People, Ideas & Objects Preliminary Specification contains seven Organizational Constructs that producer firms are identified, supported and constrained by. Incorporating these within ERP software allows users of our Cloud Administration & Accounting for Oil & Gas software and services to gain an understanding of the behavior and expectations of what is required by producers and the industry. Providing people within the industry with an understanding of “what, how and why” they’ll be able to use People, Ideas & Objects, our user community and their service providers to build value throughout the industry. In a decentralized environment, deferral of operations away from bureaucracy should not mean loss of control. ERP software, and to an increasing extent the Internet, have become the means by which organizations can operate and achieve organizational performance trajectories superior to today’s. Our seven Organizational Constructs can be seen as both the enablers of performance and the means to maintain control.
People, Ideas & Objects identified the lack of real profitability in the producers across the industry but also with everyone involved across the greater oil & gas economy. Profitability is the largest source of financial support for an industry. This is now well understood and appreciated throughout the greater oil & gas economy. As a result of the self-interest of producer officers and directors, everyone's efforts have been wasted. Capitalists focus on profits earned by investors is therefore appropriate in any and all cases. When investors are satisfied, they provide prosperity for all those associated within a profitable industry in the short and medium terms, and for the future. When they’re not satisfied, they quickly leave, sending the ultimate message of disapproval of the activities being carried out. It is our belief that investors, as were others, were duped for several decades by specious accounting that misrepresented and continues to misrepresent producer firms. Accounting and reporting that aggravated and hid the industry's abysmal performance for a protracted period of time. Leading to complete exhaustion of industry value. What is represented today in the financial statements of the producers is not something to be proud of. Producers' financial statements reflect serious medium to long-term financial challenges. And none of today's financial statements are representative. They are as specious as ever. Built on the promises of “building balance sheets'' and the ridiculous notion of “putting cash in the ground.”
People, Ideas & Objects have documented the fact that chronic overproduction is the source of real unprofitability in North American oil & gas. This has been since at least the July 1986 oil price collapse. Secondly, we noted that the Preliminary Specification published in August 2012, addresses overproduction specifically with a direct ERP software and services solution to this issue. This generates profitability everywhere and always. Overproduction has been the systemic cause of financial destruction in the industry for all but 6 of the past 36 years. Which is in stark contrast to the healthy compensation of officers and directors over this same 36-year period. People, Ideas & Objects has repeatedly stated since May 2004, that software defines and supports organizations. Therefore any organizational change will have to be made in the ERP software first or the organization will revert to what is defined in the current software used. Producers have used this knowledge to secure their franchise by not sponsoring ERP software developments in the industry. Leaving them uncontested in their method and means of “governance.” Today we know that given the ultimatum of committing to the development of the Preliminary Specification, and therefore establishing an overall method of increased dynamism, innovativeness, accountability and profitability everywhere and always in North America. Producer officers and directors on August 31, 2021 chose to ignore the opportunity and stay the course.
It can be described by many descriptions. “Cut and run,” “bail” or “cut your losses.” The one consistency in all of these is their definition of failure. Shale oil & gas has now been deemed a failure by the producer's officers and directors. They’re getting out, selling properties and writing down those shale assets that offered such promise in all of those investment offerings. It’s on to the real deal with clean energy. They're making the transition with oil & gas revenues established by prior investors in an irresponsible and unauthorized fashion. Revenues that need to be used to rebuild the industry and prepare for what is unquestionably the most difficult future oil & gas has ever faced.
Our white paper published on July 4, 2019 entitled “Profitable, North American Energy Independence -- Through the Commercialization of Shale” suggests a means and method in which the industry could turn shale profitable. Upon review the producers refused to consider the initiative. It is far easier to excuse this or that, blame others and create viable scapegoats for why others have failed them than it is to act. Only nine months after our White Paper publication their chronic overproduction dropped the oil price to almost negative $40 and refiners forced them to shut-in production. A claim they made against the Preliminary Specification that shutting-in production would harm the formation was one of the reasons they opposed it. An argument that has now been proven false with no evidence of formation damage anywhere. Within two years of our paper's publication, was it acceptable to declare that shale would never be commercial? Was it acceptable to just walk away from the catastrophe they had created, to then venture off into the clean energy industry that has proven never to be profitable? A place where accountability and performance are secondary to saving the planet, or what is bureaucratic nirvana. Or do they have a plan to make clean energy profitable?
Why was it acceptable that officers and directors felt they could saunter off and forget about serial failures? Especially when there was a plan in place to make shale commercial. Who should hold them responsible and accountable? It should be the boards of directors. This behavior is unacceptable and reflects their history of walking away from all of their failures, not recognizing the need for profitability or understanding what is required to earn it. Oil & gas revenues will be needed to rebuild the industry from the damages caused by these inactions. They’ll also be necessary to fund the future demands of the industry. This is not some far off unknown that producers have no understanding about capability, capacity or competitive advantage. Oil & gas’ diversion of revenues to clean energy is fraud.
We begin with a summary of the seven primary organizational structures in the Preliminary Specification. These structures support dynamic, innovative, accountable and profitable oil & gas producers and the industry. These define the “what, how and why” of the Preliminary Specification at the highest level of its architecture. The most important thing is to adopt a serious approach to the business based on profit at all times and everywhere. What is the behavior and culture of a successful business?
The first Organizational Construct is the Joint Operating Committee. Tying into the industry culture of the Joint Operating Committee and its seven frameworks enables alignment between all aspects of the oil & gas exploration and production process. Creating a dynamic, innovative, accountable and profitable oil & gas producer and industry. This is when the hierarchies compliance and governance frameworks are moved into alignment with the Joint Operating Committees' legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. The results are organizational speed, innovativeness, accountability and profitability over today's base case.
Our second organizational construct is the implementation of Professor Paul Romer’s “New Growth Theory” around "non-rival" goods. Oil & gas can generate real value through sharing and shareable infrastructure such as cloud computing provides. In Oil & Gas, People, Ideas & Objects implement Cloud Administration & Accounting for Oil & Gas. Professor Romer’s theories are integral to our organization and we have captured this in our name. This is representative and derivative of his theory.
Variable cost industry-based administrative and accounting capacity and capability replaces individual producer-based capabilities. Today producer infrastructures are individually replicated throughout each producer firm on an unshared and unshareable basis. Therefore we are substantially reducing the individual producers and overall costs of North American oil & gas exploration and production overhead.
Specialization and the division of labor make up the third organizational construct recognized in the Preliminary Specification. In terms of generating value, these were the only means western economies have built value for the past 246 years. Turning the administrative and accounting capabilities and capacities into industry based variable costs, variable based on profitable production. This will enable these non competitive attributes of the producers to achieve three critical features over today’s business model.
With the reorganization of our user communities and service provider organizations, all producers' costs are variable based on profitability. Producers can shut-in unprofitable properties and maximize their corporate profitability.
Profitable production covers overhead costs or never incurred. Overhead costs are therefore recovered in the current period and a “cash float” is created to pay for these ongoing costs. (Today’s capitalization of overhead does not replenish the cash incurred for current overhead costs for decades. And, hence the need for chronic and annual demands on investors for more investment capital.)
The structure of People, Ideas & Objects software development capabilities, our user community and their service provider organizations provide producers with an iterative and incremental means to improve specialization and the division of labor consistently over the long term. Providing greater industry throughput from the same resource base.
Intellectual Property is the fourth Organizational Construct of the Preliminary Specification. It provides a legal framework in North America that enables the rapid and effective development of the science and technology basis of the oil & gas industry. The brilliance of this American system is the root cause of their economic dominance. Using Intellectual Property which is part of the U.S. Constitution, it seeks to educate, inform, and allow others to stand on the shoulders of giants. It also protects entrepreneurs and innovators' work while they develop the much needed solutions to the difficult issues the industry faces today. Another distinct benefit is that it dramatically reduces innovation costs by eliminating "me-too” and repeated organizational mistakes when innovation is disorganized and unfocused.
The reason People, Ideas & Objects need to be concerned about the startup to junior sector as much as any other classification is purely because the industry’s rebuilding will be done innovatively. Innovation is the basis of the Preliminary Specification. It enables People, Ideas & Objects, our user community and their service providers to achieve our two opposing objectives of providing oil & gas producers with the most profitable means of oil & gas production everywhere and always, and providing consumers with the lowest possible cost of an abundant energy supply. Our decentralized production models and price maker strategy ensure that all production is profitable. Including Exxon’s, Shell’s and that startup oil & gas firm that began this morning. And to do so innovatively to ensure that oil & gas costs remain affordable to consumers. In addition, the commodities production profile and reserves continue to expand by achieving profitable North American energy independence, everywhere and always.
The sixth Organizational Construct that we’re incorporating into the Preliminary Specification is markets with the three specific markets that dominate the oil & gas industry. These are the Petroleum Lease, Financial and Resource Marketplace modules. Each of our modules seeks to provide a virtual representation of the market in the industry. This is done with the facilities of a fully enabled ERP system supporting the activities and actions of the producer firm and Joint Operating Committee. When we’re moving from a centralized to a decentralized organization method through enhanced Internet use. The firm's dependence shifts from internal use to markets. Providing these market facilities within the Preliminary Specification is an enhanced capability for the producer firm, Joint Operating Committees, and the industry at large.
The last Organizational Construct is Information Technologies itself. People, Ideas & Objects are not offering the latest version of new technology. We focus on the oil & gas industry's business value. And enabling that through now mature technologies in the IT market space. IT generates substantial value and is noted here as a full Organizational Construct. This is not only as a stand alone benefit but also as an enabler of the other six Organizational Constructs.
The specific value from the IT Organizational Construct that we’ll bring about is expanding the Cloud Computing paradigm. Bringing about administrative and accounting capacity and capability through our Cloud Administration & Accounting for Oil & Gas software and service. This eliminates the producer's high capital cost in establishing the capability. It reduces these expenditures to a low variable cost incurred only when profitable production occurs. Extending the shared and shareable cost model throughout oil & gas administration and accounting.
From our point of view these are the approaches that we need to take to begin dealing with the serious nature of oil & gas difficulties. This is the approach that will yield the lower cost and higher quality innovative and profitable producers everywhere and always that we’re seeking. Setting a foundation for improving performance iteratively.
