The Preliminary Specification Part LXV (AV Part VI)

Its very 1970’s ish to be thinking of a Purchase Order system. The 1970’s is the last time that I can think of any one ever using one. (It certainly might be used in the larger firms, however, I am unaware of this.) The practicality and usefulness of these systems seemed to have vaporized in the 1980’s and no one has considered their existence since. Now we talk in terms of Supply-Chains, however oil and gas doesn’t have a “supply-chain” as the term is used. Supply chains are for retail and manufacturing. Purchasing is for oil and gas.

I would reiterate that the use of a Purchase Order system is something that the user community needs to determine if it wants one. I see substantial value in building one and these posts will attempt to document how that value can be realized.

The Purchase Order system is part of the Accounting Voucher in that it is a necessary part of the processing of any large capital item. The use and application of the AFE, Cost Centre or Lease charge code remains the same irrespective of the Purchase Orders existence or not. There is no change in the coding structure as a result of the inclusion of the purchase order number. The Accounting Voucher relies on the Purchase Order for further approval of the specific contract dealing with a particular vendor on a specific project.

There are a number of cases where the management of the vendor relationship needs to have special considerations. Particularly in oil and gas where the details of the project are specific and large. Engineering contracts for the building of gas plants, pipelines and facilities are some of the examples. Situations where the contract must meet certain criteria and the vendor must qualify to meet those criteria during a bidding process. Its of concern to the producers that the firm that is chosen is capable of undertaking the work that is described. It is not just a lowest cost and the bid wins type of contract bidding process. This overall bidding process falls under the larger Purchase Order process of the Preliminary Specifications Accounting Voucher.

Once the vendor has been selected then the approval of the invoices is subject to the terms and conditions of the contract. Any prepayments or partial payments can be processed on the basis of the strength of the Purchase Order document and the final payment is subject to the satisfactory completion of the contract. If the contract is subject to any hold backs and other conditions, then those would be applied within the Accounting Vouchers payments.

The Purchase Order system is designed to provide the producer(s) with a level of control over large contracts. Something that is done frequently in oil and gas. By managing the bidding process and providing a level of control over the contract in terms of making and controlling the payment process. The Purchase Order, I think is a valuable tool in any producers system. Having these contained within the Accounting Voucher of the Preliminary Specification is the natural placement of these control processes.

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.

The Preliminary Specification Part LXIV (PA Part XI)

Yesterday we discussed the manner in which the division of labor and specialization could increase the throughput of the engineering and geological capabilities of the oil and gas industry. How the mountains of this type of work could be approached by pooling the technical resources of the producers represented in the Joint Operating Committee. Today I want to talk about how the cost of those resources would be recognized and recovered in the Partnership Accounting module of the Preliminary Specification. What this blog post is also about is the multitude of equalization's that need to be taken into consideration each month for each producer in order to calculate their working interest share of the property. And how the Joint Operating Committee authorizes these funding requirements.

The first issue that needs to be dealt with is who is going to charge for work done at a Joint Operating Committee and why. For that we need to revisit the Work-Order system that is part of the People, Ideas & Objects application modules. Recall that these are based on the AFE, lease or overhead accounts of the partnership and are therefore a pre-approved means of controlling the costs. Without a valid work-order no one can be charging any work to an AFE, lease or overhead account. And with a work order, only the work that is authorized through an AFE, lease or overhead account will be completed.

For the purposes of this post, we have an example that assumes your firm has contributed two engineers and two geologists to a property that is producing a positive cash flow in the current month. The part-time costs associated with the authorized work was part of an AFE approved by the partnership, and the work order was prepared by one of the producer firms. The hourly costs of these employees is captured in the work order and calculated based on standard costs. These standard costs are then charged to the joint account as represented in the Partnership Accounting module with an appropriate revenue offset for your firm for providing the engineers and geologists. For the purposes of accounting lets suggest we process this accounting entry. The reason for the $900 is the standard costs vs. the actual costs of $1,000.

Dr.     Salaries          1,000.00
Cr. Payroll                1,000.00

Dr.     Joint Account  900.00
Cr. Revenue Offset            900.00

Now when the clearing of the accounts at month end occurs there is also an equalization so that any contribution that any producer made to the joint account can be taken into consideration. These can take the form of whatever is agreed to by the partners and this example assumes that technical resources have been agreed to. The case that we are assuming here is going to distribute the $900.00 in engineering costs to the partners. If you had a 25% working interest share then you would therefore be responsible for and charged $225.00 of these costs. And the Revenue Offset would be processed at 100% or $900.00 as a revenue item. Therefore the net proceeds in the joint account of this transaction would be revenue of $675.00.

Now this example was a cash flow positive scenario and the question needs to be asked what happens when the Joint Operating Committee is in the very familiar situation where it doesn’t have any revenue. This situation remains the same. The net $675.00 in the above example is derived through the payment of the costs by the other partners and that remains the same. This producer would still show a Revenue Offset of $900.00 on their Statement of Expenditures and the net balance would, since it has no revenue, be for a cost, not an income.

How these equalization’s are handled is proposed to be automated through the Work Order system of the People, Ideas & Objects application modules. Capturing the time of the individuals as they worked on the specific approved project would generate the above accounting entries. Then the clearing of the accounts would account for any subsequent equalization’s at months end.

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.

The Preliminary Specification Part LXIII (PA Part X)

Today I want to spend some more time in the Partnership Accounting module of the Preliminary Specification discussing the pooling of human resources between producers into a Joint Operating Committee. Also discuss the justification for why we need to do the pooling and a bit about the division of labor and specialization in order for the industry to increase its throughput and activity level.

The first point is the most controversial and suggests an alternative way to how the bureaucracy manages their technical capabilities today. Today the bureaucracy builds silo’s of engineering and earth science capacities that are capable of dealing with any and all contingencies that the firm may face. This is a reasonable approach to a difficult business, with the inherent risk profile that oil and gas has, safety is a priority which can be handled in this manner. The problem arises as a result of each and every producer replicating the same capabilities within their organizations. As a result the industry has unused capacity that is unavailable for use at any time and at any place in the industry. At a time when the engineering and earth science talent is at a premium in terms of demand, this hoarding of resources will only continue to escalate.

