Q&A with Jonathan Woods and Rachelle Sutherland from Venado Oil & Gas
Landdox's Head of Business Development, Brandon Sage, and Head of Client Impact, Alli Irwin, conducted a remote webinar session with Jonathan Woods and Rachelle Sutherland of Venado Oil & Gas. We've pulled out our favorite questions and answers from the webinar and shared them below.
- How Venado has been able to maximize efficiency and intelligently utilize their teams in uncertain times.
- The impact of Landdox's cloud-based land platform in the ever-changing remote work environment.
Q: I know that early on, Venado made some key business decisions which were interesting in regards to headcount, land team roles, and technology choices that allowed you to run leaner. Tell me about some of those choices and how they've affected you today in such a different environment.
Rachelle Sutherland, Land Administration Supervisor: Originally, when we set up the land department, Jonathan and I really talked about how we wanted to structure the department. And one thing that I've done in my career, historically, has been to actually do both the lease analyst role and the division order analyst role. I really liked how that provides quite a bit of flexibility in terms of how you're able to change what you're doing depending on where the companies are. So if you're really heavy on drilling, you can focus more on setting up new decks, division orders, and obviously stuff in your lease analyst's work. However, when you're not drilling at all, in those sort of downtimes, you're able to shift your focus from division orders over to more of your lease analyst's related work, such as analysis of shut-in provisions, minimum royalty provisions, things like that, which are just more on the lease analysis side of things.
Jonathan also thought that was a really good idea, so we decided to structure the land administration group so that we would just have land analysts who do both leases and division orders. That's what really enabled us to keep our headcount pretty low. It also provided a really nice size plate where people could have flexibility and they can change it up -- it's a more interesting role as well.
We also don't have any land techs. So the landmen and land admin sort of split some of the clerical work. It doesn't all fall on land admin. The landmen also have a part in filling out some of their documents, in turn helping the land system -- Landdox.
That was the other thing that has really helped us to run lean since the technology that we've chosen to use is all in the cloud and online, making it accessible away from the office. We decided from day one of Venado to go digital as well, instead of trying to keep up with physical and digital files, because that also helps you reduce headcount. So a combination of all those factors for our land system. We're using Landdox. Then, we also do a provision analysis through ThoughtTrace, and push all that, as well as the key information we want, from there into Landdox. Then, all of our records are digital. Our whole filing system is in Landdox because it offers the digital filing system document management tool. We also now have our ArcGIS platform online as well.
Q: You mentioned you've got kind of a utility player role -- which is maybe how we might describe it. So perhaps somebody that was handling lease entry or lease analysis nine months ago might be doing division orders today. Did I hear that correctly?
Rachelle: Yeah, or just the opposite of that. So we’ve just finished completing our latest well at the end of last year. One of our deal analysts is actually just finishing up going through the division order title opinion. He sent out division orders last week. Then he's going to switch gears and focus now on minimum royalty. We have some acreage cleanup projects going on, but we're really doing some heavy-duty analysis on force majeure, shut in, minimum royalties, and cessation of production. So he's shifting gears and putting much of his time toward those projects, rather than setting up new decks. Instead, he's just keeping up with the regular maintenance of ownership changes.
Jonathan, Land Manager: I'll say it is a dual role with that. It's just where you're at in the lifecycle of the project where you have more emphasis and not the amount of workload. But on any given day, these land analysts and/or landmen can be working on different sides of it. So it's not like it's just a couple months here, and then you shift over. It's definitely across the board.
But, again, I'd like to just kick off and say thanks, Brandon, for having Venado be a part of this. It’s really a great opportunity to get out there. I know this whole work from home thing -- this is all new for everyone.
In regards to Venado overall, I’ll just dive into that a little bit and then we can move on. When I joined, one of the things that attracted me to Venado was the fact that we had a clean slate, with no assets, really, no land, no department. So the opportunity to come in and build it from the ground up, the database for use, as well as the people that we employed -- that was really attractive to me.
