Spring 2008: Energy

Recently, the U.S. Department of Energy reported that the world’s primary energy needs will grow by 55 percent by the year 2030.

The energy industry can be defined as one of the most volatile industries in the world right now. Countries are examining trends of demand and consumption hoping to devise a strategy to curtail the economic aftermath of a possible depletion of resources. Companies and organizations are striving each day to slow a downturn in the industry by creating alternative energy resources.

How can businesses, corporations and individuals proactively help with the mounting issues of the energy industry? The need for strong ethical leadership arises and Baylor’s Hankamer School of Business graduates answer back by heading some of the industry’s leading corporations.

In this issue of the Baylor Business Review, we discuss the current situation and outlook of the nergy industry, hear from alumni working directly within the industry and follow students exploring alternative energy resources. We also reflect on the legacy left by Earl C. Hankamer, benefactor of the Hankamer School of Business.

Baylor Business Review, Spring 2008

by Joe Gimenez

Few headlines have consistently dominated the news more than the rising oil prices of the last several years. “Can Oil Return to a ‘Sensible’ Level?,” asks the Financial Times. “U.S. Energy Chief Pleads for More Saudi, OPEC Oil,” reports the New York Times. “Oil’s Surge Reshapes the World,” says the Wall Street Journal.

And while journalists have painted bleak pictures of oil stocks caused by competing worldwide consumer demand for existing supplies, declining oilfield production rates and continuing Middle East strife, the business of finding and producing oil couldn’t be more exciting, lucrative or inviting than it is today, especially for students graduating from leading business schools.

While exploration and production (E&P) industry challenges may seem daunting, they should probably be considered “typical” when placed alongside all the issues that have faced the industry throughout its history, from Spindletop to the Exxon Valdez to Deep Mission, the latest big find four miles below the Gulf of Mexico.

Nevertheless, the industry is ripe for the fresh ideas and enthusiasm of new business graduates, especially those wanting to join the industry’s ongoing debates, figure in the daily re-tabulations of supply and demand dynamics and manage the people and systems who pull black gold from beneath the surface. There’s no lack of need for business minds that can grapple with the industry’s direct and indirect effects on the environment – and companies’ bottom lines.

One industry analyst puts it this way: Business school graduates who are interested in a career in oil and gas exploration and production “must fully understand the workings of both global and domestic energy markets and be able to predict trends, forecast and react.” How simply stated. How difficult to do.

Increasing Worldwide Demand and Global Linkages

Keeping up with global supply and demand and its impacts on the business decisions of exploration requires the greatest of analytical and forecasting skills, at both macro and micro levels. On the big picture demand side, there continue to be incredible forecasts of increasing need. The U.S. Energy Department’s Energy Information Administration expects worldwide energy consumption to rise to some 118 million barrels of oil per day by 2030. The world was consuming ‘just’ 83 million barrels per day in 2004. India and China comprise the largest forecasted consumption increases. While it’s no secret that oil demand is cyclical, increasing or decreasing with economic changes, what is new is the degree to which oil’s recent fluctuations have been affected by worldwide stock market gyrations and best guesses of global economic activity. Severe declines in stock and energy markets in early 2008 demonstrate the linkages.

After hitting $100/barrel on positive economic demand signals in early January, oil quickly retreated below $90/barrel as concerns over the U.S. economy’s underlying health – caused by troubles in the mortgage industry – troubled investors. After global stock market sell offs of 5 percent and more in mid-January, investment analysts at A.G. Edwards & Sons, now a division of Wachovia Securities, noted how “…traders believe that…slowing growth or a recession in the U.S. could lead to slowing growth overseas, further compounding the drop in energy demand…Energy markets are inescapably linked to the equity markets for the time being as both of them are reacting to the same worries about economic health.”

Now more than ever, E&P executives will need to keep a well-tuned ear to the global economy. They will need to listen for the signals that stock markets are sending about energy prices. They will be asked to increase shareholder value, manage balance sheets and finance their operations within global frameworks.

