The Lay of the Land
Return on iLandMan (ROI)
Savings and Accuracy of Tract Based Solutions vs. Contract Systems Can be Quantified and Verified
The conversation occurs every day about why tract based land management solutions are more accurate than a contract based system for an E&P to understand their net acreage, and ultimately the value of the company. The answer is simple, but it still seems to either be denied, not understood or lacks awareness. A contract may have multiple tracts as well as multiple mineral owners within a lease agreement…all with different shares of ownership in each of the tracts. An E&P that only accounts for acreage by contract cannot account for leased net acres in each of the tracts. Ownership identified uniquely within each of the tracts provides the exact net acres of each tract, as well as each mineral owner’s royalty and bonus on a tract-by-tract basis. Tract solutions have “unique identifiers,” while contracts aggregate ownership and create inequities and inaccuracies in the value of acreage. Contracts miss the true value in net acres on each tract of a company, either up or down. System-wide errors run between 10-30%.
THE VALUE OF BEING 20% MORE ACCURATE
The over or under on a $50 MM lease hold by 20% has business consequences, whether an E&P is private or public. It is a $10 MM swing either way that will affect the bottom line, the credibility of a company’s valuation and certainly the reputations of those reporting. In January of 2011, American Oil & Gas Reporter brought such concerns to light as they featured iLandMan client Westward Energy, which at the time had successfully managed over 200 MM acres within six projects and multiple AMI’s. Westward’s ability to demonstrate the true value of these projects (down to the tract) allowed them to have several financing
options when they went to raise additional capital.
Not all tracts are of equal value. Tract based systems allow for accurate net acreage values based on the actual geographical (where it is within the prospect area) and geological (what depths or formations are included) information.
Rick Deffenbaugh, former VP of Land for Petrohawk’s Mid-Continent region and now VP for Nemaha Oil and Gas, LLC, explains, “With iLandMan’s tract based system we can present our holdings with clear, visual certainty, and we can demonstrate to lease administration that our figures are verifiable with the system’s unique cross-checking verification. Our lease acquisitions were consistently more efficient with real time data and our divestitures were expedited because we weren’t sifting through contracts and recalculating interests.”
SOLIDIFY SHARED WORK BETWEEN LAND & LEASE ADMINISTRATION
Most VP of Land executives we talk with are experiencing significant levels of frustration over land systems that accompany the accounting and production back office system their company has in place. Those systems rely on contracts and they add a volume of work to lease administration. Lease administration can be greatly relieved and benefit from the work land already does if the information is housed in a shared database for reciprocal use. The result is a more accurate work product and workflow, and the cost savings associated with both.
Leveraging Technology in the Land Group: By Richard Hines, Vice President/Partner
How can we leverage technology in our land group to improve the business? We have now found — through numerous case testimonials — that by giving a land group the most technically advanced tools, they can improve and simplify decision-making for the business in many ways.
Tools for analysis of data collection can bring new trends into focus, whether it is well information or leasing data. This analysis can reveal underlying trends in the market as well as understanding where more lucrative opportunities exist. Both leasing and drilling strategies can benefit. If the land group has a tool that allows several factors to be projected forward, then they will be able to see what it will take to get that well to market or pull off the strategic right-of-way or drill site for the next hot play. Cost and return items can also be data mined along with NRI to see what future cash flows are attainable. By integrating many different databases and maps into one centralized system, land now has the tools to make “proactive” decisions. This was not possible until programs like iLandMan came along to help manage the information in easy-to-use formats with maps. As my partner likes to say, “The Map is the Data, and the Data is the Map.”
Given the reality an E&P’s acreage represents to the company’s valuation, it is hard to rationalize why any formidable and aggressive firm would hesitate to outfit the land department or acquisition teams with friendlier technology to manage the holdings. Net and gross acreage and the rights for surface and minerals IS the valuation of the company. What’s better, a 90-day old map of the holding, or a “real-time valuation” with an accompanying map? Using antiquated spreadsheets and software to run the highly competitive leasing and contract management business of today is implausible when there are tens of thousands of leases in play. Today’s complex environment requires a robust tract based relational and spatial database. (See the feature article in this issue about the genuine differences between tract based systems and contract systems).
Some of the new iLandMan features such as Parcel Store™, Report Builder and new mapping functions continue to provide clients a competitive edge. These advances provide reduced project start-up times and lower cost, along with greater reporting capabilities. If easy-to-use formats with high yielding results are appealing, then this is the place to be. iLandMan. Upgrade your land group today.
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