I've been a part of land management and land departments across the board. I've never had the opportunity to really go in there, and based on my past experiences, truly grow a department. So that's something, coming in, that was incredibly attractive. The roles and how we set it up again -- we heard from people, either in the interview process or just people that we knew, people wanted the opportunity to grow their skill set. They didn't want to be stuck in a role that necessarily they just got to do one part of the business. They wanted to see the entire piece of it. And so the idea of giving people the ability to take on more roles was important.
Then the opportunities as far as staffing levels, the idea was -- we keep a base load as far as employees. That was important. From having field employees --not just a representative to in house people -- we wanted to have Venado company people, full time employees. But at the same time, we wanted to utilize contractors for those peak times. We knew that doing acquisitions, you'd have an enormous amount of workload, but that would just be for a shorter time period. So we didn't want to staff up necessarily for that.
Then if you did have a downturn, you didn't necessarily want to have to go through large layoffs. So we wanted to recognize that and utilize full time employees for your base load at work, keep everyone busy, have it to where people had more than what they get accomplished in that time period, where they had to prioritize projects. But at the same time be able to utilize contractors when you needed to come on for a special project or during those acquisition periods.
Q: I think you've talked on this just a little bit. But what was the timing of evaluating your team's headcount? Was it decided when you originally set up the team or later? And did Landdox enter into this decision or did it, meaning Landdox, come after?
Jonathan: Yes. As far as headcount, it is something that definitely, coming in with zero assets, obviously, you're not gonna build a staff before you have an asset. So, as we continue to grow and acquire more assets, with each acquisition, except for a handful of built-ons, we would have a decision to make as far as headcount. We knew all these were producing assets that we were acquiring. We had headcounts and staffing levels from the previous operators. We had that kind of metric to go by, but we would always try to reduce that headcount. Our goal was usually about a 50% reduction in headcount from where it was previously, but in utilizing technology, a lot of that helped to fill the gap.
Rachelle: Yeah, and I'll say, whenever we did it, with each acquisition once Jonathan and I came on right at the beginning -- when we just acquired our first non op asset, and after that we added a contractor that we evaluated, as well as the need for full time employees. We really had to come up with a really good defense of why we needed a full time employee versus a contractor. We looked at the workflow really hard to make sure that it wasn't just, as Jonathan was saying, a peak time, which isn't something that you can always predict, and we often just need contractors for right now. Then it will eventually slow down, and there's not going to be enough work to necessarily fill a full-time role.
So we were really careful and methodical in all of our decisions. Sometimes it felt a bit difficult because we had to really defend our thinking in order to get a position to open up and get approval for it. But it worked out really well because taking a slow, methodical approach to it, you don't end up over staffing, and then you don't get worried in these flow times that no one has anything to do, because we're still busy even during the slow time.
I think that's because we've taken a slower approach. And as Jonathan said, in short, everyone had more on their plate than they could accomplish right then. So, you have to prioritize and save some projects for those slower times. Because as you know, the industry always does this up/down cycle. Instead of contracting out a lot of projects right away, some of that we could wait on to accomplish. We pushed those off a little bit to wait the first time.
Lastly, regarding the part of the question about, “When did Landdox enter the equation?” It entered pretty much immediately after I came on, which was a month after Jonathan. We looked at the technologies that were out there, and we had signed up with Landdox by March. I had come on in February. Jonathan had come on in January, and we were in the middle of closing an acquisition. So we needed to make a decision. Which is why we started in March with Landdox -- that was in 2017. So we've been with them now for three years.
Jonathan: Yeah. Regarding the demos, as far as our acquisition of the land database, it was very attractive. We were able to expedite it a lot. In my prior company, working with Rachelle, just within the last couple years, we've gone through demos with several companies. So we've gone through that recently, and there wasn't a lot that necessarily changed, other than a couple of new entries into the market.
