It’s probably safe to say that we have all personally experienced, or had a good friend who has personally experienced some downtime over the last few years. The United States is swamped in uneconomic dry gas, and even some of the wet gas is not worth drilling. Historic oil plays have been a place to hide, but by their very nature these plays require a certain amount of skill not all possess. I’ve seen a ramp-up over the last six months of experienced landmen who are looking for work, and I thought it was time to put some thoughts down ‘on paper’ on the subject.
Everyone knows that we work in a cyclical industry, and we’ve all been told to “save for a rainy day” or “make hay while the sun shines”. I don’t know how many do just that, but every successive boom and bust cycle converts more to a habit of saving. An unskilled person can advance to a very respectable annual earning potential in a pretty quick time period (3 to 5 years), and while that means opportunity for those that can grasp it — it also spells trouble. Is a three year landman at $350 a day that much better than a one year landman at $250? Is a seven year landman at $400/day more competitive than a 20 year landman at $450/day? Most of you can see the easy tradeoffs here that brokers and in-house landmen have to deal with. I don’t know the answer to these questions, but when budgets get tight there is a pressure to get the work done with less. I made a quick (completely unscientific) chart to illustrate my point:
As you can see, budgets can get eaten up pretty quickly on an annual basis by dayrate increases. One could easily see where a trade-off might be made towards the example at the bottom — even at the expense of total time to complete the project. The example at the bottom, could for instance, allow one to keep developing their acreage position while waiting out the next budget cycle. I’m completely ignoring the cost savings by hiring local new or inexperienced landmen over experienced crew that requires travel and lodging expenses.
This means a few things. The first is that as you gain experience you must also gain skills that will set you apart from your lesser experienced counterparts. No longer will it be sufficient to have 20 years of experience only running title or leasing, to succeed you will likely have to master more advanced levels of land work. At a minimum, the experienced landman should be skilled in title curative and due diligence in the future.
The bigger omen is that we are likely in the midst of a cyclical multi-year downturn comparative to the staffing levels we have seen in the past. The energy business is largely booming, but landmen are experiencing a disconnect from that boom in much the same way as natural gas prices are disconnected from the historical ratio to oil prices. The theoretical ratio of oil to natural gas prices should be 6:1 based on the amount of energy produced by equivalent volumes of each fuel, the current ratio is 24.5:1. Barring an increase in natural gas to bring pricing to a more theoretical level, the most logical thing that we will see continue over the next 18-24 months is a washing out of excess capacity (landmen) in the market through retirement and (plainly spoken) an inability to wait for the job picture to turn around.
This washing out process is likely not confined to a particular experience level either. We’ve already discussed how and why every experience level has its place going forward. If anything, it could mean that as you gain more experience with gaining new skills, it will be more difficult to secure a stable future. Looking at the situation from a strictly “raw numbers” perspective, there may be more available jobs for lesser experienced landmen than more experienced landmen — while the rarer jobs available for skilled landmen could have higher compensation (and expectations) attached to them.
Of course, all of this is assuming that we don’t discover a new play in an un-leased area that is extremely economic and will spur another multi-year boom cycle. Unfortunately, putting all those variables together amounts to a “Hail Mary” pass in football parlance.
So what can you do to protect yourself?
I don’t know how many more ways I can suggest that you need to stay relevant. The landman in the next decade will have to learn new skills, constantly develop new contacts, enlarge their spectrum of education, and combine all those things with a dash of luck.
I’m sure we’ll get some pretty strong opinions in the comments below, but I’d like to hear them anyway. What does your crystal ball show you for the future of the land business?