OCI Resource Marketplace Module, Part V

 Software Development's Role

We now turn to the capabilities view of the Preliminary Specification. Capabilities are such a critical part of innovation and we have the Research & Capabilities module that focuses on the producer firm's capabilities. But what are they and where do they reside? We have shown how the Preliminary Specification would provide the capability to suspend production in the “Marginal Production Threshold Interface,” until the marginal costs of production are realized by the commodity price. By using the “decentralized production model," production and overhead costs are all variable, such as Production Accountants costs. These costs would not be incurred without profitable production. Maintaining firm profitability and saving reserves for a time when prices are better etc. This capability resides in People, Ideas & Objects software's ability to coordinate these actions. To the point where it’s asked which is more valuable? The oil & gas asset, or the software that makes it profitable? 

We have listed the firm's capabilities in the Research & Capabilities module. They are accessed through the Knowledge & Learning module by the various Joint Operating Committees. We have used the football analogy to describe how they are formulated and deployed through a variety of interfaces. However, we have not discussed the "Dynamic Capabilities Interface" pages. Let's first be clear, it is the Joint Operating Committees that employ the engineers and geologists from their various firms that run the project. These committees dictate why these modules are configured that way. The "Dynamic Capabilities Interface" contains information that is used to manage the service industry members in the Resource Marketplace.

But first let's identify the differences between what exists today and what needs to change in the People, Ideas & Objects Preliminary Specification. Professor Richard Langlois' research includes Transaction Cost Economics (TCE). The market model requires transactions between separate economic units. These transactions create “friction” in terms of the resources necessary to process the transaction itself. Therefore in the past, to avoid transaction costs, firms hired people as employees to perform a variety of tasks and only told them what was required in exchange for a paycheck. This mitigated the cost of paying someone $5.00 to type a letter each time it was needed for that task to be completed etc. By automating transactions with current Information Technologies, Langlois et al assert that transaction costs, such as paying an individual $5.00 for typing a letter, can be reduced to an immaterial amount. This discussion is particularly pertinent to the changes being made to the producer organizations' administrative, accounting and overhead resources being reorganized into service providers. This is also happening at a time that coincides with the fact that the hierarchy's scope of operations has spanned to an impossible level. The hierarchy must now make a choice, either fully integrate and take control of all means of production, or decentralize and let the market provide for the means of production. The Preliminary Specification assumes the latter. Through the Resource Marketplace module, the producer firm and Joint Operating Committee will be able to access and coordinate market capabilities. From Professor Langlois’ “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.”

However, a new approach to economic organization, here called "the capabilities approach," that places production center stage in the explanation of economic organization, is now emerging. We discuss the sources of this approach and its relation to the mainstream economics of organization. pp. 1

And

One of our important goals here is to bring the capabilities view more centrally in the ken of economics. We offer it not as a finely honed theory but as a developing area of research whose potential remains relatively untapped. Moreover, we present the capabilities view not as an alternative to the transaction-cost approach but as complementary area of research pp. 7.

In the Preliminary Specification, some of the elements have been captured in the interfaces. Additional interfaces would include the “Transaction Design Interface” in the Accounting Voucher module. And in the Resource Marketplace module we have discussed the three interfaces; the “Actionable Information Interface,” “Supplier Collaborative Interface” and the “Gap Filling Interface.” Each of these would be used in some fashion in the discussion of moving to a “decentralized production model.” There are however, many more elements of this research that we will discover and develop as we continue.

During the Preliminary Research Report I coined the phrase that “SAP is the bureaucracy.” Nothing turns an organization into cement like a good old fashioned SAP implementation. What an innovative oil & gas producer needs is an organization that remains open and flexible to innovation. It also needs software development capabilities as proposed by People, Ideas & Objects. As we continue our review of capabilities, this discussion will focus on the need for organizational flexibility in terms of capability. This is to accommodate innovations within the oil & gas producer, Joint Operating Committee and service industry organizations. A capability, similar to shutting-in production until prices recover, will be brought to the producer through the Resource Marketplace module of the Preliminary Specification.

First, the Joint Operating Committee is the key Organizational Construct of an innovative oil & gas producer. Having the legal, financial, operational decision making, cultural, communication, innovation, and strategic frameworks aligned with the compliance and governance frameworks is necessary. To have the Preliminary Specification built as software with a fully supportive user community, and service provider organizations will ensure that innovative producers' needs for change are met. To have all of this available without a dedicated long-term software development capability to accommodate the needed changes in the organizational structures of innovative oil & gas producers would only restrict future oil & gas organizations in the manner that software does today. And these software development capabilities are indeed necessary according to Professor Richard Langlois’ capabilities research.

The legacy of this "path-dependent” history, we will argue, has been a tendency (albeit an imperfect tendency) to respect an implicit dichotomy between the production aspects and the exchange aspects of the firm or, to put it another way, between production costs and transaction costs. p. 5

In the Preliminary Research Report we noted Dr. Wanda Orlikowski's Model of Structuration, which is based on Dr. Anthony Giddens' Theory of Structuration, and by extension states that software defines Organizational Constructs. Therefore, within Orlikowski’s Model of Structuration, I assert that ERP software applications define, support and constrain organizations. Professor Langlois found a similar finding in his research.

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

If we want an innovative oil & gas industry, the first thing we should do is ensure organizational flexibility. Flexibility is necessary to ensure that we do not constrain ourselves unnecessarily, to define and support the behavior that we desire. This is the role that ERP software plays in the 21st century. People, Ideas & Objects brings this capability to the oil & gas industry. 

Coordination of Markets

Professor Richard Langlois researches the boundary between firms and markets. The Preliminary Specification relies on the Resource Marketplace module to provide capabilities to the producer and Joint Operating Committee from the marketplace. This is represented by the oil & gas service industry, subsequent tiers of industries and service provider organizations. How this boundary is formed, and its definition, determines the oil & gas industry's economic organization.

[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).

We have briefly discussed the determining role transaction costs have in how a firm operates. If transaction costs are high, the firm will seek to mitigate transaction costs by hiring employees to handle the tasks. This will reduce the number of transactions to a few paychecks. If transaction costs are low, as we are now seeing with Information Technology, the ability to source the work from the market, from the lowest cost producer is the ideal choice. Professor Langlois notes.

Production costs determine technical (substitution) choices, but transaction costs determine which stages of the productive process are assigned to the institution of the price system and which to the institution of the firm. The kinds of costs are logically distinct; they are orthogonal to one another. As a result, issues of economic organization - such as the boundaries of the firm - cannot turn on considerations of production costs. Present-day theory has not only brought into this view but has arguably reinforced the separation. p. 10

In a nutshell, firm boundaries cannot be defined by production costs. In order to organize its production, the industry will use transaction costs to determine whether the producer or the market generates the production cost. With the makeup of the oil & gas industry. Conducting detailed, logistically complex field operations in remote regions. Since conducting these operations internally has never been an option, defining the boundary between the firm and the market is not contrary to industry practice. We are applying Professor Langlois' theories to the oil & gas industry culture and determine the appropriate way forward. I think however, that the conceptual model of transaction cost economics considers that there will be “thicker” markets and an increased volume of transactions contemplated between the producer firms, Joint Operating Committees, and the marketplace. Thicker markets than the current service industry configuration. Using People, Ideas, and Objects et al Cloud Administration & Accounting for Oil & Gas software and services would result in these "thicker" markets developing. These are considered in the Preliminary Specifications Resource Marketplace module.

There is also the impact of changes within producer firms. Having the producer's footprint reduced to C class executives, earth science and engineering resources, and some legal support. With the remainder of the administrative, accounting and overhead resources being reorganized into an industry wide, variable cost capability provided by our user communities member led service provider organizations. These service providers will bill on the basis of our task and transfer networks. Transaction costs will be negligible due to the use of the various Organizational Constructs in the Preliminary Specification. These include specialization and the division of labor, the sharing of non-rival cost infrastructure, and the use of information technology.

