OUR PRELIMINARY SPECIFICATION MAKES SHALE COMMERCIAL. THROUGH AN INNOVATIVE BUSINESS MODEL SUPPORTING THE JOINT OPERATING COMMITTEE, WE PROVIDE OIL AND GAS ASSETS WITH THE MOST PROFITABLE MEANS OF OIL AND GAS OPERATIONS, EVERYWHERE AND ALWAYS. ENABLING THEM TO ACHIEVE ACCOUNTABLE AND PROFITABLE NORTH AMERICAN ENERGY INDEPENDENCE.
OIL AND GAS’ VALUE PROPOSITION IS AT A MINIMUM, LEVERAGED TO THE POINT OF 10,000 MAN HOURS PER BOE. WE KNOW WE CAN, AND WE KNOW HOW TO MAKE MONEY IN THIS BUSINESS.
One of the technical issues that need to be resolved in the Preliminary Specification is the manner in which access control to the data and information is managed in the Security & Access Control module. With the corporate model access control is simple, anyone within the firm can share the information that is developed and used within the corporation. Within the Joint Operating Committee, information may be developed from a variety of sources that specific access control to various members of the Joint Operating Committee need to have. This sharing between participants, or pooling as we call it in the Preliminary Specification, would normally not be permitted in the corporate model as the risk of some proprietary loss would be assumed. Our research has determined this risk of loss is immaterial and inconsistent with the needs of an innovative oil and gas industry. The Joint Operating Committee is the representation of the partnership that has been formed to maximise the profits from the property and assets in which each of the participants share. If a pooling of the contributions can not be conducted it will be because of the bureaucrats managing their turf, not from the loss of any proprietary information. What the Security & Access Control module strikes is a balance between harbouring data and information vs. deployment of the right information, by the right people at the right time.
Politics aside we still have a technical issue with respect to the access control of data and information within the Joint Operating Committees a producer / investor may have an interest in. Organizing around the Joint Operating Committee helps by making it the structure that we are focusing on. We are using the Joint Operating Committee as the basis of determining who has and who hasn't the access control rights. By doing this, it is the Joint Operating Committee that determines who has what type of access control rights. An individual that operates in the oil and gas industry, who uses the People, Ideas & Objects application modules would then be granted the necessary access control rights through the Security & Access Control module to the many Joint Operating Committees that they may be authorized by.
In addition to the specific access control privileges People, Ideas & Objects provide two additional levels of security that offer the producer with additional control. The first is the Military Command & Control Metaphor (MCCM) that was developed in the Preliminary Specification and the Oracle technologies that are used to provide the high levels of security in which all of the modules are operated under. The MCCM provides a means for a Joint Operating Committee to implement a command and control structure over the people that are working within the operation. This span of control includes the service industry representatives when they are conducting some operation. The MCCM includes a definable structure, a Job Order system and a manner in which all operations are documented. Again this structure will span the multiple organizations that the people are represented from.
We have talked about the division of labor and specialization that is used to deal with the various issues in the oil and gas industry. How the producer firm is a highly focused earth science and engineering capable organization. That many of the other aspects of the firm or Joint Operating Committee is sourced from service providers who specialize and bill for their services. These people may also need access to the data and information of the producer or Joint Operating Committee and it is with Oracle technologies that we can provide them with the limited access that they require. With Oracle we can grant that limited access to just the one element of data that they need access too, if that is all that is required. We also have high levels of security and specific access privileges that enable the firms most sensitive strategic and planning data and information is kept secret and for only certain users. All of this information can be determined by reading the Security & Access Control module of the Preliminary Specification.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
As I stated yesterday, what People, Ideas & Objects provides is an alternative business model for the oil and gas investor. A choice between the current corporate model which is in use exclusively in oil and gas, and the People, Ideas & Objects Preliminary Specification. It should not be assumed that because the corporate model is in use everywhere that is the choice of investors. It has been until now the only choice. Now with alternatives like the Preliminary Specification, we will have to see how the corporate model stands up to some competition.
What this new year also brings is the second phase of our marketing program. Our first phase documented the fact that the producers will be sticking with their corporate model. And that is to be expected, they have a vested interest in the status quo. Our appeal is to the oil and gas investor who may be frustrated with the corporate model and may have been looking for alternatives. This second phase of our marketing program will determine if they have been looking. It is with this noted change in our marketing that I have rewritten the Revenue Model. Part of that second phase of our marketing will be the promotion of the Preliminary Specification in this blog. What are the differences between these two models and why does the Preliminary Specification provide value to the oil and gas producer / investor.
So let’s begin. One of the key differences between the corporate model and the Preliminary Specifications use of the Joint Operating Committee is that the Preliminary Specification relies on the marketplace for the majority of its needs. Whether that is for the administrative needs of production or royalty accounting, or for the drilling of wells in the field. It is well known that the marketplace is the best place to look for the needs of the oil and gas producer. The reason for this is the scope of the technical demands are so great that the ability of any one producer to obtain all of the skills necessary in-house is impossible. This however hasn’t stopped some of the current producers using the corporate model to try. Many try to provide the services of any and all oil and gas needs within their own firm. This is how bureaucracies thrive.
Within the Preliminary Specification there are three marketplace modules. The Petroleum Lease, Resource, and Financial Marketplace modules. Each dealing with one of the three critical resources or things that make up an oil and gas producer. It is within the Resource Marketplace module that the service industries are provided an interface to the innovative oil and gas producer and Joint Operating Committee. Developed with the research into how innovation is a result of the efforts of many, spanning many industries and professions, the Resource Marketplace and Research & Capabilities modules enable the innovation to develop within the oil and gas industry. Enabling collaboration between the service industry and producers, this can be done as simply as service companies posting new ideas or producers expressing their needs within the interfaces of the Resource Marketplace module. These interfaces are detailed in the Preliminary Specification and are the seeds of an innovative oil and gas industry.
To draw a stark contrast to today’s marketplace where producers blame the high cost structures of field operations on the service industry. What really is at issue is there are no innovations occurring due to the manner in which new ideas are treated by the producers. They are not respected, but passed along to the originators competitors as if they were free. Instead of working with those that developed the idea, the producers will take it and use it for themselves. Eventually what happens, and what has happened, is that no new ideas come in due to the disrespect the producers have shown to the marketplace. No new competitors arrive in the marketplace and the high cost structures become permanent and the producers are left with their only option, and that is, to complain about the high cost structures of a non innovative service industry. There is another way and that is through the development of the Preliminary Specification.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
2013 marks the eighth year that we have been writing this blog. And since it is still relatively early in our marketing, that is seven full years of research that went into the Preliminary Specification. All of it contained here in this blog, and all of it having to do with using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. Who would have thought so much could be written about just one idea. As I mentioned in my last post, I’m looking forward to what 2013 provides us. Marketing the Preliminary Specification to the industry will take on many forms and we are uncertain and unknowing what those will be. A truly exciting time.
Ideally we will be tasked with developing a system with the focus on North America and the Gulf of Mexico as its geographical scope. Developing a system for this region presents a level of technical risk that is manageable with today’s Information Technology, and is something that fits with the objective of making this region energy self-sufficient. To expand beyond this scope does not present any business justification that warrants taking on the additional IT risks. And to leave areas within this region unaddressed would cause producers to have to manage multiple systems in order to cover off their domain of operations.