What if there was a way in which firms could release the surplus earth science and engineering capacity and alleviate the market demand on these resources. Yet still have that surplus capacity available to them. Do this at a lower overall cost and have a higher throughput at the same time. Sounds impossible but that is what is required to solve the problems the industry is faced with today.

If we were able to pool the technical resources from each of the producers who represent the Joint Operating Committee. Then we begin to break down the individual silo’s and the hoarding problem. One of the key advantages of using the Joint Operating Committee is that all of the partners are financially motivated. Consensus is easily achieved because of this and that will continue.

Now I know the difference between a good engineer and a super star. The perception that “our” capabilities are better then “theirs” type of comparisons. The problem will however come down to, in the hoarding situation, no one is left to do the bread and butter engineering that should have been done two weeks ago. Life is one percent inspiration, ninety nine percent perspiration. The bread and butter issues are what need to be taken care of. How the majority of the bread and butter work gets done is the focus of this blog post.

The solution to where the enhanced engineering and geological throughput comes from is where the division of labor and specialization come into play. But first let me reiterate that in this day and age, to manage a process, or to change a process requires that the software to manage that process be built first. People, Ideas & Objects are proposing to build these processes for industry so that these changes can be made. It is not enough to attempt to make the changes in the business without the software. That should be painfully obvious. It was in the Preliminary Research Report that I stated this, and the bureaucracy have interpreted this to mean, by ensuring no changes take place to the software, ensures they are unchallenged in their current role.

To approach the mountains of earth science and engineering work that needs to be done will require a new approach based on the tried and true division of labor and specialization principles. By breaking down the jobs into smaller more specialized components the process can be managed in a way that is faster and more efficient. The productivity of this process would be an order of magnitude more efficient then what is done today. This process would be managed through the Partnership Accounting module with the Military Command & Control Metaphor to maintain the chain of command and authority from the producer firms. What may have taken 6 engineers and geologists on a full time basis may now be done by 35 part time engineers and geologists. These engineers and geologists may be assigned to over 100 properties or Joint Operating Committees. Management of the process, as one can see, is the key to productivity. The point of the exercise would be to get the bread and butter engineering and earth science work completed.

The need to have a system that can cost these resources is what we will discuss tomorrow. How the industry ultimately organizes the bread and butter engineering and earth science that needs to be done, whether in-house, or out-sourced is unknown. However, the ability to manage the process and cost them to the joint account will be necessary.

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 LXII (PA Part IX)

We move now to our second pass through the Partnership Accounting module. Now that we have also made our initial pass through the Accounting Voucher we are able to compare some of the similarities and differences between these two modules. That is the topic of this blog post, how in the Preliminary Specification the Partnership Accounting and the Accounting Voucher work together to solve the difficulties in dealing with the accounting issues for the Joint Operating Committee.

The best way to continue to describe the similarities and differences are to pick up the discussion of the Material Balance Report. When we last discussed the report in the Accounting Voucher we noted that the voucher needed to balance the debits and credits as well as volumetrically for material, system and partnership balance. Note that these are all the monthly variables that have to do with either financial transactions or production volumes for the current month. Therefore these monthly variables would be processed through the Accounting Voucher. Also note that these balances are for the 100% working interest share of the Joint Operating Committee. How does the producer know that their share is calculated correctly?

We also discussed a “template” that contained information that was used to process the monthly variables. The wells that production was from. The contracts production was sold to, and the functional units that process fees may have been charged on, etc. These 100% share constants are part of what are contained within the Petroleum Lease Marketplace module and represent the whole contracts. They are pulled from the Petroleum Lease Marketplace module, or elsewhere, to populate the “template” that reside semi-permanently in the Accounting Voucher.

Now the Accounting Voucher, in the instance of the Material Balance Report, is a Joint Operating Committee voucher. Therefore the clearing of the accounts will be to each of the producers and they will each have access to the Accounting Voucher. The Partnership Accounting working interest share constants, which is similar in its makeup to the “template” in the Accounting Voucher, are a check and a balance for the Accounting Voucher calculations and each individual producers share to ensure that their interests are being calculated correctly in the Accounting Voucher. Since they are based on their understanding of the agreements as represented in the Petroleum Lease Marketplace module, there should be no variances. However this is oil and gas, if there was a variance then the producer would be notified before the voucher could be closed. [Note. Since we are developing these systems we will be using one data element to populate all three modules.]

The extent of this verification will be limited to the level of constants that the producer would have chosen to have populated the “template” in the Partnership Accounting module. The system won’t go out and look for the variables elsewhere. Therefore the level of system verification can be as high or as low as the producer feels comfortable with by populating the Partnership Accounting “template” with as many constants as they feel necessary. On the other hand the Accounting Voucher needs the full template of information in order to correctly process the information in the current months voucher. It is not an option or system verification as it is in the Partnership Accounting module.

I think that to have a variety of systems checks and balances on the calculations are a necessary part of the Partnership Accounting module. In the hands of the People, Ideas & Objects software development team, and user community I think this area of the module could become quite sophisticated, and as opposed to just tripping up the closing of the Accounting Voucher, be quite helpful in determining a number of accounting related difficulties to focus on. We discussed some of those possible accounting related areas in our previous posts on Partnership Accounting.

If a variance should arise in any area there would be a reason for it and upon further investigation probably lead to some adjustment. Any changes to an agreement that your firm was not made aware of would show up immediately. The data within the producer firms could not get out of line for more then the current month without large variances showing up somewhere. This system of checks and balances working in an automated fashion, if the data was updated appropriately, then the various instances of the data would be updated in the “template”, therefore leading to no variance. Once the “template” was setup, the user would only need to deal with any variances and work to resolve them. Ensuring that the producers accounting was being processed appropriately and the focus of the accounting resources was only on the issues that were of material concern.

