People, Ideas & Objects Part I

• The sourcing and assignment of people and resources to the project. (Interfaces to the Resource Marketplace and other People, Ideas & Objects Modules.)
• The scope of the Accounting Voucher is expanded to include exploration and production resources, (earth scientists and engineers) not just accounting, management and administration.
• Therefore every individual resourced into that JOC will be identified and easily able to determine their role and responsibilities.
• Resource shortfalls can be filled through the Resource Marketplace Module.
• The capture and processing of capital and operating costs and revenues & royalties for the JOC. Reporting through to the Partnership Accounting Module. (Management accounting vs. Financial Accounting in the Compliance & Governance Module)
• Determination of the resources roles and responsibilities based on the Military Command & Control Metaphor.
• Tactical Project Management (Strategic Project Management is part of the Compliance & Governance Module.
•  Includes the ability to optimize the division of labor between producers' represented at the JOC and a contractor.
• Sub-Vouchers to prepare and process accruals. (Algorithm based accruals should be used for production volumes and value accruals.)
• Tools for the optimization of the Division of Labor necessary to complete all tasks in the JOC.
• Operational budgeting and capital budget comparisons. (Capital Budgets are defined in the Petroleum Lease Marketplace.)
• Electronic execution of "Prepared by", "Checked by" and "Approved by" for each Voucher or Sub-Voucher. E-commerce is the natural means of processing. 

The People, Ideas & Objects Accounting Voucher Module will provide the means for the application to manage the disparate inter-dependencies of modularity theory and TCE. That is a summary application of Professor Baldwins comments. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the application. What is necessary is for people to cease in processing transactions, by way of automation, and move toward the definition and design of transactions to optimize the business performance. The Accounting Voucher is also the most critical to the success of the application and hence the producers that use it. I am certain that in the hands of the user community it will achieve all that is possible.

Petroleum Lease Marketplace

The Petroleum Lease Marketplace module is also transaction oriented. As a result of the need to process transactions, several issues need to be addressed in this module on behalf of all the other transaction oriented modules. In addition to transaction orientation, the application needs to be fully internationalized both in terms of currency and language. These two attributes will be defined in this module and affect how transactions and internationalization is implemented within the remaining modules

This is also the first of many "Marketplace" applications that provide both public and private elements. Based on User, Company or Joint Operating Committee desire to have the data and information public (published to all users of the oil and gas industry). The application in essence providing exposure to the "Marketplace" where Petroleum Leases (both Mineral and Surface) could be assigned, novated, farmed in / out, purchased, posted etc. The transaction orientation would be defined by the actions of individuals, companies and JOC's in this public marketplace, and in turn establish the key variables of the agreements, accounting and operating procedures which are facilitated through this module.

In terms of transactions this application will deal in multiple currencies and languages. The agreements and agreement variables will involve the full range of insert, update and delete of any and all data elements. This requirement imputes the need for accounting systems definition and therefore determination of the methods of accounting systems to build or use. There are many alternatives available. It will be necessary for the Expert Group for this module to determine which service to use. (Google "David Duffield Web Service" for an idea on how this information might be processed.)

The Security & Access Control Module is used as a harness or overall framework for all other modules to be embedded within the application. This being of particular interest from the enterprise search capabilities that should be built into all modules of People, Ideas & Objects. And not to complicate matters to extensively, one of the deliverables from the Security & Access Control Module is the generic Military Command & Control metaphor being used in the overall application. The Petroleum Lease Marketplace, because of its limited role and exposure to mostly land and legal should begin the definition of the transaction matrices. (Query "Baldwin" and "Modularity" on the innovation blog for further information.)

It should be considered that development of this module could be done concurrently with the Security & Access Control Module and Accounting Voucher. (A community decision). Also please consider these are broad outlines of the overall People, Ideas & Objects application. They are intended to reflect the vision and research that has been done, in a concise and communicable medium. The User community will and should not hesitate to expand the scope of the application based on their understanding. These module specifications are in draft until such time as they are approved by the community. I expect the User community to expand on these concepts substantially.

What is a Petroleum Lease Marketplace (PLM)?

