A new breed of CEO in the C-suite

WPX CEO RICK MUNCRIEF

Look back on Rick Muncrief's career and you'll see a list of household names in the oil and natural gas industry; names ranging from Conoco Phillips, Burlington Resources, and most recently Continental Resources. But ask Rick about his focal point on his first day on the job. You won't hear words like "drill-bit," "estimated ultimate recovery," or other industry terms. You'll hear three primary words/concepts (1) integrity, (2) scalability, and (3) identity.

While each of these words and concepts build-in the successful aspects of oil and gas development, Muncrief's intent appears to focus on developing a new culture at WPX, a culture that in no uncertain terms says: When we say we are going to do something both our internal folks and external shareholders can rely on it.

It is on this type of culture and mindset that more corner office executives are turning their focus, both internally and externally.

Muncrief notes however, that in order to successfully deliver on the integrity component, a company must have a successful oil and natural gas portfolio. To this extent, Muncrief points toward the scale of WPX's properties. Muncrief explained: "The resource plays we're seeing today have really changed the landscape of the US energy industry. Today's E&P company operates in a complex environment in which scale and size really do matter. At WPX we have a vast, scalable land position that enables us to lower costs, achieve efficiencies, and generate above average returns. You need a scalable portfolio of properties to ensure that you're able to capture those attributes."

Muncrief's third tenant, identity, is a tenant that strongly resonated with WPX employees during his first day in office. In fact, companies in today's oil and natural gas industry are allocating an increasing percentage of their budget toward building their own personal identity or brand. The concept of identity or brand holds a particularly strong place in Muncrief's heart as well as the hearts of many of WPX's employees.

Muncrief commented, "There was a sense early on that creating our own identity at WPX Energy was going to be very important. For example, ever since WPX was spun off from Williams there's been a sense that we're still part of the Williams legacy. Don't get me wrong, Williams has a tremendous legacy. But at the end of the day the people who came here from Williams wanted something different. They wanted their own identity. And that's what we're creating here at WPX - an identity and brand that positions us as expert "risk-takers" in the E&P industry with a scalable portfolio that generates strong returns."

As I dove deeper into the concept of identity and brand with Rick, I saw how it translated into the company's culture and action plan. For example, a few weeks ago, on August 18, WPX Energy announced that it would "divest its mature coalbed methane holdings and bolster high-growth San Juan oil acreage by more than 50%. The executed multiple agreements were designed to deepen the company's investment opportunities as it focuses on margin improvement."

In the August 18 press release Muncrief noted: "We're moving quickly to build scale and create additional shareholder value. These transactions largely offset and demonstrate our commitment to deploy capital where we can generate the highest returns."

Looking back to WPX's second quarter results, similar progress can be noted. For the second quarter ending June 30, WPX reported a 57% surge in oil production. And if that weren't enough, WPX proceeded to raise its full-year oil production guidance from 40% to 55% growth.

Since coming to office a little more than 100 days ago (at this writing), Muncrief's mantra of "bring on the heat" appears to have paid off as oil production has soared since he was appointed CEO, and WPX's stock price has increased by more than 22% during that same period (see Figure 1).

Muncrief describes his new role as CEO as "exciting" and an "outstanding opportunity," but he's also aware of the environment in which he operates. He understands how the job of CEO has evolved and changed since his early days at Conoco, Burlington Resources, and most recently with Continental Resources.

"Today's CEO must wear a lot of different hats," he said. "You have to be an effective communicator both internally and externally. You have to be more strategic, and you have to work closely with the investment community. That's one of the biggest changes."

Muncrief continued, "When you look at shareholders today, you've got long-term holders, short-term holders, and no-term holders. You have to be well versed in all markets, aware of the opportunities and pitfalls. And you have to build a good team around you."

When asked to expand upon his communication with shareholders, especially activist shareholders, he noted, "You're never going to please everyone. You have to define your strategy. You have to truthfully communicate that strategy. And you have to understand that you're going to have folks who will roll-in and roll-out of your stock, and it's nothing personal. At the end of day, you focus on your story and your plan. Then you execute that plan."

