More on Capabilities

What follows is a general discussion focused around the Marketplace Interface in the Petroleum Lease Marketplace module. It is intended to provide some understanding of the ability of the Marketplace Interface to enable the user to engage with other elements of the market and build the producer firms land and asset base.

It was during the Preliminary Research Report that we initially applied Professors Anthony Giddens and Wanda Orlikowski’s research in Structuration to the Joint Operating Committee. Their research states that people, organizations and society move together or there will be failure. Professor Orlikowski’s Model of Structuration states that technology is a part of society and these both define and constrain action. Therefore when we look at the two possible organizational types of architectures for Petroleum Leases we see the Marketplace and the file cabinet. But seriously the choice is as stark and the contrast is that dramatic. To match the organization, the people and societal definitions and constraints make the marketplace the ideal architecture. To therefore designate a module within the Preliminary Specification as the Petroleum Lease Marketplace builds on this simple architecture. From Professor Richard Langlois “Modularity in Technology, Organization and Society.”

Modularity is a very general set of principles for managing complexity. By breaking up a complex system into discrete pieces - which can then communicate with one another only through standardized interfaces within a standardized architecture - one can eliminate what would otherwise be an unmanageable spaghetti tangle of systemic interconnections. p. 1

This next quote is the critical one. Its a bit of the chicken and egg problem however. I don’t know if we are taking elements of the technology and mapping them to the organization, or taking the marketplace and mapping it to the technology. Both are undergoing significant changes in the development of the Petroleum Lease Marketplace.

What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to modularity in the design of the organizations that produce such products. p. 1

Lastly a scenario, users need a window in which to view the marketplace. In the Petroleum Lease Marketplace is the “Marketplace Interface.” Consider a user was viewing a Unit that they are a member of the Joint Operating Committee within the Marketplace Interface. While viewing, contextual tiles of agreements, leases and other data are populated with the properties information. If the user wants to click on those and query the information it is there as well as historical accounting data. If users from another firm are also viewing the property, they can be seen and engaged in a collaboration, and immediately contextual tiles of information about the person are available to you, and any previous correspondence and outstanding matters appear on your screen. Meanwhile you click on the newly drilled well that you heard was performing beyond expectations to get an update of its actual production. You also notice that the adjoining lands have just been posted for bid by a producer firm who is not a member of your Joint Operating Committee. You are able to call on the other producers in the Unit and share a recorded video meeting within the Petroleum Lease Marketplace within ten minutes of that discovery, and set in motion a plan to deal with it.

Professor Richard Langlois in his 1992 paper “Transaction Costs Economics in Real Time” provides us with an excellent definition of what capabilities are in the corporate setting.

This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific knowledge and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." For the most part, Richardson argues, firms will tend to specialize in activities requiring similar capabilities, that is, "in activities for which their capabilities offer some comparative advantage" (Richardson 1972, p. 888). p. 27

Recently we discussed the “Marketplace Interface” of the Petroleum Lease Marketplace. We hopefully saw with the brief description of how the system could provide a window on the Petroleum Lease Marketplace and how that contrasted with the current rows and rows of file cabinets. Application of the firms capabilities within that “Marketplace Interface” will be how the producer and Joint Operating Committee will build its firm and earn its profits. Or as Hayek says about capabilities, how much “knowledge of the particular circumstances of time and place” is not being acted upon in your firm today?

There will be significant change in the transition from the file cabinets to the deployment of People, Ideas & Objects Preliminary Specification. These changes impute that there will be a cost and part of these costs will be this software development. Professor Langlois calls these “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 firm's 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

Who said that its not the destination, but its the path. That is what this software development is about, the path. We have a rough idea where we are going and what it might look like, however, without the involvement of the user in the development of these systems it's all pretty much an exercise in futility. User involvement is critical to the success of People, Ideas & Objects. The Preliminary Specification is only a starting point, the user community can take it and build upon it as they desire and need, and over time as the organization and markets change, so will the software. And the capabilities of the marketplace and the firms will develop as a result.

"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

There is a distinct market capability that is available in the Petroleum Lease Marketplace of the Preliminary Specification. A capability that is not reflected in the Research & Capabilities module, a capability that resides in the “Marketplace Interface” of the PLM. A capability that provides the innovative oil and gas producer with the ability to participate in the dynamic marketplace of oil and gas leases, lands and properties. If the Research & Capabilities module handles the earth science and engineering aspect of the producers competitive advantage, it is the Petroleum Lease Marketplace that handles the Land and Asset Base attributes of the producers competitive advantage.

As we have discussed here many times, the amount of engineering and earth science effort for each barrel of oil or gas produced will continue to increase as time passes. Naturally therefore the volume of activity associated with oil and gas will increase as well. This imputes that the number of P&NG Leases and agreements will increase as will the number of Joint Operating Committees you may participate in. The Petroleum Lease Marketplace is the means in which to participate, make sense of and build your land and asset base from. It is reasonable to assume therefore that this may require a multiple of legal, administrative and negotiating resources on your behalf in order to achieve these outcomes. The “Marketplace Interface” therefore becomes the first place for you to source the skills, knowledge and experience you need.

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.

It will be through the “pool” of knowledgeable providers who enable the innovative oil and gas producer. The “Marketplace Interface” will enable these providers to engage with the producers and build their firm. These will be the Land people, the administrators and those that support the negotiations and transactions involved in land deals. Traditionally these people have been employed by the individual producers, however, with the “Marketplace Interface” there will be a need to have these services provided by the marketplace. That will be one of the changes that occurs during the development of the Preliminary Specification.

But often - and especially when innovation is involved - the links among firms are of a more complex sort, involving everything from informal swaps of information (von Hippel, 1989) to joint ventures and other formal collaborative arrangements (Mowery, 1989). All firms must rely on the capabilities owned by others, especially to the extent those capabilities are dissimilar to those the firm possesses. p. 108

Now that there is a marketplace established for the knowledge, skills and experience of the resources used in the Petroleum Lease Marketplace. We can begin to approach that marketplace from the point of view of its specialization and division of labor. So much of the work that is undertaken within a producer firm for Land administration etc. is done for the purposes of timeliness and accuracy. Due to the scope and scale of the individual producers volume of lease and land activity. Efficiencies from the analysis of the division of labor and specialization may not have been available. With the development of the “Marketplace Interface” of the Petroleum Lease Marketplace the opportunity to conduct that analysis during the Preliminary Specification is provided.