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 LXI (FM Part VII)

I just want to take a moment to reiterate the Preliminary Specification series that I am publishing over these next few quarters is designed to initiate the process for the community. Earlier on it was thought that the community would be able to use the Draft Specification and the research that was contained within the blog. However, I think that by producing this series it is more organized and easier for the community to get a handle on the complexity of the processes and functionality of the modules. I think with this series, the Draft Specification and research the community will be able to get a solid start on the Preliminary Specification when it begins.

In today’s post I want to discuss one of the key differences that is occurring during the transition from the easy era of energy development to the current more difficult energy era. In the Preliminary Research Report I was critical of a what I called a banking mentality in the investment attitudes in oil and gas. Where, similar to a bank, one could invest your money in oil and gas and expect an annual 10% return on somewhat of a guaranteed basis. This banking mentality had arisen, I suggested, as a result of the poor energy prices in the 1980’s and other difficulties in the business in the early 1990’s.

Now some may think that I am contradicting myself from yesterday’s post by stating that this banking mentality is only the market dictating an expected return. I would suggest the two are different. Investing only to participate in the types of returns that a bank is able to compete with imputes that the industry has no risk profile. That everything is invested for the expected cash flow that will provide for the return on a proven basis. This is how the industry was run, with essentially no risks taken. Looking at the heads of successful oil and gas companies found financial people, lawyers and accountants as CEO’s. People who could relate to the commercial end of the business and deliver on the promised returns. Engineers and geologists toiled in obscurity.

Contrast this to the times of the 1960’s and some of the 1970’s when the industry was actively exploring for new fields. Investments were being made for the purposes of the long term prospects of the firm. The cash flows of the firm were worked on, however, the prospecting was the key to the future. I see today, in this difficult energy era, as being more similar in terms of investment attitude to the 1960’s and 1970’s time then the 1980’s and 1990’s. An era that is based on the earth science and engineering capabilities of the producer and what can be done in terms of discovery, and the production of reserves. A time when the engineering and geological minds were running the firm, and the accountants, finance and lawyers were in their designated support roles.

The bureaucracy that brought you the banking returns of the 1990’s are still running the show today. (Lawyers are a sticky bunch.) For them to become the team that will discover and produce the energy in this new earth science and engineering focused era can’t happen. There is no such metamorphosis. Until such time as the engineers and earth scientists move to control the firms and establish themselves in full control of the firms will this transition be complete. And we might only be at the beginning of this trend. Although I have seen a number of geologists as CFO’s, a trend that I think is very positive.

In terms of the Financial Marketplace module, as an investor, I want to know who has the best team and the best capability in terms of their earth science and engineering talents. In terms of how that potentially, as an investor, can make me money is significant. These geological and engineering teams potential to find large volumes of oil and gas reserves, and have those values realized overnight is of significant interest to me, as an investor. It is therefore necessary I think that the producers have some ability to promote their exploration and development team, prospects, capabilities and opportunities in the Financial Marketplace module, subject to regulatory compliance of course.

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.

The Preliminary Specification Part LX (FM Part VI)

Our previous post reflects how the Preliminary Specifications Financial Marketplace creates the environment where speed and performance are rewarded with the ability to have the financial resources available when they are needed. A key focus of that marketplace will be on the return that is provided to the investors, and how the producer remains focused on providing the highest returns, and the delivery of those returns.

The first item of information that a marketplace should tell a producer is what is an acceptable rate of return for an investment in oil and gas. This is the criteria that all producers should use to evaluate their oil and gas investments. If the rate of return or capital allocation does not exceed the markets expected rate of return then the project should not proceed. There is no more important factor or information that a producer needs to know. The producers discipline and methodology in its capital allocation is how the successful producers succeed. This blogpost is how the Financial Marketplace module incorporates the calculations of return on investment and capital allocation in the Preliminary Specification.

First of all there are no more confidential, in my opinion, information then these calculations. Particularly the capital allocation can be a complex algorithm that is usually contained within multiple spreadsheets. Centralizing these calculations within the Financial Marketplace module would be opportune as its managed by the Security & Access Control module and general access to the historical accounting data. There is however much more to the decision making process then just the numbers. The managements discussion, based on the calculations is sometimes the important feature. Therefore having robust features for discussion throughout the calculations of return on investment and capital allocation will be necessary. This might best be represented as a black board feature of the module.

There is more to the process then just blue sky thinking and number crunching too. What I am suggesting here is that the process of capital allocation is an art as much as it is a science. The process needs to be rigorous and thorough enough to ensure that every rock has been overturn and inspected. That process can and should be automated to the highest level in the Preliminary Specifications Financial Marketplace module. It is up to the individual producer to either follow the process or to ignore it, as much as they do the capital allocation process today.

Astute readers will note the obvious contradiction that is inherent in the Financial Marketplace module. You have to love the contradictions. Doesn’t the speed we discussed yesterday contradict the deliberate pace of the capital allocation process described here? No, that is to say it shouldn’t, or they should be one in the same. Having the speed that was described yesterday was desirable only if you had some measure of control. The control is attained through the capital allocation process that is described here. These two forces, speed and control, are in the hands of the management of the firm and are reflected in the performance of the assets. The marketplace will see this performance and respond appropriately and that will be reflected through the Preliminary Specifications Financial Marketplace module.

Another contradiction might be suggested that with banks funding Joint Operating Committees on a semi-autonomous nature, this will interrupt the capital allocation process and affect the return calculations of the firm. We discussed this in a previous blog post on the Financial Marketplace module. That banks funding the Joint Operating Committee as opposed to taking general claims against the individual producers. Would be more motivated and aligned to develop the individual property. This might be contrary to the producer own capital allocation processes. That is true, however, since they are using borrowed money to invest in that Joint Operating Committee they are leveraging the investment of the producer. Therefore the actual return to the producer “should be” leveraged to the point that it would exceed the markets expected return.

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.

