and the hardware their applications run on. With this post, management will see how it is they have those attributes under their control in a manner that gets this animal out of the room.

Hardware and software are two areas that need to be addressed in providing the People, Ideas & Objects application to its users. The software is as has been detailed elsewhere, open source providing the producer firm to see what their applications are doing. This opportunity may best be managed in the hands of a consortium of professional accounting firms that review and verify the code on behalf of their clients, the producers. The hardware is proposed to be handled in the following manner. This proposal is valid until April 30, 2010 and is dependent on producer firms, shareholders and investors funding the 2010 software development budget.

By way of granting an exclusive license to run the binary of People, Ideas & Objects, People, Ideas & Objects earn an interest in a subsidiary corporation. This firms sole purpose will be to run that binary in manner that is consistent with the innovative oil and gas producers needs. The only caveats that I place on this firm is the hardware is sourced from Oracle and is "cloud" based in its delivery. We do not need to have a disjointed hardware service that is scattered around the globe. Centers could be located in Calgary, Houston, Dallas, Aberdeen, Riyadh, Rio de jeneiro, Malaysia or Mexico City. But only one location within each logical region. In Wednesday's Oracle presentation Larry Ellison asked "How could you be against Cloud Computing, that's all there is."

An equal portion of the firm will be granted to Oracle in providing them the ways and means to profit from the firms activities. Oracle will need to have Data Base Administrators (DBA's) servicing the user and producers. The fact that these facilities will be all Oracle products might be an opportunity for Oracle to make a donation of hardware, software or services in recognition of that.

The industry will then provide the start-up funds for this hardware and service. These are expected to run up to $2 million and the industry earns their equal interest. Therefore Oracle, the industry and People, Ideas & Objects will each own one third of the firm and each will have some skin in the game as they say. But this will still not satisfy anyone with the removal of the monkey.

With the granting of the license to run the binary, Paul Cox or my designate, will sit as the Chairman and have two votes on the board of directors. Oracle and industry will each have one designate. The president of this hardware firm will be the innovative oil and gas producers designate, as will all of the staff of the facilities. The Chairman will have limited access to the facilities in all ways and at all times. In addition to running the binary of the application, these facililties will host the development environment for People, Ideas & Objects.

Invoicing of the costs associated with running the facilities will be sent to People, Ideas & Objects. These funds will be sourced from the annual assessments paid by the innovative oil and gas producers.

The Hardware Policies & Procedures satisfy the needs of industry with respect to their data, their processing and the costs associated with running these facilities. Absolute administrative control is provided to the producers. Oracle will provide their hardware, software and services in such a manner as the administration deems necessary and in compliance with the license granted.

This structure is proposed to expire on April 30, 2010, and is contingent on our 2010 budget fully secured. The oil and gas producers have a fully motivated team operating this critical resource. If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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It's cold down here.

In other words, hell has frozen over and were moving to Oracle. If you stare at a brick wall long enough...

As a customer of Sun Microsystem products, and as a result of Oracle's acquisition of Sun, we become an enthusiastic Oracle Customer. The five hour presentation provided by Oracle on Wednesday was breath taking. People, Ideas & Objects will have the compelling vision of the Draft Specification, the rabid users fueled by that vision; organized in their own communities, and now the ability to execute our plans on Oracle hardware, software and services.

The relationship that People, Ideas & Objects will have with Oracle is as a customer. People, Ideas & Objects represents the oil and gas producers technology needs, first and foremost. That may cause some difficulties with the Oracle people, however, I am extremely comfortable with it. We are the ones that are responsible for Quality & Velocity and as Oracle knows, money talks. The President of Oracle made the following comments today.

As always, our primary goal is 100% customer satisfaction. We are dedicated to delivering without interruption the quality of support and service that you have come to expect from Oracle and Sun, and more. Oracle plans to enhance Sun customer support by improving support access, offering better interoperability support between Oracle and Sun products and delivering services in more local languages. Support procedures for your existing Sun and Oracle products are unchanged, so for now you should continue to use the same channels you've been using. Customers can continue to purchase products from Sun in the same way they did prior to the acquisition. We will communicate any changes to this through regular channels.

Tomorrow will see the publication of our Hardware Policies & Procedures. This will detail how the cloud component of People, Ideas & Objects is constructed, owned and operated.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Energy companies earnings season.

Energy firm earnings will be coming out in the next few weeks. With today's announcement of 5.7% 4th Quarter GDP growth we should expect to see some performance in the energy stocks. One thing is for certain, is the energy industry continues to change and surprise in terms of where it's moving. As soon as you think things have stabilized, they change again and that is the situation we are seeing. High prices have faded, and are replaced with modestly handsome commodity prices. Write downs of reserves have been met with higher production volumes and increased reserves over production.

A trend toward higher costs continues. Field operations are curtailed with only half as many wells being drilled over the prior year. Service companies are the first to feel the effects of any downturn, and are affected far greater then the producers themselves. Halliburton noted this fact in the Houston Chronicle.