Theoretically sound, but... That brings up the question of how are the capabilities needed to undertake significant and complex work coordinated? From Professor Langlois' paper 

As we will argue in more detail below, there are in fact two principal theoretical avenues closed off by a conception of organization as the solution to a problem of incentive alignment. And both have to do with the question of production knowledge. One is the possibility that knowledge about how to produce is imperfect - or, as we would prefer to say, dispersed, bounded, sticky and idiosyncratic. The second is the possibility that knowledge about how to link together one person's (or organization's) productive knowledge with that of another is also imperfect. The first possibility leads us to the issue of capabilities or competencies; the second leads to the issue of qualitative coordination. p. 11

And

A close reading of this passage suggests that Coase's explanation for the emergence of the firm is ultimately a coordination one: the firm is an institution that lowers the costs of qualitative coordination in a world of uncertainty. p. 11

If we consider the Research & Capabilities and Knowledge & Learning modules “Dynamic Capabilities Interface” as the starting document for how the firm can achieve a task. The actual implementation is in either the Research & Capabilities or Knowledge & Learning modules “Planning & Deployment Interface” which brings in the capabilities from the “Dynamic Capabilities Interface,” the Industrial Command & Control for the resources seconded to the project, and what is not clear in either of those modules, yet, is the resources from the Resource Marketplace module that will be the elements that complete the work in the field. A producer firm or Joint Operating Committee resolves Coase's qualitative coordination concern in the "Planning & Deployment Interface". It is ERP software as represented in People, Ideas & Objects et al that holds the producer firm organization, Joint Operating Committee and industry structure and definition. As a result, these are also constrained without defined permanent software development capabilities. This is necessary to avoid organizational deficiencies in a business model. 

Innovative oil and gas producers have their land and asset base, and coordinating the market for earth sciences and engineering capabilities as their distinct competitive advantages. What the Resource Marketplace module of the Preliminary Specification provides is the means for the producer and Joint Operating Committees to coordinate those capabilities from the marketplace. By integrating the Resource Marketplace module, we will make the supplier a key contributor to the producer's or Joint Operating Committee capabilities.

At this point we have the suppliers and vendors maintaining the key contact information for their firms in the “Vendor / Supplier Contact Database.” This is done to increase the accuracy of the information and reduce the time required for each of the producers to maintain the vendor contact data necessary and do so with each resource who may use that information. What will be required is for the producer to select the vendor as the supplier that the firm will use; either as a producer, or in one of its Joint Operating Committees. This tagging or designation method will be determined through a process that the People, Ideas & Objects user community determines. Upon selection in the “Vendor / Supplier Contact Database” it will bring in a variety of other vendor supplied data that will assist the user in the “Planning & Deployment Interface” of the Research & Capabilities or Knowledge & Learning module. Data such as their key field staff, operational staff and roles within Industrial Command & Control etc. This will also provide access to their calendars and other information if the resources were selected in the “Planning & Deployment Interface.”

What this denotes, and so much of the Preliminary Specification requires, is that the People, Ideas & Objects system is not a stand alone software application for one firm. It is a holistic industry-wide solution that spans the oil & gas industry and service industries that support it. In order to achieve this type of integration, it requires the level of cooperation reflected in the People, Ideas & Objects user community and Revenue Model.

The question also becomes how does the energy industry acquire its capabilities? For some time it has employed a hybrid market / integrated firm strategy that leaves it openly critical of its suppliers and vendors and is not working. Professor Langlois notes.

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

The consequences of economic change in oil & gas are clear, but where they will end is not.

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

It is stated clearly in the Revenue Model of People, Ideas & Objects. Our core competitive advantage is that we provide the innovative oil & gas producer with the most profitable means of oil & gas operations.

Officers and directors of producers have caused significant destruction. To suggest that the Preliminary Specifications interfaces and the methods of innovation that are used in the Preliminary Specifications Resource Marketplace, Research & Capabilities and Knowledge & Learning modules will operate in an environment that is similar to what the oil & gas industry operates in today misses the point of how the industry will have to reorganize itself to undertake the workloads of the future. Advanced specialization and division of labor where increased throughput can be achieved from the same resource base. Most specifically, industry earth science and engineering resources. Additionally, it covers the service industries oil & gas field operations and service providers' administrative and accounting functions. How the task is completed today may be fundamentally different from how it is completed in the near future. 

Coordinating this group of disparate individuals and organizations falls under the Joint Operating Committees. Reliance on the market is the only conceptual model for the future innovative oil & gas industry. It is almost certain that attempting this task without software that identifies, defines, and supports innovative processes will lead to failure. Professor Richard Langlois in his paper Capabilities and Governance noted the following two points.

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of cooperating individuals. p. 17

And

In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints [or software] as one's competitors is unlikely to translate into having the same costs of production. Generally, in such a world, firms will not confront the same production costs for the same type of productive activity. p. 18

Coordinating costs, and how that coordination is conducted are about to change. It will be those producers that participate in the People, Ideas & Objects user communities that will gain the greatest advantages. They will have their unique needs met, and be able to reorganize themselves to accommodate the software, and optimize their role in coordinating their capabilities. Producers' competitive advantages reside in their land and asset base and through the coordination of the earth science and engineering market. In a working paper entitled “Organizing the Electronic Century” Professor Langlois states.

Moreover, by taking advantage of a range of capabilities far wider than the boundaries of what even the largest firm can encompass, a network of specialist suppliers and competitors is better able to exploit the value of a complex and potentially modular product architecture. p.160

OCI Resource Marketplace Module, Part IV

 Decentralized Production Model

The Resource Marketplace, and all of the modules of the Preliminary Specification, adopt a decentralized production model. The oil & gas industry operates under a high-throughput production model. These two models are best described in Chapter 4 “The Rise of the Corporation” of Professor Richard Langlois' Book “The Dynamics of Industrial Capitalism” and are as follows.

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. p. 58

By adopting the decentralized production model within the Preliminary Specification the dynamic, innovative, accountable and profitable oil & gas producer gains flexibility in their operations. This allows them to deal with low oil and natural gas prices. This is provided by turning oil & gas producers' fixed administrative, accounting and overhead costs into the variable administrative, accounting and overhead costs of the Joint Operating Committee. 

Within the Resource Marketplace there are service providers who focus on providing services to the Joint Operating Committees in the industry. These service providers are former employees of oil & gas producers who were employed in the accounting, administrative and overhead areas of the firm. They will be reorganized across the industry so that they can focus on the process and apply their skills to their industry-wide client base. With this reconfiguration they'll be able to use specialization and the division of labor to enhance their service offerings to their producer clients 

The innovative and profitable oil & gas producer is reduced to C-class executives, earth science and engineering resources, some support and legal staff. The remainder of the producer's needs are satisfied by service providers who number in the thousands of individual firms and are very specialized in the processes that they handle and the skills that they provide. 

The Petroleum Lease Marketplace module has an interface called the Marginal Production Threshold Interface. This interface enables the Joint Operating Committee to determine when and if to shut-in production due to marginal costs not covered by revenues. When the costs are not covered and the property is shut-in the advantages of the decentralized production model are made available. The Joint Operating Committee holds the industry's operational decision making framework. Therefore, it has the authority to shut-in production to ensure producers remain profitable in all their operations to maximize overall profitability.

The example of how the decentralized production model provides innovative and profitable oil & gas producers with flexibility in their operations is as follows. The production, revenue and royalty accountants would have been removed from the various producers and reorganized into service providers that specialize in specific processes of those tasks. To cover the variety of skills and tasks within production, revenue and royalty accounting, it would include potentially hundreds of service providers. Providing specialized location-specific services to Joint Operating Committees. 

In the case of production accounting there may be a service provider who specializes in one geographical region located in a remote area. This provides them with a hands-on production accounting service to the various Joint Operating Committees and producers in that region. Revenue accountants may specialize further based on the products produced. Each service provider takes the unique requirements for propane, butane etc into consideration. And finally several service providers would have been formed to provide services for the various processes involved in calculating royalties for the various jurisdictions in which oil & gas is produced. 

Each of these service providers developed their services with People, Ideas & Objects software developers through our user community members. That service provider's principal. When activities occur in their network, such as production, efforts are made to complete tasks within the various processes. Successful completion of the tasks triggers billing of production, revenue and royalty accounting services to the Joint Operating Committee. When, as we noted earlier, the marginal threshold is crossed and the property loses money on production, the decision to shut-in the property is made. Then charges for production, revenue and royalty accounting services for the months where no production occurred would not be generated. No billings would be sent to the various Joint Operating Committees. 

This situation would be the same for all administrative, accounting and overhead charges at that shut-in property. It is easy to demonstrate the direct relationship between production and revenue using production, revenue, and royalty accounting charges. Using the Preliminary Specification producer firms would cease all operating and overhead charges during shut-in production, and only capital costs would be uncovered. Capital costs may include minor associated administrative costs such as the costs to process the lease rental payment. 

People, Ideas, & Objects et al.'s ability to make administrative and accounting overhead costs variable, based on profitable production, is a cornerstone of our value proposition. Untold trillions of dollars have been wasted and frittered away since the July 1986 oil price collapse that I attribute exclusively to North American producers. Overproduction is not just the act of over delivering product into a market with the characteristics of a “price maker.” Overproduction can also be defined as unprofitable production, consider the following.