The Preliminary Specification Part LIX (FM Part V)

Here at People, Ideas & Objects we frequently state that we are moving the compliance and governance frameworks of the hierarchy into alignment with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategy frameworks. We are doing this to achieve greater speed, innovative capabilities and accountability. This post is to discuss how some of that speed is achieved, by reducing the financial constraints and the time required that financing has traditionally taken in oil and gas.

In our previous pass through the Financial Marketplace module. We discussed how banks could finance all the producers within a Joint Operating Committee. As opposed to today’s method of each producer having their own banker. This would provide a focus for the bank that is unconstrained by any other properties or concerns. We also discussed, with the technology automation that is available today, that both the producers and the banks could automate most of the increased logistical banking requirements that this would cause. I also suggested that the disenchanted oil and gas investor might be better served by providing them with the ability to invest directly in the property, giving them the opportunity to circumvent the bureaucracy. A bureaucracy that has provided no upside on 400% energy price increases. And lastly that these changes, made through the Financial Marketplace module, provide a focus for the alignment of the financial interests to the Joint Operating Committee to achieve some of that speed, innovative capability, and accountability.

Now lets explore that speed aspect. The Financial Marketplace module is one of three of People, Ideas & Objects marketplace modules. That imputes a line of communications is open between the financial marketplace and the producer firm that is above and beyond that of the compliance requirements. It is therefore going to have to be authored by the senior people of the firm who know what it is that they are authorized to state. The current investors who have an interest with the producer would be able to source historical accounting data and information on their investments from the producer from the Partnership Accounting module. Future plans and investments, the difficult situations to discuss, could be published and promoted in the Financial Marketplace and meet the regulations requirements for full disclosure. Thereby giving no investor or group any unfair advantage in terms of quality of information.

The point of the marketplace is the opportunity to establish significant and rich relationships with investors and bankers of all shapes and sizes. Make no mistake, the ability to attract capital will be on the basis of performance, for that there is no alternative. However, the speed and effort at which a producer is able to raise the funds necessary to develop their assets depends on the quality of those assets and the quality of the relationships they have with the investment community. The Financial Marketplace module helps to establish a stronger relationship with the investment community, therefore in a significant way increasing the speed at which you can approach the oil and gas business.

In a capital intensive industry, financing is a critical issue for any producer. In an industry where innovation is providing significant value add, and with escalating capital and costs of operations the relationships with your investors need to be of premier concern in your business. Speed will become a major criteria on how you will be evaluated in the marketplace. If you as a producer are unable to perform in terms of competing, or participating at the speed of the marketplace, you will be left behind, very quickly. Reputation has a permanence to it that is difficult to change. Financing can give you a head start and the ability to participate at the speed of the marketplace, and maybe even set the pace for those to try and follow. The speed at which a producer is able to execute would be reflected in the Financial Marketplace module. Transparent marketplaces are a two way street. And it is here that I think the Financial Marketplace module will enable those producers with superior performance to attain a real speed advantage.

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.

The Preliminary Specification Part LVIII (PLM Part VIII)

In today’s post I want to talk about the data and information that is contained within the Petroleum Lease Marketplace (PLM) module. Much of the collaborative information that is generated by the partnership representing the Joint Operating Committee is generated and stored in the PLM. This would include agreements, leases, AFE’s, etc. Access to this data would be based on the users need to know and would be based on the data’s nature of being either public, partnership or private in nature.

There will be a large percentage of the data within the PLM that is public in nature. This data will include the lease documents themselves and reflect who the lessee is and the mineral rights held. Although this information is public in nature, that is its available from the lessor’s websites, there is little reason to hold it public from a producer point of view. Access to a producers or Joint Operating Committees data and information through the People, Ideas & Objects application modules via a public interface doesn’t exist. Although the data and information may be accessible elsewhere, it is not available unless the individual has direct access granted through the Security & Access Control module.

Next there are areas where the data and information would be considered to be “partnership”. This of course being data and information that is directly related to the Joint Operating Committee. We have discussed the research project that the user community will undertake in the Preliminary Specification to determine if the data will reside with the JOC or with the producer. This is a good example of where the issue resides. If the agreements, leases and AFE’s are the same for all the producers why not store them within one location in the JOC and have access by the authorized producers. Then everyone is working from the same documents. Here’s where the Military Command & Control Metaphor will need to be sophisticated enough to enable the appropriate users from different producer firms to access these documents. Another consideration for the research project of the user community.

Then there will also be the private information that the producer generates that will be for strategic and tactical concerns, that will be for the producers eyes only. These discussions could be regarding one of the agreements that should not end up in the “partnership” area. How does a firm maintain access to this critical information and ensure that it doesn’t leak out to someone that it shouldn't?

The Draft Specification also asked an interesting question regarding the publication of aggregated data. It was in the context of the 3 - 5 year capital budgets of the producers. If producers were to maintain their expected capital budgets for the next 3 - 5 years in AFE format within the PLM, would they be interested in publishing that data in aggregate through the Resource Marketplace module. Now this data would be scrubbed of all pertinent proprietary information and only represent dollars, general geographical area and account classification. This information would provide the Resource Marketplace with information of approximately what the marketplace might look like in the 3 - 5 year time frame so that they could plan to meet the expected demand. Valuable information from a supplier industry point of view.

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. 

The Preliminary Specification Part LVII (PLM Part VII)

In this post I want to discuss the manner in which People, Ideas & Objects software development team will support the division of labor and specialization in the Preliminary Specification and particularly in the Petroleum Lease Marketplace (PLM). We had discussed in the previous parts to the PLM that the determination of where the data would reside, and hence where the people would work in the industry. Would the data be stored within the Joint Operating Committee or the producer. This was to be determined by the community based on their research. We also noted that with the division of labor and further specialization of the people that work in the industry required that maybe individuals might not work for a specific producer or Joint Operating Committee but instead work for a process that was billed for example as a service to a 1,000 JOC’s representing 200 firms. This post assumes that both situations, the data is stored at the JOC, and a process is managed by a dedicated team that employs the people who work for a variety of JOC’s representing many producer firms, are the case.

