The Preliminary Specification Part XXVII (AV Part V)

As we metaphorically peel this onion we find that this will be the last post on the Accounting Voucher module. We will return to this module as we get down to the deeper layers. However, after this post we will be moving on to the Security & Access Control module to pick up on some of the interactions of the people who are working within the various producer firms and vendors. We have discussed many of these interactions in this the Accounting Voucher, the Petroleum Lease Marketplace, Resource Marketplace and other modules. I will also have one closing comment in this post on the general practicality of the Accounting Voucher outside of its use in the Joint Operating Committee.

In the Draft Specification the Accounting Voucher is described as the crossroads for a variety of other modules in the People, Ideas & Objects applications. And we have described how certain data elements are brought into the Accounting Voucher in order to activate them and make them part of the history of that Accounting Voucher. For example, if a new well is producing it is brought in through interfaces from the Petroleum Lease Marketplace module. Once in the Accounting Voucher it can begin capturing the field data and recording the transactions for that well. What the Accounting Voucher provides is the means in which to take the data elements from the other modules, and conduct the necessary transactions upon them.

The last few posts we have concentrated on in the Accounting Voucher module have focused on the Joint Operating Committee clearing system. And that would be one of the key attributes of this People, Ideas & Objects module. However, there are more attributes to the Accounting Voucher then just the Joint Operating Committee clearing system. As we have noted here before, the Accounting Voucher is able to be used by the producer to capture their 100% charges and that is for all intents and purposes what an accounting voucher would be for in any other system. The use of capturing general and administrative costs, payroll, paying bills and other purposes would be included in the Accounting Voucher module.

Lastly I want to raise the point about the Purchase Order system that we touched on in the Accounting Voucher is something that I think will be a necessity. It should be something that is built in the People, Ideas & Objects applications and be available as an option for producers to use. And as such on the second run through the Preliminary Specification we will spend a little more time on it.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

The Preliminary Specification Part XXVI (AV Part IV)

Today I want to talk about the domain of the Joint Operating Committee. It is clear in the discussion of the Accounting Voucher that we are concerned about capturing and recording the business of the Joint Operating Committee. And clearing the costs and revenues of the property to the producers. What the Draft Specification talks about is Transaction Design which deals with the optimal location for a transaction to occur. The firm or the marketplace.

So much of what the Accounting Voucher aspires to do is to remove the user from the mundane aspects of dealing with transactions. With Information Technologies (IT) that are available today this is not only possible, but a competitive necessity. For instance you can buy an App for a phone that will take a picture of a receipt and code it to an accounting application. This is what I did in 1977 as my first job in oil and gas. The point of the Draft Specification is that users should be designing transactions as the key to building business value. This aspiration is what is so poorly discussed in the Draft Specification, but when your knee deep in papers, that’s the way the world looks.

Designing transactions, more or less from the point of view as to where the transaction will be conducted, in the firm or in the market, is part of the point of the exercise. What and How are two of the traditional questions of how to get things done. Now we need to answer the question, “where” will the transaction occur, and that is answered in the Accounting Voucher. The research and science on TCE that is referenced in the Draft Specification points to a means of determining where the transaction should occur. And that is what are called “thin crossing points”. However the first determination is the assessment of the capabilities of the group that is being assessed for the work that needs to be done. There is of course no sense in trying to determine the thinnest crossing points as the determining factor of who gets the deal.

It may seem intuitive to reduce the point of the transaction between two firms down to the thinnest point being the transfer of the invoice from one firm to the other. And that would score high on an exam but it would fail in terms of implementation of what the possibilities of Transaction Cost Economics could achieve. What if there were a system development, like People, Ideas & Objects Preliminary Specification, that was user community based that included the service industry as part of that user community? Would that provide an opportunity to define some service industry level systems integration that would be complementary to the Accounting Voucher of the People, Ideas & Objects application? Why couldn’t the service industry provider have their people populated into the Work Order system that we discussed earlier? Or, if the user community deemed that a Purchase Order system was worthwhile that this could also be used as means of direct communication between the producers represented in the Joint Operating Committee in the Accounting Voucher and the service industry providers.

There may ultimately be the thinnest of crossing points for the transaction being the invoice that crosses from the vendor to the joint account. Ultimately making the transaction the most efficient from the organizational point of view. However, with the use of IT we can also build on the information that is known and unknown in all of the producers and all the vendors that are party within a “transaction”.

What may not be clear is the need to design the transaction to ensure the business value is realized by the Joint Operating Committee. There is a general rule that whatever operation your conducting in the field, it is generally going to be conducted based on the understanding of the least experienced individual that is present in the field. It just seems to happen that way. Designing the transaction with these constraints in mind can help to mitigate the unknown factors from causing problems down the road. Also, because most of the “transactions” that occur in the marketplace are of such a large size, building of a compressor, building of a gathering system, drilling a well. The ability to apply further scientific strategic “game theory” type attributes in to the People, Ideas & Objects software is possible.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

The Preliminary Specification Part XXV (AV Part III)

Of particular interest to me is this is People, Ideas & Objects 1,000 blog post. Who would have thought that a simple idea of using the Joint Operating Committee could create so much discussion. We are well over 850,000 words and it feels like we are just beginning.

One of the implications of using the People, Ideas & Objects system is that each partner will have access to the Accounting Voucher during the time that the Voucher is either open or closed. Each of the producers involved in the JOC are therefore able to access the Accounting Voucher and have costs / revenues distributed to the other partners involved in the Joint Operating Committee. This is one of the key differences that we had discussed in the Petroleum Lease, and Resource Marketplace modules. Partners are all contributing to the joint account as equal participants with the role of “operator” being relegated to a thing of the past. (Note too of course, that each participant is able to charge their own account with their own 100% charges as well. These charges are to their private accounts and therefore not seen by any of the other participants.)

