Part 1 – What Energy Companies Need to Look Like in the Future

As land leaders think about the strategies needed to navigate the complexities of today and tomorrow, multiple business priorities are top of mind, including how to maximize asset base, drive data-driven decisions, and contain G&A costs. Technology thought leader and CEO of ThoughtTrace, Nick Vandivere, has teamed up with W Energy Software to provide his valuable perspective on the tough challenges facing the land department and how to future proof energy companies with artificial intelligence, automation, and a single version of the truth, increasing business agility, reducing costs, and improving free cash flow.

By Nick Vandivere, CEO at ThoughtTrace

When it comes to capital expenditure and what Wall Street is looking for these days, generating cash flow is more important than reserves. This shift in emphasis from growth to shareholder value sets the tone going forward yet many land teams are stuck in a reactive mindset where daily decisions about what acreage to develop and sites to select from drilling inventory are clouded by poor access to reliable data, staggeringly large data volumes, and manual workflows. Instead, land teams need to shift into proactive mode bolstered by technology and a data-driven culture that create a clear view of contractual obligations at the wellhead and integrates business intelligence into day-to-day processes. Do you have the right tools for the job?

As an industry, we just haven’t talked enough about what energy companies need to look like going forward, the topic of my first blog post in a series all about modernizing the land department. The next few blogs will share key strategies for directly uplifting profitability leveraging data-driven asset optimization, hitting higher targets with the resources you already have, and navigating the energy transition backed by solutions to solve the “big reading problem.” I hope you find my point of view valuable and impactful on your land team’s productivity.

Creating a Digital First Culture

Volatile commodity prices that render basins unprofitable overnight, growing emphasis on ESG, and fierce competition for acreage have created a catalyst for change, and energy companies will need to look very different in the future to survive and thrive. In an industry that historically responds to growth by adding people and to downturns with layoffs, the energy company of the future is one that is digitally enabled and agile, empowering teams to do more without adding headcount. The land department is at the digital center, a hub and spoke model of the modern oil & gas enterprise.

The new energy enterprise is managed by people who not only understand land and lease complexities, but also the technology side and how to extract value from the digital oilfield. The big crew shift is well underway as a generation of energy professionals retires and a new, digital first-generation leads the way ahead. They are sharp, progressive thinkers who don’t want to be held back by antiquated technology. And they expect answers in minutes, not days or weeks.

Understanding how your team can create better data is part of the solution. You also need to know how to create a data-driven culture that attracts the progressive generation. There are only two paths to take, one that positions oil & gas companies to excel with a lean, digitally-enabled team and one that strands organizations with underpowered capability, innovators vs. digital laggards.

Future-Proofing with the Right Technology

Leveraging artificial intelligence to automate lease analysis, navigating big data, and getting answers from vast volumes of land records – these are the new digital skillsets that can make or break a company going forward. The right technology choices will future-proof the land department, allowing teams to confidently move forward with the digital capabilities and skills required to meet evolving business and market conditions head-on.

The energy company of the future will instantly construct very elegant solutions to complex business processes and also scale in crazy ways, such as importing 40,000 contracts at 8:00 in the morning then interrogating that data for answers before lunch. Software shouldn’t stand in the way of the answers your team needs.

Getting Answers from Big Data

Amazon shoppers and land teams share a common big data challenge where tens of thousands and even millions of records must be rapidly accessed, searched, and relevant results presented. Like shopping on Amazon, navigating to answers about your acreage should be as easy as picking your category, oil & gas leases in our case, then filtering on tracts, assignments, and Pugh clauses that meet your criteria.

One of the most important traits that will define energy companies and the land department going forward is how we ask questions of our data. We need to pivot away from only answering one-off questions and augment our knowledge with a more dynamic situation where we train our systems to continuously pay attention to the risks we need to care about. Instead of answering one-off questions about your acreage (whose answers have a limited shelf life) organizations need a persistent line of inquiry that constantly looks for new answers about certain royalties, leases held by production, and other contractual obligations. The upshot is that land teams can monitor their acreage by exception and jump in the decision loop only when action is needed.

Now that I’ve shown you what I think the energy company of the future needs to look like, my next blog will explain how a savvy, digital-first culture can reap big rewards through asset optimization that drops more revenue to the bottom line.

This is Part – 1 of our guest blog series: Essential Guide to Modernizing the Land Department.

Part 2 – A Lever to Uplift Your Margins

As land leaders think about the strategies needed to navigate the complexities of today and tomorrow, multiple business priorities are top of mind, including how to maximize asset base, drive data-driven decisions, and contain G&A costs. Technology thought leader and CEO of ThoughtTrace, Nick Vandivere, has teamed up with W Energy Software to provide his valuable perspective on the tough challenges facing the land department and how to future proof energy companies with artificial intelligence, automation, and a single version of the truth, increasing business agility, reducing costs, and improving free cash flow.