When we consider the global experience and understanding of the people that are employed in the oil and gas industry. We have many people today with a diversity of experience and understanding of the industry. When we think of the future, in order to deal with the ability to handle the greater volumes of work, we generally feel that there is a need to have a wholesale increase in the overall experience and understanding of the industry. But is this necessarily the case. With the division of labor and specialization we are able to rely on a level of experience and understanding of a few that understand the entire process, and assign the specifics to those that can specialize in their own specific domain of understanding. With each person taking care of their part of the process, at a high level of understanding, the entire process is managed with an efficiency and understanding that aggregates the skills of all of those people within the process. This is the advantage of specialization. And it enables the industry to undertake greater processing loads with the same resource levels.

Now lets assume for a moment that you had a group that processed all the lease rentals for all the JOC’s and producers that used People, Ideas & Objects proposed software applications. And this groups was a very specialized team of 20 people who were supported by the software development team and user community that People, Ideas & Objects is based upon. How would you divide up that work to make it more efficient? Would it be based on producer or JOC? I don’t think so. Probably on the basis of rental due date, or maybe geographical location. One thing for certain the way that the work was organized would be fundamentally different then the way that lease rentals were organized within any firm or JOC today. No matter how large the producers size. The specialization that this service provider would be able to present would reduce the costs of lease rental processing and also increase the quality of the service, and the data and information that was presented. This is how I think we need to begin reorganizing some of the processes the industry depends upon. Here’s why.

How does the division of labor expand. That is to say, this lease rental process continues on and they find if they make a small change in the way they process this element of it, then they could save x% of time. This is the process of “gap filing” which makes inherent sense. Then the  boss says ok, sounds great go do it. The problem today is that all of our processes are highly automated. And the way that People, Ideas & Objects are talking in the Preliminary Specification these processes will be even more automated. Therefore the ability to change a process is heavily dependent on a software change. Which in the current environment is next to impossible. People, Ideas & Objects however are marketing a software development capability. One that is available for the purposes of gap filing and supporting the user community needs. One that is designed to support innovation. Therefore the ability to make the change in the process and have the software updated to support the process change is available. The larger issue of having this done once at the lease rental service provider makes the process manageable. As today, having to do this within each firm doesn’t provide the efficiencies that with tomorrows division of labor and specialization can provide, there isn't the volume of lease rental activity. It is also assumed in this example that the data is stored at the JOC and therefore the amount of lease rental data that is held at the JOC is relatively negligible, providing more support for centralizing the lease rental process under one service provider.

People, Ideas & Objects has introduced the concept of the Community of Independent Service Providers to initiate these types of process services. I think this is how the industry needs to reorganize themselves in order to attain the efficiencies and quality processes in the future. The example of lease rentals is only one of possibly hundreds of processes that could be handled in similar ways. The key competitive advantage of the innovative oil and gas producer is their land and asset base, & application of their earth science and engineering capabilities. The efficient development of internal administrative processes are not going to provide any producer with any competitive advantage or disadvantage. By developing processes in the manner that People, Ideas & Objects proposes provides all the producers with the most efficient and cost effective means of administrative management.

I’ll say it again. Unfortunately the current bureaucracy have chosen not to join us in this vision of the future. They are fully vested in the status quo and will have none of this discussion of organizing the industry in more efficient ways. It is for the C class and investor class to direct the flow of funds towards People, Ideas & Objects to begin the process of making this vision real.

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 LVI (PLM Part VI)

In this our second pass through the Preliminary Specification, we turn now to the second marketplace module, the Petroleum Lease Marketplace (PLM). In our previous posts of the PLM I tried to impress upon you the importance of the user vision of the three marketplace modules. Having done so, I am now free to discuss the PLM from an oil and gas point of view. Today’s post will discuss the importance of the working interest distributions, particularly in the facilities areas, and how they need to be handled in the People, Ideas & Objects application modules. This discussion will include the Partnership Accounting, Material Balance Report and Accounting Voucher modules.

The working interest distribution for the production from a well is fairly straight forward. Other then the changes that we noted, before and after casing point elections, before and after payout etc, the values remain relatively constant over the life of the well. However, for gas plants and related facilities the distribution to the owners of the facilities is anything but constant. This brings into play a multitude of different ways to treat the ownership of the production and the costs of processing. The manner in which the accounting for that production and the cost of processing is of material concern to the owners of those facilities. In fact it is the difference between making a profit or not. The inability to grasp the scope of the concern has led many to disrupt the facility owners business.

The problem comes down to the fact that there are two different ways in which to calculate the working interest distribution of the throughput of the product through the facilities. One is to take the literal mathematical reality of the situation, the other is to take what is agreed to by the owners and operators of the facilities in the Construction, Ownership & Operation (CO&O) agreement. The two worlds could not be more different. As you can imagine the agreed to situation has to rule the day. The facts of the agreed situation are very dynamic and create variances that are unique and depend on the situation that is in play that day. Therefore rarely is the production allocated on the same basis as the prior day. Irrespective of the production allocation, the Material Balance Report will still balance and will also balance to the various other reports. What the situation is at issue with, is the owners or the producers who have production processed through that plant or facility will have either sold or purchased product or had done some transaction with their production at that facility that needs to be accounted for.

Now to handle that day-to-day activity there needs to be an ability for the plant owners to account for the transactions that are occurring within the plant based on the CO&O. Relying on the Partnership Accounting module will be part of what they will use for the handling of the plants accounting. However, because they can’t take a literal working interest distribution and they have to rely on a dynamic distribution based on the CO&O, a special algorithm will need to be built within the PLM to deal with the CO&O. This algorithm will capture the agreements production allocation methodology. This algorithm will be dynamic based on the gas composition, production factors and activities at the plant, but it is also not fixed. There are changes to the algorithm on a month to month basis. As new wells are brought on, new functional units are brought on, new products are sold to new purchasers etc. these need to be taken into consideration into the algorithm.