To me I think that the majority of the roles and responsibilities of a firms land department is the primary area of concern of this module. Secondly, the legal department would provide assistance and support through the module to the Landmen in this application. Accounting and management have an interest in the data that is captured in the various processes this application manages.

The PLM would encompass three modes of access Public, Semi-Private and Private. The "Private" area and elements of the application module would involve only the producer. The "Public" elements are the lease granting administrations, the partners involved in the property and others on an exception basis, There will also be semi-private areas where confidential information can be shared securely between the partners to the leases and JOC.

We have seen a number of land systems that have seen the data from the agreements populate the data variables in the firms databases. And any system that would operate in the oil and gas industry should provide that level of functionality. What we have here is an opportunity to employ the information technologies to the next level of functionality. What I am seeing is a system that provides the individual companies within a JOC the means in which to negotiate and agree to the components of the agreement. This would apply to the future agreements as it would to the past agreements.** While negotiations are ongoing, the company representatives select from a smorgasbord of "paragraphs" of terms and conditions. Choosing and agreeing to the variables of the terms and conditions that are selected eventually leads to the body of an agreement between the companies. Once executed this agreement would then provide an overview of the agreement from the point of view of monitoring the variables in the agreement. Where the implications of one of the producers electing to take a Development Penalty automatically invokes the changes in the accounting systems. In essence providing a "live" element to all of the agreement variables.

Another area that would be considered "new" is the capital budgeting component of the JOC. Traditionally each company would evaluate their opportunities based on the anticipated return and focus on the areas that provide the best return. (And that will be part of the Compliance & Governance Module). What would happen if each company also "participated" in developing a long term 3 - 5 year capital budget for each JOC? (Please review the McKinsey document entitled McKinsey Capital Projects in the Library of this wiki for more ideas on this type of innovation.) And what would happen if the JOC did agree and determine a long term capital budget, based on continual updates of information through the accounting system, and, was optimistic in its awareness of new technological changes in the earth sciences and engineering disciplines, and was logistically opportunistic? Just as Google proposes to manage peoples health data, privacy is paramount but there is an element of the data that will be aggregated and used by independent third parties, primarily for medical research. If capital budgets were knowable in aggregate, could this data in turn be used by vendors to better anticipate the demands of producers in regional areas? A simple interface consisting of Google Earth populated with this information would enable vendors to better anticipate the demands from the producers. It is this type of information that is available through a system that is discussed in this specification. And that is the key difference, recognizing and supporting the JOC as the key organizational construct. The construct that is the legal, financial, operational decision-making, communication and cultural framework of the industry. This change in construct enables these types of opportunities to appear.

Lastly this is a marketplace module. A place where people, companies, lease issuers and vendors can buy-sell-trade in the properties they own. A place where the land posting process can be monitored and controlled by the interested parties. It should be contemplated that the variables will also lead to the final distribution of costs and revenues not only of single well JOC's, but also comprehensive facilities that have many functional units and CO&O agreements. These may have a history of mail ballots that need to be considered in determining the final disposition of some of the costs and revenues. This is a very difficult area and it would be advised that the full scope of the necessary understanding be adopted within the User community here before the actual code developments. It is important to remember that some CO&O agreements have adopted a strict application of the mathematical model of the agreement and some have adopted more of an interpreted understanding of the distribution. These difference must be captured in the system being discussed here.

** The integration of the firms agreements into this system would be one of the many business opportunities of this User and Developer community.

An important concept should be introduced in this module. The theories use and application is important to the effectiveness of being the most competitive means for the producer to have its systems, processes and data managed. All economic growth is attributable to the externalities that are realized through the further definition of the division of labor. One of the objectives of this application is to eliminate the redundant capabilities that are built into each silo / producer. Producers share risk and that risk is best managed in the vehicle the industry has selected to use. The JOC. If the traditional operator / non-operator designations survive, the industry will continue to not realize the benefits of using a systems such as this. The pooling of resources in the JOC is what is considered to be necessary to mitigate the retirement of the brain trust and attempt to satisfy the market demand for energy.

