(01) Executive Summary
People, Ideas & Objects Preliminary Specification has the dual, opposing and conflicting objectives of ensuring profitable oil & gas operations everywhere and always. In addition, it ensures consumers have abundant, secure, reliable and affordable energy. Today our advanced society mechanically leverages each barrel of oil produced by 10 to 25 thousand man hours of equivalent labor. A value proposition consumers cannot live without. Despite this, North American producer firms ignore their responsibility and accountability in ensuring consumers are adequately supplied in their dual roles of profitability and innovation. Their irresponsibility is now reflected in the financial destruction they’ve caused to their own firms, the industry itself and most importantly the service industry they’re wholly reliant upon as the source of their capabilities and capacities. Nevertheless, the producers' officers and directors are fine and thank you for asking.
There are seven Organizational Constructs that define the overall architecture of how profitability and innovation are structurally and organizationally defined in our Preliminary Specification. These constructs are supported by our user community and service provider organizations. These seven include specialization and the division of labor, Intellectual Property, Innovation, Information Technology, markets, sharing of costs and infrastructure and the key organizational construct is the Joint Operating Committee. Which is the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the oil & gas industry. By moving the compliance and governance frameworks of the hierarchy into alignment with these seven frameworks of the Joint Operational Committee, we’ll be able to achieve the speed, innovation, accountability and profitability necessary for at least the next twenty five years.
What People, Ideas & Objects can state unequivocally, and would gain resonance throughout the broader oil & gas economy, is that nothing will exist for the long term without profitable operations. Real profitable operations, not the specious claims made by producers over the past four decades. These claims are detailed elsewhere in the Preliminary Specification. We offer a value proposition that contrasts with the status quo. Our claims are $25.7 to $45.7 trillion in incremental value earned over the next 25 years of Preliminary Specification operation. This is not a magic solution, but rather a measure of structural incompetence and mismanagement by officers and directors. This plagues North American producers. Theirs has become an industry-wide culture of self-serving, lucrative administrations that haven't concerned themselves with business.
One aspect of their culture is their fundamental belief that oil & gas are price takers for economic definition purposes. Our Preliminary Specifications decentralized production model ensures profitable production everywhere and always. The original publication of this specification was on August 9, 2012. That is a decade and producers have done nothing. The question of what could have been is reasonable when producers pushed oil & gas commodities into negative pricing conditions. What could have been if they had listened to their investors' demands for change beginning in 2015? They’ve had the opportunity to make the necessary changes by adopting the Preliminary Specification yet chose to silence and ridicule our solution. They’ve had the demand from their investors, and more importantly, the destruction that we've consistently pointed out to them during this decade has been obvious and evident everywhere in the North American producer population, yet not one productive thing has been done to deal with it during this decade?
There are other developments evident throughout the global economy that are reflected and implemented in the Preliminary Specification. Disintermediation offers all industries new business models that compete directly with hierarchical organizations' inefficiencies. People, Ideas, & Objects disintermediate the oil & gas industry. The conflict generated since disintermediation began in the music industry. The number of industries disintermediated is extensive. This has provided those that have not been with better tools and understandings of how to resist these forces. This has helped them maintain their hold for longer periods. Leaving the inefficiencies that should have been worked out in the industry to continue. In addition, senior management methods survive by cannibalizing prior established values as they cannot create value. The loss of serendipity, spontaneity and creative destruction are unintended consequences when organizations are defined and supported by software. People, Ideas & Objects is therefore establishing a permanent software development capability to accommodate changes within the industry in the future and to reinstate these economic principles.
Cloud Administration & Accounting for Oil & Gas is a feature of our user communities and service providers. An extension of the Cloud Computing paradigm that has inherent business value. Eliminating the need for each producer to incur the costs of building and maintaining the unshared and unshareable, non-competitive advantage of their administrative and accounting capabilities. To offer these services as a variable cost, charged directly to the Joint Operating Committee. This enables accurate and detailed financial statements for each property. Therefore if it is profitable it will continue to produce, if not, it will be shut-in to incur a null operation, no profit or loss. People, Ideas & Objects et al will make all producers' costs variable, based on production.
The Preliminary Specification is a fourteen module ERP (Enterprise Resource Planning) software system designed for dynamic, innovative, accountable and profitable oil & gas producers. Built within Oracle Cloud ERP’s tier 1 offering, this executive summary will touch on some of the value-added aspects of how producer firms will profitably be configured to meet and exceed the energy challenges of the next many decades. As you review the Preliminary Specification, remember that People, Ideas & Objects propose the most profitable method of oil & gas production as our competitive advantage. And we do this in the following fundamental ways.
Specialization and Division of Labor
The Preliminary Specification shows a clearly defined industry restructuring throughout all of its modules. The oil & gas producer is a stripped down version of itself that has C class executives, earth science and engineering resources, land, legal, and minor support staff. And that’s it. The rest of the producers' administrative and accounting resources are reallocated and provided by the People, Ideas & Objects user communities and service provider organizations. Each of these service providers focuses on one process, or one element of a process using the entire industry as its client base. So for example there may be one royalty payment processor that handles all of the industries royalty payments. Where the cost of the royalty payment, and the billing for the royalty payment service provider is billed directly to the appropriate Joint Operating Committee, not the individual producer. We are moving away from fixed cost administrative and accounting capabilities. To the industries variable cost administrative and accounting capabilities available through our Cloud Administration for Oil & Gas software and service. Variable based on profitable production.
The advantages of moving to a system and methodology like this are lower cost and efficiency. The costs associated with a royalty payment processor would be a small percentage of what is incurred collectively by the industry today. By focusing on the most efficient way to process royalty payments, and only royalty payments, the service provider would become specialized. This would reduce the time and effort required to perform these tasks to a small component of today's costs. Around 1776, in Adam Smith’s pin factory, his research yielded a 240 fold increase in productivity from the changes he made to the pin making process. Having the royalty payment process, and particularly the administrative and accounting processes of the North American oil & gas industry subjected to this type of analysis, complete with the software development capability as defined by People, Ideas & Objects, similar productivity results would be attained. All economic growth since the late 1700’s can be attributed to enhanced organization through specialization and division of labor. Society today requires software to define and support enhanced specialization and division of labor. People, Ideas & Objects software and our permanent software development capabilities are therefore critical for the oil & gas industries future performance and growth.
Professor Paul Romer’s Non-Rival Costs
The naming of this initiative People, Ideas & Objects is a derivative twist on Professor Paul Romer’s “Endogenous Technical Change” paper published in October 1990. (And earned him the Nobel Prize in Economics in 2018.) A paper published in The Journal of Political Economy Vol. 98, No. 5, Part 2: The Problem of Development: A Conference of the Institute for the Study of Free Enterprise Systems Oct. 1990, pp. S71 - S102.
And best understood through this Reason Magazine article. Accessed January 25, 2003.
Endogenous technical change or new growth theory suggests that economic growth from investments in transportation, communications and financial services was diminishing in its effectiveness. And being replaced by an alternative dynamic in terms of how economic growth could or would be achieved. Summarized in this Reason Magazine article by Professor Romer as people, ideas and things we amended his summary to reflect that we are object-based developers to come up with our name.
From the interview in Reason Magazine.
As one of the chief architects of "New Growth Theory," Paul Romer has had a massive and profound impact on modern economic thinking and policymaking. "New Growth Theory" shows that economic growth doesn't arise just from adding more labor to more capital, but from new and better ideas expressed as technological progress. Along the way, it transforms economics from a "dismal science" that describes a world of scarcity and diminishing returns into a discipline that reveals a path toward constant improvement and unlimited potential. Ideas, in Romer's formulation, really do have consequences. Big ones.
In the Reason article Professor Romer applies his theory to the example of standardizing the lid of a small, medium and large coffee cup. Instead of producing, inventorying and handling three different sizes the efficiency of sharing one size is intuitive, inherent and most of all substantial in terms of its cost savings over the long term. Through the Preliminary Specification we have applied this principle in a number of different ways. We will see this principle used throughout our user community and service provider organizations.
Academic criticism of Professor Romer's theory is that it's unquantifiable. And in a way, that's true if we see the economics profession as a science. Of which I no longer do due to the 2008 financial crisis. Science would have warned of the difficulties and resolved them. Only Nouriel Roubini raised the warning. All the others were too busy checking the dashboard dials to notice the brick wall they were heading into at high speed.