It was autonomous innovation that Adam Smith had in mind when he argued that the division of labor enhanced innovation: each operative, by seeking ways to make his or her lot easier, would discover improved methods of performing the particular operation (Smith, 1976, I.i8, p. 20). The improvement he had in mind were such that they improved the efficiency of a particular stage without any implication for the operation of other stages. Autonomous innovation of this sort may even further the division of labor to the extent that it involves the cutting up of a task into two or more separate operation. Instead of being differentiating in this way, however, an innovation may be integrating, in the sense that the new way of doing things - a new machine, say - performs in one step what had previously needed two or more steps (Robertson and Alston, 1992). More generally, a systemic innovation may require small modifications of the way work is performed at each of a number of stages, and would thus require coordination among those stages. pp. 116 - 117

In today’s market we have powerful tools that help alleviate us from the repetitive nature of lower level work. Two of those tools are computers and globalization. Our analysis of the marketplace should use these tools to the fullest extent to enable us to focus our attention on innovation. If we look at the Petroleum Lease Marketplace “Marketplace Interface” from this perspective there is much work to be done, and a significant opportunity to provide real value for all producers. Having a Petroleum Lease Marketplace that provides the producer and Joint Operating Committee with the ability to focus their capability on building their land and asset base would be a worthwhile objective for this module. It is fully one half of an innovative oil and gas producers competitive advantage.

Designing and implementing a marketplace that organized these capabilities in an efficient and effective way would not be the difficult part. Ensuring that the user community was supported through their learning and development of new and innovative capabilities would be.

A market form of organization is capable of learning and creating new capabilities, often in a self reinforcing and synergistic way. Marshall describes just such a system when he talks about the benefits of localized industry. p. 120

To review what we have with the “Marketplace Interface” of the Petroleum Lease Marketplace in the Preliminary Specification. Is that we have an environment that is accessed by the user, a member of a producer firm or Joint Operating Committee, through the People, Ideas & Objects Marketplace Interface. There they find a rich market environment where they are able to resource the skills, knowledge and experience they need to secure and manage their Petroleum and Natural Gas lease and land base. Given that marketplaces time to develop and grow, with its own market supporting institutions, it will take on its own characteristics and efficiencies. Enabling the innovative oil and gas producer to leverage the marketplaces capabilities and focus on their core competitive advantages.

Making this transition to where the producers and Joint Operating Committees capabilities are sourced from the marketplace will take time, incur unique costs and involve many iterations. These “Dynamic Transaction Costs” as Professor Richard Langlois calls them are necessary as the transfer of capabilities from the firm to the market occur. One should recall the reasoning for this transition. And the reasoning is that we are moving the industry from the “High Throughput Production Model” to the “Decentralized Production Model.” This provides the producer with the capability to shut-in production, and then have the associated costs of production and overhead not incurred.

One might think that, as governance costs diminish in the long run, the boundaries of the firm would be determined solely by capabilities. But capabilities also change over time as firms - and markets - learn. The classical presumption was that the firms capabilities would diffuse completely to the market in the long run, leading to complete vertical disintegration. This reinforces the point that capabilities are more than a matter of production costs in the neoclassical sense and, more importantly, suggest that the notion of a firm's capabilities implies a kind of information or knowledge cost - the cost of transferring the firm's capability to the market (other firms) or vice versa. these costs are a neglected kind of governance cost, which I call 'dynamic' governance costs. These are the costs of transferring capabilities: the costs of persuading, negotiating and coordinating with, and teaching others. These costs arise in the face of change, notably technological and organizational innovation. They are in effect the costs of not having the capabilities you need when you need them. pp. 123 - 124

As one can imagine, this marketplace would be dynamic. The need for a dedicated software developer to identify and support not only the innovative oil and gas producer and Joint Operating Committee, but also those changes that are occurring in the marketplaces vendors and suppliers, would be critical. That is the role of People, Ideas & Objects.

"The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates." p. 3

Let's assume for a moment that you are a vendor that is involved in the Petroleum Lease Marketplace and you want to involve yourself in the People, Ideas & Objects Preliminary Specification to expand your business. To include your firm in the “Marketplace Interface” would require you to use some of the interfaces that we developed in the Resource Marketplace module. This discussion is how the vendor would interact within the “Marketplace Interface” and engage with the producers and Joint Operating Committees that were looking for your products and services.

First we should mention who it will be that makes the changes that we expect to see in the “Marketplace Interface” of the Petroleum Lease Marketplace. Resistance to People, Ideas & Objects by the current bureaucracies has been strong. They have a comfortable system that keeps them firmly in control and do not foresee any need for change. So how do these changes in the marketplace come about? And how does a marketplace like that which has been described here come about? The answer is simple and is reflected in this next quote from Professor Richard Langlois paper “The Vanishing Hand: the Changing Dynamics of Industrial Capitalism.”

"Ruttan Hayami (1984) have proposed a theory of institutional change that is relevant to my story of organizational and institutional change. As they see it, changes in relative scarcities, typically driven by changes in technology, create a demand for institutional change by dangling new sources of economic rent before the eyes of potential institutional innovators. Whether change occurs will depend on whether those in a position to generate it - or to block it - can be suitably persuaded. Since persuasion typically involves the direct or indirect sharing of the available rents, the probability of change increases as the rents increase. And the more an institutional or organization system becomes misaligned with economic realities, the more the rents of realignment increase." pp. 36 - 37

Simply is the profit opportunity from being an innovative oil and gas producer greater than what is offered by today’s marketplace? And will those that operate in the “Marketplace Interface” find greater profits by providing services that innovative producers will want and need. If either of those situations are the case then the profits will motivate the changes within the marketplaces described within the Preliminary Specification. (Please review the Preamble to the Preliminary Specification.)

In terms of the interfaces that will help the vendors who provide lease and land services to the innovative oil and gas producers the first would be the “Vendor / Supplier Contact Database.” This provides the basic information that is needed for the oil and gas producer or Joint Operating Committee to have on the vendor. Think of it as a rich contact database that is maintained by the vendor. There is a second aspect of this data base that provides a secondary or tertiary level of data to the producer when the firm is engaged by the producer. This includes access to the vendors staffing profiles, calendars and scheduling information and enables the producer and vendor to work to establish further elements of their working relationship. (Query the “Vendor / Supplier Bidding / Commitment Manager” in the Resource Marketplace module for further information on the extent of these interactions.)

The second interface that would help the vendor in operating within the “Marketplace Interface” of the Petroleum Lease Marketplace would be the “Gap Filling Interface.” Recall this is the interface that is used by producers and vendors to communicate the need to have a “Gap Filled.” The gap being a situation where the division of labor could be expanded by providing a further service that is not currently offered. The expansion of the division of labor is done through the process of filling gaps. And if producers and vendors identify and communicate needs and services that are in need of filling, or demanding of new services, then the opportunity for the service to meet the demand will occur quickly. The reason for this is that we live in a time and a place where the service and the need may be located thousands of miles away from each other, or even just next door, and may never know that either exist. The “Gap Filling Interface” helps to eliminate the time and distance of these needs.

The third interface that provides value to the vendors in the “Marketplace Interface” of the Petroleum Lease Marketplace is the “Actionable Information Interface.” Although somewhat similar to the “Gap Filling Interface” it fills a different role. If a vendor was undertaking a strategic and competitive investment over the next five years that would fundamentally change their service offering. They would publish this information in the “Actionable Information Interface.” This would inform the producers and Joint Operating Committees of the prospective changes in the marketplace and allow them to engage the vendors on what they need. This being a collaborative interface the vendor would be able to engage the market to help define their market offering in the mid term. Most of this information is available to the prudent Google enabled researcher today. However, it being located in one database in the “Actionable Information Interface” the value of the information in its aggregate would provide a unique window on the marketplace offerings and the direction of the industry. One might question why you would publish such sensitive information? I would remind readers that the act of publication is how you earn the copyright.

