The Power of Relationships in Oil & Gas Law

In this episode, Shaun Schottmiller shares insights from his extensive career in oil and gas law, emphasizing the importance of understanding the business, relationships, and practical decision-making in the industry.

Topics we discuss

• The complexity of oil and gas law and its interdisciplinary nature
• Lessons learned from working inside a rapidly expanding operator
• The importance of understanding geology, engineering, and operations for attorneys
• The significance of title work and ownership clarity in industry success
• Negotiation and relationship-building in oil and gas deals
• The impact of face-to-face communication versus digital exchanges in negotiations
• The value of industry relationships and networking
• Advice for young professionals entering the oil and gas industry

Transcript

SPEAKER_02 0:02

This is Under Pressure, Compressor Talk by Midwest Compressor. Strategies, systems, and stories from the compressor world. With your host, David Abshire. And now, on to the show.

SPEAKER_01 0:20

Good afternoon. This is David Abshire with Under Pressure Podcast. This afternoon we have Sean Schottmiller with us. Sean, thanks for joining us today. Thanks for having me on. I appreciate it. Absolutely. Well, we definitely appreciate your time this afternoon. We know everybody's busy. So let's let's talk a little bit about your career. So you've spent your entire career on the legal side of the oil and gas business, starting at a boutique firm in Midland before moving in-house at Concho and eventually building a practice that supports operators across multiple basins. What first attracted you to oil and gas law?

SPEAKER_00 0:54

Well, David, I I grew up in Houston in the in the 1980s, kind of witnessed the boom and the bus, but also the kind of the impact that the industry has on the city and uh the state of Texas as a whole. Once I was in law school, realized that early on, kind of the old and gas has this incredible complexity underneath it. You've got a you got property law, you've got contract law, regulatory frameworks, uh you get obviously geology, engineering aspects, and all of those kind of come together to inform deal structure, negotiations, and so forth. So just really an interesting, complex area to practice. You know, it's a lot more so than kind of what I see as commercial real estate, MA, and other industries. So that was kind of how I came across it kind of originally, and it's just been really exciting to be part of the industry and and really develop across the years and see the changes, you know, from vertical drilling to horizontal drilling kind of early in my career, and and all the technology kind of advances in the law has to keep up with that as well.

SPEAKER_01 1:50

Yeah, absolutely. Well, I know growing up in Houston for sure you were definitely exposed to it a lot. It's everywhere in Houston, I think everybody, at least majority of the population, definitely works in the oil and gas industry of one form or fashion of another.

SPEAKER_00 2:03

So exactly.

SPEAKER_01 2:05

So you've spent several years at Concho during a period when the company was growing incredibly fast. What did working inside a rapidly expanding operator teach you that you couldn't have learned from the outside?

SPEAKER_00 2:15

I I think really kind of two aspects are ownership and kind of practicality, uh problem solving, right? When you're when you're outside counsel, you give advice, but ultimately the client makes the final decision. You know, we provide clients with a range of great options, and to some extent, you know, we can equivocate about the best course of action. You know, there's always a a but or an on the other hand, right, for attorneys. But when you're when you're inside, you're making those decisions, you know, the land teams move and the finance team has uh deals they have to make, and you know, operations has a rig wait rig waiting. And so, you know, you have to make a decision, you have to pull the trigger on your own and you have to own it. And I think that's one thing that that at outside council we don't we don't have to worry about those decisions sometimes, right? So what that also teaches though is privatization and understanding that you don't have to solve every legal issue and they don't all require the same level of attention, right? So you know you have to know which ones require a business understanding or uh or a legal understanding or a geology understanding so that we can ask the right questions and get beyond kind of what's the legal risk here, but uh really what do we need to do to move the deal forward or to get these negotiations uh you know ended. So it may be kind of do we have to close by the month, end of the month, or what does this defect provision really mean? Does it affect our drilling plans? Maybe not. So we don't need to prioritize that at this moment. So that's really helped uh shift kind of how I my perspective in my practice.