Cost control becomes an issue when everyone is able to charge freely to the joint account. A careful reading of the previous paragraph reflects that I didn’t state “charge freely”. Cost control comes about as a result of the traditional budgetary control of AFE and the Work Order system that we discussed earlier. Without pre-approval by the partnership nothing is able to be processed by the People, Ideas & Objects software applications. And as we will see in the upcoming discussion of the Security & Access Control module, few will have the authorization to “charge freely” to the joint account in any form or fashion.

With the traditional ability to charge to an AFE or Cost Center, and possibly during the development of the People, Ideas & Objects Preliminary Specification, the user community determines the need to have a purchase order system, ensuring that an appropriate bidding and contracting process is in place, no unauthorized amount will be accepted in the system. There is also the fact that each voucher needs to be approved for payment before any money is expended and that approval would need to consider the authority of the joint account.

As one can envision these Joint Operating Committee - Accounting Vouchers can become large as they include all of the business of the property. Accountants would be pulling their hair out at month-end trying to get these Vouchers closed if they had to seek approvals and close each of the transactions within the appropriate small window of time of their month end. Needless to say that each transaction within the Accounting Voucher is a small subset of the larger Accounting Voucher and can be dealt with as a stand alone individual item. Seeking it’s own approvals and authorizations that deal with just the domain of the specific transaction.

What is different in People, Ideas & Objects Accounting Voucher system vs what exist today is the elimination of the designation of operator. The capabilities to house the state of the art necessary to run the property within one oil and gas firm is believed to be beyond what is possible in the very near future. This is primarily as a result of the further specialization of earth science and engineering skills needed to be attained by each individual within the industry. If each firm were to attain the full scope of these capabilities then they would not be a viable business due to the extreme overhead burden. And specialization is the only solution to deal with the limited resources. Therefore it is necessary for each producer in the Joint Operating Committee to contribute their unique capabilities. The objective is to enable the Joint Operating Committee to draw from the much larger pool of producers engineers and earth scientists in order to obtain the global capabilities necessary for the property to operate.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

The Preliminary Specification Part XXIV (AV Part II)

Reading the Draft Specification for the Accounting Voucher is a tortuous read. What I can glean from the material is what I recall from the research, however, I’m sure no one else has read the research. Making the reading particularly difficult for everyone else. I will, hopefully, make some sense, in the next week or so, of the material through this discussion. I certainly promise to do my best. Another assumption that I am operating from is that everyone has a high level of understanding of how the oil and gas industry operates, making this content difficult to read.

Yesterday we discussed the manner in which the Accounting Voucher was able to handle the material balance report. How it handles the balancing of the volumes, debits and credits, and cleared these amounts to the partnership represented in the Joint Operating Committee. Today we want to talk about the contracts that the products produced may have associated with that JOC. Contracts that would include marketing for gas, oil, natural gas liquids, or contracts for charges for gathering, processing etc.

I don’t know what the correct term that should be used, but stream seems to me to be the most intuitive. If a stream of product was flowing through a facility, then a contract for processing or sale could be attached to it. The ability to attach a contract to a stream would enable the Accounting Voucher to establish the billing of gathering or processing charges / sale for that stream. These charges (invoices) or sales (receipts) being generated in an automated fashion by the People, Ideas & Objects software. This point now brings up a point that is obtusely discussed in the Draft Specification.

The Accounting Voucher is a for lack of a better term a template that is built upon as time passes. Each month as the property changes, these changes are captured within each Accounting Voucher and the template is renewed each month with the new information. If a new contract was added for the production from a new well, then that contract stream and the new well would be represented in next months Accounting Vouchers. The Accounting Voucher documents the changes in the property over time.

So it is with my sincere apologies to any readers that may have tried to make sense of the Draft Specifications Accounting Voucher. One can clearly see the value in a six month sabbatical. I’m sure we’ll run into more bumps along the way and will have to share a laugh at those.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

The Preliminary Specification Part XXIII (AV Part I)

We now shift our attention to the Accounting Voucher module. This module introduces many new concepts that may appear to add a level of complexity to the oil and gas business. However, in reality these ideas help to alleviate the difficulties that are systemic in the industry today. For the purposes of clarity lets jump straight into the point that we have been deferring for a number of posts.

The point was raised initially during the discussion of the material balance report and then discussed further in the reporting of volumes to the many number of users of that information. Those posts deferred the discussion of a final solution of how People, Ideas & Objects resolves the volumetric reporting problems to the Accounting Voucher module itself. Now that we are reviewing the Accounting Voucher lets talk about this solution.

The concluding paragraph in the Draft Specification of the Accounting Voucher states:

The People, Ideas & Objects Accounting Voucher Module will provide the means for the application to manage the disparate inter-dependencies of modularity theory and Transaction Cost Economics. That is a summary application of Professor Baldwins comments. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the application. What is necessary is for people to cease in processing transactions, by way of automation, and move toward the definition and design of transactions to optimize the business performance. The Accounting Voucher is also the most critical to the success of the application and hence the producers that use it. I am certain that in the hands of the user community it will achieve all that is possible.

Simple stuff. Critical to the “definition and design” of transactions is the fact that transactions are balancing themselves out. If the debits and credits were not in balance at the end of the day, then the automation of the systems and the accountants would not be doing their jobs. The same could be said for the volumetric reporting. If the material balance reports were out of balance (call this material balance), or were not balancing the inputs and outputs to other reports (call this system balance), or the internal accounting of those volumes to the partners, royalty holders and others were out of balance (call this partnership balance) the accountants and systems would not be doing their jobs.

