Deployment of Capabilities vs. Hoarding of Information

It is best that we start this discussion of information and capabilities with a clear definition of what capabilities are. These are some of the definitions that were published earlier in the Research & Capabilities module and are being noted here for clarity purposes in this post. The best definition for these purposes is the following from Professor Richard Langlois.

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organization probably begins with Edith Penrose (1959), who suggested viewing the firm as a 'pool of resources'. Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources. Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied 'how to' knowledge useful for particular classes of activities. pp. 105 - 106.

And as a follow on definition I find this next quote helps to bring the clarity we need for this post.

In a metaphoric sense, at least, the capabilities or the organization are more than the sum (whatever that means) of the 'skill' of the firm's physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104). p. 106

With respect to information, we have all seen how information or secrets within the industry can travel from one firm to another at a rather rapid pace. No one should be surprised to learn that what they thought was confidential to the firm, has somehow leaked and became well known throughout the industry. It is sometimes more difficult to communicate information through the organization then it is to get information across the industry. The question therefore becomes how is proprietary information, and more importantly these proprietary capabilities that are available within the producer firms, deployed on an as needed basis within the various Joint Operating Committees.

Professor Giovanni Dosi notes that although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may indeed be not worthwhile doing. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.”

Within the Knowledge & Learning module we are operating within the Joint Operating Committee. Populated with the capabilities from each of the participating producers through the Research & Capabilities “Dynamic Capabilities Interface." It may be a concern to some producers that the publication of these capabilities to other producers representatives in the Joint Operating Committee would lead to the leakage of proprietary information or loss of knowledge or capabilities. That may be, however the nature of capabilities are such that they can’t be copied by a simple matter of recording the text. As we have discussed elsewhere, the development of capabilities is the results of research and application of the resources of the firm in a determined and purposeful manner to achieve an outcome. Copying the plans or instructions would not provide you with the means to achieve the objective. What we have to make sure that we don’t lose is the ability to deploy the right information, knowledge or capability at the right time and at the right place. Information’s shelf life expires faster each day. Knowledge, information and capabilities need to be employed and deployed when and where they are needed and required. That is the competitive advantage, deployment of the dynamic capability, not hoarding of information.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Revenue Per Employee in the Joint Operating Committee

Throughout the Preliminary Specification we have used the factor of Revenue Per Employee as a means to determine the innovativeness of producers. It has been provided in a variety of interfaces to make a comparison between producers and determine the changes in performance over time. Particularly valuable are the calculations of the variances of volume, price and number of employees when considered over a period of time and these variances trajectory. Today we want to talk about the publication of the specific Joint Operating Committee calculations of Revenue Per Employee, and particularly the trajectory that the factor is on. How this calculation could affect those that work within the property; and the use of the information contained within the Knowledge & Learning module of the Preliminary Specification.

First of all it is understood that not all people are necessarily assigned to work for one Joint Operating Committee. There are times when people might be assigned to dozens during the course of one month. Calculating the hours worked by the people within the Joint Operating Committee from the different companies is not going to be a difficulty for the People, Ideas & Objects software. With the Military Command & Control Metaphor the time and tasks that each individual will be doing is being recorded for these information purposes. Although most will only work part-time on a JOC, the factor will be converted on a full-time equivalent basis. Calculations of Revenue Per Employee for the property should be straightforward.

In previous discussions, the calculation of a comparison of the factor of revenue per employee from one period of time to the other was raised. These trajectories were the real key in determining where the factors were heading. Was the property accelerating its innovativeness, or decelerating. We also broke down the trajectory into three different types of variances. The volume variance, price variance, and employee # variance. Each of these variances reflecting the reason why the trajectory might have changed. All of these variables should be shown on their own “Revenue Per Employee” interface within the Joint Operating Committee. Each member that is assigned to the property should have access to this page and be able to contribute ideas and suggestions on how to improve the factor. An open collaboration focused on revenue per employee. In addition, this page could have a historical context of many time periods captured in a graphical format. Showing over the past many years how the revenue per employee at that property has performed.

We also learned that revenue per employee reflects the asymmetry of the assets within the industry. That asymmetry would be very apparent in a comparison of Joint Operating Committees. We would see large variances in revenue per employee between Joint Operating Committees. And I am not suggesting that the comparisons are valid, just pointing out that the industry has a large asymmetry in their competitive makeup. The comparison of revenue per employee for the same property over time, I think, will have a significant impact on the people that work for that Joint Operating Committee. That is to say there would be sizeable changes in both Revenue Per Employee and the trajectory it is on.

One certain way to increase the factor of revenue per employee would be to fire all the employees. However, the best way to deal with the factor is described by Professor Giovanni Dosi when he states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

Members of the Joint Operating Committee would be able to turn to the "Dynamic Capabilities Interface" which contains the capabilities of the producer firms that are part of the partnership. There the people would be able to see what the firms offered in terms of their earth science and engineering problem solving solutions. It may then be realized that applying some formerly unknown capability to the situation in the JOC will yield greater productivity... or something like that.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Learning Through Markets

We continue to discuss learning in the Knowledge & Learning module. We are deep into the Preliminary Specification and within the research that comprises it. It’s difficult to read and assimilate in small pieces such as these blog posts, however, with a little effort you can find the value and I encourage you to review today’s post with that in mind.

It's important to point out the context of what the Joint Operating Committee will be learning. To do that we turn back to the definition of where the boundary of the firm and market is defined. The Joint Operating Committee must rely on the market for a majority of the work that is done in the field. I understand that this depends on the size of the facility and it will vary based on the types of operations and a variety of other conditions. We can all generally agree that a producer will not be conducting their own water hauling. The point being there is a fine line where the market is the optimal point where the JOC is operationally more efficient to rely on the market to provide the product or service. In oil and gas that definition, or market boundary, is usually that the market provides the majority of the work in the field.

In Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time” he notes the following constraints will be imposed on the oil and gas producers in the JOC as a result of their dependence on the market.

The firms learning ability will depend on its internal organization. And the learning ability of the market will depend on technical and instructional factors, as well as on the learning abilities of the firms it comprises, considered both individually and as a system. The remainder of this paper is devoted to considering these two learning systems in slightly more detail. More specifically, it will set out some preliminary generalization about how the level of capabilities in the firm and the market - and the nature of change in those capabilities - effects the boundaries of the firm. pp. 111 - 112

What the contractors know, and what they think they know may be not relevant to your property. We discussed the fact that the general rule is that the operations being conducted are reduced to the understanding of the least experienced individual on the crew. How do we avoid the general rule being applied to any detailed operation? And how do we avoid what are called the motivational and cognitive paradoxes from becoming the “mindset” of the contractors on this or any of the Joint Operating Committees operations?