SPEAKER_01 3:46

Yeah, absolutely. Well, that's that's a great, great way to look at it, especially when you're when you're in a situation where you you have to make lots of decisions every day, especially internally at the time. I mean, it's it's very pressure driven for sure.

SPEAKER_00 4:00

Yes, yeah.

SPEAKER_01 4:01

So one thing that stood out is you've always emphasized understanding the business, not just the law. Why is it so important for an oil and gas attorney to understand geology, engineering, and operations?

SPEAKER_00 4:12

You know, I kind of take a step back and I think of what we really do is is as attorneys or solve problems, right? So uh you need to understand kind of what the the client's goals are, kind of what the end game is. Um and if you don't, you maybe solve them for the wrong problem, right? So um, you know, I didn't have a business background when I when I came out of uh when I was in law school. So shortly after I went in-house with Concho, you know, I I got my MBA. I really wanted to understand and have those constructive conversations with our business development team, our asset management teams. And in those meetings, I asked our GOs, our engineers, kind of what they were looking for, what was important about this play or that play, and and uh maybe why this orientation is optimal, so forth. When I understand these kind of things, it even just a little bit, I could draft a farmount agreement or a JOA that actually reflects kind of what my client or my company needs and not just what they say they need when they you know called me originally. So, you know, sometimes what they ask for is not really the right document, and there's a better way to get to that end game. And uh and they just, you know, sometimes they'll ask for for a when they've always done a this way, right? But there may be other ways that we can get to that to that final answer. And so, you know, the attorneys who best serve their clients in this industry are the ones who become converse in all aspects of the business and not not just drafting the documents.

SPEAKER_01 5:28

Absolutely. And I think it's so important because you guys tell a story, right? With your with all the work that you guys do, whether it be in court or documentation, you guys tell a story and you have to be able to tell that story and convey it, you know, for your clients and any kind of representation. So that's that's a great way to look at it too. So you've mentioned that title work is really the foundation of the industry because it all starts with understanding who owns what. For people outside the business, why is that process so much more complicated than it sounds?

SPEAKER_00 6:01

You know, outside of it, we often think of uh ownership kind of as binary, right? You own it or you don't, or maybe you own it as community property, or you own it as separate property depending on your state. But there's a lot of different aspects to mineral ownership, different rights and duties, particularly in Texas, that can be incredibly fragmented and carved up and conveyed, devised, or litigated across time, right? Because we've had production for so long here. You also might have a service owner, a mineral owner, a royalty owner, non-participating interest owner, right? Operators, non-operators, yeah, they all have different rights, different obligations, kind of different goals, and different relationships. Uh they may have different relationships to the lease, even just to the operations themselves. So often what's reflected in the county, the state, or the federal records may not be the true ownership, you know, due to unquoted agreements, missing probates, things like that. So all of these factors really come together to make a title work really call it the foundation, because you really have to understand what the duties and rights are of each of the parties before you can really start developing your asset and moving forward in in a really cohesive manner. So whether we're doing you know Igu title work in the Permian, Haynesville, um, all across the country really, but and as these laterals become longer, units are enlarged, you run in title on dozens of different tracks, often they have their own ownership. And so, you know, each gap here is is really just an issue that we have to uh tease out, solve, and figure out kind of what that effect may be on our client and their development plans. So that all comes together within the title aspect, but also in you know, regulatory context and understanding what's necessary for us to get permission to drill the wells that we need to drill.

SPEAKER_01 7:37

Absolutely. And we all know that lots of times there's lots of people involved with the ownership part. I always tell everybody on the legal or the accounting side, I I couldn't imagine trying to keep up with all the different owners, you know, across the across the industry. It's it would be it's a lot of work, especially in acquis acquisitions and stuff as well. So it's it's a lot of things that go into play behind the scenes. So you've worked on everything from the deals that close in a few weeks to title projects that can take more than a year and involve huge teams. What separates the straight board projects from the truly complex ones?