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 Marketplace Interface

To develop a new system for the oil and gas industry is an opportunity that I think is a once in a lifetime, maybe a once in a century opportunity. To think that we will use these systems in the manner that we use systems today underestimates the possibilities. The user interface is the area where the most innovation will occur in terms of how people will interact with larger volumes of data. These and other types of issues should be considered in the Preliminary Specification. I offer the “Marketplace Interface” and this discussion to expand the scope of what is possible in terms of the Preliminary Specification.

The Petroleum Lease Marketplace module is the second “marketplace” module of the Preliminary Specification. Like the Resource Marketplace module, which deals with the resources used in the development of oil and gas, the Petroleum Lease Marketplace emulates the marketplaces that exist for Petroleum & Natural Gas Leases, concessions, etc. and the associated activities involved around those “things.” What is helpful in understanding the capabilities that are attained by developing “marketplaces” in the Preliminary Specification is this quote from Frederick von Hayek.

The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. ...The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. (Hayek 1945, pp. 526 - 527)

Prices for the bonus paid on acreage. The price asked by a producer for a working interest share in a property. These are the activities that occur in the marketplace everyday. What we are doing in the Petroleum Lease Marketplace is emulating the real marketplace to enable it to grow thicker and more robust. With market opportunities being dislocated sometimes by thousands of miles from interested parties, the ability for market participants to meet is limited. Even with the Internet the chance of finding someone is difficult. However, with a module like the Petroleum Lease Marketplace, you have a focused forum in which to deal with interested parties. At the same time you have the means in which to transact and manage the business, develop agreements, pay lease rentals etc. The Petroleum Lease Marketplace is a software environment that provides for the marketplaces emulation.

Critical to the success of this marketplace is the further division of labor and specialization. We have discussed earlier in the specification how the Lease Rental Administration could be handled on an industry wide basis by a service provider. Other roles may be able to be handled in a similar fashion in the Petroleum Lease Marketplace. With the development of this software module or marketplace emulator, would be the market supporting institutions that would bring in the efficiencies that would enhance the effectiveness of the marketplace. Providing assurances such as when a new P&NG Lease was acquired it was known that it would automatically have its lease rentals paid by your service provider.

There are many advantages to emulating the Petroleum Lease Marketplace in the Preliminary Specification. Just as there are advantages in the Resource and Financial Marketplace modules. Attempts at exchanges and other technical solutions have been tried before but they don’t have the “business” aspects that a “marketplace” has. What we are replicating is a business unit, not creating a technological solution. A significant difference to the users and producers who use the marketplace today, and will use the Petroleum Lease Marketplace module if it provides further value in their use of the actual marketplace. And with that I want to introduce the “Marketplace Interface” which uses the technology available from Open Wonderland. Here it is shown as an example of the ultimate collaborative interface.

(Please review the video below.)


We have detailed some of the interfaces that would be used by the suppliers and vendors in providing specific products and services to the oil and gas producers and Joint Operating Committees through the “Marketplace Interface” of the Petroleum Lease Marketplace. We note the Community of Independent Service Providers as they are called at People, Ideas & Objects, or Industrial Districts as Professor Langlois refers to the concept, is structurally different than in the Resource Marketplace. The focus of the work that is done in the “Marketplace Interface” is primarily administrative. Although the disruption in moving the majority of the work from the firm to the marketplace will involve innovative and creative processes, once the marketplace settles into a rhythm, the administrative level of change will slow. Much of the actual work that is conducted in the “Marketplace Interface” will be to support the transactions that are conducted by the producers in the marketplace environment.

The “Marketplace Interface” is not a source of innovation for the oil and gas producer. It is an area where the producer can focus on their core competitive advantage of their land and asset base. The administrative efficiencies and effectiveness are certainly part of that competitive advantage. I only raise this point to identify that there will be the dynamic nature of the marketplace for buying, selling, purchasing, bidding, acquiring, dealing, surrendering, leases and properties.

As a possible scenario, in the Marketplace Interface, we have a producer who is interested in determining what the market value for their interest in a small gas plant will generate. The average production is 100 barrels of oil equivalent per day from 50 wells, compression and dehydration. Through the “Marketplace Interface” the producer puts their 17.5% working interest in the property on the market for sale and is open to offers. The property is then highlighted in the property section of the “Marketplace Interface” where users can see that property was just posted for sale. It is also listed by zone and product category in the international markets databases. Soon offers are made and the property attracts a reasonable price. The seller deems the property is to be sold, none of the partners are able to match the best offer, and the property is sold. Immediately the administrative aspects of having the leases, agreements and partners recognize the sale agreement, and with the closing executed, these administrative tasks are done.

Or something along those lines. The point in this scenario is to briefly show how many of the attributes that we have been talking about will work together in the “Marketplace Interface.” The efficiencies of the marketplace in terms of having a ready market to buy and sell properties, leases and interests. And to have those transactions backed up by the transaction processing that is as complex as is necessary to close the most complex of purchase or sale agreements. This is how the innovative oil and gas producer will need to operate in the 21st century.

We have focused on the deliberate nature of developing the “Marketplace Interface” of the Petroleum Lease Marketplace of the Preliminary Specification. During the 1960's systems capabilities were limited and their applications were quite crude. Organizational developments were therefore constrained by the limitations in Information Technologies. The focus of systems development was the firm itself, and that focus was driven primarily by the compliance and governance requirements of firms (Accounting, Tax, Royalty, SEC etc). During this time, in oil and gas, the Joint Operating Committee was secondary to the demands of the compliance and governance frameworks of the firm. This systems thinking grew over a period of time in which it included several generations of people. Through this process the administration, oil and gas became more oriented to the compliance and governance frameworks of the firm and conversely more withdrawn from the seven frameworks of the JOC.

It is my opinion that the Preliminary Specification is not revolutionary in its move to the Joint Operating Committee, but evolutionary. Particularly from the point of view that we are moving towards the common-sense form of organization of the industry. Leaving this 1960’s “systems thinking” that is prevalent in today’s systems behind. This is what is necessary for the innovative producer to attain the speed of operations to compete in the 21st century oil and gas industry.

We also must contend with the concepts that originated in the minds of the software developers of SAP and Oracle which certainly were different then what have been stated in the Preliminary Specification. I believe that whatever their vision may have been, for oil and gas it is misguided as it does not recognize the unique nature of the business, the Joint Operating Committee. The unique nature of the industry had developed solutions to the problems and manner of operation. Those solutions consist of the JOC and the dependence on the market to provide for its needs. I can't think of an industry that comes close to the culture of the energy business.

Today the technologies involved in the Internet provide the industry with the opportunity to realize the fashion that it operates is unique, and deal with those anomalies in the best Interests of the industry. A dedicated software developer to build the systems that mirror the manner of the industries operations, the Joint Operating Committee and marketplaces, will enable greater innovation by relying on the marketplace and allowing the innovation to flow from wherever and whomever. This will not happen by chance. It is a deliberate act. And today that demands a software development capability and vision like that offered by People, Ideas & Objects and the Preliminary Specification.

