OCI Executive Summary, Part II

 Security & Access Control

Having adopted the Joint Operating Committee (JOC) as the key organizational construct of a dynamic, innovative, accountable and profitable oil & gas company. We're involved in the interactions of many producers and suppliers involved in the day-to-day commercial and strategic concerns of a Joint Operating Committee. What we need to worry about in the Security & Access Control module is that the right people have the right access to the right information and data with the right authority at the right time and at the right place. And do so securely, where Compliance & Governance is maintained and there is no unauthorized use of information.

Throughout the Preliminary Specification we discuss and resolve the many premier issues of the oil & gas industry. One of our concerns here is the demand for earth science and engineering effort for each barrel of oil equivalent produced. This has always been the case and will continue to be so. This is best represented by the steep and never-ending escalation of exploration and production costs involved in oil & gas. However, critical earth science and engineering resources are fixed and difficult to expand. Add to that the anticipated retirement of this brain trust in the next twenty years, the oil & gas related depression we are experiencing which is stalling the careers of recent university graduates, the expected production profile of the North American continent and particularly in terms of providing profitable energy independence, and the problem becomes a critical concern. Finding means and methods for these resources within the industry to work together will be necessary. To resolve it, People, Ideas & Objects have chosen specialization and division of labor. Demanding far more effective collaboration through the Internet and Information Technologies. Enabling interaction within a Joint Operating Committee that spans many producers with the appropriate governance and chain of command. This is for each producer and agent represented. Introducing substantial new opportunities and risks, as the Security & Access Control module addresses. 

The concept of specialization and division of labor is well known as a principle of economics that brings about increased economic productivity from the same volume of resources. With the volume of earth science and engineering resources known in the foreseeable future, specialization and the division of labor will provide us with a tangible means to deal with the oil & gas industry productivity. In today’s North American oil & gas marketplace, to approach a heightened level of specialization and division of labor from a scope and scale point of view, without the use of software to define and support it would be a failure.

Pooling is our solution to the current requirement that every producer firm acquire earth science and engineering capabilities to deal with their operated properties. This creates unneeded "just-in-time" capacities and capabilities for scarce scientific resources. When each producer pursues this same strategy, substantial surplus capacity is built into their overall capabilities creating industry-wide unshared and unshareable resources. Redundancies built within each producer firm are otherwise inaccessible, unused and unusable. What is proposed through the People, Ideas & Objects Preliminary Specification is that the producer's operational strategy avoids and eliminates the operator concept. Instead, it pools their technical resources through the partnership represented in each Joint Operating Committee. That way the surplus capacity of otherwise unused and unusable technical resources in the industry can be made available to the Joint Operating Committees. Producers can employ these resources through their firms' advanced organizational specializations and divisions of labor.

Oracle’s products provide a strong layer of mission critical capabilities in our Security & Access Control module. Although this comes with additional costs, I am certain no one will argue with their quality and assurance. By using Oracle Cloud ERP in the configuration for the delivery of People, Ideas & Objects Cloud Administration & Accounting for Oil & Gas we gain advantages from a Security & Access Control point of view. Our user communities and service provider organizations will deliver these Oracle product software features and functions in concert with the People, Ideas & Objects Preliminary Specification. They will provide the support and services necessary to ensure producer needs are fulfilled. Establishing their role as an industry-wide Cloud Administration & Accounting for Oil & Gas software and service offering.

Resource Marketplace

What we set out to accomplish in the Resource Marketplace module is captured in this quotation from one of our primary research sources. Professors Richard N. Langlois and Giovanni Dosi, as well as many others,' research was used in the development of the Preliminary Specification. In this quote from Professor Langlois from "Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization."we learn about the direction we're headed in.

[I]t seems to me that we cannot hope to construct an adequate theory of industrial organization and in particular to answer our question about the division of labor between firm and market, unless the elements of organization, knowledge, experience and skills are brought back to the foreground of our vision (Richardson 1972, p. 888).

To deal effectively with the Resource Marketplace in oil & gas, the producer will need tools to effectively engage with suppliers and others for the resources they need. The Resource Marketplace Module provides a window into the “Resource Marketplace” for Joint Operating Committees and producers. Anything of value that is contracted between “actors” in the oil & gas, service, service provider, software and user community generated businesses will be found, contracted, managed, transacted and developed through this module. It's simply a virtual representation of these marketplaces. Enhanced with the full capabilities of a tier 1 ERP system in Oracle Cloud ERP. Therefore, transaction processing, negotiation, determination of available resources, determination of transaction costs, contract execution, effective software tools to monitor and verify compliance with the contract. This is done with the full support of our Resource Marketplace module and its interfaces to other modules of the Preliminary Specification.

Similar interfaces will be provided for service industries. Since transactions involve two parties, the producer's efficiency naturally includes the efficiency of the service provider. Since we are an accounting system, providing similar services to suppliers makes sense. It is not just producers in the Resource Marketplace. Key to Resource Marketplace efficiencies are the mitigation of transaction cost friction. Friction on both sides of the transaction. This is due to the fact that transaction costs in the Resource Marketplace will ultimately be borne initially by the Joint Operating Committee and eventually by the producer itself.

Contained within this marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in the actual marketplace that exists today. The scope and size of the Resource Marketplace, our user community and their service provider organizations will accommodate Exxonmobil's needs and the single entrepreneur starting out in the oil & gas business. To exclude any group, profession, organization, or person from the Resource Marketplace would limit the industry's value. Whatever service, product or solution is provided to the energy industry, from individuals, those employed by producers or Joint Operating Committees, or companies providing services to the producers. This should include SLB and anyone directly or indirectly employed in the energy industry. Accordingly, we must acquire "the elements of organization, knowledge, experience, and skills" as Langlois suggests. To which we would add "ideas."

It is the Joint Operating Committee and the Resource Marketplace that provide value to profitable and innovative oil & gas producers. Enabling the service industry to expand markets for their products and services. Where a diversity of offerings from upcoming competitors, with new products or innovations on the products provided by existing suppliers. Producers must define and support a dynamic, competitive and healthy service industry. However, before that happens, the need for the software and services defined here in the Resource Marketplace have to be built for the producer, the Joint Operating Committee and the service sector to support these markets. From Professor Richard Langlois' paper “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups.”

The second hypothesis, which has resonances at least as far back as Gerschenkron’s famous “backwardness” thesis (Gerschenkron 1962), is that the way an economy responds to the problems of coordinating economic development depends not only on its own institutions and capabilities but also on institutions and capabilities elsewhere. It depends not only on an economy’s own history but on the history of other economies. The force of this observation is that an economy at the frontier of economic development (however we care to define that) is likely to respond to the coordination problem differently than an economy lagging behind that frontier. Specifically, an economy at the frontier is arguably more likely to rely on decentralized modes of coordination. This is so because uncertainty is greater at the frontier — uncertainty about technology, organizational form, market direction. p. 18

It is here that we find the reason for what plagues the North American oil & gas economy. Producers have chosen centralization as their theme to deal with the situation they’ve created. Issues remain unaddressed and solutions remain limited to People, Ideas & Objects et al. As of 2023 similar approaches have been successfully implemented in many other industries through the form of disintermediation or decentralized organizational business models and structures facilitated through the use of Information Technologies and most specifically the Internet. Producing firms are now suffering from issues that have resulted in diminished capabilities and capacities throughout the service sector. An industry established exclusively to provide producers with geographical and technical diversity. To the point where the service industry capital structure is non-existent due to the destruction caused by producer firms. At the same time, producers are facing oil & gas production deliverability volumes that haven’t been maintained over the past seven years. These volumes may collapse due to neglect and incapacity. 

Petroleum Lease Marketplace

The Petroleum Lease Marketplace's objective is to replicate the physical oil & gas marketplace. Which begins with Petroleum Leases. When replicating the physical oil & gas marketplace, the Petroleum Lease is the source document that is the common denominator of all activity and ownership within the industry. This is also one of the critical components of the producers' key competitive advantages that include their land and asset base, and their earth science and engineering capabilities. As such it should be considered a producer-facing module as its primary role. The Joint Operating Committee will also be used for the Petroleum Lease Marketplace. However, their land position may be static for long periods of time. While the Resource Marketplace module is considered more of a Joint Operating Committee module, where market resources are acquired. Any physical oil & gas asset will be attached to some lease, agreement, rights or concession. This will grant the holders ownership, lease or rental rights and privileges. These are the things 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. Markets are generally dynamic and evolving commercial hubs of activity. Which is what we’re replicating in the Petroleum Lease Marketplace.

When we look at the types of work that will be carried out in the Petroleum Lease Marketplace we see a large group of administrators working within different areas of a producer firm. Whether it be the Land or Legal department, Production or Exploration Operations staff or Administrative and Accounting people, all of these groups have an interest in the information, people, assets, documents, processes and functionality contained within the Petroleum Lease Marketplace. The primary concern of 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 their firms participate in. Most of this data will be similar to the data currently held by their firm's partners. Much of this data will have been generated cooperatively and collaboratively by those firms in those partnerships. 