Decreasing Production, or Not?

On the supply side of the ledger, the E&P industry has been in heated debate for years over whether the biggest oil fields have hit their peak in terms of barrels extracted per year. Some contend that the oil fields that have been giving up their treasure for decades are already declining. The year-over-year comparison rates are falling anywhere from eight to 18 percent, the peak oil proponents say. But, in typical form for the energy industry, there are profound disagreements about the extent or likely duration of the declining production rates.

For instance, the Boston-based Cambridge Energy Research Associates’ (CERA) most recent study of 811 producing fields found far less deterioration of production rates, of only about 4.5 percent per year. And optimistically, CERA now says new fields in South America, Saudi Arabia, West Africa, the Caspian Sea and the Gulf of Mexico could change the equation for the better in coming years.

The trick for economists entering the oil and gas industry will be wading through the volumes of data and the conflicting opinions about the data, and then making forecasts that profit business operations. For instance, consider the business ramifications of CERA’s upside pronouncement that, “almost two-thirds (63 percent) of remaining reserves are associated with fields that are still either in the buildup period or on plateau, and are producing 59 percent of current production.” That means there’s room for production rates to grow – and more corporate expenditures on E&P – as more oil is extracted from the newer wells.

Adding even more optimism to the supply ledger, CERA will add newer projects to its future survey. Of the 350 projects CERA deems worthy of adding to future surveys, only 120 will come from OPEC fields to more accurately reflect the geographic diversification of energy sources as oil demand grows and prices rise. Newer fields will likely change previously dire predictions of production rate declines and the E&P industry humming.

Political Risk Headaches – Diversify and Call in the Morning

Broader energy source diversification and the U.S. domestic industry’s call to come home will also change how tomorrow’s business school graduates perform their jobs. Analysts at the Independent Petroleum Association of America (IPAA) and the American Petroleum Institute (API) want the industry to rethink where the United States gets its energy.

“Wouldn’t it be prudent to reduce our exposure to Middle East instability, civil unrest in Nigeria, political uncertainty in Venezuela, and accidents or natural disasters anywhere in the world?” asks Aaron Bernstein, a public information manager with the IPAA, the 79-year-old representative of independent oil and gas producers. The group advocates on behalf of U.S. E&P companies who develop 90 percent of U.S. domestic oil and gas wells, and produce 68 percent of domestic oil and 82 percent of domestic natural gas.

Analysts at API, who represent more than 400 corporations, from the largest major oil company to the smallest of independents, acknowledge IPAA concerns but think the train has already left the station in some respects. API recommends that the United States strive to achieve ‘energy security’ rather than ‘energy independence,’ a concept the organization doesn’t believe possible when this country already imports some 65 percent of its oil. API defines ‘energy security’ as moderation of demand, expanding and diversifying domestic energy supplies, strengthening global energy trade and increasing investments in emerging energy technologies.

The high price of oil is actually helping the U.S. E&P industry retreat from some of its international pursuits. The ratings firm, Moody’s, reported in September that E&P companies are decreasing their exposure to international assets, to reduce geo-political risks. Technology and higher oil prices are increasing the chances for profitability of extracting oil for oil sands and shale, as well as the deep waters of the Gulf of Mexico. Whether public policy will further encourage this trend – or whether a collapse of the price of oil reverses it – remains to be seen.

Boomers, Boomers, Everywhere

Perhaps the biggest threat to tomorrow’s energy supply could be the lack of people who are qualified and experienced in finding and extracting oil and gas. While virtually every U.S. industry is planning for members of the Baby Boomer generation to begin retiring en masse in coming years, the exploration and production industry may be particularly hard hit, industry analysts say.

“What is now a problem could become a crisis as 50 percent of the energy workforce will become eligible for early retirement in the next ten years,” states Will Green, president of the American Association of Petroleum Geologists (AAPG).