Here again, I think the problem is one of conceptual imprecision. It is perfectly common, and often unobjectionable, to contrast a market and an organization, that is, to contrast the institution called a market and the institution called an organization (such as, notably, a firm). But the opposite of “organization” in the abstract sense is not “market” but disorganization. More helpfully, the opposite of conscious organization is unplanned or spontaneous coordination. In this sense the market-organization spectrum (and similar spectra one could imagine) are arguably orthogonal to the planned-spontaneous spectrum. One could well wonder, as I have (Langlois 1995), whether large organizations do not in fact grow far more as the unplanned consequence of many individual decisions than as the result of the conscious planning of any individual or small group of individuals. And it is certainly the case that, as Alfred Marshall understood, both firms and markets “are structures for promoting the growth of knowledge, and both require conscious organization” (Loasby 1990, p. 120).

Therefore development of the “Marketplace Interface,” is not a nice to have but a necessary for the innovative oil and gas industry. And the first technology I want to discuss will reside in the Oracle Fusion Middleware layer. It is in fact the “Marketplace Interface” that is made available through the open source Open Wonderland organization. Recall that there is only one “Marketplace Interface” that serves the three marketplace modules of Resource, Petroleum Lease and Financial Marketplace modules.

The origins of the Open Wonderland organization are of interest and pertinent to the discussion. Originally a Sun Microsystem research initiative the Project Wonderland development was open sourced and made available to the larger community. When Oracle purchased Sun Microsystems it deemed that the technology was of no commercial value to it or its customers and set the community to find a new home. Needless to say Open Wonderland has struggled since, without a major sponsor the technology has not advanced and the marketing of the technology is limited and difficult. There seems to be an inability of the community to relate the marketplace metaphor for the technology. That is what I think they need to make theirs the killer app in the commercial market space.

Open Wonderland is written in Java and therefore consistent with the Oracle Fusion Middleware server. Having this operate as a module in itself would not technically be an issue. The business risk of using the technology of a weak organization is mitigated by the fact that they have open sourced the code for the applications. If something should happen to Open Wonderland as an organization there is still an avenue to pursue with the code itself. It would be incumbent upon People, Ideas & Objects, when our revenue streams begin, to support initiatives such as Open Wonderland since we are in direct benefit of their technologies and their organization.

(Please review the video below.)


The “Marketplace Interface” is a place where anyone in the oil & gas or service industry is able to establish a market presence or create an avatar to collaborate with others within the industry. People, Ideas & Objects will enable these avatar’s to conduct business through the ERP service of the People, Ideas & Objects application modules and the Oracle Fusion Application modules. Interactions such as buying and selling oil and gas assets, purchasing field services, creating an AFE, making decisions within a Joint Operating Committee. Doing many of the things that can be done physically, only virtually through the use of the avatars that have been created and enabled in the “Marketplace Interface.”

Here’s why I think the “Marketplace Interface” is so critical to the innovative oil and gas producer. Phone calls can’t do it. That is to say they are usually, or preferably, with only two people. They can’t be documented and any business that arises from them has to be entered in other systems. They do have the benefit of spontaneity and are available anywhere. Meetings are difficult to schedule all the participants within a reasonable time frame, no spontaneity, no virtualization. However they are easily documented and business that arises from them need to be input into other systems. Meetings can be with any number of people, however the law of diminishing returns comes into play. There has to be a compromise in terms of these two mediums of collaborations. Keep the phone calls and the meetings and add the virtual collaborations from the “Marketplace Interface.”

The “Marketplace Interface” will provide the spontaneity of the phone call and the ability of people from far distances to meet up in no time. Documentation of the business can be comprehensive and include video of the simulation and copies of the documents. Any business that is generated during the meetings can be dealt with through the “Marketplace Interface” by selecting the appropriate ERP related option-command submenu. Productivity would be the result. Attendance at these virtual meetings could increase and overall travelling time would be substantially reduced. The follow-on business associated with meetings would be initiated during the meeting and things would get done. Not so much a fancy technology but a real productivity enhancing business tool.

(Please review the video below.)



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.

Focusing on Capabilities

We now want to discuss the boundary of the firm and markets with respect to the Petroleum Lease Marketplace of the Preliminary Specification. In this the section we are focusing on capabilities. And the question should be what capabilities are we seeking to achieve from the Petroleum Lease Marketplace? And why is there a need to transition to this new model of organization, a marketplace? For that let's begin with a quote from Professor Richard Langlois’ paper “Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization.”

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

What we currently have is a number of departments; Land, Legal, Land Administration, some Production and Exploration Administration and Accounting, that will become elements of the Petroleum Lease Marketplace. These departments will transition to new roles, some in new service provider firms, where they will be part of a marketplace environment. It will be within the marketplace they will provide their capabilities to those producers and Joint Operating Committees that are in demand for their services.

If a profit opportunity requires a configuration of capabilities different from what already exists in the economy, the Schumpeterian process of creative destruction may be set in motion. p.21

Its a marketplace, not a department within a bureaucracy. One within a dynamic, entrepreneurial and innovative oil and gas producer. A place where the act of buying and selling and trading leases or interests in properties, making deals or building companies can and will be done.

Seldom if ever have economists of organization considered that knowledge may be imperfect in the realm of production, and that institutional forms may play the role not (only) of constraining unproductive rent seeking behaviour but (also) of creating the possibilities for productive rent-seeking behaviour in the first place. To put it another way, economists have neglected the benefit side of alternative organizational structures; for reason of history and technique, they have allocated most of their resources to the cost side. p. 6

It is interesting that one of the roles of the firm, in this revised boundary of the firm and market, is the enhanced role that coordination will take on. This next quote states explicitly the need to enhance the coordination by way of routines and capabilities.

All recognize that knowledge is imperfect and that most economically interesting contracts are, as a consequence, incomplete. But most of the literature considers seriously as coordinating devices only contracts and the incentives they embody. It thus neglects the role - the potentially far more important role - of routines and capabilities as coordinating devices. Moreover, the assumption that production costs are distinct from transaction costs and that production costs can and should always be held constant obscures the way productive knowledge is generated and transmitted in the economy. p. 14

Since contracts are one of the key end products of the activities that are undertaken in the Petroleum Lease Marketplace module. It is these contracts incompleteness that will continue to demand the services of those employed in the marketplace and the firm. Services of “routines and capabilities as coordinating devices.” Making the “marketplace” a key interface of the Petroleum Lease Marketplace module.

We have noted the ability to build a company was one of the things that is being done while working within the Petroleum Lease Marketplace (PLM). Implying that the marketplace was an area where the active state of affairs was to build something as opposed to just fill file cabinets with agreements. This is the key point as to why the PLM has to be a marketplace. It must emulate the personality of the people who are building the firm. From Professor Langlois’ Industrial Dynamics, Innovation and Development.