One example highlighted from our discussion in the Specialization and Division of Labor section above is the massive cost savings oil & gas will realize from the Preliminary Specification. Specifically the reallocation, identification and support of producers' administrative and accounting resources to service provider firms. This value is incremental and attributable to both specialization and Professor Romers' New Growth Theory. Cloud computing introduces a paradigm based on the principle of sharing the large capital costs of building and maintaining a large, fixed capacity technical infrastructure. This is necessary to meet their customers' needs. And replace it with unlimited capacity available at variable costs. Key to the paradigm is the associated reduction in a firm's demand to have the technical capacity and capabilities for non-competitive attributes such as database, network and operating system specialists with the skills to maintain operations. Relieves customers' budgets and allows them to focus on productive and competitive activities. The two attributes of specialization and division of labor.
It is the sharing of this technical infrastructure that creates incremental value from cloud computing. Romers' theory of endogenous growth, cost sharing is a non-rival cost. From the Journal of Political Economy.
A purely rival good has the property that its use by one firm or person precludes its use by another; a purely nonrival good has the property that its use by one firm or person does not limit its use by another. pp. S73 - S74.
And it is here that People, Ideas & Objects Preliminary Specifications user community service provider organizations implement our software and service we call Cloud Administration & Accounting for Oil & Gas. The elements of our user communities and ERP software development capability are permanent. Alleviating each producer firm from maintaining the specific skills and attributes necessary to achieve these requirements internally. Accessing them on a highly specialized and shared basis will provide them with higher quality products and services at lower variable costs, based on profitable production.
In October 2022 Oracle announced at their CloudWorld 2022 conference that they too were picking up on Professor Romer's theory of non-rival costs. They have established partnerships with other service providers such as Fedex and J.P. Morgan Chase to deliver software that advances individual processes automation to high levels. J.P. Morgan Chase's example is revealing since it manages employee expense account charges through its credit card. The employee then designates the destination of the charge, and Oracle verifies the charge is within the policies and budget. A tedious and laborious expense reporting process for employees, their managers, accounting, etc., is reduced to a few milliseconds.
Capability to Remove Marginal Production and Become Price Makers
Exploration and production costs are high, particularly in shale operations. What is surprising is that producers have done nothing to mitigate the chronic and systemic overproduction that has caused the decline in oil & natural gas prices. Chronic overproduction is caused by producers generating revenues to cover overheads. This is in what is called the “high throughput production” model they employ. In this model the producer firm's overhead costs are incurred whether production occurs or not. As a result, their operation is expensive even at full production. Lower production volumes mean lower company earnings and disproportionately higher overhead costs.
In the Preliminary Specification we have employed the “decentralized production” model. The service provider charges directly to the Joint Operating Committee for accounting or administrative services. If the property is shut-in due to low deliverability, high costs or other reason for its lack of profitability then there is no charge incurred for the overhead item by any of the individual service providers as they will have conducted no work on that property, and neither the producer nor the Joint Operating Committee are incurring any of the accounting or administrative overhead during times of shut-in production. Therefore the only costs not covered during times of shut-in production are capital. The producer can therefore shut-in unprofitable production based on accurate, detailed accounting and attain the highest level of corporate profitability by not diluting their profitable properties. Save their petroleum reserves for a time when they can be produced profitably. Those reserves will not have to carry the incremental costs of subsequent monthly losses that would need to be recovered in the future. This is if the property continued to produce unprofitably. Cut oil & gas inventory and storage costs by holding them as reserves. And finally, by keeping that unprofitable production off the market those commodities will find their marginal price.
If producers across the industry followed this process, oil & gas prices would not have declined in recent decades. If the downswing in oil & natural gas prices were averted by a reduction in unprofitable production volumes, the total revenues and profits of the industry would provide for profitable operations everywhere and always. Stabilizing the industry by removing the boom / bust cycle and its destructive force throughout the general oil & gas economy. People, Ideas & Objects believe we have a responsibility to use oil & gas resources effectively. This implies that we should be able to produce them profitably on an appropriate accounting basis. We owe this and the passing of a viable and profitable industry to future generations. Producer officers and directors claim this is collusion and have used that as an excuse to lose effective control of the industry's financial, operational and political frameworks. They will not listen to the fact that making effective, independent business decisions at the property level, based on actual, factual accounting that determines profitability is not collusion. As a result they have destroyed the industry and the service industry. After decades of operation by this method producers cannot provide an alternative strategy or plan to deal with their issues and opportunities.
Innovation for Profits
In our fourth element of competitive advantage, we establish the foundation for innovation to enhance producer profitability and ensure consumer energy costs are as low as possible. The 21st century oil & gas producer must innovate for profit, using science. Innovation processes are identified and supported within the Preliminary Specification DNA. From Professor Giovanni Dosi.
In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations. p. 1120.
With an inventory of non-producing oil & gas assets. The dynamic, innovative, accountable and profitable oil & gas producer will have readily available properties to focus their innovative efforts on.
Lower Costs of Exploration & Development
The oil & gas industry needs a dynamic, innovative, accountable and profitable service industry to be dynamic, innovative, accountable and profitable. In the brief moments of “good times” in the industry, producer firms have accused the service industry of being greedy and lazy. This is due to high field costs. Today the service industry has seen activity levels slashed and accounts receivable extended for up to 18 months by producers. A situation that puts their organization, unnecessarily, in jeopardy. There is a substantial conflict between what’s required and what exists. We do not believe this is an appropriate posture for the industry's future if it is to fulfill its objectives. The Preliminary Specification works to mitigate this conflict by addressing the issue of how the producer firm deals with the generation and management of ideas in the service industry. Producers ignore and abuse vendors' rights and ideas. And as time has passed, the number of companies that have introduced innovations, products, services and competition has dwindled. Leading to the situation where producers have a limited number of very large service industry participants who have pricing power on their side. This is during the alleged one or two “good times” these past decades.
Producers respect, sponsor and support service industry ideas through the Preliminary Specification. Oil & gas producers do not compete on drill bit manufacturing technologies. By respecting the service industry's Intellectual Property, representatives can respond with creative and innovative products, services, and competition. Through a variety of interfaces in the Resource Marketplace and Research & Capabilities modules, producers can participate and lead the creation of enhanced products and services. This is done by clearly expressing their needs and allowing the service industry to respond.
When the oil & gas industry has a dynamic, innovative, accountable and profitable service industry supporting the oil & gas industry, the profitability of the oil & gas producer will be enhanced, further contrasting the People, Ideas & Objects business model to what the current bureaucracies may use today.
Earth Science and Engineering Resources
We recognize and support oil & gas producers' competitive advantages in terms of their land & asset base, as well as their engineering & earth science capabilities. Innovation, automation, specialization and the division of labor maximize earth science and engineering resources availability. As mentioned above, innovation investments return profits. Innovation in oil & gas sciences is part of producers' competitive advantages. Therefore, they serve the express purpose of the modules within the People, Ideas & Objects Preliminary Specification.
In terms of specialization and division of labor, the producer firm must approach the issue of limited resources in the area of earth science and engineering capacities and capabilities. Pending due to the retirement of the industry brain trust, the lack of qualified hires from the universities, the expected throughput increases in North America and the ever increasing demand for geology and engineering with each incremental barrel produced. With the People, Ideas & Objects pooling concept, underutilized and unusable surplus capacities trapped within producer silos can be eliminated. We have also reorganized certain skills within these professions into service providers who can specialize in these skills through specialization and division of labor. Engineers' and geologists' demands will be more manageable through pooling, specialization and division of labor. This organizational structure is identified and supported throughout the Preliminary Specification.
These are a summary of some of our competitive offerings for the oil & gas industry. Designed to provide a profitable and innovative operating base for the 21st century, they offer producers and the industry the opportunity to move forward profitably and innovatively.
Security & Access Control
Having adopted the Joint Operating Committee as the key organizational construct of a dynamic, innovative, accountable and profitable oil & gas company. We're involved in the interactions of many producers and suppliers involved in the day-to-day commercial and strategic concerns of a Joint Operating Committee. What we need to worry about in the Security & Access Control module is that the right people have the right access to the right information and data with the right authority at the right time and at the right place. And do so securely, where Compliance & Governance is maintained and there is no unauthorized use of information.