What is proposed in People, Ideas & Objects is that for an Accounting Voucher to close it must balance the financial debits and credits, but must also from a volumetric perspective material balance, system balance and partnership balance. Each of these volumetric perspectives being accessed through a different “mode” within the voucher to make the necessary changes to correct any imbalances or errors.

The Joint Operating Committee is not a legal entity. It is a thing that exists in the minds of oil men and women. It therefore doesn’t own anything or incur any costs. All of the charges to the joint account must clear in the month they are incurred. Same for the volumetric information. The Joint Operating Committee "Accounting Voucher" balances to zero in terms of costs and volumes each month by clearing its charges to the ownership and royalty owners of the property.

Note that the clearing is done after the balance. That does not guarantee that the facility will remain in balance. Adjustments and amendments to the Accounting Voucher may occur. These may happen and they can be subsequently cleared to the partnership accounts.

The point of the exercise is that you have the business of the Joint Operating Committee being captured in the material balance report which is an integral part of the Accounting Voucher. Essentially all three are the same thing. (JOC, Accounting Voucher, material balance report.) An integrity of reporting that is embedded within the accounting systems that is as rigid as debits must equal credits.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XXII (PA Part VIII)

Last Friday we noted that the cost structures of each producer within a Joint Operating Committee could be unique and mutually exclusive to each of the other producers in the property. When we expand the geographical view of the facilities owned in the area we see that the ownership by producers can be remarkably different. This cost situation provides us with an opportunity to discuss the strategic choices that producers have within a Joint Operating Committee -- and adjoining facilities which are their own JOC’s -- and how each producer can maintain their own unique strategy.

In addition, since each JOC is autonomous to each other, a producer is able to choose unique strategies for each JOC they have an interest in. That is not to suggest that each JOC within a facility would have their own strategy. They could, however that would be unproductive. What is suggested is that a producer could have each of their major properties operated under their own unique strategies that are developed to optimize the assets unique character. To reiterate, that's each producer within a major area pursuing their own unique strategy irrespective of each others strategy.

Lastly we most recently noted that the JOC was the strategic framework of the producer and it joined the legal, financial, operational decision making, cultural, communication and innovation frameworks within the JOC. This framework alignment has been unrecognized in the existing ERP systems that operate in the oil and gas industry today. People, Ideas & Objects (PI&O) is the only system to recognize, identify and support the Joint Operating Committee’s frameworks. In addition, PI&O aligns the hierarchies compliance and governance frameworks into alignment with the seven frameworks of the JOC. This alignment provides the innovative oil and gas producer with the speed, innovativeness and accountability necessary to compete in the complex era of oil and gas exploration and production.

Application of global or generic corporate strategies are what companies did in the twentieth century. Today producers need to respond at the asset level in order to ensure the optimal value is realized. These findings are based on the extensive research that has been conducted here at People, Ideas & Objects. That although we have sworn off our focus on research we are still able to refer to it. Those posts that refer to our work in strategy would be best sourced from these labels, Strategy, Langlois, and Dosi.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

McKinsey, Translating Innovation into U.S. Growth

There has been much discussion about the role of the United States in the global economy since S & P downgraded their debt. This McKinsey article is an interesting discussion of where the country stands in terms of their influence on global innovation. Certainly the U.S. has been the global leader in innovation. And there are many issues that can be debated as to what that role will be in the future. This article puts a few of them on the table. And although I don’t necessarily agree with the findings, it may have some value to the community.

The difficulty that I have with the document is its reliance on clean energy and the belief that these investments are what will bring about innovations that will sustain the global economy. These ideas of running your car on electricity and saving the planet are about as good as making $1,000.00 a day from your home in your spare time. Well below the esteem of a McKinsey to be recommending them.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XXI (PA Part VII)

Just a quick note about currencies to finish off our first pass through the Partnership Accounting module. As we peel this onion, the Preliminary Specification, we’ll return to this module and dig a bit deeper into the details of how we account for a Joint Operating Committee’s activities.

In a globalized oil and gas industry we have to deal with currency conversions in the modern era. And these are not your regular currency issues. The example I have used in the past is that a producer based in Texas (U.S. Dollar) with partners in Britain (British Pound) and Canada (Canadian Dollar) share an interest in facilities and production in Turkey (Lira). Transactions through the joint account will be in the Turkish Lira and recorded in the producers native currencies based on the exchange rate at the time.

Another aspect of this problem is the currency conversions have different treatments for asset & liabilities then they do for revenues & costs. Revenues & costs are converted at the time they occur and require no further action. Whereas asset & liability accounts maintain a balance over a longer period of time and may need further specific treatment to ensure they are recognized and recorded correctly. If, for example, a producer has finished inventory in a country with a volatile currency, what subsequent value should be assigned to the inventory? This may possibly be answered by the ability to record the finished inventory in US$. But the operational costs may be valued in the domestic currency. And what about items that are of a capital nature? These currency issues are predominately producer related as they are cleared out of the Joint Operating Committees accounts each month. Therefore the accounting for each producer is unique.

Accounting systems should provide advanced tools to deal with these currency issues. And although we have stated that we are not considering any technology in the Preliminary Specification. Use of Oracle Fusion Applications in the Detailed Specifications should be considered as part of the research in currencies for the Preliminary Specification. To preclude the review of Oracle’s product would be duplicating what has already been built.