The connotation of the economic term price maker has caused officers and directors to conclude that this is collusion. We argue otherwise when the Preliminary Specification uses the Joint Operating Committee and produces standard, objective, detailed, actual, and factual financial statements for each property. Producer firms will definitively know the “real” profitability of each property. A task that is not done today and cannot be done today. And therefore producers will independently decide to shut-in their unprofitable properties to make sure they attain the highest level of corporate profitability when unprofitable properties no longer dilute their profitable properties. Saving petroleum reserves for a time when they can be produced profitably. Maintaining the commodity as reserves ensures they don’t have to carry the incremental costs of unprofitable production. Keeping production and inventory costs lower by not producing and storing unprofitable production. Additionally, ensure marginal production is removed from commodity markets so that the marginal price of the product can be determined. Attaining the marginal price not only for the individual property but for all properties. Any production must provide replacement costs. Investors have stopped doing so and are no longer a source of funding. In a shut-in situation, the producer can use their innovative skills to restore the property to a financially viable state. Profitability is the only fair and reasonable method of allocating production. People, Ideas & Objects decentralized production models price maker strategy provides all the financial resources producers will need to meet their challenging future. It allows them to contribute to society productively and constructively. 

At the bottom of this Wiki Page is a graph from @Soberlook by Les Borodovsky. (My apologies, this Wiki does not place photos or videos appropriately and they are best left at the end of the page.) References to prices, break-even and shut-in prices are based on that graph.

Looking at this from the perspective of the producer's officers and directors. Their total cost of each barrel of oil produced in the various shale formations is $48 to $54. Operating and royalty costs vary between $28 and $37. I would point out that the $18 to $23 in capital costs are based on an allocation of their capital costs across the entire reserves of the property. We’ve argued that this allocation is unreasonable in a capital market where the demands for capital performance are far greater than what can be achieved when a producer cycles their cash through their investments in a manner that retrieves their investment over several decades or more. This is further exacerbated when shale exposes prolific reserves, however it requires additional capital to offset steep decline curves to maintain deliverability. 

To reuse previously invested cash, People, Ideas & Objects recommends that producers retire their capital costs within 24 to 30 months of the property's life. In turn, it provides them with the means to meet their demands for future capital costs, shareholder dividends and bank debt repayments. In addition, they can better match shale's rapid decline rates. This can only be done if the producer sells their commodities at a price above their break even point. This considers an appropriate accounting of operations costs and a reasonable capital retirement. In a capital intensive business, capital would be the majority cost passed to consumers.

Based on the producer's current perspective, this graph shows break-even and shut-in prices. At any point, and as long as the commodity price covers the operating costs, the property would continue to produce regardless of the impact on capital costs. If a dollar of capital costs was returned, or one dollar above the shut-in price, that would enable property to continue production. Only at the point in time where the commodity price dropped below operating costs would the producer allegedly shut-in their production. This is a fundamental misinterpretation of the term break even. It is the reason the industry is struggling and why producers have lost money for four decades. Breakeven is not interpreted here. What the producer assumes is that as long as there is cash flow above operating costs, they’re making money and will continue to produce. What they’re stating is acceptable is that they may not be breaking even, but they’re generating cash flow.

Lately we’ve seen producers continue to produce without considering market prices. Selling oil for almost negative $40 during April 2020 was consistent with selling natural gas at negative prices. Or I guess those are payments for sales and not conventional sales. Or the first quarter of 2023 when natural gas traded in the range 30 to 1 to 40 to 1. Having reduced the price well below their "break even point" for extended periods of time, decades in most cases, is the consequence of officers and directors' inaction. Their behavior is unlimited. Their production discipline is to produce 100% all the time. They believe markets are magical and mythical. The market provides one thing, a price. If the price offered is profitable, produce. No blaming, excuses or viable scapegoats. 

According to People, Ideas & Objects' Preliminary Specification, if we could assume the accuracy of these graph numbers, the property would be shut-in at the breakeven point and below. The reason for this being the production discipline gained through knowing that producing any property unprofitably only dilutes producers' corporate profits. Producing below the breakeven point is unprofitable. Producing below the breakeven point for one producer, in an industry whose commodities are price makers, will drop the price of the commodities below the breakeven price for all producers. If all producers produce below breakeven prices for four decades, you have exhaustion of the industry's value. Times were only " favorable " when investors were willing.

To avoid the allegation of collusion officers and directors would have us believe that they were operating the industry within the law today. Losses of catastrophic proportions have been realized. Displacement of producer's financial resources over the long term is normal business for officers and directors. Imposing the destruction of their firm's assets and the capacity and capabilities of the oil & gas and service industries is the price to be paid. This is a “boom / bust” business. “If the Preliminary Specification is available to operate the business as a business, this is unnecessary and unacceptable.”

The inverse situation is provided by the Preliminary Specifications' decentralized production models price maker strategy during 2023 in North America. In an environment where the Preliminary Specification was operational, higher commodity prices would bring about higher production volumes that meet profitability thresholds. Therefore, incremental shut-in properties would be returned to production. Providing the dynamic, innovative, accountable and profitable North American producer with the most profitable means of oil & gas operations. The organizational objective is to satisfy consumer demand for energy with abundant, affordable and profitable energy. The value proposition of a barrel of oil equivalent is 10 to 25 thousand man hours of equivalent effort. Living without oil & gas is impossible in the most advanced society with the most productive economy. Yet, just as producers were forced to shut-in production due to almost negative $40 oil prices, they are required to bring on any previously unprofitable production that would have been shut-in under the Preliminary Specification to satisfy increased demand. Who should we look to for oil & gas? Apparently not the officers and directors. Operating the industry profitably, everywhere and always, would have enabled them to maintain the oil & gas industrial economy's capacities and capabilities. That People, Ideas & Objects were subjected to abuse and punishment for this and other content contained within the Preliminary Specification is evidence that officers and directors knew better. Since they knew our alternative was available, their method of management was threatened. They will need to live with their legacy of inaction.

Officers and directors ran the entire industrial complex into the ground over the past four decades. They also destroyed large percentages of service industries' industrial capacity, eliminating their capital structures. Go find a willing drilling rig investor or banker from a few years ago who saw the drilling rig they invested in cut up for scrap metal. Or a frac provider who had to sell their horsepower capacity. This was while producers whistled their uncaring and inconsiderate tune of “muddle through.” What I consider the equivalent of Joe Biden having the U.S. Embassy in Kabul display the Pride flag while overnight, and without notice exit the war zone. It is now incumbent upon producers to provide the financial resources to rebuild the service industry. The rule is “you broke it, you fix it.” Producers used and abused the service industry and now they’ll need to provide the money and backbone involved in the rebuilding effort, otherwise they’ll only use and abuse it again. Maybe when they rebuild the service industry, they’ll respect it. Producers do not have previously shut-in production, but they also lack the capacity to meet demand in the future. Whether it's a failure to make any real profitability or to meet market demand, we can certainly count on our North American oil & gas producer officers and directors to fail. 

With the costs associated with exploration and production, and particularly shale reserves, it's no surprise that producers report losses on operations. What is surprising is that producers have done nothing over this period to mitigate the overproduction that has caused price declines. This has caused subsequent financial losses, destruction of producers' reserves and oil & gas industrial capacity. The reason for this chronic overproduction is that the producers have to generate revenues to cover the out of pocket costs of the overheads they incur in the “high throughput production” model they employ. This model has these overhead costs for the producer firm whether there is production or not. As a result, their operation becomes high-cost at any level of production. At lower production volumes, earnings are skewed and overhead costs appear out of place. Therefore this behavior of producing at capacity should be expected to continue on both the oil & gas sides of the business. Even despite significant financial loss or inability to meet market demand. Although some producers report overhead costs of less than 2% in many instances this is not representative of the situation. We believe overhead costs range between 10% and 20% of revenues. The difference being capitalized to property, plant & equipment to sit for eternity. These itemized amounts are never detailed or discussed in producers' financial statements. Please see the Preamble section of this Wiki page regarding cash management and more detail on overhead.

It is through People, Ideas & Objects et al’s process that producers can attain production discipline. This is when they realize that maximum profitability can only be achieved by producing profitable production everywhere and always. Therefore, producers are motivated to stick with the Preliminary Specification price maker strategy. Just as all businesses in the capitalist system have followed these principles since the great depression of 1929. The individual decisions of each oil & gas producer, based on an actual, factual accounting of the property's profitability, will determine if the property produces. That is how the oil & gas industry needs to deal with low commodity prices. The inverse of this is also relevant. When commodity prices rise, producers will raise profitable production volumes by returning shut-in properties to the market. It is certain that shale-based reserves will always dominate the oil & gas commodity market due to their prolific nature and flush production. Production discipline focused on profitability can only be achieved through the reorganization of the industry and producers. A reorganization based on the Preliminary Specifications decentralized production model, detailed in the Specialization & Division of Labor Organizational Construct section. Our Cloud Administration & Accounting for Oil & Gas facility we are building makes overhead costs variable. Which enables our price maker strategy to provide for producers and tertiary industries profitability and ensure consumers are always provided with an abundant, affordable, reliable yet profitable source of energy.