As background the motivational paradox arises from the production bias. That is, users lack the time to learn new applications due to the overwhelming concern for throughput. Their work is hampered by this lack of learning and consequently productivity suffers. The cognitive paradox has its root in the assimilation bias. People tend to apply what they already know in coping with new situations, and can be bound by the irrelevant and misleading similarities between the old and new situations. This can prevent people from learning and applying new and more effective solutions.

To add an extra layer of complexity to this process. Recall that we have changes that are being made in the marketplace as a result of the gap filling process seen in the Research & Capabilities module. This being an application of the division of labor and specialization process that deals with the overall organization and efficiencies of the industry that will have a direct effect on the makeup of the contractor and the learning processes in this module.

These issues become the concern of those users of the Knowledge & Learning module of the Preliminary Specification. In an innovative oil and gas industry change will be the constant variable that needs the attention of everyone concerned. Highlighting and prioritizing the main concern of the property will become what is commonplace today. And that is the concern. How do we maintain the awareness and attention that is necessary of everyone to learn what is needed?

Within Langlois’ paper I think we see the answer to the problem detailed within this discussion and in the review of Langlois’ definition of Dynamic Transaction Costs.

"F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs." p. 104

The answer is, there will be large, in comparison to what is incurred today, Dynamic Transaction Costs expended by the Joint Operating Committee through the Knowledge & Learning module of the Preliminary Specification. This is a strategic necessity whose alternative is for the producers to move all of the operations in-house and manage them internally. Not a viable alternative. If we identify what these Dynamic Transaction Costs are in the process of incurring them and record them as such, then we can deal with them and learn from them. That may be the first step in learning what to do with the learning costs in this high change and high cost era of oil and gas.

In the end the choice of whether to use the market or to vertically integrate is a purely academic exercise. In oil and gas the choice to depend on the market is a given and there is little practical application in the alternatives. What our discussion has been about is more to learn from the discussion of how we can establish processes of learning from using the marketplace? In a period of rapid change with high levels of innovation we are going to be stretched in terms of our capabilities, knowledge and capacity to learn. These areas are the focus of the Research & Capabilities and Knowledge & Learning modules. As the business of the oil and gas business is managed through the interfaces of these modules, the People, Ideas & Objects application will need to identify and support the user through these difficult and somewhat costly processes. As noted in Langlois’ paper “Transaction Cost Economics in Real Time”;

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121

and

Ultimately, the costs that lead to vertical integration are the (dynamic) transaction costs of persuading, negotiating with, coordinating among, and teaching outside suppliers in the face of economic change or innovation. (Teece, 1986). pp. 115 - 116

and

But in cases in which systemic coordination is not the issue, the market may turn out to be the superior learning engine because of its ability to generate rapid trial and error learning. p. 124

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Learning in the Knowledge & Learning Module

What is it that the people who work for a Joint Operating Committee know? Where does a person that has just been assigned to the property learn what is important about it in terms of how its run? Where is this history kept, who maintains it, and how is it accessed? We have discussed the knowledge area of the Knowledge & Learning module of the Preliminary Specification, I want to shift the discussion now to the learning area.

Let's first review Professor Langlois’ definition of Dynamic Transaction Costs.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firms capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

Our efforts in the learning section of the Knowledge & Learning module must be to reduce the Dynamic Transaction Costs of the Joint Operating Committee. This objective may be contrary to the times that we find ourselves in. Change is the one constant, learning to adapt to that change is critical. Recognizing the high costs associated with Dynamic Transaction Costs therefore has to be handled from a strategic point of view. This will initiate the discussion and begin documenting how the learning section of the module is configured to capture this data and information.

We now turn to a quotation from Professor Sidney Winter in his paper “Deliberate Learning and the Evolution of Dynamic Capabilities” to define some of the risks we face in the changing environment of the innovative oil and gas producer.

In a relatively static environment, a single learning episode may suffice to endow an organization with operating routines that are adequate, or even a source of advantage, for an extended period. Incremental improvements can be accomplished through the tacit accumulation of experience and sporadic acts of creativity. Dynamic capabilities are unnecessary, and if developed may prove too costly to maintain. But in a context where technological, regulatory, and competitive conditions are subject to rapid change, persistence in the same operating routines quickly becomes hazardous. Systematic change efforts are needed to track the environmental change; both superiority and viability will prove transient for an organization that has no dynamic capabilities. Such capabilities must themselves be developed through learning. If change is not only rapid but also unpredictable and variable in direction, dynamic capabilities and even the higher-order learning approaches will themselves need to be updated repeatedly. Failure to do so turns core competencies into core rigidities (Leonard Barton 1992).

We need to strike a fine balance between these two somewhat opposing goals. Strategically control the Dynamic Transaction Costs and maintain an environment of dynamic capability for change and organizational learning.

The first component of the learning module has to include a wiki styled information repository that contains the operational, policy and management of the property. This will be managed by the Security & Access Control module so that only those that are assigned to the property are able to access the wiki. In addition those that are not of senior levels within the property will have limited access to certain areas within the wiki. Within the wiki will be the entire life history of the property in terms of the information that has been collected. Well files, schematics, reports, agreements, etc. Everything and anything, indexed and referenced in electronic fashion. Recall too the Knowledge area contains the “Dynamic Capabilities Interface” of the producer firms affiliated with the JOC.

Another section should be set out for “Lessons Learned” in which to document where decisions were made based on actions or activities that occurred of interest. These have a dramatic influence on everyone in terms of their learning and understanding about the property. These items should also be published to each person in the property as well as being posted in a central location. As with the Research & Capabilities module the ability to act on these items in terms of right clicking on them and generating an AFE, a Work Order, a Purchase Order or any of the other documents in the People, Ideas & Objects application modules should be possible based on the users needs. More will also be discussed about these lessons learned in the Compliance & Governance module.

Again it might be argued or asked, why is the ERP vendor so concerned about the operational concerns of the oil and gas producer? The simple answer is that it's the business of the business of oil and gas that needs to be supported by the ERP system. And that is at the Joint Operating Committee level in the oil and gas business and the People, Ideas & Objects application. It's not just about debits and credits anymore, it's about identifying and supporting the business of the innovative oil and gas producer.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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 Didn't Notice...

