People, Ideas & Objects Preliminary Specification will take the administrative and accounting resources of North American producers and reorganize them for independent, individual service providers. This has allowed them to focus on one process and turn producers' overhead costs variable, based on profitable production. In turn none of the producer's costs are fixed in the Preliminary Specification. Creating at least six substantial value propositions that are tangible and clearly evident. Which include:
- Maximize producer profitability by not diluting corporate profits through the production of unprofitable properties.
- Save the producers petroleum reserves for when they can be produced profitably.
- Reserves would no longer need to recapture additional costs of previous losses as future profits.
- Reserves are seen as a cost-free means of inventory and storage.
- Removing marginal production from markets ensures commodity prices dictate market activities.
- While shut-in producers can focus their innovative efforts on increasing production, reserves, and cutting costs to return their properties to profitability.
Secondly and perhaps more importantly in terms of building value for the greater North American oil & gas economy. Specialization and the division of labor which has proven to be the primary method of building all of the tangible value for western civilization since 1776. Is one of the service providers competitive advantages. Based on these principles, we have reorganized administrative and accounting resources to build value to ensure profitable operations, everywhere and always. The ability to further enhance the industries productivity through specialization and the division of labor will add unknown, unquantified and unqualified means to do so. We will facilitate this through our permanent software development capability, our user community, and their service provider organizations implementing these principles.
We have adopted an incremental method of building value on top of these two methods through Professor Paul M. Romer’s “New Growth Theory” of non-rival costs. In a December 1, 2001 Reason article he summarized his theory as “People, Ideas & Things.” I adopted this principle and named this initiative People, Ideas & Objects as we are object-based software developers. We’ve applied “New Growth Theory” and non-rival costs throughout the Preliminary Specification and elevated it to an Organizational Construct. Standing on the shoulders of giants and especially Adam Smith’s Specialization and Division of Labor. Professor Romer has elevated business thinking in this direction and it is the next frontier in building value for organizations through the mitigation of costs in substantial yet unquantifiable ways to enhance the performance of those that use these methods.
Professor Romer’s theory is the basis of how cloud computing has brought value to our economy. Users can share the costs of the heavy capital investment in technology, the capacity, capabilities, resources, maintenance and support costs on a variable basis, based on usage. Conversely our user community’s service providers can enhance their service offering through specialization and division of labor that would otherwise be unavailable to individual organizations. We have extended this thinking to include not only Oracle Cloud ERP but also our Cloud Administration and Accounting for Oil & Gas Software and Service to the managed shared and shareable resource. Eliminating the need for each producer to build, resource and maintain the necessary non-competitive Information Technology, accounting and administrative infrastructure they need as dynamic, innovative, accountable and profitable oil & gas producers. Providing a standard, objective and value driven service that shares the sole objective of ensuring oil & gas producers achieve the most profitable means of oil & gas production, everywhere and always.
The capture and implementation of Professor Romer’s theories is one of the seven Organizational Constructs of the Preliminary Specification. All seven are focused on building value for producers and providing tangible means to do so. Establishing a culture based on preservation, performance and profitability to replace the failed “muddle through.” In this configuration, they are available through the Preliminary Specification, our user community, and their service provider organizations. They’ll be established with permanent software development capabilities and a user community that will iterate on these principles to bring further value over time.
Professor Paul M. Romer
Published in October 1990 “Endogenous Technological Change” became the foundation of “New Growth Theory” in economics that has developed and provides value throughout the economy through its application. In a Reason Magazine interview Professor Romer explained many of the points.
Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth. S71.
Professor Romer won, or maybe best described as shared, the 2018 Nobel Prize in economics for these principles. They are an incremental value-add to the traditional specialization and division of labor that has carried that weight exclusively until now. It is this principle of sharing non-rival costs that will mitigate what we believe to be the secondary reason for the systemic lack of profitability in oil & gas. High overhead costs are currently at the corporate level. We have shifted those to charge the actual, factual overhead costs incurred by service providers' billings directly to the individual Joint Operating Committee. There they become a cost of the property's product that is captured in the profitable commodities sale price. Through the sale, these funds are recaptured and returned to the company, which are used for overhead costs for the following months. Currently producers capitalize their overhead and therefore sell their product below cost and are not recovering the cash spent on monthly overhead expenses. As they indeed state, they are “putting cash in the ground.” Having to source new cash to finance their overhead expenses each month.