The industry term “Big Crew Change” depicts a story that goes like this: Many Boomers have worked for a single E&P company their entire career, and they are strongly considering taking their retirement when they turn 55. The oldest Boomers, born in 1946, are now 62 years old. Because the oil industry had a period of extreme cyclical downsizing in the 1980s, many think there aren’t enough people in the middle layers of E&P corporations to take the reins when Boomers ride off into the sunset. The retirements could affect every E&P business at all management, operations and production levels.

Since 2001, the API, AAPG, and the Society of Petroleum Engineers have been developing programs to encourage more young people to enter the engineering, geology, operations, and crafts training work needed for exploration and production. For the purpose of ensuring business operation continuity, management and information technology consulting firms like IBM, Booz-Allen, Capgemini and Schlumberger have been developing programs to assist their multinational oil industry clients in capturing the knowledge of outgoing workers while bringing younger workers up to speed with competency programs. Quickly.

To stop the knowledge departures, companies are also scrambling to attract new workers the old-fashioned way, with excellent compensation and benefits packages. “The current shortage has produced record high starting salaries – at or near $100,000 per year – for entry level geoscientists,” confirms the AAPG’s Green.

And, as reported in Oil & Gas Investor magazine, the human resources consulting firm Mercer saw a 5.8 percent rise in base pay for energy workers in 2007, compared to 3.8 percent for all industries. Business school graduates who venture to work in the E&P field will find themselves smack in the middle of one of the greatest corporate efforts in history to transfer knowledge and experience from one generation to another as they work to meet production goals for rising demand.

The Politics of Non-Production

New industry entrants will not only have to consider supply, demand and workforce issues, but also the game-changing laws that politicians and regulators frequently develop to tackle environmental issues. In many ways, policy makers are working to discourage production by discouraging consumption.

For instance, in late 2007, Congress passed the Energy Independence and Security Act of 2007, a set of laws that require Detroit carmakers to raise the mile-per-gallon achievements of the entire fleet of cars and trucks they manufacture by 2020. The Act also sets mandatory requirements for alternative fuel production. In signing the bill, President Bush said that the bill would reduce U.S. demand for oil, and by extension, reduce pollutants and contributors to climate change.

Will Green, president of the AAPG, thinks the bill will have little effect on the oil and gas industry because of the dominance of oil as a fuel source. “The demand for hydrocarbon fuels will continue to rise as long as the economies of the developed countries remain at least stable and growth continues in the developing economies – especially China and India. Conservation and efficiency will tend to slow the growth in demand at best,” Green said.

Climate Change and E&P

Future industry leaders will be required to react to the global concern that too much supply encourages consumption and adds to the problems of climate change. Companies will need to go beyond the effects of calculating the dampening effects of conservation and develop business operations profit and loss models that include entries for carbon sequestration, allowances for carbon taxes and funds for research and development of biofuels.

But sometimes overlooked are the effects that climate change will have on the practical needs for energy. While not committing to one side of the climate change debate, IPAA’s Bernstein similarly speculates on the effects on energy choices. “The most likely scenario is that natural gas will be a beneficiary of global climate proposals if the supply is made available in the Gulf of Mexico and Intermountain West,” Bernstein says, pointing out that natural gas is a vital component of alternative and renewable energy production like ethanol.

The most realistic and pragmatic approaches to addressing climate change will continue to involve E&P companies in one way or another.

New Challenges Need New People

The slate of external issues facing E&P companies may seem daunting, but they offer opportunities for advancement and professional growth like few other industries. The world will continue to need energy long into the future. And while external challenges grab the headlines, it may be the internal dynamics of the industry’s companies that need the most change. Not only are companies planning for the Big Crew Change at their operating levels, they are also considering calls for new types of leadership and governance.

A Moody’s report published late last year found that most E&P company boards have directors with deep oil and gas industry experience who are well-suited to the challenges of domestic and international E&P activities. But, the report noted, the potential for “provincialism” and “group think” should spur companies to rethink the make-up of their board directors. Too many similarities in directors’ experience may not be up to future challenges of rising project costs, volatile commodity prices and environmental reputation risks, according to Moody’s.

