Buying Oil & Gas Assets? Grooper the Files First.
At the start of 2020 no one could have imagined where the oil & gas industry would be where we find ourselves today. The US onshore shale revolution had already slowed down, rig count was off of its 2018 high, and the industry was dealing with financing drama. The ledge had already begun to crack, which is why the global pandemic and ensuing collapse of demand hit like a freight train. Add to that an on again, off again price war between Saudi Arabia and Russia, and there were the makings for a perfect storm.
There used to be a 100 million barrel per day global oil market. The US had reached record production output in 2019 and global supply was steady. Coupled with a sustained slump in demand, there is now a vast chasm between what the world can consume and an oversupply situation. And it’s only going to get worse. Inventory around the world is reaching capacity, such as at the main storage hub in Cushing, Oklahoma. Producers who have not already stopped drilling or shut-in wells due to the historically awful economics will be forced to shut-in production simply because there’s nowhere to store the oil.
Silver Lining to a Perfect Storm
As bleak as it looks for the oil & gas industry, one thing we can always rely on is that supply and demand will find a balance. That disparity will resolve as COVID-19 and shelter in place restrictions eventually lift. For an industry accustomed to boom and bust cycles, this downturn may be especially bad. But there are plenty of oil & gas companies and investors who are either well hedged, have plenty of dry powder, or both.
Bankruptcies are an inevitable reality given the cash flow crisis before and subsequent fallout from the pandemic. We’re already seeing a steady stream of liquidation events. And as companies burn off cash reserves or lose their hedging protection, that stream will turn into a flood, likely toward the end of this year and beginning of 2021. The result will be a strong A&D market, an unfortunate situation for many oil & gas businesses but also a windfall of low cost acquisitions for those who can weather the storm and come out on the other side when commodity prices return to something resembling normal.
Navigating the Paper File Problem
Deciding whether or not to buy oil & gas assets is a nontrivial undertaking even under “normal” conditions. But extraordinary times create extraordinary challenges for buyers. Companies forced into bankruptcy in the current situation are hardly likely to meticulously curate their records for the new owner. Instead, expect well and land files to be thrown haphazardly into filing boxes while digital records suffer from information sprawl, duplicate copies, and multiple versions of the truth.
Many buyers are already scrambling to identify acquisition targets and pick through post-bankruptcy asset sales. Not every asset is a bargain, so it’s important to quickly evaluate long-term production potential and risks. Buyers beware though. Your valuation of a deal should not rely solely on type curve analysis and production forecasts. Equal attention must be paid to all files, which hold important historical data on asset performance, maintenance requirements, and field studies. Not to mention the boxes full of leases and land records that may hide a minefield of hidden provisions and obligations.
In order to assess asset potential and secure prime acreage before the competition does, your team must be able to rapidly interrogate structured and unstructured data sources to separate winners and lemons.
Post-Acquisition NEW File Dilemma
If you’ve ever been on the acquisition side of an oil & gas deal, you know just how chaotic it can be to sort, process, and assimilate asset information. A seller, or bank in the case of bankruptcy, will often ship truckloads of boxes containing hundreds of thousands of documents. If you’re lucky enough to receive a portion of the seller’s well files in digital form, it’s all too often scanned versions of a physical document or PDF. And with widely varying file naming, poorly organized folders, and multiple copies, finding the documents you need can be a real headache.
The big problem for new asset owners is that the clock is ticking. You’ve got new wells to operate in basins, states, or federal lands your team may not be at all familiar with. Importantly, you’ve got hundreds or even thousands of new interest owners who need to be paid. Everything you need to operate your new assets is buried in boxes and digital folders, underscoring the critical need to onboard well and land files as quickly as possible.
P&P Oil & Gas Solutions can help you efficiently onboard unstructured oil & gas data with Grooper, our intelligent document processing product. Configured to your specific document taxonomy needs and calibrated to oil & gas subject matter, Grooper rapidly converts digital documents into a machine-readable format, automatically classified and organized for immediate analysis.
Grooper is far more than optical character recognition (OCR). OCR technology has been around for decades, but it hasn’t evolved, which explains why error rates are often over 50%. To accurately extract complex language requires smart algorithms that understand the context of words on a page. That’s what Grooper does and why customers see 99% accuracy.
If you are in the process of acquiring or have recently acquired oil & gas assets, consider sending your boxes of asset data to P&P Oil & Gas Solutions. We’ll arrange for a pickup, ship your documents, digitize, convert, classify, and index everything with Grooper. Then send you structured well and land information that your team can immediately put to use.