This objective shows the scope of the projects ambition. I am satisfied with the levels of technical and business risks that it presents. If we look at the future of the industry I think it will be seen as a reasonable approach to the issues that we face. We have seen many industries being disrupted by technology in the last few decades, why would oil and gas be immune. And what exactly is the compelling vision that is keeping the bureaucracy in place today? What People, Ideas & Objects provides is a means in which the oil and gas investor can choose how they manage their oil and gas assets.
The choice we provide the oil and gas investor is between the current corporate model and the Preliminary Specifications use of the Joint Operating Committee. The corporate model is proving to be unsustainable and unprofitable. This puts the oil and gas investors investment at risk. In the corporate model the investors are the ones that are the last in terms of attaining any value in a breakup. The management leave to pursue opportunities elsewhere and the banks and bondholders end up with the assets. Leaving just the losses for the oil and gas investor. Under the Preliminary Specifications use of the Joint Operating Committee the oil and gas investor has the opportunity to manage their assets in a manner that is consistent with their needs. And contrary to the corporate model, those decisions will be made with a vested interest in those assets.
This is part of the vision that is inherent in the Preliminary Specification. That an oil and gas investor can operate their oil and gas assets themselves. That their ownership of interests in a variety of Joint Operating Committees can be managed through the People, Ideas & Objects Preliminary Specification. Where they could have a hands on control of their assets and manage them in the best interests as they see fit. Having the expensive, slow and un-accountable management of the corporate model doesn’t fit in the future of the innovative oil and gas industry.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
As we close out 2012 I have to say that I am pleased with the status of this project. We have made some significant leaps forward this year. The completion and publication of the Preliminary Specification is both timely and provides the users in the oil and gas industry with a vision of how better to operate the industry. We also have this vision as something material and tangible to market to these users, the producers and our primary target for funds, the investors in oil and gas properties. What we offer all of these groups is an alternative means of oil and gas organization. One that is more natural than that which is offered by the current bureaucracies.
Its been several years of research that have gone into the Preliminary Specification. This has been conducted without the support of any revenues. Now that we have started our marketing program, we can not only look forward to generating revenues but to begin the developments of the software that is defined and supported by our user communities. I think we will look back at 2012 as one of the most critical years in the firms development.
We can look forward to an unknown future in 2013. It would be nice to budget some developments and set some definitive plans. However, outside of marketing, we have no resources for those types of activities. It will, however, be through our marketing efforts in 2013 that we will be able to set our plans and developments in the very near future. Until then have a Happy New Year and we’ll see you in 2013.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
The most unsustainable element of the current producers business model has to be natural gas prices. Selling gas at well below cost is a fools game, yet it continues. The only solution that has been tried has been a decline in the number of wells drilled. And that has not had the desired effect on prices. Reducing capital expenditures is at best a very blunt instrument in the current natural gas business environment. So what is the solution. Information Technology is the solution to the Natural Gas Pricing problems. Specifically the Preliminary Specification will provide the producer with the ability to remove their marginal production from the marketplace until the prices return to the point where production would be profitable.
The Preliminary Specification uses the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. Operational decision making is one of the frameworks of the Joint Operating Committee and therefore making the decision to shut-in marginal production due to low natural gas prices falls within that framework. These decisions will have the effect of eliminating the operational losses that the producer incurs due to the fact that the Preliminary Specification also employs the decentralized production model. The decentralized production model allows for better matching of costs and revenues, and eliminates the production and associated overheads during periods when production is shut-in.
Eliminating losses from low natural gas prices will have the effect of increasing the value of the producers reserves. Increasing the fixed costs of the reserves, by the losses that are incurred, has a detrimental effect on the economics on the field. These losses can in many instances remove the expected return from the property. By using the Preliminary Specification and the decentralized production model, where production overheads are not incurred during times of shut-in production, only the costs of capital are uncovered, and will eliminate the losses during times of low natural gas prices.
If the Preliminary Specification was shared throughout the industry the potential declines in natural gas prices would be eliminated. If each producer were able to limit their losses on production by shutting in marginal production then prices within the industry would never drop below the marginal cost. As an industry the capability to remove the marginal production would ensure that prices remained at a point where producers remained profitable.
The solution to the natural gas pricing issues is Information Technology. The ability to remove the marginal production as described here in the Preliminary Specification on an industry wide basis is the only solution to the overproduction that can occur as a result of prolific multi-lateral and multi-stage fracing. Production discipline will need to be implemented by way of the marginal costs. The innovative oil and gas producer can innovate based on the lowest marginal cost. Unprofitable producers will need to be dealt with harshly by the marketplace. Competitive drainage by unprofitable producers will not be considered a risk. That will be the future of the oil and gas industry.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
In yesterday’s post I mentioned the Preliminary Specification has three marketplace modules. These consist of the Petroleum Lease Marketplace, Resource Marketplace and Financial Marketplace modules. In the future the oil and gas producer and the Joint Operating Committee will have a greater reliance on the marketplace for its needs. This is in contrast to today’s manner of having everything brought in-house and under the management of the producer. Having everything under the domain of the producer is part of the unsustainable business model that is the reason that the Preliminary Specification needs to be built.
The reason that this current business model is unsustainable is the same as what we noted yesterday for the geologists and engineers. The division of labor and specialization, which are needed to increase the capacity and capabilities of the industry, would require the producer to expand the number of people they employ to cover off the scope and scale of their operation to the point where they would no longer be a viable going concern. The need to rely on service providers from the marketplace that are focused on the process and servicing the industry at large, which is what is needed. That way they can organize themselves in a manner that is the most efficient and effective, and at the lowest costs for their clients the Joint Operating Committees.
In the Preliminary Specification I highlighted a few examples of the types of work that would fall under this category. These are only examples and it should be assumed that every position should be subject to the same process of determining whether it should be relied upon from the marketplace or can continue to be supplied internally. It is best to consider that the Joint Operating Committee will be populated by people who are seconded from the participating producers that own an interest in the property. And the producer firm will be a scaled down version of the existing structure focused on the earth science and engineering capabilities that are unique and a critical part of their competitive offering. Add a few other resources for finance and land; and that would make up the core of the producer with the majority of the producers processes being managed by service providers provided by the marketplace.
One of the examples I used in the Preliminary Specification was the Production Accounting tasks that have traditionally been conducted in-house. Since these are processes that are recurring each month they are ideal for the marketplace to provide. And here it was noted that a service provider might establish their service in an area where there are a number of gas plants and service those gas plants in a “hands-on” manner. Conducting the production accounting tasks for all of the producers in that local area for those gas plants would be their area of specialization and they would be able to process and bill their services on the basis of some unit of work output. Therefore when wells were shut-in the production accounting service provider would have no production accounting service billing for those wells during that month.
Another example that was used was Royalty Accounting that was specialized based on the jurisdiction that attracted a specific royalty. That service provider would be able to ensure their clients that they would process their production in the manner that ensured they paid the lowest possible royalties on their production. These specializations on local area for the Production Accountant and royalty jurisdiction for Royalty Accountant are not available to the producer in the current business model. The producers competitive advantage is in its earth science and engineering capabilities, and land and asset base. The more that it is able to focus on its core competitive advantage and less on the royalty nuances and production accounting requirements the more profitable it will be. That is the business model that will provide the oil and gas investor with the most profitable means of oil and gas operations.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And Merry Christmas to everyone.