Industrial economists tend to think of competition as occurring between atomic units called "firms." Theorists of organization tend to think about the choice among various kinds of organization structures - what Langlois and Robertson (1995) call "business institutions.” But few have thought about the choice of business institution as a competitive weapon. p. 1

The “Marketplace Interface” of the Petroleum Lease Marketplace module of the People, Ideas & Objects system provides the innovative oil and gas producer with the competitive weapon they need to build their firm.

On the other side of the ledger, an open modular system can more effectively direct capabilities toward improving the modules themselves (Langlois and Robertson 1992). Such a system harnesses the division of labor and the division of knowledge, allowing organizational units to focus narrowly and thus deeply; at the same time, it magnifies the number of potential module innovators, and thus can often take advantage of capabilities well beyond those even a large unitary organization could marshal. p. 19

The modular nature of the Preliminary Specification provides this ability to focus on the important attributes within the module. The Petroleum Lease and Resource Marketplaces are different just as the Financial Marketplace, Research & Capabilities and Accounting Voucher modules are unique. Each have their own unique people and activities that are separate and distinct from one another. Yet, they all interact to support the innovative oil and gas producer.

A complex systems product is underlain by an architecture: a set of parts and a way of fitting those parts together. An integral architecture is one in which the parts depend on one another in complex and often unpredictable ways: the system is a tangle of spaghetti. By contrast, a modular architecture is one that regularizes the dependencies among the parts, forcing them to interact only in relatively formalized and predictable ways (Lanlgois 2002b) p. 6

The point that I am struggling to get across is the interface in which users will access the marketplace in the Petroleum Lease Marketplace. It is the “Marketplace Interface” that I am highlighting in this discussion as to what I think is the value to an oil and gas concern. It is through this somewhat simple software representation of the market that much of the value will be gained.

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 Marginal Production Threshold Interface

Within the Preliminary Specification the capability for the producer to scale back their production in the face of poor commodity prices is made possible. This is part of the business model that provides the innovative and profitable oil and gas producer to optimize the value of their reserves. In the Resource Marketplace module we had discussed the implications of shutting in production would have on the costs of production. That is by moving to the “decentralized production model” from the “high throughput production” model it has the effect of turning the producers fixed costs of production, overheads, administration and accounting, into the variable costs of production, overhead, administration and accounting of the Joint Operating Committee. Therefore all of the costs of the Joint Operating Committee decline in line with revenues. With no production there are no revenues, however there are no other costs other than the costs of capital. Leaving the property, or Joint Operating Committee with no loss on operations during periods of shut-in production. It is in the Petroleum Lease Marketplace module that the capability to reduce production is acquired through the Marginal Production Threshold Interface and is the subject of this discussion.

The operational decision making authority lies with the Joint Operating Committee. And we have discussed throughout the Preliminary Specification how the decision may be made to shut-in production to mitigate the losses on the property and to help return the commodity markets to balance. With the Preliminary Specifications move to the “decentralized production model,” where all of the costs are variable, recorded in the Joint Operating Committee and therefore suspended with the production, the decision to shut-in production is something that should be possible, or to be triggered through the Marginal Production Threshold Interface.

The Marginal Production Threshold Interface would provide the collaborative means in which the Joint Operating Committee would agree to the criteria in which production would be suspended. We see today with Natural Gas prices in North America, a situation where no one is making any money. When prices meet the criteria that the partnership have agreed to, ie the marginal costs, then the decision to curtail production can be carried out. Whether that is manually issuing the order to reduce production, or if the systems are automated, then the system is automatically triggered at the beginning of the month when the criteria is met.

The ability to collaborate and agree among the partnership falls within the domain of the Joint Operating Committee. Having all of the Joint Operating Committees that you have an interest in located within the Marginal Production Threshold Interface in the Petroleum Lease Marketplace will provide you with an understanding of what your production profile will be at various price scenarios. This can be provided through a “what if” scenario page within the interface. Extensions of the prices and volumes will also calculate what your pro-forma revenues will be. Determinations can also be made of the overhead and production costs.

If each producer within the industry was able to manage their production in this manner there would be an end to the losses on operations as each marginal property would be financially and operationally at neither a profit or a loss situation. The reserves would be saved for a time when the production would be produced profitably. And the commodity prices would effectively have lower downside swings as a result of less production being available. The current situation which tries to manage prices by limiting capital spending is a very blunt instrument that leads to over and under production at the extremes. People, Ideas & Objects Preliminary Specifications business model and the Marginal Production Threshold Interface will enable the producers to stop producing the marginal production and save the reserves for the day when they can be produced at a profit. A little faith in markets is all that is required.

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 Strategy Interface

What People, Ideas & Objects is undertaking in developing the Preliminary Specification is the simple process of moving the compliance and governance frameworks of the innovative oil and gas producer into alignment with the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. This discussion will deal with the strategic framework and how the Petroleum Lease Marketplaces “Strategy Interface” works to communicate the unique strategic direction of each of the Joint Operating Committees the producer has an interest in. In addition, the business model that is provided to the innovative and profitable oil and gas producer by using the Preliminary Specification will be discussed.

With the demands of the earth sciences and engineering necessary in each property. The ability for producers to apply generic corporate strategies to all of their properties is quickly expiring. The need to address each property's unique characteristics and accommodate those needs with the properties own unique strategy is becoming a necessity. Each property's unique strategy will be a result of the collaborations among the participants in the Joint Operating Committee and will be subject to change from time to time. The key determinate, or business model, will be to optimize the value of the reserves over the life of the property.

Placing the Strategy Interface in the Petroleum Lease Marketplace is the logical location for this information. Along with the agreements, leases, AFE’s, and other partner related information that shares several things in common with the “Strategy Interface.” Those common threads are the collaborative nature of the development of the documents, and the access privileges that will be used to access the information. Each producer having read / write access to each property that they have an interest in. Where they can collaborate within the partnership as to the overall strategy and tactical direction of the property. Where individuals who are authorized to work within the Joint Operating Committee through the Security & Access Control module, and who are authorized with read access to the Strategy Interface are able to determine their actions are in line with the strategic intent of the property.

From the producers perspective they have a database of strategic documents that are unique to each property. They are able to determine quickly what the strategy is for any property and engage the specific people responsible for further information. Although each property is following its own unique strategy, the producer firm is not without its input and is able to quickly determine the details of the properties key strategic direction.

We have now documented the “Strategy Interface” of the Petroleum Lease Marketplace module of the Preliminary Specification. This being a simple collaborative interface that documents the unique strategy of each and every Joint Operating Committee the producer has an interest in. This further discussion will deal with the positive attributes of the Strategy Interface, application of the business model and the difficulties that it will impose on the bureaucracies that are unwilling to consider the option of individual property strategies.

Natural gas is experiencing a unique situation with the prolific nature of the shale gas discoveries. And oil continues to experience high global demand and pricing with nominal supply growth. The earth science and engineering used to provide energy for today’s markets is an order of magnitude more complex than a few decades ago. This the land and asset base are the basis of competition for the innovative and profitable oil and gas producer. People, Ideas & Objects Preliminary Specification have provided an updated business model to the industry. One that is based on the decentralized production model that sees the producer firm reduced to the c class executives, earth science and engineering resources, some legal and support staff. The remaining administrative, accounting and overhead resources are reorganized into service providers who are focused on the industry wide process. Processes like lease rental payments, production, revenue and royalty accounting, etc.