It should be noted that much of today's unintegrated ERP systems approach seeks to independently source and replicate these processes repeatedly through independent and disparate systems. This is true for all producers. What effect would theories such as Professor Paul Romer's Endogenous Technical Change and its non-rival or shared approach such as People, Ideas & Objects Preliminary Specification provide industry? Where the original source of the data will be acquired, authenticated, maintained and used once, not only internally throughout the producer firms but also within the specific properties data being shared externally through their partnership as represented in the various Joint Operating Committees? 

One of the greatest opportunities in developing this system is to address the division of labor and specialization. To take people’s work and reorganize it across the industry. This is to focus on the needs of the producer and the Joint Operating Committee. It is specialized in the tasks they perform. Applying those skills across the entire industry, a geographical region, or another classification. Which is something that would provide significant increases in oil & gas industry productivity, cost savings and value. That is to say that a user community service provider organization would be responsible for an individual process billed to 1,000 Joint Operating Committees. This process might represent 100 oil & gas producers within a specific region that focuses on Shale and is geographically constrained. 

Expansion and productivity are increased through specialization and the division of labor by identifying and filling gaps. However, the natural process of gap filling in today’s business environment is constrained due to the strict and unchanging structures imposed by today’s ERP systems. To make changes, producers will need the software development capabilities, our user community and service providers who provide our Cloud Administration & Accounting for Oil & Gas. This will enable them to make the changes in the software first, then the changes in the organization can follow. 

In this process we are moving towards an enhanced level of competitive advantages for our user community and their service providers. These include leadership, issue identification, problem solving, decision making, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromise, innovations, finance, observation, reasoning, judgment and identification of conflict and contradictions. Service providers are employed to deliver explicit knowledge captured in the People, Ideas & Objects software. This is supported by their tacit knowledge of how to do the administrative or accounting work. Please note we will defer data storage and processing to computers. 

The types of documents and associated processes managed within the Petroleum Lease Marketplace are 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, management of the lease bidding process, Lease Bonus, Lease Rental, Lease Taxes, Areas of Mutual Interest are some of the forms, processes and attributes of the Petroleum Lease Marketplace module. Our user communities will contribute to a more detailed specification.

In Professor Giovanni Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” he notes the following three factors are involved in innovation development.

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 in which they compete.
• 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.)

Innovative oil and gas producers have their land & asset base, as well as engineering & earth science capabilities as competitive advantages. A Petroleum Lease Marketplace module provides producers and Joint Operating Committees with the tools they need to manage their land & assets. But there’s more. Using our Marketplace Interface and our user communities service providers that support innovative producers and Joint Operating Committees. The Petroleum Lease Marketplace provides profitable and innovative producers with the competitive advantages necessary to compete in the 21st century.

Financial Marketplace

The capital and debt markets have been very negative towards the oil & gas industry with many producers shut out of those markets since 2015. Capital structures are nonexistent. Consolidation has been the current administration's method to deal with their self-inflicted cash crisis. What’s been a multi-decade period of extremely low interest rates appears to be ending with higher performance levels expected. Creating a threat to producers due to their chronic lack of performance, inordinate levels of debt acquired during this period of unconstrained, debt-fueled spending. Financial statements with inordinately bloated balances of property, plant and equipment, fueled by the “building balance sheet” craze. Are therefore carrying excessive bank debt. And are well beyond any criteria for reasonable or healthy just based on these two elements. Debt leverage is now eroding when equity is decimated by chronic and continuous losses. Leaving producers unable to weather the storm of interest cost increases, or forced to deleverage. 

Issues as a result of the financial crisis of 2008, the destruction of natural gas prices in 2010, the beginning of oil price destruction in 2014, the oil & gas investors strike that continues since 2015 and 2022s realization that industry wide field capacities and capabilities are diminished and degraded. The demand for capital in a capital intensive industry will continue to be strong, and as a result of this history its supply will continue to be tight. There has been a serious cash and working capital crisis in the industry due to the officers and directors method of management. Making the situation the producers face untenable and most likely to lead to further wholesale destruction for all involved. The future also requires that we can provide for energy market demands, which requires even more capital than before. This therefore demands that changes in capital structures will be necessary to improve the overall performance of the producer and the Joint Operating Committees they participate in. Strategically muddling through just seems too risky. 

Therefore creating a physical financial marketplace based on profitability, performance and capital throughput is necessary to realize this future. And profitability today, every day and everywhere throughout the industry. Oil & gas is a mature industry. Expectations that “building balance sheets,” whatever that means, must shift to real, tangible and actual profitability. It is estimated that energy capital demands over the next 25 years will require investments of $20 to $40 trillion. According to today's producers, they assume that investors and bankers will continue to provide those resources in the future. This being a continuation of their currently employed business model that capitalizes every possible cost down to the receptionists Post-it-Notes, phone service and their time which subsequently recognizes these costs over several decades. The producers' current business model and assumptions of it continuing are unreasonable. 

What will be needed for producers is to turn their capital over repeatedly on a basis that is competitive with other industries and what the capital markets demand. That means they’ll need to recognize their capital costs on a very short time horizon to recover that previously invested cash. This is possibly the only source of cash for future capital investments. Passing capital costs in a capital intensive industry on to consumers. Having investors endlessly pay every bill while producers achieve no performance compared to what capital markets provide investors elsewhere, is over. What we seek to prove in the Financial Marketplace module, is that through its use we can provide the innovative oil & gas producer and the Joint Operating Committee with the ability to ensure that their capital structures are more efficient than what can be attained in any other system. 

My criticisms of management are that the velocity at which management operates is too slow, its innovativeness is non-existent, profitability has been non-existent for over four decades and cash is only ever destroyed and never returned. In the physical financial marketplace the pace of field activity will need to accelerate to address the increased demands from energy independence and other related issues regarding our future. I think People, Ideas & Objects have identified and addressed the associated issues and opportunities with these changes in the Financial Marketplace module of the Preliminary Specification.

A note about our Marketplace Interface which is a critical component of the Resource, Petroleum Lease and Financial Marketplace modules. The Marketplace Interface is a virtual representation of each marketplace module. It uses avatars where firms and producers create virtual representations of their offerings. This provides a means for people to conduct their business virtually compared to traditional means. These avatars will be supported through the People, Ideas & Objects ERP system. This provides them with the ability to conduct any and all operations that they can conduct in any of these Preliminary Specification modules. It should be seen as the ultimate collaborative interface. 

OCI Executive Summary, Part I

 People, Ideas & Objects Preliminary Specification has the dual, opposing and conflicting objectives of ensuring profitable oil & gas operations everywhere and always. In addition, it ensures consumers have abundant, secure, reliable and affordable energy. Today our advanced society mechanically leverages each barrel of oil produced by 10 to 25 thousand man hours of equivalent labor. A value proposition consumers cannot live without. Despite this, North American producer firms ignore their responsibility and accountability in ensuring consumers are adequately supplied in their dual roles of profitability and innovation. Their irresponsibility is now reflected in the financial destruction they’ve caused to their own firms, the industry itself and most importantly the service industry they’re wholly reliant upon as the source of their capabilities and capacities. Nevertheless, the producers' officers and directors are fine and thank you for asking.

There are seven Organizational Constructs that define the overall architecture of how profitability and innovation are structurally and organizationally defined in our Preliminary Specification. These constructs are supported by our user community and service provider organizations. These seven include specialization and the division of labor, Intellectual Property, Innovation, Information Technology, markets, sharing of costs and infrastructure and the key organizational construct is the Joint Operating Committee. Which is the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the oil & gas industry. By moving the compliance and governance frameworks of the hierarchy into alignment with these seven frameworks of the Joint Operational Committee, we’ll be able to achieve the speed, innovation, accountability and profitability necessary for at least the next twenty five years.

What People, Ideas & Objects can state unequivocally, and would gain resonance throughout the broader oil & gas economy, is that nothing will exist for the long term without profitable operations. Real profitable operations, not the specious claims made by producers over the past four decades. These claims are detailed elsewhere in the Preliminary Specification. We offer a value proposition that contrasts with the status quo. Our claims are $25.7 to $45.7 trillion in incremental value earned over the next 25 years of Preliminary Specification operation. This is not a magic solution, but rather a measure of structural incompetence and mismanagement by officers and directors. This plagues North American producers. Theirs has become an industry-wide culture of self-serving, lucrative administrations that haven't concerned themselves with business.

One aspect of their culture is their fundamental belief that oil & gas are price takers for economic definition purposes. With our Preliminary Specifications decentralized production model, we ensure profitable production everywhere and always. The original publication of this specification was on August 9, 2012. This is a decade and producers have done nothing. The question of what could have been is reasonable when producers pushed oil & gas commodities into negative pricing conditions. What could have been if they had listened to their investors' demands for change beginning in 2015? They’ve had the opportunity to make the necessary changes by adopting the Preliminary Specification yet chose to silence and ridicule our solution. They’ve had the demand from their investors, and more importantly, the destruction that we've consistently pointed out to them during this decade has been obvious and evident everywhere in the North American producer population, yet not one productive thing has been done to deal with it during this decade? 