SPEAKER_00 8:14

Well, you know, on the transaction side, uh, you know, it often shows up in complexity, shows up in diligence, right? And so as you say, there you're probably not just acquiring one lease, right? There's there's a multitude of leases, uh, often multiple counties, different depths, um, particularly for legacy plays, different burdens, you know, different obligations within each of those those leases. So, you know, the legal team, the land team, even the engineers, we all have to kind of be on the same page to understand kind of what the plans are moving forward, what the client's goals are. And, you know, on the on the acquisition of a complex asset, let's just say what provisions of the lease or JOA or other agreements may affect kind of what we ultimately want to do with that asset. And and so maybe we want to exclude some of these, maybe we have to develop some work around here. We can amend the lease, we can amend the agreements prior to closing. These kind of things we all have to look at across the board to make sure that we're we're actually our client is acquiring the asset in the in the state that allows it to to kind of proceed the way it wants to and develop it to its to its best potential, right? So those kind of complexities are are just can be multitude, really. And as I said, at Oliva Gibbs, we you know we operate in on almost every basin and and title projects, you know, can can get really complex based upon kind of age of the basin, right? The Permian, Appalachia can be incredibly complex. The description, legal descriptions in Hainesville, you know, can make it difficult. Um there's obviously a lot of uh legacy plays have just extensive title history and can be very carved up. So those kind of issues are I really, really need some expertise to kind of tease through uh the the the wording of the documents and and understand kind of what the uh the parties uh really did.

SPEAKER_01 9:59

So yeah, absolutely. So you shared a great story for your time in-house where a surface use agreement with the New Mexico rancher was stalled until he spent a day riding around his ranch listening to his concerns. What did that experience teach you about negotiation?

SPEAKER_00 10:15

Yeah, yeah, we were uh negotiating a particularly vital surface use agreement for us where that's required at least the negotiation part under the Surface Owners Protection Act in New Mexico. And it was it was kind of vital. We were expanding operations from just a kind of a an individual site kind of across its ranch, right? So to a full drilling program. Uh they weren't really going anywhere. Ranch, you know, tip it. He tended to answer our revisions, you know, with complaints about our contractors out there. So I flew out there, spent the day riding around uh his ranch and his pickup truck and and you know, picking up a few stray material, but mostly, you know, let him talk about kind of his operations out there on his ranch and how the the ranch had been his family for generations, you know. And uh next day we made a few revisions to this, nothing particularly substantial to the to the service use agreement, and he accepted it next week. So what what really kind of the takeaway for me was uh you know, this multi-billion dollar industry that we're in is still really about relationships, and sometimes people just kind of need to be heard and feel like their issues aren't falling on deaf ears, right? So we wanted to be part of the process here, and he understood he didn't have a lot of bargaining power really with us at the end of the day, but but just going out there and kind of talking to him, letting him speak, be heard, really pushed those negotiations down a bit and and got us to a to a deal so that we could move forward.

SPEAKER_01 11:32

So yeah, absolutely. Well, you bring up a good point about relationships, especially in this industry. You know, that's one thing that I think we've all learned being in the only gas business. Majority of the work that gets done is built off relationships. And I think too, what you did going out and spending the day with them, listening to him, being understanding and relating and seeing the pain and feeling like the knee was heard as well. You know, you was able to make a few changes and get a huge deal closed. And, you know, now you got a great story to tell, of course, you know, the younger folks that are coming in and say, look, here's my advice that, you know, sometimes that wisdom, especially for the next generation, goes a long way and definitely definitely brings in the human factor for sure. Yeah. So that that story really highlights something that you said earlier. This is still a relationship-driven industry in the era of technology and automation. Why do relationships still m still matter so much in the oil and gas business?