These modules must consider and implement a higher or more defined level of the division of labor. New job titles, professions and activities is almost certainly the outcome of this analysis. This should be encouraged and fall under the scope of the Users and Developers of these modules to define. The automation of a process should consider the liberal use of these new definitions in determining the types of work that needs to be done.

It is also contemplated that the Security & Access Control Module will provide the means for which to populate the human resources of each JOC. These following an understanding of the Military Command & Control methodology and metaphor that is an underlying theme of all modules in this application. This module is the beginning interface of how the producer companies agree with the deployment of the resources necessary to manage the JOC as agreed to in this module.

Recall that innovation will come in many forms. I would expect the flexibility of a legal framework such as described here, would provide the lawyers, geologists and engineers with the opportunity to innovate in the terms and conditions of these agreements. This should be considered as the norm in the future and assumed as the base case for this application.

• Global Reach
• Transaction Oriented
• Search (A very difficult topic to approach with an application such as this. The constraint is the authorized access that is necessary to ensure the integrity of the data. No information leakage should ever occur in this application.)

• Petroleum & Natural Gas Leases
• Surface Leases
  

• Agreement
  
• Farm Out
• Farm In
• Joint Venture
• Pooling
• Construction Ownership & Operatorship Agreement
• Novation
• Area of Mutual Interest.
• Accounting Procedure
• Operating Procedure
  

• Employees
• Role
• Rank
  
• Producer
• Delegation of Authority
• Producers
• Contractors
• Vendors
• Financial
• Investor

Resource Marketplace Module

“For every serious challenge facing the world. There is someone with a big idea. That big idea needs to be nurtured. It needs to be explored and analyzed in order to bring it to life.

And design is at the core of that innovation. There isn’t a problem in the world that a great designer can’t solve.” Quotation from an Autodesk commercial.

The People, Ideas & Objects Resource Marketplace Module is the second of three “Marketplace” modules. The other two, the Petroleum Lease Marketplace Module, which has been published, and the Financial Marketplace Module, which will be published soon after this module.

The Resource Marketplace Module has much in common with the Accounting Voucher and indeed the two will work hand in hand. Wherein the Accounting Voucher had discussed transactions, friction and transaction cost economics between contracting resources. The Resource Marketplace Module provides a window on the “Resource Marketplace” for Joint Operating Committee’s (JOC) and producers. Anything of value that is contracted between “actors” in the oil and gas, service, software and user community generated business’ will be found, contracted, managed and developed through this module.

The User focus is very strong in this module. The User who is optimizing the “tasks” and “actors” involved in transactions in the Accounting Voucher. Will be able to turn the deemed needs in the transaction into a demand for services in the Resource Marketplace Module. The User, I would expect, will also be able to quickly determine the needs and in turn be able to define, search and source that need through the Resource Marketplace.

User’s that anticipate what the market demand will be are going to be the first to configure an innovative solution, and, if they should choose to do so, market their product or service effectively in the Resource Marketplace Module. These element’s of the market changes are reflective of the industry needs as determined in the Accounting Voucher, and its use of transaction cost economics (TCE). Where transactions will be optimized for the division of labor and optimal efficiency. This process involving an iterative loop of constant improvement of the transactions and processes in the energy industry.

When these resources are discovered by the JOC or producer, the contract negotiation between the two parties can begin to take place. The first step in contracting will be the determination of exactly what the transaction should look like as determined by the Accounting Voucher. This would then lead to the specific negotiations, automation of the creation of the contract, and assignment of the Resources to the contract. From there this software should enable high levels of automation in order to relieve the user from work that is better suited to computers, and focus on the optimization and efficiency of the transaction.

Contained within the marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in this virtual marketplace. The scope and size of the Resource Marketplace should accommodate the needs of Exxon Mobil and their $250 billion annual operating costs down to the single entrepreneur starting out in the business. To preclude any group, profession, organization, or person from the Resource Marketplace would limit the value available to the industry. The rapid level of iterative change being facilitated between the Resource Marketplace and Accounting Voucher is necessary and indeed supports the rapid innovation that needs to occur in the industry. And is the key attribute of Baldwin’s Mirror Hypothesis.

