HOW I LEARNED TO LOVE THE LAND DEPARTMENT
In the world of oilfield equipment & services, little attention is paid to the land department of the exploration & production company. Those guys don’t hire the drilling rig, frac the well, or install the pump. They don’t influence vendor selection, have any budget beyond lease acquisition, or decide when to drill. But for the last several years, the success or failure of an E&P company’s field development has hinged on the success or failure of the land department. Here’s why:
Fifteen years ago and earlier, an E&P company drilled vertical gas wells, mostly. These wells were on spacings of, say, 320 acres, so the land department could lease those 320 acres and the well could be drilled. If the broader play was economically attractive, the land department could assemble a patchwork quilt of leases and a blanket of wells could be drilled in the play. If the leases were contiguous (i.e., touching), all the better, but this was not necessary because each well occupied a defined vertical space.
With the Barnett Shale’s horizontal development, the land department needed to assemble acreage that allowed 3,000’ laterals, then 5,000’ laterals to be drilled -- generally one well at a time, maybe two side by side. The land department could lease a square mile – 640 acres – and the well with its 5,000’ lateral could be easily placed within the boundaries. And although contiguous acreage was best, the land department could again get away with building a non-contiguous patchwork of acreage because horizontal laterals could fit within a standard 640 acre boundary.
But the industry has learned that extended reach drilling is generally the best way to develop a field, and by extended reach we mean laterals of 10,000’ and longer. Even 20,000’. And that these 10,000’ laterals should be drilled from pads with 3, 5, 10 or 25 wells in order to limit farmland damage and negative impacts on a community’s environment. By 2010, land departments were tasked with assembling vast tracts of contiguous acreage, leasing the mineral rights from hundreds and thousands of owners so that extended reach drilling could commence. Filling in those last holes in the contiguous acreage became an important and sometimes expensive job.
Today, the one-well one-lease oil company is a dinosaur, pushed into smaller and smaller niches in the US land market. The market is dominated – and will continue to be dominated – by those E&P companies who can quickly and cheaply assemble vast, contiguous acreage that will allow their drilling and completion departments to create new wells with the most attractive economics in a lower-for-longer oil price scenario. And like the Sooners in the Oklahoma Land Run, the guy who gets to the land first wins.