In the current accounting world these “algorithms” are managed within spreadsheets. Not my favorite place to put a critical piece of business. I think that the user community can do something to embed these algorithms within the system so that they are more “mission critical” and less subject to human error.

As a plant owner the days of major changes are not over yet. There are still the equalizations that have to be calculated. These equalizations are some times run monthly but mostly done on an annual basis. They are done to correct any of the owners over / under capacity utilization during the year. If an owner owns 25% of the facility then generally they would not be billed processing for any of their throughput. However, at the end of the year it is determined that their actual throughput use was 29% then they would need to be charged for that 4% capacity that they overused. These calculations would also have an “algorithm” within the PLM for the Partnership Accounting module to use.

I would reiterate this is an area of extreme importance to the owners of the facilities in oil and gas. To handle these transactions appropriately is the only manner in which People, Ideas & Objects will approach this issue. As it stand today, I am certain no other software vendor fully comprehends the significance of these points and does not provide anywhere close to the level of functionality as we have proposed in these modules.

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 LV (RM Part VI)

In many ways the Resource Marketplace module of the Preliminary Specification is the cross-roads of many of the other People, Ideas & Objects application modules major processes. It is where the Accounting Voucher’s design of transactions will ultimately be exercised. And where the Research & Capabilities overall process of capabilities development will be realized. Maybe most importantly it is a marketplace module where people will be able to buy and sell their ideas for products and services of what the innovative oil and gas producers need. If the Research & Capabilities module is a long term process of maintaining and increasing the earth science and engineering capabilities of the firm and Joint Operating Committees (JOC). Then the Resource Marketplace module is the day-to-day module of implementing the policies from that long term process.

We also see in the Resource Marketplace module some of the efficiencies of using the JOC as the key organizational construct of the innovative producer. And that is an important differentiation of the Resource Marketplace module in comparison to the Accounting Voucher and the Research & Capabilities modules. It is a Joint Operating Committee (primarily) facing module. Therefore it is representative of the many participants of the JOC and therefore will have the influence (industry standardization) of many producers Accounting Voucher needs and Research & Capabilities developments. Optimizing transactions between contracting parties will provide enhanced performance to the overall industry. These changes will not lead to small increments in overall performance, but I believe based on my research into Professor's Langlois and Baldwins theories, will have exponential performance improvements.

Another key point is the tearing down of the basis of Intellectual Property (IP). An industry such as oil and gas which is based on its earth science and engineering needs. After all it is a business based on science. If we are to expand the capabilities in the science and innovation in the industry. We are going to need to solve many very difficult problems. And as we progress the volume of ideas needed will be an order of magnitude of what is required today. These problems can’t be solved in an environment where there is no upside for the individuals to solve them. Addressing the motivation to solve these problems and enabling the people to earn the rights to the Intellectual Property within the People, Ideas & Objects application modules is the first step in making the necessary industry wide changes. This therefore turning the oil and gas industry into a far more dynamic business.

I want to quote some work of Professor Giovanni Dosi’s. Specifically his 1993 article “Hierarchies, Markets & Power” which is a must read for those that want to dive deeper into these subjects. He states a simplistic model of organization will include the following, and I have annotated the area where these are addressed in the modular specification;

• The distribution of formal authority. [The military command and control metaphor.]
• The distribution of actual power in the above distribution [The people]
• The incentive structure. [Innovation, intellectual property, and capabilities.]
• The structure of informational flows. [Security & Access Control Module]
• The distribution of knowledge and competence. [The people] p. 10
• History, so to speak, solidifies into structures which constrain future developments. p 12

The purpose in developing this “Marketplace” is to ensure the future of the industry structure remains flexible and amenable to the changes in the sciences and innovation. But also to attain and maintain the highest performance . And in this next quotation Dosi notes how this will come to be.

Clearly, it is the domain of Schumpeter’s creative destruction’, and of Moore’s (1978) analysis of the social bases of obedience and revolt, to name but two famous examples, and it applies also to the dynamics of economic organizations and institutions at large. p. 13

I’m a big fan of that concept of revolt. What I hope to have been able to put across in the discussion of the Resource Marketplace is the bigger question of how capabilities are generated from markets. Information plays a big role in this and the generation of ideas makes those markets dynamic. Lastly we must rely on the market forces of creative destruction to ensure that today’s bureaucracy loses its hold on the reigns of power (somebody has got to lose), and that we are prepared to have our solution ready.

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 LIV (RM Part V)

Today I want to discuss what I mean when I say that users of the People, Ideas & Objects Preliminary Specification will “design transactions” in the Resource Marketplace and Accounting Voucher modules. Transaction Cost Economics is an important element of how the energy industry can control its costs and designing transactions is a key to those savings and efficiencies. Also I want to highlight the role of the user as an active agent in making things “happen” in the Resource Marketplace.

As with any marketplace the focus has to be on the user. The user in this case could be representing either a producer, or a service industry provider. A user is someone with access to the People, Ideas & Objects module who would be optimizing the “tasks” and “actors” involved in transactions, and will be able to turn the producers needs into a demand for services in the Resource Marketplace Module.

There are two changes that might make things different in the future as a result of organizing on the basis of using the Joint Operating Committee as the key organizational construct of the innovative producer. One is that designing transactions will become a skill that is going to be used substantially more. And two, the division of labor is going to expand, meaning that the job which may have had a few contractors to complete today, may now have an order of magnitude more in terms of numbers of contractors tomorrow. Consider the following.

Designing transactions
When people buy a major item in their lives like a house or a car. They itemize the details of what is, and what is not included in the price. Who is to provide what and the terms and conditions of when the items will be completed. This is what is meant by designing transactions. Its more or less what Lawyers do for a living, or that is to say, it is an important aspect of their work in any commercial sale agreement. This type of work is where the costs and efficiencies of the organization can become onerous or very easy. If a firm has “engineered” their transaction costs down to a fine point then they are able to manage their costs efficiently. This will be the case for an oil and gas producer. Transaction costs include the costs of installation, finance, testing, the specifications, types of materials to be used and the engineering consultants, etc. In oil and gas it is easy to see how these costs, even for a small job could become problematic.

