One of the more common complaints I hear from field landmen, particularly well experienced field landmen, is that brokers hire inexperienced people to work on and run projects. The biggest reason I see thrown around for this is inexperienced hiring managers, careless brokers, and poor supervision from in-house landmen. I’d counter that those issues are only a small part of the equation. I’d say budgetary constraints and client driven needs are the bigger pieces of the puzzle.
We’ve all seen those brokers who say “I need 20 landmen next week that live within 50 miles of <insert small rural town>.” The brokers, clients, and landmen know that there isn’t any way they are going to find enough qualified and available personnel. The answer to the problem is to find 3 or 4 great individuals, and fill the rest in with boots on the ground. The usual argument then continues that if the client wants quality work then they need to bring in people from farther away and put them in hotels. The incorrect assumption is that the client needs quality work at the expense of their budget.
I’ll give you an example. XYZ Oil Company wants to build a position in the Blackhawk play, but their budget is running low and they can’t allocate as much as they might normally. XYZ goes to their broker, Leasehound Joe, and tells him to put 20 sets of boots on the ground buying leases, but they can’t pay for lodging. Joe knows he won’t be able to find many experienced hands that are close enough to the play to commute, but he isn’t about to lose the job. Even if neither XYZ or Joe have said it verbally, they both know that they will be getting some pretty green agents. However, if the play is productive, and if they don’t decide to sell off the acreage, then they’ll fix it next year. Why? Because a productive play that needs curative gets more funding than a prospective play that nobody is sure about.
This bring us to client driven needs. Sometimes you are lucky enough that you client actually tells you what its plans are. Some companies get long primary terms and sit on acreage, others drill just enough to prove up the reserves and sell it, and of course some just want to build their own acreage position. You might be able to imagine that each of these tactics deserves a different strategy in the field.
Again, for example, perhaps XYZ Oil Company isn’t sure if this wildcat play is going to pan out. If XYZ is able to drill a few productive wells they can market a working interest in their play, and cure the title as necessary and appropriate. Of course the cost to XYZ to cure the title will be lower after they bring in a few working interest partners. If the acreage isn’t productive, then they aren’t out all of that extra money it would have taken to “do it right”.
Like this article? You’ll probably enjoy my blog, Don’t Sell Your Clients Work!
In the same vein, maybe XYZ wants to just sell their acreage position after proving up reserves on it. Typically when these Purchase & Sale Agreements are signed the buyer has a limited amount to do their own due diligence and submit items to the seller to either cure or rebate to the buyer. In these instances XYZ is in a great position, if the buyer doesn’t do a complete due diligence they may get out of paying for the curative completely. In most cases the buyer will find a portion of the issue during the review period, and XYZ will pay for those out of an inflated sales price that values their acreage much more highly than their acquisition costs.
In both of the above cases it is in XYZs best interest to put off “good” land work until later in the development process. There are other times when XYZ might be in a highly competitive play where it is in their best interest to buy as many leases as possible (at a price that is currently low) and worry about title costs later. This is what is commonly believed to have occurred when Chesapeake was purchasing shale assets in Arkansas (this story deserves an entire article all its own).
Now, I’m not saying that clients don’t always want good landmen who do quality work. Much the opposite, the brokers who can consistently provide quality personnel will always thrive. Although this doesn’t occur in a bubble, when you have a gap between availability and budget the lines begin to skew. The perspective of land work from a higher level perspective aren’t always the same as it might seem on the ground. The adage “buy now, pay later” isn’t only applicable to retailers, operators can fall prey to the same conveniences — even if they cost more in the long run.