Despite the improvement since the summer, Halliburton's fourth-quarter results suffered compared to a year ago, as drilling slowed amid weak commodity prices and sluggish demand, problems plaguing the entire sector.

Hess Corporation realized many pleasant surprises as their profit, production and reserves were higher then the analysts expectations. This may be the area where the "good" news begins to fade from the next few weeks earnings. The large independents and super majors are able to control more of their activity levels outside the market gyrations, and as a result are able to maintain steady earnings. The smaller independents and small producers will no doubt seek to disappoint.

NEW YORK -- Hess Corp. said Wednesday it swung to fourth-quarter net income of $358 million, or $1.10 a share, from a loss of $74 million, or 23 cents a share in the year-ago period. The New York firm's oil and gas production rose 9.5% to 415,000 barrels of oil equivalent a day. Total revenue rose to $8.56 billion from $7.25 billion. Analysts expected earnings of 83 cents a share and revenue of $7.47 billion, according to a survey by FactSet Research.

One strong trend is the move to shale gas formations. Many are beginning to state that this is a significant and durable trend for the North American marketplace. Gas prices appear to concur.

BP chief: Unconventional gas ‘game changer' in U.S.

Noting that the effects of the additional unconventional gas reserves are having on future Liquefied Natural Gas production from the Middle East. This production is now though to be rerouted to Europe. Putting pressure on the Russian prices which are being depressed by the potential new supply coming to Europe. Though the sluggish demand due to the financial crisis can still be felt, there is optimism in the marketplace.

The knowledge and thinking that the need for new organizations and ways of conducting business is becoming common in the industry. 2010 looks to be the year that People, Ideas & Objects begins the process of developing the Draft Specification and the communities associated with these development begin to form.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Royalty Policies & Procedures

In 1992 the Alberta Legislature enacted "Royalty Simplification". Conceived as a benefit for industry and the administration to reduce the burden in calculating and filing gas royalties. This initiative was to be achievable through a heavy reliance on Information Technology. A significant and ambitious program that promised greater ease for both government and industry. It's now almost eighteen years since that legislation was passed, how have things gone? The only conclusion that you could come to is; why would industry ever want to develop an accurate system in determining and remitting royalties? Is accuracy of royalty payments within their business interests?

Apparently not. To date nothing tangible has been built by any producer or software vendor and no plans currently exist to build a system. Within People, Ideas & Objects there is no calculation of royalties included in the Draft Specification. There is a place in the Joint Account to record the royalties that are due, but it will have no basis in fact or necessarily be in compliance with the regulations supporting those royalty assessments. It's an all-or-nothing proposition in terms of making the correct calculations. Therefore in today's marketplace the burden has fallen to the Alberta Government to assess invoices to the producers based on what they believe to be volumetric variances.

In 2009 Alberta's Auditor General reported the amount of royalty deficiencies may be upward of a quarter billion dollars. To be honest he really didn't know! What is known is that the industry will not spend a penny on royalty compliance software. Therefore why would People, Ideas & Objects expend producers money to meet the Alberta or any other jurisdictions royalty calculation? Who's responsibility is to ensure compliance and accuracy? Although it was conceived as a self assessing system, the governments ability to assess invoices for deemed deficiencies alleviates the producers of the responsibility to accurately calculate the royalty obligation.

In 1997 the Alberta government held a meeting with the software developers and asked why there was no usable software in the market. It was suggested that to build royalty based compliant system it would cost $40 million per software vendor. Where would this money come from? No investor or producer is willing to pay that cost. And therefore that is where we stand.

Unless Alberta, Saskatchewan, British Columbia, Mexico, Texas, Louisiana, Libya, Saudi Arabia, Petronas and others want to fund the systems development costs of royalty compliance, People, Ideas & Objects would not use any producer funds to build a system that is the responsibility of the royalty holder. In Alberta that is the provincial government and they have over $10 billion in annual royalty income, it is therefore their responsibility to ensure that they are collecting the right amount from the producers.

Whether the Alberta government would fund the costs of developing royalty compliance in People, Ideas & Objects is unknown. If the Auditor General has a perceived shortfall, that is the government's problem. How much an individual producer is overpaying could also be unnecessarily high. Royalties like taxes, have opportunities and issues with how the royalties are calculated. Those producers that are able to approach their royalty strategy aggressively have a substantial benefit in lower royalties and as a result, higher margins then other producers.

People, Ideas & Objects would like to build a fully compliant and accurate royalty system for all the jurisdictions in the world. Software, as we see in this discussion, is a small portion of the entire picture. The Community of Independent Service Providers is where the tacit knowledge exists in calculating accurate and fair royalty obligations. They are the ones that can employ the aggressive strategies on behalf of their producer clients, using the People, Ideas & Objects prospective Royalty Modules for the calculations. Software that is funded by the Alberta Government and verified to be accurate by Alberta's Auditor General.

