Paying for procurement: analysis of landman compensation surveys

ABSTRACT

Utilizing a unique time series of cross-sectional surveys, we analyse the labour market for professional landman services to establish the factors affecting compensation during a recent period that substantially increased demand. Land services are an important subsector of the energy industry, especially for oil and gas exploration and production, which has been stimulated by technological improvements that facilitate economic extraction of unconventional resources. That led to an increase in oil and gas leasing activity and a resultant increase in demand for land services. We assess factors affecting compensation across several relevant margins. An influx of entrants into the profession has disrupted historic compensation patterns; entry appears to have been greatest in regions of the United States most affected by unconventional resource development. Some landmen are independent contractors while others are company employees. We find mixed results for professional certifications across contract types and gender, using instrumental variables to account for contractual choice.

Abbreviation: AAPL: American Association of Professional Landmen; RPL: registered professional landman; CPL: certified professional landman; PLM: professional land manager

KEYWORDS:

• Landmen
• compensation
• certification

JEL CLASSIFICATION:

• J33
• J44
• L72
• L71

Acknowledgments

We acknowledge the research assistance of James Banovetz and thank Chris Stoddard for useful comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Although the generic term is gender-specific, both men and women work as landmen. Alternative titles include land professional, but these other terms are not as widely used as landman in the generic sense. We follow the industry convention without prejudice.

² Zuckerman (2013) discusses the critical importance of land acquisition and landmen in the revitalization of U.S. oil and natural gas production.

³ As an example of such anecdotes, Grow, Schneyer, and Driver (2012) documents several stories of frustrations that landowners experienced in their interactions with landmen.

⁴ In the event that production begins, the duty to develop lies with the company. Landmen can negotiate this duty ex-ante through Pugh clauses and other contractual arrangements.

⁵ Masters (2008) suggests explicitly that individuals choosing to be middlemen, such as landmen, are those of the most persuasive types. We suggest that Nash bargaining power is one possible manifestation of persuasiveness, and need not be observable ex-ante to either the company or the mineral owner.

⁶ These data have been collected and reported back to the membership (Aven 2012, 2008, 2006, 2001, 1997), but for the first time analysis of the data is being shared more broadly.

⁷ http://www.landman.org Aven (2012) describes the changes in response rate across the survey method over time. In the surveys used here, the response rates range from 16% in 2005 to 30% in 2000. The time penetration of internet services could be a factor in these varying response rates.

⁸ In several specifications including all regional and professional certification controls, the number falls to 9,604.

⁹ The AAPL currently sponsors three levels of professional certification: registered landman (RL), RPL, and CPL. We, unfortunately, do not have consistent data from each survey about the registered landman category, so focus on the more stringent RPL and CPL certifications.

¹⁰ Texas, home to a majority of our sample, has considered professional licensing of landmen but has not enacted a licensing requirement at the time of writing.

¹¹ In later years the survey asked about work by AAPL region. Those regions are shown in Figure 2. In order to have complete coverage, the later responses were coded into the earlier definition reported in Table 5. The following coding was used: Gulf Coast, AAPL regions I and IV; West Texas, AAPL region V; Rocky Mountains, AAPL regions VII and VIII; Mid-Continent/Appalachia, AAPL regions II, III, and VI; AAPL regions IX and X (Canada and Alaska) are included in other.

¹² Although the compensation distribution is highly skewed, the Shapiro-Wilk W statistic is 0.842 for the logarithm of real compensation.

¹³ The interested reader can examine the first-stage regression results for the IV specification in Table A1.

¹⁴ Additional exploration of regional differences is provided in Table A2.

¹⁵ Because we cannot identify individuals in the survey responses, and we have evidence that some landmen enter and exit the profession, it is possible that this cohort approach does not perfectly identify cohorts. By separately controlling for age of respondent, we consider this approach to be the best that we can do with the available data. In particular, it may be more accurate for men than women. See the discussion of Table 7.