HOUSTON – Consolidation has always been a defining aspect of the oil and gas industry, especially among the E&P sector, and it’s a healthy part of the business, Devon Energy CEO Rick Muncrief told the audience at the 2023 NAPE Summit on Feb. 1 in Houston.
“Companies seem to get big, get inefficient and it creates opportunities for smaller companies to come in and carve out,” he said during the event’s Energy Business Conference Luncheon at the George R. Brown Convention Center.
The hallmarks of successful A&D must include accretion, industrial logic and true synergy, Muncrief said. Devon’s “merger of equals” with WPX Energy, first announced in September 2020, provides an example of how it can work: The deal announcement included a pledge to produce $600 million worth of synergies, and the pro forma company delivered within six months.
“A true merger of equals can pay off just based on the synergies, especially during a down cycle,” Muncrief said.
But part of why Devon and WPX managed the deal during the pandemic panic is that both firms were among the earliest companies to embrace shareholders’ demands for the capital discipline.
“We will always need financial partners; we just do,” he said.
However, Devon’s robust balance sheet post-merger has allowed the company to operate almost as its own banker, Muncrief said.
“But everyone can do that,” he said.
The rhetoric that propels the notion of all investment banks abandoning fossil fuels is concerning, he said.
Still, Muncrief said he doesn’t believe large U.S. banks are truly preparing to pull the plug on all financing of fossil fuels.
“Some of them get it,” he said. “[They] recognize what it is that U.S. producers need to do and that what they do helps the world. That is front and center.”
ESG
Energy security’s emergence as a critical industry challenge hasn’t lessened the importance of the ESG mandate, Muncrief said.
“It’s just the right thing to do,” he said. “ESG is foundational; it’s tied to our values.”
And each of its three components – environmental, social and governance – each have a place in boardroom discussions. The industry must continue to show its diligence in lowering emissions; beyond the optics, flaring and methane leaks are problems to manage at the corporate level.
As for proper governance, companies that don’t keep corporate practices in check will struggle.
“If you don’t do it, it will catch up to you,” he said.
The industry may not get the credit it deserves for its efforts socially, Muncrief said. But those steps have long taken place. He noted that when Houston was ravaged by Hurricane Katrina, the city’s mayor, Sylvester Turner, reached out to the oil and gas industry for assistance. Oil and gas companies delivered, he said.
“And I’m damn proud of that.”