It is in this way that when the service provider provides the services of production accounting they are then able to bill the Joint Operating Committee for the production accounting services. Note they bill the Joint Operating Committee and not the producer. If the property falls into a situation where it is not meeting its marginal costs then the property can be shut in, and all of the administrative, accounting and overhead cost that are usually incurred at the service providers will not be incurred and will not be billed. Causing the property to report no loss on operations, saving the reserves for a time when they can be produced profitably (and achieving the business models objective), removing the surplus commodity from the marketplace and putting a floor under the commodities price.

The combination of the Strategy Interface with the application of the People, Ideas & Objects Preliminary Specifications business model for innovative and profitable producers. Gives the producer the tools to effectively optimize the value they can achieve from the reserves they hold. This is the means in which producers can compete in the complex energy era.

It appears that the exploration and exploitation of oil and gas reserves has and always will be a function of the technology based on the underlying sciences. This is undeniable, and may also be the cause of the shorter-term life cycle which is agreed by most to be a trend that will continue. This reserve size and deliverability is paralleled in Professor Giovanni Dosi’s discussion of how innovations in industrial companies have been diluted by demand prediction and lower production volumes. Generic corporate strategies are therefore an impediment to the value realization of these petroleum and natural gas reserves. An innovative posture will also bring about different strategies in terms of timing of the investments. Professor Dosi notes;

Finally, empirical studies often show the coexistence, within the same industry and for identical environmental incentives, of widely different strategies related to innovation, pricing, R & D, investment and so on. Specifically with regard to innovation one notices a range of strategies concerning whether or not to undertake R & D; being an inventor or an early imitator, or “wait and see”; the amount of investment in R & D; the choice between “incremental; and risky projects, and so on (see Charles Carter and Bruce Williams 1957; Freeman 1982 and the bibliography cited therein). Call these differences behavioral diversity. p. 1157

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 the financial crisis of 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. However I am sure we can all agree that continued production of the shale gas reserves at a loss would be the beginning of the destruction component in creative destruction.

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.

System which System

Previously we documented how the division of labor might affect the lease rental payment process. It was there that we discussed the specialization of 20 individuals who were processing the lease rentals for all of the Joint Operating Committees who would use People, Ideas & Objects (PI&O). How these people would actively improve the process by identifying “gaps” and were supported by a PI&O software development team to amend the software to accommodate the changes they made to their processes.

The Petroleum Lease Marketplace is an area that is rich with processes like lease rental payments. All of these processes as well as those in other modules would be subject to similar changes as those noted for the lease rental payments. The Petroleum Lease Marketplace module deals with the administrative details of both the producer firm and Joint Operating Committee. Both of which will be undergoing significant changes as a result of innovation in other areas of the business. What has been a rather constant area in terms of its activity and change level, the lease rental payment and other processes, may take on a more dynamic feel for the business. When the producer and Joint Operating Committee are actively innovating, Professor Giovanni Dosi notes that two separate phenomenon are observed.

First, new technological paradigms have continuously brought forward new opportunities for product development and productivity increases. p. 1138

Secondly “A rather uniform, characteristic of the observed technological trajectories is their wide scope for mechanization, specialization and division of labor within and among plants and industries.” p. 1138

The dynamism of the Research & Capabilities process, documented elsewhere, must rely on the Petroleum Lease Marketplace for information and resources. The need for it to be responsive to the Research & Capabilities changing needs is a necessary requirement of the Research & Capabilities innovative-ness. Looking to model the management of these change processes across all producers within all geographical regions would seem to be a difficult task. To capture this change process within the People, Ideas & Objects software, an even more difficult task. However, Professor Dosi notes that there are other serious concerns that need to be taken into consideration.

The appearance of new paradigms is unevenly distributed across sectors and so are (a) the degrees of technical difficulties in advancing production efficiency and product performance, and (b) the technological competence to innovate, embodied in people and firms. pp. 1138 - 1139

Simply not everyone will be working off the same page when it comes to the types of innovation, the scale of their application and degree of complexity. In this next quotation it becomes clear that the processes under management by the software is the means in which to be able to deal with these underlying paradigms and trajectories. Therefore, in order for the producers to begin the path of innovative-ness requires that we resolve these process design issues, and build the software before they are implementable within the various disparate organizations.

These distributions of opportunities and competence, in turn are not random, but depend on (a) the nature of the sectoral production activities, (b) their technological distance from the “revolutionary core” where new paradigms are originated, and (c) the knowledge base that underpins innovation in any one sector. p. 1139

As the Preliminary Research Reports research question asked, can innovation be reduced to a quantifiable and replicable process, the answer was an unqualified yes. This last quotation is one of the reasons why. Having the process defined at the “revolutionary core” and at the “knowledge base that underpins innovation” are the requirements that we capture in the software. That does not mean that each and every producer will fully appreciate or understand the full scope or scale of what the system provides. Only those that are at the revolutionary core will be able to fully exploit its resources. That however, does not preclude the systems use by everyone within the industry. For example not everyone is at the revolutionary core of Microsoft Excel and that does not preclude them from gaining value from its use.

People, Ideas & Objects believes that if we engineer a software application to deal with these issues, we can accelerate the performance of the producer and the industry. From a systems engineering point of view this has been beyond the scope of one software development team working with the limited budget resources of one producer. For any producer to undertake the required analysis, let alone development of the systems, is beyond the scope of what was possible or desirable. It is well beyond the scope of any software developer to undertake on their own, in a speculative manner, and therefore has been beyond the imaginations and possibilities of the industry. I would also argue that, in the past, automation of this business process would have generated limited value. Today we can, as has People, Ideas & Objects, define a more specific division of labor and specialization and therefore, provide a more profitable means of oil and gas operation.

To state this point differently, we can focus the resources of the industry on the comprehensive engineering of these processes. Allocating these costs over the entire energy producing base presents opportunities to undertake the detailed development of software that has not been attempted before. This is the approach that is necessary to deal with the issues associated with the producers meeting the market demands for energy. Management of these processes is the key to enabling the organizational performance, technological paradigms and trajectories that Professor Dosi notes in this paper.

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.

Leveraging the Capabilities of Others

Our discussion on the capabilities that the producer holds has documented a number of processes through the Research & Capabilities, Knowledge & Learning and Resource Marketplace modules. These are comprehensive processes that enable the producer to develop and maintain their unique and valuable competitive advantages in terms of their earth science and engineering capabilities. These capabilities should be actively marketed to other producers as a potential partner in terms of the value add that could be contributed to a potential Joint Operating Committee.