Throughout the Preliminary Specification we discuss and resolve the many premier issues of the oil & gas industry. One of our concerns here is the demand for earth science and engineering effort for each barrel of oil equivalent produced. This has always been the case and will continue to be so. This is best represented by the steep and never-ending escalation of exploration and production costs involved in oil & gas. However, critical earth science and engineering resources are fixed and difficult to expand. Add to that the anticipated retirement of this brain trust in the next twenty years, the oil & gas related depression we are experiencing which is stalling the careers of recent university graduates, the expected production profile of the North American continent and particularly in terms of providing profitable energy independence, and the problem becomes a critical concern. Finding means and methods for these resources within the industry to work together will be necessary. To resolve it, People, Ideas & Objects choose specialization and division of labor. Demanding far more effective collaboration through the Internet and Information Technologies. Enabling interaction within a Joint Operating Committee that spans many producers with the appropriate governance and chain of command. This is for each producer and agent represented. Introducing substantial new opportunities and risks, as the Security & Access Control module addresses.
The concept of specialization and division of labor is well known as a principle of economics that increases economic productivity from the same volume of resources. Specialization and the division of labor will provide us with tangible means of dealing with the oil & gas industry productivity with the volume of earth science and engineering resources known in the foreseeable future. In today’s North American oil & gas marketplace, to approach a heightened level of specialization and division of labor from a scope and scale point of view, without the use of software to define and support it would be a failure.
Pooling is our solution to the current requirement that every producer firm acquire earth science and engineering capabilities to deal with their operated properties. This creates unneeded "just-in-time" capacities and capabilities for scarce scientific resources. When each producer pursues this same strategy, substantial surplus capacity is built into their overall capabilities creating industry-wide unshared and unshareable resources. Consequently, redundancies built within each producer firm are unused, inaccessible, and unusable. What is proposed through the People, Ideas & Objects Preliminary Specification is that the producer's operational strategy avoids and eliminates the operator concept. Instead, it pools their technical resources through the partnership represented in each Joint Operating Committee. That way the surplus capacity of otherwise unused and unusable technical resources in the industry can be made available to the Joint Operating Committees. Producers can employ these resources through their firms' advanced organizational specializations and divisions of labor.
Oracle’s products provide a strong layer of mission critical capabilities in our Security & Access Control module. Although this comes with additional costs, I am certain no one will argue with their quality and assurance. By using Oracle Cloud ERP in the configuration for the delivery of People, Ideas & Objects Cloud Administration & Accounting for Oil & Gas we gain advantages from a Security & Access Control point of view. Our user communities and service provider organizations will deliver these Oracle product software features and functions in concert with the People, Ideas & Objects Preliminary Specification. They will provide the support and services necessary to ensure producer needs are fulfilled. Establishing their role as an industry-wide Cloud Administration & Accounting for Oil & Gas software and service offering.
Resource Marketplace
What we set out to accomplish in the Resource Marketplace module is captured in this quotation from one of our primary research sources. Professors Richard N. Langlois and Giovanni Dosi, as well as many others,' research was used in the development of the Preliminary Specification. In this quote from Professor Langlois from "Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization."we learn about the direction we're headed in.
[It 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). p. 17.
The producer must have tools to effectively engage with suppliers and others in the Resource Marketplace in oil & gas. The Resource Marketplace Module provides a window into the “Resource Marketplace” for Joint Operating Committees and producers. Anything of value that is contracted between “actors” in the oil & gas, service, service provider, software and user community generated businesses will be found, contracted, managed, transacted and developed through this module. It's simply a virtual representation of these marketplaces. Enhanced with the full capabilities of a tier 1 ERP system in Oracle Cloud ERP. Therefore, transaction processing, negotiation, determination of available resources, determination of transaction costs, contract execution, effective software tools to monitor and verify compliance with the contract. This is done with the full support of our Resource Marketplace module and its interfaces to other modules of the Preliminary Specification.
Similar interfaces will be provided for the service industries. Since transactions involve two parties, producer efficiency naturally includes service provider efficiency. Since we are an accounting system, providing similar services to suppliers makes sense. It is not just producers in the Resource Marketplace. Key to Resource Marketplace efficiency is the mitigation of transaction cost friction. Friction on both sides of the transaction. This is due to the fact that transaction costs in the Resource Marketplace will ultimately be borne initially by the Joint Operating Committee and eventually by the producer itself.
Contained within this marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in the actual marketplace that exists today. The scope and size of the Resource Marketplace, our user community and their service provider organizations will accommodate ExxonMobil's needs and the single entrepreneur starting out in the oil & gas business. To exclude any group, profession, organization, or person from the Resource Marketplace would limit industry value. Whatever service, product or solution is provided to the energy industry, from individuals, those employed by producers or Joint Operating Committees, or companies providing services to the producers. This should include SLB and anyone directly or indirectly employed in the energy industry. Accordingly, we must acquire "the elements of organization, knowledge, experience, and skills" as Langlois suggests. To which we would add "ideas."
It is the Joint Operating Committee and the Resource Marketplace that provide value to profitable and innovative oil & gas producers. Enabling the service industry to expand markets for their products and services. Where a diversity of offerings from upcoming competitors, with new products or innovations on the products provided by existing suppliers. Producers must define and support a dynamic, competitive and healthy service industry. To support those markets, it is necessary to build the software and services defined here in the Resource Marketplace for the producer, the Joint Operating Committee, and the service sector. From Professor Richard Langlois' paper “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups.”
The second hypothesis, which has resonances at least as far back as Gerschenkron’s famous “backwardness” thesis (Gerschenkron 1962), is that the way an economy responds to the problems of coordinating economic development depends not only on its own institutions and capabilities but also on institutions and capabilities elsewhere. It depends not only on an economy’s own history but on the history of other economies. The force of this observation is that an economy at the frontier of economic development (however we care to define that) is likely to respond to the coordination problem differently than an economy lagging behind that frontier. Specifically, an economy at the frontier is arguably more likely to rely on decentralized modes of coordination. This is so because uncertainty is greater at the frontier — uncertainty about technology, organizational form, market direction. p. 18.
It is here that we find the reason for what plagues the North American oil & gas economy. Producers have chosen centralization as their theme to deal with the situation they’ve created. Issues remain unaddressed and solutions remain limited to People, Ideas & Objects et al. As of 2023 similar approaches have been successfully implemented in many other industries through disintermediation or decentralized organizational business models and structures. This has been facilitated through Information Technologies and most specifically the Internet. Producing firms are now suffering from issues that have resulted in diminished capabilities and capacities throughout the service sector. An industry established exclusively to provide producers with geographical and technical diversity. To the point where the service industry capital structure is non-existent due to producer firms' destruction. At the same time, producers are facing oil & gas production deliverability volumes that haven’t been maintained over the past seven years. These volumes may collapse due to neglect and incapacity.
Petroleum Lease Marketplace
The Petroleum Lease Marketplace's objective is to replicate the physical oil & gas marketplace, beginning with Petroleum Leases. When replicating the physical oil & gas marketplace, the Petroleum Lease is the source document that is the common denominator of all activity and ownership within the industry. This is also one of the critical components of producers' key competitive advantages. These include their land & asset base, and earth science & engineering capabilities. As such it should be considered a producer-facing module as its primary role. The Joint Operating Committee will also be used for the Petroleum Lease Marketplace. However, their land position may be static for long periods of time. While the Resource Marketplace module is considered more of a Joint Operating Committee module, where market resources are acquired. Any physical oil & gas asset will be attached to some lease, agreement, rights or concession. This will grant them ownership, lease or rental rights and privileges. These are the things that are found in a marketplace. They are what are purchased and sold, bargained and traded for, they are the things that people are recruited to provide services for. Markets are generally dynamic and evolving commercial hubs of activity. Which is what we’re replicating in the Petroleum Lease Marketplace.
When we look at the types of work that will be carried out in the Petroleum Lease Marketplace we see a large group of administrators working within different areas of a producer firm. Whether it be the Land or Legal department, Production or Exploration Operations staff or Administrative and Accounting people, all of these groups have an interest in the information, people, assets, documents, processes and functionality contained within the Petroleum Lease Marketplace. These groups are concerned with the information and data contained within the module. Its accuracy, access, and use by those within their firm, but also within the Joint Operating Committees their firms participate in. Most of this data will be similar to their firm's partners' data. Much of this data will have been generated cooperatively and collaboratively by those firms in those partnerships.