I would however caution users in the community that the oil and gas industries use of the Joint Operating Committee is unique, and these currency issues are not something that are realized in other industries. And although I believe it is a fair assumption that the Oracle Fusion Applications management of currencies would be state of the art. That state of the art would be for other industries like retail and other industries that would not have the scenario that is noted in this post. That because of the oil and gas industries use of the Joint Operating Committee, currencies are an area that can be built upon substantially from the point of view of what and how the community could contribute to. In terms of peeling the onion we are only beginning to scratch the surface of the currency issues that are experienced daily in the oil and gas industry. These issues are what this community is after in terms of engineering solutions that identify and support innovative oil and gas producers.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XX (PA Part VI)

In Canada at least, there is the accounting month and production month to deal with the delay in reporting of production volumes. The logistics of reporting volumetric information creates a lag of one month in the data so that July’s production data will be reported in the August accounting month. And I’m sure that everyone is familiar with the much loved amendment process for that volumetric data. The adjustment process never seems to end, I wonder if we’ll ever find a solution to it.

I think we have an interesting solution in People, Ideas & Objects. We talked about the material balance report the other day. While we noted the need to balance each report, and each input and output with the input and output of other material balance reports. And that each material balance report essentially represented a Joint Operating Committee. We also noted that we were deferring some of the discussion of our solution to the Accounting Voucher module, which we are still doing. However, today we should note that there are some problems that need to be addressed in the Partnership Accounting module that are a result of the adjustments to the material balance reports. That is that these material balance reports do shift and amend volumes of products around as time goes by and things are found to be incorrect. When the physical world is found to be inconsistent with the reporting, the reporting must change.

As I said I don’t want to get into into the solution today, other then noting that containing the problem within the domain of a Joint Operating Committee helps significantly. I want to add to the discussion of the material balance report by detailing the scope of the engineering problem that we have to solve. The first area of concern is that there are both daily and monthly volumes defining a period of time. Some of these volumes are “spec” vs. raw, products and by-products. Volumes are processed and gathered based on ownership and non-ownership of the processing facilities. There are in North America two, units of measures vs. metric reporting standards. How gas is nominated (daily) and marketed (annually). Finally the royalty holders and the ownership of the properties expect to earn something for their efforts. And each of these variables could generate their own amendment processes.

The myriad combinations of possibilities that happen within oil and gas have to be captured and handled within the systems that are used in oil and gas. That has not happened as of this date. The first aspect of solving this problem is to engineer the solution. Many have tried and have found their budgets to be to small for the job. Approaching this from the one producer perspective may seem like adequate funding, however, no one today is declaring success. If, as we have proposed in People, Ideas & Objects, aggregate the resources of the industry towards engineering the solution, this scope can be scaled, the costs to each producer will be incidental, and the results that each producer will realize will reflect the full scale of that software development effort.

The second aspect of the solution of this issue is to limit the scope of it. That is what we have done in People, Ideas & Objects. First by using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. What we are doing is adopting the material balance report as a function of the Joint Operating Committee. Which in reality it is. If however we separate it from other Joint Operating Committee’s from an accounting perspective then we can begin to deal within just that JOC as its own autonomous legal entity, which it is. This discussion may initially not make sense until we get into the Accounting Voucher module, and we get into the final aspect of this solution which is where we encapsulate all of this reporting within the accounting system itself.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XIX (PA Part V)

I can see some of the accountants are starting to glaze over as we haven’t been paying them enough specific attention. So this post is to keep them enthused about the system and in attendance for a while longer. After all it is called the Partnership Accounting module. The topic that this post will cover off is accounting cut-offs, good, I see they’ve perked up all ready!

Producers have used a variety of mechanisms to determine a point in time when the working interest distribution of the Joint Operating Committee would change based on the financial performance or activity level of the property. These triggers have been used extensively in the past and I would suggest with the dependence on using Joint Ventures more in the oil and gas industry, these mechanisms will expand in their use and type. What is therefore needed is a reliable means in order to calculate and invoke the necessary changes to the working distribution at the time of the change. With People, Ideas & Objects we have the user community to define the level of control that producers want to build into the Preliminary Specification for these types of accounting cut-offs.

Whether it be an activity level trigger like a Before or After Casing Point Election where the lease holder has the opportunity to join the other working interest owners. The Partnership Accounting module will not necessarily provide any information to enable the decision makers any better decisions. However, it is still important to ensure that whatever decision is made, that the costs are allocated correctly before and after the decision point in the accounts. This is more of an accounting determination in current systems and if the community wants to automate this level of trigger by including the casing point election from the agreement from the Petroleum Lease Marketplace module. Then that is a possibility that can be easily accommodated in a community or user based systems development such as People, Ideas & Objects.

In some accounting cut off situations the point at which the change in working interest distribution is a result of a payout or penalty situation. These require the calculation and determination of when the property has achieved a prescribed financial performance. And then at that point the distribution would reflect the revised working interest. These calculations, determinations and revised distributions are to be automated in the People, Ideas & Objects application modules.

Since these impute performance based calculations. Expanding the performance reporting of the property is an area where I think the user community may have significant influence in building valuable and innovative reporting. Traditional reporting of Statement of Expenditures and Statement of Operations are standard requirements, and included in this systems development. However I’m sure the community of users that are built around the development of the Preliminary Specification are able to expand on this reporting and provide real value for the innovative producer. Recall that we have the Performance Evaluation and Analytics & Statistics modules to help in these areas.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XVIII (PA Part IV)

In yesterday’s post we discussed how the Joint Operating Committee was able to manage who was available to work for the property. The ability to pool the earth science and engineering resources from the partnership is something that is asserted as being a necessity in the future of the oil and gas industry. It should be stated here as well that the Military Command & Control Metaphor would not be limited to just the earth science and engineering disciplines, but would include everyone that is employed within the producer firms. So yesterday’s post would help us to deal with the who, now we need a mechanism to deal with what it is they will be doing.