A comprehensive description of the decentralized production model can be found on the Background/Decentralized Production Model page of our Wiki.

OCI Resource Marketplace Module, Part III

 Coordination and knowledge sharing among service industries

As part of the Resource Marketplace module, we have developed what we call the Actionable Information Interface. By posting actionable information about their firm, producers, service industry firms, service providers, and vendors have access to a central location where others can respond. In terms of the other interfaces detailed in the Preliminary Specification so far, how does this interface fit in? In what way does it play a role in other activities in other modules? The purpose of this discussion is to clarify some of the different perspectives about the data and information that passes through the Resource Marketplace module and is generated there.

Following the Actionable Information Interface, the Research & Capabilities module will have blog posts. Authors of these blog posts are individuals working on original and innovative products within the Resource Marketplace. By publishing their ideas on this site, authors can earn their copyright and other Intellectual Property rights. These ideas codify market demand for original and innovative products and how entrepreneurs and innovators solve producer challenges based on the information contained in the Resource Marketplace module.

The Accounting Voucher module has an interface for designing transactions. Oil & gas companies will benefit from the ability to design the transaction in such a way that it achieves the greatest organizational efficiency both for the Joint Operating Committee and for the vendor. Identify which vendor performs which operations, when, where, and how. Once the design is complete, automate as much of the process as possible.

Finally, there is an interface for processing payments. This interface is part of the Accounting Voucher module. As we can see with all interfaces, they all interact strongly with the Resource Marketplace module. In the Resource Marketplace module, we need to capture the data and information that allows these other modules to function. That's one of the most critical functions of the module.

The Preliminary Specifications Resource Marketplace module is the source of the data used by the different interfaces that relate to it. The data in question is plain generic contact information that is used in business every day. We want to discuss how and who is responsible for the data. Also included are details required to process payments into the vendor's bank account, among other attributes. Most of this information can be found on the supplier's website, but it won't be sourced by anyone, as the supplier will maintain his or her own records in the Resource Marketplace module of People, Ideas & Objects.

Our "Cloud Administration & Accounting for Oil & Gas"-based offering allows us to centralize the processing of People, Ideas, and Objects for producer clients in one place. Each supplier will maintain their own record within the Resource Marketplace module, so producer firms do not need detailed records of each vendor they have worked with. Consequently, inaccurate records and duplication of information between producers will be avoided, saving time and reducing errors. It is the supplier's responsibility to ensure that the information they provide in the Resource Marketplace is accurate. If a supplier changes address, they'll know best when they need to update their records. With specialization and the division of labor, and the proliferation of vendors, this task becomes more urgent. 

In order to create this Resource Marketplace “Supplier Interface,” the People, Ideas & Objects user community needs to identify and document the different data elements. In addition, all the interfaces and data requirements of the Preliminary Specification must be included here. In the process of designing transactions, suppliers and producers must be able to quantify and qualify their roles.

A supplier will have many of the same accounting and processing requirements as the producer and Joint Operating Committee. We ensure the producer achieves the most profitable means of oil & gas operations through People, Ideas & Objects et al. This involves the service industry. Our services for the service industry will ultimately reduce producers' costs since we can provide many of the same processing and accounting services as the producer. 

As part of our discussion on the Preliminary Specification Resource Marketplace module, I would like to discuss how suppliers will communicate with producers and Joint Operating Committees. The majority of vendors maintain information about their products and services on their websites. However, most of these sites are static and do not provide much opportunity for suppliers and producers to interact. The alternative to that interaction is the Resource Marketplace module. For purposes of identification we will call this the “Supplier Collaboration Interface.”

Our review of Professor Giovanni Dosi's paper, "The Sources, Procedures, and Microeconomic Effects of Innovation," revealed that technological trade-offs facilitate industries' innovations in response to changing technological and scientific paradigms. Trade-offs require a fundamental component that spurs change and is usually inexpensive and abundant. As a result, People, Ideas & Objects contend that innovation in oil & gas depends on the ability to seek and find knowledge, as well as the ability to collaborate. Knowledge and collaboration trigger a number of technological paradigms that will provide companies with fundamental innovative capabilities because of their inherent low direct costs.

Compared to any of the others listed here previously, I consider Supplier Collaborative Interface to be different. There is a blog in the Research & Capabilities module that may seem most similar. There is a blog in which people publish "original" ideas and technologies independently. This blog isn't a collaboration based on the research efforts of a few individuals, groups or firms. In the “Supplier Collaboration Interface”, the entire producer community will be invited to engage with the specific vendor to discuss their products and services through a collaborative interface. In order to define the vendor's offering in a collaborative manner, the whole community will be involved in these discussions.

The wiki style of this interface will cut down markedly on email volumes generated between vendors and producers. In many cases, this email is in the same context. Finding the relevant knowledge is the key to resolving the issue. Producers will be more inclined to use the People, Ideas & Objects Resource Marketplace module if they know there is a searchable, centralized wiki. By maintaining collaborations with producers on this Supplier Collaboration Interface-style wiki, suppliers will receive a return on their investment. Those who visit the site will see complaints and accolades, so the response to those comments will concern all producers and the Joint Operating Committees. This is the first line of customer service.

Everything in the oil and gas industry is derivative of earth science and engineering. Innovation is a result of the understanding of the sciences and leads to further advances in them. It becomes increasingly important to be mindful of these facts in the approach taken as the industry becomes more innovative. For innovative, safe, and successful execution of even the most basic operations, significant education and experience are required.

In the following manner, the People, Ideas & Objects application modules map innovation in the industry. In the Research & Capabilities module, people with innovative ideas in products and services write about them and earn rights to them by publishing them on a blog across the industry. Producers develop their capabilities around their land and asset base as “knowledge begets capabilities, and capabilities beget action”. Within the Research & Capabilities module, these capabilities can be captured through the Dynamic Capabilities Interface. Searches are then organized based on inherent attributes, such as the geological zone or Joint Operating Committee. For certain geological zones, this committee has access to its producers' capabilities via Knowledge & Learning modules. By learning what has and hasn't worked through the proceeding process, the Joint Operating Committee can apply the capabilities successfully and document it in the Knowledge & Learning module's lessons learned section.

Currently, this process has been documented in the Preliminary Specification for the modules. The issue lies with the last sentence. The part that states "apply the capabilities successfully" will undoubtedly require supplier involvement. In his paper, Professor Dosi emphasizes that innovation occurs when “capabilities and stimuli” are combined with “broader causes outside the individual industries, such as science.” As the oil & gas industry develops, this interaction is necessary to keep up with its innovative products and services. Producers' interactions with their suppliers are important, but all producers' interactions with those suppliers are equally important. Having these interactions reviewable reduces the producer's risk. In addition to providing a forum for the airing of concerns, IP has been earned by the supplier, so robust collaboration is possible to expand the understanding and knowledge of all parties.

Why are we developing the Supplier Collaborative Interface? Most people understand that doing the same thing over and over is easy. Making an organization change its routine is difficult, and when change is introduced, trouble begins. If we could just leave things the way they are, we could produce more oil and gas. Unfortunately, those days are long gone and oil & gas routines are anything but routine. Producers have broken the industry, and with the revenues of the industry, they can rebuild it in the vision of the Preliminary Specification. Professor Dosi notes the following points about this difficult situation.

Organizational routines and higher level procedures to alter them in response to environmental changes and / or to failures in performance embody a continuous tension between efforts to improve the capabilities of doing existing things, monitor existing contracts, allocate given resources, on the one hand, and the development of capabilities for doing new things or old things in new ways. This tension is complicated by the intrinsically uncertain nature of innovative activities, notwithstanding their increasing institutionalization within business firms. p. 1133

Recently People, Ideas & Objects introduced our Blockchain module which will work with each of the interfaces we've described. Identifying the area where the changes have occurred would be a futile effort that would render each of these interfaces redundant, unused and unneeded. By using Oracle Cloud ERP's Autonomous Database implementation. We have used their "blockchain" table implementation. Despite not being a true "blockchain" technology. As a result, these tables accept only the INSERT command, so each update is a separate and distinct amended text stored in a separate row. As a result, it is necessary to aggregate the rows of the table that contain the Preliminary Specifications Interface content in order to view it. The user will then be able to highlight within the wiki or blog what the differences are in terms of the changes in the technology or offering.