The need for new blood, new thinking and new experience could be the right formula going forward. As the next generation of business school graduates step into the new positions at E&P companies, the opportunities for new achievements in excellence abound.

To read the author’s frequent blog entries on energy industry communications issues, visit www.pr-me.blogspot.com

Baylor Business Review, Spring 2008

by Kristin Todd

Exploration, acquisitions, drilling and production. The oil and gas industry is in full swing with Baylor alumni serving as an integral part of satisfying consumer demands by providing dependable resources.

M. Jay Allison

Danny Bowlin

Lance Byrd

Baylor Business Review, Spring 2008

Go ahead and mark your calendar for the arrival of Peak Oil. But what date will this event take place when the world reaches the maximum point of oil production and takes the downward slope of decline? Conflicting opinions of sooner versus later were conceptualized during the 1950s with the introduction of geoscientist Dr. M. King Hubbert’s theory of peak oil production.

Hubbert proposed his peak oil theory in a paper presented to the American Petroleum Institute in 1956. Using a bell-shaped curve model, Hubbert made his predictions with the assertion that peak oil production would occur in the United States (lower 48 states) by the early 1970s. Hubbert’s theory rang true as U.S. oil production has been decreasing since that time. The U.S. now imports two-thirds of its oil supply.

Hubbert also predicted that world peak oil production would occur “about half a century” from his publication; however, he later revised the estimate to 1995. Some analysts believe peak oil has already occurred, some think it will hit within this decade, and some predict dates as late as the 2030s. As companies are attempting to develop and secure alternative energy resources, many believe those efforts will not cushion the economic blow to come.

Now the question arises not if we will reach peak oil production, but exactly when it will happen due to current production decline rates.

View: Not Today

Experts at Cambridge Energy Research Associates (CERA) recently stated in a press release that peak oil would not be reached as soon as some think, due to the rate of production decline. Upon examination of past industry research, projections were cited to be around an 8 percent decline. Analysts have readjusted this figure to represent a 4.5 percent decline rate, based upon production characteristics of 811 oil fields analyzed by CERA.

In the press release, CERA oil industry activity director Peter M. Jackson was quoted as saying, “Some of the more gloomy, pessimistic ‘peak oil’ views about the future of oil supplies that are current today result from an assumption of high decline rates. This new analysis provides the basis for more confidence about the future availability of oil.”

Jackson added, “The absence of definitive, comprehensive analysis of production timelines and decline rates has led to widely differing estimates of the potential future availability of oil: an information vacuum that has contributed to the peak oil theory of future liquids production capacity. We hope this study will contribute to a more informed understanding of the issues, both below ground and above ground.”

CERA’s analysis covers database information developed and managed by IHS, an oil and gas information, analysis and software company that acquired CERA in 2004. The analysis includes the 811 separate oil fields that Jackson said “account for about two-thirds of current global production and half of the total proved and probably conventional oil reserve base.” The final outcome showed “the aggregate global decline rate for fields currently in production is approximately 4.5 percent per year, and that annual field decline rates are not increasing with time.”

Primary Findings – The primary conclusions drawn from CERA’s analysis of 811 fields during the production build-up, plateau and decline stages in the oilfield life cycle include:

• Aggregate decline rate – The 4.5 percent per year aggregate global decline rate among fields in production (FIP) is much lower than the eight percent rate cited in many studies and projections. This pessimistic estimate may be a function of the generally more rapid decline rates observed in small fields – increasingly being developed in mature non-OPEC countries – and the rise of deepwater projects, which tend to flow at high rates as a requirement of commerciality, but which also decline rapidly.
• Fields in decline stage – Only 41 percent of production is from fields in the data base that are beyond the plateau stage and into the decline phase of their production lives.
• Low decline rate, longer lives – Annual field decline rates are not increasing but, as a result of increased investment, improved planning and technology, can be maintained at low decline rates in many fields for prolonged periods, and field life is very often longer than originally projected.
• Offshore vs. onshore fields – Individual offshore fields are declining at a 10 percent annual rate compared with 6 percent for onshore fields, and deepwater fields decline at 18 percent annually compared with 10 percent for shallow-water fields. Non-OPEC offshore fields decline 5 percent per year compared with 12 percent for those in OPEC.