The next part of the Partnership Accounting module deals with the operational side of how the field work within the Joint Operating Committee gets completed. Partnerships have always had AFE’s and operations budgets to deal with how much will be spent on an annual basis at a facility etc. And those continue in their traditional ways in the People, Ideas & Objects application. This post deals with how the Military Command Control & Metaphor can deploy the resources and authorize the spending of budgets in a manner that provides for the governance of the Joint Operating Committee. Simply we are talking about the Collaborative Work Order System that is part of the Partnership Accounting and other modules. (Compliance & Governance, Petroleum Lease Marketplace, Resource Marketplace modules).

Deployment of the people within the Joint Operating Committee, with the budgets that are agreed to are not enough to satisfy any interpretation of adequate governance. Proper authorization and responsibility needs to be assigned to ensure that plans and budgets are executed successfully. Without a work order system within the People, Ideas & Objects application the governance of the property would not be possible. The ways and means of successfully controlling costs and deploying the resources in a manner to complete the tasks at hand are what the work order system is designed to complete.

The manner in which the work order system will be deployed will be as follows. If someone asks you to work on a project, your first question should be is “what’s your work order number.” Then you immediately start charging your time to the code. It doesn’t matter if your an employee of the producer where the request came from, a partner in a Joint Operating Committee or a vendor or supplier. If they don’t have a work order number you hang up the phone. If they have a number, you key the work order number into your device or keyboard and continue talking. The work order system will aggregate and bill your time while working on that project. The details, chain of command, tasks and deliverables are all delivered within the work order system that was provided when you keyed the number.

Note that one of the benefits of this system is that no work gets done without a work order. Assigning budgets from either an AFE or from internally sourced overhead accounts will be a matter of selecting from budget accounts or from pre-approved allocations. The ability to approve a work order would therefore be at an appropriate level within the chain of command of the Joint Operating Committee designated through the Military Command & Control Metaphor (involving multiple producers). If a work order were to exceed its budget it is reasonable to assume that it was exceeding its AFE or account budget(s if it involved multiple producers) as well, which could trigger action from the Compliance & Governance module of the People, Ideas & Objects application, if that is what management desired or deemed necessary and established in that module.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XVII (PA Part III)

Picking up from our Friday discussion on the use of the material balance report in the Partnership Accounting module. We discussed the geographical and operational scope of the module and you may recall that it included the entire upstream oil and gas operations infrastructure. I want to highlight the importance of this discussion about the material balance report and note that it is to be continued on in a number of future posts in the Accounting Voucher module. I wanted to introduce the scope of the oil and gas operations that we are dealing with in the Partnership Accounting module, and deal with some of the partner accounting issues first before we get into the Accounting Voucher module which is the next module we will be reviewing.

The first Partnership Accounting issue is related to the fact that the earth science and engineering resources that are of such value in the industry are of a finite number. It is asserted here in People, Ideas & Objects (PI&O) that the “operator” classification may become a thing of the past as firms will find it difficult to staff the engineering and earth science capabilities necessary to meet all of the needs of their firm. PI&O enables producers in a Joint Operating Committee to pool their human resources to ensure they have the required technical needs. The pooling wont be a convenience or nice to have at the Joint Operating Committee level. It will be a necessity for the partners within a property to ensure that adequate staffing of the technical resources are secured. That it will become commonplace that each of the partners are contributing technical resources to the property.

If partners are contributing human resources to the Joint Operating Committee then the systems that the partners use should be able to cost these resources, charge them to the joint account, and have their costs recovered by the firm providing the resource. This also brings up the point that if the operator classification has ceased to be valid, the charges for operator overhead, where the recovery of these costs are realized today, the operator overhead charges should also cease to be valid. If three different producers are providing engineers and geologists to the Joint Operating Committee each should be able to recover the direct or standard costs of these individuals for the time they spent working on the property.

What has been included in the Draft Specification and will be discussed here later in the Preliminary Specification is the Military Command & Control Metaphor (MCCM). The MCCM provides a means in which the resources within the producer companies represented within the Joint Operating Committee, can organize a chain of command through the pooled resources to deal with the governance of the property. This governance along with the ability to cost these resources enables producers to allocate the finite earth science and engineering resources more efficiently. This also assumes that during the building of the Preliminary Specification, that the community is able to determine a somewhat standard chain of command for all members of the industry, standard rates for the people in the industry, and detailed job descriptions for the work that each role within that chain of command are responsible for.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

McKinsey, On Getting IT Spending Right

How do we know when we’re spending the right amount of money on Information Technology. McKinsey have an answer to this difficult question in an article entitled “Getting IT Spending Right This Time”. Written in May 2003 I think this article has a few points that have stood the test of time and are pertinent today.

People, Ideas & Objects unquestionably are a technology company. However we are focused on bringing business solutions to market. Solutions like using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. We are not selling technology for technology sake. We are selling innovative business solutions. And maybe most importantly, we are solution providers, not change agents. We feel there is a big difference and it appears McKinsey feels the same.

Compounding the challenge is the tendency to view technology, first, as a panacea and, then, after the hype proves unrealistic, as anathema. The experience of the leaders shows that new technology alone won’t boost productivity. Productivity gains come from managerial innovation: fundamental changes in the way companies deliver products or services. Companies generate innovations, in fat years or lean, by deploying new technology along with improved processes and capabilities.

