July 25, 2013
The Role of the Landmanin Capturing Business Opportunities
Agenda
Why are Landmen critical to the Industry?
The Landman has many roles
Identify and Capture an Opportunity
Critical success factors
Success and Collaboration go together
Wrap Up
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Why is “Land” relevant to what you do?
Aspect/Topic: Drilling Horizontal or Vertical? Infrastructure Development strategy Completion plans Infrastructure Facilities Technology improvements Eventual well density
Impact on Lease & Contract terms: 1. Deal structure2. Acquisition cost3. Royalty calculation method4. Offset obligation impact5. Water and surface use needs6. Time needed to obtain permits7. Timing of drilling obligations8. Compliance9. Amount of acreage held/earned
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What you do impacts lease/contract negotiations
Like Engineers, Land has many roles depending on the situation
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Leasing
Clear Title & Drill
LeaseMaintenence
“Deals”
Release
Acquire the rights to drill and manage the leases throughout the life cycle
Private ownership can create complexity
U.S. is essentially the only Country with private mineral ownership Minerals can also be owned by wide range of entities other than
individuals: Federal, State and Local governments, Native Indian tribes School Boards, Water Districts, Railroads, Universities, Trusts, etc.
Complex ownership can present challenges in leasing: Surface and mineral owners can be different Minerals can be severed and owned by many people “Owners” may not have clear title for some reason Individuals don’t know they own minerals Can’t find the owner Owner dies without a will Ambiguous language in deeds, etc. Mistakes made in conveyances (mineral vs. royalty) Family dynamics when it comes to money, surface, leasing
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The U.S. has diverse mineral ownership
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Granny inherited 100%
of the minerals in 640 acres
Who owns the minerals after Granny dies? It Depends…•What State did they live in when Granny died?•Where are the minerals located?•When were the minerals last leased? Do they own the surface also?•Did Granny inherit the minerals before or after she married Jed?•If before, does the family know?•How were the minerals handled in the divorce, if they were?•Did Granny die with or without a valid will?
Granny and Jed have 2 children
Granny and JedDivorce
Granny Dies
Granny marries Jed
Real life example of the complexities encountered in leasing
Not as easy as it might look
Multiple transactions can be required to put a Prospect together: Multiple mineral owners requiring multiple leases Negotiate agreements with multiple companies No two contracts or leases are ever the same Can require complex negotiations, competitive bidding, large cash expenditure Must ensure the various contracts, obligations, terms, etc., can be implemented
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OPENState OPEN
FederalLEASEDDry Hole Corp.
LEASEDCOP
HBP‐surfaceTo 5,500’XYZ Corp. Deep Rights open?
LEASEDABC Co.
LEASEDGusher Inc.
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Ownership is not the only complexity to be managed
Location, Location, Location Room to grow? Populated area, or a potential population growth area? National Forests, Wetlands? Wildlife refuge? Topography or other surface issues? Water availability? How do the local residents view the Industry?
HSE considerations (Health, Safety, Environmental) Regulatory considerations (permitting, spacing, horizontal drilling) Financial impact (taxes, etc) Infrastructure (pipelines, plants, market, etc) Competition? Contract and Lease obligations—complexity Managing uncertainty: “What if” …………………….
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Industry is moving into areas with new challenges whichcan present opportunities if managed effectively.
However, with complexity comes opportunity
Individuals don’t have resources to develop their minerals Room for many competitors:
Low barriers to entry Relative certainty in laws, regulations, rules, etc., not present in other countries
Opportunities for companies of all sizes International Companies and Governments want to invest in the U.S. Partnerships, LLC’s, LP’s, MLP’s, Corporations or all sizes, Companies backed by Private Equity, Individuals
Large and diverse geographic area available for Exploration Be an example of the benefits industry brings Address concerns up front when its cheapest and easiest
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The Landman manages the complexities of private ownership
The Landman has many roles…….
Initiator Networking Identify opportunities that fit the Company strategy
Negotiator Oil and Gas leases Joint Venture and Joint Operating Agreements Purchase and Sale Agreements
Facilitator Build consensus Look for solutions to potential hurdles
Multi Discipline Team Member Collaboration for “best” decisions Different viewpoints are valued
Expert and Generalist Seen as an expert in the field Broad range of knowledge/exposure Recognizes Land is just one of the key components
Company Representative Interacts with Landowners, Regulators, Competitors, Partners People see the Individual and the “Company” as the same thing
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……some of which can translate well to other disciplines
Identify: Opportunities can originate anywhere at anytime..
Internally generated opportunities and ideas. Ground‐floor leasing or drill on acreage already owned Farmin or JV
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Externally generated opportunities are identified in many ways……
Personal relationships Word of mouth
Email Auction Houses Marketing Companies Banks International Large transactions Private Equity
•Opportunities get wider distributionand move quickly through the market.
•Need to be “in” to avoid competing with20 + companies for the same opportunity
•Personal relationships can sometimesput you first in line for a deal
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Must know where you want to beDetermine mineral ownership by “running title”
Leased?
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Capture: Determining ownership is the first step
Unleased?
Acquire O & G Lease
•$ Price/ acre Bonus•Royalty •Lease Terms•Competitive Bidding?
Develop Entry Strategy
•Deal Structure•Capital Commitment•Timing•Potential Partner
Capture: Acquiring drilling rights can take many forms
Ground‐Floor Leasing Acquire new leases from mineral owners Can be most cost effective entry tool Can have more favorable terms to operate under
Joint Venture– Deals in Marcellus, EF Shale and Utica Shale One Party has the acreage already leased/ acquired‐‐‐reduce exposure Another Party has capital, expertise, or some other resource Depending on the market, can be a leveraged deal
Acquisition—Companies or producing fields Buy existing leases from a 3rd Party to enter or consolidate an area Can include producing leases Can be very competitive
Farmin/Farmout 3Rd Party earns its way into partial ownership usually by drilling
Many factors impact deal structure and negotiations....
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Negotiating and Closing a deal requires a Team effort
Geoscientists
Finance
Operations
O & G Mkting
Accounting
Legal
Management
Land
Real PropertyAdministration
Regulatory Stakeholder Relations
Engineering
Collaboration among all disciplines is critical to success
Communications
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Relationships and Reputation are critical for success
Relationships Build them before you need them Formal and informal Can provide inside track to opportunities Can provides access to information Built on trust—keep your commitments
Reputation‐‐‐Ethics and Integrity Built on ethical behavior, trust and fair dealing over time No short cutsWhen people see you, they see the Company you work for A good reputation can get you access to opportunities Become a “Preferred Partner” in the Industry
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Relationships and a good reputation can be a competitive advantage
Challenges mean we must adapt or lose…..
To be competitive one must adapt Business is more complex than ever Opportunities & Competitors are Global and Local Companies that have a strategy, can “see” the opportunity,
and act fast have the best chance of success A missed opportunity can be gone “forever” Change is coming faster and faster Regulations, Technology and Risk require the need for
flexibility, planning, and asking “what if”?
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Summary
U.S. is unique in that it has private ownership of minerals This presents complexities and opportunities Capturing an opportunity is a process requiring collaboration among
many functional experts The Landman has the responsibility of and navigating through the
complexities to “win the game” Relationships, Reputation, Ethics and Integrity are critical
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Questions?
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