But we knew where everything was, as far as the status quo, and we could utilize knowledge very quickly, which enabled us to go ahead and identify it. Again, I think a lot of it had to do with the fact that we don't have any sacred cows. As far as we had to use a database or this, coming in, again, having a clean slate allowed us to think outside the box and say, “How do we want this to look?” Having the ability to use Cloud base was key for me. The ability to be able to open it up from anywhere, whether you're in a hotel room or at home -- initially things weren’t necessarily geared towards that, but I wanted the ability, if I need, to get on my phone and look up something quickly. So that was really key.
Q: Where did you push data from into Landdox?
Jonathan: When we did our initial acquisition, they were using, I think they were originally pulling in the data from whatever land system that company was using, which was former P2. Currently we do regular pushes from ThoughtTrace into Landdox. So we pull the provision text over. We go in and confirm that the full text is correct -- having the correct title and everything in the provision in ThoughtTrace. Then, we pull those over into the notes in Landdox so that we can easily export it by lease into spreadsheets and things like that for analysis.
Brandon: Landdox does have several out of the box integrations with other systems, ThoughtTrace being one of those systems. There's some really nice slick plug and play opportunities to leverage other technologies.
Q: How are things going in the world of $20 oil? And how does that impact your team specifically? Obviously, development is being slashed. Everybody is slashing development right now. And so in this world, are mineral and royalty owners willing to allow the industry to curtail this development in order to basically let the industry live another day? What are your thoughts on that, Jonathan, in dealing with some of the mineral royalty owners?
Jonathan: Obviously, it's hard to make a blanket statement across the board. It's user specific. But I would say for the most part, our experience, and from what I've been hearing from others, is that regarding mineral owners, one, they understand the kind of situation that we're in and realize that that there is a need to give some relief from the standpoint of either shutting wells, slowing down different wells under continuous development, and/or lease extensions.
I don't think that it's in anyone's best interest to see companies that are going through what could be potential revenue reductions. You hear all the news about companies that are in financial distress through bankruptcies and all that. So, obviously they're looking out for their bottom line. However, at the same time, they want to work with and partner with the companies.
On top of that, I would say that for most of them, this probably isn't their only means of income. So, it's maybe not necessary. They may build a lifestyle around this royalty revenue, but it's not necessarily their only source of income. Most of us would likely have a little bit of a cushion and would rather use the reservoir itself as the savings bank and not want to produce and extract this in a $20 price environment. They would often rather keep those hydrocarbons in the ground until prices rebound to something closer to the range of $40, $50, or $60.
Q: Are you having to go back and re-trade anything or do any amendments to lease agreements with any individual mineral owners or royalty owners?
Jonathan: Sure, I mean across the board, I'd say our position, at least a majority of it, is HBP or held by production, where we're not necessarily obligated to have to continue to drill new wells. There are a certain number of areas where we do have continuous development, and I think Venado was looking at it early on and necessarily didn't wait until these recent OPEC announcements to start making decisions.
Whenever you're forced to react and respond quickly in any negotiations, you're naturally going to be at a bit of a disadvantage. So the fact that we were out there in late 2019, going ahead and starting conversations, not necessarily forcing people or bringing them to the table to execute documents, but going ahead and having those conversations, that helped a lot.
Then as we moved into January and February and prices continued to dip, we were able to go ahead and get some deferral agreements in place, where we either utilized and maybe didn't allow you to bank previously drilled wells to allow for those deferrals to happen. We went ahead and negotiated some of those where we drilled more than we needed to last year. So we thought, let's go ahead and credit some of those towards this year and not drill those right now. Then, we'll pick it back up again next year.
Also, we were able to go ahead and utilize it where we were able to maybe just say, look, let's just take a pause, and we'll come back and revisit it in six months or a year and handle it from there.
Q: How do you keep your employees motivated during this time?