This next quote from McKinsey brings up an important consideration. That the investment in IT in itself will not provide the solution to the problem. There are other investments in the underlying business that need to be considered in order to align the business with the IT investments. What we feel we are doing with the developments at People, Ideas & Objects are aligning the IT developments with the oil and gas business. The Joint Operating Committee is systemic throughout the global oil and gas industry. It is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the oil and gas industry. We are identifying, supporting and aligning these frameworks with the compliance and governance frameworks of the hierarchy to achieve a speed, innovation and accountability for the innovative oil and gas producer. We are moving the systems towards the way the industry operates. Not attempting to move the industry towards some theoretical Information Technological model.

For companies competing on the basis of IT-enabled advances, knowing when to jump onto the innovation racetrack can be as important as how. Timing and sequencing, at their simplest, ensure that all prerequisite investments are in place before new IT initiatives are launched. Particularly in the retail sector, our research highlighted the importance of multiple tiers of investment, each laying the foundation for the next. In general merchandising, for example, before companies can implement sophisticated planning applications, a certain level of competence in warehouse- and transport-management systems is needed to get goods to customers.

So yes we should make these investments in preparation for the implementation of People, Ideas & Objects systems. But those should be to ensure that the community first of all captures the correct ways and means of industry operations in the Preliminary Specification. And that we continue to ensure that the industries needs are met by the technology, not the technologies needs are met by the industry.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

McKinsey on Productivity

Its the weekend and we have two McKinsey articles to fill in the time with some topical discussion. This first article is on productivity and how we need to accelerate, through innovation, our productivity to ensure job growth continues.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XVI (PA Part II)

One of the difficulties in discussing the Partnership Accounting module in the manner that I am is that the discussion is limited to the understanding of one person. Although I have a good understanding of how oil and gas operates it is limited to one persons view. The purpose in these developments is to have the community develop the Preliminary Specification and therefore have the full perspective of all aspects of how the industry operates. This limitation, although obvious in the other modules, is most evident in the Partnership Accounting module.

When we talk about the scope of operations that would be managed under the Partnership Accounting module I would say that it includes just everything. Simply the cut-off would be the inlet or outlet to any refinery. Therefore the total scope of any upstream oil and gas operation. Let me be more specific about that from the point of view of geography and type of operation managed by the People, Ideas & Objects application.

If we look at the North American oil and gas infrastructure we see a variety of oil and gas installations designed to serve both producers and consumers of oil and gas. Wells, gathering systems, gas plants, pipelines, storage facilities etc. At each point along these systems there may be additional deliveries of product, or sales of product or products inventoried. What seems to be an obvious and simple business becomes incredibly complex when it realized that each asset may be owned by a Joint Operating Committee itself and hold product on behalf of owners of other Joint Operating Committee’s. This summary glosses over the incredible complexity of this business when the volume of transactions that occur in these businesses make it an important part of the oil and gas operation.

Critical to controlling the business is the material balance report that is part of the Preliminary Specification. It is the central document that so much of the subsequent activity is based upon. If someone is to be charged for storage of butane for example, or if someone is to be charged a marketing fee for delivery of product to a customer. Or simply if a sale of a raw gas stream is deemed to have occurred at the well head. The material balance report captures these transactions and initiates the flow of documents that need to be generated. It is these documents that also need to be captured and generated in the People, Ideas & Objects Preliminary and Other Specifications. To name them all would require some understanding and consensus amongst the community which would include the producers.

To state as simply as this that the scope of the Partnership Accounting module captures all of these activities for all of these facilities is its purpose. Each material balance report must balance. And each reports inputs and outputs balance to other material balance reports. (This will be an important consideration in the upcoming Accounting Voucher.) Many of these reports are from one company to another.

As we explore the Partnership Accounting module further we see the reasons why we are taking such a broad scope of operations into considerations. It would be an understatement to state that this area has been poorly served by IT. To approach it from a global perspective that includes production operations, accounting and the other areas that depend on this information would be “ideal”, however, the complexity of the business has always been in the way. The engineering of software has never been available to approach the type of problem that this area presents. I think it exists now. And I think that the Partnership Accounting and Accounting Voucher modules of People, Ideas & Objects provides the vision of how this engineering solution solves this problem.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XV (PA Part I)

With our last post on the Financial Marketplace module we temporarily leave our review of the three marketplace modules and move on to the Partnership Accounting module. The Partnership Accounting module is the a pure “accounting” module from the traditional sense, however, I think there are many attributes and concepts of this module that make it unique and of interest to everyone in the industry.

So for the accountant in all of us, why don’t we start off with the statutory list of required functionality and output. And then tomorrow get into some of the new concepts and differences that are as a result of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. So here we go, great stuff!

• General Ledger
• Account Payable and Receivable Detail
• Payments
• Revenues and Royalties (Gross & Net)
• Capital and Operating (Gross & Net)
• Statement of Operations
• Statement of Expenditures 
• Gas Cost Allowance (Unique to each participant in a JOC)
• Trial Balance
• Balance Sheet
• Income Statement
• Statement of changes in financial position.
• Field data capture.
• Material balance c/w inventory control. 
• Nomination and contract fulfillment.
• And many, many more

This is standard fare for any software provider in oil and gas. As we will see in subsequent posts the difference in the People, Ideas & Objects software application is substantial in that the Joint Operating Committee is treated as the partnership that it is. It also recognizes that the costs of the property for each of the producers within a Joint Operating Committee is unique, as are the strategies that are employed.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XIV (FM Part IV)

This will be our last post on the Financial Marketplace module in terms of our Preliminary Specification output discussion. In this post we will discuss some of the generic reporting requirements of the module. These interfaces are of a financial nature and reflect the types of people (accounting and finance) that will be working within the module. This post looks at the reporting from both the Joint Operating Committee and the producer perspectives.

