When the relentless wildcatters of the late 20th and early 21st centuries unlocked the mysteries of hydraulic fracturing and horizontal drilling, the world’s energy equation was changed forever.

Shale oil and gas once believed to be impossible to pull out of the earth is now being extracted, springing the energy industry to life and boosting consumers’ appetites for hydrocarbons.

Consider these projections from the Energy Information Administration (EIA):

Worldwide consumption of petroleum and other liquid fuels is expected to increase 32% between 2010 and 2040.

Worldwide consumption of natural gas, the world’s fastest-growing fossil fuel, is projected to rise 64% between 2010 and 2040.

While the use of renewable energy and nuclear power is growing, fossil fuels are expected to supply nearly 80% of the world’s energy use through 2040.

Lots of opportunity means lots of competition and little room for error. And in today’s complexity-laced world of oil and gas, where timing and precision matter more than ever before, exploration companies can ill afford to misstep at any time during the lease acquisition and management phases.

Said Bob Hopkins, a three-decade industry veteran who spent the last four years of his career as ConocoPhillips’ North American land skills manager: “Because leases are so expensive and competition is so fierce nowadays, companies can’t afford to not systematically protect them.”

Before operators can intelligently manage their leases, however, they must locate and acquire the right ones.

Market Visualization Enables Quick, Intelligent Leasing Decisions

Acquiring good leases isn’t as simple as throwing a dart at a map, calling the landowners in the area and getting them to sign off on some paperwork. Securing good leases involves strategic planning and action.

Company land pros need to be able to quickly visualize the energy marketplace and see where leasing activity is taking place, who owns what surface rights, where competitors are operating, which leases are available now and which ones will be available soon, where wells are located and other crucial business details.

For a landman, seeing his organization’s lease position relative to the competition’s – as opposed to reading about it on a spreadsheet – is what enables the most effective planning and decision making.

“Being able to use a GIS system to query, filter and produce reports is critical,” said Hopkins, who got his start in the oil and gas business after graduating from Creighton University’s School of Law in 1980. “That extra dimension of visualization is an important change for our business, and most companies are catching on.”

Provisions Aplenty – Don’t Forget To Manage Each One

When the decision is made to purchase any given number of leases, all of the provisions contained within those leases must be accurately captured. Because most modern-day leases have several dozen provisions attached to them, capturing and managing each one is critical to seeing a drilling program through to the end. Nothing can be missed.

Take pooling as an example. When leases are pooled to form a drilling block, rarely is each and every provision neatly aligned. Instead, some leases may be for oil while others are for gas. Some may contain 320-acre requirements while others include 640-acre obligations. Some may include percentage requirements while others don’t. Long story short, every provision must be accounted for and managed appropriately so no mistakes are made over the course of the drilling operation.

“Every lease is unique. When I get ready to pool a unit, I may have lots of different provisions,” Hopkins said. “My system better be robust enough to capture all of those provisions and details so I can see everything clearly and get a report to look at all of it fast.”

Maintaining the variances in subsurface ownership and royalty interest is also essential. This has become more important and more challenging over the decades as mineral rights have been inherited, transferred and sold, creating an intricate and ever-growing network of mineral owners. Therefore, an organization’s lease module and division order module must work together so subsurface ownership can be tracked over time.

On the pre-operations side of the equation, when a landman can capture and calculate royalty percentages and revenues, he can help his team do the economics needed to drill a well.

“A lot of our work is on the front end in planning,” Hopkins said. “By correctly capturing all of those details, models can be run showing which leases can be put in a unit, which leases should be put in a unit, which have the highest net revenues for the company, which have more and less partner involvement, et cetera. So I need to be able to quickly ascertain ownership in a variety of leases.”

Rental obligations can’t be overlooked, either. Establishing a carefully thought-out lease position takes time, oftentimes more than a year. If a company isn’t in position to drill a year after purchasing its first lease and misses a delay-rental payment, a lot more than the initial bonus paid to the landowner could be lost – the potential returns from the drilling operation also could be forfeited. Because big money usually is on the line, delay-drilling payments had better be paid and paid on time.

“If I miss a rental payment and lose a lease, the question then becomes, ‘What would its value have been?’” Hopkins said. “And it could’ve been hundreds of millions of dollars.”

Bottom Line – Efficiency Is The Name Of The Game

As competition for prime shale acreage continues to stiffen, teams must acquire choice leases and intelligently manage them every step of the way.

After all, “land is the basis of all wealth,” said Hopkins. If the leases associated with that land aren’t cared for properly, potential wealth quickly could slip from a company’s grasp.

If, however, those leases are managed appropriately, business-changing returns are there for the taking.

By Alex Schultz, P2 Energy Solutions