There are other developments evident throughout the global economy that are reflected and implemented in the Preliminary Specification. Disintermediation offers all industries with new business models that compete directly with hierarchical organizations' inefficiencies. People, Ideas & Objects et al disintermediate the oil & gas industry. The conflict that has been generated since disintermediation began with the music industry. The number of industries disintermediated is extensive. This has provided those that have not been with better tools and understandings of how to resist these forces. This has helped them maintain their hold for longer periods. Leaving the inefficiencies that should have been worked out in the industry to continue. In addition, senior management methods survive by cannibalizing prior established values as they cannot create value. The loss of serendipity, spontaneity and creative destruction are unintended consequences when organizations are defined and supported by software. People, Ideas & Objects is therefore establishing a permanent software development capability to accommodate changes within the industry in the future and to reinstate these economic principles. 

Cloud Administration & Accounting for Oil & Gas are a feature of our user communities and service providers. An extension of the Cloud Computing paradigm that has inherent business value. Eliminating the need for each producer to incur the costs of building and maintaining the unshared and unshareable, non-competitive advantage of their administrative and accounting capabilities. To offer these services as a variable cost, charged directly to the Joint Operating Committee. This enables accurate and detailed financial statements for each property. Therefore if it is profitable it will continue to produce, if not, it will be shut-in to incur a null operation, no profit or loss. People, Ideas & Objects et al will make all producers' costs variable, based on production.

The Preliminary Specification is a fourteen module ERP (Enterprise Resource Planning) software system designed for the dynamic, innovative, accountable and profitable oil & gas producers. Built within Oracle Cloud ERP tier 1 offering, this executive summary will touch on some of the value-added aspects of how producer firms will profitably be configured to meet and exceed the energy challenges of the next many decades. As you review the Preliminary Specification, remember that People, Ideas & Objects propose the most profitable method of oil & gas production as our competitive advantage. And we do this in the following fundamental ways.

Specialization and Division of Labor

The Preliminary Specification shows clearly a defined industry restructuring throughout all modules. The oil & gas producer is a stripped down version of itself that has C class executives, earth science and engineering resources, land, legal, and minor support staff. And that’s it. The rest of the producers' administrative and accounting resources are reallocated and provided instead by the People, Ideas & Objects user communities service provider organizations. Each of these service providers focuses on one process, or one element of a process using the entire industry as its client base. So for example there may be one royalty payment processor that handles all of the industries royalty payments. Where the cost of the royalty payment, and the billing for the royalty payment service provider is billed directly to the appropriate Joint Operating Committee, not the individual producer. We are moving from producers' fixed cost administrative and accounting capabilities. To the industries variable cost administrative and accounting capabilities available through our Cloud Administration for Oil & Gas software and service. Variable based on profitable production.

The advantages of moving to a system and methodology like this are lower cost and efficiency. The costs associated with a royalty payment processor would be a small percentage of what is incurred collectively by the industry today. By focusing on the most efficient way to process royalty payments, and only royalty payments, the service provider would become specialized. This would reduce the time and effort required to perform these tasks to a small component of today's costs. Around 1776, in Adam Smith’s pin factory, his research yielded a 240 fold increase in productivity from the changes he made to the pin making process. Having the royalty payment process, and particularly the administrative and accounting processes of the North American oil & gas industry subjected to this type of analysis, complete with the software development capability as defined by People, Ideas & Objects, similar productivity results would be attained. All economic growth since the late 1700’s can be attributed to enhanced organization through specialization and division of labor. Society today requires software to define and support enhanced specialization and division of labor. People, Ideas & Objects software and our permanent software development capabilities are therefore critical for the oil & gas industries future performance and growth.

Professor Paul Romer’s Non-Rival Costs

The naming of this initiative People, Ideas & Objects is a derivative twist on Professor Paul Romer’s “Endogenous Technical Change” paper published in October 1990. (And earned him the Nobel Prize in Economics in 2018.) A paper published in The Journal of Political Economy Vol. 98, No. 5, Part 2: The Problem of Development: A Conference of the Institute for the Study of Free Enterprise Systems Oct. 1990, pp. S71 - S102, and downloadable here.

And best understood through this Reason Magazine article. Accessed January 25, 2003.

Endogenous technical change or new growth theory suggests that economic growth from investments in transportation, communications and financial services was diminishing in its effectiveness. And being replaced by an alternative dynamic in terms of how economic growth could or would be achieved. Summarized in this Reason Magazine article by Professor Romer as people, ideas and things we amended his summary to reflect that we are object-based developers to come up with our name.

From the interview in Reason Magazine.

As one of the chief architects of "New Growth Theory," Paul Romer has had a massive and profound impact on modern economic thinking and policymaking. "New Growth Theory" shows that economic growth doesn't arise just from adding more labor to more capital, but from new and better ideas expressed as technological progress. Along the way, it transforms economics from a "dismal science" that describes a world of scarcity and diminishing returns into a discipline that reveals a path toward constant improvement and unlimited potential. Ideas, in Romer's formulation, really do have consequences. Big ones.

In the Reason article Professor Romer applies his theory to the example of standardizing the lid of a small, medium and large coffee cup. Instead of producing, inventorying and handling three different sizes the efficiency of sharing one size is intuitive, inherent and most of all substantial in terms of its cost savings over the long term. Through the Preliminary Specification we have applied this principle in a number of different ways. We will see this principle used throughout our user community and service provider organizations.

Academic criticism of Professor Romer's theory is that it's unquantifiable. And in a way, that's true if we see the economics profession as a science. Of which I no longer do due to the 2008 financial crisis. Science would have warned of the difficulties and resolved them. Only Nouriel Roubini raised warnings. All the others were too busy checking the dashboard dials to notice the brick wall they were heading into at high speed.

One example highlighted from our discussion in the Specialization and Division of Labor section above is the massive cost savings oil & gas will realize from the Preliminary Specification. Specifically the reallocation, identification and support of producers' administrative and accounting resources to service provider firms. This value is incremental and attributable to both specialization and Professor Romers' New Growth Theory. Cloud computing introduces a paradigm based on the principle of sharing the large capital costs of building and maintaining a large, fixed capacity technical infrastructure. This is necessary to meet their customers' needs. And replace it with unlimited capacity available at variable cost. Key to the paradigm is the associated reduction in a firm's demand to have the technical capacity and capabilities for non-competitive attributes such as database, network and operating system specialists with the skills to maintain operations. A relief of customers' budgets and ability to refocus on productive and competitive activities. The two attributes of specialization and division of labor.

It is the sharing of this technical infrastructure that creates incremental value from cloud computing. Romer's' theory of endogenous growth, cost sharing is a non-rival cost. From the Journal of Political Economy pp. S73 - S74.

A purely rival good has the property that its use by one firm or person precludes its use by another; a purely nonrival good has the property that its use by one firm or person does not limit its use by another. 

And it is here that People, Ideas & Objects Preliminary Specifications user community service provider organizations implement our software and service we call Cloud Administration & Accounting for Oil & Gas. The elements of our user communities and ERP software development capability and capacities are permanent. Alleviating each producer firm from maintaining the specific skills and attributes necessary to achieve these requirements internally. Accessing them on a highly specialized and shared basis will provide them with higher quality products and services at lower variable costs, based on profitable production.

In October 2022 Oracle announced at their CloudWorld 2022 conference that they too were picking up on Professor Romer's theory of non-rival costs. They have established partnerships with other service providers such as Fedex and J.P. Morgan Chase to deliver software that advances individual processes automation to high levels. J.P. Morgan Chase's example is revealing since it manages employee expense account charges through its credit card. The employee then designates the destination of the charge, and Oracle verifies the charge is within the policies and budget. A tedious and laborious expense reporting process for the employee, their managers, accounting, etc., is reduced to a few milliseconds.

Capability to Remove Marginal Production and Become Price Makers

Exploration and production costs are high, particularly in shale operations. What is surprising is that producers have done nothing to mitigate the chronic and systemic overproduction that has caused the decline in oil & natural gas prices. Chronic overproduction is caused by producers having to generate revenues to cover overheads. This is in what is called the “high throughput production” model they employ. In this model the producer firm's overhead costs are incurred whether production occurs or not. As a result, their operation is expensive even at full production. Lower production volumes mean lower company earnings and disproportionately higher overhead costs.

In the Preliminary Specification we have employed the “decentralized production” model. The service provider charges directly to the Joint Operating Committee for accounting or administrative services. If the property is shut-in due to low deliverability, high costs or other reason for its lack of profitability then there is no charge incurred for the overhead item by any of the individual service providers as they will have conducted no work on that property, and neither the producer nor the Joint Operating Committee are incurring any of the accounting or administrative overhead during times of shut-in production. Therefore the only costs not covered during times of shut-in production are capital. The producer can therefore shut-in unprofitable production based on accurate, detailed accounting and attain the highest level of corporate profitability by not diluting their profitable properties. Save their petroleum reserves for a time when they can be produced profitably. Those reserves will not have to carry the incremental costs of subsequent monthly losses that would need to be recovered in the future if the property continued to produce unprofitably. Cut oil & gas inventory and storage costs by holding them as reserves. And finally, by keeping that unprofitable production off the market those commodities will find their marginal price.