People, Ideas & Objects first organizational construct that contributes to our value proposition is the Joint Operating Committee. This is the key organizational construct of a dynamic, innovative, accountable and profitable oil & gas producer. The Joint Operating Committee is the industry's legal, financial, operational decision making, cultural, communication, innovation and strategic framework for the industry. When we move the compliance and governance frameworks of the producer firm away from the hierarchy and into alignment with the seven frameworks of the Joint Operating Committee, we’ll achieve increased organizational speed, innovativeness and accountability among producers. Continuing on with the theme of this wiki page of “what, how and why” we do that, these are some of the advantages gained.
Adoption of the culture of the oil & gas industry in the form of the Joint Operating Committee is one of the fundamental changes in our ERP system. By doing so we’ve changed everything done in oil & gas administration and accounting. We've reconfigured it around its cultural method of exploration, development and operations. Creating an opportunity to solve these issues and take this once in a lifetime opportunity to move back to the more natural flow of the oil & gas business, focused around the seven frameworks of the Joint Operating Committee.
Our research taught us that when alignment of compliance and governance with operational decision making occurs, accountability is the result. This is intuitively understood. We believe this to be a source of conflict throughout the oil & gas industry today which creates an atmosphere and culture of unaccountable decision making. The contradiction occurs when operators assume the responsibility of managing the Joint Operating Committee based on the need to have the requisite capabilities available to conduct the necessary field operations. The Joint Operating Committee holds the operational decision making authority which is then delegated in the operating procedure to an operator based on the results of voting by its producer participants. A threshold percentage is established for any decision to be passed. Let's assume 60% is the required percentage for approval and the operator has a 33% working interest. Decisions are then made on this basis, AFE’s are issued, funds are spent and the initiative fails. Who’s responsible and who needs to be accountable for the difficulties experienced? We believe this to be the root cause of a related issue we identified in our discussion regarding Specialization and the Division of Labor. When producers have never been held accountable for the day to day individual field decisions that were made, during any period of their tenure at the producer, why would they then be held accountable for any decisions when they’ve assumed the officer or director roles in the firm? Just “muddle through.” It is the culture of the industry which developed over the past six decades that underpins this unaccountability. In its place a culture of excuses, blaming and generation of what we call viable scapegoats is the product of this lack of accountability. To resolve this the Preliminary Specification aligns and implements the Compliance & Governance module to the operational decision making framework of the Joint Operating Committee to establish a new culture of accountability for the decisions that are made.
The next point is related to the accountability issue and to other issues around the resource restrictions that are looming in the earth science and engineering resource supply. Professor Richard N. Langlois was an extensive source of primary research we used throughout the Preliminary Specification. His research is in the area of Industrial Economics and the Economics of Innovation. He raises what he calls the agency issue or rights assignment problem in his working paper “The Austrian Theory of the Firm: Retrospect and Prospect.”
The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) who point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). pp. 8 - 9.
Oil & gas has a looming crisis in its ability to source the appropriate level of engineering and geological resources available to it as a result of retirements, low numbers of graduates, higher production throughput and greater volume of work necessary with each incremental barrel produced. People, Ideas & Objects therefore questioned whether the ability of each producer firm would be able to continue to establish the full suite of their in-house earth science and engineering capabilities and capacities at the level necessary to meet all of their needs, just-in-time, on a go forward, commercial basis. This would be particularly difficult when the solution to the shortfall in resources can only be resolved by a revised specialization and division of labor. Producers would not be able to commercially sustain the burden of a full suite of operator capacities and capabilities with such a diverse demand after specialization and the division of labor. And therefore we concluded the control or agency problem would need to be resolved on the basis of the knowledge being transferred to where the decision rights were held. It is specifically in the Research & Capabilities, Knowledge & Learning and Resource Marketplace, but also throughout all of the modules of the Preliminary Specification that we’ve moved the knowledge of each of the participating producers in a Joint Operating Committee into alignment with its operational decision rights. Where it is then possible to pool the available and specialized technical resources of the producer members of that Joint Operating Committee or available in the specialized market.
A secondary point I would raise is the definition of capabilities. Professor Langlois has provided the following definition from his paper “Modularity in Organization, Technology and Society”.
This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific knowledge'' and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." p. 27.
To which we’ve humbly suggested that “ideas” be added to that list. We also have Professor Carliss Baldwin noting that “knowledge begets capability and capability begets action.”
What will become of the oil & gas earth science and engineering related capabilities and capacities now that officers and directors have cast their future to clean energy. Renouncing shale and casting it to the back seat of the bus where no one will see or hear from it again. Shale being what can unquestionably be the most advanced science the industry has ever seen or developed. Shale technologies will at best develop no further, atrophy or be cast to the four winds. I’ll reiterate that People, Ideas & Objects have a plan to make shale commercial in the energy independent North American market in the form of the Preliminary Specification. Shale is a critical and highly necessary element of North America's energy independence.
Officers and directors of producer firms have to stop reading the tea leaves as to what they believe investors want. Investors want profits, everywhere and always, and that is all. With their contrived positioning of clean energy and environmental concerns I would ask what is it in oil & gas that will be the new frontier if it is not clean energy? Offshore, the arctic or conventional, maybe heavy oil or any of the other areas producers previously renounced as commercially viable? It is this focus on clean energy that will do more damage to the industry and seal the fate of the existing producers. What message is being communicated to their investors in oil & gas or its related service industries. Let’s assume the service industry is looking for capital for a driller to build a new rig. Their potential investor’s first question would be “why? Producers aren’t focused on oil & gas, it's clean energy.”
In a related manner, if investors haven’t seen any effort by the officers and directors to make shale commercial, don’t see producers investing in their organizations profitability or remediating any of the damages, what message does that send?
People, Ideas & Objects have repeatedly stated the fact that each boe provides 10,000 to 25,000 man hours of equivalent labor, or 28 to 71 times the entire world's population. Producers' capitulation of shale resources should be seen as irresponsible when we understand that it’s the world's most powerful economy that is the largest consumer of energy. Why aren’t officers and directors seeking to make shale profitable and accountable by adopting the Preliminary Specification? It’s reasons such as these that the people who are elected to the boards of directors are given such responsibilities. Selling to energy consumers the immense value they gain from their use of oil & gas and taking the political high ground away from government actors and environmental groups.
In terms of alignment of the legal framework of the industry. The Joint Operating Committee is the representative organization that is established for the partnership between producer firms in any and all oil & gas properties. It is the standard method in which industry operates and all agreements and understandings are on the basis of the work done through these joint ventures. It is a rarity that a producer firm will have a 100% interest in a property. The diversity of producers in these holdings are necessary to mitigate the producers financial risk and due to regulatory requirements demanding specific land holdings etc in order to drill and produce. Current accounting systems report on Joint Operating Committee activities however People, Ideas & Objects et al have expanded the accounting and administration of these organizations to the level of stand alone reporting entities. Producing detailed, actual, factual financial statements each month for each Joint Operating Committee. It is therefore in that manner that we’re able to evaluate the performance of the property on the basis of its actual cost on a competitive basis of what the North American capital markets expect. By ensuring that each Joint Operating Committee remains profitable on a monthly basis by not overproducing based on commodity price information.
The need to have standardized accounting is necessary from the point of view of having industry rely on the outcome of these methods. Objectivity is achieved as the ability to deal with distinct situations or “manage” producer's data is counter productive due to the global dependence on the data. Consider the process of balancing the production data across the month, across a gas plant with 1 bcf / day processing. Consideration of the elements and needs of the industry and having them captured in the software is a necessity for this reason. The benefit of this strict interpretation is that when it’s reported that a property is not profitable according to our Cloud Administration & Accounting for Oil & Gas’ standard and objective accounting. The producers in each of these Joint Operating Committees will know it is in their best interest to shut-in the property for the short term. They’ll know the property was assessed on the same basis as all the other oil & gas properties throughout the continent and be satisfied with the understanding of the nature of that standard and objective accounting. They will know and be satisfied with the determination of profitability or loss, its impact on their organizations performance, their influence on the processes of determining that standard and objective method and govern themselves accordingly. And therefore increase their organizations performance by only producing profitable properties and to innovatively work within that framework and understanding to increase the value of the property.
It's no longer enough to own just the oil & gas assets. It’s also necessary to have access to the software in the form of the Preliminary Specification which makes the oil & gas assets profitable. We are configuring an industry of successful producer and service industry organizations based on the issues that have caused systemic failures that are and will continue to dictate future difficulties. Non participating producer boards of directors in this initiative will have told their shareholders they’ve opted out of an investment being made in their organizations profitability, accountability and performance.
Without ERP software focused on delivering profitability everywhere and always there is no way in which to organize today’s society in a profitable direction. This is proven through the quality of the ERP systems used in oil & gas today and the systemic lack of profitability throughout the industry in what we refer to as the “modern day software bug.” We should note here that People, Ideas & Objects, our user community and their service provider organizations target market for the Preliminary Specification is the North American based production profile. We are focused on providing an industry wide solution, that upon reading the Preliminary Specification in full, you may agree it demands participation from all producer firms. In the categories of the junior and startup oil & gas producers, the advantages we provide their organizations ensures they’ll prosper and grow. They’ll have distinct competitive advantages over the methods of organization provided under today’s business model. We also know that consolidated producers are not how the industry will survive. It will be the small and startup sectors of the industry that will rejuvenate the industry. Our research revealed that the level of innovation attributable to the small and medium sectors of an industry were as substantial as what the larger sectors contributed. Although the larger sectors contributed larger amounts in total spend it was no greater than the effect of what these other sectors contributed.
The producer organization that we define and support in the Preliminary Specification sets out to employ and deploy much higher levels of specialization and division of labor. We believe the overhead costs of the producers demand these be dealt with by making producer organizations more efficient through the application of an advanced, and continually advancing, specialization and division of labor. We also turn producers' overhead costs from a fixed, producer based, capacity and capability, into a variable, industry based, capacity and capability. The overhead's variable behavior being based on a Joint Operating Committees ability to produce profitable production.
What the Preliminary Specification defines and supports is a reallocation of the producers administrative and accounting resources into the service providers who are headed by one of the People, Ideas & Objects user community members. Our user community and their service providers are independent businesses that are specialized on one administrative or accounting process and conduct that process on behalf of the entire North American oil & gas industry as their client base. Whereas if that Joint Operating Committee was producing for that month, under our decentralized production models price maker strategy, we can reasonably assume it’s profitable. Then the processes that are specifically administered by each of the service providers will be invoked and their associated billings for each process will be charged directly to the individual Joint Operating Committees. If the property is not profitable then the producer will shut-in the production and none of the service providers will receive any data from our task and transfer network and therefore no accounting or administrative processes will be conducted and subsequently no service provider billings will be rendered. The shut-in property therefore does not incur a profit or a loss, but a null operation. In either scenario overhead costs are covered in the current period through either profitable operations or the fact the cost behavior is variable under the Preliminary Specification, and as a result not incurred.
