Matt Zborowski
Staff Writer
As a rookie to Oil & Gas Journal and the industry, this writer has spent the better part of 3 months attempting to gain context for the articles that are written, proofread, and posted online for OGJ. Part of this learning process has involved writing company news and personnel items. In doing so, it's become apparent that one of the main constants in this industry is sudden and rapid change.
A survey released last month by UHY LLP Certified Public Accountants and OGJ sister publication Oil & Gas Financial Journal found that more than one in six energy companies have mulled major changes to their company structure, aiming to improve value for investors. Other reasons include improving employee management incentives, improving marketplace perception, and taking advantage of market timing.
In September, for example, Apache Corp. eliminated its three-person office of the chief executive. This occurred as the Houston independent divested $7.2 billion, with transactions involving properties and assets in Canada, the Gulf of Mexico, and Egypt. Apache intends to pay down debt, buy back stock, and fund future international projects.
Looking toward the past
Another valuable learning tool for this newcomer has been looking toward the past. This research has revealed that this theme of constant change isn't a new phenomenon. The oil and gas industry has always been volatile, with numerous peaks and valleys. It seems that no two companies share the same structure—kind of like how no two humans are genetically identical. Technology, resources, and economies fluctuate. These companies were shape-shifting in the mid-1980s and again in the late 1990s and early 2000s during some of the most volatile times ever seen.
One day while gleaning through a compilation of Journally Speakings from 1970-95 in an effort to capture that elusive context so desperately needed for this first column, one entry among the collection emerged as highly relevant. Entitled "How they're restructuring," its publication date was just 4 days before this writer was born. The column, written by the venerable then-OGJ Chief Editor Gene T. Kinney, began with this: "Everybody's doing it these days. Restructuring, that is. But they aren't all doing it the same way (OGJ, Nov. 18, 1985, p. 53)."
Kinney cited a special American Petroleum Institute report from that year in which top executives highlighted "how they're restructuring their companies to give stockholders a break today and yet survive and prosper tomorrow." An example he included was Phillips Petroleum's recapitalization that enabled it to stave off a takeover blitz by T. Boone Pickens. The company returned $4.5 billion in equity to shareholders, going "heavily into debt" in the process.
This is the same company that in 2001 announced it would merge with Conoco Inc., a move financial analysts said was "to survive, not thrive" in that year's economic downturn. The move created at the time the third-largest integrated US energy company based on market capitalization, reserves, and production.
Archie W. Dunham, then-Conoco chairman and chief executive officer, said 57% of the new company's total performance was in its upstream operations, which he projected would "grow to 60-70% in time." At the time, Conoco and Phillips were more focused on oil reserves and production, but Dunham added, "Both want 50% gas. We're close to that now." A decade later, ConnocoPhillips matured into two separate upstream and downstream businesses: ConocoPhillips and Phillips 66.
Lifelong lesson
It is a cliché, but apt in this case: "The more things change, the more they stay the same." Nobody is the person they were 10 years ago—in many cases, thank God. And oil and gas companies like Apache and ConocoPhillips may not be what they were even 5 years ago.
Those companies have adjusted to the circumstances they've been dealt. Those who are smart and highly reactive to quick changes are usually the ones who come out on top—or at least survive—in life, as in oil and gas.