Another area where the current producers business model is unsustainable is in the concept of designating one producer as operator. As a result of each producer obtaining the capabilities necessary to be designated as operator. A hoarding of these critical resources occurs. In the Preliminary Specification the manner in which work at the property is approached is through the partnership represented in the Joint Operating Committee. A pooling of the resources of the partnership is a necessity due to the high demand for earth scientists and engineers.
When the producer is designated as operator they have to build just in time capabilities to deal with all contingencies within their organizations. This creates a surplus capacity within the geological and engineering capabilities of the producer firm. Taken across the industry this surplus capacity is unused and unusable. At a time when these resources are in mid to long term shortages, due to the retirement of engineers and geologists, and the increasing demands of these sciences in each barrel of oil produced. And there is a third aspect of these professions affecting the ability of producers to “operate” all of their properties. That is the need for specialization and the division of labor. In order to increase the output of the industry the need to organize these professions in a manner that is more specialized and uses a higher division of labor. This will increase the throughput from the same volume of resources. This will require that the producer who desires to approach the needs of being “operator” to hire more bodies to ensure that they have the full scope and scale within their operation. A situation that will be uneconomic and highly impractical. Therefore the operator designation will become a feature that past producers were able to pursue and something that is impractical and uneconomic in the very near future. However, approaching the specialization and division of labor from an industry point of view will not be uneconomic or impractical.
An alternative approach to the building of independent silo’s of “operators” within each producer is therefore a necessity. The Preliminary Specifications “pooling” provides this alternative approach in the following manner. Each producer develops their capabilities consistent with the needs of the industry understanding for specialization and an enhanced division of labor. Within the Research & Capabilities module of the Preliminary Specification they document these capabilities and publish these capabilities to the pertinent Joint Operating Committees that they have an interest in. There the people who are seconded from the various producers to work within the Joint Operating Committee are able to review the various capabilities of all of the producers who are party to the property. Then they can select the capabilities that are required to enhance the property in the fashion that is determined by the Joint Operating Committee. In addition these resources that are seconded to the Joint Operating Committee are able to organize themselves through the Security & Access Control module’s Military Command & Control Metaphor. This designates roles and responsibilities that each individual will have within the Joint Operating Committee and provides a cornerstone of the means of command and control of the property. Other aspects of command and control include the AFE and its budget, the Work Order system, and the Job Order system.
Having all aspects of the geological and engineering scope and scale covered off as a result of this pooling might not have occurred. The need to augment additional resources from the marketplace of engineering and geological service providers will probably be a necessity in the future. The demands of an industry that is relying on an enhanced division of labor and specialization will require a higher reliance on the marketplace. That is why there are three marketplace modules in the Preliminary Specification. This will need to be an element of how the Joint Operating Committees work is completed in the future. The Preliminary Specification will be the tool that supports and defines the Joint Operating Committee and marketplaces in meeting the consumers demands for energy.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
When we were discussing the manner in which production overhead was to be incurred and charged in the environment created by the Preliminary Specification. The contrast to what exists today is striking. Each producer has to develop their organization with the capabilities to process lease rentals, production accounting, royalty accounting and the various other production related overhead expenses inhouse. These costs are incurred whether there is production or not. This is one of the reasons that the marginal production is not removed from the marketplace. The need to cover off these costs at all times is a necessity. Under the decentralized production model that is used in the Preliminary Specification the costs associated with shutting-in of production are the responsibility of the service provider. They will need to organize themselves in a manner where they ensure they are providing the producers with the lowest cost services. Something that will be possible through the leveraging of automation, specialization and division of labor.
If the majority of the accounting and production overhead that is incurred by a Joint Operating Committee is being provided by a service provider. Then the implications to a producer will be greater than just the direct costs of these services. What would be the purpose in having office space and accommodations available for these people located at the producer firm? Would it not be more efficient for the service provider to include the costs of their office space in the service fee? Then the costs of overhead for the producer would be sizably smaller from a square footage footprint point of view, and the associated costs that are incurred there. What we will see with the use of the Preliminary Specification is the reduction of the producer firm to key individuals necessary to focus on the competitive advantages of the firm. Those being the land and asset base, and the earth science and engineering capabilities of the firm. Anything else can be provided through a service provider where they are organized to bring the process to the Joint Operating Committee in an efficient manner using the tools of automation, specialization and the division of labor.
The manner in which today’s and yesterday’s post are combined to make the producer’s business model unsustainable are two fold. First the inability to remove the marginal production from the marketplace enables the losses on reserves to occur. Secondly the high fixed overhead costs must be covered by constant production.
By removing the high fixed nature of the production overhead, and other overheads, of the Joint Operating Committee and the producer. The ability to deal with the reality that volatile commodity prices will remain for the foreseeable future is provided to the innovative oil and gas producer. If all producers exercise production discipline then there will be limited need to be shutting-in production once prices stabilize. However, having the capability to deal with the marginal production must be a capability that remains throughout the industry. And that does not currently exist within the producer marketplace. If it did we would not have the current natural gas prices.
What the Preliminary Specification provides the producer firm is the ability to better manage their overhead costs. By using the division of labor and specialization, the overhead related processes are managed much more efficiently and effectively when they are managed across the industry and charged directly to the individual Joint Operating Committees. This enables the producer to control their costs during times of shut-in production by not incurring costs of overhead. Ensuring the costs of capital are the only costs that remain uncovered during times of shut-in production. Overall this provides the producer with the ability to ensure that they incur no loss of earnings on their reserves. In the current environment, losses on reserves are costs that are fixed and have the effect of making the entire field uneconomic. Losses on reserves should be avoided at all times. The Preliminary Specification provides the innovative oil and gas producer with the capability to better manage their reserves in this fashion.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
In yesterday’s post I made the claim that the current producers are pursuing unsustainable business model’s. That’s a rather bold assertion and one that will surely be argued or dismissed by those that are currently invested in that generation of producer. So what is it that I mean when I say that they are unsustainable. To detail the difference between the status quo and the Preliminary Specification can not be done in one blog post and as a result this comparison or critique of the current producers business model will take several blog posts under the Unsustainable label.
2012 is over and the verdict in terms of profitability is going to probably read that some companies were profitable as the exception, but not as the general rule. The destruction of capital, as reflected in asset write downs continues with the natural gas business continuing with depressed prices. According to the firms models this was all to have turned around by now. Yet nothing is done to mitigate the over production and loss of reserves. An unsustainable business model can best be described by selling natural gas well below costs for significant periods of time.
In the Preliminary Specification the ability to remove the marginal production from the marketplace and maintain production discipline is one of the capabilities of the system. Through use of the decentralized production model and disposing of the high throughput production model currently used by producers. The Joint Operating Committee is able to shut in marginal production when the prices reach the point where the partners agree the production does not cover the costs of the operation. And since the producers are innovative and have their capabilities available to them through the People, Ideas & Objects Research & Capabilities module they can apply the latest innovative thinking to the property to bring those reserves back into production by reducing the costs of production. All the while the property is shut-in, the overhead that was incurred during production is stopped and these savings are realized during periods in which this or any property is shut in.