It should be noted that much of today's unintegrated ERP systems approach seeks to independently source and replicate these processes repeatedly through independent and disparate systems. This is true for all producers. What effect would theories such as Professor Paul Romer's Endogenous Technical Change and its non-rival or shared approach such as People, Ideas & Objects Preliminary Specification provide industry? Where the original source of the data will be acquired, authenticated, maintained and used once, not only internally throughout the producer firms but also within the specific properties data being shared externally through their partnership as represented in the various Joint Operating Committees?
One of the greatest opportunities in developing this system is to address the division of labor and specialization. To take people’s work and reorganize it across the industry. This is to focus on the needs of the producer and the Joint Operating Committee. It is specialized in the tasks they perform. Applying those skills across the entire industry, a geographical region, or another classification. Significant increases in oil & gas industry productivity, cost savings and value would be provided. That is to say that a user community service provider organization would be responsible for an individual process billed to 1,000 Joint Operating Committees. This process might represent 100 oil & gas producers within a specific region that focuses on Shale and is geographically constrained.
Expansion and productivity are increased through specialization and the division of labor by identifying and filling gaps. However, the natural process of gap filling in today’s business environment is constrained due to the strict and unchanging structures imposed by today’s ERP systems. To make changes, producers will need the software development capabilities, our user community and service providers who provide our Cloud Administration & Accounting for Oil & Gas. This will enable them to make the changes in the software first, then the changes in the organization can follow.
In this process we are moving towards an enhanced level of competitive advantages for our user community and their service providers. These include leadership, issue identification, problem solving, decision making, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromise, innovations, finance, observation, reasoning, judgment and identification of conflict and contradictions. Service providers deliver explicit knowledge captured in People, Ideas & Objects software. This is supported by their tacit knowledge of how to do administrative or accounting work. Please note we will defer data storage and processing to computers.
The types of documents and associated processes managed within the Petroleum Lease Marketplace are self-evident.(Recall we are including Land, Legal, Production Admin, Exploration Admin, Accounting and Others in the classifications.) Most of them are created in collaboration with the participants of the Joint Operating Committee and include: Authority for Expenditures (AFE’s), Capital Budgeting (Firm and Joint Operating Committee), Construction Ownership and Operating Agreements, Mail Ballots, Daily Drilling Reports, management of the lease bidding process, Lease Bonus, Lease Rental, Lease Taxes, Areas of Mutual Interest are some of the forms, processes and attributes of the Petroleum Lease Marketplace module. Our user communities will contribute to a more detailed specification.
In Professor Giovanni Dosi’s paper “Sources, Procedures and Microeconomic Effects of Innovation” he notes the following three factors are involved in innovation development.
The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:
Capabilities and stimuli generated with each firm and within the industry in which they compete.
Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc. p. 1121.
Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)
Innovative oil and gas producers have their land & asset base, as well as engineering & earth science capabilities as competitive advantages. A Petroleum Lease Marketplace module provides producers and Joint Operating Committees with the tools they need to manage their land & assets. But there’s more. Using our Marketplace Interface and our user communities service providers that support innovative producers and Joint Operating Committees. The Petroleum Lease Marketplace provides profitable and innovative producers with competitive advantages to compete in the 21st century.
Financial Marketplace
The capital and debt markets have been very negative towards the oil & gas industry with many producers shut out of those markets since 2015. Capital structures are nonexistent. Consolidation has been the current administration's method to deal with their self-inflicted cash crisis. What’s been a multi-decade period of extremely low interest rates appears to be ending with higher performance levels. Creating a threat to producers due to their chronic lack of performance, inordinate levels of debt acquired during this period of unconstrained, debt-fueled spending. Financial statements with inordinately bloated balances of property, plant and equipment, fueled by the “building balance sheet” craze. Are therefore carrying excessive bank debt. And are well beyond any criteria for reasonable or healthy just based on these two elements. Debt leverage is now eroded when equity is decimated by chronic and continuous losses. Leaving producers unable to weather interest rate increases, or forced to deleverage.
Issues as a result of the financial crisis of 2008, the destruction of natural gas prices in 2010, the beginning of oil price destruction in 2014, the oil & gas investors strike that continues since 2015 and 2022s realization that industry wide field capacities and capabilities are diminished and degraded. The demand for capital in a capital intensive industry will continue to be strong, and as a result of this history its supply will continue to be tight. There has been a serious cash and working capital crisis in the industry due to the officers and directors method of management. Making the situation untenable and likely to lead to wholesale destruction for all involved. The future also requires providing for energy market demands, which require even more capital than before. This therefore demands that changes in capital structures will be necessary to improve the overall performance of the producer and the Joint Operating Committees they participate in. Strategically muddling through just seems too risky.
Therefore creating a physical financial marketplace based on profitability, performance and capital throughput is necessary to realize this future and profitability today, every day and everywhere throughout the industry. Oil & gas is a mature industry. Expectations that “building balance sheets,” whatever that means, must shift to real, tangible and actual profitability. It is estimated that energy capital demands over the next 25 years will require investments of $20 to $40 trillion. Today's producers assume investors and bankers will continue to provide those resources in the future. This being a continuation of their current business model that capitalizes every possible cost. These expenses include Post-it-Notes, phone service, and the time spent by the receptionist. Which the producer subsequently depletes over the next several decades. The producers' current business model and assumptions about it continuing are unreasonable.
Producers will need to turn capital over repeatedly to compete with other industries and capital market expectations. That means they’ll need to recognize their capital costs on a very short time horizon to recover that previously invested cash. This is possibly the only source of cash for future capital investments. Passing capital costs in a capital intensive industry on to consumers. Having investors endlessly pay every bill while producers achieve no performance compared to what capital markets provide investors elsewhere, is over. What we seek to prove in the Financial Marketplace module, is that through its use we can provide the innovative oil & gas producer and the Joint Operating Committee with the ability to ensure that their capital structures are more efficient than what can be attained in any other system.
My criticisms of management are that the velocity at which management operates is too slow, its innovativeness is non-existent, profitability has been non-existent for over four decades and cash is only destroyed and never returned. In the physical financial marketplace the pace of field activity will need to accelerate to address the increased demands from energy independence and other related issues regarding our future. I think People, Ideas & Objects have identified and addressed the associated issues and opportunities with these changes in the Financial Marketplace module of the Preliminary Specification.
A note about our Marketplace Interface which is a critical component of the Resource, Petroleum Lease and Financial Marketplace modules. The Marketplace Interface is a virtual representation of each marketplace module. It uses avatars where firms and producers create virtual representations of their offerings. This provides a means for people to conduct their business virtually compared to traditional means. These avatars will be supported through the People, Ideas & Objects ERP system. This provides them with the ability to conduct any and all operations in any of these Preliminary Specification modules. It should be seen as the ultimate collaborative interface.
Partnership Accounting
The Partnership Accounting module is a pure accounting module in the traditional sense. However, I think there are many attributes and concepts in this module that make it unique and of interest to everyone in the industry. The standard list of outputs from an accounting system is included, and this is standard fare for any software provider in oil & gas. Our user community will provide the details, data, reporting and process management that producers and others demand from their system. As we see in the Partnership Accounting module the difference in the People, Ideas & Objects software application is substantial in that the Joint Operating Committee is managed as the partnership that it is. Each Joint Operating Committee will be provided with full financial statements, complete with depletion calculations and actual overhead, not estimates, to evaluate its actual, factual, and detailed performance. This will ensure that only profitable production is produced everywhere and always.
Knowing which properties are not profitable and shutting those in.
Applying their efforts and innovations towards returning their inventory of shut-in properties back to profitable production.
Losses on properties will no longer dilute corporate earnings.
Reserves are kept until they can be produced profitably.
Reserves costs do not have to carry additional losses if the property continues to produce at a loss.
The cost of surplus production and storage decreases when the commodity is kept as reserves.
Commodity markets find a marginal price when unprofitable production is removed.
All the information in the commodity market, the inventory, production, demand and reserves is captured and presented to the producer in the commodities market price.
Marginal prices earned for all properties across North America. Therefore maximizing corporate profits through production discipline.
Which provides the adequate financial resources to fund the replacement value of all profitable production.
This provides producers with the financial resources to satisfy their investors, bankers and capital expenditure programs. Running a profitable business will provide all the financial resources officers & directors could ever want or need.