Producers today defer the recognition of overhead costs by capitalizing on average 85% of their overhead to property, plant and equipment and recognize them through depletion over the course of the subsequent decades. Leaving them looking for the cash necessary to pay next month's overhead costs as the current month's overhead costs are never included in the costs passed to the consumers. And hence the producers' past excessive demand for annual investor injections of financial resources. This error in basic cash management continues unaddressed today as overhead is where their executive compensation skeletons are hidden. The lack of transparency on these costs is due to the remaining uncapitalized overhead costs realized in the financial statements do not rise above the point of materiality.
There are many benefits for producers to begin operating in this manner. First they will reach their optimum profitability when losses are no longer diluting profitable properties. When all costs are variable, production will be profitable at 25%, 100% or at any level of their production profile. This also preserves their oil & gas reserves for a time when they can be produced profitably. Those reserves no longer have to carry the incremental costs of the losses that would otherwise have been incurred if they continued to produce unprofitably. The commodity markets will find the marginal price when the unprofitable production is removed from the marketplace. Increasing the value of all the producers' production. Keeping the commodity as reserves can be seen as an affordable means of storage as opposed to incurring the costs of production and storage or what may be sold unprofitably.
Producer officers and directors assert the Preliminary Specifications price maker strategy is collusion. If making independent business decisions at the property level, based on detailed, actual, factual, standard and objective accounting information that is determining profitability is collusion, then? Once they realized their collusion claims were moot they stated unequivocally that they could never shut-in any production, it would cause the formation to “fold over on itself” or other such excuses. That is until they ran the oil price down to negative $40 in April 2020. Refineries had to tell them they wouldn’t take anymore, forcing production to be shut-in. Upon resumption of the covid induced shut-in level of 25% of the global production profile, producers reported there was no reserve damage whatsoever. There stands today no justifiable reason not to implement the Preliminary Specification. Oil & gas commodities are price makers, not the price takers the producers assumed they were for all these decades. The one critical aspect of a price maker is that they will only bring on new production when it’s profitable. This method we’ve developed is detailed further in the Preliminary Specifications Preamble. It is a direct result of the reorganization through a hyperspecialization of these resources in the service providers noted above.
The question is asked regarding heavy oil production. These operations are not able to be shut-in as the process dictates constant production. Shut down and start up costs would be somewhat terminal to the operation. There is also the argument that they’re not operated in the same manner as a conventional or shale Joint Operating Committee. Including their ERP systems which are quite different from the oil & gas producers. The question therefore is why wouldn’t this preclude them from participating in the costs of the development of the Preliminary Specification? Their production profile is in excess of 4 mm boe / day and are therefore significant benefactors of the industry activities in ensuring that all production is produced profitably. People, Ideas & Objects' alternative question is why would the heavy oil producers be allowed to benefit in such a material way on a free ride basis.
Overall our decentralized production models price maker strategy invokes a high level of production discipline within the North American oil & gas industry. Achieving maximum profitability can only be gained through the fact that unprofitable properties dilute corporate earnings. Therefore the need to ensure they are fulfilling their primary task of maximizing profitability becomes the predominant method of production discipline. In order to compete in the capital markets of the 21st century will be much different than what it was in prior years. With technology and other industries providing growth opportunities, for oil & gas companies to argue they are in a growth mode precludes them from that competition. They are a primary industry with commodities that are subject to the price maker principles of economics. This will also affect producer's capital allocation and capital discipline. Capital investments will only be made with the assumption or demand that they be immediately profitable, and why would they invest in them if they can’t achieve that criteria. This invokes a far different criteria as to what is done in the industry and we can cast the foolishness of “building balance sheets,” “putting cash in the ground” and the like to the scrap heap of history.
The producer's 2020 / 2021 consolidation route is contrary to every possible reality on the ground in the business world today. Concentration of the bureaucracy is not going to resolve what has afflicted the industry for the past four decades. Rebuilding as People, Ideas & Objects propose will involve a dynamic industry based on a decentralized, connected environment such as the Internet provides. Hierarchical strata of advanced paper shufflers is a future failure, best defined. To bring about an ERP system for the industry such as the Preliminary Specification provides; must consider the opportunity of what is commonly referred to as disintermediation and the tried and true specialization and division of labor principles.
However, bringing one of the most complex systems into one of the most complex industries into the environment of the small and startup producer is foolhardy to consider. How could that ever be a commercial software product? Or be provided to a commercially viable small, junior, intermediate and integrated oil & gas producer? And that is the fact of the issue. We need to ensure the future of the industry is in the hands of the oil & gas men and women who will knock down the barriers that stand in their way, just as so many have done before. The constraints and reality of just the regulatory, compliance and investment demands are real and an impediment to these needs. That is, if small and junior producers could not access the kind of systems necessary to operate in that capital environment, no matter their size, the capital markets will remain forever closed to them. An untenable barrier today that will be even greater in the near future. Effectively shutting the door on a large portion of the innovative nature of the industry.
Under the Preliminary Specification a startup or junior producer would no longer need to establish the point where they’ll have to generate the excess of $3 to $5 million of free cash flow necessary to offset the annual base overhead of the firm. For the administrative and accounting they’ll only be incurring the variable overhead costs of the service providers fees when and if used. The service providers are there to enhance the explicit knowledge contained in our software with their tacit knowledge they provide as their services. It is a variable cost, industry based capacity and capability available to the industry in the form of Cloud Administration & Accounting for Oil & Gas. Not only are these overhead costs variable, but if they’re incurred that denotes profitable production, indicating these costs are covered, or the property is not producing and as a result not incurring any of these overhead costs. At the same time, due to specialization and the division of labor, all firms in the North American industry will be fully capable and have the administrative capacities available to deal with all of their needs through these service providers. And there are more attributes of our system that provide benefits for the new oil & gas industry People, Ideas & Objects, our user community and their service provider organizations are building.
People, Ideas & Objects have identified new cost structures that will diminish the performance of the producers. These include the costs of:
Recovering the past property, plant and equipment account balances, or as we describe them, the unrecognized capital cost of prior production. Whereas if recognized today and passed to the consumer it would provide incremental cash flow via our decentralized production models price maker strategy to provide dividends in compensation for the past excessive reliance on investors. And reduction of bank debt that predominantly supports the property, plant & equipment account.
The refurbishment of the infrastructure as it stands today.
The rebuilding and expansion of the infrastructure.
And finally the looming and escalating reclamation costs of the industries past.
The producers have incurred each of these costs as a result of providing for the consumers energy needs. Without a means of passing these capital costs incurred in a capital intensive industry on to the consumers, such as the Preliminary Specification does, they will bankrupt the industry, or their investors under the officers and directors current and consolidated business model. These form the legacy of the producers in terms of the property, plant and equipment balances which we’ve determined are not transferable out of the corporation. Taking on the expansion of the infrastructure may be the largest of these costs, and I would suggest the greatest opportunity for all concerned in a dynamic, innovative, accountable and profitable primary oil & gas industry, and most specifically the secondary and tertiary industries.
The Preliminary Specification implements specialization and the division of labor across the producer firm and most particularly in the earth science and engineering capabilities and capacities of the producer firms and industry overall. We list this as the first step in our solution for the startup and junior producers. These capacities and capabilities are becoming increasingly burdensome to each of the producer firms due to their unshared and unshareable nature, but for different reasons from the administrative and accounting difficulties mentioned. The costs incurred to maintain these capabilities are growing as a result of the advancement of their science and technological development which demands further specializations be undertaken within each of the producer's capabilities, and critical competitive advantages. We believe that all producers have reached the point where the demands to maintain these capacities and capabilities have expanded beyond the usable population of these technical resources. Or will soon. With the retirement of the brain trust of the industry, and the universities not producing anywhere near the replacement number necessary, the increased deliverability and greater demand for the technical resources for each incremental barrel of oil produced a critical shortage will soon demand that these technical resources will become too rare, too costly and too unavailable to maintain, not to mention, unable to expand the deliverability of the North America based industry.
In addition to this limited technical resource supply we also believe that the producer firms are at a point now where the costs of their scientific engineering and geology needs are growing beyond their commercial grasp. Nonetheless, a decidedly higher level of specialization and division of labor will be needed in the areas of earth science and engineering in order to increase its throughput from this resource. It is the unshared and unshareable makeup of these capabilities that we find the difficulties once again. Producers need these technical resources for a variety of just-in-time purposes, as operators, for their highly technical areas. If we assume that across the industry the utilization rate of these technical resources are at 75% due to organizational inefficiencies. Then by releasing that other 25% and deploying that unused and unusable capability more effectively we’ll have what I believe to be the second aspect of the solution of these pending and most certainly future difficulties. Achieving a minimum of a one third increase in the capacity with higher output from improved specialization and division of labor, providing us a good start to solving this difficulty. The question therefore arises what are the producers distinct competitive advantages. They are their land & asset base, and the coordination of the markets earth science & engineering resources.
People, Ideas & Objects et al have implemented a variety of changes within the Preliminary Specification. The first is to consider the producer firm from the time the Preliminary Specification is operational, to have two sources of continuing revenues. The oil & gas sales and the revenues earned by all of their earth science and engineering capacities and capabilities being deployed and employed in the form of a revenue generating capacity. Whether that be to one of the producers own Joint Operating Committees, or in the consulting of the individual to other producers / Joint Operating Committees, as a client, of which they may / may not have an interest in. Due to the specialization and division of labor demands producers will need to have chosen to specialize or acquire a specific capability on the basis of the distinct specializations and competitive advantages they hold or desire. These producer specialized technical revenues will then offset these engineering and geological costs incurred and will be directly charged to either their Joint Operating Committees or other producer clients who need to augment their needs with other specialized services.
In terms of an opportunity in this new oil & gas industry this second source of technical revenue may be seen as the initiation of the start up oil & gas producer firms' initial revenues. More than that they’ll be able to offset some of the additional costs of the head office burden that are not considered part of the Cloud Administrative & Accounting for Oil & Gas. And this will apply to all producers no matter their production profile. When producers are specializing on their distinct competitive advantages, and all producers including Exxon, Shell and Chevron will need to do so, the demand for outside technical resources will be required to augment their diverse needs. The ability to offset some of their engineering and earth science costs with direct revenues of a non oil & gas revenue source. And the ability to access only the administrative and accounting software and services they need when they need them works to defer much of that base load $3 - $5 million dollars of overhead that is an inhibiting factor to the startup and junior oil & gas producer success.
