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Texas Landman Market Report (April 2016)

Land Management

Since writing my last report, the price of oil has increased by 37%.  The pundits say that we have reached the bottom and that the price of oil will stabilize somewhere above $50/bbl.  Regardless of the price today, damage has already been done to majority of E&P companies and the impact is staggering. Industry experts forecast that as many as 150 E&P companies will file for bankruptcy protection in 2016.  As of the time of this writing, I count 10 companies that have filed since January 1, 2016.  If the expert’s forecasts are correct, we may be counting 140 more this year.  In other somber news, this past March lost a landman and visionary in our industry, Aubrey McClendon, who died in a car crash in Oklahoma City. Whether or not you are in agreement with his beliefs or business approach, industry consensus would say that Aubrey was ‘one-of-a-kind’ and no matter where any of us has been in the industry, we have all been touched at some point by Aubrey or one of his companies – that is one heck of a footprint to leave.

As I look at the drilling activity in Railroad Districts 1-6, I see fewer and fewer rigs drilling each month. With the exception of the Eagle Ford shale, almost every single play has little or no drilling activity. This means that the remaining landmen working on drill site title, curative and surface access have run out of work.  In the Houston area, many large E&P companies have conducted second and even third round lay-offs, while other smaller E&P companies have just simply shut their doors.  We have not seen any significant acquisition and divestiture activity in this region within the last quarter.  However there are a large number of properties for sale in the Eagle Ford shale and we expect to see a large portion of future sales categorized as “distressed sales” as part of an effort to restructure and avoid bankruptcy.  A recent and significant decision by the courts to allow Sabine Oil & Gas, currently in Chapter 11 to cancel its midstream contracts poses a big problem for other midstream companies who are trying to remain solvent especially if this decision becomes precedent.  The court’s decision also increases the need for companies to ensure that their liens are perfected against first purchasers. While some domestic E&P companies are waning, there are new companies starting up and being backed by private equity.  We expect this PE-backed trend to continue throughout the year.

For experienced landmen, PE-backed companies will be a great source of opportunity as we see that many of these companies are initially staffed on the heavy side with financial and engineering expertise upon start-up.  This leaves a huge need and opportunity for someone to join their team with the land knowledge of how best to manage their assets. In short, stay motivated to keep your network fresh and your attitude positive. Consider attending the AAPL Annual Meeting in Orlando as the educational seminars are the best ever and the networking may help you find your next opportunity.

by Randy H. Nichols, CPL. 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.

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