Tracts – Why We Made This Investment

Posted on September 8th, 2017 by Chip Davis

 

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Buying and Selling Oil & Gas Properties – When oil & gas properties change hands, a buyer wants to know that the seller owns what he is selling. A particular property can have multiple simultaneous “owners” each with a different set of conditions/terms under which they share in the value of underlying hydrocarbons.  Sorting through these variables is complicated and requires a substantial amount of manpower to make final determinations of what is real and what is not (i.e. “ownership”).

Over the past twenty years, the workbench for those calculating title has been the spreadsheet. An examiner gathers all the information relevant to a property and begins a process of understanding how a current owner acquired his interest, what that interest is, and how it relates to everyone else who has an interest and their types of interests. Inside of a spreadsheet, an owner’s position may be represented by something like this:

 (1/7+1/7)-((3/13)*0.5)-(29.4472916/(500))-0.02594875-(16/500)+((0.142857143-((2/13)*0.5))/7)

So imagine a piece of property that has 60 owners and 7 different types of economic rights. The result is a very complex collection of formulas all created for a single purpose by one human.

Are You A Software Developer? – I am sometimes asked to give presentations regarding the energy industry & technology.  On occasion, I like to survey the audience asking, “How many of you are software developers?”  The normal showing of hands might be 10% of the audience.  I then like to ask, “How many of you know how to use spreadsheets?” to which maybe 80% raise their hands.  I then accuse that 80% of actually being software developers. Why?

I like to think of Excel (et al) as a very cleverly packaged software development tool.  It has a database, it has a bunch to canned development objects (i.e. formula functions), and it has a palatable user interface for presenting. The reason we likely don’t think of it as “software development” is that a completed work product has a single purpose and generally only its creator can know how to use it (i.e. you can’t go sell it to a lot of people – IT DOESN’T SCALE).

A Large Scale Software Development Project – An oil & gas acquisition regularly involves a lot of acreage representing thousands of “owners” and complex nesting of varying interest types.  When a buyer determines to move on an acquisition, he engages a team of “examiners” each tasked with determining who owns what. Every parcel of land is examined and the work product is assembled by parcel in a spreadsheet.  This may happen hundreds of times for a single acquisition.  Think of there being 100,000 “lines of code.”  All of this occurs under severe time pressure (say 90 days) and the buyer has little recourse (post acquisition) if the conclusions are incorrect (i.e. the software has “bugs”).

To my knowledge, there are very few successful software companies that are able and willing to produce in 90 days a commercially ready application with 100,000 lines of code. The risk to reputation alone is damaging much less the potential financial liability to a customer depending on that code to perform mission critical processes.   The oil & gas industry is doing this every time it makes an acquisition and court cases reveal that the consequences are not trivial when things go bad.

Why We Invested In TractsTracts obviates the need for humans to create formulas in spreadsheets.  A usertracts-slide-4 simply describes to the system a few variables required to characterize “what, when and who” and the system takes off. As the user adds variables, it determines how each “what, when and who” is connected to all others and it builds the “code.”  Using this system, an oil & gas property buyer gets out of the software development business and stops doing what no commercial software company in its right mind would be willing to do.  Easy to scale and freedom from the consequence of extremely expensive “ownership” bugs.   If am spending $100 million to acquire oil & gas interest, it is appealing to me to cut my “examiner time” by $500k and reduce my error rate by $1 million. This is what we see in Tracts.

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