The ability to save the production overhead during times of shut-in production is one of the features of the Preliminary Specification. Through an advanced specialization and division of labor the administrative overhead of the industry is reorganized to be more efficient and effective. This takes the tasks and removes them from the producer and aggregates them and reorganizes them based on the processes across the industry. Therefore service providers are organized to provide lease rental services, production accounting services, royalty accounting services etc. In addition these services are not charged to the producer firm itself but to the Joint Operating Committee directly. Therefore during times when the production is shut-in the overhead costs associated with the service provider are not incurred and not billed to that Joint Operating Committee. Leaving the cost of capital as the only costs that are uncovered during times of shut-in production. This is the preferable situation as opposed to incurring a loss on the reserves.
Taken at the micro level the producer maximizes the value of their reserves. Taken at the macro level the market will not be subjected to the wild downward slides in gas prices that have been the norm in the past few years. By removing the marginal production from the marketplace in this manner the producers can employ production discipline and ensure that the marketplace remains healthy for future operations.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
… is a sign of insanity. One could argue therefore that our marketing program was a sign of insanity. Launched in September 2012 and focused on the CEO and CFO’s of the top 100 producers in the North American marketplace. This marketing program is similar to the ones that I have been involved in before. Whether that is through my efforts here in People, Ideas & Objects or my predecessor efforts in Genesys Software Corporation. Many times the industry has been approached and the result have been the same. There is a systemic and cultural predisposition for the oil and gas industry to summarily ignore Information Technology when it comes to ERP systems.
So why would we launch another marketing program to only run into the same systemic and cultural predisposition. The expectation, the purpose behind our marketing program, was to document the existence of this predisposition and therefore it was not a sign of insanity as it was not expecting to be fruitful from a funding point of view. We’ll get more into the logic that we would be doing such an illogical task in future posts, but stay with me until we get to that logic.
It is also at this point that IBM saw the writing on the wall in 2005 when they marketed a fairly significant development to their industry leading Qbyte application. When they were faced with the same predisposition in the marketplace from the producers they chose to leave the marketplace and sell the Qbyte application in absolute frustration over the inability of the producers to deal with this situation. I can appreciate their frustration and share their concern. The oil and gas producers will never involve themselves in any development of an ERP system, ever. That leads me to state that they also have an unsustainable business model, which we will also be talking about more in future blog posts.
People, Ideas & Objects face the same situation that IBM faced in 2005. People, Ideas & Objects have however two significant advantages in that we have a holistic vision as reflected in the Preliminary Specification, and we’re not quitting. This might seem futile however, remember the purpose in the marketing program was to document the predisposition of the systemic and cultural ways of the producers towards ERP systems. I now have that documentation. And we can as a result turn to our natural source of funding for the Preliminary Specification and its development, from the oil and gas investors.
Throughout the business community we have seen industries with unsustainable business models refuse to change. And those that have chosen not to change be disrupted by new technologies. People, Ideas & Objects are the technology that will disrupt the organizations that now operate within the oil and gas industry. They are operating in an unsustainable fashion. The alternative is the Joint Operating Committee owned and operated by the actual oil and gas investor. When we move the compliance and governance frameworks from the hierarchy to the legal, financial, operational decision making, communication, cultural, strategic and innovation framework of the Joint Operating Committee we achieve an alignment where speed, innovation and accountability are the result. We also obtain control over the operational concerns of the producer and are able to approach the issues of the day such as low natural gas prices and the shortages of key personnel such as geologists and engineers.
We will be talking more about the unsustainable nature of the current producers business model. We will also be talking about how People, Ideas & Objects provides the oil and gas investor with a means to manage their oil and gas assets. This series of blog posts will discuss the Preliminary Specification and the business model that the oil and gas investor will use, and why they should develop the Preliminary Specification as their alternative to the current producer firm. It’s a time of disruption. The producer will not change and the marketplace has changed.
The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.
I am pleased to announce that the Wiki that holds the Preliminary Specification is now finished. It is located here and includes the eleven modules, the abstract and the executive summary that were published here recently. I have also included a background section that hopefully provides further information on some of the key concepts in the Preliminary Specification. I am particularly pleased with the abstract and executive summary. I think that they capture the scope and substance of the project as they stand to date and the job that we have a head of us.
Now that I have completed my involvement in the Preliminary Specification it is time to promote it to the producer firms that will have an interest in participating. This will be to raise the required funds to complete the Preliminary Specification, which will also involve building the user community. If you know of someone who might be interested in this project be sure to send them the url to the wiki.
Posting will be intermittent, but we’ll update you here as soon as there’s new information. Thanks.
The Preliminary Specification is an eleven module ERP (Enterprise Resource Planning) software system designed for the innovative oil and gas producer. It uses as its key organizational focus the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the industry. By moving the compliance and governance of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve a speed, innovativeness and accountability that is necessary in the era of insatiable energy demand.
The Preliminary Specification is a development phase that will determine the scope and detailed requirements of the system in its first commercial release. “What” will the system do and “how” will it do the things that it sets out to do. These specifications will be as a result of user community input and be detailed and comprehensive. The budget for this phase of the development is set at 5 - 10% of the total overall budget and projected to be $100 million. Producers are a key aspect of the user community and should consider joining as soon as possible to ensure that the system considers their needs. Waiting provides no cost advantage and there will be disadvantages to those that do not participate actively. Please review our Revenue Model for more information.
Hosting of the People, Ideas & Objects application modules, and the Oracle modules, will be via the cloud computing architecture. Please review our Hardware Policies & Procedures for further information on how these affect the producer firms.
Security & Access Control
What we have with using the Joint Operating Committee (JOC) as the key organizational construct of the innovative oil and gas producer. Is the interactions of many producers and suppliers who are involved in the day to day commercial and strategic concerns of a JOC. What we need to concern ourselves within the Security & Access Control module is that the right people have the right access to the right information with the right authority at the right time and at the right place.
Throughout the Preliminary Specification we discuss one of the premier issues of the oil and gas industry. That being the demand for earth science and engineering effort is increasing with each barrel produced. This is best represented in the steep escalation of the costs involved in the exploration and production of oil and gas. At the same time the critical earth science and engineering resources are somewhat fixed and are difficult to expand in the short to medium term. Add to that, an anticipated retirement of this brain trust in the next twenty years, and the problem becomes of critical concern.
There are few short term solutions to the short fall in geologists and engineers over the next twenty years. It takes the better part of that time to train them to operate in the industry. What we do know are several “things” that are being applied in the People, Ideas & Objects Preliminary Specification. Key to a number of concepts application are what we call the Military Command & Control Metaphor. Which is a method developed in the Security & Access Control module of imposing command and control over any and all Joint Operating Committees, working groups, producer firms or organizations the producer may need to add structure to.
The concept of specialization and division of labor is well known as a principle of economics that brings about greater amounts of economic productivity from the same volume of resources. Given that the volume of earth science and engineering resources are known for the foreseeable future, specialization and the division of labor will provide us with a tangible means in which to deal with the productivity of the oil and gas industry. In today’s marketplace to approach a heightened level of specialization and division of labor, particularly from a scope and scale point of view, without the use of software to define and support it would be downright foolish.
