‘Too Much Competition’ (fussy CEO want rivals to ease up)

“Something seems wrong with Devon if the CEO really has to fuss at his competitors to be less competitive.” (below)

It is a perennial problem. Consumers have the upper hand in a free market. Sellers, even with minerals that are supposed to be depleting (typically not), complain about the other guy and gal producing too much and pricing ‘irrationally.’ And another I once heard: ‘Buyers are smarter than sellers.’

I was reminded of this reading a recent article, “Devon CEO Urges Lower 48 E&Ps to Focus on Generating Cash, Limiting Oil, Gas Production” (May 5, 2021). The Natural Gas Intelligence (NGI) piece begins:

Devon Energy Corp. CEO Rick Muncrief said it’s time for his peers to get their act together and stop expanding oil and gas production until demand outpaces supply.

Author Carolyn Davis continued:

… Muncrief took the pulpit to preach to fellow exploration and production (E&P) companies. Mirroring comments by Diamondback Energy Inc. CEO Travis Stice, Muncrief said Devon is looking for direction, particularly as the Organization of the Petroleum Exporting Countries and its allies, aka OPEC-plus, has bumped up output. 

Fair enough. But then comes this from Devon’s CEO:

“With fundamentals signaling maturing demand dynamics for our industry, we fully recognize the traditional E&P model of prioritizing only production growth is not the correct strategy going forward. To optimize value creation in the next leg of the energy cycle, a company must deploy a financially driven model that prioritizes free cash flow generation over production growth. At Devon, this is exactly what we are doing.”

“fundamentals signaling maturing demand dynamics” … Really?

If the head of a major U.S. oil and gas exploration company believes that his industry is entering a twilight phase, he or she should not be in the hydrocarbon business. Be an undertaker somewhere else.

The oil and gas industry is still young, very young. There are many decades, if not centuries, of supply and demand if a free market is in operation. Mineral energies are the future, not only the recent past.

Time to get beyond greenwashing, Mr. Muncrief, for your employees and for your future employees, not to mention your shareholders.

In fact, Devon’s competitors might just have special prospects, a different appetite for risk, or a different view of future prices. And new- or next- generation technology might bring in future wells at a cost below that of Devon.

Something seems wrong with Devon if the CEO really has to fuss at his competitors to be less competitive.