If producers across the industry followed this process, oil & gas prices would not have declined in recent decades. If the downswing in oil & natural gas prices were averted by a reduction in unprofitable production volumes, the total revenues and profits of the industry would provide for profitable operations everywhere and always. Stabilizing the industry by removing the boom / bust cycle and its destructive force throughout the general oil & gas economy. People, Ideas & Objects believe we have a responsibility to use oil & gas resources effectively. This implies that we should be able to produce them profitably on an appropriate accounting basis. We owe this and the passing of a viable and profitable industry to future generations. Producer officers and directors claim this is collusion and have used that as an excuse to lose effective control of the industry's financial, operational and political frameworks. They will not listen to the fact that making effective, independent business decisions at the property level, based on actual, factual accounting that determines profitability is not collusion. As a result they have destroyed the industry and the service industry. After decades of operation by this method producers are unable to provide an alternative strategy or plan to deal with their issues and opportunities.

Innovation for Profits

In our fourth element of competitive advantage, we establish the foundation for innovation to enhance producer profitability and ensure consumer energy costs are as low as possible. The 21st century oil & gas producer must innovate for profit, using science. Innovation processes are identified and supported within the Preliminary Specification DNA. From Professor Giovanni Dosi.

In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.

With an inventory of non-producing oil & gas assets. The dynamic, innovative, accountable and profitable oil & gas producer will have readily available properties to focus their innovative efforts on.

Lower Costs of Exploration & Development

The oil & gas industry needs a dynamic, innovative, accountable and profitable service industry to be dynamic, innovative, accountable and profitable. In the brief moments of “good times” in the industry, producer firms have accused the service industry of being greedy and lazy. This is due to high field costs. Today the service industry has seen activity levels slashed and accounts receivable extended for up to 18 months by producers. A situation that puts their organization, unnecessarily, in jeopardy. There is a substantial conflict between what’s required and what exists. We do not believe this is an appropriate posture for the industry's future if it is to fulfill its objectives. The Preliminary Specification works to mitigate this conflict by addressing the issue of how the producer firm deals with the generation and management of ideas in the service industry. Producers ignore and abuse vendors' rights and ideas. And as time has passed, the number of companies that have introduced innovations, products, services and competition has dwindled. Leading to the situation where producers have a limited number of very large service industry participants who have pricing power on their side. This is during the alleged one or two “good times” these past decades.

Producers respect, sponsor and support service industry ideas through the Preliminary Specification. Oil & gas producers do not compete on drill bit manufacturing technologies. By respecting the service industry's Intellectual Property, representatives can respond with creative and innovative products, services, and competition. Through a variety of interfaces in the Resource Marketplace and Research & Capabilities modules, producers can participate and lead the creation of enhanced products and services. This is done by clearly expressing their needs and allowing the service industry to respond.

When the oil & gas industry has a dynamic, innovative, accountable and profitable service industry supporting the oil & gas industry, the profitability of the oil & gas producer will be enhanced, further contrasting the People, Ideas & Objects business model to what the current bureaucracies may use today.

Earth Science and Engineering Resources

We recognize and support oil & gas producers' competitive advantages in terms of their land & asset base, as well as their engineering & earth science capabilities. Innovation, specialization and the division of labor maximize the availability of earth science and engineering resources. As mentioned above, innovation investments return profits. Innovation in oil & gas sciences is part of producers' competitive advantages. Therefore, they serve the express purpose of the modules within the People, Ideas & Objects Preliminary Specification.

In terms of specialization and division of labor, the producer firm must approach the issue of limited resources in the area of earth science and engineering capacities and capabilities. Pending due to the retirement of the industry brain trust, the lack of qualified hires from the universities, the expected throughput increases in North America and the ever increasing demand for geology and engineering with each incremental barrel produced. With the People, Ideas & Objects pooling concept, underutilized and unusable surplus capacities trapped within producer silos can be eliminated. We have also reorganized certain skills within these professions into service providers who can specialize in these skills through specialization and division of labor. Engineers' and geologists' demands will be more manageable through pooling, specialization and division of labor. This organizational structure is identified and supported throughout the Preliminary Specification.

These are a summary of some of our competitive offerings for the oil & gas industry. Designed to provide a profitable and innovative operating base for the 21st century, they offer producers and the industry the opportunity to move forward profitably and innovatively.

OCI Preamble, Part VII

 Cultural Influences

Our User Community 

People, Ideas & Objects cannot adequately express our commitment to user community-based software development. It is the only method of developing quality software. We began developing our user community in 2014 and have been active since that time. It was in 2014's first quarter that we established the foundation of our user community organization. We established three fundamental principles that grant them the power and control to undertake the role they need to fill. A role in which they need to assert the means and methods of the dynamic, innovative, accountable and profitable oil & gas producer, industry and service industry must be rebuilt successfully. Without this they’ll only be “blind sleepwalking agents of whomever feeds them.” Our three principles are as follows. 

• Only our user community is licensed to make changes and prepare derivative works to any underlying Intellectual Property of the Preliminary Specification. Producer input can therefore be focused and filtered through them.
• People, Ideas & Objects licensed developers can look only to our user community members for input. Our developers are blind, deaf and dumb towards everyone else.
• Our user community has their own budget. They are independent business people. Not "blind sleepwalking agents of whomever feeds them."

Producers today employ formidable cultural methods and will stand against any attempt to replace them. Even if they could be convinced it would be in their long-term interests to proceed with these developments they would enforce compromises that would delay and obstruct. Most importantly they’d dilute the effectiveness of what is needed to resolve industry issues. In terms of delay, the time necessary would be double to triple the time we would incur in a direct rebuild. At that point what would we have accomplished? 

Our user community members are compensated for their time spent developing the Preliminary Specification software. It is their Intellectual Property that People, Ideas & Objects purchase from them. Once that IP is aggregated as one holistic industry wide basis of understanding it is then in turn, through the license agreement we have with our user community members, available throughout the community to use as they need. Furthermore, this eliminates any IP trolls that might otherwise attempt to establish their credentials with Preliminary Specification-based IP. 

We anticipate that the amount of time our users are participating in development will not be greater than 50% at any point. We see these as part-time positions due to the unique characteristics of the work. Our user community is also licensed to own and operate a service provider organization that will manage one of the individual processes on behalf of the entire North American producer population. As the owner of a service provider our user community members will be able to see the issues and opportunities involved in their process. They will also have the People, Ideas & Objects software development team available to develop solutions based on the members' needs. 

Conclusion 

In conclusion to the Preamble, we will discuss the costs and consequences of the officers' and directors' actions over these past decades. Officers and directors' mismanagement has resulted in six detrimental and consequential outcomes. How much have these outcomes cost over the past few decades? Is it futile to cry over spilled milk from the past? Do these instances constitute "sunk costs?" No organization should ever consider “sunk costs” in their decision making. The assumption is that these events will never happen again and are one-off events. If this were the case I would agree that the Preliminary Specification would be unnecessary and overkill. What we have however are a handful of issues that have culturally manifested themselves into existential issues that have drained the industry of any and all value and are challenging its viability in continuing to deliver to its customers. A customer with no alternatives lives in the most sophisticated society known to man and depends on oil & gas to function. 

The same overproduction is occurring again in early 2023. Low natural gas prices in the $2.00 range are not discussed by those responsible because they are not seen as a problem. What is the cost? If North America was producing natural gas in August 2022 and selling it at $8.22 we may assume that was a profitable price. However I don’t think we know what the costs are. It certainly isn’t profitable when most capital costs of a capital intensive industry are only used to build bigger balance sheets. Let’s assume $8.22 is the marginal price. If the natural gas price for the first quarter averaged $2.22, this would result in a $6.00 differential. What would the cost to industry be in that quarter for daily North American production volumes of approximately 117.5 bcf / day? The cost of this overproduction for the first quarter of 2023 across North America would be approximately $63.5 billion on a back of the envelope basis. People, Ideas & Objects' remedy for this may have involved removing upwards of 2% of natural gas from the market. This would have cost $1.73 billion at the marginal price. A net value proposition of using the Preliminary Specification of $61.7 billion for natural gas in just the first quarter of 2023. 

To calculate this difference for all the declines in prices and collapses since July 1986 may be a rounding error for officers and directors. However, I see it as a rounding error in trillions of dollars. These are not opportunity costs, they are the difference between a profitable operation, everywhere and always. In direct comparison to the damage and destruction we've seen in this industry throughout North America.

To remedy these repeated commodity price collapses in oil & gas. Our Preliminary Specification includes a decentralized production model and price maker strategy. And the contrast in 2023 could not be more dramatic. OPEC+ on April 3, 2023 announced a more than one million barrels per day production cut, approximately 1% of global supply. And oil prices responded with a 6% price increase. These are classic economic definitions of price maker characteristics for products without substitutes. Our solution has been resisted by officers and directors for almost 15 years. It should also be clear that foreign producers will be involved in what’s in their long-term interests. This is profitable operations everywhere and always, as we suggest and provide North American producers do. 

