The world of buying, selling and trading Oil and Gas properties has gone through many changes over the past 20 years. Before the internet, the vast majority of deals were completed through word of mouth and networking. Oil and Gas CEOs, business development professionals and brokers were in every social circle at every industry meeting, talking with known sellers and buyers. With the rise in internet-based business and Social Media Marketing, buying and selling Oil and Gas properties has evolved. Today, more people see available deals and deals are done faster, which means all parties have less time to evaluate them. This has both increased and decreased risk on the buyer’s part. Since comparables are more readily available, buyers have the luxury of quickly comparing deals against similar offerings. However, with so many hands in the cookie jar, competition is fierce.
There are many resources available to the Oil and Gas property buying and selling community that help identify and promote opportunities. But, while the internet has made researching and evaluating accessible to more buyers, it has also added avenues for sellers. Thus, in the internet world, the process has not necessarily gotten easier. With hundreds of websites to choose from, sifting through the available data has become an all-encompassing task.
Therefore, we thought it was high time someone put pen to paper (or keyboard to blog) to create a quick guide to buying and selling Oil and Gas properties online.
Understanding the Sell Side Process
Sellers of Oil and Gas properties typically take one of four (or some combination) of the following routes:
- List on a Site: In this situation, the seller places an ad and hopes for a call.
- List Through a Broker: Here, brokers list your deal on their website, set up an online data room and promote your deal both through word of mouth and online channels to a network of known buyers.
- Investment Banking: These are typically high-value or less public deals, promoted by the investment banking community directly from sellers to buyers.
- Self-Promote: Corporations who self-promote have a lot of control in the process, since they host their own data room. But, this tends to take lot of time since selling is not typically their core competency.
The Buyer’s World
Buyers of Oil and Gas properties have one question on their mind, “How do I evaluate a deal thoroughly enough to make an informed offer, but fast enough to compete with other buyers?” When considering the role the internet has had in the evolution of the buyer’s challenge, there are three primary categories – Search, Evaluate and Complete.
Search: Finding the Needle in the Haystack
During this step, buyers identify investment opportunities that fit a variety of target factors, including geography, geology, price range, oil or gas, operated or non-operated, producing, proved developed reserves, etc. Online or not, this can be a very long process, and is a critical success factor in the investment.
Much like sellers, buyers also have a plethora of options when deciding where and how to do business. Here’s a quick look at all of the available options from the buyer’s perspective.
Online Listing Sites
PLS and MergerNetwork lead the way in the listing sites category. They are essentially subscription driven classified ads where the buyer pays for a subscription to get the data and a seller lists a small amount of information about a deal, including price and contact information.
- Sellers get the benefit of many buyers seeing the deal, and buyers are able to see and consider multiple deals.
Con: Buyers must sift through a lot of different deals, with minimal data helping them to qualify whether or not a particular opportunity is fits into their investment plan.
Online Auction sites
EnergyNet and Oil and Gas Clearinghouse are two of the most popular auction sites in the industry. Both list and promote deals, hosting an open online auction. They often have key pieces of data available that help inform the evaluation process.
- Like listing sites, auction sites provide sellers with many buyers to see their deals, and buyers are able to see and consider multiple deals at once. Here, you get the added benefit that these sites often have more data available than listing sites.
Con: While they offer more deals than brokers, online auction sites still offer a limited number of deals. There is also no way to know whether or not a deal fits your basic search criteria without investing plenty of time to research your options.
Brokers Listing deals
Lantana is a popular broker site for listing deals. On sites like these, brokers are similar to real-estate agents for commercial property. They understand the business and know how to pitch deals. They represent sellers by preparing marketing materials, and promoting deals to potential buyers.
- Sellers get personal representation of their properties to a targeted market, and the properties are well presented to the buyers, with organized supporting data to aid the evaluation process.
Con: There are commonly only a few deals per broker for a buyer to evaluate, and only one of many areas to look for existing deals.
Investment bankers, such as majors like Goldman Sachs, JP Morgan and Jeffries, and energy-specific firms, like Tudor, Pickering, & Holt, as well as Quantum E&P represent clients in a number of ways. They help sellers prepare deals and providing financing for buyers.
- There is a large amount of available capital and plenty of expertise for both sellers and buyers.
Con: They are typically used on larger deals with less online promotion or marketing and are commonly more “secretive.”
Evaluate: Look under the Hood
Based the information provided from the sites and sources listed above, buyers begin to search for and organize data to support their decision. This de-risking process is very different buyer to buyer, but always involves some level of economic and technical analysis, including but not limited to looking at offset production analysis, decline curve analysis, estimated ultimate recovery and geology. The data required to carry out this analysis typically comes from online and proprietary sources. Up until very recently, the technical tools needed to utilize and make sense of the data was traditionally some form of installed software. But, with the fast-moving transition toward “browser-based” solutions, soon much (if not all) analysis will be done online.
There are many small and a few large data providers and myriad software providers, leaving buyers in a time crunch. To do a thorough job of due diligence, finding the data, importing it into a software package, performing analysis, and coming to a decision is a long cycle. This impedes their ability to be competitive in the rapidly changing internet era. This results in a risk of missing opportunities. On the other hand, buyers do have the option to perform a quick analysis and take a less-informed more risky approach. But, while this approach overcomes the competitive concern, it disables them from being as informed as they would prefer. Ultimately, this quandary results in buyers looking at fewer deals than they would prefer, and reduces the opportunity for successful investment.
Complete: Winner Winner Chicken Dinner
After the Search and Evaluate processes are complete, the buyer and seller go through a deeper assessment of the actual project. They look at the producing property in detail, verify its production and work toward an agreement. This step is much like the home buying process where the buyer offers and the seller counters until they come to an agreed upon price. Once the number is set, the buyer secures financing and takes ownership of the property. In large part, this is still done the old fashioned way. However, a few sellers are starting to use video in their online packages to help buyers see their property.
Best of Both Worlds: The DI Marketplace
We recently did a post discussing the 4 most underutilized features in Drillinginfo. We didn’t put the DI Marketplace on the list, but it could have easily come in first place. While 20,000+ subscribers see it in their daily workflow, many of them have probably never even heard of it.
One of the major reasons for this is the fact that our list of available deals has been incomplete in years past. We are quickly upgrading and making tools available for sellers to promote their deals to target audiences. It is a space to help buyers find all Oil and Gas properties for sale in their area of interest. These properties can be viewed in map or list format and integrated with all of Drillinginfo’s data, packaged play analysis and online analysis tools to allow buyers to quickly evaluate existing opportunities. This has cleared up many of the bottlenecks offered by the options discussed above and activity is picking up.
The new DI Marketplace will bring the Search and Evaluate steps under one roof with one set of tools. You won’t have to carry around your Craftsman 540 piece set when all you really need is a hammer.
Ultimately, making informed decisions fast is the challenge of all buyers and sellers of Oil and Gas properties. While having all the information in the world at your fingertips can help to speed up the process, as we have seen, it can also quickly induce “paralysis by analysis.” We hope this quick guide has been enough to give you a good understanding of the current landscape. And we hope this knowledge has given you the confidence to feel comfortable picking the solution that works best for your business.
Now, I’d love to hear from you. How are you working to meet these challenges? Has the internet changed your evaluation and decision process? What best practices have you found most helpful in making decisions? Please, leave your thoughts in the comments below.
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