In a world where software has to define and support the organizations that exist. This is some of the “what, how and why” we’re able to provide North American oil & gas producers when the Preliminary Specification is delivered. The facility most responsible for this capability of making direct labor charges to the Joint Operating Committee is what we are implementing in the industry is our Work Order. Officers and directors may claim that charging labor directly is already available through the systems they use. Which is true they are able to allocate their labor costs to the field. However not with the necessary features of raising it to the point of making it a defined technical revenue stream of the firm. And the feature of making it a system that interacts throughout the industry. Allowing for the interactions between the resources they need and where they need them. Subject to the appropriate approvals and governance. Or enabling the second defined purpose of the Work Order system in order to enhance the industry wide innovativeness through the establishment of working groups etc. Our Work Order system is able to bill its costs at all times to either corporate overhead, Joint Operating Committees AFE or to a lease. Therefore the billable time of the individual engineer or geologist would be deployed within the producer 100% of the time they were working for the producer. And this is an inherent part of people beginning the establishment of their own producer firms which rely on their talents of their much needed earth science and engineering capacities and capabilities, not their skills in attracting capital.
It was during this conference where Oracle announced what I consider to be the next phase of the Enterprise Resource Planning (ERP) evolution. My perception of what was announced is a new direction where the overall technological architecture is accepted as mature and capable to undertake this phase and that technology can begin to bring substantial value to clients through Oracle Cloud ERP. When I look at the overall landscape in business today I see many decades of iterative development work that can be done which is similar to what is now available for the North American based oil & gas producers by adopting the Preliminary Specification. It may be that we are beginning what will be considered the era where the promise of Information Technology is realized.
There is specialization and division of labor between Oracle and People, Ideas & Objects, our user community and their service provider organizations. Oracle is focused on building value for its clients through the development and implementation of generic business processes. This is done by applying the principles of specialization and division of labor, standardization, objective process management, automation and sharing through Oracle Cloud ERP. The Preliminary Specification focuses on these same methods to develop value for North American producers in the oil & gas business. Therefore the combined approach of Oracle and People, Ideas & Objects includes all aspects of the producer's business needs. Thus, it's not enough to own an oil & gas asset anymore. It’s also necessary to have access to the software & services that make oil & gas profitable. The significance of Oracle CloudWorld 2022 is that any operation in any business across the globe will need to operate on Oracle Cloud ERP or face the inability to compete or profit from their operation. I do not see a viable alternative available on the market.
People, Ideas & Objects will take the administrative and accounting resources of North American producers and reorganize them for independent, individual service providers. This has allowed them to focus on one process and turn producers' overhead costs variable, based on profitable production. In turn none of the producer's costs are fixed in the Preliminary Specification. Creating at least six substantial value propositions that are tangible and clearly evident. Which include:
Maximize producer profitability by not diluting corporate profits through the production of unprofitable properties.
Save the producers petroleum reserves for when they can be produced profitably.
Reserves would no longer need to recapture additional costs of previous losses as future profits.
Reserves are seen as a cost-free means of inventory and storage.
Removing marginal production from commodity markets ensures prices dictate market activities.
While shut-in producers can focus their innovative efforts on increasing production, reserves, and cutting costs to return their properties to profitability.
Secondly and perhaps more importantly in terms of building value for the greater North American oil & gas economy. Specialization and the division of labor which has proven to be the primary method of building all of the tangible value for western civilization since 1776. Based on these principles, we have reorganized administrative and accounting resources to build value to ensure profitable operations. The ability to further enhance the industries productivity through specialization and the division of labor will add unknown, unquantified and unqualified means to do so. We will facilitate this through our permanent software development capability, our user community, and their service provider organizations implementing these principles.
We have adopted an incremental method of building value on top of these two methods through Professor Paul M. Romer’s “New Growth Theory” of non-rival costs. In a December 1, 2001 Reason article he summarized his theory as “People, Ideas & Things.” I adopted this principle and named this initiative People, Ideas & Objects as we are object-based software developers. We’ve applied “New Growth Theory” and non-rival costs throughout the Preliminary Specification and elevated it to an Organizational Construct. Standing on the shoulders of giants and especially Adam Smith’s Specialization and Division of Labor. Professor Romer has elevated business thinking in this direction and it is the next frontier in building value for organizations through the mitigation of costs in substantial yet unquantifiable ways to enhance the performance of those that use these methods.
Professor Romer’s theory is the basis of how cloud computing has brought value to our economy. Users can share the costs of the heavy capital investment in technology, the capacity, capabilities, resources, maintenance and support costs on a variable basis. These are variable costs, based on usage. Conversely service providers can enhance their service offering through specialization and division of labor that would otherwise be unavailable to individual organizations. We have extended this thinking to include not only Oracle Cloud ERP but also Cloud Administrative and Accounting for Oil & Gas Software and Service to the managed shared and shareable resource. Eliminating the need for each producer to build, resource and maintain the necessary non-competitive accounting and administrative infrastructure they need as dynamic, innovative, accountable and profitable oil & gas producers. Providing a standard, objective and value driven service that shares the sole objective of ensuring oil & gas producers achieve the most profitable means of oil & gas production, everywhere and always.
The capture and implementation of Professor Romer’s theories is one of the seven Organizational Constructs of the Preliminary Specification. All seven are focused on building value for producers and providing tangible means to do so. Establishing a culture based on preservation, performance and profitability to replace the failed “muddle through.” In this configuration, they are available through the Preliminary Specification, our user community, and their service provider organizations. They’ll be established with permanent software development capabilities and a user community that will iterate on these principles to bring further value over time.
Published in October 1990 “Endogenous Technological Change” became the foundation of “New Growth Theory” in economics that has developed and provides value throughout the economy through its application. In a Reason Magazine interview Professor Romer explained many of the points.
Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth. S71.
Professor Romer won the 2018 Nobel Prize in economics for these principles. They are an incremental value-add to the traditional specialization and division of labor that has carried that weight exclusively until now. It is this principle of sharing non-rival costs that will mitigate what we believe to be the secondary reason for the systemic lack of profitability in oil & gas. High overhead costs are currently at the corporate level. We have shifted those to charge the actual, factual overhead costs incurred by service providers' billings directly to the individual Joint Operating Committee. There they become a cost of the property's product that is captured in the profitable commodities sale price. Through the sale, these funds are recaptured and returned to the company, which are used for overhead costs for the following months. Currently producers capitalize their overhead and therefore sell their product below cost and are not recovering the cash spent on monthly overhead expenses. As they indeed state, they are “putting cash in the ground.” Having to source new cash to finance their overhead expenses each month.
By sharing the administrative and accounting infrastructure, turning these costs variable based on profitable production, and applying specialization and the division of labor to the administrative and accounting areas. As is done through the development of our user communities service providers. And delivering to industry our Cloud Administration & Accounting for Oil & Gas software and service. People, Ideas & Objects are adding real value to North American producers in terms of resolving what can be described as their largest impediments to profitability. Chronic overproduction, or unprofitable production as we describe it and high overhead costs. Which leads to their unique characteristic and phenomenon of “putting cash in the ground” and “building balance sheets.”
It was during this conference that it became apparent that Oracle was pursuing the incremental value adding process that Professor Romer defined in his paper “Endogenous Technological Change.” Augmenting their generic business processes with service providers such as banks and logistics companies with fully optimized and integrated services with Oracle Cloud ERP, just as People, Ideas & Objects are approaching the unique oil & gas attributes. We all have an extensive software development workload ahead. I see at least 20 years of work in this area. Incrementally building value upon prior innovations.
The most impressive example provided during the conference was the expense reporting features with J.P. Morgan Chase. If the user uses their credit card for business, they can choose the type of expense to be classified. Oracle Cloud ERP would evaluate the charge based on the company's policies and determine its eligibility. If eligible it would be processed and payment made to the employee or the credit card company. Eliminating the massive number of hours and costs incurred in expense reporting by organizations during the year in their current systems. This is reduced to a few milliseconds of processing time. While the cost to the organization to use Oracle Cloud ERP is incidental in terms of the time spent on Oracle Cloud Infrastructure. In addition, the engineering costs to develop the specific system. These software engineering costs are amortized across the global population of Oracle Cloud ERP customers using the feature. To a lesser extent People, Ideas & Objects provide this level of service to North American producers for their unique oil & gas attributes. The lesser extent is due to the smaller population of oil & gas users for which this development and implementation will be targeted. As such, North American producers have the opportunity to realize both Oracle and People, Ideas & Objects innovations concurrently and at substantially reduced costs. These are due to Professor Paul Romer's theories.
The Preliminary Specification establishes a solid foundation for which the Intellectual Property of individuals within the industry becomes available to those original authors, innovators and entrepreneurs. This is provided through the Resource Marketplace, Research & Capabilities and Knowledge & Learning modules that were published here in final form in August 2012. From the Resource Marketplace module I summarized the points as follows.
Another key point is the tearing down of the basis of Intellectual Property (IP). An industry such as oil & gas is based on earth science and engineering needs. After all, it is a science-based business. To expand our industry's capabilities in science and innovation. We will need to overcome many difficult problems. And as we progress, the volume of ideas needed will be an order of magnitude greater than what is required today. These problems cannot be solved in an environment where there is no upside for individuals to solve them. Addressing the motivation to solve these problems and enabling people to earn the rights to their Intellectual Property through the People, Ideas & Objects application modules is the first step in making the necessary industry-wide changes. This will, in turn, turn the oil & gas industry into a more dynamic business.
With the state of the industry as it is, its IP is in disarray, and the capabilities and capacities derived from it are deteriorating as we speak. Making this an IP gold rush in the industry, to save it. Producers' difficulty is that none of this is published and publishing is how copyrights are earned. Let me pass on one more pertinent fact that I have revealed since I’ve been so reliant on copyright. Patents and trademarks are defensive in nature in that they protect your IP. Copyright is offensive and allows expansion of one's Intellectual Property. Building on the shoulders of giants. Copyright does not secure rights to an idea. It only provides you with monopoly rights to express that idea. In other words, it must also be pursued and maintained in the same manner that I do here at People, Ideas & Objects. Until the Resource Marketplace and other modules of the Preliminary Specification are built I see this IP of earth science and engineering as unclaimed property. Therefore the first thing we must do for the dynamic, innovative, accountable and profitable producers in the oil & gas industry is change their competitive advantages. They'll now read:
Coordination of the earth sciences & engineering markets' capabilities & capacities, as well as their land & asset base.