CERA’s world capacity conclusion was made by Jackson: “The results of this new study reinforce CERA’s existing bottom-up global liquids capacity model showing that liquids capacity of around 91 million of barrels per day (mbd) in 2007 could climb to 112 mbd by 2017. This outlook is supported by a key conclusion of this study: there is no evidence that oilfield decline rates will increase suddenly. It is important, though, to continue to research and understand evolving decline trends and further develop insight into the declines.”

*Source: “No Evidence of Precipitous Fall on Horizon for World Oil Production: Global 4.5 Percent Decline Rate Means No Near-Term Peak: CERA/IHS Study” 17 Jan. 2008 www.cera.com

Review: Here it Comes

According to an article by Wall Street Journal oil reporter, Neil King Jr., CERA’s study may not depict such a promising future for the oil industry. In his article, “New Fields May Offset Oil Drop,” King takes a second look at CERA’s findings.

King writes, “Output from the world’s existing oil fields is declining at a rate of about 4.5 percent annually, a new study concludes, depriving the world of the same amount of oil that No. 4 producer Iran supplies in a year. Yet the study’s authors, Boston-based Cambridge Energy Research Associates, argue that their assessment supports a generally rosy view of the industry’s future, given that new projects in the works will make up for the decline.”

Although CERA reports the lesser 4.5 percent decline in production, this equals a loss of nearly four million barrels a day throughout this year. King states one of the major issues of oil depletion rates is the data collection of verifiable numbers.

“Oil-field depletion rates are a key barometer of the health of the world’s oil market, and thus are hotly debated among factions feuding over the relative stability of future supply,” King writes. “That debate is made all the more intense because analysts have limited access to reliable data on field-by-field production rates from key suppliers such as Saudi Arabia, Iran, Venezuela and Russia.”

King asserts CERA data is bolstered by promises of restoration in oil production through projects being conducted in Brazil, Saudi Arabia, West Africa, the Caspian Sea and the Gulf of Mexico. King quotes CERA Chairman Daniel Yergin as saying, “This is a daily, hourly and minute-by-minute challenge for the world’s oil industry. But for every Iran you are losing, you are gaining almost two Irans in return.”

CERA, who King says “has drawn fire among skeptics for being one of the most optimistic forecasters in the industry” predicted in June that world oil production could multiply to 112 million barrels a day by 2017. King examines the quantifiable logistics of new oil production using CERA’s predictions, which may not offer an industry vote of confidence to an increasingly questioning public.

“According to CERA’s own rate of decline, the world’s existing fields by 2017 will be producing about 33 million fewer barrels a day than they are now,” he writes. “So hitting a production level of 112 million barrels a day within a decade would require adding 59 million barrels a day in new capacity – or more than six times today’s daily output from Saudi Arabia, the world’s largest oil exporter.”

*Source: King Jr., Neil. “New Oil Fields May Offset Oil Drop.” Wall Street Journal Online. 17 Jan. 2008 online.wsj.com

Baylor Business Review, Spring 2008

Baylor Business Review, Spring 2008

 A Place for Optimism, Ridiculous or Not

Paul Foster is president, CEO and chairman of El Paso’s Western Refining Co., a supplier of gasoline, diesel and jet fuel to markets in Phoenix, Tucson, Albuquerque and El Paso. A 1979 graduate of Baylor with a degree in Accounting, he provided the lead gift for the Paul L. Foster Success Center at Baylor, a one-stop shop for students to obtain a combination of academic support and career counseling. He also funded the Paul L. Foster School of Medicine at Texas Tech University Health Sciences Center at El Paso. Foster is a regent for the University of Texas System and is chairman of the El Paso Regional Economic Development Corporation. He serves on the boards of the El Paso chapter of the American Red Cross, the Texas Economic Development Corporation and the Hankamer School of Business Advisory Board. He is a former member of the Texas Higher Education Coordinating Board.