The pooling concept is the solution to the current desire that each producer firm acquires the earth science and engineering capabilities necessary to deal with all the needs of their “operated” properties. This creates unneeded “just-in-time” capabilities for the scarce scientific resources. When each producer within the industry pursues this same strategy substantial redundancies are built into the industries capabilities. Redundancies that are left unused and unusable. What is proposed through the People, Ideas & Objects software application modules is that the producers operational strategy avoids the “operator” concept and begins pooling the technical resources through the partnership represented in the Joint Operating Committee. That way the redundancies that would have been present in the industry can be made available to the producers and used by the producers through an advanced specialization and division of labor.
What these concepts require therefore is what the Security & Access Control module is designed to provide. The system must provide access to the right person at the right time and the right place with the right authority to the right information. With the Military Command & Control Metaphor there will also be a manner in which the technical, and all the resources, that have been pooled from the producers, interact with an appropriate governance and chain of command.
Oracle’s products provide a strong layer of mission critical capabilities in the Security & Access Control module. Although this comes with additional costs, I am certain that no one will argue with the quality and secure knowledge that these products bring.
Resource Marketplace
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 Committees (JOC) and producers. Anything of value that is contracted between “actors” in the oil and gas, service, software and user community generated businesses will be found, contracted, managed and developed through this module. It's simply a virtual representation of these marketplaces. 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. Since 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 ultimately be borne by the producer or Joint Operating Committee.
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 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, from 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.
It is the use of the Joint Operating Committee and the “Marketplace Interface” by the Resource Marketplace that provides the value to the innovative oil and gas producer. Enabling the service industry to grow thick markets for their products and services. Producers have a role in defining and supporting a dynamic, competitive and healthy service industry. However, before that happens, the need for the software that is defined here in the Resource Marketplace has to be built for the producer, the Joint Operating Committee and the service sector to support these markets.
The division of labor and specialization play a large role in the Resource Marketplace as well. By outsourcing many of the administrative functions from the producer firm to specialized service providers. The producer firm is able to focus on those core competitive advantages of their land and asset base, and their earth science and engineering capabilities. Having the land, accounting, production and other administrative functions sourced from the Resource Marketplace by specialized service providers.
With this change in the administrative function of the producer firms we are able to transition from the “high throughput production” model to the “decentralized production” model where production and overhead costs more accurately match revenues. As a result we are able to initiate pricing related production decisions that better manage the producers oil and gas reserves.
The Resource Marketplace module is an active participant, as is the Petroleum Lease Marketplace and Financial Marketplace modules, in the “Marketplace Interface”.
Petroleum Lease Marketplace
The Petroleum Lease Marketplace (PLM) is I think the most interesting marketplace module as its objective is to replicate virtually what the physical oil and gas marketplace is. That begins of course with Petroleum Leases.
When we are replicating the physical oil and gas marketplace, the Petroleum Lease is the source document that is the common denominator of all activity and ownership within the industry. Any physical oil and gas assets will be attached to some lease, agreement, rights or concession granting the holders the rights and privileges of ownership, lease or rental. These are the things that are contained within a marketplace. They are what are purchased and sold, bargained and traded for. They are the things that people are recruited to provide services for. Generally a marketplace is a dynamic and evolving commercially oriented hub of activity. That is what we are replicating in the PLM.
When we look at the types of work that is carried out in the PLM we see a large group of administrators working within different areas within a producer firm. Whether it be the Land or Legal department, Production or Exploration Operations staff or Accounting people; all of these groups have an interest in the information, people, assets, documents, processes and functionality contained within the PLM. The primary concern of the people in these groups is the information and data contained within the module. Its accuracy, access, and use by those within their firm, but also within the Joint Operating Committees that their firm has an interest in. Some of this data will be similar to the data that is held by their firms partners, and much of the data has been generated in a cooperative and collaborative manner by those partnerships.
One of the greatest opportunities that we have in developing this system is to address the division of labor and specialization. To take these people’s work and to reorganize it across the industry, so that it was focused on the Joint Operating Committee and very specialized in terms of the tasks that they conduct. To apply those skills across the entire industry, or a geographical region, or some other classification. Which is something that could provide significant increases in oil and gas industry productivity and overall cost savings. That is to say that an individual would work for a process that is billed to 1,000 Joint Operating Committees that might represent 200 Companies.
The types of documents that are generated within the Petroleum Lease Marketplace are somewhat self-evident. (Recall we are including Land, Legal, Production Admin, Exploration Admin, Accounting and Others in the classifications.) Most of them are created in collaboration with the participants of the Joint Operating Committee and include: Authority for Expenditures (AFE"s), Capital Budgeting (Firm and JOC), Construction Ownership and Operating Agreements, Mail Ballots, Daily Drilling Reports, Lease Bonus, Lease Rental, Lease Taxes, Areas of Mutual Interest are some of the forms, processes and attributes of the Petroleum Lease Marketplace module. A more detailed specification will be the result of the communities contribution and commitments.
The innovative oil and gas producer relies on their competitive advantages of their land and asset base, and their earth science and engineering capabilities. The Petroleum Lease Marketplace is the module that provides the producer and Joint Operating Committee with the tools to build their land and asset base. But there’s more, using the “Marketplace Interface” and the service providers that support the innovative producer. The Petroleum Lease Marketplace provides the producer with the competitive advantages to compete in the 21st century.
Financial Marketplace
With many of the world's 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 is making is 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 firm. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the property. Aligning of the bank and investment financing to the innovative oil and gas producers and Joint Operating Committees legal, financial, operational decision making, cultural, communication, strategic, innovation, compliance and governance frameworks.
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? The demand for capital will continue to be strong, and the supply will continue to be tight. What we seek to prove in this module, is that through its use we can provide the innovative oil and gas producer and the Joint Operating Committee with the ability to ensure that their capital structures are more efficient than what can be attained in any other system. My two criticisms of the management are that the velocity at which the management operates at is too slow, and the innovativeness is non-existent. In the financial marketplace the pace of activity will need to accelerate in order to address both of these issues. I think we have addressed these with the changes we have documented in the Financial Marketplace module of the Preliminary Specification.
The future requires that we are able to provide for the markets demands for energy. The financial crisis is providing relief in terms of overall global economic growth. Eventually the increase in demand for energy will resume and that is not something that we can currently contemplate. What we have proven here in the Financial Marketplace module is that the innovative oil and gas producer will have more efficient capital structures. Those structures lead to the overall performance of the producer and the Joint Operating Committees they participate in. We need to get our head around this energy demand situation and start to deal with a solution. Muddling through just seems to be too much of a risk.
A note about the “Marketplace Interface” that is a critical component of the Resource, Petroleum Lease and Financial Marketplace modules. The “Marketplace Interface” is a virtual representation that the user has of each of the marketplace modules. It uses avatars where firms and producers establish a virtual representation of their firms offerings. This provides a means in which people have to conduct their business virtually as well as through the traditional means. The avatars are supported through the People, Ideas & Objects ERP system that provides them with the ability to conduct any and all operations that they are able to conduct in the Preliminary Specification modules. The following video is a demonstration of the technology by the project owners Project Wonderland.
(Please review the video below.)