Please consider these Draft Module Specifications as broad outlines of the overall People, Ideas & Objects application. They are intended to reflect the vision and research that has been done, in a concise and communicable medium. The User community will and should not hesitate to expand the scope of the application based on their understanding. These module specifications are in draft until such time as they are approved by the community. I expect the User community to expand on these concepts substantially. The scope of these applications will accommodate the needs of the producers industrial commercial operations.

What’s a Resource Marketplace.

Google recently announced their “Google Enterprise Marketplace” a place where users of Google Apps and developers of Google Apps software, services and products can search and find each other. People who want to explore the various wares of the independent service providers find a directory of offerings. Companies that have prepared offerings based on Google Apps find a place where they can meet their customers and conduct a reasonable level of business. This is the concept of a marketplace and what is being prepared in the Resource Marketplace, Financial Marketplace and Petroleum Lease Marketplace modules.

To call this a Human Resource Marketplace would be incorrect because it would limit the participants in the market. Whatever service, product or solution is provided to the energy industry, form either individuals employed by producers or JOC’s, or companies providing services to the producers. This would include Schlumberger and anyone directly or indirectly employed in the energy industry.

There needs to be a clarification of how the industry structure will evolve through the use of this software. It is easier to hire the Resources that are needed by using either the JOC or the producer. These represent the market (JOC) and the firm (Producer) in the definition of the boundary of the firm. Many individuals that currently work in the producer companies may ideally be more suited to working through the market, the JOC. The application of Intellectual property in this scenario will also change.

By way of an analogy I want to reflect on how this Resource Marketplace may evolve. It was eloquently stated by our research into Professor Richard N. Langlois’ works. The quotation describes the workings of the gun making industry of a hundred years ago. What I foresee in this analogy is the market sophistication and the lack of corporate entities. It is made up of people with skills that are well established and involves a complex and sophisticated makeup.

The Problem of Organization

The master gun-maker -- the entrepreneur -- seldom possessed a factory or workshop. Usually he owned merely a warehouse in the gun quarter, and his function was to acquire semi-finished parts and to give those out to specialized craftsmen, who undertook the assembly and finishing of the gun.

He purchased material from the barrel-makers, lock-makers, sight-stampers, trigger-makers, ramrod-forgers, gun-furniture makers, and, if he were engaged in the military branch, from bayonet-forgers. All of these were independent manufacturers executing the orders of several master gun-makers.

Once the parts had been purchased from the "material-makers," as they were called, the next task was to hand them out to a long succession of "setters-up," each of whom performed a specific operation in connection with the assembly and finishing of the gun.

To name only a few, there were those who prepared the front sight and lump end of the barrels; the jiggers, who attended to the breech end; the stockers, who let in the barrel and lock and shaped the stock; the barrel-strippers, who prepared the gun for rifling and proof; the hardeners, polishers, borers and riflers, engravers, browners, and finally the lock-freers, who adjusted the working parts. [G. C. Allen, The Industrial Development of Birmingham and the Black Country, 1906-1927. London, 1929, pp. 56-57.]

The value of intellectual property in the energy industry.

Within the Accounting Voucher Module, I referred to Professor Carliss Baldwin who stated “Knowledge begets capability, capability begets action”. And this Module is the means that people will “act” to raise demand for their services and capabilities. This situation is not fundamentally different from what exists today. As users redefine the boundaries of the energy firm and market, their role in these new transactions will be redefined and acted upon.

Tomorrow’s economic growth will be generated by what Professor Paul Romer of Stanford University says is “People, Ideas & Things”. Which of course is the beginning of the People, Ideas & Objects name of this project. Since “Objects” are the software code that we are writing then I simply replaced “things” with Objects. What Romer says about the volume of ideas is important to this industry. As we progress, incrementally more ideas are required to expand our economy. So how do we increase the number of ideas? I think we need to look at the motivation.

To the larger point of People, Ideas & Objects. Who owns the Intellectual Property of how a well drilled in the Jean Marie formation in North Eastern British Columbia should be drilled North to South to crosscut the micro fractures created by the thrust of the Rocky Mountains. Here is an idea that produced millions in cost savings and produced several BCF / day and I don’t think the individual that figured that out is recognized by anyone other then a small handful of peers, and certainly would not be generating value from its use by the producers.

