With the volume of land and lease data increasing, integration becomes a key factor.
The extraordinary growth and opportunity presented by unconventional resource plays is driving a “land grab” that is overwhelming oil and gas land departments. Land departments are challenged to manage unprecedented volumes of land data and create insight and intelligence with these data. Challenges exist across all phases of land data (Figure 1); these challenges magnify as data volumes increase. Despite recent growth, land data management practices have been slow to evolve. The management of land data remains dominated by local individualized approaches that are heavily dependent on Excel spreadsheets and individuals’ knowledge. This approach is not sustainable given the high level of activity driven by acquisitions and divestitures. Leading companies are transforming their land departments through three distinct steps:
Integrating acquired land assets
The integration of assets into the organization’s existing processes and technology systems is foundational and has become more difficult as transaction volumes have increased. Land data must be input into the land and lease management system before any meaningful reporting or analytics can be conducted.
Land asset acquisitions typically take one of two forms: large acquisitions that include thousands of leases – typically entire companies, divisions, or prospects; and organic acquisition of smaller numbers of leases by company or contract landmen and brokers. Each presents its own challenges, and there are different prescriptions for accelerating the acquisition and integration of accurate land data for each.
Large acquisitions often are high-profile and highly strategic and bring with them increased pressure to perform. The board, executive team, and shareholders all are expecting performance, and this begins with asset integration. The sooner the asset is acquired and integrated into the organization, the sooner it can be developed and monetized.
The keys to a speedy integration are effective planning and plan execution. There are four areas that must be addressed during the planning process.
First, managers should know their organization and the roles and responsibilities of personnel associated with managing land data. The middle of a high-profile project is a bad time to be investigating and learning about the organization’s IT systems, data elements, IT capabilities, resource capabilities, and business rules. These need to be identified and defined well before any major acquisition and should form the foundation for the integration strategy and plan.
Second, companies should start early and identify the integration team. Early-stage planning should include both acquiring and divesting firms and should begin as soon as the deal is announced. This provides the integration team ample time to clear any obstacles so that as soon as the deal closes, the team may begin without a moment lost.
Third, teams should determine how the integration will occur. It will depend on the situation, but there are cases in which a system-to-system data conversion is the best option, and others in which manual data entry will be optimal and still others where a hybrid approach is appropriate. The primary factor in this decision should be the size of the transaction and each firm’s systems/IT capabilities. See Table 1 for additional comparisons and considerations of each method.
Fourth, data entry should be prioritized. Not all lease data are created equal, and teams should prioritize what, when, and how data are integrated into the land and lease management system. Data prioritization will depend upon the integration timeline and the length and scope of the transition services agreement (TSA) with the divesting firm. Goals in prioritization are business continuity upon expiration of the TSA and ensuring critical assets are quickly visible to the organization.
Business continuity can be facilitated and input prioritized by identifying the leases that are set to expire, require payments, are producing, are nonstandard, and are of high strategic priority. Beginning with the most at-risk leases and ending with the least risky will ensure obligations are met, leases are retained, and business operations continue unimpeded upon expiration of the TSA.
Organic lease acquisition
Organic leases may be no less strategic than larger acquisitions, but they often do not receive the same high level of focus and attention. As a result, asset integration and data loading into the lease management system often stall – leases and data sit in limbo in between acquisition and the company’s management system. This prohibits robust reporting, business intelligence, and data analytics.
Process design and discipline are paramount for ensuring rapid integration of land data from smaller transactions and the regular taking of leases. The who, what, when, why, where, and how must be clearly defined and consistently applied. This begins with clear definitions of roles, responsibilities, and business rules.
Every lease analyst and asset team should follow the same set of business rules for every lease record. The business rules must address the unique aspects of different lease forms and regions and also clearly and consistently apply core business principles (e.g., acreage reporting). Business rules should be well maintained and regularly reviewed. Process consistency promotes speed, efficiency and, ultimately, robust management reporting.
Even with well-defined and adhered-to processes, companies still lose track of lease records that are awaiting entry into the lease management system. Workflow management tools are helpful for increasing process visibility throughout the integration process. These tools manage who is responsible for each lease, track receipt of necessary documentation, and provide early reporting capabilities.
Dashboards are excellent workflow management tools. They accelerate land data integration by promoting transparency and accountability across the process. Bottlenecks and dependencies can be identified and addressed in a timely manner. Quality performance management and measurement also become a reality with these tools.
Quality assurance procedures are important regardless of acquisition and data-loading methodology. Data that are not accurately and consistently captured are of no use. Bad data prevent meaningful enterprise-wide reporting, intelligence, and analytics. Data integrity is promoted by clearly defined business and data rules, review and approval of lease records during integration, and regular system-wide data reviews.
The external legal documents (purchase/sale agreement, assignments, etc.) available during a large transaction are great sources of data for quality-assurance checks. Lease data can be reconciled against these documents. This process will identify errors from the data integration and the legal documents. Identifying and resolving errors will result in much higher quality data from the outset.
Organizational design often is overlooked but is equally important in promoting rapid lease data integration. The current business environment is forcing shifts in executive strategies and operations, but downstream the land department remains unchanged. As organizational priorities shift, the organization of the land department needs to be adjusted to match. Alignment of strategy and priorities up and down the company is integral for achieving success.
The land department should be aligned with executive strategy. If the company’s strategy involves rapid deal-making and asset use, then land needs to be organized and have sufficient resources to support the execution of that strategy. Individual roles and cross-functional teams should be designed with strategy execution in mind.
A key question facing many land departments today is, “How and where should work be accomplished?” Everything does not need to be completed in-house. As land records are becoming increasingly digitized, the ability to outsource particular tasks and activities continues to grow. The next-generation oil and gas company will be able to evaluate and strategically determine how and where work gets done best. The result will be faster integration and use of assets, better business intelligence and data analytics and, ultimately, better business decisions.