If private equity bailed out the exploration and production (E&P) industry after the 2015 downturn, the back office may well be the industry savior following the dual shocks of 2020.
Yes, a software designer who’s only been in the industry for five years just predicted – in OILMAN Magazine no less – that the land and accounting staff will play a larger role than engineers and geologists in saving the oil and gas industry.
Sadly, not every company will make it. Wood Mackenzie forecasts completions will not return to 2019 levels until 2025. BP CEO Bernard Looney told the Financial Times that peak oil demand may be in the rearview mirror.
Let’s assume the worst – that they’re correct. When (not if) we come out of this period, there will be substantially fewer companies. The most efficient large players will own even more of the most viable acreage. And only the savviest of the small and medium-sized E&Ps will be around.
How can you ensure that you are one of them?
It’s time to invest in the people, technology, and regulation that currently govern the back office land department, so that they can save us.
Today’s back office must be weighted toward savvy data analysts, not seasoned dealmakers and administrators.
Two years ago, one of our customer’s VP of Land asked me what skills he should look for in a land manager. I said he should hire a recent graduate who understands data science and teach him or her land. He should look for someone with advanced Excel, if not actual database, skills. He should hire for the ability to mathematically analyze complex positions and interests and then teach him or her the intricacies of the trickiest contract clauses and provisions that impact land positions.
In the current environment, data skills are even more necessary than they were two years ago. Companies under pressure to raise cash with asset sales must use data efficiently and quickly to understand what they own, demonstrate full value to buyers, and close the deal. Bidders better be able to analyze a potential deal in short order or risk overpaying. With the price of oil so low, there is no longer room for error.
Change shouldn’t be limited to workers in the back office. The data-oriented land department must be led by managers who understand sophisticated work product. These leaders must value high-level analysis, know the right questions to ask, and motivate their teams to continually hone their data skills.
It’s time to get rid of legacy back office software and embrace new technologies that foster efficiency and accelerate decision making.
Underinvestment in back office technology has stifled innovation and led us to where we are today: siloed, bloated, slow-moving back office teams in service of antiquated enterprise resource planning (ERP) systems that were not built to handle the complexity of today’s industry.
The legacy ERP systems that dominate the back office software market were coded at least a decade before the dawn of the unconventional era. Yet, land and mineral ownership complexity have increased exponentially in the decade since. Legacy ERP providers sell expensive modules that do not communicate with each other, and they charge exorbitant fees for one-off custom builds and even help desk time.
The back office has responded by creating new processes and departments to work around the software shortcomings. The result: a bunch of different departments with a lot of people, and no one who knows with 100 percent conviction what your net acreage is in any given county.
With the industry in full-blown crisis and no end in sight, that result can no longer be tolerated with a wink and a smile on the golf course. Companies that don’t understand what they own and sell assets for too little – or overpay for acreage they misevaluated – will run out of cash and close their doors.
There are software alternatives available and they’re less expensive to implement and maintain than the systems you are using now. Five years ago, James Yockey and I started Landdox to build a modern land platform that allows large companies to restructure their back office and combine disparate teams and data sets. Our software also allows small and medium-sized companies to stay lean and mean while actually improving data integrity.
Industry regulators must focus on bringing down costs to increase competition and save jobs.
Throughout the crisis of the past few months, domestic regulators have been largely silent, allowing the market to fluctuate on its own. As we endure this period of low prices and consolidation, fewer players will mean less competition and fewer jobs.
It is not the regulator’s role to interfere in a free, competitive market. But what if changes in regulation could lead to lower costs and help more industry players survive?
For example, our industry spends hundreds of millions of dollars a year on title research that is repeated over and over again on the same land assets. If title were maintained using blockchain, the cost of running title would plummet.
Government entities that lease minerals should embrace blockchain technology to lower asset transaction costs. If the Bureau of Land Management (BLM) or the Texas General Land Office (GLO) adopts blockchain, the private sector will follow suit.
Okay. Now what?
Yesterday was time to start hiring data professionals and competent managers in the back office. Today is the day to implement technologies that break down departmental silos, increase efficiencies, and lower costs. Every day is the day to work with regulators to create a level playing field and save jobs.
Let’s get to work.