One of the most promising forms of IP today is software and algorithms, Artificial Intelligence and Machine Learning. What if these were also the foundation of a producer firm as competitive advantages? This would generate revenues for these producers and the people who developed them in the form of service revenues, license fees and royalties etc? Helping to establish the new and innovative oil & gas industry.
Business changes quickly. Intel's dominance in the chip market is now a constraint that causes them to lag in that market in consequential ways. As the dominant processor manufacturer, its processor architecture has been deemed redundant. Business value is no longer in processor manufacture, it's in design. Contract manufacturing is a commodity business where others find profits and opportunities in that area where Intel does not compete. Design is now valued. Read the summary of Ampere Computing’s Leadership Team that now has one of the most powerful processors available in commercial volumes. Oracle has declared they’re moving their cloud offering to Ampere processors, which Oracle’s Cloud is offering today, and People, Ideas & Objects will run the Preliminary Specification exclusively on Ampere which will be far better due to the better cost / performance than Intel based cloud computing can offer.
This is the changing business world and these are the revised business rules. It comes down to one word, the individual. If you don’t see what Intel rebels did when they established Ampere your most promising opportunities may remain with the established organizations. Individuals in technology, oil & gas and everywhere are facilitated by that remarkable innovation, the door. The Internet demands one thing which is difficult to achieve. Software to organize. To organize society today, with its global reach, cannot be done spontaneously. There is no serendipity when individual A meets individual B 2,000 miles away on the Internet. This is done through software providing them with the means to conduct their business. Software defines and supports an organization. Without People, Ideas & Objects none of this oil & gas vision will come about by sitting and waiting for the phone to ring. At least it doesn’t appear to have happened.
The question also needs to be asked: why does Apple innovate consistently? Although their products are more costly, they bring incremental value to their customers through the innovation they provide. They too rely on Intellectual Property as the basis of their value. They consider themselves a software company that sells hardware to bring customer value. Software defines and supports organizations. What fool would run a company that sources their handful of products from a number of countries that total 3.5 billion in population? And then snap their fingers and say “now innovate.” It doesn’t happen without software.
It’s no longer enough to just own the oil & gas asset. You must also have access to the software that makes the oil & gas asset profitable. We now believe as a result of the Oracle CloudWorld 2022 conference that all firms in all industries will have distinct competitive advantages by using Oracle Cloud ERP. These benefits should be seen as incremental to People,Ideas & Objects et al. The importance of IP in the oil & gas industry organizes innovation. The most productive innovation is when it’s organized under a structure that allows the market to focus on its development. The North American marketplace established IP centuries ago and we have reaped its benefits. The United States included copyright in its Constitution. Copyright must be published to earn it. Exposing it to the market where it can be built upon and enhanced by others. It reduces the “me-too” phenomenon that producers have created in the past to generate price competition in the service industry and elsewhere and ensure everyone was rendered “blind sleepwalking agents of whomever would feed them.” Is this how an innovative industry is going to be built, with producers sitting on top of a primary industry and using its revenues to endow their favors with the rewards of a penny or two here and there? Are the oil & gas issues we’re faced with going to be resolved on this basis?
The organizational structure of the proposed oil & gas industry People, Ideas & Objects et al will be built with innovation within its structure. It will also be based on the law of the land. These laws will define what innovation is undertaken and what is not. Violation of another's copyright is not allowable under the law so there would be no violators. A self-policing mechanism reduces the overall costs of unnecessary, endlessly repeated innovation duplication in the industry. Providing the incentive for those with a few ideas of their own, and as a result, the inherent motivation to do the subsequent effort and work that is necessary. Knowing their work will now be trusted and respected. To do so not just today, but always and everywhere.
These copyrighted publications enable understanding of how things are done. Building upon that understanding with additional innovations. Intellectual Property therefore provides us with a strong legal structure that promotes innovation, eliminates costly redundancy or duplication of efforts. It educates and motivates us to do the difficult and challenging work we agree is the foundation of the industry. This applies across the greater oil & gas economic structure and includes the secondary and tertiary industries. The 21st century will be known for leveraging Intellectual Property, or intelligence. Much as the last century was about the leverage of mechanical work. Avoiding this reality or attempting to opt out would be foolish in the extreme.
What motivates people to develop these "ideas"? Are they not in it for themselves and looking to siphon off what they can from the industry? Self interest is part of human endeavor. It comes down to whether or not it builds value. Officers and directors have been well compensated and the industry has been destroyed. A further contrast is the fact that they've not been motivated by discovering ways to generate value. Intellectual Property is therefore not only an Organizational Construct that can control the innovation process throughout the industry. The participants are motivated to build value through incremental profitability, cost reduction, improved production deliverability or reserve expansion. It is the law, and most importantly, it has been proven. The reason the United States dominates the global economy in terms of performance is because their Intellectual Property laws provide the motivational and organizational principles of how their economy and society operate. It assumes people are intelligent beings, not serfs like officers and directors assume. It is productive, constructive, focused on generating value and benefits society. As a science and technology business, oil & gas is second only to the space industry in complexity. Under their business model, what have these officers and directors been doing?
The business model of producer firms, I believe, was and is to have a pool of knowledge freely available to them when and where they want it and need it at the lowest possible cost of nothing. Therefore they couldn’t have anything published in this environment as it would be counter to their interests in terms of their availability and access to this pool of Intellectual Property. And therefore nothing has been documented in the industry from the point of view of earth science and engineering science and technology. They are leaving themselves fully exposed to any author who publishes this IP at this time.
Two other aspects of Intellectual Property are first, safe harbor provisions. Why don’t producers just turn around and sue the copyright holders? This would be an unfortunate world where “big” ruled the earth and we serfs would be the drones who were forced to comply with their every command. The safe harbor provision states that you cannot sue the copyright holder. Secondly, the division of tacit and explicit knowledge. Tacit knowledge cannot be captured or written down. Only explicit knowledge can. Therefore it is up to people to take the explicit knowledge they have, earn the copyright, and apply their tacit knowledge to generate their value as a service. Intellectual Property services are as critical as IP itself. Just as People, Ideas & Objects have our user community heading up the service providers that deliver our software and their tacit knowledge providing services to the producer firms. As a consequence, the tacit and explicit knowledge underlying the Preliminary Specification can be delivered effectively and efficiently.
These efforts of ours to use the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil & gas producer began in August of 2003 with a research proposal to industry. People, Ideas & Objects subsequently conducted that research ourselves which was completed with the publication of the Preliminary Specification. A decade of rigorous research reflected and absorbed throughout this blog and elsewhere. And now that the obvious need in the market for this ERP system has come about, Boards should be aware that the time taken by People, Ideas & Objects to conduct this research, to effectively deal with these issues and resolve them has offset what would be the industry's largest cost of all. The time needed to generate a sustainable, viable, and workable business model. We enable them to yield untold value creation in the short term and not have to undertake ten years of research themselves. Our user community, research, and intellectual property make up our three strategic competitive advantages. Anyone offering similar aspects to the Preliminary Specification in their ERP software would violate our Intellectual Property and we would expect, as law abiding citizens, the oil & gas producers and its employees would adhere to these principles of law, recognize that and refuse to use any software that violates that.
It is People, Ideas & Objects, our user community and their service providers that channel these Organizational Constructs towards innovation, productivity and profitability through software. Software defines and supports an organization. The only solution as it stands today, from a creative destruction and disintermediation point of view, is People, Ideas & Objects, our user community and their service provider organizations' implementation of the Preliminary Specification. The natural forces of disintermediation and creative destruction are obstructed through the diversion of industry revenues away from the development of initiatives such as the Preliminary Specification. And therefore are directly promoting the status quo behaviors that are and have been proven to be disastrous.
People, Ideas & Objects et al need to worry about the startup to junior sector as much as any other classification within the industry. This is purely because of the fact that the industry’s rebuilding will be done on an innovative basis. Innovation is the basis of the Preliminary Specification. It enables People, Ideas & Objects, our user community and their service providers to achieve our two opposing objectives of providing oil & gas producers with the most profitable means of oil & gas operations everywhere and always, and providing consumers with the lowest possible cost of an abundant and reliable domestic energy supply. With our decentralized production model and price maker strategy, we ensure that all production is profitable. Including Exxon's, Shell’s and that startup oil & gas firm that began this morning. And to do so innovatively to ensure that the ever escalating costs of oil & gas remain affordable to consumers. In addition, the commodities production profile and reserves continue to expand. Achieving profitable North American energy independence.
Enter two variables not available in prior decades and centuries. The cloud computing era coincides with the maturation of the overall technological infrastructure represented by the Internet. We are in the infancy of the Internet. Second, there is the "service" aspect of our user communities' service providers. We found that the level of innovation attributable to the small and medium sectors of an industry was as substantial as the larger sectors. Although the larger sectors contributed large amounts in terms of total expenditures, their impact was no greater than that of what the other sectors contributed. People, Ideas & Objects et al provides our solution for all sectors of the North American oil & gas industry and for all producers. Professor Giovanni Dosi was one of the key sources of research we used to determine the framework necessary for an innovative oil & gas industry. Innovation within a science and engineering-based business is therefore an inherent part of both profitable operations and consumer affordability. Professor Dosi’s paper “Sources, Procedures, and Microeconomic Effects of Innovation” September 1988, discusses and asks what are “the sources of innovations opportunities, what are the roles of markets in allocating resources to the exploration of these opportunities”?
People, Ideas & Objects research in oil & gas focused on these points:
The main characteristics of the innovation process.
The factors that are conducive to or hinder the development of new processes of production and new products.
The processes that determine the selection of particular innovations and their effects on industrial structures. (p. 1121).
According to Professor Dosi, there are two major issues that need to be addressed:
The first issue is the characterization in general of the innovative process.
And second, the interpretation of the factors that account for observed differences in the modes of innovative search and in the rates of innovation between different sectors and firms, and over time. (p. 1121).
Professor Dosi then states that:
The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:
Capabilities and stimuli generated with each firm and within the industry of which they compete. (p. 1121).
The purpose of People, Ideas & Objects research in oil & gas focused on the organizational capability and capacities of the firm. Specifically in the earth science and engineering disciplines. It was also emphasized that innovations are based on both the firm and the industry. Coordination of the capabilities and stimuli of both the firm and the industry would therefore need to be advanced through changes in the organizational structure of both.
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, and so on; (p. 1121).