The scope of operations managed under the Partnership Accounting module includes everything in upstream oil & gas. The cut-off would be at the inlet to any refinery and point of sale for natural gas. To be more specific about geography and the type of operation managed by the People, Ideas & Objects application. If we look at the North American oil & gas infrastructure we see a variety of oil & gas installations designed to serve both producers and consumers of oil & gas. Wells, gathering systems, gas plants, pipelines, storage facilities etc. At each point along these systems there may be additional deliveries of product, or sales of product or products inventoried. What seems to be an obvious business becomes incredibly complex when each asset is owned by a Joint Operating Committee itself. This asset may hold different products on behalf of other Joint Operating Committees. This summary glosses over the incredible complexity of this business when the volume of transactions that occur in these businesses make it a crucial part of oil & gas operations.
Critical to controlling this business is our Material Balance Report. This is a key part of the Partnership Accounting module of the Preliminary Specification. It is the central document that so much of the subsequent process activity is based upon. It acquires from the source documents the volume, contract or spot price, allocations and other data for the Joint Operating Committee. Its integrity cannot be questioned. If someone is to be charged for storage of butane for example, or if someone is to be charged a marketing fee for delivery of product to a customer. Or if a sale of a raw gas stream at the wellhead is deemed to have occurred. The Material Balance Report records these transactions and initiates the flow of documents to be generated. Once this data is captured, its integrity secured and balanced, automation can begin. It is the scope of the Partnership Accounting module that captures all of the data and activities for all of these North American facilities. Each Material Balance Report must balance, and each report's inputs and outputs must balance with other Material Balance Reports. The key to the Material Balance Report is that it provides a means to ensure that volumes are in line. That what is reported is factual. Which is the necessary requirement for much of the subsequent Partnership Accountings process automation, including amendments.
Reviewing the Partnership Accounting module further will explain why we take such a broad scope of operations into consideration. It would be an understatement to state that the Material Balance Report has been poorly served by IT. To approach it from a global perspective that includes production operations, accounting and the other areas that depend on this information would be ideal. However, the complexity of the business has always been in the way. Software budget and engineering has never been available, affordable or valuable enough for any individual producer to approach the type of problem this area presents. It exists now with the Preliminary Specification and People, Ideas & Objects. And the Partnership Accounting and Accounting Voucher modules of the Preliminary Specification provide a vision of how this engineering solution solves this problem.
We’ve also introduced the Work Order in the Partnership Accounting module. The Work Order enables producer firms to participate in informal and ad-hoc working groups to conduct studies and research. These informal groups can be established and formed without the traditional accounting nightmare they've normally created, which hinders their formation. An innovative oil & gas industry needs to have these studies and research working groups formed and developed on an exponential scale in order to expand the overall science of the industry. The Work Order is also an internal cost control mechanism that producers and Joint Operating Committees can rely on to manage the costs, and recovery of those costs, of the producers' internal earth science and engineering resources being charged directly to the Joint Operating Committees.
Accounting Voucher
We now focus on the Accounting Voucher module. The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. Accounting modules naturally have high integration levels. The Accounting Voucher is unique in that it provides the producer with the ability to design transactions and the Material Balance Report. These are not innovations producers will use to become more innovative. Instead, they are intended to ensure that innovative producer processes are actively defined and supported throughout the People, Ideas & Objects application modules. As a science-based business, oil & gas producers need to remain open and flexible in their approach to both science and business. Accounting Voucher and Partnership Accounting modules provide that organizational flexibility. The Accounting Voucher captures transactions. Partnership Accounting reports on transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process familiar and traditional in accounting. A Joint Operating Committee will have many Accounting Vouchers each month. Examples include both Material Balance Reports and Work Orders. The Material Balance Report and others will also form templates for subsequent months with persistent memory of the prior months' fixed variables.
We’ve noted in the summary of the Partnership Accounting module how the Work Order enables producers to form and participate in working groups. Providing flexibility in participating and accounting for these working groups. This flexibility is what is being sought by the rest of the producer firm and Joint Operating Committee from both of these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to producing innovation as much as the Research & Capabilities or Knowledge & Learning modules will.
The People, Ideas & Objects Accounting Voucher Module will provide the means for the application to “manage the disparate inter-dependencies of modularity theory and Transaction Cost Economics.” That is a summary application of Professor Baldwin's comments and theories. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the People, Ideas & Objects Preliminary Specification. What this means is that people must cease, by way of automation, processing and recording transactions. Instead, they must move toward the definition and design of transactions to optimize the producer's business and Joint Operating Committees' performance. Designing transactions is best described in the Preliminary Specification as coordinating the marketplace.
As a result of the pooling concept, which is a basic assumption developed for the People, Ideas & Objects Preliminary Specification. Some Accounting Vouchers will be open to charges from multiple producers represented on the Joint Operating Committees that a producer firm participates in. The revenue, capital and operations of each of the Joint Operating Committee's accounts are open to the direct debit and credit charges of all of the authorized participants in the Joint Operating Committee.
The pooling concept has been developed as a replacement for the "Operator" designation that currently exists. This is a necessity as a result of the ability for each producer, as a properties designated operator, to have the just-in-time capabilities available for all the properties they operate, demand that they have surplus capacity, or as we describe them as unused and unusable earth science and engineering capabilities and capacity. The ability to pool these critical resources from participating producers of the Joint Operating Committee enables each producer to use specialization and the division of labor to expand the industries capabilities and throughput capacity and releases these hoarded unused and unusable capabilities. This pooling concept also implies that producers will provide resources to the property in disproportionate amounts to their working interests. Any over or under participation equalized monthly.
Producers need to contribute their skills, knowledge, experience and ideas to an innovative oil & gas industry. Each of these producers within a Joint Operating Committee will be able to charge their earth science and engineering capabilities to the joint account. Opening a secondary revenue stream for all producers, being the deployment of their earth science and engineering capabilities to their Joint Operating Committees and to other producers who may be looking to augment their specialized capabilities. All charges are subject to the AFE, lease, budget and cost control requirements which remain the domain of the producers participating in the Joint Operating Committees.
Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” Professor Dosi introduces the theory of Schmookler (1966) and asks “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135). Schmookler believed in “differing degrees of economic activity derived from the same innovative inputs.” People, Ideas & Objects assert that "different incentive structures” and “different opportunities” are facilitated or constrained by the administrative ease with which the producer operates. If the producer is confident that the deal which was conceived is accurately captured in the Accounting Voucher and associated modules of the Preliminary Specification. And the operation is now reporting a substantial, actual profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved. This is in addition to the other six Organizational Constructs inherent in the Preliminary Specification design.
Research & Capabilities
The Research & Capabilities module enables the producer firm to structure a division of labor between those people that develop the research and innovations within the producer firm (Research & Capabilities), and those that will implement the innovations within the Joint Operating Committees (Knowledge & Learning). This is one of the major processes of innovation that are carried out in the Preliminary Specification. Another major process is that it provides the innovative oil & gas producer with the ability to move knowledge and capabilities to where decision rights are held, the Joint Operating Committee. Enhancing accountability for decisions. This module is at the core of the innovative oil & gas producer. Identifying and supporting the key elements of “what” and “how” innovation requires. The Research & Capabilities module is the focus of producers' competitive advantages to develop and deploy earth science and engineering capabilities. What we’ve learned about capabilities is that they are "knowledge, skills, experience and ideas.” And that “knowledge begets capabilities, and capabilities beget action.” This being part of the cure that People, Ideas & Objects, our user community and their service provider organizations are applying to resolve producers' chronic inaction.
There are a variety of interfaces in the Research & Capabilities module that enable and encourage innovation, and develop the producer firm's capabilities. These capabilities are ultimately captured in the “Dynamic Capabilities Interface” which is the key to both the Research & Capabilities and Knowledge & Learning modules. What the “Dynamic Capabilities Interface” captures, documents and enables the deployment of producer firm capabilities. These are the firm's knowledge, skills, experience and ideas. These capabilities are deployed or tagged according to their pertinent geological zone, geographical area, etc. And as a result these capabilities will be populated into the various Joint Operating Committees that meet that criteria in the Knowledge & Learning module. Each producer within the Joint Operating Committee will populate the Knowledge & Learning module in this manner. It is pertinent to note that the information documented is explicit or implicit knowledge developed regarding that producer's capabilities and innovations. The tacit knowledge is the capabilities and capacities inherent in the contributing producers' competitive advantages.
The far more valuable tacit knowledge can not be captured by any medium. It is resident in the earth science and engineering resources of the producer firms. These resources are referenced and documented through the explicit knowledge of their Research & Capabilities module and form the distinct competitive advantage of the producer. Just as our user community can capture explicit knowledge of the oil & gas industry and codify that in the Preliminary Specifications ERP software. It is their tacit knowledge they’ll deploy through their service provider organizations. Offering People, Ideas & Objects software and their services as the comprehensive implicit and tacit knowledge solution that producers and Joint Operating Committees require in our Cloud Administration & Accounting for Oil & Gas software service. Ensuring the producer is dynamic, innovative, accountable and profitable everywhere and always on the North American continent.