Whether Muncrief is working on a capital markets transaction, speaking with his employees or investing time with shareholders, or other stakeholders, there's no hiding his appreciation for the CEO title he now holds. In fact, when asked what he is most proud of during his first 100 days in the corner office, Muncrief concluded: "Instead of saying what I'm most proud of - I'd rather phrase it as what I am most humbled by. I've been humbled by how well I've been accepted here at WPX Energy. I'm humbled by how well the market has accepted our vision. I hear a lot of investors saying, 'It's nice to finally start realizing the value that we all knew was here.' And I've heard other investors say, 'Why didn't we know about the high-quality assets in the WPX portfolio or the returns that they are capable of generating? Whatever the reason, I'm glad I know about them now.' When I hear those kinds of responses I'm truly humbled."

ENERPLUS CEO IAN DUNDAS

Technical advancements in the oil and natural gas industry have unlocked enormous resource potential across North America. We all know that. The Bakken and the Marcellus are just two of the formations that have contributed to this success. But not all E&P companies in North America are US-based companies.

Take Calgary-based Enerplus for example. Enerplus is a successful E&P company with best-of-breed properties on both sides of the border. Its former CEO of 12 years, Gordon Kerr, successfully guided the company through its restructuring process when Enerplus transitioned from a Canadian oil and gas trust to a traditional E&P company. About 18 months ago however, Kerr made the decision to step down as CEO and president. Enter Ian Dundas, Enerplus' new CEO and president, and formerly the company's COO and executive vice president.

Having worked for Enerplus since 2002, Dundas had the advantage of knowing the company's culture and portfolio of properties from the inside. He held positions ranging from vice-president of business development, where he was responsible for acquisitions and divestment strategies, to COO and EVP, where he oversaw the development and execution of Enerplus's operational strategies and strategic planning.

However, ask Dundas about how he has seen the role of CEO evolve since he started at Enerplus in 2002, and he'll tell you: "I believe there's more complexity to the role of CEO than there's ever been. Capital market demands, environmental issues, active community participation, are all competing for a larger share of a CEO's time. And there's more communication both internally and externally than I ever realized. So if you aren't comfortable communicating you'd better get comfortable quick or the challenges of this position can quickly overwhelm you."

Communication at Enerplus, both internally and externally, played a particularly important role during Dundas' CEO appointment. The company was engaged in one of its most strategic transactions, the repositioning of the Enerplus portfolio from low-margin, shallow Canadian gas to higher margin resource potential with a focus on organic growth.

Dundas explained, "We started looking at our portfolio and the changing landscape of our resource potential, and quite frankly we didn't like what we saw. We were too scattered. We were too focused on low-margin business. We therefore made the decision to divest our low-margin shallow gas properties. And we redeployed capital toward higher-margin oil and natural gas properties, focusing on organic growth."

The portfolio repositioning, clearly the correct decision, required constant communication with employees, shareholders, and community officials. And, as Dundas simultaneously communicated the benefits of the repositioning and navigated the company through a series of complex A&D transactions designed to make the company more profitable, his responsibilities continued to grow. From chief decision-maker to chief communicator to chief operations overseer, Dundas donned a new hat each day with new responsibilities.

The hard work, however, started to pay strong dividends as Enerplus's portfolio transitioned from a low-margin, shallow Canadian gas portfolio to a high-margin, resource- rich portfolio focused on organic growth.

Before long, Enerplus' relatively small production profile in the Bakken had grown from 10% of daily production to more than 25% of the company's daily production. As for the Marcellus, the results were even more astounding. Enerplus had grown from virtually no production in the play to exploitation efforts that were now contributing more than 50% of the company's daily natural gas production.

While the repositioning of the portfolio has been a significant accomplishment for Dundas, it is hardly his only task. Enerplus has long paid a dividend to its shareholders, a dividend that most have grown largely accustomed to.

Few shareholders can forget the day that Enerplus was forced to cut its dividend by 50%. It was the afternoon of June 12, 2012. The markets had already closed, and it was almost a full year before Dundas had even been appointed to the position of CEO. Nonetheless, anticipation of the oncoming dividend cut had a negative impact on Enerplus' valuation. The company was forced to take a long, hard look at the dividend program and adopt growth strategies that would support a sustainable plan. And that's exactly what Enerplus did.