Additional issues include
the conditions controlling occupational and geo-graphical 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. (regulations, tax codes, patent and trademark laws and public procurement.) (p. 1121)
As People, Ideas & Objects suggest, these represent an organizational construct that innovation demands to either flounder or foster. As both an Organizational Construct in itself, and as we defined in the Joint Operating Committee, a framework for that key construct. What we can conclude from this definition of innovation is that it is a defined and replicable process that can be established through organizational design. And this design must be part of the organization's ERP software that identifies and supports that organization and its industry. This is exactly what the Preliminary Specification does.
Our second source of primary research material regarding innovation came from Professor Richard N. Langlois. Throughout our review of his work we determined the appropriate nature of the organizational design of the producer firm and the oil & gas industry itself. Selecting specific areas of the firm or market where the process and its management should be. Where capabilities should reside. By fully implementing the Internet and using Professor Langlois' research, which included Professor Carliss Baldwin's determination of where exactly that transfer between firm and market should occur. We designed the appropriate software tools, such as our task and transfer system. This will enable our user community to define which processes to undertake and manage in their service provider operations. Introducing enhanced efficiency in oil & gas administration and accounting.
Building on other innovations that provide value generation such as cloud computing. People, Ideas & Objects, our user community and service provider organizations can accomplish this through the introduction of Cloud Administration & Accounting for Oil & Gas. A service that turns the fixed producer overhead into a variable industry-based overhead that can be provided to any producer no matter what their size or production profile. It is possible for producers to shut-in unprofitable production and produce only profitable properties, increasing shareholder value as a result. A substantial portion of our published value proposition of $25.7 to $45.7 trillion over the next 25 years is attributable to introducing this production discipline. This is to eliminate the damage and destruction caused by overproduction over the past decades.
The Preliminary Specification has captured this understanding of innovation and incorporated it within the culture of the industry we are rebuilding in these Organizational Constructs. It is also part of the Joint Operating Committees innovation framework. Each of the fourteen modules of the Preliminary Specification is materially affected when we identify the Joint Operating Committee as the key Organizational Construct. That provided us with an opportunity to incorporate this understanding of innovation into the design and reorganization of the oil & gas producer firm and industry. These can be identified by several major processes of innovation within the Preliminary Specification. One of these ensures that failed innovations and experiments, and their underlying processes are not repeated in separate and distinct areas of the organization each year. Using the same failed “ideas” repeatedly is not innovation. Another major process of innovation is to enhance the scientific basis of producer firms and the industry as a whole. Moving forward on the basis that an idea that generates a dollar today will only produce ten cents tomorrow. We therefore must increase the volume of ideas generated and incorporated into our work processes to continue increasing our value. Various other innovation processes have been incorporated throughout the Preliminary Specification based on primary research conducted by Professors Giovanni Dosi and Richard N. Langlois. Enabling producers to earn the unquantifiable value that needs to occur throughout each producer firm and all tiers of the oil & gas industry in the decades to come.
Continuing our discussion regarding the recent Oracle CloudWorld 2022 conference. Producers can generate incremental and continuing value from enhanced innovation through the development and implementation of the Preliminary Specification. Oracle’s products are the premier technologies in database systems development and ERP systems and are the base of the Preliminary Specification. Oracle is now partnering with service providers to enhance their products with a variety of service providers in order to bring about the innovation-based benefits we have discussed throughout the Preliminary Specification. Theirs will be in the domain of generic business processes such as banking etc, or the non-oil & gas specific processes that we handle through the 14 modules of the Preliminary Specification. Our proposed combination of Oracle Cloud ERP, People, Ideas & Objects, our user community and their service provider organizations are designed to deliver the foundation in which the producers, the oil & gas industry and all the tertiary industries can succeed in the 21st century. Without these facilities and capabilities the question we would ask is how will the industry“muddle through” so many of these issues and opportunities otherwise?
Since Oracle’s beginning they have pioneered the development of their technologies to be the premier tier 1 provider in all categories of their offerings. Oracle has been a critical and essential innovator in each of their products and markets.They continue today with products such as Oracle Cloud ERP and Oracle Cloud Infrastructure that continue that heritage. Recently with the Oracle CloudWorld 2022 conference we saw an innovative direction beginning with their development of service providers to augment their products. These enhanced products and services bring tremendous incremental value to oil & gas users. And are consistent with the work People, Ideas & Objects has undertaken on behalf of North American producers.
Innovation throughout the business and industry specific process management, built upon the premier tier 1 Oracle products. This augments the dynamic, innovative, accountable and profitable nature of what is demanded of North American oil & gas producers. This is not a static environment. It will be through our user community and their service providers that producers will be able to interact with all aspects of business and industry specific process management. To make changes, innovate and develop these further which is an inherent part of People, Ideas & Objects and our user communities permanent software development capability. But there’s more.
A production configuration oriented toward this innovation organizational construct. With the Joint Operating Committee, that Organizational Construct holds innovation as one of its seven frameworks. Not only oil & gas producers, but the entire oil & gas industry and its tertiary industries and supporting institutions will be culturally aligned and oriented through Oracle Cloud ERP and People, Ideas & Objects Preliminary Specification towards innovation in the earth science and engineering disciplines. Providing the means to rebuild the industry in this configuration with software that defines and supports these objectives. Where the industry's approach to its next 25 years can be the most dynamic, innovative, accountable and profitable in its history. A future that is the most demanding, challenging and exciting in its history.
Three modules of the Preliminary Specification are “market” modules, including the Resource, Petroleum Lease, and Financial Marketplace modules. Each establishes a marketplace where producers can engage in the markets they need.The marketplace modules mimic the three markets producers participate in. They are designed to deal with the day-to-day activities of each producer, service industry member and others. Supporting them with the contractual, transaction processing and other capabilities of Oracle Cloud ERP and the proposed Preliminary Specification. We also support our user community and their service providers in our Cloud Administration & Accounting for Oil & Gas. Enabling producers to apply their competitive advantages and strategies in the greater oil & gas economy.
North America has advanced its overall quality of life through markets and price discovery. The Preliminary Specification will act as a part of the structures that define and support the oil & gas industry. Our decentralized production model price maker strategy relies on the principle of oil & gas commodities being priced based on the price maker principle. Producers need to produce only profitable production, after full consideration of all their actual costs on a timely and accurate basis. This is how they’ll operate with Cloud Administration & Accounting for Oil & Gas. Using all of the information contained within the commodity market price (production, inventory, consumption, reserves) to determine profitability and ultimately what will and will not be produced. It is these same mechanisms that are involved in every transaction on a free market.
From the Preliminary Specifications Resource Marketplace module we quote from a paper written by Professors Richard N. Langlois and Nicholas J. Foss entitled “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.” they note.
The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 20.
And
If by contrast, the old configuration of capabilities lies within large vertically integrated organizations, creative destruction may well take the form of markets superseding firms. History offers many examples of both. p. 20.
And
Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of cooperating individuals. p. 13.
In terms of the Resource Marketplace module we first need to discuss two components of how operations are conducted in oil & gas. Field service industry providers extend producers' capabilities and capacities into their regions of interest. If producers owned and operated their field infrastructure it would otherwise be an impossible impediment and constraint towards progress. The second component is the history of abuse and disrespect producers have displayed and presented to the service industry over forty years. And particularly since 2015 when producers recognized their financial difficulties were amplifying.
The status quo long ago accepted the assumption that oil & gas is a boom / bust industry. All other industries sought to work these issues out of their businesses and industries many years ago. It is this continuing acceptance by producers that has left us with a legacy of maybe six good years out of the past thirty six. Officers and directors don’t understand this argument as they’ve experienced thirty six years of superior executive compensation. Producers assumed the service industry would adjust to the boom / bust trend in lock step with them. There is an implied assumption that the service industry, like the oil & gas industry itself, enjoys revenues as a primary industry. Therefore, it continues business as usual during bust cycles. The diversity of the service industry offerings, and their coverage across the various regions of their operations throughout North America spread them thin operationally. As secondary industry participants they are not as resilient as producers believe. Scaling back from 1,900 active drilling rigs during 2015 to 400, forcing 50% price reductions on the drilling operator or they would use another vendor, the producers induced a collapse of their revenue streams into the low and below teens in terms of percentages of prior levels, which has been devastating on the financial health and viability of the entire service industry.
Now in 2023 the repercussions of this downturn have decimated much of the service industries capacities and capabilities that were once available to producers. The largest service industry providers have left the continent due to abusive treatment. Therefore for producers to work out the boom / bust cycle through our price maker strategy will contribute to rectifying this issue in the long run. Through profitability everywhere and always, the oil and gas industry will build a stable infrastructure. Providing a stable environment, or a constant level of demand for which the service industry can budget, plan and prosper.
After this and similar treatment over the past four decades investors in the service industry are unwilling to participate in the rebuilding of their much needed field operations. They invested in good faith and were abused by the producer firms. They’ve witnessed the equipment they invested in being cut up for scrap metal to pay the light bill and taxes on the shop. This was due to the producers determining they could get away with leveraging additional field activity by not paying their bills for 18 months after the jobs were completed. Producers should have alerted the service industry representatives to these plans beforehand. The dilemma today is who’s willing to provide the financial resources for the service industry to recapitalize itself. This will enable it to reestablish the capacities and capabilities necessary for a self-sufficient and profitable oil & gas industry? The service industry believes that producers broke it, they can fix it. Maybe when they have some skin in the game they won't be so abusive.
This is what’s known and understood in the market today. It's not news. Producers expect the service industry to resume normal operations, yet fail to consider the consequences of their prior actions. A similar example is the history of oil & gas ERP providers over the past thirty years. I can report there’s still no consideration of a second chance these first tier ERP providers will ride to the rescue of the producer firms. Why? They feel the industry is too complex, too costly and there are not enough producers to negotiate sales prices fairly. SAP is a custom implementation for each sale. The last two ERP providers left in 2000 and 2005, as documented on page 17 of our White Paper. This was due to producer officers and directors' inability to pay for software development in advance. The only method by which these vendors would approach the industry. Producers have had ten years to invest in the Preliminary Specification to make their organizations profitable and accountable. They also had the opportunity to avoid this inevitable, predictable and fatal outcome but didn’t do so. Not a penny has been spent on People, Ideas & Objects at any point. The need for skin in the game was the apt approach when so many oil & gas ERP investors and vendors were betrayed three decades ago. This has now been done to the service industry. People, Ideas & Objects are instilling market principles in the producer firms, however, this does not imply that those who support them have the inherent trust in producers as a result of their prior actions to rely on market mechanisms at this time.
Producers sit on primary industry revenues. They will show a thumbs down to this idea as if People, Ideas & Objects is the only vendor they’ll be faced with who has this ludicrous prepayment idea. Officers and directors' actions have consequences that are wholly detrimental to everyone else in the industry. Officers and directors will argue this does not remind them of what markets and price discovery should look like. Correct, it's what’s necessary after the destruction of markets.
