Oil and natural gas exploration and production (E&P) companies are not maximizing the value of their growing land organization as they rush into the shale production boom, a study by PricewaterhouseCoopers LLP (PwC) has concluded.
The land management part of the E&P’s business is not getting the top-level leadership it should receive, PwC concluded from a survey of 70 professionals in 20 top oil/gas companies that contributed to the report, “Organizing for Success: Designing and Enabling a Successful Land Organization.”
PwC found that more than one-third of the companies surveyed do not use key performance indicators to manage their land organizations, while more than half lacked quantitative data on their land management performance.
“Nowhere has the impact of U.S. onshore resource play development been felt more strongly than among land organizations,” the report said. “The volume and pace of development within resource plays requires faster, more ‘nimble,’ and more capable land organizations than in the past.”
PwC concluded that the “strategic importance” of land has been raised considerably. However, E&Ps are just beginning to respond to this development, the report said.
The land in oil/gas operations is one of the few functions that cuts across the entire asset lifecycle, according to the PwC report. Adding to its strategic importance and complexity is the fact that land is important in acquisition work, exploration/development, production and, finally, in shutting in wells.
“Without a well-functioning land organization, drilling activities can come to an abrupt halt and operators can face significant legal and financial risks from title defects, lead or royalty compliance and other issues,” the report said (see Shale Daily, Feb. 22, 2012).
In contrast, when the land management function is done right, E&Ps will experience smooth acquisition and divestitures, efficient rig deployments and avoidance of undue lawsuits, the report said.
The report looked at the pros and cons of various land organizational units — from decentralized to highly centralized. No one organization is recommended. Instead, PwC prefers a structure that will “enhance coordination and communications” among the principal players — land operations, administration, finance, legal and what it calls other interfacing business functions.
“For all but the smallest E&Ps, one important step to achieve all of the outcomes [desired] is alignment of land operations and land administration under an identified land leader [within the E&P].”
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