That is to say that I didn’t notice that all of the earnings reports for the producers were in. I was waiting for the majority of them to show up through the normal channels, that is the media, nothing was coming through, so I thought I would check a few websites to see if they had reported them already. And they have, almost all of them. Without any fanfare or commentary in the press, the entire industry has released their earnings without a hint of promotion anywhere.

The point of the matter is that we can now update the 2012 earnings summary for the industry. The results of the North American producers and Exxon, Shell, BP and Total’s global earnings are $146 billion. In reviewing the details of each report it would seem that the performance of each company was down a bit from the prior year. And in each case the natural gas business was the cause of the decline in the performance. Therefore it is appropriate to conclude that if the People, Ideas & Objects Preliminary Specification were available to the industry the $67 billion in 2012 opportunity costs would be added to those earnings for a total of $213 billion.

It is our claim that we provide the most profitable means of oil and gas operations. This is through the use of an innovative business model that uses the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. By aligning the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee with the compliance and governance frameworks of the hierarchy we provide a speed, innovativeness and accountability in the producer.

We also provide within our business model the ability for producers to shut-in marginal production. Through a variety of interfaces within the eleven module Preliminary Specification is the ability to agree within the Joint Operating Committee to curtail production. This is done without the traditional costs to the producer as the Preliminary Specification employs the decentralized production model as its means of production. That means that all production and overhead costs are suspended in addition to the production. Leaving only the costs of capital uncovered during times of shut-in production. Allowing the reserves to remain for the time when the prices rise and provide a return to the producer. Producing at a loss only adds additional costs that the reserves will have to cover in the future.

For the next few weeks we will be discussing the Knowledge & Learning module and when we have finished that we will return to a discussion of the profitability of the oil and gas producer and the Preliminary Specification. The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Moving on to the Knowledge & Learning Module

The title of the Preliminary Research Report (2004) was “Plurality Should Not Be Assumed Without Necessity." This being of course Occam’s Razor which in its simplest form means - the simplest explanation is most likely the correct one. Very appropriate when we are talking about using the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. However, I also noted in the Preliminary Research Report that Occam’s Razor was referenced as

Its not what you know that you do not know that hurts you. It's what you do not know, that you do not know that will. It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to bring about a new order of things. Knoop & Valor (1997).

Imagine we are now in the Joint Operating Committee with full operational decision rights with respect to the course of action to take. Thanks to the work that is done at the producer firms we know what we know from their work in the Research & Capabilities modules. That information and data is populated in the Knowledge area of the Knowledge & Learning module. Now the rubber hits the road sort of speak and the theory comes to practice.

The Knowledge & Learning module shares many similarities to the Research & Capabilities module, and in fact is populated with the information from that module 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 by 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. 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 or other criteria populate the Knowledge & Learning module for that Joint Operating Committee.

With the potential to have multiple companies contributions from their Research & Capabilities module. 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. Therefore the Joint Operating Committee has a menu of operational choices in which to choose in terms of opportunities for the property.

Throughout our discussion of the Research & Capabilities and Knowledge & Learning modules. We have been discussing the earth science and engineering research, developments, innovations and thinking of the oil and gas producer and the Joint Operating Committee. Many of you may be wondering what exactly does an ERP system have to do with these activities? Simply these activities are where the business of the oil and gas business are being conducted. It is imperative that the systems that manage the commercial aspects of the firm support the people and activities that occur in these areas. This discussion will hopefully convince you of this.

The final look and feel of these two modules will ultimately be the result of the user input and their involvement. The point that I am trying to make in this discussion is that these modules are where the business of the oil and gas business are happening. It should be within these modules that the engineer or geologist should never have to leave. If they find an interesting idea within the knowledge area of the Knowledge & Learning module they should have the opportunity to right click their mouse to have a list of options to prepare a Work Order, Prepare a Budget, or Resource a Project. The ultimate list of options would include the supporting activities of a user defined commercially focused ERP system.

Today there are significant financial resources available for innovation. The commodity price increases are an allocation of capital to fuel innovation. The reorganization of a producer to facilitate innovation is the purpose behind the research that People, Ideas & Objects conducted. That research was the basis of the Preliminary Specification of which the Research & Capabilities and Knowledge & Learning modules are part of. These modules are the two key points where innovation occurs. Within these modules there is a flow of ideas from the service and oil & gas industries through to the producer firm, and then that knowledge is sent to the Joint Operating Committee where it is applied and specific learning occurs.

The People, Ideas & Objects application modules are a critical part of how these ideas are aggregated, filtered and parsed. From having a free flowing, post your ideas on an industry wide publication, to generating funding for those ideas, to developing commercial products and services, to enhancing and developing internal capabilities, to focusing the right people on the right knowledge, and enabling them to learn from what is not known. This process is managed through the Research & Capabilities and Knowledge & Learning modules.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Documenting the Transformation Part V

When we look at the pace of the oil and gas producer. And the pace of the bureaucracy. We see a contrast and conflict that we know just can’t survive. How can the oil and gas producer maintain the pace of the marketplace while the internal pace of “things” remains so slow. In a changing, dynamic and innovative oil and gas industry we can only assume that “things” will be even more demanding in terms of the pace in the future. So how can we expect to keep up? I think that in addition to aligning the compliance and governance frameworks with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. We need to also rely on a far greater level of market orientation. And that includes in the traditional administrative areas of the producer firm.

The Preliminary Specification has three marketplace modules, the Petroleum Lease, Resource and Financial Marketplace modules. There are also high levels of market orientation in the Research & Capabilities module. These provide the producer and Joint Operating Committee with the needed exposure to the marketplaces for their reliance on marketplaces to provide the producer with the ability to keep pace in the changing, dynamic and innovative oil and gas industry.

We really have two choices to deal with the situation of how we are going to deal with the activities within the oil and gas producer. One is through internal management and the other is through marketplaces. We can see that the internal management is unable to keep pace. Their bureaucratic ways just can’t keep pace. What was state of the art two years ago, seems like a century ago and is never used. Providing solutions for the problems that are occurring today are an impossibility. No one has the bandwidth to even address where the problems originated. Everyone is so busy “doing” that no one has the time to “think” about what is happening and “how” to deal with this situation. Its literally mayhem and all a person can do is jump in and try to get some aspect of the job done.

We should ask ourselves is this how an industry should operate? I think we need to look at this problem more globally and begin to think of how we divide the work and allocate it in terms of specialization. These are the tools that we should be using. Computers and software are also some of the tools that we should be using to coordinate this work so that it is done more efficiently. Markets are a means, or another tool, in which to have this done. The way that we are organized as an industry, not necessarily as a company, might be a more efficient way to organize ourselves. These are the things we need to begin to consider to think our way through the kind of problems that we are having with the business of the oil and gas business today. Using these advanced tools, instead of breaking down to the individual troubleshooting the solution on their own.