An objective that we are fulfilling in the Research & Capabilities and Knowledge & Learning modules is that we are moving knowledge to where decision rights are held. The Joint Operating Committee is the industry's operational decision making framework. With the current method of designating one of the producers in the Joint Operating Committee as the operator there is an attempt to move the decision rights of the Joint Operating Committee to where knowledge resides. In the Preliminary Specification we have eliminated the concept of operator and replaced it with the pooling concept and therefore we are able to align the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee with the compliance and governance framework of the producer firm. Providing us with speed, accountability and profitability missing and unavailable in current organizational structures. This therefore will require that we move knowledge to where decision rights are held. By doing so we eliminate a major point of conflict between the partnership represented on the Joint Operating Committee and the producer designated as operator.
The Research & Capabilities module of the Preliminary Specification provides the means by which the producer can take their inventory of shut-in wells. These are those wells that have been shut-in due to profitability issues. And determine if there are means within the producers' earth science and engineering resources to move the property back into profitable production. It is also a testing ground where the focus is on the issues at hand. Where new ideas can be tested and applied if they succeed. Where those successful ideas can be further developed within the producer's earth science and engineering resources capabilities. This will enable the producer to successfully replicate the revised methods across the entire production profile. Test, prove, develop and then deploy. Innovative processes always involve mistakes. And if the innovations failed, which is the precursor to success, these will be documented in this interface to provide organizational learning from that failure, not replicate it. The division of labor between the Research & Capabilities and Knowledge & Learning modules ensures that these updated procedures are fully proven, documented and deployed successfully. And the producer doesn’t have everyone attempting to be innovative in an environment where things may be learned over and over again at great cost and disruption. It is these innovation processes captured throughout the Preliminary Specification, based on the primary research of those listed in our bibliography. This will ensure that the costs of oil & gas exploration and production remain cost effective for consumers.
Please note the proprietary information contained within these modules is copyrightable and the process of putting them within the Research & Capabilities module is an act of publication. The Research & Capabilities module is technically implemented using blockchain technology. In this way, the control of the information can be managed. Any additions or deletions to the information will be aggregated in the interface by reading subsequent blocks in the chain that amend the information.
Knowledge & Learning
We now move onto the Joint Operating Committee-focused Knowledge & Learning module of the Preliminary Specification. This module shares many similarities with the Research & Capabilities module. In fact, it is populated with capabilities from the “Dynamic Capabilities Interface” as its base of information. Recall that one of the objectives we're working to achieve is to move knowledge to where decision rights are held, the Joint Operating Committee. As noted, the Research & Capabilities module organizes producer knowledge based on geologic zones, geographical areas, etc. This is so that the information pertinent to each zone can be separated into its own “packaging” within the Knowledge & Learning module. Additional ways data may be sorted in the Research & Capabilities module include vendor geographical location, conventional or unconventional, drilling, completion, etc.
With each Joint Operating Committee concerned with one or two geologic zones, the focus of the Joint Operating Committee can be limited to just those specific areas and capabilities. What is particularly different about the Knowledge & Learning module, however, is that the information contained within the module is aggregated from multiple producers. Any of the producer participants within that Joint Operating Committee who have pertinent information contained within their Research & Capabilities module will have that data and information for those geologic zones, geographical regions etc, of that specific Joint Operating Committee populating the Knowledge & Learning module for that property.
With the potential to have multiple companies' contributions of research and capabilities related to that area. It is critical to have the information organized within the Knowledge & Learning modules in a manner that when the multiple producers' data is merged, use of the data is possible. Each capability contains the knowledge, skills, experience and ideas of the people who are part of that producer firm and the service industry representatives. People, Ideas & Objects have developed the football analogy where operational decision makers are presented with a list of these capabilities in the "Dynamic Capabilities Interface" and can select and deploy them in much the same fashion as the head coach in a football game.
As we have learned “knowledge begets capability, and capability begets action." Quotes are from Professor Richard Langlois' book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.”
Indeed, the job of the entrepreneur is precisely to introduce new knowledge. The “Circular Flow of Economic Life” is a state in which knowledge is not changing. Economic growth occurs at the hands of entrepreneurs, who bring into the system knowledge that is qualitatively new – knowledge not contained in the existing economic configuration. p. 27.
Here we begin to see the role that people have in the makeup of the oil & gas industry. And to sum it all up, it’s everything. One also needs to consider the role of computers in these “actions” and that it amounts to not very much. People, Ideas & Objects divides the jobs between what people do well, thinking, generation of ideas, leadership, collaborating, deciding learning, etc and leaves memory and processing to computers.
There has to be a mechanism by which new knowledge enters the system. And that mechanism cannot be rational calculation, for as David Hume (1978, p. 164) long ago observed, “no kind of reasoning can give rise to a new idea.” p. 27.
There is much to be done in the oil & gas industry and much of it involves blazing trails. People will need to work hard. The challenges and opportunities are of historical significance and will require dedication from many people.
What has been done already has the sharp-edged reality of all things which we have seen and experienced; the new is only a figment of our imagination. Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. p. 27.
The Research & Capabilities and Knowledge & Learning modules work hand in hand to provide producer firms and Joint Operating Committees with an innovative footing. One that does not replicate errors continuously and learn what’s already learned last year, and the year before or just over there. Providing a structure that ensures that innovation is the focus and results of the activities that drive profitability across the continent. However, it ensures that costs are managed in a manner that provides consumers with the lowest possible costs of oil & gas exploration and production.
People, Ideas & Objects appreciate industries' concern about documenting, publishing and adopting this method of operation. The conclusion regarding the Research & Capabilities and Knowledge & Learning modules is that producers “knowledge begets capability, and capability begets action.” It is through the successful implementation of exploration and production processes on their land and asset base that producers will be competitive. Operational excellence is a producer's focus and concern. Ownership of a recipe or music doesn’t make anyone a world-class chef or conductor. It is equally true that ownership of how and what land, engineering, or earth science and service industry vendors offer does not secure a profitable oil & gas enterprise. What is necessary is to be able to effectively, efficiently and successfully coordinate these resources in the manner necessary for dynamic, innovative, accountable and profitable oil & gas producers to compete. The evidence of this is in the fact that the service industry extends the producer firms geographical and technical capabilities, using their latest innovations and dynamic resources. They are active in their marketplace which provides for the oil & gas industry. Where those that provide producers with their products and services are from the most innovative and competitive providers. There are thick and prosperous markets available for those providers to compete and satisfy their customers, the oil & gas producers. The choice is quite logical. Producers can participate in these markets or extend their internal domain to account for all they need. This is not to suggest to the producer's officers and directors that the latter is a viable business model.
Operations Management
Producers in oil & gas are faced with a challenging dichotomy. One in which profitable operations are the only acceptable means of production everywhere and always from this point forward. Much has been wasted in the past decades and producers' capital structures are unsupported. Damage and destruction are extensive. Only a comprehensive rebuild of the industry and its secondary industry based on the Preliminary Specification resolves the existential organizational issues facing producer officers and directors. Continuation of “muddling through” does not appear to be capable of dealing with these issues or resolving the most difficult future the industry has ever faced. The other side of this dichotomy of providing profitable oil & gas operations everywhere and always is that the consumer needs reliable, secure, abundant and affordable energy resources. With North American energy independence necessary for the 21st century. With 10 to 25 thousand man hours of equivalent manpower contained in each barrel of oil equivalent. This resource supply is necessary for our civilization.
We’re not able to get there with the chronically unprofitable production of the past four decades. Investors have bowed out and the only source of capital large enough to fund these capital demands is the industry's profitability. In other words the oil & gas business in North America must be operated as a going concern. Only the Preliminary Specification has the plan to make that happen. We have no right to pass an industry on to the next generation until we can prove we produced the resource responsibly. Which means all of it was produced profitably. Each barrel of oil equivalent should be profitable in the “real” sense from this point forward as the resource is irreplaceable and is the blood of our economy. If we lose the script now it would not be difficult to foresee foreign sources of oil & gas demanding North America to play second fiddle to China, Russia or others in terms of our supply demands?