Up till now the management of ideas in the oil and gas industry has been handled inappropriately and has lead to the declining reserves and production profiles. Ideas are not recognized for their Intellectual Property (IP) but fall into a ether to be used by any company that desires to. And I would suggest that this may ultimately be good for the producers who realize the revenues from these ideas but the management of ideas in this fashion today is a hindrance to the progress of the industry.

It is necessary in these modules to establish the power within the People in order to command the revenues they need. The industry holds all of the revenues and commands what can and will be done. Ostracizing those that disagree, or for saying the truth has an eerie tone from past societies. The ability to centrally plan all that needs to be done in oil and gas has failed, just as it had done in the Former Soviet Union, just don’t tell the companies.

A key attribute of the People, Ideas & Objects is the effective management of intellectual property in a fashion that considers what and why those laws were developed through the industrialized world. What if Thomas Eddison left the light bulb to this ether without properly managing his intellectual property? Today we would not have any of the valuable products that General Electric has brought the world. Same with Alexander Bell who spawned AT&T. The rights to ideas belong to those who generate them!

What I am saying is contrary to what the industry wants to hear. However, what we face is a systemic challenge to the world energy markets. The demand for energy to fuel the growth in our economy is in jeopardy. If we are relegated to the current system of managing IP in oil and gas, if there is one, we are not going to raise the performance of the industry. Simply what incentive is there for any individual to crack the next big scientific, engineering, or business problem. The motivation is to secure the rights to the idea and build a business around that. The research and development of the industry has been ignored by the companies for the past 25 years. Yet they still hold the resources necessary to fix this, but do nothing but report higher earnings. And they don’t seem interested in doing anything about it, therefore, as I have shown here with my IP it’s first come first served.

The key point is that there are a world of opportunities for users to generate and create intellectual property for themselves and build that property through use of the modules in the People, Ideas & Object's application. Now not everyone will be able to compete in this arena. But those that can should gain the benefits of their Intellectual pursuits. The general assimilation of ideas into the great energy ether has to stop if we are to generate the volumes of energy the world demands. If People are not rewarded for the ideas that they bring to this industry, this industry will not survive. For I believe, the only asset that has tangible value in the world today and for the future is intellectual property. Everything else is a poor choice in my opinion.

Now as I step down off my soap box. How does an individual obtain intellectual property? Simply, to earn the copyright the simple act of publishing is all that is required to secure it. The brilliance of the legislation is that the idea is immediately available for the world to see and use and most importantly build upon. The author is granted monopoly power over the expression of the idea for the remainder of their natural life plus 70 years. Not bad for a simple idea. Patents and trademarks have other advantages and the three can be the basis of how the user develops their service offering. Those that are unable to compete in the IP arena will still have their capabilities, education and other services, which includes free access to the People, Ideas & Objects software, to provide the industry and earn their living.

What I have earned is the right to charge the oil and gas producers for their use of the software that the People use. All that I have to do is to ensure that everyone that works on this project has signed the license, and as I have done, inform the producers of my copyright. This more or less makes it a loss situation for any producer who uses any other application that might breach my IP. It also eliminates the ability to generate any venture capital for any similar application. The advantage to the industry is that there will not be three or four software vendors diluting the resources and efforts necessary to make this product. The consequences of not paying for use of the software will require that companies discontinue use of the software.

Outside of the domains that have been defined in this module specification and organizational research, the field of intellectual property is open and available to anyone to do as I have done in securing the IP for this software development product. Taken in their aggregate the Resource Marketplace is the means to market and contract for the IP, and the Research & Capabilities Module will be how the individual secure their IP. The advantage of a centralized location for all Research & Capabilities undertaken in the industry should be self evident.