We are in a period where the “easy energy era” has passed and it is generally agreed that the complex energy era has begun. The demand for earth scientists and engineers is substantial and challenges the ability for each producer to build the capabilities they need to operate all of their properties. Therefore the need to pool their capabilities with their partners in the Joint Operating Committee is not a nice to have but a necessity. This pooling can take on an ad-hoc disorganized mashing of two or more producers or can be a deliberate construct as a result of the meeting of minds at the beginning of a joint venture. Enabling each of the producers in the pooled partnership of the Joint Operating Committee to specialize on their earth science and engineering capabilities. People, Ideas & Objects Petroleum Lease Marketplace assumes the latter is the preferred choice and is providing the tools to develop these specializations and joint capabilities.

In Professor Giovanni Dosi’s paper he notes the following three factors involved in the development of innovation.

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

• Capabilities and stimuli generated with each firm and within the industry of which they complete.

• Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.

• Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

We are assuming for the purposes of these writings that the key stimuli is the commodity prices which are allocating the financial resources to fuel innovation. Throughout the Preliminary Specification we have focused on the capabilities of the producer. What the producer must now learn to do is to specialize on their own earth science and engineering capabilities and leverage the specialized capabilities of their partners in their Joint Operating Committees.

Within the Petroleum Lease Marketplace there needs to be an interface that lists the areas where the capabilities of other producers are being leveraged. These listings need to be based on the agreed to and documented exchanges of capabilities that are part of the CO&O or other agreements that make up the Joint Operating Committee. This same report could detail the commitments that the producer firm has made in terms of its capabilities to the partners in future years. This "Capabilities & Commitments" interface would of course be organized based on the Joint Operating Committee.

Within the Petroleum Lease Marketplace of the Preliminary Specification we have established two new interfaces. The first is what we have called the "Revenue Per Employee" listing that details the various calculations of revenue per employee by producer within the industry. These calculations are broken down to provide variances based on the commodity prices, volumes and number of employees. Further calculations are conducted on each of the Joint Operating Committees that the producer firm participates in. These calculations are broken down by the variances noted above and are confidential to the producers who are participants in the Joint Operating Committee. Recall we are looking for the trajectory change in the three variables over a period of time.

The second interface that has been developed in the Petroleum Lease Marketplace is what we are calling the "Capabilities and Commitments Report." It details the capabilities that are provided by agreement in the various joint venture agreements the producer participates in. This report also details the commitments that the producer has undertaken to provide in terms of its capabilities under those same agreements. This report enables the producer to fully leverage their partners capabilities and focus on developing their capabilities while contractually meeting their requirements.

These reports add value to the producer and the Joint Operating Committees that use the information that are contained within them. They are unique and provide information that can be used in innovative ways. Of note I think that a service provider could be established to complete the task of occasionally verifying the producer data for Revenue Per Employee on an industry wide basis. That way one service provider would need to verify the industry wide producer related information. However, there is more to the use of these reports when they are used in combination. And what we could provide is a hybrid report that sorts the information based on the Joint Operating Committee, having both the Revenue Per Employee calculation and the determination of the Capabilities & Commitments Report output together. Learning “who” and “where” the innovations were being developed.

In our review of Professor Dosi’s paper, he begins by summarizing that businesses commit to innovation stemming from...

“exogenous scientific factors and endogenously accumulated capabilities developed by their respective firms.” His general point is that “observed sectoral patterns of technical change are the result of the interplay between various sorts of market-inducements, on the one hand, and opportunity and appropriability combinations, on the other.” p. 1141

Recall that “appropriability” for the purposes of the producer include lead times and learning curves as more effective ways of protecting process innovations. Therefore appropriability and opportunity are clearly reflected in the Revenue Per Employee report. What the Capabilities and Commitments Report is reflecting are the “market-inducements.” The result of the “interplay” between these reports would be “patterns of technical change.” That might be a bit of leap for some to make on an industry wide level, and that I would agree, however, the devil would be in the details. On a Joint Operating Committee basis, which we would have the data for, both the capabilities from the partners, the producer and the revenue per employee, the information would be valuable.

Any “pattern of technical change” would be triggered by the trajectory changes in Revenue Per Employee. Most probably by any trajectory change in the volume variance. Therefore what was the reason for the change and was it as a result of any change in the capabilities of a producer due to any “patterns of technical change” or “market-inducements?” Maybe I am being too analytical and reaching to extend the value of innovation within the enterprise.

Highlighting what is effective within your organization, from an innovation standpoint, will be a difficult and important task. These reports will be able to highlight any success or failure within the current month. I think that provides ample time for the producer to determine the viability of the operation of either their or their partners innovative capabilities. Making these reports critical to the innovative oil and gas producer. In the future it will necessary to be successful, but also to be able to point to where the success originated from.

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 terms of evaluating the performance of a potential partner firm in a Joint Operating Committee. Or in determining the performance of a property over time. People, Ideas & Objects have developed “Revenue Per Employee” as the metric that provides an understanding of the state of the capabilities and innovativeness of a partner firm or Joint Operating Committee. If you calculate revenue per employee you will find rather dramatic differences in terms of the different factors for producers. Special consideration has to be given for integrated firms to ensure that you preclude the downstream operations and the smaller producers as the factor unfairly reflects their capabilities. Given the disparity in Revenue Per Employee for producer firms this factor is a valuable tool in determining the appropriate partner to select in a property and an effective tool for motivating teams towards higher capabilities, innovativeness and performance.

Professor Giovanni Dosi’s paper “The Sources, Procedures and Microeconomic Effects of Innovation” discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Professor Dosi’s theories that make them directly applicable to oil and gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil and gas firms search, and production of, hydrocarbons. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competition. Ensuring that your partners in the Joint Operating Committee are of the same mindset and capability is a critical component to your future innovation strategies. Professor Dosi note:

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.

A meeting of the minds with regards to innovation needs to be established in the Petroleum Lease Marketplace module and captured in the agreements and associated modules. We will be discussing the revenue per employee factor in the Analytics & Statistics and Performance Evaluation modules in the Preliminary Specification. Maybe what we need to do in the Petroleum Lease Marketplace module is find a place where we can compare the various producers revenue per employee factors to determine their appropriateness / suitability in terms of an innovative partner. A simple listing of the revenue per employee of your partners and potential partners on its own interface within the Petroleum Lease Marketplace module.

First we should ask ourselves does the calculation of revenue per employee provide a reasonable comparison of the innovativeness that exists in a producer? Or would this calculation reflect the quality of assets, the size of the firm or its actual innovativeness? That is the question that is hopefully being answered here.

Clearly the factor of revenue per employee would reflect many factors other than the innovativeness of the firm. However, would the comparison of revenue per employee over multiple periods be a determining factor of innovativeness? The increase / decrease in the factor would be as a result of an increase or decrease in price and volume, with the volume being particularly affected by the changes and innovations that occurred over the period in the firm. The one other critical determining factor is the number of employees the firm employs. Unreported changes in the number of employees would skew the results significantly.

If the Revenue Per Employee interface in the Petroleum Lease Marketplace module calculated revenue per employee for the participants in Joint Operating Committees of the producer. And calculated the factor for prospective producers there could be value in determining whom would be a good prospective match as a partner in which to deal with in the future. The report could also calculate the trajectories on the basis of the volume, price and employee variances during the periods under comparisons by the user.