If your an enlightened producer, an oil and gas investor or shareholder, who would be interested in funding these software developments, please follow our Funding Policies & Procedures. If your a government that collects royalties for oil and gas, and are concerned about the accuracy of your royalty income, please email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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One plus One Equals Five

That's not just bad math, that's the new Oracle / Sun merger. Wow. I have always appreciated both companies for their technical abilities. They have always worked together to bring these excellent technologies of theirs, however, there was always a bit of a break or a seam between the two companies where things would fall through the cracks. Now there is one provider for all the technologies and the gaps are filled. But that's not all. When you add the two, the sum of the parts is clearly much larger then the two companies parts.

I am revisiting our strategy regarding the technologies that are being offered by Oracle / Sun. I have been critical and maybe a bit unkind towards Oracle and maybe now we need to re-evaluate that. What is different to me is that we don't fit into the Oracle developer world. I see People, Ideas & Objects as a customer of Oracle / Sun. When I see things from that renewed perspective, I see this solution growing substantially more real in terms of its possibilities.

Making this big of a shift in terms of the Draft Specification, the user community and the Community of Independent Service Providers are not affected. Producers win handsomely in a revised People, Ideas & Objects. I'll be making this decision in a short period of time. January 31, 2010 I'll note the changes, if any, in a post.

Larry Ellison made the comment in his presentation today. "How can you be against cloud computing, that's all there is". Sun Microsystems wrote a White Paper on Cloud Computing in June 2009. Access to the document may require registration. Unlike most papers on Cloud Computing, this paper identifies the key concepts and concerns of business users. I learned a lot about many of the changes in architecture that are necessary, and I see clearly how an application such as People, Ideas & Objects can run in the cloud.

The two terms best used to define People, Ideas & Objects overall concerns is "Quality & Velocity". Two buzzwords that are well worn but important to these communities. Quality of course is the hard fought-for demand for perfection. Doing things in a half-baked manner is unacceptable to me and these user communities, and although I am unable to assert the necessary requirements in a project with this scope. The architecture and Complex Adaptive Systems, where users are in control of the product quality, are how the People, Ideas & Objects application modules will achieve its quality.

Velocity is a term that is being used in the technology and Complex Adaptive Systems communities. It refers to the speed at which things are happening. The bureaucracy was very effective in its efficiency, due to its inherent inefficiency. That is to say that the bureaucracy is inefficiently efficient. Today, and in the future, requires that velocity be accelerated to meet the demands of the market for energy. Velocity is the speed of change and development, and can not be planned or organized in a traditional fashion. It has to happen and evolve from the community naturally, it can't be forced or involve management changes.

Quality & Velocity are why the communities, and particularly the Community of Independent Service Providers are so important to the success of People, Ideas & Objects and the energy industry. As much as I want to be part of that community, I know that any further meddling from me is not just counter-productive but destructive. If I could write the Preliminary Specification it would take me 5,000 years. I chose the alternative and sane choice of not being involved at all. My job, as I see it today, is to source the financial resources to support the communities and, hopefully I will be able to continue to do research in areas that may be of value to the communities. When I mean communities I mean everyone that is affected by these developments.   

Cloud computing imposes some interesting restrictions on our developments, and some interesting opportunities. The biggest opportunity is of course facilitating velocity. Recall in the shrink-wrap days how software was upgraded? Usually annually and with a steep price attached. People, Ideas & Objects will be upgraded constantly, possibly by the second. There is no way that I can see an industry such as oil and gas, with the inherent issues ahead of them being able to adapt quick enough if they are not using cloud computing for their ERP system. SAP is the bureaucracy, as is People, Ideas & Objects are the nimble, agile and high velocity oil and gas industry.

One very interesting change from traditional systems is the stateless nature of cloud computing. If we go back to our Technical Vision, we see that Asynchronous Process Management is a cornerstone of our application. This means that when partners in a Joint Operating Committee vote for a capital expansion, this may bring in elements of game theory. Therefore some producers may withhold their vote until they can determine another firms decision. This is asynchronous in that the voting process may be held up for a few weeks. This asynchronous process will have to be written to new tables in the database to reflect its percent of process completion. Not a difficult thing to do, but to leave the variables in state could lead to technical difficulties in the Cloud computing model and potentially lost data. Its an architectural change in the way that cloud computing operates.

I can see in my future many oil and gas company managers arguing that their involvement in this critical area should be considered, and a different architecture be adopted. If we go back to Professor Carlota Perez, the People, Ideas & Objects strategies are the competitive way in which the Information & Communication Technology Revolution competes with managements charade. Management have a choice, either accept the changes that are happening or die. I, after six years have a preference towards your demise, however I won't state it here, their may be children that are reading this.

Again this Sun Microsystems paper is by far the best that I have seen on the concepts around cloud computing. It fits into how the oil and gas industry is able to accelerate its performance to the level that is needed to meet the market demand for energy. Meeting these demands for the remainder of this century. If your an investor or shareholder in oil and gas that thinks this alternative form of organization meets with your needs. Please review our Funding Policies & Procedures. And if your a potential member of our user community or interested in the Community of Independent Service Providers, please join us here.

P. S  I am impressed by Apple's new iPad. The only question I have about the device, is what do you need an office for?

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