The Supplier Collaborative Interface of the Resource Marketplace module enables the Producer or Joint Operating Committee to mitigate tension and uncertainty in innovative activities.

It is important to keep the Supplier Collaborative Interface of the Resource Marketplace module and relate what is said here to the Preliminary Specification as a whole. In my earlier post, I discussed why People, Ideas & Objects is involved in the operations of the oil and gas industry so heavily. This is an ERP (Enterprise Resource Planning) system designed to handle the business aspects of the oil & gas concern. As we see, it is impossible to separate the business from the science, and if we do, we will lose our innovative capabilities, and innovation will become nothing more than an ineffective science experiment.

There is uncertainty in both science and business. The two cannot be separated, as in other systems such as SAP. Perhaps this is why business systems today have not served the oil & gas industry well, in my opinion. By separating them, SAP loses the dynamic required to ensure science remains grounded in the oil & gas business. They are not aware of the innovative and scientific basis of the oil & gas business.

A Supplier Collaborative Interface will help the Joint Operating Committee focus on the scientific and business uncertainties associated with the innovations they are implementing. In many cases, the Joint Operating Committee will implement the technology or innovation for the first time. The supplier and vendor may have an issue troubleshooting aspects of the technology. During this period of business and technical risk and uncertainty, collaboration at the highest level will be crucial. Professor Giovanni Dosi notes;

However, even in the case of “normal” technical search (as opposed to the “extraordinary” exploration associated with the quest for new paradigms) strong uncertainty is present. Even when the fundamental knowledge base and the expected directions of advance are fairly well known, it is still often the case that one must first engage in exploratory research, development, and design before knowing what the outcome will be (what the properties of a new chemical compound will be, what an effective design will look like, etc.) and what some manageable results will cost, or, indeed, whether very useful results will emerge. p. 1135

So with respect to all of the interfaces in the Research & Capabilities, Knowledge & Learning and Resource Marketplace modules regarding the development of advancing technologies and capabilities. The actual implementation of the technologies from a business and technical point of view is done predominantly by the Joint Operating Committee in the field. This is when it was first used in commercial environments. An ERP systems provider must include this Supplier Collaboration Interface to mitigate the risks and uncertainty associated with an innovative Joint Operating Committee. By focusing on the owner of the IP, as stated in the Intellectual Property Organizational Construct of the Preliminary Specification, the industry can ensure there is no redundant effort. Entrepreneurs and innovators are motivated, will be rewarded for their efforts, and producers follow the law as set forth by the U.S. Constitution.

I suggest that, in general, innovative search is characterized by strong uncertainty. This applies, in primis to those phases of technical change that could be called pre-paradigmatic: During these highly exploratory periods one faces a double uncertainty regarding both the practical outcomes of the innovative search and also the scientific and technological principles and the problem-solving procedures on which technological advances could be based. When a technological paradigm is established, it brings with it a reduction of uncertainty, in the sense that it focuses the directions of search and forms the grounds for formatting technological and market expectations more surely. (In this respect, technological trajectories are not only the ex post description of the patterns of technical change, but also, as mentioned, the basis of heuristics asking “where do we go from here?”) p. 1134

Science and operations may have been separated in the past. As innovation costs rise, we seem to be unable to troubleshoot it from a science and business perspective as well. I certainly don't see how we can continue to parse the two perspectives from the business and send the respective departments to their respective sections of the operation. The Supplier Collaborative Interface is the first step to finding a better solution. Users within the Joint Operating Committee can resolve risks and uncertainties as soon as they arise, both from a business and scientific perspective.

As part of the Preliminary Specification, we have mapped the complex innovation processes of the innovative oil & gas producer in the Resource Marketplace, Research & Capabilities, and Knowledge & Learning modules. During this highly complex era of exploration and development for oil & gas, these processes reflect the dynamic nature of both producers and the service industry. During our discussion of the "Supplier Collaborative Interface," we discussed the connections that will be necessary to complete the last stages of the innovative process. As well as working with the other interfaces in the other modules, the Supplier Collaborative Interface has more to it.

We will continue our look at technological paradigms and their effect on scientific and innovative trajectories in oil & gas. In discussing these points related to innovation, it is important to keep in mind that the sciences, the trajectories they are on, and the opportunities they create for producers, are accelerating. This will continue. Also, remember that the Supplier Collaboration Interface benefited from the low costs of knowledge and collaboration. Two critical points are highlighted by Professor Giovanni Dosi.

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

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

It's the second point I want to address. The discussion of the Supplier Collaborative Interface will result in "gaps" in products and services. In our research on Professor Richard Langlois, we found that it is through “gap filling” that the division of labor and further specialization can be expanded. The division of labor is expanded when someone sees that a gap needs to be filled, and they fill it. As a result of these discussions, a significant number of "gaps" will need to be filled within the Resource Marketplace as a result of these discussions in the Supplier Collaborative Interface.

However, I think these "Gap Interfaces" should also be found in the Supplier Collaborative Interface of the Resource Marketplace, as we discussed in the Research & Capabilities module. When the Preliminary Specification is fully reviewed by our user community, the actual location will be one of the things that needs to be determined. "Gap filling" can be seen in how People, Ideas & Objects perceives the need for the sub-industry between the producer firms and the Information Technology industry that we, our user community, and their service providers are filling. To fill the void created by a lack of communication and understanding between the two, a medium like the Preliminary Specification is necessary.

Producers and Joint Operating Committees are responsible for managing these innovation processes through People, Ideas & Objects Preliminary Specification. In the absence of software to define and support these processes, producers cannot develop these capabilities. Innovation in the oil & gas industry in the 21st century requires a software development capability, as suggested by People, Ideas & Objects, to achieve organizational efficiency of the scope and scale as defined in this Preliminary Specification. Innovation is dependent on multiple organizations working together. Spontaneous collaborations have also failed to occur. Leaving innovation to chance has not worked. We have learned from the Preliminary Research Report that innovation practices can be defined and deliberate. Apple consistently shows the world how it can be done, but not everyone can. 

It's one thing to have the process properly managed by software. It's another to have capabilities maintained in-house. And it's another to see innovations developed and applied. Having the ingredients does not guarantee innovation by the producer. In accordance with our research, People, Ideas & Objects does not believe that innovation can be developed without proper management of processes by software first and foremost. When it comes to their diminished capacities and capabilities, the service industry understands the problem. As long as oil & gas producers refuse to develop the Preliminary Specification, they will understand that their critical issue of underlying Intellectual Property will remain unaddressed. How will oil & gas producers redevelop the service industry beyond "muddle through"?

My objective is to discuss the results that producers and suppliers will achieve through collaborations undertaken in the Supplier Collaborative Interface of the Resource Marketplace module of the Preliminary Specification. Assuming the industry participates at the level outlined in the Preliminary Specification. As a result, producers would be able to discuss openly the issues and opportunities associated with the service industries. And those discussions were available for the entire industry to review. Would there not be a large leakage of proprietary information from those discussions from one producer to the next? And would this fear of leakage reduce participation to far less than the unconstrained debate assumed in the Preliminary Specification?

It is important to note that these are well-founded questions and appropriate concerns. However, just as people who read People, Ideas & Objects Preliminary Specification tend to find different things than others. Oil & gas experience, career choice, and educational level all play a part in this. Organizations are in the same boat. The producer's capabilities will determine what is gleaned from the discussion. Innovators and advanced producers will be able to utilize the conversation to its fullest extent, whereas laggard producers may not be able to fully comprehend certain nuances. It will depend very much on the capabilities of the producers and suppliers that hold the conversations.

Professor Dosi (1988) notes a study conducted by Richard Levin et al 1984, in which they studied “the varying empirical significance of appropriability devices of (a) patents, (b) secrecy, (c) lead times, (d) costs and time required for duplication, (e) learning curve effects, (f) superior sales and service efforts.” Professor Dosi (1988) observed, “that lead times and learning curves are relatively more effective ways of protecting process innovations, and patents a more effective way to protect product innovations.” Dosi concludes. “Finally, there appears to be quite significant inter-industrial variance in the importance of the various ways of protecting innovations and in the overall degrees of appropriability.” (p. 1139)

It's worthwhile to note that producers and suppliers pursue different objectives in terms of innovation strategies. Oil & gas producers emphasize process innovation, while industry suppliers emphasize product innovation. This division of labor allows producers and suppliers to interact more effectively through the Preliminary Specifications Research & Capabilities, Knowledge & Learning and Resource Marketplace modules. The producers and suppliers are attempting to secure innovative capabilities without conflict. (Producers are concerned with lead times, learning curves, while suppliers protect their innovations and capabilities through copyright and patents.) The fact that these are published in the Supplier Collaborative Interface across the industry brings depth to the discussion, but only to the extent that the producers' capabilities are able to assimilate the information. There is a limited shelf life of information in a rapidly growing world, so People, Ideas & Objects Preliminary Specification enables the producer to concentrate on their competitive advantages by coordinating the market for earth sciences and engineering capabilities, as well as its land and asset base. Intellectual Property laws have protected the supplier's competitive advantages.