The Preliminary Specification has this higher level of application of these tools inherent in its eleven modules. This is how we provide the industry with the most profitable means of oil and gas operations. How we can prove that the opportunity costs between what is done today and the environment created by the Preliminary Specification is over $65 billion per year. We can’t see the forest for the trees. And on top of that the bureaucracy is fighting to keep their interests above those of all the other stakeholders. This is not a situation that can continue, but it will without the intervention by the investors of the oil and gas industry. It is they who have the most to lose and it is they who have the ability to do something about it. I am therefore calling on them to direct the producer firms to develop the Preliminary Specification and we can begin to resolve these problems.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Documenting the Transformation Part IV

Moving the industry forward from its sleepy bureaucratic ways will be difficult. One could argue that there is more than just the bureaucracy that is against the Preliminary Specification and People, Ideas & Objects. And by that of course they mean the people who make up the industry and what we usually refer to as the user community here. I couldn’t disagree more. Although there will be some of these people, who like the bureaucracy will resist the changes defined in the Preliminary Specification. Most will welcome the changes for a variety of reasons that I’ll detail here.

The first and probably the most obvious reason that the user community will welcome the changes is due to what is called cognitive dissonance. That is to say that when they see the new system defined in the Preliminary Specification and the logic of using the Joint Operating Committee is as compelling as it is. Then they have difficulty going back to using the systems that are in existence today knowing that there are better alternatives. That’s cognitive dissonance. Using the Joint Operating Committee as the key organizational construct is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. When we align the compliance and governance framework of the hierarchy with the seven frameworks of the Joint Operating Committee speed, innovation and accountability are the result. It is the natural way to operate in the oil and gas industry.

Another reason that user community accepts the changes in the Preliminary Specification is that it opens up significant opportunities for them in terms of how they do their work. We are rewriting the “what” and “how” of the work in the industry. This could involve them working for a service provider, or even providing them with the opportunity to establish the service provider for the industry. Focusing on a process that services the entire industry as opposed to the one producer they work for now would provide a variety, intensity and diversity in their work. Whether they are an accountant or an administrator they could deal more with the issues associated with the process, expand on the division of labor and specialization and work with People, Ideas & Objects to further enhance the systems.

One of the primary benefits of moving to the Preliminary Specification will be the division of labor between the people and the computers. Computers will be tasked with the mundane and boring tasks that are redundant for people to be involved in today. The people on the other hand will be involved in the higher level tasks. Tasks such as change management, ideas, innovation, issue identification and resolution, collaboration, decision making to name just a few of the obvious things they’ll be doing.

The risk or fear that there will be fewer jobs as a result of the systems use is a constant since the 1960’s. And if not for the systems we would be buried in paper, file cabinets and file clerks for as far as the eye could see. So that is a fear that hasn’t come to be. What does happen is that the productivity of the industry accelerates and uses fewer resources to do more things. And that’s called productivity. So what we should expect is that the resources we have would remain the same, and the productivity of the industry would accelerate without the need to bring on any additional staff.

So when it comes time for the people to make a decision to go with the Preliminary Specification or to stay with the old worn out bureaucracy. I think the decision will be academic and People, Ideas & Objects will win out almost every time.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Documenting the Transformation Part III

With the prolific nature of the shale gas reserves. And the behavior of the bureaucracies. Natural gas will be selling for $0.15 in 2017. What’s to stop the bureaucracy from continuing to produce everything they can even though it only produces losses? Even with the existence of the Preliminary Specification they will not, on their own, begin the development of these systems to rectify the situation. The point here is to show that the oil and gas business has changed. And the bureaucracy hasn’t. And has resisted the changes proposed in the Preliminary Specification. And are leaderless, faceless and mindlessly going about filling their own pockets and fulfilling their own interests at the expense of the health of the industry.

If we look at the future of the industry in terms of the next 20 to 30 years we see that the demand and supply are both escalating. With so many people joining the middle class the demand for energy will be significant. China is now the largest consumer and importer of oil. Natural gas reserves in North America are impressive thanks to shale, however, given time the demand for gas will be as impressive. It is this future that we need to consider and prepare for. And that begins by profitably managing our assets today. Why would a producer lose money on any oil and gas operation? It shouldn’t in my opinion, if the prices don’t meet the marginal costs then the property should be shut-in until it can be determined how it can be produced at a lower cost, or prices move higher. That’s the platform in which an innovative and profitable industry can approach the kind of future that we face here in oil and gas.

You here CEO’s complain that the focus of the investment community is on the current quarter’s performance and that’s it. The CEO feels that no one is concerned about the long term anymore. That is probably a CEO, like we mentioned yesterday, that will be losing his job overnight. You have to perform in the short term for that there's no escape. But that does not mean that anyone is giving up on the long term. It’s the CEO who should be the one who is setting the agenda for the long term as well as meeting the short term performance. And in order to do that today it must include the ability to deal with the organization and how it performs. And so much of what an organization's DNA is defined by is the systems that it uses. If it expects to be flexible and dynamic but its systems are static, its performance will be static. It must affect the DNA of the organization first, the systems, in order to affect the performance of the firm.

Making the change to the Preliminary Specification will provide the industry with a level of innovation and dynamism that is missing in the industry today. And that is only the beginning. What People, Ideas & Objects are providing is a software development capability to the industry for the future. A capability to affect change to the software to change the organization. So that when the industry needs changes to deal with the business over the next 20 to 30 years it can turn to People, Ideas & Objects, to have the software developed to meet those changes. This will be a critical capability for the industry to acquire in the process of developing the Preliminary Specification and beyond.

If ever there was to be an Information Technology revolution, this is the time and People, Ideas & Objects is the place. IT can dramatically affect the performance of the oil and gas industry both in the short and long term. But we need to deal with the bureaucracy and the old ways that things were done. This transition is not being handled well because people believe, as a result of the dotcom meltdown, that technology doesn’t have that significant a place in our lives. Well it has and it’s here in the way that the Preliminary Specification defines an innovative and dynamic business model for the future of the oil and gas industry.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Documenting the Transformation Part II

As we pointed out yesterday, there is a distinct conflict within the performance of the producer firm. The earth science and engineering professions are beginning to perform in an innovative manner and the bureaucracy are doing there thing, holding things back. This has led to the decline in natural gas prices from the discoveries from shale gas reserves and the bureaucracies inability to deal with the additional volumes of gas. As we noted in the Abstract of the Preliminary Specification the inability to deal with the changes from the cost control era to an innovative era would result in.