Partnership Accounting
The Partnership Accounting module is a pure “accounting” module from the traditional sense, however, I think there are many attributes and concepts in this module that make it unique and of interest to everyone in the industry. The standard list of output from an accounting system is provided and this is standard fare for any software provider in oil and gas. And the user community will fill this list with much more. As we will see in subsequent discussions 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 are as unique as the strategies that are employed.
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 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's realized that each asset may be owned by a Joint Operating Committee itself and hold product on behalf of owners of other Joint Operating Committees. 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 process 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 wellhead. 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 Specification. To state this as simply as possible is that the scope of the Partnership Accounting module captures all of these activities for all of these facilities as its purpose. Each Material Balance Report must balance. And each reports inputs and outputs balance to other Material Balance Reports. The key to the Material Balance Report is that it provides a means to ensure that the volumes that are reported are factual. Which is the necessary requirement for much of the subsequent process automation.
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 the Material Balance Report 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.
We also introduce the “Work Order” in the Partnership Accounting module. The “Work Order” enables producer firms to participate in informal and ad-hoc working groups to conduct studies and research. These informal groups are able to be established and formed without the traditional accounting nightmare that they have normally created, that are the impediment to their formation. An innovative oil and gas industry needs to have these studies and research working groups form and develop in order to expand the overall science of the industry. The “Work Order” is also an internal cost control mechanism that producers and Joint Operating Committees can rely on to manage their projects.
Accounting Voucher
We now shift our attention to the Accounting Voucher module. The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. They both being accounting modules, it is natural that they have high levels of integration. The Accounting Voucher is unique in that it brings to the producer the ability to design transactions and the Material Balance Report. These are not innovations that the producer will use to become more innovative but are provided to ensure that the innovative producers processes are actively defined and supported through out the People, Ideas & Objects application modules. When the business is a science, as it is in oil and gas, it would be in the producers interest to remain open and flexible in both its scientific and business approach. The Accounting Voucher and Partnership Accounting modules provide that organizational flexibility.
The manner in which these two modules operate is the Accounting Voucher captures the transactions. Partnership Accounting reports on the transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process that is familiar and traditional in the accounting world.
We noted in the Partnership Accounting module how the Work Order enabled the producer with the ability to form and participate in working groups. Providing a flexibility in participating and accounting for these working groups. This flexibility is what is being sought after in the rest of the producer firm and Joint Operating Committee from these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to a producers innovation as much as the Research & Capabilities or Knowledge & Learning modules do.
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 Baldwin's comments and theories. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the People, Ideas & Objects application. What this means is it’s necessary for people to cease in processing transactions, by way of automation, and move toward the definition and design of transactions to optimize the business of the producer and Joint Operating Committees performance. Designing transactions is best described in the Preliminary Specification as coordinating the marketplace.
As a result of the pooling concept that is a basic assumption of the People, Ideas & Objects Preliminary Specification. Some of the Accounting Vouchers will be open to charges from multiple producers represented in the Joint Operating Committees that your producer firm is a participant in. The revenue, capital and operations of each of the Joint Operating Committees accounts are open to the direct debit and credit charges of all of the participants in the JOC.
The pooling concept has been developed as a replacement to the “operator” designation that currently exists. The ability for each producer to have the just-in-time capabilities available for all the properties they manage requires, on an industry wide basis, to have unused and unusable earth science and engineering capabilities. The ability to pool these critical resources from participating producers into the Joint Operating Committee releases these hoarded unused and unusable capabilities. The pooling concept also implies that some producers will provide other resources to the property in disproportionate amounts to their working interests. All producers need to contribute the skills, knowledge, experience and ideas that they have in an innovative oil and gas industry. Therefore each of these producers need to have the ability to charge their capabilities to the joint account. All charges are subject to the AFE or Work Orders budget requirements and cost control remains the domain of the Joint Operating Committees.
Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs. It is People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated or constrained by the administrative ease in which the producer operates.
The same can be stated for the Material Balance Report. If the producer is confident that the deal that was conceived is accurately captured in the Accounting Voucher. And the operation is therefore also reporting a substantial profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved.
Research & Capabilities
The Research & Capabilities module enables the producer firm to structure a division of labor between those people that will develop the research and innovations within the producer firm (Research & Capabilities), and those that will implement the innovations within the Joint Operating Committees (Knowledge & Learning). This is one of the major processes of innovation that is carried out in the module. Another major process is that it provides the innovative oil and gas producer with the ability to move the knowledge and capabilities to where the decision rights are held. This module is at the core of the innovative oil and gas producer. Identifying and supporting the key elements of “what” and “how” innovation requires. The Research & Capabilities module is the focus of the producers competitive advantages of their earth science and engineering capabilities.
There are a variety of interfaces in the Research & Capabilities module that enable and encourage the innovation, and develop the capabilities of the producer firm. These capabilities are ultimately captured in the “Dynamic Capabilities Interface” which is the key to both the Research & Capabilities and Knowledge & Learning modules. What the “Dynamic Capabilities Interface” does is capture, document and enable the deployment of the capabilities of the producer firm. These are the knowledge, skills, experience and ideas of the firm. The deployment of these capabilities is by way of their pertinent geological zone, or geographical area, and as a result these capabilities will be populated into the various Joint Operating Committees that meet that criteria in the Knowledge & Learning module.
The objective that we are fulfilling in the Research & Capabilities and Knowledge & Learning module is we are moving the knowledge to where the decision rights are held. The Joint Operating Committee is the operational decision making framework of the industry. With the current method of designating one of the producers in the Joint Operating Committee as the operator there is an attempt to move the decision rights to where the knowledge resides. In the Preliminary Specification we have eliminated the concept of the operator and replaced it with the pooling concept and therefore are able to align the frameworks of the Joint Operating Committee with the compliance and governance of the firm. This requires that we move the knowledge to where the decision rights are held. By doing so we eliminate one point of conflict between the partnership represented in the Joint Operating Committee and the producer who was formerly designated operator.
Knowledge & Learning
We now move onto the Joint Operating Committee focused Knowledge & Learning module of the Preliminary Specification. This module shares many similarities to the Research & Capabilities module, and in fact is populated with the capabilities from that “Dynamic Capabilities Interface” as its base of information. Recall that the objective that we are working to achieve is to move the knowledge to where the decision rights are held.
As I noted the Research & Capabilities module should be organized based on geologic zones. This is so that the information that is pertinent to each zone can be separated into its own “packaging” within the Knowledge & Learning module. Additional ways in which data may be sorted in the Research & Capabilities module might include geographical location. Where all the vendors who operate within a certain geographical location are referenced only in those regions in the Knowledge & Learning module.
With each Joint Operating Committee being concerned with one or a handful of geologic zones. The focus of the Joint Operating Committee can be limited to just those specific areas and or capabilities. What is particularly different about the Knowledge & Learning module, however, is that the information that is contained within the module is aggregated from multiple producers. Any of the producer participants who have information contained within their Research & Capabilities module will have that data and information for those geologic zones of that specific Joint Operating Committee populate the Knowledge & Learning module.
With the potential to have multiple companies contributions of research and capabilities about that zone. It is important to have the information organized within the Knowledge & Learning modules in a manner that when multiple producers data is merged, use of the data is probable. Each capability contains the knowledge, skills, experience and ideas of the people who are part of that producer firms and the service industry representatives. As we have learned “knowledge begets capability, and capability begets action." Quotes are from Professor Richard Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.”
