Texas Landman Market Report (September 2016)

By September 25, 2016Insights

The current activity in Railroad Districts 1-6 should be described by the number of companies filing for bankruptcy protection rather than the normal metric of the number of rigs running.   To bring this illustration into further focus, I believe that more companies will file for bankruptcy protection in Texas this year than there will be rigs currently active in the Eagle Ford.  The number of these Chapter 11 companies will be overwhelming and for the companies that were fortunate enough to not file for bankruptcy, they will be a mere shadow of their former self.  Take Chesapeake, the largest and most active producer in the Barnett shale since its inception just announced the sale of their Barnett shale properties to private equity backed Saddle Barnett Resources.  Chesapeake’s market capitalization in just 2 years has fallen from $20.4Bln to $4.7Bln.  The fallout from these bankrupt and zombie companies continues to have a devastating impact on landmen, our families and our industry.  You need only to read the posts on AAPL LandNews in order to gain huge insight on how landmen are faring after 2 years of falling oil prices.  The impact is intense and far-reaching with AAPL and NAPE both experiencing dramatic declines in event attendance and making necessary cuts in order to maintain a balanced budget.

So what does the future look like for landmen in RR Districts 1-6?  We are fortunate because of the vast remaining reserves located in East and South Texas and this region has a highly developed infrastructure to maximize the value of the oil and gas produced.  Districts 1-6 have the benefit of a land and title system that is tied to metes and bounds property descriptions, smaller tracts in some areas and mostly fee lands, all of which translates into a large workload for landmen.  This cannot be said for other areas of the country which may be experiencing dwindling reserves, high finding and development costs, federal lands, environmental issues, anti-oil and gas efforts, or a lack of infrastructure to name a few.  One example of an organized effort against the oil and gas industry can be seen in Colorado where a ballot measure was drafted to change the setback requirement from 500’ to 2500’.   If this measure had obtained the required number of signatures allowing its place on the upcoming November ballot, upon voting and (if) passing, it would have effectively eliminated 90% of all new drilling in Colorado. This in turn translates into fewer jobs for landmen in the effected region.

Opportunity still remains and as the price of oil recovers, many of the companies who filed Chapter 11 will restructure their debt reemerging with a bundle of cash to invest in their best properties.  This reinvestment could mean extending leases or looking to buy properties in core areas.   Such companies will also look at selling their non-core areas.  One caveat, until these companies are out of bankruptcy if you decide to work for them, please make sure you are approved by the bankruptcy court otherwise there is no guarantee that you will receive payment.  There are also a large number of properties being sold at auction and I expect this trend to continue.  Reach out to companies that you know are selling their low value assets, which are typically divested through the auction process, and ask if you can help package these properties up for auction.  If you have connections with banks holding oil and gas loans they can always use a landman’s help to determine the value of the undeveloped acreage, search for liens or encumbrances against the properties or if they have taken the properties back they can use your help in selling the properties.

Be steadfast – it will not always be this way.  I encourage you to stay current with your certification, education and contacts.  As the Chairman for AAPL’s Field Landman Committee, we are planning several seminars for the 2016-2017 year that will give Field Landmen the opportunity to stay connected and current with certification requirements.  The Field Landman Committee would like to hear from you on ways that we can do more for Field Landmen.  Please feel free to reach out to me and I look forward to hearing from you.

by Randy H. Nichols. This article was originally published in Landman 2, American Association of Professional Landmen (AAPL). Mr. Nichols has been writing the Field Report for AAPL, covering the Texas region, since 2012.