People, Ideas & Objects, our user community and their service provider organizations have painted a viable and profitable vision of how to rebuild the oil & gas economy in North America from the ashes of what remains. We see the destruction, and much of what will happen in the next few years. Producer firms are comprehensive failures of tragic proportions. 

• Leaderless and directionless with no plans or resources to drive towards a profitable and productive future.
• Culturally incapable of profitability, defining what it is or how to achieve it. 
• Disgruntled banks and shareholders that no longer support North American producers' capital structures. 
• A service industry that has been run through comprehensively and no longer functions at even 40% of its prior capacity. No concern is expressed about this and no remedial steps have been taken by producer firm officers and directors.
• In 2023 natural gas prices dropped again, below $2.00 and below the depressed 1990s. Is this uncaring, lazy or just “muddle through?" In a blog post from November 11, 2008 entitled “Times Like These Call For” People, Ideas & Objects stated for the first time our use of “price makers" to resolve industry issues. 
• Who do investors turn to in order to find the proceeds of this lost revenue of fourteen years?
• Not one of these officers or directors has been held accountable for their actions.

OCI Preamble, Part VI

 People, Ideas & Objects et al’s Value Proposition

What if ERP software in oil & gas was no longer seen as an overhead cost but as the business opportunity it is? Which is the perspective that oil & gas producers need to adopt to move their organizations on a higher performance trajectory. There will be no further development of any organization in any industry without software, and most particularly ERP software, defining and supporting an organization's capability to improve its performance. Otherwise we will continue to have the paradox in oil & gas where the status quo is satisfied with the status quo. Therefore, only the status quo will ever be delivered at the tragic costs oil & gas has realized.

People, Ideas & Objects Revenue Model provides for the lowest cost of an ERP system in the industry. Distributing software development costs across the industry based on the producer's production profile, plus an element of profit as our fee structure. The industry will only pay for the one-time costs of ERP software development. A fundamentally more efficient value proposition than our competitors. Or each producer incurring costs individually. Our user community will implement Cloud Administration & Accounting for Oil & Gas software and services in their service provider organizations. Realizing the substantial cost savings and associated benefits of the cloud computing paradigm. 

Where the substantial fixed costs of building administrative and accounting capabilities and capacities within each and every producer organization are seen as a redundant, unshared, unshareable and costly exercise. One in which we believe a producer's overall overhead costs are the secondary reason for the lack of profitability. Turning these non-competitive attributes of the producer firms into the variable overhead costs of People, Ideas & Objects, our user communities and their service provider organizations, who manage a specific process and billing the Joint Operating Committee directly. Turning administrative and accounting capabilities, capacities and costs variable, based on profitability. Overhead of the producer firm and Joint Operating Committees will therefore only be incurred during production, which the Preliminary Specification makes profitable everywhere and always. 

Our Cloud Administration & Accounting for Oil & Gas software and service provides these services to all sectors of the oil & gas industry. From this morning's startup to Exxon and Shell. All producers need production discipline when the commodity produced is subject to price maker characteristics. Having the service providers provide our software and their services to all producers so that they can function at the same administrative and accounting capacity and capability. Through this standard and objective means across North America, all producers can interact more effectively. Reducing the heavy and disproportionate burden of overhead that startup and small producers have to carry to maintain the capabilities to function in oil & gas would allow all producers to compete based on their engineering and geological expertise.

People, Ideas & Objects provide this as we are not focused on traditional software company concerns. As a cloud computing, administration and accounting provider we are oriented and focused on the changing business of dynamic, innovative, accountable and profitable oil & gas, and the associated service industries. This highlights the different motivations of the software developer over the long term. In the People, Ideas & Objects case, we are providing permanent software development capabilities. We generate revenues based on industry changes producers communicate through our user community. Our motivation is based on continuous improvement of the software. 

In the traditional software vendor’s case they are motivated by their code and customer base. The larger their code base, the more difficult it is to change, which coincidentally does not generate revenue. And the larger the customer base the more costly the changes to each customer. Coincidentally, these changes to customer software do not generate revenues.This paradoxically leads to an increased overhead burden due to their age and size as a firm. Traditional software developers have a contrast and conflict in the dynamic nature of the software itself in terms of its cost to the industry and developer motivation. In addition People, Ideas & Objects uses Oracle Cloud ERP which is the first Java-based ERP system. Therefore People, Ideas & Objects will be the first object oriented ERP system available in the North American oil & gas industry. Providing additional cost benefits over traditional procedural programming languages.

It’s not enough to own an oil & gas asset. Without access to ERP software in the form of the Preliminary Specification there is abundant evidence now that North American oil & gas assets will never be profitable. Regardless of the price of the commodity the officers and directors have failed to act in anyone's interest other than their own. Chronic overproduction continues with evidence in early 2023 of natural gas prices below $2.00. The level of destruction they’ve authored is unequaled in business history. We should note that this occurred while our alternative was offered to mitigate these damages. The faith, trust and goodwill built in prior generations has been destroyed and the industry remains in the hands of those who operate in such bad faith? 

Now that there’s money on the table in the form of higher oil prices, actions need to be taken to deal with these individuals and their past destructive actions. We witnessed the foolish abandonment of oil & gas by officers and directors. Where they stated that shale would never be commercial and moved into clean energy. This trend is now reversed, what changed their minds? Why would they now act against what they stated were their 2021 investors' demands? The disingenuousness of these people's allegations of their investors' clean energy demands is captured in this flip-flop alone. The fact is investors want profits everywhere and always. That is all and will reward those who perform. Making up specious stories while you attempted to take oil & gas revenues with you, without authority, was the final straw. With management of this quality it's fair to ask what’s in store for 2024?

Innovation and profitability have been the focus of People, Ideas & Objects since the beginning of this initiative to resolve oil & gas issues. A result of accounting anomalies caused by the 1970s SEC changes and deliberate misinterpretation by the producer officers and directors. For example, the ceiling test is an outer limit of acceptability, not a target to be achieved annually. Where subsequent cultural changes throughout oil & gas led to such ridiculous notions as “building balance sheets'' and “putting cash in the ground.” The fault lies with the officers and directors as we’ve identified since People, Ideas & Objects began in August 2003. CEOs, CFOs, COOs, Directors and other officers are responsible. They control the resources necessary to deal with the issue. They have had the authority to do so and have avoided responsibility and accountability for their actions. They’ve run out of excuses, blaming others and viable scapegoats. They may not have run out, but what they say is seen as such. 

• A brief example of their record to clarify their culpability. Each of these specific events is generally known and can be easily verified. 
• Investors suspended support for producers in 2015 due to poor performance. Established producers have not raised further capital. 
• Investors define specifically what they expect to see in terms of changes and these include the producer's use of a Tier 1 ERP provider. Of which Oracle Cloud ERP is the global leader in. However, their list does not include clean energy.
• Banks then began scaling back lines of credit and debt. Property sales provided cash for some capital programs until the collapse of property market values. Property market values were reestablished during “consolidation” when shares were exchanged at prior inflated property values, not the market values producers created by overselling.
• Officers and directors argued that the Preliminary Specification could not be implemented in 2017. Unworkable due to "shutting in any oil & gas production would damage the formations.” 
• Producers began using the service industry to fund their capital programs by extending accounts payable policies for up to 18 months. This resulted in breaking the faith, trust or goodwill in the service industry. SLB and Haliburton left North America. In the past producers would never work with anyone of limited size or scale. Creating for themselves an additional impediment today when nothing is offered.
• On July 4, 2019 People, Ideas & Objects published our White Paper "Profitable North American Energy Independence -- Through the Commercialization of Shale". 
• Our White Paper was rejected by the producers who had done nothing about their organizations after many years of investors' demands for action. 
• Within nine months of the producer's rejection of our White Paper, oil prices reached the negative $40 range and they were forced to shut-in production. 25% of global production was shut-in due to COVID. 
• Upon resuming full production no producer reported any damage caused from being shut-in.
• Once oil prices recovered, officers and directors declared that shale would never be commercial. 
• In 2021 they announced they were beginning the transition of their organization towards the clean energy industry. 

Today we don’t know what business they're in as clean energy is now deemed too early to invest in. Since they declared clean energy too early and shale would never be commercial, what are they doing? What are we expecting from them after four decades of the consequences of overproduction and this recent history?

This is the quality and style of leadership that has and is now responsible for our economies' energy supply. A responsibility they’re unwilling to recognize much like their inability to comprehend the need to earn “real” profits these past four decades. Where will we go next with this bunch?

People, Ideas & Objects, our user community and their service provider organizations have painted a viable and profitable vision of how to rebuild the oil & gas economy in North America from the ashes of what remains. We see the destruction, and much of what will happen in the next few years. Producer firms are comprehensive failures of tragic proportions. Not one of these officers and directors has accounted for their actions in the past few years.