By sharing the administrative and accounting infrastructure, turning these costs variable based on profitable production, applying specialization and the division of labor and returning the cash consumed by monthly overheads to the administrative and accounting areas. As is done through the development of People, Ideas & Objects user communities and their service providers. And delivering to industry our Cloud Administration & Accounting for Oil & Gas Software and Service. People, Ideas & Objects are adding real value to North American producers in terms of resolving what can be described as their largest impediments to profitability. Chronic overproduction, or unprofitable production as we describe it and high overhead costs. Which leads to their unique characteristic and phenomenon of “putting cash in the ground” and “building balance sheets.”
It was during this conference that it became apparent that Oracle was pursuing the incremental value adding process that Professor Romer defined in his paper “Endogenous Technological Change.” Augmenting their generic business processes with service providers such as banks and logistics companies with fully optimized and integrated services with Oracle Cloud ERP, just as People, Ideas & Objects are approaching the unique oil & gas attributes. We all have an extensive software development workload ahead. I see at least 20 years of work in this area. Incrementally and iteratively building value upon prior innovations in the service industry, earth science and engineering, the Preliminary Specifications development and Oracle Cloud ERP.
The most impressive example provided during the 2022 Oracle conference was the expense reporting features with J.P. Morgan Chase. If the user uses their credit card for business, they can choose the type of expense charged to be classified into an account within their employer's system. Oracle Cloud ERP would evaluate the charge based on the company's policies and determine its eligibility. If eligible it would be processed and payment made to the employee or the credit card company. Eliminating the massive number of hours and costs incurred in expense reporting by organizations during the year in their current systems. This is reduced to a few milliseconds of processing time. While the cost to the organization to use Oracle Cloud ERP is incidental in terms of the time spent on Oracle Cloud Infrastructure. In addition, the engineering costs to develop the specific system, these software engineering costs are amortized across the global population of Oracle Cloud ERP customers using the feature. To a lesser extent People, Ideas & Objects provide this level of service to North American producers for their unique oil & gas attributes. The lesser extent is due to the smaller population of oil & gas users for which this development and implementation, and its costs, will be targeted. As such, North American producers have the opportunity to realize both Oracle and People, Ideas & Objects innovations concurrently and at substantially reduced costs. These are due to Professor Paul Romer's theories.
Increasing the value that oil & gas producers gain from the use of Oracle Cloud ERP and incorporating it in our value proposition. Their 2023 CloudWorld Conference built upon the innovations they introduced in 2022. Generative Artificial Intelligence is now generally available throughout the Oracle Cloud ERP suite of applications. This takes these automations and their incremental capabilities to a more substantial level with tools that users were unaware of that will be able to generate incremental revenue from. If we consider just the producers Research & Capabilities and Knowledge & Learning modules, how they will be enhanced through Generative AI this is the method People, Ideas & Objects feel that the scope and scale of the issues and opportunities that oil & gas are presented with can be approached.
If we consider the timeframe, the technology and the state of the industry. The scope and scale of the repair becomes untenable in the hands of those Keystone Cops who seem to have few original ideas and then go about proving them wrong in the public market. My example would be the recent discussion of production discipline where it was uniformly interpreted to mean they needed to sign new LNG export contracts. Indicating that traveling in unison ensures no company is singled out for their accountability in the matter.
When it comes to resolving these issues we therefore have three options.
- The first is to continue to repeatedly travel down each and every blind bunny trail in unison. Only to discover the bandit the Keystone Cops are searching for is now at the bank.
- Have each individual producer deal with the details of the development of their own Intellectual Property. Then undertake the scope and scale of software development that is commensurate with People, Ideas & Objects Preliminary Specification at each producer location.
- Or share in the cost of development and focus on our user community to deal with the specific issues and opportunities as their distinct competitive advantage. Where they’ll have the understanding and resources, including access to the Intellectual Property and developers to make changes to the software code.
Seeing the broad scope of this challenge and the approach of “muddle through” makes sense to the officers and directors.
Professor Romer’s "Endogenous Technical Change" leverages specialization and the division of labor in material ways. It is revolutionary and applied throughout the Preliminary Specification to the benefit of the oil & gas producer and greater oil & gas economy. To choose otherwise in this highly technical and complex society. Where the speed and pace of business has proven to be far beyond the capabilities of the officers and directors. Where the scope and scale of the issues are existential in their magnitude, such as what the industry has been faced with over the past few decades. To misunderstand the business, the direction, the vision and strategy of what to do, when and where to do it. As displayed by the officers and directors in 2024. Leaves one asking how is it that consolidation will do anything but accelerate the demise of the oil & gas industry in North America?