The division of labor
As the producer focuses on their land & asset base and earth science and engineering capabilities. Product and service providers will be focusing on their key competitive advantages as well. Letting some of the work that they may have done in the past to specialists at different companies. This will increase the number of vendors that a producer will use to do normal operations in the field. This specialization and enhanced division of labor will provide greater efficiencies and cost control for the producer firm through more competitive and innovative solutions. It will also increase the throughput of transactions that a producer will have to deal with and put more emphasis on the designing of transactions.

On the other end of this process is the product or service provider who is able to contract for what the producer needs. They too have interfaces to the Resource Marketplace module that are similar to the producers. These user’s that may have anticipated what the markets demand is going to be, and are the first to configure an innovative solution and are able to market their product or service effectively in the Resource Marketplace Module. These element’s of the competitive market changes are reflective of the producers needs as determined in the Resource Marketplace, and its use of transaction cost economics (TCE). This process involving an iterative loop of constant improvement of the transactions and processes in the energy industry.

Lastly when these resources are discovered by the JOC or producer, the contract negotiation between the two parties can begin to take place. The first step in contracting will be the determination of exactly what the transaction should look like as determined by the Accounting Voucher. This would then lead to the specific negotiations, automation of the creation of the contract, and assignment of the Resources to the contract. From there this software should enable high levels of automation in order to relieve the user from work that is better suited to computers, and focus on the optimization and efficiency of the transaction.

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.

The Preliminary Specification Part LIII (RM Part IV)

Yesterday I apologized for being distracted and unfocused during our first pass through the Resource Marketplace module. And that apology stands but there just seems to be a nagging bitterness that is evidence of something more. That I was bitter toward the management in oil and gas and their status-quo do nothingness. And I realize today that its not bitterness that I am expressing but the fact that the stand still attitude of the energy industry is so counter to what is necessary in the “Resource Marketplace” for a healthy functioning industry. That today’s gap between the service and oil & gas industry could not be wider. That is my frustration, and that will be the topic of discussion for today’s post.

This gap is represented in many of the Canadian independents calling the service industry providers greedy and lazy. Read any of these firms annual reports and controlling the costs in the field are uppermost on managements mind. This adversarial point of view creates an environment where no long term benefits are generated. When costs are the primary focus of the relationship then nothing positive is developed for the long term. Everything is sacrificed for the job at hand. Only to have the same situation occur at the next job. The energy industry has become its own worst enemy.

What is needed is the Resource Marketplace module that is being discussed in the Preliminary Specification. Where ideas, products and services and being built with the financial resources of the producers for the long term benefit of the producers. The only way that innovative and competitive forces are going to be developed in the Resource Marketplace is for the producers to participate in the market. By dictating to those who now operate there, and only those that operate there, you limit the opportunities in which to deal with the competitive forces of the marketplace.

For the management to turn to another alternative other then their current ways and means will be the last alternative they chose. That has been proven in their approach to the Resource Marketplace and to People, Ideas & Objects. That is why the choice has to be made for them by the people who own the industry, the shareholders of these companies. As soon as they perceive the management to have failed in providing adequate earnings for the long term, they will look for alternatives. Management have, or will fail, it is only a matter of time, and what is proposed in these writing is the alternative that can be used to operate those assets.

But this is how change happens. When a fundamental change of the scale of an industry transformation needs to take place, creative destruction comes into play. The old ceases to build value and the new rises to replace the old. Its as simple and as complete as that. So whether change is top down or bottom up I don’t care. People, Ideas & Objects are not change agents we are solution providers. The forces of creative destruction are too powerful for management to fight, its best just to be in the right spot at the right time.

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. 

The Preliminary Specification Part LII (RM Part III)

In our first two posts of the Preliminary Specifications Resource Marketplace module it seems that I was more confused with the Research & Capabilities module and bitter with the status-quo management of the oil and gas industry. In this second pass through the Preliminary Specification I’ll try to keep on topic. The Resource Marketplace module is one of three “marketplace” modules in the Preliminary Specification. Its purpose is to provide the service industry, the oil and gas producer firm and the Joint Operating Committees with the ability to interact and contract for products and services that are needed and provided.

A marketplace to support contracting from A to Z. To deal effectively with the Resource Marketplace the producer will need tools to effectively engage with the suppliers for the resources they need. The Resource Marketplace Module provides a window on the “Resource Marketplace” for Joint Operating Committee’s (JOC) and producers. Anything of value that is contracted between “actors” in the oil and gas, service, software and user community generated business’ will be found, contracted, managed and developed through this module. Its simply a virtual representation of the marketplace. Therefore the negotiation, determination of available resources, determination of transaction costs, contract execution and effective software tools to monitor and verify compliance to the contract are all part of the Resource Marketplace module and its interfaces to other modules of the Preliminary Specification.

Similar interfaces will be provided to the service industries. After all transactions have two parties, the efficiencies of the producers would inherently include the efficiencies to the service provider. If we have an accounting system, then certainly offering these services to the suppliers would only make sense. It is not just producers in the Resource Marketplace. Key to the efficiencies in the Resource Marketplace are the mitigation of transaction cost friction. Friction on both sides of the transaction, because transaction costs in the Resource Marketplace are costs that will be ultimately borne by the producer.

Contained within the marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in this virtual marketplace. The scope and size of the Resource Marketplace should accommodate the needs of Exxon Mobil and their $250 billion annual operating costs down to the single entrepreneur starting out in the business. To preclude any group, profession, organization, or person from the Resource Marketplace would limit the value available to the industry.

Also, to call this a just a Human Resource Marketplace would be incorrect because it would limit the participants in the market. Whatever service, product or solution is provided to the energy industry, form either individuals, those employed by producers or JOC’s, or companies providing services to the producers. This should include Schlumberger and anyone directly or indirectly employed in the energy 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.