Profitable Production Rights

People, Ideas & Objects has solved a funding paradox since we began. Our software development funding needs to be sourced from the oil & gas industry itself. Otherwise, the industry won’t respect it, or commit to it, and only look for alternatives when the opportunity arises. Only when they have some skin in the game can we begin to rebuild the broader oil & gas economy brick by brick, and stick by stick. In order to achieve this we’ve had to seek out those that have the authority and responsibility to decide which ERP provider to use. The producers, officers and directors. 

In early 2023 we believe for many of the reasons stated above it is the officers and directors that have self selected and proven beyond any doubt that they are incapable of effective management. Therefore we have developed an alternative means of generating People, Ideas & Objects revenues which indirectly involves oil & gas production.

Profitable Production Rights allow participants to participate in both the oil & gas and Information Technology industries simultaneously. Based on the value propositions identified in this Preamble and available through development of the Preliminary Specification, leveraging these to their benefit. What the rights holder gets exclusive access to Cloud Administration & Accounting for Oil & Gas software and services. This is built from the proceeds of Profitable Production Rights. People, Ideas & Objects have claimed that it’s not enough to own the oil & gas asset, it’s also necessary to have access to the software that makes the oil & gas asset profitable. As of early 2023 we believe the Preliminary Specification and the Cloud Administration & Accounting for Oil & Gas software and service is the only way a producer can operate profitably. Without a Profitable Production License there will be no other means to access these services to process one barrel of oil equivalent production. Oil & gas producers will need to acquire or license one Profitable Production Right for each barrel produced. These rights are detailed in their own section of the Preliminary Specification.

OCI Preamble, Part V

 The Service Industry as a Partner

People, Ideas & Objects et al’s next component of our competitive advantage of providing the oil & gas producer with the most profitable means of oil & gas operations, everywhere and always through the lower costs associated with field work done for exploration or development. This also includes the field operations on producing properties covered by a workover or AFE.

There have been many past complaints from oil & gas producers about the high costs of field operations. I have written about the accusations made by producers toward the service industry and how the situation has developed and what needs to happen in order to correct these. Everyone would agree that a more productive environment needs to be developed between the service industry and the producers. And I have put the onus on the producers to begin the process of building the capabilities for a more dynamic and innovative service industry. This was and is the position of People, Ideas & Objects at the time of the original publication of the Preliminary Specification in August 2012. Since that time we’ve seen the inverse situation develop where I suggest producer officers and directors actively sought to destroy the service industry, an industry which they’re mutually dependent upon. If it was done for any other reason I can’t imagine what that would be, as the scope and scale of this damage has been comprehensive and complete. 

There now exists an operational field capacity that is below 40% of its prior levels and nothing is being done to remedy this. The faith, trust and goodwill the service industry had with producers has evaporated and they’ll be the last to volunteer their services to oil & gas producers. Much of this issue can be traced back to the producer officers and directors attitude toward oil & gas being a primary industry. As much damage as has been done to the greater oil & gas economy, the primary industry of oil & gas’ revenues continue to some extent and that keeps the officers and directors compensated. Any decline in commodity prices, which are subject to price maker economic principles, are therefore within the domain of management of the producers to deal with. When extensive declines in commodity prices do occur, the implications of these are passed to the service industry. This has led to the consistent behavior where the service industry has been the fall guy for the consequences of the producers (in)actions. Such as the following. 

• The damage begins by scaling back field activity levels to as much as 25% of what they were. 
• Subsequently seeing the nature of service industries survival instinct they were easily exploited by producers by demanding 50% discounts. Field operators subsequently realized as little as 12.5% of prior revenues.
• When capital sources were unavailable to producers they then used the service industry to fund their field activities and paid them on an 18 month accounts payable basis. Notice of the change in payment policies occurred after the work was completed.
• While financially desperate, due to the long term consequences of these producers' activities, the service industry sold equipment such as horsepower and cut up their equipment for scrap metal in order to survive financially. Leading to the heavily damaged service industries capacity. 
• Field staff have been cast to the wind for years. Frustrated by the boom / bust mentality of the producers and have sought other more stable employment. 
• Limited capacity from limited service industry providers is not an innovative, dynamic or healthy benefit for producer firms. A serious detriment to their ability to function.

In either era a recognition that the service industry provides producers with the geographical and technical diversity necessary to operate anywhere in North America. This fact needs to be realized by producers. As of 2023 destruction of the capacities and capabilities are comprehensive and complete. Additionally, the capital structures of the service industry are unsupported as a result of the treatment they’ve received and therefore producers will need to purposely rebuild the service industry on the basis of their philanthropic contributions. They broke the industry, they’ll need to rebuild it as no one else will volunteer themselves for this style of expected sacrifice and suicidal capital investment. The belief that if producers had something invested in the service industry then they’d have some respect for it and may think twice about repeating these past, destructive actions. This process will begin by developing the Preliminary Specification and implementing the changes within it to start the overall industrial rebuilding which is a necessity. 

There are a variety of interfaces within the Resource Marketplace and Research & Capabilities modules that provide windows to the service industry. These collaborative interfaces are designed to deal with the one issue that is systemic throughout oil & gas. That issue is the manner in which the producers deal with the ideas of others who have developed them. They ignore them. And they use them without respect to who the rightful owners are. This is counter to the producers own best interests. After decades of this producer activity, what people understand is that the time and effort necessary to develop a new idea is not worth it because the oil & gas industry will only seek to share it with the innovators competitors. Therefore they’re no longer interested in sacrificing their capital but also don’t undertake the time and effort necessary to develop any new ideas. No new ideas are coming into the service industry at a critical time when the science in oil & gas is becoming paramount. 

Realization that the innovation in oil & gas is generated through the service industry. Horizontal drilling with the coiled tubing providers and fracing for shale wells with initially Packers Plus and these vendors suffered through long and difficult periods from the lack of support and respect from producers before they were finally accepted. As much as officers and directors claim that they’re innovative we need to ask them a question. Would an innovative industry earn only 6 good years out of the past 37? Or is “muddle through” as they’ve consistently claimed their true strategy?

Adding to this problem is the producers will not hire anyone for field operations that are not of a certain size and scope deemed “capable” of handling the job. So all of the money is going to the larger firms in the service industry, no new competition is being developed and no new ideas to support that new competition. Is it any wonder that the producers complain about the costs associated with field operations? Or in 2023 where the producers “deer in the headlights” look speaks volumes. The governing rule of the service industry is they broke it, they can fix it. If new investment does come back into the service industry it won’t be in the next decade. The capital structures of these firms have been damaged far worse than what the oil & gas producers have experienced. It will be incumbent upon producers to rebuild this industry, of which they are wholly dependent upon, brick by brick and stick by stick. With their own money on the basis they’re rebuilding the capabilities and capacities they so foolishly and carelessly destroyed. 

ERP system providers were subjected to the same treatment the service industry has been in for the past decades. However, we were a few decades ahead in terms of the abuse. We can pin the reason for this treatment on ERP softwares consequential increase in higher levels of financial accountability of said officers and directors actions. When ERP software defines and supports organizations, today’s oil & gas officers and directors unaccountable methods are defined and supported in the ERP software they use. Without any activity whatsoever in this ERP market since the exit of Oracle in 2000 and IBM in 2005, the coincidental financial demise of the industry and associated personal compensation benefits to said officers and directors, I do not believe are coincidental.

It is noted in early 2023 there are a number of producers that are “active” in the ERP area in terms of augmenting their systems. The ability for producers to change has been adequately defined and demonstrated these past decades while People, Ideas & Objects have been developing and promoting the Preliminary Specification. The ability for producer firms to identify there are issues, even in light of the devastating destruction is not possible. Their plans and objectives are more of the same with no understanding of why a producer needs to earn profits. What they need to do and how they do it in order to earn profits are foreign concepts as a result of the overriding culture that will dictate any and all future developments of their ERP systems. Plans of what these “new” systems will look like would be interesting to review, if they existed. Don’t even ask about a value proposition. And with each producer ultimately doing ERP systems for the “thing to be doing” the costs overall across the industry will be unnecessary.  After many decades of these producers' antics, they expect one more chance to get it right without accepting any of the responsibility for whatever it is we think they’ve done.  

In order for People, Ideas & Objects to claim that we provide the most profitable means of oil & gas operations. We need to show that the costs associated with field operations would be lower in an environment where the Preliminary Specification would exist. Having the oil & gas producers respecting the ideas of others in the service industries will be all that is required to make the changes from the current status to a dynamic and innovative service industry. Apart from funding the rebuilding costs which is a separate issue. There are a variety of interfaces and modules that are dedicated to the initiating, sponsoring and supporting of ideas throughout the Preliminary Specification. These are what are necessary for both an innovative oil & gas and service industry. When drilling a well in a shale formation can cost ten to fifteen million dollars the opportunities for innovation are strong. Today no one is motivated to do so because the producers will not respect the owner of the idea. So everyone just picks up their paycheck and carries on. It's a matter that the oil & gas industry reaps what it has sown. Professor Giovanni Dosi notes that investments in innovation are for the purpose of profits. That reasoning applies in this instance in that the innovation will reduce the time, effort and costs of field operations by finding a better way in a competitive environment. Dosi notes in “Sources, Procedures and Microeconomic Effects of Innovation.” 