Rachelle: Well for land admin, I think it's been pretty easy to stay motivated for everyone even considering $20 oil. I think everyone is pretty motivated to try to keep their job and demonstrate that they add value in their role. And even without drilling that, you know, you're adding value, that you still have a lot to do.
I think for land administration, that's been pretty easy for us so far as well. We've had a ton of work to do, as far as getting the land in the system, cleaning things up from acquisitions. There's always a ton of work to do there. Whenever you acquire something to get it into, you know, exactly the right structure and all the data pulled out that you want versus what the prior company was capturing. And then in addition to that, we've got the ThoughtTrace provision analysis, which always falls to the wayside when we're drilling or we've got a lot going on in the office.
With working from home -- all of these, you just have time for these exact projects that we need to accomplish anyway. So, that's been motivating.
Jonathan: I think most importantly out of any of these things, obviously, it's recognizing people's individual schedules. Acknowledging that it's going to be a little bit unique during this situation. It's not gonna be your typical eight to five hours necessarily for everyone. You have some situations where both parents are working trying to do this from home while they have kids in class.
I think as a manager, I have to recognize that each individual's personal experience is different and unique and you have to work with it, while at the same time recognize that there are ongoing activities at the office that you still need to happen. So it can't just be put on hold during this time period.
We have employees who are expected to work. It's not like it's just a free pass during this time. There's a lot of work that needs to take place and analysis needs to happen during this time period because decisions are being made on the fly. So having that base load of work out there is important because it allows people to do more independent work exercises. But at the same time realizing that there are special projects like shut in reviews that are ongoing, and different hot topic buttons that come up, and you need to make sure that you're able to prioritize those as they come up.
Q: How is your team dealing with shut in provisions right now?
Jonathan: I think every company, or at least most companies, are obviously looking at potentially what they can shut in, whether it's from a lease operating expenditure review, or from the standpoint of potentially not having a market to sell into.
There could be different reasons why companies are looking at shutting in. And for Venado, it's looking at it as a much larger picture. You have an input from the different groups. It's not just land that's in the review. It's the operations. It's production. It's reservoir. It's the asset team -- everyone has a different viewpoint as far as you know, which wells maybe they would want to shut in if they needed to, or as you do it.
We went through identifying different tranches and priorities, starting with the top 20% down, and each tranche or grouping had about 20% of the production. We're going through identifying which wells maybe fall into those categories and then reviewing it from the standpoint of, hey, if we need to start turning wells on and off how can we do that? How's that going to impact the leases?
But I think it's important for everyone to recognize it's not like turning your light switch on the wall, right? Where you just flip it, and the light goes on. Flip it, and it goes off. These wells are obviously different and unique in the standpoint that there's a lot that goes into it before you'd go out there and shut in the wells and potentially bring on that production afterwards.
Q: What percentage of your asset is operated versus non operated?
Jonathan: From a net acreage ratio, Rachelle can speak to the net acres. I mean, there's obviously a lot of different variables. You can go for production net acres, well count -- all those things.
Rachelle: As far as our non-op area, we have around 100,000 net acres on our operated areas and then about 40,000 company net acres in non-op areas. But in the non-op area, we also have over 1,000 wells -- I think we're closer to 2,000 wells. We've got close to 300 wells, somewhere between 300 and 400 wells on the operated asset.
Jonathan: And every non-op obviously is different. How the one that we're in, as far as it's a large joint venture non-op. So, we're pretty much standardized, uniform work interest in large JOL areas, but the same partner throughout with the same operator. I know a lot of companies when you have non-op interests in a single wellbore or unit ours happens to be one large joint venture area.
Brandon: This has been really, really helpful. You guys have given some really insightful answers and I really appreciate that. If anyone would like to get some more information on Landdox or would like to have a demo, you can email email@example.com. And one of us will get back to you. But I just want to thank you again, Jonathan and Rachelle. It was really helpful to have you guys on and answer a lot of questions that I think are top of mind for a lot of folks in the industry.