Our discussion of the costs of administering high levels of banking due to using the Joint Operating Committee as the key organizational construct of the innovative producer is an important consideration in this discussion. We have two choices to deal with these high administrative costs. We can hire a lot of people, or alternatively we can highly engineer the software that the industry will use to deal with the administrative burden. A highly engineered software solution, backed up with a software development capability such as is proposed by People, Ideas & Objects I think would earn the general consensus.

Understanding the marketplace metaphor and the discussion regarding bankers and investors in previous posts, the module would include, but in no way would be limited to, the following.

Joint Operating Committee perspective.

• Banking deposit and payment processing.
• Account reconciliation and analysis.
• Short term asset reconciliation and management.
• Dynamic working capital determinations.
• Short term liabilities accounts and management.
• Long term liabilities accounts and management.

From the producer perspective.

• Banking deposit and payment processing.
• Account reconciliation and analysis.
• Short term asset reconciliation and management.
• Dynamic working capital determinations and allocations.
• Short term liabilities accounts and management.
• Long term liabilities accounts and management.
• Shareholder equity accounts and management.
• Consolidated JOC working capital.
• Uncommitted consolidated JOC working capital.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XIII (FM Part III)

In our two posts regarding the Financial Marketplace module we have discussed both the relationship with bankers and investors. In the first post we noted that the module provided the choice to either maintain the banking relationship between each partner in the Joint Operating Committee. Or alternatively each Joint Operating Committee might be represented by one bank for all partners. In our second post we noted that the interfaces and tools that could be available to establish a marketing relationship between the producer and the investment community. Where there were possibilities to have the property securitized and other means in which “ownership” might be different then what exists today.

Today I want to briefly discuss the logistical implications of having these types of situations operational in an oil and gas firm. To suggest that this would make the financial aspects of a producer firm simpler would be contrary to the reality of a system that is providing these types of opportunities. Simply the legal and financial reporting and logistical requirements would be an order of magnitude more voluminous. It is fair to assume that the producer firm would need to maintain a banking relationship with most of the banks that had a presence in the oil and gas business. That relationship would include loans, accounts and all of their services. Managing for each loans financial requirement would become unbearable. Causing all kinds of administrative and management burdens that would otherwise not be incurred in today's systems.

Crap. All of these are done today, albeit on a smaller scale, in most companies. Adding a multiple of volume through automated systems such as what is being discussed in the Draft and Preliminary Specification makes the prior discussion a mute point. What is not realized is that the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. By enabling the financial constraints of the property to be just the financial constraints of the property and only the financial constraints of the property. The participants in the Joint Operating Committee are free to deal with those that are financially motivated in dealing with the issues of that Joint Operating Committee. There are no more of “them”, who are never in attendance at meetings anyway. When it comes time to make a decision, a decision can be made.

Its not that the decisions are made in the Financial Marketplace module. What this module is doing is aligning the financial interests of the Joint Operating Committee so that the decision rights are in alignment with the operational decision making authority. The financial, legal and operational decision making authority resides in the Joint Operating Committee and the alignment of these interests makes the ability to decide the best course of action possible. Currently, the muddling of these frameworks by general assignments to banks by each producer, and some nameless and faceless investor, limit the flexibility of the decision making authority of the engineers and earth scientists who are responsible for the performance of the property. By focusing the ownership and operating resources on the assets of the Joint Operating Committee, the consensus can be achieved and decisions can be made.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XII (FM Part II)

It is the Financial Marketplace module in which I really throw the cat amongst the pigeons when I talk about the redundancy of the bureaucracy. Yet when I reflect on the past three years, I see the investment marketplace holds the oil and gas producers management in not much better esteem. There is a general dissatisfaction within the oil and gas investor community. How much of this dissatisfaction is to do with the overall financial market meltdown, and how much is to do with a general dissatisfaction with the oil and gas industry itself is unknown.

The fact of the matter is that with the run up in the prices there has been an even greater run up in the costs of production and operations. Management have provided no upside from the price increases. A management that have provided no upside on 400% price increases will not provide any upside on any further price increases. And it is quite probable that significant financial losses will arise as a result of any price declines. So there is much to be concerned about when it comes to the current state of affairs in the manner in which the oil and gas industry is managed.

I’m glad that I am on record for being critical of management, and that I am the one that management have been kicking with such vigor. It’s one thing to be right, another for management to have been so wrong for so long. Nonetheless, the industry is going through a fundamental change. One in which the earth science and engineering resources needed to discover and produce the base commodities are under increasing demands. We therefore need to organize ourselves for this new challenge.

The Financial Marketplace module provides a window for the producer to deal with the bankers within the Joint Operating Committee. This is as we discussed in last Friday’s post. Whether a producer chooses to have each participant maintain their own bank representative. Or, each Joint Operating Committee has one banker for all the producers represented in the Joint Operating Committee is a choice provided by the Financial Marketplace module.

Today’s post shows the critical role of the investor in the long term health of the oil and gas industry. I think in order to have them participate in the industry, again, will require they are provided with new tools and opportunities to invest in oil and gas. In the Draft Specification it was suggested that possibly the working interest share might be a securitized investment. I think on the basis of the past three years history, that it should be considered that the investment community might have some enhanced tools and interfaces to the producer through the Financial Marketplace module of the People, Ideas & Objects software application. After all its a marketplace.