The Preliminary Specification Part LI (C&G Part VI)

How could we have a discussion of the Compliance & Governance module and not discuss the much loved Sarbanes-Oxley requirements. As everyone is aware these are standard requirements for American based financial capital markets. The impact of the legislation has seen many changes in corporate America, and to me it provides a good start in the area of overall corporate governance. With the global scope of the changes that are being contemplated in the People, Ideas & Objects Preliminary Specification, I think now is the time to to rethink governance from stem to stern. To implement governance into these changes in a manner that doesn’t just add them to the system, but embeds them deeply within the systems DNA.

From what we know about the development of corporate governance in the last twenty years we should certainly give this different approach a try. The probable reduction in direct supervision and management, which is what the pundits say the future holds, would also require a commensurate increase in governance of the firm. That governance coming from an increase in the automation of the processes through the People, Ideas & Objects software development team and user community.

This is the last post for the Compliance & Governance module, and the last post of the first layer of the peeling of this onion we call the Preliminary Specification. We will now start over and begin peeling the second layer of the onion and go a bit deeper in the Preliminary Specification. Tomorrow we will start again with the Resource Marketplace 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.

The Preliminary Specification Part L (C&G Part V)

Today we want to discuss the governance of the capabilities process documented in the Research & Capabilities and Knowledge & Learning modules. Recall that this process takes the ideas that are generated throughout the oil and gas industry, and the service industry, funds them, develops commercial products and services, develops the producers capabilities, transfers those capabilities to the Joint Operating Committee and learns through their application. As we can see this is a long term process that would have many open ended elements that could be lost in the shuffle, or has aspects of the process that are too tempting.

Its probably best to take a step back and discuss why we are implementing this process in the Preliminary Specification. Simply we have two choices for providing the producer firm with the products and services of the service industry. We can let the market provide for all of the products and services, or we can have the producers conduct all of the work from manufacturing drill bits to producing the oil. We currently have a situation where the producers are dissatisfied with the service industry and are micro-managing that industry through control of the market. When producers are not satisfied with the size of the drilling rig fleet, they, the producers will commission more rigs. Sending the wrong messages to the service industry entrepreneurs. Producers have to work with the service industry, not against them, and certainly not accuse them of being greedy and lazy. When you take away the incentives to build a drilling rig, don’t accuse them of being greedy or lazy.

It is here within this “capabilities” process that the firms governance must enforce the boundaries of the firm. The division between the market and the firm, and where that division lay has to be enforced within this process. Simply the producer firm is only concerned with their asset base and their earth science and engineering capabilities. Everything else must be provided by the marketplace. The producer however has a role in providing a vision and leadership to the marketplace and seeding that market with funding. In a paper written by Professors Richard Langlois and Nicholas J. Foss entitled “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.” they note.

The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 21

The economic change the producer is facing is the commodity prices are rewarding the innovative producer. To focus on purchasing more drilling rigs is not where a producer can increase value. The governance of the producer must maintain the focus on where the producer can gain the greatest value, on finding and developing oil and gas reserves, otherwise.

If by contrast, the old configuration of capabilities lies within large vertically integrated organizations, creative destruction may well take the form of markets superseding firms. History offers many examples of both. p. 21

I am going to suggest that reliance on the Work Order and Military Command & Control Metaphor of the Preliminary Specification be the means of how the producer maintain focus and governance on this process. Distraction away from the objective of the firm is a very real possibility in dealing with the noise of the marketplace. The Work Order will ensure that no work is done on unauthorized off-the-reservation projects and that a chain of command is imputed in the administration of each project. This will help to ensure that each project is ultimately focused on providing the producer with earning greater returns on oil and gas reserves enhancement and production.

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. 

The Preliminary Specification Part XLIX (C&G Part IV)

The manner in which much of the work is done in the proposed People, Ideas & Objects Preliminary Specification resonates with the ideas of how work will be done in the future. Direct supervision is replaced by self organizing groups who are motivated by and directed by the performance of their property. This becomes the altruistic nirvana that people aspire to work for; and the governance issues that this creates for the firm. This post deals with the governance issues and how the governance areas of the Compliance & Governance module reels in the vision of self organizing groups to something that is more workable and sensible in the commercial environment.

First of all the Military Command & Control Metaphor is not just for the Joint Operating Committee. Although we have discussed it in terms of just the JOC, there is nothing stopping the firm from using the organizational overlay within the firm. This would also apply to the Work Order system. These two tools would provide the firm with the ability to ensure that tasks were assigned and completed as budgeted and execution was consistent with the firms expectations. Recall by the use of these systems, it is understood that no other work is undertaken without the ability to charge time or costs to a work order. Effectively ensuring that no off-the-reservation type of projects are undertaken. The Work Order system could also provide the internal control necessary to ensure that the appropriate people necessary to achieve the governance are assigned to approved projects and are capable of meeting the requirements of the tasks. When “things” go wrong it’s usually at the beginning and having that “governance” information available is the objective of this warning.

When we talk about the firms and Joint Operating Committees internal controls, they seem to me to be a lost art in the tool kit of today’s management. The ability to set up a control to trigger a warning that something is happening that is inconsistent with normal policies, has been used more in the past then they seem to be used today. The power of technology seems to go hand in hand with internal controls. I think they provide a strong method of  governance that should be built in to the People, Ideas & Objects governance area of the Compliance & Governance module. That is to say that a section be devoted to building database “triggers” and “stored procedures” that are used by the firm to monitor areas of the firms activities. These of course being available only to those individuals with the appropriate authority to access the data and information necessary to run the queries, and to fully appreciate the art and science of internal controls.

There is a potentially large issue that we need to discuss in the topic of governance which I will approach in the next post. The issue is the process of how the capabilities of the firm are generated. Recall in the Research & Capabilities and Knowledge & Learning modules the reliance on the marketplace to generate ideas that “might” be funded by the producer firm is certainly an area where enhanced governance is required.

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.