Dundas explained: "The dividend has always been an important component of the Enerplus story. But it has to be smartly aligned with our growth strategy. We have to assure our shareholders that we can sustain a dividend without sacrificing production growth. Today, our dividend is based on a model that allows us to grow production, cash flow or EBITDA, and reserves - all on a per-share basis without having to sacrifice the company. This is the way we have created a successful, sustainable dividend at Enerplus."

The sustainable dividend policies initiated since July 2012 have clearly taken root as a large number of institutional shareholders have come charging back into the stock, significantly raising Enerplus's valuation.

For all the tasks, challenges, and requirements that today's CEO faces, perhaps none is more taxing than managing a complex shareholder base and activist investor. In recent years, shareholders, particularly activist shareholders, have played a pivotal role in rearranging board rooms, guiding management decisions, and in some cases, casting aside once-powerful corner office executives, most notably Aubrey McClendon, co-founder and former chairman and CEO of Chesapeake Energy, and Tom Ward, founder and former chairman and CEO of SandRidge Energy, and also a co-founder of Chesapeake Energy. Although neither McClendon nor Ward were sidelined for long, their respective departures from the companies they founded has resonated loudly in corporate board rooms along with the voice of activist investors.

That said, CEOs with a strong penchant for transparency and communication often steer clear of shareholder conflicts. Or as Ian Dundas puts it: "We work hard to provide transparency to all our stakeholders. We communicate in a manner that is clear, consistent, and open. And we make ourselves available to our constituents. But none of that really matters unless you also execute. If you are not walking the talk, communication will not help you."

Enerplus's hard work in shareholder relations did not go unnoticed as both the company's stock performance and institutional shareholder base has risen dramatically since Dundas took office.

As our conversation drew to a close, I took note of Ian's calm and collected demeanor. For all the complex decisions, challenges, and moving parts within the Enerplus machine, Enerplus's CEO remains composed and unruffled. His vision for the company is quite simple: profitable North American growth and income for investors.

And like WPX Energy's Rick Muncrief, Dundas believes that size and scale play an important role in an E&P's success. To Dundas's credit, the repositioning of the portfolio has enabled Enerplus to achieve a size and scale that provides the company with increased efficiencies, economies of scale, and a sustainable dividend. The company has also delivered a total return of more than 50% since Dundas took the helm.

Yet for all of Enerplus's success and accomplishments, Dundas refuses to accept credit. Like many experienced and confident CEOs, Dundas attributes the company's success to the people around him.

PDC ENERGY'S CEO JAMES TRIMBLE AND INCOMING CEO BART BROOKMAN

Ask any board of directors member and they'll tell you that few tasks are more important than ensuring the successful transition from one chief executive to the next. Incoming executives must successfully manage complex drilling programs, capital budgets worth hundreds of millions, and in many cases billions of dollars, as well as lead a team of individuals all of whom have very different lives and personalities. The skill sets required from today's CEO can often be mind-boggling.

PDC Energy, a successful E&P company currently headed up by CEO James Trimble, has a firm understanding of this task even as Trimble plans to step down at the end of December and pass the torch to incoming CEO Bart Brookman.

Trimble explained: "In June 2011, when I was appointed CEO, I was tasked with repositioning our portfolio. We wanted a greater focus on an oil and liquids-rich production stream and to transition away from vertical drilling in multiple basins to focus on horizontal drilling in core basins. And we wanted to strengthen our balance sheet. This focus has not changed much since I was appointed but it certainly has grown more complex."

Trimble continued: "Implementing a seamless management succession plan that continues to deliver value for our shareholders was critical. We identified Bart early on as an ideal candidate. His familiarity with PDC's assets, financial structure and corporate culture were all strong positives. We've promoted Bart from vice president of operations to COO to president over the past few years. He's further honed his management and financial skills over that time. And in a few short months, I'm happy to report, Bart will be ready to take the reins."