These facts on the ground are what officers and directors refuse to consider or admit. Until they do the industry will be beset with problems. These issues need to be dealt with and I am unaware of another solution. The need to rebuild these industries brick by brick and stick by stick must be financed by the only means now available. The primary industry revenues of the dynamic, innovative, accountable and profitable oil & gas industry. It is facilitated through the Preliminary Specifications Resource Marketplace module and the price-maker strategy in the decentralized production model. Granted there will be those within the service industry that will continue to scrounge for the pennies falling from the officers and directors' pockets. However, that does not create the dynamic, innovative, accountable, profitable and energy independent oil & gas industry that we need.
The Financial and Petroleum Lease Marketplace will also implement market organizational structures in the Preliminary Specification. This will provide the organized interface necessary to access and interact with these markets. Modules in which the full transactional power of the Preliminary Specifications ERP system supports these markets. We’ll also discuss the Marketplace Interface we're building. I believe COVID provides the opportunity to adjust one's opinion to this feature. I have suffered the slings and arrows, the ridicule for it in the past. There is little that disagrees with what I haven't heard. In my opinion it is revolutionary and needs to be seen in the context of the changes that occurred in 2020 - 2022. At a minimum it adds an element of serendipity to working from home. One point I may not have been clear about is that the Marketplace Interface is a virtual representation. Users will be able to access it through any screen on any of their devices. The person does not wear a headset.
The Petroleum Lease Marketplace module is exactly what you could imagine. An opportunity to post, bid, purchase, and sell mineral rights and producing properties in the marketplace exists and is replicated virtually within the Petroleum Lease Marketplace module. Everything from the opportunity to participate in a joint venture to establishing surface rights payments is fully supported by the ERP system of the Preliminary Specification. Our product sits on top of Oracle ERP Cloud which includes their tier 1, Oracle Fusion Applications which Gartner rates as the highest quality offering. Oil & gas markets include Federal, State, Provincial, Freehold and offshore leases. An opportunity for industry to consolidate on a dynamic platform which uses proven tier 1 technologies with the constant support of service providers. This platform maintains transaction administration and accounting in a standard and objective manner. (Note: People, Ideas & Objects maintain the policy, and it is written into our user community and service provider licenses. We will keep arm’s length distance from all royalty administrations. We operate in the long-term interests of the oil & gas industry. To ensure that they are provided with the most profitable means of oil & gas operations. There will be no compromise on this anywhere within this community.) This will be enhanced with the constant iterative design and development being undertaken by the People, Ideas & Objects user community and developers on a permanent basis. Whereas if a jurisdiction reviewed and changed their royalty rates at some point, in terms of either the rate or method calculated, producers would not need to concern themselves with the administrative or accounting aspects of those changes. The user community, developers and service providers would handle them and ensure that the software and services are updated on time. Producers would only need to deal with any issues regarding revised royalty costs.
Producer firms do not have competitive advantages in administration and accounting. Thankfully that is one of the statements we have no pushback on. However, these areas shouldn't be slapped together in a haphazard manner. There’s no reason why the industry doesn't have access to state of the art ERP systems within their firms. That producers haven’t, has led to many questioning not only the integrity of accounting but also the systems used by the industry. This questioning should never have been necessary and implementation of Tier 1 ERP systems is now an explicit demand of the investment community. Oracle Cloud ERP is the premier Tier 1 ERP system on the market.
And why is it that the issue of overproduction, or as we define it as unprofitable production, can be documented to have existed in the North American marketplace back as far as July 26, 1986? The solution we propose to the overproduction issue, in addition to aligning all of these organizational constructs, has been available since August 2012. In terms of markets, it is estimated that there is double the amount of oil needed by 2050. This capacity overhang forces North American high cost producers to assume the swing producer role and produce only profitable production. During the next 27 years, Saudi Arabia will be able to produce profitably at any price with its production costs of $3.00 and probably $0.00 in capital costs. They could use the money, and the markets in 2050 are too far away and unpredictable for them to sit back and wait for.
The third marketplace module is the Financial Marketplace module. With the Preliminary Specification, the Joint Operating Committee becomes the key organizational construct of a dynamic, innovative, accountable and profitable producer. In the Joint Operating Committee section we noted that the movement of knowledge, which includes the detailed actual, factual accounting information for that specific property, to where the decision rights were held, which is the Joint Operating Committee, enhances accountability. It's here that the Financial Marketplace enhances accountability through the board of directors' interaction with their current and prospective shareholders and bankers. A review of the Financial Marketplace module specification would be the most comprehensive source of information to capture an overall understanding of the module. With the standard and objective nature of the accounting conducted throughout the Preliminary Specification and the service providers. Would that satisfy some of the issues investors and bankers have raised regarding their investments and loans in the industry? Where everything being produced is profitable and producers seek to maximize profits by shutting-in unprofitable production? Would People, Ideas & Objects, our user community and service providers help producers satisfy their shareholders and bankers to the point where they’d invest in the industry again?
The Information Technology environment and the revolutionary impact on business in the past decades in terms of improved productivity, performance increases and leveraging value out of more innovative business models. The promise of additional performance and productivity enhancements is just around the corner as these technologies have now matured, are more integrated and therefore able to provide businesses with even increased value. The key technology today and the one we leverage in this community is cloud technologies. Introducing a shared and shareable cost model for its users. This is how People, Ideas & Objects see this change. Instead of incurring large capital costs to acquire capabilities, manage complex systems and maintain resources in the non-competitive administrative areas of their firms, users can access their needs at a monthly operating cost. The shared and shareable cost model doesn’t end there. The costs of providing those services are variable, or as used. Producer users will receive the latest applications. The quality of technology service and support is increased through a further definition of specialization and division of labor. People, Ideas & Objects see cloud technologies as revolutionary for oil & gas. Having oil & gas producers accessing the same state of the art IT capabilities, capacities and infrastructure at low, variable and affordable prices would enable producers to participate in future performance, productivity and value enhancements that they choose to.
People, Ideas, & Objects sees a further extension beyond IT infrastructure, software, service and support. We have adopted the shared and shareable cost methodology of cloud computing. We have applied it throughout the oil & gas administrative and accounting processes and functionality included in the Preliminary Specification, our user community and their service provider organizations. What we call "Cloud Administration and Accounting for Oil & Gas." If we look at the difficulties of “what, how and why” producers are consistently unprofitable. We see the high overhead costs within each producer are what we consider the secondary issue causing a systemic lack of corporate profitability. Building the necessary administrative and accounting capacities and capabilities, particularly in this regulatory environment, is costly to achieve and maintain. These high overhead costs are incurred by each and every producer on an independent, isolated, or unshared and unshareable basis by each producer today. These are not core strategic competitive advantages. They are not competitive advantages from any point of view or perspective of an oil & gas producer.
Attaining state of the art administrative and accounting capacities and capabilities is not seen as a necessity or desirable part of the producer as we’ve witnessed and are unfortunately experiencing. If anything, People, Ideas & Objects' multi trillion dollar value proposition should show that the need for attention in the area of managing the business more effectively and efficiently is necessary, desirable, achievable and tangibly valuable. Our shared and shareable business model through Cloud Administration & Accounting for Oil & Gas will achieve variable, industry based administrative and accounting state of the art capabilities and capacities. This will be done with lower variable overhead costs based on the producer's profitable production profile.
When we listen to customers who have implemented Oracle Cloud ERP applications within their organizations there are consistent and interesting messages coming through. First of all, their roles in senior management and management change. They begin dealing with upcoming changes in the quarterly release of Oracle Cloud ERP upgrades. These are now around 200 individual additions per quarter. Note: The Preliminary Specification will also have its own additions once operational and these additions would be the concern of the producers senior management. Or as we propose in the Preliminary Specification, the majority of these additions would be handled by our user community under the People, Ideas & Objects et al model. Implemented, maintained and supported by their service providers. Input from the producers, as always, is being funneled through to our user community, consolidated and optimized from the producers' point of view. Let’s therefore put this task in the shared and shareable category of what a senior management and officers role consists of. Ensuring effective and efficient management of producer processes, both from a time, effort, cost and error prevention perspective.
The traditional approach to having a distinct ERP system that caters to a specific industry is to customize the vendor's application to do so. The vendor application sits on top of the ERP system. This is not recommended by Oracle, and People, Ideas & Objects have adopted their policy in our user community and service provider licenses. Stating that all customizations, as Oracle defines them, of the application are to be avoided at all costs. This certainly seems at odds with what we're doing. The point is subtle and distinctive of Oracle Fusion Applications. Other than Workday they are the most recently developed applications for all ERP systems. They were the first ERP systems to be written in the Java Programming Language which introduced the full object model to those applications. The Fusion Applications are supported by Fusion Middleware. This is an advanced Java Server with expanded ERP functions and process management developed by Oracle Fusion developers. Oracle Fusion Middleware is the base of Oracle Fusion Applications. It is also the base of any "additions" written to provide industry specific application capabilities to Oracle Fusion Applications. Using object orientation features of encapsulation, inheritance and polymorphism. Enabling People, Ideas & Objects to embed oil & gas industry features directly into Oracle Fusion Applications through the Middleware as “additions.”
Oracle’s method avoids a key difficulty in an environment where users' and producers' needs are dynamic, innovative and rapidly changing. Any system changes at the Oracle Cloud ERP, or Fusion Application ERP level are therefore not liable to break any of the People, Ideas & Objects customizations that sit on top, as there will be nothing there. Oracle quarterly releases will include “additions'' from People, Ideas & Objects in the Fusion Middleware. Therefore, as they too are object-oriented, they may be updated with the enhanced features or unaffected by them without additional developer involvement unless there are some exceptions during compile time.
People, Ideas & Objects pursue our user community, research and Intellectual Property as our competitive advantages. None of these involve software code development. We’ll own and provide the software code derivative of the Preliminary Specification and our Intellectual Property. We have contracted all of our software development to Oracle Corporation. Through their services division, they are well versed in the development and implementation of their products. We believe we would need to dedicate at least a half decade to assembling a team capable of dealing with this project. We would also need to spend an unknown amount of time to turn them into a functioning capable team competent to produce the quality of software necessary. We’ve been working on our user community development since the first quarter of 2014. A task we’ve assigned as our priority since then and one that will differentiate our product offering in terms of quality. Time is not a commodity available to producers at this stage. Focusing on our user community and the IP aspects of this project is a better use of our time, resources and skills. It’s also where we build value for producers and how software quality is best achieved. It is consistent with our belief that specialization and the division of labor will need to be applied to all aspects of the economy. By contracting development to Oracle we can do a more efficient, more productive job.