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.

Change or the market will force change upon you. I think we are beginning to see the market deal with those producers that are unwilling to change. This past year many CEO’s and CFO’s were shown the door and not in the traditional courteous manner. Suddenly the announcement that the CEO had retired the day before has very rarely been heard. And the type of company that this applied to was not just the small oil and gas producer but it extended up to some of the very large independents. Particularly here in Canada. The boards are feeling the pressure of the shareholders to act to resolve the losses and do something about the natural gas side of the business.

Once again it has to be stated that the bureaucracy are fine. Although there were some announced layoffs in Talisman there doesn’t seem to be any follow through on the actual numbers of people. The bureaucracy know that they can’t be effectively dealt with unless the systems that are used in the oil and gas industry are changed first. They know this because I told them so. This was one of the breakthroughs in the Preliminary Research Report that in order to change the organization, you must first change the systems the organization used. My thinking was they would agree and begin the development of these systems based on the Joint Operating Committee. What the bureaucracy has done instead is used this thinking to seal their prospects even further. By ensuring they never change their systems they will never be challenged in their domain. Such is the responsible way in which to look at the future of the oil and gas business.

The shareholders are realizing the losses as a result of the bureaucracies inability to keep up with the changing dynamics of the business. Who cares? And who is going to do anything about it? And more importantly, how are they going to do anything about it? The bureaucracy are that powerful and that corrupt. As the shareholders see the value in their companies erode, the bureaucracy will still get paid and their pensions still get vested so in terms of the economic forces of creative destruction, they don’t currently exist. And if they do, the bureaucracy will just move on to another industry. Maybe mining, or finance, or retirement.

By that time the value that is held by the shareholders will be all but extinguished and there will be little left but the bits to cobble together. Not much fun from a productive oil and gas producer point of view. Or there is an alternative. For the shareholders to direct the bureaucracy to fund the Preliminary Specification and build the systems that are defined there. That way we can circumvent the bureaucracy and then fire the lot. They are redundant, have been for a long time and are an encumbrance to the business as reflected in the performance of the industry.

Either way the bureaucracy will be gone. Moved on after the bits are left, or fired after the systems defined in the Preliminary Specification are built. Its good to have choices and I’m pleased to be the one offering the choice to the shareholders of how the bureaucracies end is realized. The bureaucracy and I have been having a lot of fun these past few years and I have some particularly intense feelings for them. I vote we build these systems.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.

Documenting the Transformation

In the Abstract of the Preliminary Specification I noted that the oil and gas producer would have a difficult transformation.

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 or CFO than it was before 2008.

In the next few days I want to explore the difficulties and implication of this transformation. And where we stand in terms of this transformations transition. Why this topic is of importance to People, Ideas & Objects is due to the fact that the Preliminary Specification is designed for the innovative oil and gas producer. It does not resonate with the bureaucracy or the producer focused on cost control.

Focusing on the North American marketplace. We see a number of producers who have been successful in exploiting the shale technologies. In the natural gas business a collapse of the commodity price has lead to a severe crisis in the business. The inability to deal with the over production, a left over from the bureaucracy, is damaging the entire oil and gas sector. What an innovative oil and gas industry should do is to shut-in any gas that is producing below its marginal costs. And that should include conventional and unconventional resources.

I think it is reasonable to assert that the transition to an innovative firm has begun in the earth science and engineering aspects of the industry. However, within the remainder of the firm, the administrative areas, the bureaucracy reigns supreme. The transition in the earth science and engineering areas are the easiest and most natural areas of the industry in terms of its transition to an innovative posture. The scientific basis of those professions are always moving and these are the basis of the innovations that make up the industry. As time has passed we are seeing innovations moving the science and vice versa at a far greater pace than what has been the traditional norm in the industry. This is to be expected as time passes. This pace of change will only increase.

What we have in the Preliminary Specification is a number of modules designed to support and align the earth science and engineering disciplines with the Joint Operating Committee. These modules are also designed to support the innovative producer. It should therefore be expected that the speed at which a producer could move would accelerate as a result of the use of the modules such as the Resource Marketplace, Research & Capabilities and Knowledge & Learning. But what they also do is capture the major processes of innovation within the producer firm and Joint Operating Committee to ensure that they can be managed in more efficient and effective ways.

What we are seeing in the marketplace today is the separation of the earth science and engineering capabilities of the industry away from the capabilities of the bureaucracy. The speed and capabilities of the geologists and engineers is greater than what the accountants, business managers and administrators can handle. They are tied to systems, like SAP, that don’t understand the business of the oil and gas business, and are incapable of dealing with the situation we have today. And as a result the organization is set in concrete, whereas the earth science and engineering professions continue to accelerate.

These slow plodding bureaucracies are unable to deal with the pace and dynamism of today’s oil and gas scientist. What is going to happen when they are faced with tomorrow’s challenges. I think we need to think about these types of issues and that is why I developed the Preliminary Specification. So that producers can change and the administrative and business aspects of the producers can make the transition to a fully innovative producer.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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 Spirit of Compromise

The spirit of compromise is alive and well in the Preliminary Specification. The next step in its development is to include the user community. This will involve the investors, the producers, the users and the service industry to have input in how and what they need from the software. Many compromises will be the result. Its not that People, Ideas & Objects are unwilling to compromise. Its that we haven’t arrived at the point in time that we are able to. And when we arrive there we are completely open to the user community for their needs. For it is at that point that People, Ideas & Objects become a software developer and have no opinion or input into the user community whatsoever. My understanding and input into the process is complete and is reflected in the Preliminary Specification as it stands today. I have nothing more to provide. It is the result of my 35 years of oil and gas experience and the nine years of research that went into our product.

However, there are certainly some areas that we will be unable to compromise on. The movement from the “high throughput production” model to the “decentralized production” model provides no opportunity for compromise. This requires the ability to have the oil and gas producer stripped down to the C class executives, the earth science and engineering resources, some legal and support staff. With the remainder of the traditional oil and gas producer personnel being organized in service providers who provide their services across the industry. There they can provide their services with the tools of specialization and division of labor against the scope and scale of the industry wide processes, with the efficiency and effectiveness never before seen. Charging the specific Joint Operating Committee for the costs of the services directly as opposed to the overhead accounts of the oil and gas producer.