So what have we got? We have run some elaborate calculations that “might” prove that one producer is innovative. What does that prove? That depends on what is imputed by being innovative. Professor Dosi 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.”

Running this factor against the general population of producers within the industry provides value to the user. The ability to highlight who is solving the problems in the industry on an innovative basis and then partnering with them is positive for all concerned. However the real value in the Revenue Per Employee calculation would be the ability to run the report on the basis of the individual Joint Operating Committees that you are a participant in.

This is a more difficult task due to the calculation to determine the number of employees that worked on each property. That is it would be a problem until the People, Ideas & Objects Military Command & Control Metaphor and Work Order system were implemented. Then these systems will be recording the hours of the people from all of the various producers who are authorized to work on the JOC’s. Therefore the calculations that were run on the basis of the producers, can then also be run against any and all of the Joint Operating Committees that you have an interest in. This would also include the calculation of the volume, price and employee variances of the trajectories over the periods being compared. This being the first step in the process, determining which Joint Operating Committees were most innovative. The next step, and the most important step would be that Revenue Per Employee would be providing an understanding of who the innovations may be coming from.

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.

Different Perspectives on Data

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

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

Then there is the private information that the producer generates that will be for strategic and tactical concerns that will be for the producers eyes only. These discussions could be regarding one of the agreements that should not end up in the “partnership” area. How does a firm maintain access to this critical information and ensure that it doesn't leak out to someone that it shouldn't? Please review the “Two Types of Data” section of the Security & Access Control module.

The Preliminary Specification also provides an interesting opportunity regarding the publication of aggregated data. It is in the context of the capital budgets of the producers. If producers were to maintain their expected capital budgets in reserve report format within the PLM, would they be interested in publishing that data in aggregate through the Resource Marketplace module. This data would be scrubbed of all pertinent proprietary information and only represent dollars, general geographical area and account classification. This information would provide the Resource Marketplace with information of approximately what the marketplace might look like in near future so that they could plan to meet the expected demand. And would provide the service industry with a better understanding of their marketplace.

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.

Specialization and the Division of Labor

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

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

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

How does the division of labor expand? That is to say, this lease rental process continues on and they find if they make a small change in the way they process this element of it, then they could save x% of time. This is the process of “gap filling” which makes inherent sense. Then the boss says ok, sounds great go do it. The problem today is that all of our processes are highly automated. And it would seem that People, Ideas & Objects are taking the Preliminary Specifications process automation further. Therefore the ability to change a process is heavily dependent on a software change. Which in the current environment is next to impossible. People, Ideas & Objects however are providing a software development capability. One that is available for the purposes of gap filling and supporting the user community needs. One that is designed to support innovation. Therefore the ability to make the change in the process and have the software updated to support the process change is available.

Making these software development changes at one service provider makes the process manageable. As opposed to the methods today of having to do this within each producer firm which doesn’t provide any efficiencies. That is in today’s environment, there are no efficiencies in terms of software development changes, and there is no scale in terms of the division of labor and specialization to apply to the volume of lease rental activity. It is also assumed in this example that the data is stored at the JOC and therefore the amount of lease rental data that is held at the JOC is relatively negligible, providing more support for centralizing the lease rental process under one service provider.

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

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.

Introduction to the Material Balance Report

The working interest distribution for the production from a well is fairly straightforward. Other than the changes that might occur such as before and after casing point elections, before and after payout etc, the values remain relatively constant over the life of the well. However, for gas plants and related facilities the distribution of production to the owners of the facilities is anything but constant. This brings into play a multitude of different ways to treat the ownership of the production and the costs of processing. The manner in which the accounting for that production and the cost of processing is of material concern to the owners of those facilities. In fact it is the difference between making a profit. The inability to grasp the scope of the concern has led many to disrupt the facility owners business.

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

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

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

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

I would reiterate this is an area of extreme importance to the owners of the facilities in oil and gas. To handle these transactions appropriately is the manner in which People, Ideas & Objects is approaching this issue. As it stands today, I am certain no other software vendor fully comprehends the significance of these points and does not provide anywhere close to the level of functionality as we have proposed in these modules. See also the discussion of the Material Balance Report in the Partnership Accounting and Accounting Voucher 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.

Introduction to the 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 Administration 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.

For example AFE’s, Mail Ballots, agreements, are generated through interactions by each of the participants in the Joint Operating Committee. How much of this data and information could therefore be held by the Joint Operating Committee with an interface to the firm? This is a question that should be answered with significant research during the Preliminary Specification. To answer that question would also answer; for whom do those people we mentioned, the Land, Legal, Production and Exploration Administration and Accounting staff work for. The implications would be significant.

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 but very specialized in terms of the tasks that they conduct. And apply those skills across the entire industry, or a geographical region, or some other classification. This 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. By doing so the profitability of the industry is materially enhanced. For 2012 the opportunity costs from these changes were calculated at $94 billion. (Primarily through the ability to raise natural gas prices.)

When we were conducting our research. Professor Langlois noted that expansion of the division of labor and specialization was through the simple act of “gap-filling.” Work that wasn’t being done before, could-should-would, be nice if it was done now. In this day and age it might be easy to put the person in place, but what about the user community and software development capability to support that person? As I have suggested before, should we consider these administrative positions from the point of view that these people will work for a process as opposed to any one company or Joint Operating Committee?

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 user communities contribution and commitments.

When I sat down to write the Draft Specification I wanted to incorporate the marketplace metaphor into the modules that made up the People, Ideas & Objects systems. There had been discussion of exchanges and web services in the past and those never quite captured the reality of what was possible. I think exchanges are technological solutions attempting to resolve non-existent business problems. Whereas the marketplace is a business reality. A reality that we can build a virtual technical environment that emulates the real marketplace. A big difference in terms of how we approach the building of these systems.

The next aspect was to determine what marketplaces existed in oil and gas that the technology would need to replicate? The answer to that question became quite simply. The marketplace for financial resources, secondly for the people, vendors and the service industry or as we have called them resources, and thirdly the P&NG leases. We therefore simply created three modules that replicate these three markets within the People, Ideas & Objects application. Talking about the output of the system should probably keep this simple fact in mind. That these are marketplaces. Marketplaces that are backed up by a user community and software development capability that can evolve the applications as these markets evolve.

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.

Conclusion to the Resource Marketplace Module

The Resource Marketplace module, in combination with the Research & Capabilities and Knowledge & Learning modules is how the innovative and profitable oil and gas producer and Joint Operating Committee acquire their capabilities. The Resource Marketplace establishes thick markets for products and services from the service industries and service providers that are focused on the producer and Joint Operating Committees needs. Enabling the kind of operational control and flexibility that is necessary for the 21st century.

And it is here in the Resource Marketplace module that the capabilities to establish profitable operations is acquired. Through use of the decentralized production model the producer is able to remove their marginal production from the marketplace and save those reserves for a time when they will return a profit. When producers are able to remove their production from the marketplace without financial penalty then the downside risk in natural gas prices is mitigated. It is here in the Resource Marketplace module that the solution to profitable production of the shale gas reserves, or any gas reserves, is attained.

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.