If producers' officers and directors believe these ERP developments can be done within their organization, why hasn’t that happened? Our scope of application development in the Preliminary Specification would be considered equal to what each and every producer would need to undertake. This is if they choose to continue going it alone in their unshared cost model. The main difference is in scale and cost implications. Sharing the costs of People, Ideas & Objects development is substantially less than what the industry wide aggregate of each individual producer would otherwise need to expend. To acquire just the depth of understanding and detail necessary for the Oracle Cloud ERP offerings would require the same costs incurred and replicated across the industry. This would be done in each and every producer firm. And that's assuming producers have a workable, profitable business model, or a viable model developed within the next decade. A model that does not conflict with the Intellectual Property contained here.
I could be reading things differently regarding the producers' shareholders and the banks. 2015 was when they expressed their discontent with the industry at large. Industries' lack of performance, accountability and transparency were identified as issues by them at that time. I, like others, would never have assumed that eight years of inaction were a tolerable amount of time.
Throughout our writings we have alleged that the accounting conducted by producers over the past four decades, and particularly the profitability reported, is specious. Overhead and other costs are handled inappropriately. Raising serious governance issues that have resonated throughout the investment community and elsewhere with similar concerns. Our accounting allegation is that specious accounting conducted throughout the industry is best obscured through poor ERP systems. Governance over the quality of the accounting and financial systems has become an issue at the level of the board of directors in the past few years. However, in addition to accounting, ERP systems used throughout the industry are woefully ineffective. There are no tier 1 ERP systems providers selling oil & gas systems today and more importantly, outside of People, Ideas & Objects et al no interest. There has been plenty of opportunity for producers to participate in the development of these systems. SAP provides ERP software to some senior producers but SAP does not have an oil & gas-based application. SAP's workarounds to accommodate oil & gas industries' distinct characteristics are horrendous. SAP’s specialty are large manufacturing concerns like Ford who need to interact with tier 2 and tier 3 suppliers “just in time.” To bring wheel nut part z in d volumes to the production line x at y time. SAP’s sale to Ford is more profitable than all the revenues they could ever earn from oil & gas.
In May 1991 I contacted Oracle to begin the joint development of oil & gas ERP systems. It was in 1992 that we signed an agreement to do so and Oracle threw its weight behind the project. This is the project that orchestrated my first failure in the oil & gas ERP market in February 1997. My point here is that not only myself but all the ERP systems vendors have done the job that was necessary. Without financial or other support from the producers. It’s odd how officers and directors have prospered personally, accounting is as specious as it is, tier 1 ERP systems providers aren’t involved due to the lack of financial resources, the industry is such a spectacular failure and investors and bankers are unsatisfied.
It was in our May 2004 Preliminary Research Report that I noted the research of Professor Anthony Giddens and Professor Wanda Orlikowski. They’ve defined Structuration Theory and The Model of Structuration. Which suggests that organizations, people and society move together in lockstep. Any disparity in one of the three's progress will create conflict and potentially failure. Professor Orlikowskis model suggests that technology is part of society which of course has a disproportionate influence today. We therefore applied this research and showed that Information Technology, particularly in the form of ERP systems, defined and supported producer organizations, but also constrains them. Therefore I have alleged on many occasions that the purpose behind the use of old, stale and for lack of a better description homegrown ERP systems is what the producers have relied upon and maintained to ensure their franchise was competitively unchallenged and remain financially unaccountable.
This is not to disparage my competitors who have done extraordinary work under impossible conditions. Officers and directors intentionally set out since May 2004 to not support any further development of these systems by cutting off funding to People, Ideas & Objects and other ERP suppliers. What was a thriving ERP marketplace in the 1990’s with over 20 systems providers leaves a dominance by P2. They are a consolidated accumulation of many other ERP providers who were unable to continue profitably. Meanwhile, we've seen the maturation of the IT market overlooked by these producers in the administrative and accounting areas. While producers have frequently declared that Microsoft Windows is moving them forward. Uncertain at the time as to whether it was on an upward trajectory. It’s always appropriate for producer firms to state the latest IT trend as to what “sounds good” from the point of view of a progressive, assertive oil & gas IT user. These items include the Internet of Things, Artificial Intelligence, Machine Learning or whatever technology promises the biggest bang for the buck.
There is a clear divide in terms of consumer facing applications from corporate ones. The user interface is not an area of focus in the enterprise world. The issue appears to have been the complexity of enterprise applications makes the user interface harder to design and implement. Oracle appears to be making some changes in this area with their Redwood Platform for enterprise applications which they began developing four years ago. I highly recommend reviewing these two videos. Here and here.
People, Ideas & Objects' key competitive advantage, priority and focus is our user community. Establishing quality enterprise applications demands user involvement. Which is a difficult, time-consuming process we began in 2014. Based on our User Community Vision our users have the tools to build the application that producers need. This will ensure they produce the most profitable oil & gas operations everywhere and always.
Our method of approaching oil & gas issues is focused on quality. With Oracle we can see they’re constantly pushing the envelope in every aspect of their products and services. Our user community will have these resources as part of their toolkit to maximize their opportunities to solve difficult issues. And importantly they’ll be augmented with a rich and diverse level of Oracle communities of developers and user groups that will be available to assist them. Once our budget is secured, People, Ideas & Objects, our user community and their service providers will be able to maximize this opportunity with Oracle’s products and services. This will enable us to achieve what we’ve set out to do.
Culture and performance move together.
Safra Catz, CEO Oracle
People, Ideas & Objects believes that the extent of oil & gas damage and destruction is extensive. The failed business model of being wholly dependent upon outside financing to “build balance sheets” was discovered to be what it is by the investors in 2015. As a result the subsequent cancellation of investor money coming in has caused producers to stumble forward on the cash flow generated from the weak assets they’ve developed. Not performing at any point in the past four decades allowed the industry to become unproductive and uncompetitive. Since 2015 nothing has changed other than a steep trajectory downwards as these producers believed it was only “a matter of time before investors rush back in.”
The question becomes not so much about the industry's state but what will happen in the mid to long term. Do our expectations of what this industry will be able to do in the future meet reality? Profits are the only source of capital large enough to satisfy industry and producer demands. What we know and understand through the development of these Organizational Constructs is that they form the culture of the greater oil & gas economy. And none of these apply to producer firms today. Which is best represented by stating they don’t understand they’re not profitable, they don’t know how to be profitable and are not motivated to become profitable.
To resolve the current difficulties that plague the North American oil & gas industry, we must organize an approach to how it will be resolved. That is the work that People, Ideas & Objects, our user community and their service provider organizations propose to accomplish. This is done with input from the newly established oil & gas, service industry as well as all the tertiary industries involved in the greater oil & gas economy. Software defines and supports organizations in today’s society. Serendipity, spontaneous order and creative destruction have been hamstrung by software constraints based on its current process management definition. Any organizational or process change needs to be orchestrated through software first in order to be effective. Otherwise the organization will quickly regress back to the software definition of the existing process. This is the result of our dependence on Information Technology and is what we’ve called a modern-day software bug. One that has cost the oil & gas industry its prosperity as officers and directors took this knowledge, never changed their organizations ERP software and therefore sealed their method of management.
We’ve attributed the industry's destruction to chronic overproduction of oil & gas, or as we describe it, unprofitable production and excessive overhead costs. Both of which occurred systemically throughout North America since July 1986. All that was necessary to reverse these difficulties was to shut-in any unprofitable production. Businesses recognize that overreported assets beget equal and commensurate overreported profitability. This attracts disproportionate volumes of investors who in turn create overinvestment leading to inevitable overproduction and unprofitable production. This was done through a number of accounting methods documented throughout these writings. This became apparent and obvious in the downswing that began in 2009 with shale gas volumes destroying the natural gas marketplace. During 2014 the oil markets experienced the same characteristics which led to investors exiting the industry in 2015.
In terms of systems difficulties in oil & gas, the traditional cottage industry approach of cobbling together some code to build a system is woefully inadequate in terms of today's oil & gas industry needs. Yet there are iterations of these products that dominate the oil & gas market today. Products that consist of consolidations of small providers who were cobbled together for financial survival purposes to service the producers. Or SAP’s approach of their custom integrations in each and every company that has purchased their system, based on SAP’s standard configuration of a manufacturing concern. Another category of systems-related difficulty today is in producer organizations whose history extends over decades. They may also have picked up a rival producer or two along the way. Their systems are best described as legacy systems that their IT departments maintain and support.
The question I have is how will oil & gas survive and prosper in their difficult and challenging future? Which is the most effective approach? Or does “muddle through” get it done? As a result, producers are failing due to organizations demands on products that are not what they were designed for. I would suggest the key issues facing each and everyone of these classifications of systems used in North American oil & gas are the age of the products. However, most importantly of all, the overall producer organization has failed.
The persistence and energy of the status quo to maintain these systems, and the fact ERP providers exist on shoestring budgets, is remarkable. The question then becomes how do we rebuild the industry to achieve the dynamic, innovative, accountable and profitable foundation necessary? People, Ideas & Objects, our user community and their service providers suggest it is based on the Preliminary Specification. This in turn uses the basis of culture as described in these seven Organizational Constructs. Based on today’s Information Technology.
The values that Oracle and People, Ideas & Objects share have always been strong. Focusing on quality products and services, cultural influences such as this series on Organizational Constructs reflect the emphasis on innovation.
Investors ceased additional funding due to the betrayal they felt when producers overstated their asset values and profitability. A process that began in the late 1970s and continues today. Their accounting does not reflect the situation accurately. Producers state that their accounting is fully compliant with SEC requirements, which it is. The regulations are interpreted in an uncompetitive and liberal manner, reflecting ill intent on the producers' part. Since 2015 no remedial action to change these methods has been undertaken by producers. They’re waiting for investors to return and fund their capital programs.
Conflict between producers and People, Ideas & Objects rages epically. In oil & gas this conflict is also evident in the industry's dealings with Oracle. The producers' disarray in the systems area may be the result of their desire for an obscure, non-transparent level of accountability. And are poor quality ERP systems, due to the lack of funding, an effective viable scapegoat that keeps on giving? Even though producer officers and directors argue that investors need to return to fund the industry. Producers' capacity to change has been tried and tested, and found inadequate. Decisions need to be made to deal with the consequences of their actions over the past many decades.