But who could be against such a change, and the dramatic implications of moving to the decentralized production model. When all the overhead and production costs are charged directly to the Joint Operating Committee. And when the commodity prices put the property in a situation where they are not covering the marginal costs of the operation. Shutting in the property also stops the charges for these overhead and production charges. Leaving only the costs of capital uncovered. Saving the reserves for a time when they can be produced profitably. Then an innovative oil and gas producer can go about the task of figuring out how to reduce the marginal costs of production and return the property to production profitably.

This approach is one of the fundamentally different ways in which the Preliminary Specification works. There are many other different aspects to the specification and some may be more open to compromise then the decentralized production model. There is a different way of operating in the 21st century. The higher commodity prices are reallocating the financial resources towards innovation. Producing below the marginal costs will become unacceptable. And the producer firm needs to be light and nimble. Compromise on these points is limited, but there are many other aspects of the Preliminary Specification that investors, producers, users and the service industry can find compromise. That is if they participate.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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 Fight Continues

With everything that is contained within the Preliminary Specification. With its business model that provides the oil and gas producer with the most profitable means of oil and gas operations. And the industry having such difficulty, particularly in the natural gas pricing area. One would think that People, Ideas & Objects would have the management of the oil and gas producers throwing money at this project to get it built. That I can assure you is not the case and the reason for our appeal to the investors in the oil and gas industry. The bureaucracy will have nothing to do with People, Ideas & Objects. That has been the case since we published the Preliminary Research Report (2004) and is certainly the case today. One would assume that I would get the message and just disappear.

But is my persistence in vain or should there be a change in the manner that the oil and gas industry operates. We are in the middle of annual report season and have a running total on the industries profitability. Is this performance acceptable, or are there better ways in which to make the industry profitable. The Preliminary Specification has detailed a solution that provides the most profitable means of oil and gas operations. And the differences are dramatic. We have calculated the opportunity costs in the region of $65 billion per year. Again this is not money that would be provided to support the bureaucracy. Their salaries and pensions are paid well before then.

People, Ideas & Objects have tried to appeal to the investor group as a whole. With the opportunity costs that are available to the industry the investors see it as a given that the bureaucracy would proceed with something so obvious. After all who wouldn’t pursue something that promised to generate so much value. What they fail to appreciate is the entrenched ways of the bureaucracy and the fact that they are not motivated by what is right. The bureaucracy needs to be directed to fund People, Ideas & Objects Preliminary Specification and then be physically removed from the field of play. And that is the investor's responsibility.

There is a storied history between the bureaucracy and People, Ideas & Objects. The force and effort taken by them to ensure that the Preliminary Specification does not see the light of day has been impressive. Other than the fact that I am still here, they have tried every trick in the book. And sometimes they tried twice. It is not just that they do not want to be challenged in their franchise, they also do not want to work at change, but most importantly they do not want someone outside of the industry to own the copyright to such ideas.

Quantification of the opportunity costs helps me to take this game to another level and clarify the purpose of the Preliminary Specification. This also makes the activities of the bureaucracy look bad. If you look back in the archive of this blog it goes back to 2005. All in discussion of using the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. It is a long and comprehensive fight that the bureaucracy has put up. Not one dollar has been forwarded in support of this project. This fact points to two possibilities. Either I am crazy or I am right. With the opportunity costs and the industry profitability in question, the answer to this question is coming into focus. At least I think so.

The fight will continue, for that there is no doubt. And now that it is quantified I expect that the bureaucracy will up its game and put up an even stronger offence. Its time for the investors to look at this argument and make a decision as to whether it something that they support. And therefore should direct the management to fund People, Ideas & Objects, or should learn to accept the losses as part of their business.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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 Pace of Changes in the Business Model

Some have argued that the vision prescribed in the Preliminary Specification is too radical. If it is too radical it would have to fall on the fact that its focus is on the business aspects of the oil and gas business. And I feel that that is an appropriate area to be too radical on. I would also agree that its detrimental aspects are highly disruptive to the entrenched bureaucracy. Hence the argument. However, if we look at the pace of business today and contrast it to what we might expect tomorrow’s pace will be like. The speed of a producer, in how they accommodate business change, will most certainly be an order of magnitude higher than what it is today. The question therefore is how are today’s bureaucracies handling the business of the oil and gas business today? Will the accelerating pace of change motivate the bureaucracies to pursue their retirement on an earlier schedule then we expect?

If we accelerate the speed of the current business model we’ll only lose money faster. That is the probable outcome of an accelerated future and the current state of affairs. The oil and gas business is already moving far too fast for the bureaucracy. They are at least two years behind a response to the natural gas pricing issues. The point that I am trying to getting at is there is a large contrast between the current situation and the vision provided by the Preliminary Specification. With the pace of change that has happened in the marketplace, and the probable change of pace in the future marketplace. The radical nature of the Preliminary Specification will become more mainstream as time passes. And that time will arrive very quickly.

Not only is the current business model unable to provide a solution to the current day issues. There are no controls for the investors to deal with the issues through that business model. Investors are left to accept the losses that are incurred with only the ceremonial removal of the CEO when things get too obvious. However with the Preliminary Specification there is not only solutions to the current day problems, as we have discussed here many times. The fact that People, Ideas & Objects are providing a software development capability to the industry is a key capability in which to deal with future issues. Organizations are supported and defined by the software that they use. In order to change the makeup of the organization requires that we change the software first. With a software development capability as provided by People, Ideas & Objects the investors will be able to exercise the changes they desire within the industry. A means to affect the business model and assure that they remain profitable as the industry changes. This is an appropriate posture for a dynamic and innovative oil and gas industry in the 21st century.

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 Business of the Oil and Gas Business

If we look at the industry from the point of view of its needs in the next 30 years, and particularly from the perspective of its business needs. The Preliminary Specification provides the means in which to organize and focus on the business of the oil and gas business. Whether that is being more innovative in the areas of earth science or engineering, being more profitable, or structuring the industry to be more efficient and effective. The vision that is expressed in the Preliminary Specification provides these attributes for the industry to pursue over the next three decades.

The investment community has therefore a vested interest in pursuing the development of the Preliminary Specification initiative put forward by People, Ideas & Objects. Its focus on the business provides the owners of the industry with the proper perspective, scope and scale to deal with the issues and opportunities that today’s oil and gas industry presents. And with the software development capabilities that are provided by People, Ideas & Objects the industry will be able to continue to develop the software to meet the issues and opportunities that the future holds. If the opportunity costs for one year were $67.4 billion what will they be for 30 years if the investors don’t act to establish this perspective for their industry. Trillions of dollars in value could be realized by removing the bureaucracy from their comfortable and destructive positions.