The decision to promote Brookman as chief executive however, was only part of the PDC Energy succession plan. PDC also wanted clear, consistent communication of the succession plan with its external audiences and shareholders. The company wanted to publicly announce Brookman's promotion early on in the process, giving its stakeholders a chance to see a seamless transition. Moreover, PDC wanted its external audiences to see Trimble and Brookman working side-by-side as the PDC brand was passed from one CEO to the next.

Trimble commented: "Bart and I share common goals. We believe in profitable growth. We believe in a communication policy that is clear, consistent and transparent. And we believe in developing opportunities that will allow us to grow production, reserves and cash-flow 30% to 40% per year. We wanted both our employees and our shareholders to see this commonality first-hand.

"That said, we also have very different personalities and styles, and that's okay. It's the common goals and vision that we share for our internal employees, external shareholders, and the residents of the communities in which we operate that matters."

Brookman, who started his career in 1988 with Snyder Oil & Gas, which was subsequently acquired by Patina Oil, has seen the industry evolve and change. From his earlier days when vertical drilling programs were the only applications used in the Wattenberg to days when the Barnett shale was the largest natural gas producing play in the country, Brookman knows and understands the industry well.

But ask Brookman what the biggest change is for a CEO in the industry today and he'll tell you, "It's the time a CEO invests with current and prospective shareholders. I've observed first-hand the time Jim spends with analysts, money managers, and investment community professionals. Probably 40% of Jim's time is devoted to communicating the advantages of investing in the PDC story. Whether it's communicating those advantages via non-deal roadshows, analysts' bus tours, or participating in one-on-one investor meetings, the time commitment is significant."

When asked if short-term investors like hedge funds have any impact on how PDC communicates its story, Brookman replied, "We don't alter or change the PDC story based on a shareholder's time horizon. We don't tailor our business plan or strategies to suit any specific investor. I believe it is our job to execute the PDC business plan and then to communicate the results of that plan with our employees, our shareholders, and our stakeholders. Whether Jim is playing that role today or I'm communicating the story tomorrow, that's what we'll do - communicate the strength of the PDC brand."

While the time commitment invested with Wall Street professionals is significant, it does not mitigate or diminish other new responsibilities that today's CEO must manage. Among the most important of those new responsibilities is managing the complex regulatory environment.

As Brookman notes, "While we've always operated in a regulatory environment, it has grown to new levels in recent years. Today's CEO has to be very cognizant of the pitfalls and challenges of this environment. It's your company's brand that is at stake, and that includes your people, your shareholders, and the residents of the community in which you operate. Managing through the complex maze of regulatory issues is a focal point that demands the attention of every CEO."

Much like its industry peers, PDC Energy doesn't just talk about the regulatory environment and government affairs, it actively participates in the process. PDC has a staff of experts inside the organization that deal with specific local, state, and federal issues on a daily basis. Time, money, and effort are dedicated to working with communities and government entities to always ensure the highest standards of compliance are met.

It was a little more than two months ago that PDC announced the passing of the torch from Trimble to Brookman. However, neither Trimble nor Brookman can hide the excitement that one has for the other, or for that matter, the opportunity for growth in the PDC portfolio. Since 2010, PDC's production stream has transitioned from one that was about 24% oil and natural gas liquids to 54% oil and natural gas liquids in 2013 to an estimated 60% oil and natural gas liquids in 2014.

And as the company increased its focus on oil and natural liquids, so too did investor participation as PDC's stock price soared more than 85% from approximately $30 per share in January 2012 to approximately $56 per share today.

But Brookman's vision for PDC's future does not stop with a $56 stock price or a $2 billion market capitalization. Both Brookman and Trimble believe that the PDC Energy portfolio, combined with the most talented people in the industry, has the capacity to grow market capitalization three-, four-, or even five-fold.

About the author

Anthony D. Andora is president of Edge Consulting, a communications and branding firm that serves the oil and gas industry. With more than 15 years'experience, Andora has consulted, advised, and represented small-, mid-, and large-cap companies on a variety of issues ranging from detailed focus groups, advertising initiatives, investor relations, and national media campaigns. He has co-produced, developed, and placed content in/on CNBC, FOX Business News, Bloomberg television, The Wall Street Journal, Barron's, and OGFJ. [email protected]