Indeed, the job of the entrepreneur is precisely to introduce new knowledge. The “Circular Flow of Economic Life” is a state in which knowledge is not changing. Economic growth occurs at the hands of entrepreneurs, who bring into the system knowledge that is qualitatively new – knowledge not contained in the existing economic configuration. p. 27
Here we begin to see the role that people take in the makeup of the oil and gas industry. And to sum it up is to state that it is everything. One also needs to consider the role of computers in these “actions” and that it amounts to not very much. People, Ideas & Objects divides the jobs between what people do well, the thinking, generation of ideas, leadership, collaborating, deciding and learning and leaves the memory and processing to the computers.
There has to be a mechanism by which new knowledge enters the system. And that mechanism cannot be rational calculation, for as David Hume (1978, p. 164) long ago observed, “no kind of reasoning can give rise to a new idea.” p. 27
There is much to be done in the industry and a lot of it involves blazing new trails. The hard work is what the people will need to be involved in doing. The challenges and opportunities are of historical significance and will require the dedication of a lot of people.
What has been done already has the sharp-edged reality of all things which we have seen and experienced; the new is only the figment of our imagination. Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. p. 27
Analytics & Statistics and Performance Evaluation
The Performance Evaluation and Analytics & Statistics modules have similar interfaces, the Performance Evaluation is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user based tools that enable analytical and statistical calculations run against the data and information that are contained within the People, Ideas & Objects ERP systems and other unstructured data. Providing users with the ability to analyze data in new and innovative ways in seeking value for their firm or JOC.
The types of data and information that are prepared and presented in these modules is dependent on the individual users and will in most instances be unique, based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will come up with the next great innovation we should expect that it will come from anywhere. Part of the process of innovation is discovery of the problem and we all see the situation from different perspectives. Therefore the point of view and the innovation will depend to a large extent on those different perspectives. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. Professor Giovanni Dosi notes.
Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.
Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are hard to discover and we need to be able to evaluate them and assess them based on their impact and their ability to build value. What sometimes appears to be a good idea can also sometimes become an area where the firm could be exposed to unnecessary risk or loss. Having the historical data available is necessary, however, in the 21st century it is also necessary to have these advanced analytical tools available to analyze that data.
In the Preliminary Research Report, People Ideas & Objects determined two important findings. One was that the process of innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. And two, that the Joint Operating Committee is the key organizational framework for innovation in the oil and gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firm are critical.
Work in the 21st Century will be different. The tools that people will use will need to be different as well. The Performance Evaluation and Analytics & Statistics modules are the beginning of these new era tools for the way in which people need to work. We frequently speak of specialization and the division of labor in the Preliminary Specification. There is also a specialization and division of labor between what the people and computers will be doing and that is reflected here in these two modules. Computers will be responsible for the storage and processing, and people will be responsible for the thinking, the ideas, the decisions, the creating, the collaborating, the innovation and the many other things we do well. Much of these things being generated based on the facts that are determined through the Performance Evaluation and Analytics & Statistics modules.
Compliance & Governance
Ah Compliance & Governance, the module everyone loves to hate. It is my hypothesis that it is here, at compliance and governance, that everything went wrong. What I mean by that is in the 1960’s when the first computers were being introduced into oil and gas companies. The question was asked what will we do with them. And of course the answer was accounting. Then as they became ever more powerful and more capable they began to add more tasks to their duties and added the natural follow on concerns of tax, royalty and compliance. Soon the culture became focused on those “compliance” requirements of the “firm” and the Joint Operating Committee became something that was used over there. Soon after this engineers and geologists began speaking a different language to the “business” types. Divisions grew and the business of the business was focused on the corporation and its need to file the appropriate paperwork to the appropriate agency in the appropriate time frame on the appropriate colored form.
Anyway the real business of the business, the Joint Operating Committee somehow survived and if we align its legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks to the compliance and governance frameworks of the hierarchy everyone can start speaking the same language as the engineers and geologists and start to get some real business done. And as People, Ideas & Objects research has shown this would provide the oil and gas producer with greater speed, innovation and accountability.
Compliance & Governance is the eleventh module in the eleven module Preliminary Specification. It’s also no accident that I added Compliance & Governance last, as the question that should be asked is. How are we going to ensure compliance to all the regulations for all the module specifications that we have discussed so far? And I would assert that is why these are user based developments. But seriously, one thing governments seem to be fond of today is regulations on oil and gas companies. With Information Technology enabling various governments to issue technical business rules, technical specifications, XBRL syntax’s and other technological frameworks for these regulations. The ability to write these “frameworks” only seems to have encouraged them to write even more regulations. The larger point is that these frameworks do provide software developers with distinct advantages in enabling the regulations within the software.
As we had indicated earlier regarding the user communities determination of the scope of the People, Ideas & Objects application. Part of that determination of scope will include which regulations it will need to be in compliance too. With so many jurisdictions requiring compliance, each transaction may need to be assured to be in compliance with multiple jurisdictions. Add to that the transaction may be generated through a Joint Operating Committee owned by a variety of producers. And those producers may be composed from an international background and the Compliance & Governance module takes on an enhanced importance.
From the point of view of a producer maintaining the database and applications for all of the compliance frameworks that you have to be concerned with is a difficult task. The number of people you need to have to keep your applications up to date is significant. However, People, Ideas & Objects, as one software developer acting on behalf of the industry as a whole, the job becomes much more specialized and therefore manageable. Then again if we were building these applications with the purpose of serving an industry we will use the division of labor and specialization to manage these tasks in a way that would significantly lower the costs of compliance, and increase the quality of the producers compliance.
I foresee just the royalty compliance requirements of these applications potentially including many dozens of different jurisdictions. To approach this from a software engineering point of view as a sole producer is not cost effective in the least. To consider these costs are replicated across each producer firm, then we begin to see the costs of compliance escalating to the levels that they are today. There is another way, and that is what is being proposed here in People, Ideas & Objects, along with the many other innovative ways we are proposing to deal with the issues of the oil and gas industry.
Here we have the beginnings of compliance and governance for the innovative oil and gas producer and Joint Operating Committee. What we need to do is to deal with the compliance of an innovative oil and gas producer with the tools of the 21st century. Those include automation, specialization and the division of labor. And in terms of governance, we can begin to provide the producer firm with the appropriate operational governance that is consistent with the demands of innovation.
Oracle Corporation
The Preliminary Specification details the modules, applications, processes and functions of the Oracle Database, Java, Oracle Fusion Middleware and Oracle Fusion Applications that have been specified and will be used.
People, Ideas & Objects Preliminary Specification provides a vision of the future oil and gas producer. One that is based on the industry standard Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation, and strategic framework of the industry. When we take the compliance and governance frameworks of the hierarchy and align them with the frameworks of the Joint Operating Committee we attain a speed, innovativeness and accountability that is desired in our oil and gas organizations. The Preliminary Specification is an eleven module ERP system software definition that defines and supports the use of the Joint Operating Committee and marketplaces as the key organizational constructs of the innovative oil and gas producer. This vision is comprehensive and is detailed here in the 175,000 words contained within the modules of the Preliminary Specification.