The interfaces and tools that I am thinking are not of the statutory type that are required by various regulatory agencies. These are provided through the Compliance & Governance module of the People, Ideas & Objects application. The type of interfaces that I am thinking that may be used in the Financial Marketplace module would be more of the marketing style. Where the producer is out selling their investment to the “financial marketplace” in order to secure future investments. Ways to initiate dialog and for information and discussion to start the relationship between the investor and the producer.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

McKinsey, The Perils of Bad Strategy

This McKinsey paper is a must read. Written by Professor Richard Rumelt it provides a critical review of strategy. A review of which we can evaluate our strategy of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. In this paper entitled “The Perils of Bad Strategy” Professor Rumelt states:

A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And, if you cannot assess that, you cannot reject a bad strategy or improve a good one.

The challenge that I foresee the oil and gas industry experiencing is the heavy demand for the commodity. In most situations this would be considered a positive thing with the positive effect on prices and the resulting windfall profits that would naturally arise. However, a second sober look at the implications of the high demand shows the activity levels will need to increase. Next, the fact that each unit of energy requires an ever increasing level of earth science and engineering effort for each unit of production. These two facts demand more of a critical human resource that is difficult to increase to meet these demands. More earth scientists and engineers are not readily available to satisfy these new demands. Therefore we need to deploy the resources we do have more strategically.

In the Resource Marketplace module we have talked about a revised boundary between the market and the producers. Where the producers are focused on their asset base, consisting of their leases and physical assets, and their science and engineering capabilities which they apply to their asset base. The rest of what they need has to come from the marketplace. There are companies like Encana Corporation that feel they can do it all. Encana has dozens of drilling rigs that they own and operate, I assume because the drilling firms are unable to drill Encana’s wells to Encana’s standards. Soon they’ll be opening a drill bit division. This is the point that Professor Rumelt is making in this next quote.

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favourable outcomes. It also builds a bridge between the critical challenge at the heart of the strategy and action—between desire and immediate objectives that lie within grasp. Thus, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.

Focusing on finding and producing the oil and gas is the key value add for an oil and gas producer. Everything else is secondary and should be provided to the producer through the market mechanism. People, Ideas & Objects also provide the opportunity to pool the earth science and engineering resources represented in the Joint Operating Committee’s participants to further ease the demand on these resources. This is done through what we call the Military Command & Control Metaphor. Building the earth science and engineering capabilities necessary within each producer firm creates unnecessary competition for these resources. Pooling increases the supply / availability of these resources to the producers, therefore eliminating waste, excessive demand and redundancies.

Despite the roar of voices equating strategy with ambition, leadership, vision, or planning, strategy is none of these. Rather, it is coherent action backed by an argument. And the core of the strategist’s work is always the same: discover the crucial factors in a situation and design a way to coordinate and focus actions to deal with them.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

McKinsey, On Organizational Health

It’s the weekend, which means its time for some McKinsey content. Today’s post provides some discussion around the topic of organizational health in a paper entitled “Organizational Health: The Ultimate Competitive Advantage.” This paper comes with a short video presentation by the authors and is a summary of their upcoming book. The substance of their work is captured well in this following quote.

Organizational health is about adapting to the present and shaping the future faster and better than the competition. Healthy organizations don’t merely learn to adjust themselves to their current context or to challenges that lie just ahead; they create a capacity to learn and keep changing over time. This, we believe, is where ultimate competitive advantage lies.

I particularly liked the five frames in which the authors used to define the state at which organizations passed through. The Aspire, Assess, Architect, Act and Advance frames accurately capture the long road ahead for us. Looking critically at their chart we could best claim to “Aspire” at this time at People, Ideas & Objects.

This would also leave us looking to perform the next frame which would be to “Assess”. And it is here that we have much to be desired. The oil and gas industry is in no condition to address the markets demands for energy. Its output has been stagnant since 2005 and the sense of urgency to address the problem does not exist.

If not for the global recession, the demand for energy would far outstrip supply and the producers would be scrambling in a very tight market. Nonetheless, I think that day is still ahead of us, and soon. Before we can approach those levels of energy demand we will need to organize ourselves first. That organization begins here at People, Ideas & Objects with building the systems that identify and support the Joint Operating Committee, the key organizational construct of the innovative oil and gas producer.

Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

The Preliminary Specification Part XI (FM Part I)

We move now to the third marketplace module in the Preliminary Specification, the Financial Marketplace module. A lot has happened since the late spring / early summer of 2008 when I wrote this module. The financial marketplace has been shaken to its core and the implications of that shaking are still felt today. With many of the worlds financial markets continuing to be illiquid and nervous about certain situations. The capital and debt markets have been very negative towards the oil and gas industry with many of the independents being shut out of those markets. The rise of the Asian Joint Venture is a direct result of the inability to raise any money in the “normal” capital markets. I would expect to see further fall out as the Euro situation seems to be far from resolved, the U.S. is deeply indebted and demanding a lot of capital with only the quasi-government groups in Asia holding any significant amount of capital to invest.

The primary point that the Financial Marketplace module was making in 2008 was that there are competing interests and motivations in the industry in attempting to get things done. With different strategies being deployed by different partners within a Joint Operating Committee, is it any wonder that the financing of a project can ever fall into place. What the Financial Marketplace module proposes is that instead of the property being funded by several different company bankers, each taking a working interest share claim against the property. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the property. If that was the simpler solution. The attempt in the Financial Marketplace module was to offer a solution to the difficulty to funding properties when one or two of the participants were consistently falling behind in terms of their capabilities.

Today that may or may not be an objective or opportunity worth pursuing. However, I think that the freedom of having the attributes of the Financial Marketplace module still reside within the oil and gas market, and possibly even more as a result of the financial meltdown of 2008. Why? because the demand for capital will continue to be strong, and the supply will continue to be tight. In a capital intensive industry that’s going through the level of change that the oil and gas industry is going through. Having a system that employs a marketplace metaphor, which provides the participants with better information, may be more of a necessity.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.