Non-ops and mineral owners are well aware that operators sometimes underpay for a variety of reasons, including inaccurate decimals, deductions, and payout conversion. What everyone needs to understand is just how overwhelmed operators are in managing massive leaseholds, which is why payments here and there fall through the cracks. Except for a very small number of bad actors out there, no operator wants to underpay their interest owners. In fact, I have worked with operators who preferred to overpay their owners by eating all production costs rather than miss an obligation, maintaining their social license to operate. However, armed with the right asset optimization strategy and tech, these operators gained the confidence needed to stick to their agreements and pass costs back to owners, instantly uplifting their margins.

That’s what I’d like to talk about in this blog – areas in your land department where a clear and current view of obligations can yield rapid results and drop more revenue to your bottom line. If you are just now tuning in to my series on modernizing the land department, I encourage you to read the first blog where I outlined why energy companies need to evolve and look different going forward. My last two blogs will show you how to increase business performance without adding headcount and confidently navigate the evolving energy mix.

Royalty Obligations

Ownership split from inheritance, bolt-on acquisitions, lease renegotiations, cost-free provisions – these are just a few of the complexities that make understanding royalty obligations a daily challenge. To accurately pay interest owners, operators must carefully track a large number of royalty provisions that pass on certain production costs, such as dehydration, compression, and marketing, underscoring the need to decipher legal language and pay owners based on specific provisions and market conditions. As in my opening example, some operators choose the path of least resistance and leave money on the table.

Land departments have a “big reading” problem with the daily crunch to keep up with their royalty provisions. Just a few years ago, this was an impossible feat, but technology has turned the tide, enabling entire filing rooms to be searched with ease, provisions classified, and answers delivered at the speed of business. With a current and intimate understanding of royalty language and other conditions, your team gains a valuable lever to directly raise revenue and improve profitability.

Drilling Obligations

Given the shift in Wall Street sentiment toward returning shareholder value via better free cash flow vs. reinvesting for double-digit production growth, E&Ps must have a more nuanced and strategic approach to drilling. The tip of the spear is your drilling obligations. Oil & gas teams must have a clear line of sight at all times into drilling inventory and the time constraints to make the most out of rig placement. The calculus can be complex. For example, if you have a budget to run 5 rigs simultaneously over 12 months, then your team can drill about 30 wells. Assuming you have 500 or so leaseholds, your land department must sift constantly shifting obligations to pinpoint the leases that have an in pay penalty or lose acreage in advance of the drill bit.

Again, technology is your best friend, enabling your team to rapidly mine drilling obligations for termination clauses around payment and get the answers you need in seconds not weeks. The old way of reviewing one lease at a time even with multiple analysts is simply no longer viable given the scale and complexity that most E&Ps face, which puts your team in a constant state of reacting. Indeed, according to recent research, IT organizations have been stripped of up to 50% of their capital expenditures needed for digital transformation and business automation initiatives, leading companies to settle for the status quo (see McKinsey’s A New Mandate for the Oil and Gas Chief Information Officer). By proactively managing leases with tech that understands land and legal documents, contextualizes, and makes it instantly available for answers, you can place rigs with surgical precision, stop reacting, and get into lean planning mode.

Acquisitions and Divestitures

A&D is part and parcel of the oil & gas business, but as an industry, we continue to struggle with the large volumes of well and land files that accompany a deal. Ironic in the digital oilfield, this data pervasively takes the form of boxes filled with documents at worst and thumb drives full of PDFs at best. Pre-acquisition or post, your team must make rapid sense to assess deal quality and risks.

If getting a clear and current view into royalty and drilling obligations can uplift your margins, doing the same for acquisitions and divestitures can have a 7X or 8X bigger impact on your bottom line.

Faced with A&D leaseholds with thousands of documents, most oil & gas teams resort to sampling to acquire prime acreage ahead of competitors. What if instead, you could simply ask questions of the entire population of documents just as easily as searching on Amazon?

in an acquisition scenario, this capability gives the buyer an asymmetric advantage in pre-acquisition due diligence by not only moving fast but acting on all of the information available. And when it comes to selling your assets, being able to instantly mine land records for reliable answers will make divestitures more marketable by giving the buyer clearer justification into asset price and bolstering confidence in what you are representing.

I hope you are finding my blog series a valuable guide to modernizing the land department with ideas and insights you can put to use. In my next post I’ll bring you up to speed on the tools you need to automate, integrate, and accelerate lease administration workflows so you can grow your business without growing your G&A.

This is Part – 2 of our guest blog series: Essential Guide to Modernizing the Land Department.

Nick Vandivere serves as CEO of ThoughtTrace. During his tenure, he has led the transformation of ThoughtTrace into a company that is a technology and thought leader for the application of applied artificial intelligence and machine learning. As a software CEO, Mr. Vandivere believes that product innovation, reliability, and an outstanding user experience are the required ingredients for exceptional performance and long term value. Mr. Vandivere joined ThoughtTrace in 2010 as Director of Business Development. Prior to joining the company, he served as an officer in the US Army and later in an advisory role with the US Department of State. Mr. Vandivere holds a Bachelor of Science degree in Economics from Texas A&M University..