The next twenty years in the oil and gas industry will be the most dramatic we have ever seen. The demand for energy will ensure that prices remain high. And with so many people joining the middle class we need to consider how the industry approaches this insatiable energy era. Will the current bureaucracy be the solution? The financial recession has us locked in a perception that is backward looking and we can’t see the opportunities that will soon be upon us. Does that future involve an Information Technology perspective that is just a cost, or should it be a vision such as the Preliminary Specification stands today?
After all, as you will see, we are not talking about minor changes to the floor plan for accounting. We are exercising wholesale changes to the oil and gas industry by adopting the Preliminary Specification, and fully utilizing the Joint Operating Committee. Change that is as significant as that which is represented by the change in energy prices and the global demand structure we face. Based on the research of Professor Giovanni Dosi and applied to the oil and gas industry, he asserts that the makeup of industries and companies is attributable not only to the endogenous force of competition. Innovation and imitation also make up the fundamental structure of an industry. “Market structure and technological performance are endogenously generated by three underlying sets of determinants.”
Each of the following three components is evident in the marketplace of an oil and gas producer today, as reflected in:
The structure of demand.
Satisfying the insatiable demand of the global energy marketplace is critical to the advancement of all societies. American and western as well as Chinese and developing societies face real challenges in sourcing adequate long term sources of energy. The long term demands on the energy producer have never been so great.
The nature and strength of opportunities for technological advancement.
The nature and opportunities for technological advancement lead one to believe mankind has never faced the level of opportunity and acceleration that is possible today. The industrial mechanization of the past 100 years combined with the prospective mechanization of intellectual pursuits combine to markedly appreciate the value of human life. The availability of energy will be a critical element of this advancement.
The ability of firms to appropriate the returns from private investment in research and development.
The oil and gas industry is moving closer to its earth science and engineering principles. Innovation, research and development in both the producer firm and the market are and will become more commercial in nature. It is on the basis of success or failure of these factors that will determine the success or failure of the producer firm within the industry.
The role of software in society is becoming more pronounced. Today we are still in the beginning stages of what can be done. For an industry such as oil and gas to continue on without the software development capabilities that People, Ideas & Objects is proposing, and the organizational structure focused on the Joint Operating Committee, the prospects look dim. It is People, Ideas & Objects claim that we provide the innovative oil and gas producer with the most profitable means of oil and gas production. And we do. First by providing our software through the most cost effective manner. That is charging our subscriber base for the costs of our software developments once. A fundamentally different value proposition. And secondly, that in order to attain a higher level of economic output requires that the oil and gas industry employ higher levels of specialization and division of labor. In order to organize that specialization and division of labor requires the use of the software specified in the Preliminary Specification. There is no other means in which to organize a higher level of specialization and division of labor. The bureaucracy is tapped out. Therefore our claim is valid. The only manner in which to move from the high levels of organizational methodology we currently enjoy, is to design and support a more sophisticated specialization and division of labor. And that is detailed in the Preliminary Specification. We need to take control of the production of the software, to take control of the means of production. That is what People, Ideas & Objects is about.
When it comes to undertaking a large project such as People, Ideas & Objects Preliminary Specification. And we have costed the project in the area of $1 to 2 billion in its first commercial release. Is the need to maintain a sense of urgency for the people involved through to the end of the project. As we know, most of the people will remain motivated as long as the money keeps flowing. So how do we ensure that the money keeps flowing? It is through the fact that the we provide the most profitable means of oil and gas production that we can motivate the producers to maintain their sense of urgency in keeping this project funded and moving forward to its conclusion. Their alternative is the bureaucracy and we see how well they’re doing. In the future it may not be enough to own the oil and gas asset. It will also be required to access the software that makes the oil and gas asset profitable, that is the importance of software in tomorrow’s society.
From the eleven modules there is an overall vision of how the innovative oil and gas producer, and the Joint Operating Committee would function in the insatiable energy demand era. I had two comments made to me when I wrote the Preliminary Research Report. The comments were that “this solves every administrative issue in oil and gas for the past fifty years” and “it's an entire new discipline.” Both were related to the significance of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. What I think that we can say as a result of completing the Preliminary Specification is that both of these comments underestimate the significance of using the Joint Operating Committee.
What we have discovered is that it certainly resolves the administrative issues when the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks are aligned with the compliance and governance frameworks. However, when it comes to the operational concerns of the oil and gas industry, it also provides the frameworks and means to solve those problems as well. Whether it is the ability to agree amongst the partnership and reduce the production during price declines, or moving the industry to a decentralized production model, where the costs more accurately match the revenues. Or where the innovation is generated through the two major processes in the Preliminary Specification, which do not directly conflict with tight operational control. Or how the division of labor and specialization are enabled, defined and supported through the software to provide for the industry to expand its output from the limited resource base of earth scientists and engineers. These are just some of the features of the Preliminary Specification that impact the operations and enable the producers to enhance their organizations. And although they have been used to highlight today's issues they will also provide solutions for tomorrow's problems.
Changing the innovative behavior of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy. A time of dynamic change driven by the organizational changes focused around the innovative Joint Operating Committee. How can a firm that has been developed in an era of cost control transform themselves into an innovative, dynamic, earth science and engineering capability focused producer? In many cases the will to do so might exist, however, with the speed and unforgiving nature of the business cycle, not much time will be provided to those that attempt the transformation. We see in this world the capital markets reflecting many interesting phenomenon since 2008. To suggest any trend or definitive result from these would be premature. Its just a different world in terms of being an oil and gas CEO then it was before 2008.
The Preliminary Specification includes in its definition Oracle Corporation’s technologies. If you read or review any of their material it has a decidedly technological focus. If you mention the Joint Operating Committee within their organization you can hear it echo for a week and a half. They really have no fundamental understanding of oil and gas, and only a basic understanding of business. They have become very specialized in what they do and the products they sell. Such is the nature of the division of labor and specialization. What People, Ideas & Objects are therefore doing is filling a “gap” in providing the business understanding of the oil and gas industry to the technology. This “gap” between the oil and gas industry and Oracle is something that is needed because the two are unable to speak coherently to each other, they need an interpreter, and that’s People, Ideas & Objects and the Preliminary Specification.
McKinsey Consulting suggest that large populations will be joining the middle class in the next 20 years. This will have a dramatic effect on the levels of demand for energy. If the oil and gas industry fails to respond to these demands due to the bureaucracies lethargic ways, will anyone note that there were alternatives proposed?
People, Ideas & Objects is soliciting commitments to fund the completion of the first phase of development, the Preliminary Specification. This phase has been budgeted at $100 million. Producers interested in supporting these developments should review our Revenue Model and contact me here.
Please note throughout these writings our reference to bureaucrats represents the CEO, CFO, COO and directors of the producer firms. These are the people that we see who have the authority to correct these issues and are the individuals responsible for the damage and destruction in the industry.
Please review this software applications Preliminary Specification, in which we provide an overall vision of how a producer would operate using the Joint Operating Committee as the key organizational construct.
If you are interested in joining People, Ideas & Objects user community then please follow this process. Lastly you can contact me at paul.cox@people-ideas-objects.com or (587) 735-2302 and (713) 965-6720.