Assertion of the business perspective throughout this period should be of primary concern to the oil and gas investor. We see today large portions of the oil and gas industry regulated and controlled by governments. In Canada the development of pipelines has been conceded by the producers to their governments. The firms bureaucrat’s only concern themselves with producing facilities, pipelines are for someone else to figure out. Canadian producers are now realizing the large differentials in pricing as a result of their foolish capitulation of their business perspective to the governments. And that may not be the end of the governments involvement. What if the governments get wise to the power of software to organize key elements of an industry. And decide to develop software for the oil and gas industry that controls the emissions of CO2 as the key criteria, as opposed to the business perspective proposed here by People, Ideas & Objects.

As I mentioned a few days ago there is a revolution to be undertaken in the industry. The investors need to remove the bureaucrats and replace them with the software and business model that is expressed in the Preliminary Specification. They need to do so for their own self interests. After all what good will a bureaucrat provide in 5 years, or 25 years. The time to act is now.

The Preliminary Specification provides the oil and gas investor with the business model for profitable oil and gas operations. 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.

Time

The amount of time that is necessary to develop the Preliminary Specification is wholly dependent on the producers within the oil and gas industry. The need for the investors in the oil and gas industry to apply the pressure and compel the producers to develop this product in a timely manner is the priority that I am working on. When the opportunity costs are at $67 billion per year, and we have many years ahead of us, it is imperative that we begin as soon as possible. And right now we are not progressing in terms of the further development of the Preliminary Specification.

There are other developments that need to occur as well. The development of service providers and the organization of their service offering will need to be designed and developed during the next few years. The relationship with the service industry is impacted as well by the Preliminary Specification. In short there is a lot to do to address the issues in the industry and reorganize for the future of a dynamic and innovative oil and gas industry.

These are the time issues that we have to deal with. If it was just a time constraint based on software development deliverables the timelines would be estimable. Unfortunately these are not the critical points that will impede the development of the industry towards the changes to use of the Preliminary Specification. The changes that need to be undertaken by those within the industry will be the impediment to timely deliverables. However, what we are doing is moving closer, and by that I mean very close, to the cultural norm of the industry. People will be able to logically determine the location of an item when the Joint Operating Committee is the key organizational construct of the innovative and profitable oil and gas producer. It should therefore take less effort and time to make the changes noted above.

And these are big changes. No one has ever reorganized an industry, or two. The industry faces a critical decision. Either it must change or it will not prosper. And it has shown no capacity to change. No capacity to create a vision for the future. No capacity to even identify the issues that it is facing. It has stagnated for decades and this is proof that it will not change to address the demanding and difficult future. If we are calculating the opportunity costs of natural gas price declines in a decade then we’ll know that muddling along is the only strategy of the oil and gas bureaucracy.

I see things differently. To attempt this a decade ago would have been a failure. Both technically and from a business point of view. The technical risks have been mitigated since then. The business risks are still present, however, they are far more prevalent on the producer side if they don’t act. It is time that the industry considers the need to implement an Information Technology architecture and software development capability that will serve it for the next three decades. That is the Preliminary Specification and People, Ideas & Objects.

The Preliminary Specification provides the oil and gas investor with the business model for profitable oil and gas operations. 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.

Natural Gas Issues and Vested Pensions

These last few posts have allowed us to soar with the eagles and present the scope of the issues the oil and gas industry faces today. With Friday’s discussion of $64.7 billion in opportunity costs, and yesterday’s topic of revolutionary change, who could be against this project? The bureaucracy is standing in the way and is doing all that it can to ensure that it does not proceed. But let’s take it from their point of view, $64.7 billion in opportunity costs and revolutionary opportunities is nothing that should concern them. Their pensions are vested. They earn a decent if not spectacular salary that provides them with the opportunity to do everything they can think they want to do. The work that they do piles up on the left hand side of the desk in the morning. And in the afternoon it is collected from the bin on the right hand side of the desk. All is well and the only concern they have is with talk of doing things in different ways.

If the bureaucracy was asked to live off their pension as an alternative to dealing with the issues that are prevalent in the oil and gas industry, they would. Its only that they aren’t being asked to deal with these issues, and the game is still pretty easy so they’ll hang around before they shift to their pensions. I think “milking it for all its worth” is the appropriate term. After the natural gas prices were down for two years you would think there was some serious discussion as to the issue and possibly some discussion as to a solution. However, not a word. In what way is this acceptable? Let me be clear this is not by accident that its happening. Everyone knows that there’s overproduction. This is deliberate willful neglect.

But on the other hand what should we expect. We know that bureaucracies are leaderless. And its leadership that we need. The solution provided by the Preliminary Specification is the only solution that is offered in the marketplace. It enables the innovative and profitable oil and gas producer to remove their marginal oil and gas production from the marketplace through a variety of interfaces within the software. The first is the Marginal Production Threshold Interface. It allows the members of the Joint Operating Committee, who hold the operational decision authority, to make the decision to suspend production when the costs exceed the prices being realized.

The other aspects of the Preliminary Specification that make it the ideal choice for the market, where shale reservoirs are as prolific as they are, is in its use of the Decentralized Production Model. By stripping the producer firm down to the C class executives, the earth science and engineering resources, some support and legal staff. And organizing the remaining resources in service providers who are focused on processes across the industry. We can take advantage of the specialization and division of labor to make those processes as efficient and effective as possible. Then as the production, revenue and royalty accounting and lease rental and other processes are incurred by those service providers the charges for those services are charged directly to the Joint Operating Committee that the asset belongs to. That way when there is a time when the marginal cost exceeds the price realized and the partnership decides to suspend production then the overhead charges from the service providers are not incurred.

You can hear the bureaucracy screaming with indignation. My attitude towards them is similar to their attitude towards the issues in the industry. I don’t care. Their opportunity to offer solutions and deal with the problems has expired and as they say “they blew it.” They don’t have much credibility if you ask me. So I’ll continue on and I’m sure they will keep collecting that salary for a few more months, knowing that their future is set with their vested pensions.

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.

A Revolutionary Business Model

When we think of the many ways in which Information Technology has revolutionized the oil and gas industry. Well actually I can’t think of any changes to the ways that the industry has operated in the time that I have worked in the industry. There may be more iPads around and there are certainly greater volumes of data. And lets not forget about the volumes of paper. But in terms of how Information Technology has revolutionized the oil and gas industry there really hasn’t been any significant impact in terms of the ways and means of the industries operation.