People sometimes call me a ridiculous optimist. Instead of trying to determine whether the description fits, let’s examine the line between acting prudently and taking a risk to achieve goals. The line is razor thin, but we need a dose of both prudence and risk to navigate the world successfully. And although the mistakes that accompany risks can hurt, they can also help if we learn from them. I base this belief on my own experiences.

Recently, at a commencement ceremony at Texas Tech, students heard my story of graduating eight months after I expected to, and got a kick out of the tale. Laughing about it is therapeutic, but it was not so funny back in 1979, when I thought I had graduated in May only to discover that was not the case.

I enrolled at Baylor University on a full scholarship that I lost because I let my grades drop. I worked several jobs so that I could afford to continue as a student, and I did get through the process. But as the course of events unfolded, I received erroneous advice from a counselor who told me I should drop one of my majors instead of graduating with a double major in Finance and Accounting. He said I had enough hours to graduate with an Accounting degree and advised me to take an incomplete in a finance class. All I needed to finish the class was a term paper, but it was a huge project. I followed the counselor’s advice.

Driven by a desire to start earning money right away, I skipped graduation to start a week early at my new job as an internal auditor for Southern Union Gas Co. in Dallas. About a month later, Terry Maness, now dean of Hankamer School of Business, called me. He was an assistant dean then and the sponsor of my fraternity. He asked me if I thought I had graduated. “Of course,” I told him. He told me that I had not. He said I had to complete the finance class to graduate. To do that, I needed to finish the paper.

My new job required me to have a degree. Dr. Maness called my boss and explained the situation to him, and I remained employed. I spent summer weekends at the SMU library working on the paper. My new goal was to graduate in August. I finished the paper and sent it by overnight mail to the professor.

After several weeks of not hearing from Baylor, I called the business school and discovered that the professor had been ill and had not had a chance to look at the paper. I missed August graduation. With help again from Baylor, I kept my job, ended up with an “A” in finance and graduated with the December class. Since it was still 1979, my ring bore the accurate date.

Would a Success Center like the one Baylor is creating have helped me? I don’t know. A Success Center would not have made me study more, but it would have been a place to go to ask questions. Although some students do not need help, and some students have a great support system to draw from, I was on my own. I didn’t know anyone who had gone to Baylor, and I didn’t know anyone in the administration. I was not the type of student who became well acquainted with professors, although I should have done so. Creating the Success Center was not my idea, but it was a no-brainer for me when the people at Baylor explained it to me. The core of my philosophy of leadership is allowing people to succeed. To the extent that I can, I try to create opportunities. I try to provide resources and direction, and allow people to grow at their own pace.

Another big challenge in my life, a more recent one, was putting together the plan to obtain Western Refining and getting the financing to do it. It was difficult to get enough capital to buy the assets of the former El Paso Refinery. We formed our company in 1997 and acquired the assets we needed in 2000. We have realized most of our goals and took the company public faster than I thought because of good timing and market conditions. We have grown through acquisition, which is something I envisioned. Motivation and perseverance took us through that difficult period.

No matter what any of us ultimately decide to do in life, we should make sure the pursuit is something we enjoy. That does not necessarily mean we should seek the best paying job or that we should set a goal of accumulating wealth. We should, however, strive to make a difference. The prize we attain does not necessarily need to be significant to everyone, but it must be important to the person seeking it. In the end, we have to be able to look back and say, “I enjoyed my life.”

Back to ridiculous optimism. Is optimism ever ridiculous? Can optimism and prudent behavior coexist? Yes. Sometimes pursuing our dreams is the only prudent thing to do.