In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.

Producers need to create this profitable environment for the service industry. Producers are the primary industry that receive 100% of the proceeds from oil & gas. They need to understand that a share of those proceeds are earned by those in the secondary industries such as the service industry who they are wholly dependent upon. Treating the service industry like leeches and cutting their funding during the bad times doesn’t instill the partnership relationship that provides producers with 100% of those revenues. Establishing a profitable oil & gas industry everywhere and always would go a long way to help smooth the revenues of the service industry but also the producers themselves. Eliminating the boom / bust mentality that should not exist in a proper 21st century industry. Enabling them to better deal with their staffing and development. Without the service industry sharing in the success of a dynamic, innovative, accountable and profitable oil & gas industry. Neither of these two industries can or will stand alone successfully in the 21st century. 

Innovation for Profits

Another element of our competitive advantage of providing the dynamic, innovative, accountable and profitable oil & gas producer with the most profitable means of oil & gas operations everywhere and always is we focus on innovation as the way in which to enhance the profitable nature of the producer. Innovation for profit, particularly from the scientific basis of the business, is the successful and necessary perspective for the 21st century oil & gas producer. From Professor Giovanni Dosi.

In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.

People, Ideas & Objects Preliminary Specification has been designed to capture the “what,” “how” and “why” of innovation within the ERP software that we’re developing for use by the innovative producer. Throughout the modules the principles and understanding of innovation were researched and incorporated as one of the seven Organizational Constructs in this ERP software. Our research included the works of many but most particularly Professor Giovanni Dosi and his key paper “The Sources, Procedures, and Microeconomic Effects of Innovation” (1988). There we learned many of the fundamental aspects of what is necessary for the oil & gas producer to focus on innovation. Recall in our Preliminary Research Report (2004) that we learned that innovation can be reduced to a defined and replicable process. If it's not a replicable process that is defined and supported by the organization then we need to find a reason why oil & gas producers are not innovative, and Apple consistently is. Although we define these processes within the Preliminary Specification which defines and supports the producer organization, Joint Operating Committee and service industry, that does not guarantee that all those that use the software will be innovative as a result. There will be leaders and laggards on these criteria. The ability to evaluate which producer firm has succeeded in exploiting the science and engineering involved in oil & gas most effectively, and commercially can not currently be determined in North American oil & gas. Their financial statements are homogenized facsimiles representing only the size of the producer with undifferentiated and obscure non-performance. 

To highlight a few of Professor Dosi’s key points on innovation, in this next quotation he notes the opportunities, the processes of innovative search, and incentives to investments in innovation.

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.

and

• 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 compete.
• 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.)

Review of this list shows the opportunity for an innovative framework and footing in oil & gas that can and needs to be built to define and support the industry. Adoption of People, Ideas & Objects perspective of an industry that demands creative destruction be undertaken, where the rebuilding of the industry on a profitable, innovative footing is what we have in hand. It is within the DNA of the Preliminary Specification how these processes of innovation are identified and supported by our software, our user community and service providers which enhance the innovativeness and profitability of the oil & gas producer. 

To expect the status quo to be culturally capable to make these changes to realize this innovative opportunity has now been proven to be impossible in early 2023. Although producers have claimed to be innovative in the past they’ve also relied on specious arguments such as “building balance sheets” and “putting cash in the ground” as two of their premier “muddle through” strategic developments. We’ve also seen no change in any aspect of the industry since the Preliminary Specifications publication in August 2012. 

There are two high level, or major, distinct processes of innovation included in the Preliminary Specification which build off the overall innovative foundation being created. The foundation contains many others however it will be the source of many more in the future with a defined ERP software development capability, our user community that People, Ideas & Objects are creating. These two major processes work together to take control of the innovative processes within the producer organizations. To separate these processes from operations in order to isolate them, prove them, develop them and determine their successful implementation. Few innovations work on the first attempt. Once the means to implement them is complete then the opportunity to roll them out to the remainder of the relevant parts of the organization for implementation can be undertaken. This reduces the costs of everyone in the organization “innovating” and doing the same unlearned experiments over and over, then again, each year, avoiding any organizational knowledge or learning. People, Ideas & Objects et al’s approach ensures that the science and technology is applied, and if further research is necessary, it is undertaken appropriately. Control of this process is fundamental to a rapidly developing producer based on well developed concepts. Not on press releases of how innovative they may be.

The second major process of innovation involves a more ad-hoc approach that reduces the formality and constraints of the first process. What can clearly be seen as a necessity. From our second prominent research source, Professor Richard Langlois paper “Innovation Process and Industrial Districts."

While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1

It falls within the domain of the industry at large to pursue serendipity, spontaneity and creative destruction throughout oil & gas and the service industry. Working groups managed through our Work Order are part of this process. It is the second process of innovation in the Preliminary Specification where these opportunities arise, where there needs to be a defined Compliance & Governance of the process to ensure the proper authority is invoked in order to instill any promising innovations development through the first controlled process of innovative development towards successful implementation. And further direction is available within the firm to determine the conclusion that those experiments have been documented successfully and are ready for implementation for wider deployment. Or alternatively, if they’ve failed or been abandoned, documented as part of the knowledge base of the firm to ensure that the experiment's scope is not undertaken again, and to ensure that the prior failure is only built upon.

And where will the innovative oil & gas producer focus their innovative energies? It will of course be on their inventory of shut-in properties. It will be there that they have the opportunity to increase their reserves, reduce their costs or increase their deliverability and return the property back to profitable production which is their incentive to innovate for the dynamic, innovative, accountable and profitable oil & gas producer. 

OCI Preamble, Part IV

 Sharing Producers Infrastructure and Costs

Cloud Administration & Accounting for Oil & Gas 

One of the more valuable innovations that’s come out of the Information Technology industry this past decade is the drive to share costs. Cloud computing, the development of Artificial Intelligence and wholesale acceptance of object based software development. Each of these technologies seeks to mitigate their costs for the consumers of these products by sharing the resource infrastructure and associated costs across its entire customer base. This same principle has been applied throughout the Preliminary Specification in order to realize substantial value generation and savings for producers. When combined with specialization and the division of labor, sharing becomes one of the most potent business tools to effect change and develop substantial long term value. 

Professor Paul M. Romer presented the concept that can be best described as “non-rival” costs in his paper “Endogenous Technical Change” in October 1990. Professor Romer went on to win the Nobel Prize for these concepts in 2018. In a Reason Magazine article from December 2001 Professor Romer described his “New Growth Theory” as People, Ideas and Things. Adopting this concept comprehensively in the Preliminary Specification and throughout our organization we named this initiative People, Ideas & Objects as we are object based software developers. 

Today each producer is involved in the development and maintenance of their administrative and accounting infrastructure. None of these costs would ever be considered part of the producer's distinct competitive advantage; the regulatory requirements that need to be administered today are demanding ever larger infrastructures be built to accommodate them. None of these costs are unique to each producer that resides directly above or below the other producers in the same office building, across the street and only vary in minor ways to those in the next state. None of these non-rival costs are therefore shared or shareable in the current state of an oil & gas organization and industry. 

We’ve established that producers claim their overhead costs to be 1 to 2% of their revenues in their financial statements. And that is why they each claim hundreds of millions of dollars of savings as a result of any layoffs. Their arguments are specious and do not reconcile with my personal experience in the industry through my career in oil & gas. Depending on the commodity price I suggest overhead costs range in the industry from 10 to 20% of revenue. Producers that are focused exclusively on non-operated properties are able to reduce their overhead burden to lower percentages, however this is a business strategy that only works for the startup and small producers. 

The Preliminary Specification has established seven Organizational Constructs of which Professor Paul Romer’s non-rival costs are one. We will reorganize the administrative and accounting resources of the industry in a manner that exploits these principles of sharing the resource, infrastructure and Information Technology in the form of our Cloud Administration & Accounting for Oil & Gas software and service. By reorganizing the producer firm to consist of only the C class executives, engineering and geotechnical resources, legal and other staff as required. The administrative and accounting resources are reorganized into the People, Ideas & Objects user community service provider organizations. There they’ll manage one specific process on behalf of the entire industry. This division of labor will allow them to focus on their competitive advantages of quality, automation, innovation, leadership, Internet of Things, integration, issue identification and resolution, creativity, collaboration, research, ideas, design, planning, thinking, negotiating and compromising, financing, observing, reasoning and judgment. Focusing on the human characteristics that we do well and can’t be replaced by computers, which we’ll be using to conduct the storage and processing. 