OCI Resource Marketplace Module, Part II

 Introduction

This marketplace will include all producers and suppliers. They will be able to define, create and conduct business in the actual resource marketplace that exists. The scope and size of the Resource Marketplace, our user community and their service provider organizations will accommodate ExxonMobil's needs down to the single entrepreneur starting out in the oil & gas business. To exclude any group, profession, organization, or person from the Resource Marketplace, or any module of the Preliminary Specification, would limit the value available to the industry. Whatever service, product or solution is provided to the energy industry by individuals, those employed by producers, Joint Operating Committees, or companies providing services to the producers. This should include SLB and anyone directly or indirectly employed in the energy industry. As Professor Langlois suggests “the elements of organization, knowledge, experience and skills” and we include ideas in that list. 

Defining the Term "Designing Transactions"

I wish to discuss what is meant when I say that users of the People, Ideas & Objects Preliminary Specification will “design transactions” in the Resource Marketplace and Accounting Voucher modules. Transaction Cost Economics is a key element of how the energy industry controls its costs. Designing transactions is the key to savings and efficiencies. Also I want to highlight the role of the user as an active agent in making things “happen” in the Resource Marketplace.

As with any marketplace the focus must be on the user in this case could be a producer and most particularly an engineer or geologist, a service industry representative or service provider. Users have access to the People, Ideas & Objects Resource Marketplace module. This user optimizes the “tasks” and “actors” involved in transactions, and can turn the producers' or Joint Operating Committees' needs into a demand for services in the Resource Marketplace Module.

There are two changes that change things in the future. These changes are due to organizing the use of the Joint Operating Committee as the key organizational construct of an innovative producer. One is that designing transactions will become a skill that will be used more. And two, the division of labor is going to expand, meaning that a job that may have had a few contractors to complete today, may now have an order of magnitude more in terms of numbers of contractors tomorrow. Consider the following.

When people buy a major item in their lives like a house or a car. They detail what is and what is not included in the price. Who provides what and when it is expected to be completed. This is what designing transactions means. It's more or less what lawyers do for a living, or that is to say, it is a crucial aspect of their work on any commercial sale agreement. This type of work is where the organization's costs and efficiencies can become onerous and complex. If a firm has “engineered” their transaction costs down to a fine degree, they can manage their costs efficiently. This will be the case for an oil & gas producer or a Joint Operating Committee. Transaction costs include installation, finance, testing, specifications, materials to be used and engineering consultants, etc. In oil & gas, even for a small job these costs could become problematic. Now add the enhanced level of specialization and division of labor developed through the Organizational Construct of the Preliminary Specification. We have a more complex transaction. 

Producers should focus on their land & asset bases, as well as the coordination of Earth Sciences & Engineering capabilities with the market. Product and service providers should focus on their key competitive advantages. Let some of the work they have done in the past go to specialists at different companies. This will increase the number of vendors producers use to conduct normal operations in the field. This specialization and enhanced division of labor will provide enhanced efficiencies and cost control for the producer firm through more competitive and innovative solutions. It will also increase the throughput of transactions producers will have to deal with. It will also emphasize transaction design.

On the other end of this process is the product or service provider who can contract for what the producer needs. They too have interfaces to the Resource Marketplace module similar to those of the producers. These users, who may have anticipated market demand, are the first to configure an innovative solution. Are able to market their product or service effectively through the specific interfaces of the Resource Marketplace Module. These elements of competitive market changes reflect the producer's needs as determined in the Resource Marketplace, and its use of transaction cost economics (TCE). This process involves an iterative loop of constant improvement and automation of transactions and processes in the energy industry. Leading to enhanced productivity, throughput and performance for all parties, especially the producer firm. 

After the Joint Operating Committee or producer discovers these resources, contract negotiations between the parties can begin. The first step in contracting is determining exactly what the transaction should look like. This is determined by the Accounting Voucher interfaces. This would then lead to the specific negotiations, automation of the contract creation, and assignment of the Resources to the contract. From there this software should enable high levels of automation to relieve the user of work that is better suited to computers. It should also focus on the transaction's optimization and efficiency.

How the Market Must Develop

In many ways the Resource Marketplace module of the Preliminary Specification is the crossroads of many of the other People, Ideas & Objects application modules' major processes. It is where the Accounting Vouchers transaction design will ultimately be exercised. And where the Research & Capabilities overall process of capabilities development and implementation will be realized. Maybe most importantly it is a marketplace module where people can buy and sell their ideas, products and services of what innovative and profitable oil & gas producers need. The Research & Capabilities module is a long term process of maintaining and increasing the earth science and engineering capabilities of the firm and Joint Operating Committees. The Resource Marketplace module is the day-to-day implementation of those policies.

We also see in the Resource Marketplace module some of the efficiencies of using the Joint Operating Committee as the key organizational construct of an innovative producer. And that is a significant differentiation of the Resource Marketplace module compared to the Accounting Voucher and the Research & Capabilities modules. It is primarily aimed at the Joint Operating Committee. Consequently, it represents the many participants of the Joint Operating Committee. It therefore has the influence (industry standardization) on many producers' Accounting Voucher and Knowledge & Learning modules needs. Optimizing transactions between contracting parties will improve industry performance. From my research into Professors Langlois and Baldwin's theories, I believe these changes will improve overall performance.

Another key point is the tearing down of the basis of Intellectual Property (IP) which is another Organizational Construct employed in the Resource Marketplace module. An industry such as oil & gas is based on earth science and engineering needs. After all, it is a science-based business. For the industry to expand its capabilities in science and innovation. We will need to overcome many difficult problems. And as we progress, the volume of ideas needed will be an order of magnitude greater than what is required today. These problems cannot be solved in an environment where there is no incentive for individuals to solve them. To make the necessary industry-wide changes, companies must focus on motivating people to solve these problems and earn their Intellectual Property rights. This therefore turns the oil & gas industry into a more dynamic business. Intellectual Property cannot be claimed as a competitive advantage for producers.

Professor Giovanni Dosi's 1993 paper “Hierarchies, Markets & Power” which is a must read for those wanting to dive deeper into these subjects. States that a simplistic organization model will include the following, and I have annotated the areas where these are addressed in the Preliminary Specification;

The distribution of formal authority. [The Industrial Command & Control.]

The distribution of actual power in the above distribution [The people]

The incentive structure. [Innovation, intellectual property, and capabilities.]

The structure of informational flows. [Security & Access Control Module]

The distribution of knowledge and competence. [The people] p. 10

History, so to speak, solidifies into structures that constrain future developments. p 12

The purpose of developing this “Marketplace” is to ensure the industry structure remains flexible and amenable to changes in sciences and innovation. But also to attain and maintain the highest performance. And in this next quotation Professor Dosi notes how this will happen.

Clearly, it is the domain of Schumpeter’s creative destruction’, and of Moore’s (1978) analysis of the social bases of obedience and revolt, to name but two famous examples, and it applies also to the dynamics of economic organizations and institutions at large. p. 13

What I hope to convey in the discussion of the Resource Marketplace is the broader question of how capabilities and capacities are generated by markets. Information plays a role in this and the generation of ideas that make markets dynamic. Lastly we must rely on the market forces of creative destruction to ensure that today’s bureaucracy loses its hold on the reins of power (somebody has got to lose).

As we noted, oil & gas issues will not be solved until incentive structures align towards those that solve the problems. Today, in the service sector, the oil & gas industry exploits the lack of identifiable Intellectual Property (IP) by more or less ignoring it and passing it around to other firms in the service sector and its competitors. This lack of respect for those that developed the ideas has resulted in a situation where service industry representatives have ceased to innovate or sponsor new start-up firms as competition. Producers are losing as they are unable to meet their needs by a diminishing capacity of the service industry.

The situation has become so dire as there is hardly any to no research and no start-up opportunities in the oil & gas service sector. The exact opposite of what is needed at a time like this. Oil & gas producers are reputed to be so difficult to work for that securing staff makes it impossible to launch a firm. Even if a firm is formed, the producers will look down their nose at it and scoff at the fact that the firm was so small. Such is life in the rarefied air of producers officers and directors.