What we do is faster, more timely and more accurate as a result of IT. And we may be able to conduct more analysis and deeper thought as to the cause and effect of certain actions. But just as we did in the 1940’s and 1950’s, we get out of bed and report to work at 8:00 for the same companies as yesterday, and conduct very similar, albeit more specialized jobs. At no time could anyone point to me when IT had such an impact on the effect of the industry that everyone would agree that “in 1978 when the PX798 was introduced” was when we really changed as an industry. So the sum total of the impact of IT in oil and gas has been a slow and casual improvement in the quality of information, but that’s it. Nothing more.

I say that because I think that the impact of IT on the oil and gas industry is about to have a dramatic effect. The Preliminary Specifications business model will be revolutionary in terms of the ways and means of oil and gas operations. Providing the oil and gas producer with the most profitable means of oil and gas operations is the key for the oil and gas investor, however, everyone in the industry is impacted as significantly. Focusing on the Joint Operating Committee aligns all of the resources of the industry on its legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. Moving the compliance and governance frameworks of the hierarchy into alignment with the Joint Operating Committee makes the industry operate in a more natural manner than the current business model promoted by the bureaucracy. Muddling along doesn’t provide the value generation for anyone in the industry. Value that the industry should be providing for all of its stakeholders. Its time for a revolution.

There are significant changes that occur as a result of implementing the Preliminary Specification. Some will look at those changes and say that it is too radical to contemplate. But can we afford to continue on with the way that we are operating today? IT is providing an opportunity to implement a business model that moves closer to the cultural norm of the industry. If that is too radical then we are really stuck with the status quo. And if the status quo is having difficulty with the current industry situation, how will it deal with the future of the oil and gas industry? One in which the demands and expectations could be substantially higher.

I am biased of course, but I think that the Preliminary Specification will be looked upon as revolutionary in terms of its impact on the evolution of the oil and gas industry. Taking it from a sleepy go with the flow type of industry. To an industry that is dynamic and innovative, that generates value and efficiency to the world economy. That is what I think the opportunity is that is before us. And it is that change that we need to make, because if we don’t, there are bigger issues at stake.

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 Opportunity Costs of Natural Gas Prices

In this post we want to compare the two business models, the bureaucracies muddling along vs People, Ideas & Objects Preliminary Specification, in terms of the opportunity costs that are incurred by not having the Preliminary Specification operational. This calculation will be to determine what the opportunity costs would be for North American natural gas revenues assuming that producers were able to reduce production by ten percent and therefore raise the price of gas to $5.50 per MCF. Recall that the Preliminary Specification enables producers to shut-in production of marginal gas without incurring the penalty of production or overhead costs.

Currently natural gas production in North America is 78 Billion Cubic Feet (BCF) Per Day. That’s 78 x 365 days = 28.47 Trillion Cubic Feet (TCF) of gas for the year. We need to reduce this volume by ten percent to 25.88 TCF. With an estimated price of gas at $5.50, less an estimated average $3.00 realized per Thousand Cubic Feet (MCF) for 2012 leaves $2.50 of unrealized opportunity costs. Therefore the opportunity costs of 2012 natural gas prices is $2.50 x 25.88 TCF = $64.7 billion. A number larger than the costs to fund the Preliminary Specification.

The bureaucracy doesn’t need this money as they are adequately funded by the oil prices. However, the investors are entitled to this value nonetheless. It will require some work and effort, both to build and make the changes in the industry as a result of the Preliminary Specification. Work that the bureaucracy is not oriented towards. It’s not that the type of work is different to the work that the bureaucracy is familiar to, its that the bureaucracy is not that familiar to work itself. This situation has been with us now for a number of years. There is no proposed solution to its resolution. With the high costs of shale gas, and natural gas in general, this is not a situation that can continue. Yet the bureaucracy continues with no discussion of any possible resolution or even identification that this is an issue.

The fact of the matter is that the Preliminary Specification is new and not that well known in the marketplace, yet. The bureaucracy are not challenged by it as it is not seen by the marketplace as an alternative due to its relative newness. As we progress the bureaucracy will have a more difficult time in continuing on with their status quo do nothingness. I don’t expect that any solution to the over production will come about as a result of the bureaucracies handling of the situation in the next few years. There just not that smart and they are leaderless.

What the Preliminary Specification does is adopt the Decentralized Production Model. By doing so, all of the overhead costs are incurred by service providers who are organized based on a specialization and division of labor across the industry. That way they can organize their service offering based on the most efficient and effective process possible. These service providers then charge the Joint Operating Committee directly for their costs of production, revenue, royalty accounting or lease rental expenses, etc. Then when production is shut-in there is no service offering to be billed for the month and the overhead costs for the shut-in production doesn’t exist. Eliminating the High Throughput Production Model that the industry operates under today. Shut-in production therefore has no production costs or overhead costs incurred and therefore only the costs of capital are uncovered during periods when the production is shut-in. A producer can shut-in any production that does not meet the marginal costs and save those reserves for when the prices provide a return on investment. A much more rational way to approach the oil and gas industry during times when the shale formations are as prolific as they are. During times when production is shut-in producers can innovate and bring their costs down in their non-producing properties to bring those reserves back on production.

The irrational way in which the bureaucracy is producing oil and gas today is going to be looked upon as foolish in the near future. With so much potential reserves the bureaucracy seems to think that means it can be wasted. I think we should take the responsibility for producing those reserves out of the hands of the bureaucracy and put it in the hands of the investors and have it done profitably and responsibly through 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.

2012 Earnings Season

We are at the beginning of the 2012 earnings season. I am hoping this will be a crucial point in People, Ideas & Objects history. A time when our ability to demonstrate our business model’s value meets with the investors demand for greater earnings from the producer firms. If, as I suspect, that 2012 was a bad year for the oil and gas producers. Maybe this will be the point that the investors will begin to look for answers to the problems of the producers poor performance.

We have been running a balance of those producers who have announced their 2012 earnings. To date we have recorded only Encana’s spectacular loss of $2.79 billion. We have two other firms to add to that total and they are ARC Resource earnings of $139.2 million and Marathon Oil earnings of $1.582 billion. This gives a net total for the industry of $1.07 billion of losses for 2012.

The next two weeks we will see the balance of the firms report results. As I said, I hope that it is a turning point in the attitudes of the investment community towards the bureaucracies lack of performance. And our opportunity to demonstrate the differences between People, Ideas & Objects Preliminary Specification and the status quo.

The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. 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.