Leaders talk about a burning issue ahead


The Neely School of Business and the Ralph Lowe Energy Institute at Texas Christian University brought together a panel of Permian oil and gas operators at the Petroleum Club this week to discuss their thoughts on the energy transition and other issues facing their businesses.

Kaes Van’t Hof, President and CFO of Diamondback Energy, began highlighting the industry’s impact not just locally or statewide, but also nationally and internationally.

“What this company is doing for the American economy and the global economy is nothing short of spectacular,” he said, citing environmentally friendly and socially produced barrels in the United States.

“I hope people realize that what we’re doing in the Permian Basin has a big impact on the global economy and the US economy.

At Diamondback, he said, the company is sticking to its goal of returning money to shareholders, which means the company will keep production at a stable level in 2022. Between the 50% return free cash flow to shareholders and a $2 billion share buyback program announced last September, he said the company will bring in about $4 billion this year.

He predicted flaring will be a problem this year and next largely because he anticipates capacity constraints to take away before two or three new pipelines are announced next year.

About 82% of Permian flaring was due to problems along the way, he said. “We need to come together and solve this problem together.”

Tim Dunn, Managing Director of CrownQuest Operating, noted that he has witnessed energy transitions throughout his career.

“I saw it go from $12 to $20; then we ran out of that, so we went to oil at $30, then we ran out of that and went to oil at $40,” he said. “Now we’re moving to oil at $60, and we’ll see what comes next.”

CrownQuest has calculated the optimal way to develop its square footage to have as much wiggle room as possible in the strike zone, Dunn said, keeping in mind that the industry will continue to see cycles.

He, too, sees flaring becoming a problem again in 12 to 18 months as takeaway capacity again becomes limited.

“I’m starting to hear people acknowledging that this is a problem, and at some point someone is going to have to say ‘We have to do something about this’, flaring is a systemic problem and misrepresentations about it have been amazing.”

Colgate Energy is a small, private company that has become less small through a series of acquisitions, said Will Hickey, chairman and co-CEO. He said the company modeled its business practices on those demonstrated by companies like Diamondback, Concho (now part of ConocoPhillips) and others, he said.

There is always a need for consolidation in the industry and as that consolidation happens, he said small businesses need to step up and fill the void left by giving back to their communities.

“It’s a call to arms for small businesses from a social perspective,” he said.

The company plans to significantly increase production and add rigs to take advantage of high commodity prices and yields. At the same time, he said there would be planning for future down cycles.

“With the huge fluctuation in prices, I can relate to people who have left the industry saying they’ve seen enough cycles. I don’t think it’s a surprise that we’re struggling to find People still make this industry work, people still run this business.

Aaron Hunter, vice president, Midland Basin at ConocoPhillips, said there was a call for public companies like his to return money to investors. At the same time, he said, it is incumbent on the company to pursue opportunities such as Concho Resources or Shell’s Permian Basin assets to help grow the business.

Finding people is a challenge, he says, but it’s a challenge everywhere. “The best thing we can do is keep trying, keep people engaged.”

Flaring will be a problem, he agreed, especially as delivery capacity tightens.

Companies, he said, will have to “choose between making money for investors or not burning for investors.”


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