Nonetheless, what's in it for the producers to accept that the IP should pass from their control to those that will take the time, energy, financial and intellectual risk to solve the producers' problems? If we look back to one of the base assumptions that the People, Ideas & Objects software operates under. We find that the competitive advantages of the producer firm are its physical assets and land base, and the coordination of the markets earth science and engineering capabilities. Where in these producers' competitive advantage does any product or services Intellectual Property of the oil & gas service industry provide value to the producer? Why would they need their Intellectual Property?

Producers make money by acquiring, exploring, exploiting and producing oil & gas reserves profitably. That should be pretty obvious. However, on the basis of how producers manage IP in the industry, they seem to think that drill bits and rigs are their future competitive advantages. What the producer needs is the most advanced and dynamic service industry marketplace that is innovative, productive, profitable and fiercely competitive. This is in order to achieve optimal productive output. What producers should ask themselves is what have they got now?

Add this cultural change to the numerous other cultural changes that parallel the scope and scale of change introduced in the People, Ideas & Objects Preliminary Specification. The greater oil & gas economy knows the difficulty ahead. These are the difficulties created by the producer firms' bureaucracy. They have to change. And I can’t see that happening. It's Schumpeter's creative destruction to sweep out the old and bring in the new. Or it's a time to revolt. The new consists of the fourteen module Preliminary Specification that deals with IP in a manner that will allow difficult problems to be solved. 

Serendipity, spontaneous order and creative destruction are hamstrung by the producer firm's ERP software. Without the permanent software development capability of People, Ideas & Objects, our user community and their service provider organizations the industry will remain in its current state. Without IP in the hands of entrepreneurs and innovators, how will oil & gas rebuild itself and face its challenges? 

It All Starts With Actionable Information

People, Ideas & Objects is designed to identify and support innovative and profitable oil & gas producers. It is within the Resource Marketplace module that I continually run into the conflict currently in the marketplace between producers and the service industry. The conflict being the high cost of field operations and Intellectual Property ownership. This conflict is the issue that the Resource Marketplace module seeks to resolve by first opening up and developing the actionable information available within the marketplace.

This actionable information can be captured in an interface similar to any contact database. Actionable data can include short- to mid-term plans and aspirations of service industry providers. For example, if they were a small drilling rig company looking to acquire another rig they could post within the actionable information area of the database. They could also post that they were actively looking for producers within a certain geographical region to contract for drilling in the third quarter of next year. Producers searching for such opportunities may then evaluate it based on further discussions with the vendor. The drilling rig company, having contracts in hand from the producers, can secure financing and purchase the rig they've specified.

Actionable information can also be from the producer who might be approaching the start-up of a large project and will need to staff up to meet the demands. Or a producer may want to develop in an isolated remote area and need more infrastructure in place. Expressing a need is the first step in having the solution provided. As Professor Giovanni Dosi notes.

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

Centralizing this industry-wide information within one location will help to ease its use. This information is available on the web in some form and can be interpreted from their plans. By stating clearly what their actionable plans are within a central database, the information will be easier for users to access. Innovation comes about when plans are not set and ideas and opportunities flow. 

I want to make clear that this Actionable Information Interface will be different from the Petroleum Lease Marketplace interface. Recall there is an interface that takes the capital expenditures of the firms for the next few years, primarily from the AFE and reserves reports. It scrubs any proprietary information from it, aggregates all of the producers' identifiable data and publishes it based on a general geographical region. This provides the marketplace with a general understanding of the size of that market in the next few years. And it is different from the detailed information contained within the Actionable Information Interface. These expenditures are more or less seen as necessary to maintain and fully exploit the known reserves. The Actionable Information Interface would be for potential new business. This interface will be a critical part of the process that begins in the Resource Marketplace module. It continues through the Research & Capabilities and Knowledge & Learning modules.

A couple of quick points to note. The first item to note is that the Resource Marketplace module is both a producer and Joint Operating Committee facing module. That is to say it will be used in the producer organization for human resources, payroll and securing the resources the producer needs. And will be used by the Joint Operating Committee for field products and services. It may be obvious to some that this is the case however, I am stating this for clarity. The other item pertains to all of the modules in the Preliminary Specification and that is by right clicking the mouse, it will bring up a contextual menu of options that the user can select an appropriate action from the People, Ideas & Objects software application. Whether this is a Work-Order, Purchase-Order, AFE, or any of the other documents managed in the system. This will be available to the user through this facility.

We have discussed the posting of actionable information in the “Actionable Information Interface” of the Resource Marketplace module. A place where service industry providers and producers can post actionable information in a centralized, searchable and analyzable database. Most importantly we noted that this is the starting point for innovation. People, Ideas & Objects assume that high commodity prices finance enhanced innovation at the producer level. Therefore the need to stimulate innovation between the producers and the service industry starts with this actionable information.

In addition to the funds necessary to finance innovation there are what Professor Giovanni Dosi calls “technical trade-offs.” These trade-offs facilitate industries' innovation in the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs change and is usually abundant and available at low costs. For innovation to occur in oil & gas, People, Ideas & Objects would assert that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of emerging paradigms that will provide producer firms and participants in the greater oil & gas economy with fundamental innovations. These paradigms are best captured in intellectual thought's leverage. Just as 20th century development was driven by mechanical leverage. Fueled by oil & gas. The Resource Marketplace module prepares the groundwork for people in the oil & gas and service industries to exploit this opportunity. 

Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and uncodified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

This is the point I wanted to make in this follow-on discussion of the “Actionable Information Interface.” Where will innovative solutions come from? Who will solve the problems? It will come down to the person who first sees the problem. And that person may be anywhere in the industry. They may be the vice-president of production at an oil & gas producer. Or they might be like Steve Jobs who started out in his parents' garage. The point is for the industry to be all inclusive and have its problems identified by those who can see them and resolve them with their innovative solutions. I wonder what reading the Actionable Information Interface of 200 producers would provide in terms of seeing what and where the imputed problems were?

OCI Resource Marketplace Module, Part I

 Abstract

People, Ideas & Objects, our user community and their service provider organizations provide our Cloud Administration & Accounting for Oil & Gas software and service. This is based on the Preliminary Specifications integration within Oracle's Cloud ERP tier 1 solution. Providing North American producers with the most profitable means of oil & gas operations, everywhere and always. We suggest that it’s no longer enough to own an oil & gas asset. It will be necessary to have access to our Cloud Administration & Accounting for Oil & Gas software and service. To ensure a producer's oil & gas assets are profitable everywhere and always.  

Adam Smith wrote in the Wealth of Nations that “political economy” is based on three attributes. First there is the “Economizer Argument” which is the fact that each person seeks out the most efficient use of their resources. Second, the “Local Knowledge Argument” holds that individuals are best suited to making decisions regarding themselves and their resources. Third is the “Invisible Hand Argument” where self interest is the motivating factor that forms the invisible hand of the market. In “The Theory of Moral Sentiments” Smith states the three “P’s,” consisting of “person, property and promise” provide individuals with the means of pursuing their interests by appealing to others' interests. We therefore build value for society in exchange for our efforts. Oil & gas is a primary industry. Its revenues are generated through ongoing sales of oil & gas production. Its interests are captured in the service industry and all of the subsequent tiers of supporting industries that service and supply oil & gas. It is from this perspective that the Resource Marketplace module of the Preliminary Specification is undertaken.

In the 1990s Professor Paul Romer formulated a number of original theories which became New Growth Theory. And in 2018, he was awarded the Nobel Prize in Economics for these. Professor Romer replaced the economic growth theory of investments in transportation, communication and capital markets. These types of investments appeared to have waned in effectiveness due to their maturity. And established the New Growth Theory which uses People, Ideas and Things as the three areas where investments will yield the greatest growth. Introducing the conceptual model of non-rival costs inherent in the Preliminary Specification. Such as our Cloud Administration & Accounting for Oil & Gas provides for the sharing of non-competitive areas of a producer's overhead infrastructure. Substantially reducing the oil & gas industries' aggregate overhead costs. Romer suggested ideas such as the consolidation of one size of coffee cup lid to eliminate the need for incremental and unnecessary costs as an example of his principle. It was on January 1, 2006 that I named this initiative People, Ideas & Objects. This reflects our adoption of these principles throughout our modules and organizations and that we’re object-based Java developers.