SPEAKER_00 12:29

You know, the industry's a lot smaller than than I think people understand, uh, you know, from the outside. Um, you know, everybody, everybody's pass cross at some point, it seems like. Uh you know, and and someone sitting at the table across from you, maybe on a on a deal, uh, maybe sitting next to you next month, or or maybe sitting next to you on a different deal. So, you know, many of my clients are former Concho landmen that I've known for 15 to 20 years and now they're running their own land departments at other other places and maybe across different basins, and and it's just those relationships uh, you know, really kind of are the backbone of of the industry, right? So so maintain maintaining those relationships at the individual level, not just kind of at the corporate or client level, particularly for me, is important. You know, I run into these individuals who I can shake hands with, have, you know, talk to and and uh and not just as kind of lawyer-client relationship, but run into them all the time at events and here in Dallas. And and that's just really it's just still a tight-knit you know community. So um I also think it's rare to find 100% ownership in a prospect. So even if you're not talking about like just the landman kind of one-on-one relationship, you may be an operator for this well or that well or this group area, right? But your non-operators are going to be operating somewhere else next to you where you're not, you're a non-oper, right? So you really have to build relationships and trust, you know, kind of across companies and the individuals making the decisions in those companies, and that helps everyone kind of achieve their goals.

SPEAKER_01 13:54

Yeah, absolutely. You're exactly right. It's so relationship-driven. Day one, I was in the industry, and I think I picked up on that because everybody knew everybody, right? And just you started as you make meet people throughout your career, you know, it's definitely a a small circle of folks for sure. So for students and young professionals, one of the your biggest pieces of advice was to learn beyond your specialty. How much has your career benefited, you know, you from understanding disciplines outside the law?

SPEAKER_00 14:26

You know, I think it's enormously, really, I'd say it, you know, sometimes it's difficult to get the information I need to inform kind of how I'm drafting a particular agreement, we'll just say, if I don't know what questions to ask. And so, you know, those questions really stem from uh a fundamental understanding, uh maybe not a complete or deep understanding, you know, I'll say, but uh at least a fundamental understanding of the processes and the decisions that go into developing an asset. You know, I know enough of the business and the, you know, some of the engineering, the geology just to kind of have those conversations, right? So there's a lot of different different disciplines and expertise that are sitting in this room and and for us to communicate and make sure that we're asking the right questions, answering them correctly, drafting the documents that make sense, you know, whether it's making sure your depths are right or or so forth, you know, it's important to know the language and be able to communicate with each of these teams to make sure that the the final product that we provide, no matter what it is, addresses all their concerns and really advances the goals of the client.

SPEAKER_01 15:22

Yeah, absolutely. You're exactly right. So you mentioned that one of the biggest challenges in your work is making sure you're solving the right problem instead of just responding to the requests in front of you. How do you uncover what a client actually needs versus what they initially asked for?

SPEAKER_00 15:38

You know, I really uh early in my career I probably didn't do this enough, and I and I feel like that's one thing that I've I've gotten a lot better on as time progresses, right? You have to you have to take a step back. Uh often you just kind of jump on the project when a client says, I need XYZ. And but to get there, you really have to ask a lot of questions before I start drafting anything, right? So, like what's our timeline? What's the long-term relationship maybe with the counterparty if it's a deal, or you know, is this a one-time transaction? Are there other assets? Are we building something that we want to replicate going forward, right? You know, what's the risk tolerance? Maybe what's the salience of the deal? You know, are we comfortable walking away? Do we have to have this? All those kind of things affect how we're gonna draft or maybe revise a document, right? I often get the the request of just redline this agreement through an email. But but without context, you know, it's really difficult to under to do properly, right? What's the what concerns maybe does the client have on the front end? Do they already have some information that would help me kind of inform how I'm gonna draft this or redline this? And you know, obviously what are the long-term plans of the asset? So getting, you know, understanding all these kind of nuances is really important to make sure that whatever agreement or contract or or anything I'm drafting kind of fits into the long-term plans of the client and having those conversations up front really uh make for better, better drafting, more efficient drafting, and and something that really benefits the client in the long run, right? You know, having spent some time in-house, I will say that really kind of sharpens the tools I have for this and and understanding kind of the more of a global perspective on on kind of the the transactions, the deal, whatever it is that we're working on from a few more angles than kind of just approaching it from a legal side too.