Stating this a different way so as to include all those interested in working in oil and gas. How the IP is managed in this application and how does the Resource Marketplace Module have a role in this? Simply the Resource Marketplace is where the holders of Intellectual Property, capabilities, services and other skills available to be offered for business with the JOC’s and producers. The Intellectual Property will reside in the Research & Capabilities Modules. If someone wants to establish their intellectual property they will use the Research & Capabilities Module as a repository for a) establishing their ideas, and b) publishing them in an industry repository database. The integration of the Resource Marketplace and Research & Capabilities Modules provide the ability for a user to manage the development of their Intellectual Property, market it, license it, and manage the commercialization of their ideas.

The ability to manage Intellectual Property in this fashion will enable the industry to develop as quickly as is needed. The point being the people will be motivated to do the hard work necessary in solving these problems.

Lastly I want to say that traveling down this road will be difficult for all concerned. What the companies have done is failed, and they will soon begin to realize the loss and potential loss of the intellectual property passing from their hands. It is important to note that if you have that next great idea, most employment contracts deem those ideas to be the companies. Ideas have consequences, and I have lived the consequences of these ideas for over four years. It is a difficult road to travel and should be taken with significant thought and consideration. Transition to this environment will take some time but I would also say, People with ideas that the energy industry needs, start your companies!

Contracting from A to Z.

To deal effectively with the Resource Marketplace the producer will need tools to effectively engage the suppliers and resources they need. Therefore the negotiation, determination of available resources, determination of transaction costs, contract execution and effective software tools to monitor and verify compliance to the contract are all part of the Resource Marketplace Module.

The optimization of the contract between producer, or JOC, and resource is assumed to be completed at this point and this area of the Resource Marketplace Module is strictly to deal with the nuances of the regular business transactions.

Facilities for contract development, execution, contacts manager, payment etc. will be provided to the producer. Similar interfaces will be provided to the service industries. After all a transaction has two parties, the efficiencies of the producers would inherently include the efficiencies of the Resource Marketplace. If we have an accounting system, then certainly offering these services to the suppliers would only make sense. It is not just producers in the Resource Marketplace. Key to the efficiencies in the Resource Marketplace are the mitigation of transaction cost friction. Friction on both sides of the transaction because transaction costs in the Resource Marketplace are costs that will be ultimately borne on the producer.

Payroll, Contract Payment and accounting interfaces

Having all participants of the industry interacting within the module, the ability to offer payment processing is a natural part of the modular specification. From payroll for employees of the JOC’s and producers, to the detailed contract payments of an oil sands plant. Interfaces to other modules such as the Partnership Accounting, Accounting Voucher, Compliance & Governance, Research & Capabilities and others is considered necessary.

Conclusion

We see in this module one of the efficiencies of using the JOC as the key organizational construct of the industry. Optimizing these transaction between contracting parties will provide enhanced performance to the overall industry. These changes will not lead to small increments in overall performance, but I believe based on my research into Langlois and Baldwins theories, will have exponential performance improvements.

The other key point is the tearing down of the basis of IP. If we are to expand the capabilities in the science and innovation in the industry. We are going to need to solve many very difficult problems. These problems can’t be solved in an environment where their is no upside for the individuals to solve them. Addressing the motivation and enabling the People to earn their IP in this application is the first step in making the necessary changes. Turning the oil and gas industry into a far more dynamic business.

In closing I want to quote some work of Professor Giovanni Dosi’s. Specifically his 1993 article “Hierarchies Markets & Power” is a must read for those that want to dive deeper into these subjects. He states a simplistic model of organization will include the following, and I have annotated the area where these are addressed in the modular specification;

The distribution of formal authority. [The military command and control metaphor.]
The distribution of actual power in the above distribution [The people]
The incentive structure. [Innovation, intellectual property, and capabilities.]
The structure of informational flows. [Security & Access Control Module]
The distribution of knowledge and competence. [The people] p. 10

and

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

The purpose in developing this “Marketplace” is to ensure the future of the industry structure remains flexible and amenable to the changes in the sciences and innovation. But also to attain and maintain the highest performance . And in this next quotation Dosi notes how this will come to be.
Clearly, it is the domain of Schumpeter’s creative destruction’, and of Moore’s (1978) analysis of the social bases of obedience and revolt, to name but two famous examples, and it applies also to the dynamics of economic organizations and institutions at large. p. 13