Leveraging Technology in Title Due Diligence
It is no secret to land professionals that errors are common in ownership and leasehold records.
Acreage leakage requires sellers to discount the market value of an average asset by 4% to 10% before close. Buyers are expected to conduct due diligence on tens of thousands of acres in windows of 30 to 90 days, forcing land managers to cut corners, analyze only the largest tracts or limit the scope of their diligence. Trusting decades-old title instead of conducting proper diligence leaves buyers stuck hoping they own assets instead of knowing they do. Apathy towards title error puts billions of dollars at risk annually in the oil and gas industry. One study by the University of Utah found lease defect rates as high as 19% in an analysis of 145 public transactions.
Another problem, ownership reporting lacks standardization. Brokers using spreadsheets and hand-written notecards to research mineral ownership results in hard-to-read, error-prone reports delivered through a process that is painstakingly slow.
When prices are at $100/bbl companies can afford to gloss over title inefficiencies. In today’s competitive environment, successful E&P companies and mineral buyers must tighten margins to be successful, and there is no better place to start reducing loss than proper management of title.
Redefining the Title ProcessThe industry is making progress by digitizing courthouses to gather raw data efficiently and by storing lease information inside of lease management systems to analyze their Areas of Interests (AOI). While solutions like these allow land departments to collect and view information quickly, errors still happen when a land department prepares the chain of title. The tools used to address the complexity in title have historically not been up to the task of eliminating errors.
The root issue plaguing oil and gas title due diligence is static data. To be useable data must be timely, complete, easy to understand and, most importantly, correct. Land departments need tools that turn raw courthouse data into dynamic ownership data.
3 Considerations When Selecting Land Management Tools
Getting in front of a target landowner is paramount to acquiring top acreage. Many steps, tasks and participants make it critical to rapidly and securely pass data between colleagues. Leaders in land departments should have a high-level picture of what they own and where research is happening, while also being able to dig into the details.
Static reports built in Excel lack defined standards in formatting, storage and organization, leading to confusion and frustration for colleagues throughout the diligence process. When reports are duplicated at each step of due diligence, the result is multiple versions of a single document, increasing vulnerability to human error.
An area as small an acre can include hundreds of fractional interest owners and take weeks or months to chain accurately. Mistakes are common when using spreadsheets for any task. Mineral acquisition can be high-risk and a single misinterpretation or transcription can lead to paying the wrong parties, paying them the wrong amount, or, in the worst case, producing on unleased land.
Connected Title: Dynamic Ownership Data
Technology has arrived to address data management at different stages of land management. With the number of digital documents increasing exponentially, the complicated process of determining ownership requires a strategic approach. CRMs like Salesforce help to organize prospects, digital courthouses offer access to title instruments online, and land management systems help companies understand their assets and payments. With the introduction of title management platforms like Tracts.co, operators and mineral buyers can also process and deliver ownership data in a fraction of the time, shortening the path from title research to an acquisition. Companies can finally leverage the power of these solutions to connect the title process and produce dynamic data.