Building Success From the Ground Up

Bob R. Simpson is a co-founder, chairman of the board and CEO of the Fort Worth-based XTO Energy Inc., one of the top 10 natural gas producers in the United States. He is the former CFO of Southland Royalty Co. He earned a bachelor’s degree in Accounting with honors in 1970 and an MBA in 1971, both from Baylor University. He is married to Janice Simpson and has seven children ranging in age from 5 to 34. A generous supporter of Baylor, Simpson and XTO Energy most recently provided for the Simpson Athletics and Academic Center, which will be located on University Parks Drive. The center will include athletics training rooms, offices, and an academic center for Baylor athletes.

Baylor is a large part of my foundation. As the only university I attended, it symbolizes a stepping stone into my life and career. I tell my family that Baylor represents our roots, that it’s a great place to go for an education, and that you will enjoy the time you spend there.

I attended Baylor on an academic scholarship and I worked because Baylor was relatively expensive. My father was a farmer in Cisco, a town of about 4,000, and my parents were unable to help me financially. My job was at Merrill Lynch where my early passions resided. My early observations of Wall Street operations gave me a broad understanding of how capitalism works in our economy.

I was shy as a student. I observed how people acted, and I thought about my basic beliefs. My mother, Mina, taught me the importance of quiet learning and often quoted Abraham Lincoln on the value of keeping your own counsel: “It is better to be silent and be thought a fool than to open your mouth and remove all doubt.” Many solid people go about doing what they should be doing in life without making a big fuss about it.

From early lessons, I believe these things are important:

• Lead by example and not by rhetoric. Excellence is what you live, not what you talk about. I try not to ask others to do things that I would not do. If you treat people the way you like to be treated, that works. It’s not any more complicated than that, but it is harder to do than to say. I have heard others say it and not do it, and I have worked for people who treated me differently than they wanted to be treated. The idea of treating others as you want to be treated builds a strong and committed team.
• Find your passion. What you do when you don’t have to do anything is probably your passion. If you find something you enjoy and people will pay you to do it, you are on the right path.
• Do not second-guess. Our people are excellent. We don’t need to treat them like children or criticize them. We give them responsibility and cheer them on. I try to create that thinking, and I want it to permeate the organization. It works, and it’s fun to watch.
• You end up doing what dominates your thoughts. I am goal and task oriented. I set a course, and I stay the course. Patience and tenacity are important. I don’t like negativity. It leads to negative accomplishments. I am not naïve, but I believe we should stay as positive as possible.
• Some days, the best thing you can do is nothing. This is true particularly when you are in a valley. I say this often, especially to my children. It has become a principle of my leadership.

After graduating, I went to work at Arthur Andersen, which was then one of the Big Eight accounting firms. After Andersen, I worked at a publicly held oil and gas company, Southland Royalty in Fort Worth. The company was taken over in a hostile bid in 1985. I was the CFO. We took what we had from our termination agreement and started over. We established the company with a vision of acquiring oil and gas production and hiring good people. The philosophy revolves around people and doing things we like with people we like. The vision is simple and we have not changed it.

Obviously, we started small. In 1986, the company then called Cross Timbers Oil Company had just seven people and a great attitude. Today we have 2,400 employees across the United States, though our main office is in Fort Worth. I like Fort Worth’s tradition and western culture. It’s a great place to raise a family and build a company. What XTO does can be done here, and not in a big shiny glass tower. That’s not our style. We work in restored buildings that have character. Even though we employ hundreds, employees say that the company is the best place they have ever worked, that it’s like family.

The challenge for our business, which is among the top 10 natural gas producers in the country and number two in Texas, is to replace a significant part of the business every day and to maintain rather rapid growth as size increasingly becomes our enemy. If we did nothing, we would lose 20 percent of the company in a year. So we have to replace production and we have to grow. Trying to be a growth company in a decreasing-asset business is kind of an odd thing.

Our growth goal for 2008 is 20 percent, and I believe we can do it. We built the company on a clear idea created by people of excellence. And we have as much fun as we can.

Baylor Business Review, Spring 2008