The Perils of "Data" and "Best Practice"
We’re continuing with a look at the tools, methods and competitive advantages of the People, Ideas & Objects user community as we inch ever closer to that inevitable day where we’ll all be needing them. In terms of developing ERP software user community based developments are mandatory. If you want exact, quality software you’ll need a robust user community. There is too much complexity and subtlety in the world of business to ignore. Developers are involved in a complex science of their own. Working together they can capture the nuance of the business within the software. We have been focusing on the development of our community as our priority for the eight years since we published our user community vision. Providing an understanding of the power our users will have in this development. Power in the form that only they have been licensed to prepare derivative works from the Intellectual Property of the Preliminary Specification. And power from the point of view that our developers are deaf, dumb and blind to everyone but them. Developers are licensed to only take direction from the user community. Those people who People, Ideas & Objects consider to be our customers. Our competitive advantages are our user community, Intellectual Property and research. As an overall community we are all focused on providing producers with the most profitable means of oil and gas operations everywhere and always. In our last post we highlighted the use of conflict and contradiction as two high level means of analytical review. Today I want to touch on two areas that I’m personally not of the belief hold too much value in determining any of the value we will need to provide producers with the value generation and profitability we’re focused on. Those being the focus on data and best practices. These I see as the prolific go to, catch all phrases that are used to refute criticism of the objectivity and understanding of the work that was analysed. In reality data is not going to tell our development teams very much. And I feel best practices only homogenize failure.
These are the opinions of one man and I’m sure that some people have had other experiences that may be of value to our user community. That will be for them to determine. What the data tells us about the failure of the oil and gas industry is that all of the producers were profitable and have been for the past four decades. We know now that was a purposeful lie that continues today. If not for a steady stream of investor and banker dollars to constantly feed the spending machines there would have been no oil and gas industry. The data will not tell us anything about the opinion of the investors or bankers or the changes they may make in the future. The past five years should have provided a real life example of what the capitalist system is and how it functions. Why the focus on shareholder returns is the primary and some would say only concern. Without organizational profitability at the top of a primary industry you have a rapid decline and destruction on a wholesale basis across the greater oil and gas economy. It’s that simple. For everyone down to the local corner grocery store clerk to be fully employed demands that oil and gas be profitable in the real sense of the word. This will only come about with the knowledge, experience, skills, education, routines, ideas and perspectives of everyone involved. Reading streams of data that give the bureaucrats a satellite output of the floating roofs of oil storage tanks to determine the state of the overall markets. Only to be so rudely interrupted by negative $40 oil prices I think qualifies as a best practice.
Far too much time, energy and money has been wasted on evaluating data in the oil and gas markets. People, Ideas & Objects solved the real profitability problems in the industry by pointing out that oil and gas commodities are subject to price maker characteristics and are not price takers. We mentioned that on this blog for the first time in our November 11, 2008 blog post entitled “Times Like These...” While I have been obstructed and vilified for this. Literally run out of the industry by these bureaucrats for publishing this knowledge. They continued to use their satellite data and destroyed the industry comprehensively and completely. All they needed to do was to recognize that oil and gas as price makers implied they would only bring on new production if it was profitable. That is what a price maker does. Well they will argue that all of their production is profitable which according to their accounting it is. And we have argued that is a lie and produced through their providers who are not first tiered ERP systems providers such as People, Ideas & Objects proposed use of Oracle’s Cloud ERP. Why is it that these, now mammoth bureaucracies are using homegrown, very old ERP systems unable to report the fact that producers have not been making any money? Why hasn’t it been evident to everyone that they just swap in investor money, swish it around a bit and then bring in another round of investor cash the following year? Seeking the truth from data needs to be something that I maybe need to be educated on, that I’m missing or is as specious as I’m suggesting. We have to look at more than the data as it would seem that the bureaucrats have been doing plenty of just that.
People, Ideas & Objects through the reallocation of the producer's administrative and accounting resources into service provider organizations brings about a standardization and objectivity to the accounting and administration conducted in oil and gas. Therefore those that find their Joint Operating Committees are not producing profits will be motivated to shut-in those properties to enhance their corporate profitability. This is done when the unprofitable properties no longer dilute the profitable properties. Producers will know that their accounting information is the same standard, objective accounting that all the other properties in the industry were subject to and can accept that. They’ll know that the costs of administration and accounting of the Joint Operating Committees was consistent with all the others on a feature by feature basis. This standardization and objectivity is desired in the accounting and administrative areas. The competitive advantages of our user community and their service provider organizations are; quality, specialization, division of labor, automation, innovation, leadership, integration, tacit and explicit knowledge division between humans and software, design, planning, thinking, negotiating, compromising, observation, reasoning, judgment, ideas, research, collaboration, creativity, issue identification, issue resolution, the use of conflict and contradiction as analytical tools and decision making. It will be these attributes that our user community members and their service provider organizations use to differentiate themselves from other members. Price competition is eliminated in our vision as it provides no value. Having our user community focused on these distinct attributes in a competitive environment will provide their customers, the oil and gas producers, with the most profitable means of oil and gas operations. Having others jump in and offer a competitive offering at a lower price precludes the time and energy necessary to do the hard work of building the producer's value over the short and long term. These rights are provided to our user community members through the Intellectual Property license from People, Ideas & Objects that gives them a monopoly over the process they manage. Only they will be able, and in turn be responsible for ensuring their process is completed consistently and correctly across the industry, but also enhanced from a service point of view within their service provider organization and their exclusive access to People, Ideas & Objects developers.