People, Ideas & Objects Operations Management module is designed to provide producers and Joint Operating Committees with a means to monitor and control their operations. Establishing a sound base of data and information necessary to ensure decisions and actions are conducted with precision and profitability in mind. Where the financial, operational and technical data of the producer or property are available for use. Technologies involved in the Internet of Things are deployed and operational to benefit these users. And resources are deployed based on budgets and plans generated and set through this module. The Operations Management module is the aggregation of and accumulation of the efforts undertaken in the Preliminary Specifications other 13 modules. It is presented in a format where information can be used effectively for profitable decision making.
Analytics & Statistics and Performance Evaluation
Performance Evaluation and Analytics & Statistics modules have similar interfaces. The Performance Evaluation module is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user-based tools that enable analytical and statistical calculations to run against the data and information contained within the People, Ideas & Objects ERP systems and other unstructured data they either manage or wish to access. Providing their users with the ability to analyze data in more creative and innovative ways in seeking value for their firm or Joint Operating Committee. They will be used predominantly by oil & gas producers, JointOperating Committees and People, Ideas & Objects service providers daily. Although the service providers will have access to a very small number of data attributes, only those data elements associated with the individual process they manage, they will have access to the entire industry's population of that data.
The types of data and information prepared and presented in these modules are dependent on individual users. They will be unique based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will come up with the next breakthrough innovation we should expect it from anywhere. Part of the innovation process is discovery of the problem and we all see the situation from different perspectives. These different perspectives will ultimately influence the point of view and innovation. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. 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.
Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are difficult to discover and we need to be able to evaluate them and assess them based on their impact and ability to build value. What sometimes appears to be a sound idea can also become an area where the firm could be exposed to unnecessary risk or loss. Having access to historical data is necessary. However, in the 21st century it is also necessary to have advanced analytical tools available to analyze that data.
In the Preliminary Research Report, People Ideas & Objects identified two significant findings. The process of innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. A dynamic, innovative, accountable, and profitable industry is built on the Preliminary Specification. And two, that the Joint Operating Committee is the key organizational framework for innovation in the oil & gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firms is critical.
Within the Preliminary Specification we have also identified that many of the data elements within the Joint Operating Committee are public in nature. Production volumes and how wells were drilled are generally released into the market soon after they’re obtained. In terms of proprietary data there is less of an issue regarding the Joint Operating Committee data. It is not to suggest that this removes the need to have the highest levels of security in all aspects of this data. This is only to demonstrate how the data within these two organizations is fundamentally different from one another. Producers possess a number of unique characteristics, considered proprietary technologies and understandings that make them unique. The value discussed within the Preliminary Specification of the treatment of data and access builds significant value for all concerned. Participation is necessary in the industry. The issues and opportunities are not resolved here and won’t be resolved until our user community studies and determines how it is handled. Today’s existing producers, should they survive their own self-inflicted destruction, may want to express their concerns and also participate in our user community to ensure that their concerns are considered.
Work in the 21st century will be different. People need different tools. The Performance Evaluation and Analytics & Statistics modules are the beginning of these next-generation era tools for people's work. We often discuss automation, specialization and the division of labor in the Preliminary Specification. There is also specialization and division of labor between what people and computers will do and that is reflected here in these two modules. Computers will be responsible for storage and processing. People will be responsible for leadership, problem solving, issue identification, research, thinking, ideas, design, planning, decisions, creating, negotiating, compromising, collaborating, innovation and many other things we do well. Much of these things are generated based on facts that will be determined through the Performance Evaluation and Analytics & Statistics modules.
Compliance & Governance
Compliance & Governance, the module everyone loves to hate. It is my hypothesis that everything went wrong here, at compliance and governance. What I mean by that is in the 1960’s when computers were introduced to oil & gas companies. The question is asked what we will do with them. And of course one of the answers was accounting. Then as they became ever more powerful and more capable they began to add more tasks to their duties and added the natural follow-on concerns of tax, royalty and compliance. Soon the culture became focused on those “compliance” requirements of the “firm” and the Joint Operating Committee became something used over there. Soon after this, engineers and geologists began speaking a different language to "business" types. Divisions grew and the business focused on the corporation and its need to file the required paperwork with the relevant agency. This was done in the appropriate time frame and colored form.
Anyway the real business of the business, the Joint Operating Committee somehow survived and if we align its legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks to the compliance and governance frameworks of the hierarchy everyone can start speaking the same language as the engineers and geologists and start to get some real business done. And as People, Ideas & Objects research has shown this would provide the oil & gas producer with enhanced speed, innovation, accountability and profitability.
Compliance & Governance is the eleventh module in the fourteen modules of the Preliminary Specification. It’s also no accident that I added Compliance & Governance as one of the last, as the question should be asked is. How are we planning to ensure compliance with all the regulations for all the module specifications we've discussed so far? And I would assert that this is why these are user-based developments. But seriously, governments seem to like regulations on oil & gas companies. With Information Technology enabling various governments to issue technical business rules, technical specifications, XBRL syntax’s and other technological frameworks for these regulations, the ability to write these “frameworks” only seems to have encouraged them to write even more regulations. The larger point is that these frameworks provide software developers with distinct advantages in enabling regulations within software.
As indicated earlier regarding our user communities' determination of the People, Ideas & Objects application scope. Part of that scope determination will include which regulations and jurisdictions it must comply with. With so many jurisdictions requiring compliance, each transaction may need to be assured of compliance with multiple jurisdictions. Add to that, the transaction may be generated through a Joint Operating Committee owned by a variety of producers. And those producers may have an international background and the Compliance & Governance module gains importance.
From the point of view of a producer, maintaining the database and applications for all of the compliance frameworks they need to concern themselves with is difficult. The number of people needed to keep applications up to date is significant. However, with People, Ideas & Objects, as one software developer acting on behalf of the industry as a whole, the job becomes much more specialized and manageable. Then again if we were building these applications to serve an industry we would use the division of labor and specialization to manage these tasks in a way that would significantly lower the costs of compliance, and increase the quality of the producers' compliance. Sharing the non-rival costs of building and maintaining the infrastructure of our Cloud Administration & Accounting for Oil & Gas software and service.
I foresee just the royalty compliance requirements of these applications potentially including many dozens of different jurisdictions. Approaching this from a software engineering point of view as a sole producer is not cost effective in the least. Considering these costs are replicated across each producer company, we begin to see the costs of compliance escalate to the levels that they are today. There is another way, and that is what is proposed here in People, Ideas & Objects. It is referenced earlier in Professor Paul Romer’s “Endogenous Technical Change” paper where he introduced non-rival services and sharing. Along with the many other innovative ways we’re proposing to deal with the issues of the oil & gas industry. For example, the service providers' Cloud Administration & Accounting for Oil & Gas offerings.
Here we have the beginnings of compliance and governance for the innovative oil & gas producer and Joint Operating Committee. What we need to do is deal with the compliance of an innovative oil & gas producer with the tools of the 21st century. Those include automation, specialization and the division of labor. And in terms of governance, we can begin to provide the producer firm with the appropriate operational governance consistent with innovation demands. We learned that innovation does not arise from sloppy compliance and governance.
Industrial Command & Control
Throughout the Preliminary Specification we've discussed our solution to one of the premier issues the oil & gas industry faces. That is, the demand for earth science and engineering effort per barrel of oil increases with each barrel produced. This is best represented by the steep escalation of oil & gas exploration and production costs. Meanwhile, the critical earth science and engineering resources are relatively fixed and difficult to expand. Add to that the anticipated retirement over the next twenty years of the current brain trust of the industry and the problem becomes a critical concern.
For the time being, there are few short-term solutions to the status quo volume of geologists and engineers. It takes the better part of that time to train them to operate effectively in the industry. Our resolution in the People, Ideas & Objects software applications modules involves what we’ve developed and called “Industrial Command & Control” (ICC) and the application of specialization and division of labor. Specialization and the division of labor are well known economic principles that bring about greater economic productivity from the same volume of resources. Given that the volume of earth science and engineering resources is known for the foreseeable future, specialization and the division of labor will provide us with a tangible means to potentially increase the capability, capacity and productivity of the oil & gas industry, yielding multiples of today’s performance over the long term. With software defining and supporting organizations, today’s producers must approach a heightened level of specialization and division of labor through software in broadly dispersed North American markets.