It is the sharing of these resources through the Cloud Administration & Accounting for Oil & gas software and service that brings about the cost savings that producers and the industry will realize. This is also the key enabler of the price maker strategy mentioned in the decentralized production model section above. Where the producer's overhead costs are turned into variable costs, based on production. In addition, our user community members are the exclusive resource that our software developers are licensed to seek input from. Our developers have no ability to access anything outside of what our user community provides them and therefore producers will know who to see to resolve an issue. Our user community members will also be the ones on the ground operating service providers that are actively involved in servicing and delivering our software to the industry. Where they can apply their competitive advantages and continue to provide the most profitable means of oil & gas operations, everywhere and always. 

Earth Science and Engineering Resources

Our competitive advantages of providing the oil & gas producer with the most profitable means of oil & gas operations everywhere and always, has our focus on the earth science and engineering resources of the producer firm and how these are more efficiently and effectively employed in comparison to what we call the standard corporate business model that’s employed by the officers and directors today. There are many aspects of this component of our competitive advantage, however, they’re all generating their profitability for the producer firms through innovation, specialization and the division of labor and we are highlighting the use and application of Professor Paul Romer’s non-rival costs within the Preliminary Specification.

In the area of innovation, another one of the Preliminary Specifications Organizational Constructs, we look to the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification to highlight the processes that are managed there. Focused on the development, documentation and deployment of capacities and capabilities within the producer firm. It is in these modules that the markets availability, sourcing, research and development of those earth science and engineering capabilities are funneled into the Joint Operating Committees for their ultimate deployment. From an innovation standpoint there is also the Work Order that enables these innovative producers to participate and sponsor working groups to research and study various earth science and engineering based concepts with like minded producers. Designed to eliminate this otherwise bureaucratic process and the inherent difficulty in managing the accounting and administrative logistics for the ad hoc nature of these working groups. The Work Order is an interface that enables the user to allocate their overhead and AFE budgets to these studies in a manner that is consistent with the nature of the opportunities.

The specialization and division of labor of the producer firms earth science and engineering resources takes on the difficult issue of the constraint of these resources. Over the next few decades the demand for these resources will outstrip supply due to retirements and the inability to bring on an adequate increase in the numbers of new recruits. The need therefore to deal with the resource constraints is a problem that the industry must resolve. The Preliminary Specification has used specialization and the division of labor in combination with the sharing and shareable nature of these resources to do so. Enabled by the key Organizational Construct of the Joint Operating Committee that is fully recognized in the Preliminary Specification.

One of oil & gas’ key difficulties is what People, Ideas & Objects et al call the hoarding issue. Each producer is building the capabilities and capacities within their firm to deal with any and all contingencies at any time. This hoarding of earth science and engineering resources, when taken across the industry builds unused and unusable surplus capacity within each producer firm. With each producer firm attempting to provide all of the capabilities and capacities necessary for their producer firm on a just in time basis, these critical resources are therefore unnecessarily constrained. The solution that’s provided within the Preliminary Specification is what we’re calling the Pooling of these technical resources. Each member of the Joint Operating Committee commits their technical resources, based on their unique specialized capability, to the property, for a fee. Any deficiency is made up from outside technical service providers or other producers who can provide the additional earth science and engineering capabilities for a fee and organized through our Work Order system to charge, bill and pay for these costs.

Which brings up the last aspect of the division of labor and that is as it applies to the bread and butter aspects of geology and engineering. Much of this work can be turned over to newly formed technical service providers who are organized on the basis of providing a specialized service to the industry. Organized around a process or skill that is common or generic and could be specialized to a high level if the scope and scale could be brought into the picture. Leaving each producer firm able to focus on a specific high level technical specialization which forms the basis of a second revenue stream for the producer and expands their science and technology available for enhanced innovation.

It is reasonable to assume that industry will turn to specialization and the division of labor to deal with these resource restrictions. What would be the result if producers continued with their hoarding behavior and attempted to resolve their shortfall this way. Prior to Professor Paul Romer’s non-rival cost concept, it is the only tool that has proven to be effective since 1776 with Adam Smith’s publication of the Wealth of Nations. However, without our Pooling concept being a critical element of that solution. The scope and scale of the producers domain of earth science and engineering capabilities, due to the demands being generated from enhanced specialization and division of labor in the marketplace, will most certainly create chronic unprofitability due to the enlarged scope and scale of specializations necessary for producers to cover off the full scope of what their operations capabilities and capacities demand. 

In a few years having each producer conduct all the earth science and engineering necessary for all of their properties in-house will seem like a business model from the dark ages. Decentralized business models are eliminating centralization through efficiencies in every industry. What is being proposed here in the Preliminary Specification is the only reasonable solution to the real issue of the current and looming limited resource base. Future issues it will need to deal with are the demands for expanded productive capacity in order to attain energy independence and the demand for more effort for each successive barrel of oil produced. It is the earth science and engineering capabilities that form a critical part of the innovative oil & gas producers competitive advantage along with their land and asset base. The Preliminary Specification enables the firm's resources to focus on the specialized research and development of “knowledge, skills, experience” and ideas, and the deployment of those in the properties that are held by the firm. This is the appropriate posture for a profitable oil & gas firm, and another component in how People, Ideas & Objects provides the oil & gas producer with the most profitable means of oil & gas operations, everywhere and always.

Oracle Cloud ERP

Recently Oracle has taken on a new focus and direction within their firm. This is not to say they’re abandoning their technologies or the future developments. They are of the size to carry on that work and we look forward to continued innovation from them. What they are doing is setting out a different path or business model for their customers that builds value through the use of those technologies. Partnering with other service providers to deliver products in Oracle Cloud ERP that are of the same direction that People, Ideas & Objects, our user community and their service provider organizations are traveling for oil & gas. What Oracle Cloud ERP provides however is to do so on the generic business process management.

When we use Oracle Cloud ERP for the development of the Preliminary Specification we will be presented with a comprehensive system that is built specifically for the purposes of why we’ve selected them. To have the generic business functionality and process management handled in the optimum manner through their tier 1 ERP product. We then define the attributes of the system that we need to use in order to establish the features, functionality and process management necessary to provide for the unique oil & gas attributes. Presenting all of this in a seamless, highly integrated product where we provide dynamic, innovative, accountable and profitable oil & gas producers with the most profitable means of oil & gas operations. Building with the Preliminary Specifications developments will be the necessary components to provide the oil & gas industry to continue with our permanent ERP software development capacity and capability. Therefore keeping producers up to date with quarterly updates to these ERP systems.

The direction that Oracle is heading is best represented by the example that I use throughout these writings that show their efforts. Partnering with J.P. Morgan Chase, Oracle have developed a feature within Oracle Cloud ERP where use of J.P. Morgan Chase’s credit card by the firm's employees enables staff to select the specific corporate asset / project that they want charged. Oracle will then apply that firm’s policies and procedures to ensure that the charge is valid, pay J.P. Morgan Chase, charge the employee if the charge is not valid or accept the charge to the account selected. 

Much as People, Ideas & Objects propose to build value through the sharing of infrastructure and costs of the oil & gas producer and industry. Oracle is providing this service which eliminates the expense reporting for any and all businesses that use Oracle Cloud ERP. This is an incremental value added to the oil & gas producer over top of the attributes that we’ve noted in terms of the Preliminary Specifications reduction of overhead and technical resources infrastructure and costs. We feel that the attributes that Oracle will be capable of providing through these generic business developments, given time, will be as substantial in terms of cost reductions and time savings as what People, Ideas & Objects will be able to provide. This of course will be done by Oracle by way of the inconsequential cost of nothing to their customers. It’s included in the service charges for Oracle Cloud ERP and the other technologies that we’ll use. 

These are the competitive weapons that Oracle are bringing to the field of battle. Expense reports are frustrating, take time of those who have to prepare them, review, approve them and process them. All of these costs across a large producer will be offset by the incremental cost of computer processing time. Oracle’s costs of the development of these features will be captured through the installed base of Oracle Cloud ERP. An installed base that could potentially be much larger as I don’t see any of the other tier 1 ERP providers to even be able to get their databases to function efficiently. 

Oracle Cloud ERP introduced a quarterly upgrade schedule that creates the dynamic for iterative, innovative development. The Java Programming Language itself turned to a six month release schedule in September 2017. Since that time the level of innovation and new features has been blindingly quick and robust. Java has benefited immensely from the enhanced cadence of this release schedule. Yet at the same time they have been able to hold to their principles of being reverse compatibility, a process in which features are introduced over time and user community dependent input. Oracle Cloud ERP has been operating on this quarterly release schedule which divides their customer base into three. Therefore what is learned in the first month from implementing upgrades in group A can be applied to group B and then the following month on to group C in the third month of the quarter. People, Ideas & Objects have committed to following the same release schedule when the Preliminary Specification is released. 

The larger point of this last comment is the question, has Oracle eliminated the legacy ERP system? Will ERP systems of the future now evolve and cater to the needs of the business over time? Eliminating the need to have them evaluated every decade to determine what is the preferred route and the best interests of the firm? It is questions like these that are settled by Oracle's actions of iterative developments over a quarterly period and feature rich developments that focus on generating business value. Which are fully in line with what People, Ideas & Objects have sought to provide the North American based producers with the establishment of our user community as one of three People, Ideas & Objects competitive advantages and a permanent software development capability.