What do “Best Practices” provide? Once again I’m negative on this attribute as much as I am on data. Too much reliance on this as a catchphrase is done, in my opinion, and little to nothing can be done to amend or alter a process in any material or beneficial way. Tinkering at the edges of the interfaces has been all that’s been conducted in this sense as no one has the responsibility or power within the producer organization to authorize or implement any changes of any material size. The issue comes about as to how to get the software to change to accommodate the new requirements of the processes? Traditional ERP software providers are not interested in one off customizations, if it's a benefit to the company requesting it, then maybe it's a benefit for their entire client base. The last question to solve is who’s going to pay for the costs. A decade later the new best practice that is truly value enhancing in 2011 appears and things have changed and it's no longer understood or required. Therefore everyone knows this and has resigned themselves to these facts. It takes too much energy for changes to come about. Tinkering at the edges in the form of best practices looks good and fulfills the demands as defined in the Job Description and Performance Review. With the Preliminary Specification all that will be necessary is to email or pick up the phone and call the user community member responsible for that process. Either way it can be done at the speed of light. Assuming the call is over VOIP and the Internet are both provided through Fibre Optic cable.
Take the example of what our user community will be doing for what I think will be the most extreme example of the analysis they’ll need to undertake. People, Ideas & Objects Preliminary Specifications Material Balance Report. A soup to nuts management of the production process from the well head to the financial statements of the Joint Operating Committees and producers that own them, but also the custody transfers of the product. All the regulatory, royalty and internal reporting requirements included. Automation of these processes has been a dream of many people in the industry, most of those are the people that have to work on some area within this domain. If we don’t begin to deliberately automate these menial data handling, massaging, filling out of forms and the seeking out of data; we’ll be short of people to do the things that humans have the competitive advantages for and that we listed above that our user community will be conducting. These apply to the entire industry not just People, Ideas & Objects et al. Let's begin to have the computer do what they have competitive advantages over us. Data management, storage and processing. We can’t compete. And they can’t compete with what we have as advantages.
The Material Balance Report is almost purely logical and mechanical. Agreements may override the logic of the chemical makeup or physical layout of the infrastructure. That doesn’t preclude it from being automated. There is a process where the information is estimated, initially and mostly for accounting purposes. Then amendments start the process of refining the data for the production month. Where changes in the makeup of prices, sales or production volumes and transactions are different than first reported etc. This will occur until the accounting month and production month magically appear to be reporting the same values. Which may take up to three months to complete. The number of iterations through each of the processes, the number of people, companies, regulators, service industry representatives and ghosts in the machine are too numerous to count. The objective to automate this process has been well beyond the scope of any one individual producer. People, Ideas & Objects have our proposed, consolidated, industry wide budget in which this could be accomplished. Now is the time and today we have the user community and technology that have the means in which to do so. And taking this vision further with the objective of implementing the Internet of Things which is an inherent part of the Preliminary Specification.
This will require a massive effort on behalf of our user community for them to put together. To have it fit in with the overall architecture of the Oracle Cloud ERP and Preliminary Specifications. The regulatory jurisdictions in North America that will be involved. Their parsing of the myriad processes within the Material Balance Report into their service provider organizations to achieve the performance, efficiency and effectiveness that is demanded of them. This task will not be for the faint of heart and will break a few brains in the process. My brain was broken in the process of developing the Preliminary Specification so consider yourselves lucky, you won’t have to deal with me.
What will the Material Balance Report look like when it is complete? How easy will the interface be to use? Will it accommodate the myriad of changes that will be commonplace in the future with new and elaborate devices being developed in the Internet of Things environment? I think that everyone who has looked at this area from a high level or a detailed level knows that it can be, and should be done. The impediment has always been it’s too costly with little return on that investment for the one producer if they undertook the task. The real value comes about when all the partners in a Joint Operating Committee and elsewhere are using the system. The cost / benefit value proposition has changed with what can be accomplished by our user community. What has also changed is the reliance and weighting that has traditionally been given to data and best practices. It will be the facts as presented that will need to be dealt with. Facts such as the process's operation must contain X requirements at this point, and Y for these people… And we will interface it here in order that the producer's user will be able to have… This is the line of work of our user community. I could go on but leave it here with the comment that this comes from the narrowest point of view for brevity purposes.
The only solution as it stands today, from a creative destruction point of view, is People, Ideas & Objects, our user community and their service provider organizations implementation of the Preliminary Specification. The natural forces of disintermediation and creative destruction are being obstructed through the diversion of industries revenues away from the development of these initiatives. And therefore are unnecessarily directly supporting the status quo behaviors that have been proven to be disastrous.
The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.