People, Ideas & Objects ICC involves the implementation of specialization and the division of labor in the disciplines of geology and engineering. As of now, each producer firm must acquire all Earth Science and Engineering capabilities to meet the needs of its "operated" properties. Which creates capacities and capabilities for these scarce resources that are deployed “just-in-time” within the producer firm designated operator. When each producer within the industry pursues this same strategy, inefficiencies in these critical resources result. Leaving resource utilization rates lower due to the volume of unused and unusable resources locked in each producer firm.
What is proposed through the People, Ideas & Objects software application modules ICC is that the producer's operational strategy avoids the “operator” concept. Instead, it begins “pooling” these technical resources through each of their partnerships represented in their Joint Operating Committees. That way the inefficiencies that would have been present in the industry can be made available and used through industry wide, producer focused, advanced and advancing specialization and division of labor. Where many of the lower end processes are offloaded to service providers who specialize in that basic skill on behalf of many producers. This is done in a geographical area or other specialization. And each individual producer focuses on a specialized element of science as it develops and innovates upon that. People, Ideas & Objects believe producers will soon be unable to commercially support the full scale of engineering and earth science disciplines tasks and responsibilities as they have in house. This will be due to the shortages of resources, the cost escalation of these resources in the market due to their shortages, the expansion of demand from higher production volumes, the demands for more science in each incremental barrel of oil produced, the anticipated, substantial expansion of the sciences and the need to innovate upon that expanding science.
What these concepts demand is what the Security & Access Control module is designed to provide through the ICC. The People, Ideas & Objects system must provide access to the right person at the right time at the right place. This is with the right authority and the right information and on the right device. With the ICC there will also be a manner in which the technical and all the resources pooled from the producers, interact with the appropriate governance, compliance and industry standard chain of command.
Before the hierarchy which was a commercial development of the 20th century, there was only the military structure in terms of large organizations. The main difference between the two is subtle but significant. Military structures are broader and flatter than hierarchy. That is one of the ideals we are seeking, but the more relevant feature is the ability for the chain of command to span multiple internal and external organizational structures and to move resources from different areas of the military through standardization.
The nature of the people interacting through the industry standard chain of command layered over the Joint Operating Committee will include all of the disciplines involved in oil & gas. The contributions of staff, financial and technical resources will include all those employed by the industry today. I could see many office buildings being refurbished to accommodate a single Joint Operating Committee on a large property. Staff from the different producers may be seconded to work for one or more Joint Operating Committee, not at any particular producer firm.
As background we should recall that each individual would have different access levels and authorizations in terms of access to People, Ideas & Objects ERP systems. Assuming different roles and responsibilities, they would impose different access levels to data, information, processes and functionality. Additionally, Security & Access Control is the key module to implement Industrial Command & Control across People, Ideas & Objects software modules. This structure, particularly in a Joint Operating Committee, would weave multiple producer firms under one industry standard chain of command. In addition, it would include an interface to ensure that all processes were "manned" to ensure compliance, governance and overall completeness.
Artificial Intelligence
There are those that demand we add a module to accommodate Machine Learning and Artificial Intelligence. I’m a proponent of Machine Learning as it has been applied throughout the Oracle product line to add value for their customers. People, Ideas, & Objects will benefit from those products and services as they are features of their core products such as the operating system and database. I am not enamored with Artificial Intelligence, and do not see much value being generated. However, it is early days and there will be innovations in both the technology and those that employ it here in this module. The artificial intelligence we use focuses on ERP systems, data, and information for producers. In that sense this module will provide Security & Access Control features and functions for those that expect value. We will provide the frameworks and tools for them to grow organically.
Thomas Siebel of C3.ai has a fascinating background. He is the founder and principal behind Siebel Systems which was sold to Oracle earlier this century for $5.8 billion. This is the foundation Oracle used to build Oracle Fusion Applications, Oracle Cloud ERP and the base of the Preliminary Specification. He states that 99% of AI initiatives fail. Using Professor Paul Romers' "Endogenous Technical Change" and what we have established as an Organizational Construct, these costs can be minimized through the People, Ideas & Objects shared infrastructure model. An initiative that Thomas Siebel started for C3.a1.
One of the reasons I have a negative perception of these technologies is another quote from Winston Churchill. This quote is from when he was asked in 1942 what should be done for post-war planning.
I hope these speculative studies will be entrusted to those on whose hands time hangs heavy, and that we shall not overlook Mrs. Glasse’s Cookery Book recipe for jugged hare -- ‘First catch your hare.’
We have much to do to rebuild the oil & gas industry brick by brick, and stick by stick. Focusing on that and ensuring efforts are secured is our first priority. This module is therefore placed here to ensure that we will benefit from anything these technologies may offer during the rebuilding process. Building the foundation, instead of the roof, may be the best place to start.
Blockchain Module
We wrote our twelfth module to the Preliminary Specification in 2018. It is the first module that focuses on technology. All of the other modules, including the Security & Access Control module, are focused on the business of the oil & gas industry and producers, as viewed through the Joint Operating Committee. Therefore the Blockchain module provides blockchain technology to all the other modules of the Preliminary Specification. Included within the Blockchain module itself is a detailed discussion of how each module is affected by this technology. I also discuss how I anticipate it will be implemented. This will be its initial implementation. And become more robust as the years pass. I see blockchain as a must-have Information Technology that will be the base of ERP systems that industries will require. I also expect and anticipate that throughout the development of the Preliminary Specification our user community will be able to define the use of the technology in a more effective and efficient way. This is due to the relatively " recent " aspects of the technology and the rapid pace of technology development and adoption at present.
It is Don Tapscott, who has been a leader in Blockchain adoption in businesses, who understands this evolving technology. Has taken a leading role in blockchain technology understanding and implementation. He is a co-founder of the Blockchain Research Institute, which includes most of the companies involved in business and Information Technology and has robust support from all industries. Here’s an introductory video we used in the Preliminary Specifications Blockchain module.
See "Understand blockchain in under 7 minutes: Don Tapscott with Lloyds Bank" below.
The key takeaway from this video is the concept of a “shared network state.” Which accurately describes the perspective and point of view that People, Ideas & Objects have created with the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil & gas industry and producer. As a result everything within the industry becomes a shared network state based on the glue that holds it all together, the Preliminary Specification ERP software. The producers themselves are stripped down versions of what they are today. Their earth science & engineering capabilities, and land & asset base are highlighted and focused upon as their key competitive advantages. Their working interests in the Joint Operating Committees are supported by the service industry through our three marketplace modules. They have a far more involved and appropriate relationship with producers and Joint Operating Committees. Bringing the service industry in as partners in field operations development. The administrative and accounting resources are reallocated to service providers that are established by the People, Ideas & Objects user community members, who have the power and control over how the Preliminary Specification’s software is developed, and are therefore also involved in the day-to-day of the service providers who provide our software and their services to the producers and Joint Operating Committees. Trust, transactions, agreements, vision and direction are understood and implemented throughout this “shared network state". The industry can move forward into what is unquestionably the most difficult future in a dynamic, innovative, accountable and profitable manner.
What we are finding is that the People, Ideas & Objects approach to the oil & gas marketplace is becoming more common sense as each day passes. Our approach is to provide software and indirectly administrative and accounting services to the entire industry with one solution, or as we’ve described it, Cloud Administration & Accounting for Oil & Gas. Our approach is to mitigate the software development costs incurred today by every producer. This is to perform the same non-competitive accounting and administrative tasks as the producer across the street. These costs are replicated across the industry to develop the same capabilities at every producer. Costs and capabilities that are unshared and unshareable. These software development costs, in addition to the overhead incurred in accounting and administration, are a major detriment to the industries ability to be profitable and maintain some measure of control over their costs.
Information Technologies and their infrastructures present new challenges for producers. There are business challenges, which the Preliminary Specification addresses where administrative, accounting and Information Technology costs are escalating further for each and every producer. This is what Don Tapscott calls "the shared network state," which is appropriate, because producers cannot function as islands unto themselves in the future oil and gas industry. We had always argued that the costs of the Preliminary Specification would be lower than what the industry would incur collectively as individual producers. What we have to undertake from an industry point of view will increase our costs, however the base functionality of our applications would need to be put together and maintained by each and every producer. Industry has pushed back on our thinking here, saying the application scope and scale is too large to succeed. If that were the case, how do they propose to build the same functionality within their organization with a single producer budget? People, Ideas & Objects issues arise from the implementation of scope and scale. There may be a few producers who claim an advantage in administration, accounting, and information technology, but it doesn't make sense to claim such advantages.