SPEAKER_01 17:18

Yep, absolutely. Well, you mentioned something very important about taking the step back. I think that's one thing that if I could have learned early on in my career, and you know, of course, uh it just comes with wisdom and and experience and and time, of course, too, where you're able to, you know, just take that step back and look at the bigger picture, and it really, really helps you have a a good perspective on where you're going. And I think that's something that sometimes, especially when you're young, you lose focus on that. And it's easy to when you're young, because you just you wanna you wanna be, you know, a go-getter and you know, you're full of energy, and you know, you just don't think probably as much as you should and ask the right questions as much as you should when you're young. But as the age and the wisdom kicks along, it definitely starts to starts to make you wiser along the way to ask those good questions and and know where you're going for sure. So you've you if you had an opportunity to wave a magic wand, which is extremely hard to say, but envision just having a magic wand and improving one thing about how deals get done in the industry. You said it would be getting people together instead of endlessly exchanging red lines. Why do you think the face-to-face conversations are still so effective?

SPEAKER_00 18:36

Yeah, I I I really don't like red lines, uh, but you know, that's part of the part of the business, right? But it's hard to uh just as we have it with uh you know texts and so forth, it's kind of hard to convey ideas sometimes and just uh well as lur as attorneys, that's our job, right? But but when you're marking something up really to kind of convey intent on those and nuance, right? So uh being in the same room, even if it's on Zoom, uh, you know, it creates some accountability. You know, there's some small talk before a conference or maybe a call, kind of breaks the mood, creates a comfort level, realizes that we're all kind of working to get something done together. Uh, and there's just, you know, I feel like conversations are easier in that setting. Sticky sticking points can be addressed a little bit better. You know, if you're traveling if you have to be traveling to meet with someone in person, it really creates a real cost, right? Time and money. It shows commitment uh really to kind of move the agreement forward. But it it I feel like it gets too easy sometimes just to mark a document up, send it in the email to the other side, and just wait for a response. Uh and and that just could cost time and money or efficiency uh when sometimes just sitting face to face across with somebody and understanding what their real concerns are, you know, that that kind of helps us get to that endpoint a little bit faster.

SPEAKER_01 19:46

Yeah, absolutely. I completely agree. And we go through it a lot with MSAs on my side of the business, and you know, there's lots of different things. And ultimately, at the end of the day, the customer wants A, we just want B. And like you said, if he's able to sit in a room or, you know, just have a simple conversation uh one-on-one and say, hey, this is our concerns, this is what we want to make sure is everything's getting done to this expectation. You know, it it definitely would save lots of lots of time and money and definitely speed up the MSA process or any process, you know, when you're going back and forth with red lines and force two, because every every time in my career I've ever seen, you know, documents and contracts come through, and you know, so much money and time is wasted just on red lines where, like you said, if somebody could just sit in the same room and hash it out, usually would usually would go a lot faster for sure. Well, Sean, thank you so much today for for taking time out of your busy day and jumping on. Uh, I definitely appreciate you doing what you do in the industry. I know you've had a very successful career and you have a lot to be thankful for. And we're super excited that you came on today. One of the things that we like to do for all of our guests, uh, so just whenever you get a chance, whenever we jump off the call, you're able to just send me an email with your mailing address. And what we do is we send out a care package to all of our guests that come on the show, just saying, hey, thank you for coming on the show and taking your time out today. And you know, the big thing is for us is we're really trying to get this stuff out there for the young generation that's coming in the oil and gas industry. So these podcasts are shared and listened to. And definitely a lot of the younger folks that are in college right now are trying to make decisions on which direction to go, uh, you know, being able to get pulled towards our industry. So we definitely appreciate everything you've done and thanks for jumping on today. And I definitely appreciate your time and look forward to seeing you in the future, buddy. So thanks again for jumping on today.

SPEAKER_00 21:41

Appreciate you having me on, David, and and thanks for uh for all that you're giving back to the industry as well. I think this is really helpful and and uh and great for for our young young people that uh to get into the industry and and and kind of learn about different practice areas, different areas, really.

SPEAKER_01 21:54

So thanks so much. Absolutely. Thank you so much. Have a great rest of your week. Uh you too. Appreciate it. Bye-bye.

SPEAKER_02 22:04

This has been another great episode of Under Pressure, Compressor Talk by Midwest Compressor, with your host, David Abshire. Until next time, keep pumping.