People, Ideas & Objects Resource Marketplace module is the manifestation of these broader economic principles. We’ve chosen to employ the invisible hand of the market and Internet to disintermediate the centralized control of producer firms who have failed comprehensively in their ability to meet investor needs and other stakeholders, and now appear to be jeopardizing their customers' access to affordable, reliable and abundant energy. Service and other industries provide producers with the scale of operations, geographical diversity and technological skill to undertake field operations. They are employed exclusively by oil & gas producers yet are treated as leeches and lepers. Are and have been serially and chronically abused for decades. These industries have fundamentally broken down, as their capacity and capabilities have diminished beyond what is currently realized. And like producer firms, decimated capital structures. Based on this perspective, the Resource Marketplace module believes that the problems in the service and other industries are caused by the producer firms. As such, we have adopted the attitude that "producers broke it, producers need to fix it" in terms of providing financial resources from the oil & gas primary industry revenue to rebuild these industries. There is nobody else. And a rebuilding of these markets in the vision of the Preliminary Specification is necessary as the destruction and dismantling of the oil & gas industry at the hands of its officers and directors is comprehensive and complete. 

Preamble

The Preliminary Specification invokes seven major organizational constructs that seek to provide everyone that works throughout the greater oil & gas economy with a fundamental understanding of “what,” "how" and “why” the dynamic, innovative, accountable and profitable oil & gas producers operate. “How” and “what” is necessary to achieve the most profitable means of oil & gas operations, everywhere and always. There are other constructs imputed such as the law, the economy and the regulatory environment. These are obvious and are not mentioned here other than as frameworks in the Joint Operating Committee as our key Organizational Construct. They are also mentioned elsewhere such as in the Compliance & Governance module. 

The seven Organizational Constructs employed in the Preliminary Specification and evident in the Resource Marketplace module include. 

• Joint Operating Committee
• Specialization and the Division of Labor
• New Growth Theory
• Innovation
• Markets
• Intellectual Property
• Information Technology

Further information as to the "how" and “what” influence these have on the Preliminary Specification can be found in our RFP Response and on the Organizational Constructs pages of this wiki. 

Resource management and development are the focus of this module. Oil & gas businesses demand field operations scattered across the continent. Producers therefore rely on the geographical, technical and operational capabilities and capacities of the service industry participants in the diverse areas of their chosen operations. In an ideal situation producers would be provided with a broad and diverse offering through dynamic, innovative and thick markets. Due to the past treatment of the service industry by producers this is not the case. Therefore, the producers have an obligation to work towards this objective through their active involvement, development, and financial commitment to rebuild the service industry. In a situation best described as “you broke it, you fix it” producers have degraded the oil & gas industry to the point where it can't profitably sustain operations. People, Ideas & Objects believe this began soon after the July 1986 oil price collapse and has been the case each and every day since. 

It is our hypothesis that producers face issues due to chronic and systemic overproduction of oil & gas. Capitalizing all of their costs, including overhead and interest, has bloated balance sheets and over reported profitability. Attracting investors which led to overinvestment which brought about further overproduction. Cutting costs in the field service area was the only method used throughout this period. This was in an attempt to deal with the fact that they never were able to capture their costs from their revenues. After 2015, without the investors annual cash infusion as a subsidy. And operating under the assumption that oil & gas commodities were “price takers” they’ve destroyed their business and the greater oil & gas economy. And now they suggest, as we enter a period of deprecated capabilities and capacities, we should look elsewhere for our oil & gas as they as producers are incapable, unmotivated, distracted and leaderless.

Officers and directors argue that overhead is not the concern that People, Ideas & Objects represent it to be. With some producers reporting overhead being 1% of their revenues, it's encouraging to know someone still believes in these financial statements. On average, overhead is capitalized by 85% in the industry. This is contrary to what we believe is the appropriate method of reporting a capital intensive business. It is reasonable to assume an operation such as oil & gas would have significant capital costs passed to the consumer in the prices charged for their product. That is not the case in oil & gas when the objectives of “building balance sheets” and “putting cash in the ground” override common sense. The cash consumed by the producer firm is literally stored in the ground as they do not receive the appropriate capital, overhead and interest costs in the prices they pass to the consumer. These costs are offset by the investor to allow producers to sit on the balance sheet in property, plant and equipment for decades. We call them “The Unrecognized Capital Costs of Past Production." To stroke the ego’s of the CEO’s and CFO’s as they strut down main street. This cash deficiency has not been rectified since we identified the issue in the Preliminary Specification over a decade ago. In conclusion, those overhead accounts have something in them beyond just their excessive size that officers and directors do not want to disclose. 

Overhead is a material cost in oil & gas and we believe that its size, particularly for the producer firm, is the secondary reason for chronic unprofitability. We therefore in addition to addressing the primary reasons for the lack of profitability, our decentralized production model also addresses the overhead costs of the producer firms. Through the reorganization of the administrative and accounting resources of the producer firms to the service providers in the Cloud Administrative & Accounting for Oil & Gas software and service, each producer will no longer have to incur and maintain the heavy cost of fixed administrative and accounting capacities and capabilities. These costs which are non-competitive attributes of the industry will become shared and shareable. We use Professor Paul Romer's “non-rival” costs to offer this service. Turning these into variable costs, variable based on profitable production, industry wide capacity and capability for administration and accounting. 

Officers and directors argue this couldn’t be done due to the service scope and scale of Cloud Administration & Accounting for Oil & Gas. However, I’ll temporarily concede that they may have a point about scale. What I won’t concede is how they’ll approach the issue of scope when theirs is as large as ours. Each producer would need to individually undertake the same scope as People, Ideas & Objects, what Intellectual Property would each producer use and their budget limited to their own resources. Conversely with respect to scale, People, Ideas & Objects conceptually has an aggregate budget of the industry's resources to apply to this issue and resolve it through engineering principles. 

Secondly these overhead costs are subject to the abilities and capabilities that People, Ideas & Objects, our user community and their service provider organizations provide in the form of long term software development and service capacity and capability. Therefore specialization and the division of labor will be an iterative process of enhancing the quality of our service and increasing the throughput of our productivity. Specialization and the division of labor will increase performance in terms of costs over the status quo. And the overall throughput capacity of these resources will increase substantially through the iterative long term application of these enhancements from specialization. 

Within the Resource Marketplace module, we can approach these costs in several ways. First by eliminating and reducing the overall costs the industry incurs in replicating exact capacities and capabilities within each producer firm that are not distinct competitive advantages. Turning their behavior to variable, based on profitable production, non-rival costs and establishing the Cloud Administration & Accounting for Oil & Gas service. Secondly, subjecting them to the primary means of value generation through specialization and division of labor, in an iterative process by way of our permanent software development capability. And subsequently charging these costs directly to the Joint Operating Committee to ensure that they are priced into oil & gas production costs. Removing the industry's cash sink-hole. With the Preliminary Specification ensuring that only profitable production is produced everywhere and always, and the variable nature of these overhead costs in the Preliminary Specification, the cash incurred in overhead will be returned to the producer in the current period, or not be incurred during times when a property's production may be shut-in.

Dare I ask again, in light of the obvious value this would provide, and the technical viability of doing this is just as possible as what could be attained within a producer firm, what is it that’s in those overhead costs that’s so controversial to the producers' officers and directors?

Executive Summary

What People, Ideas & Objects, our user community and their service provider organizations have set out to accomplish in the Resource Marketplace module is captured in this quotation from one of the primary research sources we’ve used. Professors Richard N. Langlois and Giovanni Dosi's publications were reviewed extensively in our research into the development of the Preliminary Specification. In this quote from Professor Langlois we learn about the direction we're heading.

[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 on the “Resource Marketplace” from Joint Operating Committees and producer firms. Anything of value that is contracted between “actors” in the oil & gas, service industries, service providers, software and our 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 with the full support of our Resource Marketplace module and its interfaces to other modules of the Preliminary Specification and Oracle Cloud ERP.

Similar interfaces will be provided for the service industries. There are two parties to a transaction, and the efficiency of the producer would necessarily include the efficiency of the service provider as well. 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, due to the fact that transaction costs and most particularly dynamic transaction costs in the Resource Marketplace are costs that will ultimately be borne by the Joint Operating Committee and passed on to the producers.

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 the market for their products and services. The availability of a diversity of new offerings and services, with new products or innovations on the products provided by existing suppliers. Producers 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 has 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 as well. 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 the offered solutions remain limited to People, Ideas & Objects et al. As of 2023 similar solutions have been successfully implemented in many other industries through disintermediation or decentralized organizational business models and structures. This has been facilitated through Information Technology, specifically the Internet. As a result of issues in producers' firms, capabilities and capacities are now highly devalued across the service industry. The service industry is an industry established exclusively to provide producers with the operational, geographical and technical diversity they need to function. To the point where the service industry capital structure is non-existent due to the destruction authored by producer firms' officers and directors. At the same time, producers have oil & gas production deliverability volumes that haven’t been maintained for the past eight years. These volumes may collapse due to their neglect and the service industry’s deprecated capacity and capabilities. An uncertain situation best encapsulated as I see it as, oil & gas everywhere, but not a molecule left to burn.