The casual observer could be mistaken for overlooking the ostensible celebratory nature of the gathering. Just six weeks ago, the Inaugural Energy Shareholder Friendlies was expected to be the place to see and be seen. Tickets to the event, deliberately kept in short supply by the event’s organizers, were so highly coveted that energy executives were tripping over themselves to hurriedly issue press releases announcing more and more shareholder friendly initiatives in hopes of scoring a prized seat. The event, held last night at The Raquet Club in Midland, fell a tad short of those lofty expectations. Attendance was sparse, attributed by organizers in part due to unreported coronavirus incidents and in part due to humiliation of invited honorees.
As the event’s single server made the rounds dishing out miso soup, in a darkened corner stood three nominees of the night’s awards. Huddled close to one another, with backs turned to the dining tables, they spoke in hushed tones. Despite the dim lighting, Devon Energy CEO Dave Hager’s face was barely recognizable, aged considerably since February of this year when he hosted the company’s 4Q19 earnings call.
“It seemed like a good idea at the time,” he said to no one in particular. Making eye contact with Lee Tillman, CEO of Marathon Oil, Hager continued, “I mean, you just keep buying back the stock, right? Less supply, price goes up right? We bought back $3 billion in 2018. And we follow that up with another $1.85 billion in 2019. $4.8 billion in total buybacks. That’s what we kept hearing the market wanted.”
Trying not to appear rude, a disinterested Tillman anxiously shifted weight from right foot to left, then back again. But Hager continues, “Our market cap at the end of ’19 was $10 billion and we’d showed such a commitment to our shareholders that we’d bought back darn near half of the market cap.”
Tillman pivots and tries to strike up a conversation with Diamondback CEO Travis Stice, who won’t stop looking at his shoes. Hager rolls his eyes, “Ok, so lesson learned. We had $4.5B of debt. It didn’t seem like that big of a deal at the time, but maybe it was. Or is. Heck, I don’t know anymore.” Hager goes silent at last, contemplating the fact that his company’s market capitalization today is just above $3 billion. He’s too despondent to bring up his regret at having just recently raised the company’s dividend 22% to an annual commitment that has him paying out 5% of his current market cap in dividends.
As Hager zones out, Tillman senses his turn to lament. He focuses on Stice, who, normally the life of these kind of parties, stands in a sulky silence. Tillman also finds himself this month as a new member in the ignominious “Just Over $3 Billion Market Cap Club.” He tries to engage Stice, “I mean, it didn’t even seem like that big of a deal. $1 billion of buybacks over the course of two years. Who cared? It was a token gesture.”
Stice, realizing he can’t ignore the persistent Tillman, finally lifts his head up and gives a begrudging grunt of approval. “Travis, you have to understand, we weren’t a Permian pure play. We needed something to get some of the mojo you were putting out.”
Hearing his mojo brought into the conversation, Stice finally engages. “Shareholder friendly, that’s what we kept hearing. We give ‘em $150 million a year in dividends. We juice that with $1 billion in buybacks in the last two years.” Doing the math in his head for the tenth time tonight, “Year to date, the market value of our equity is down $7 billion. I’ve had to slash capex and I’ve got serious questions about what this organization is going to do in a $30 per barrel crude environment. I kind of wish I had that money back.”
Sensing a break in the one-sided conversation, Trice pipes up, “OK, expensive lesson learned over here as well. Over half a billion dollars in buybacks last year alone, plus commitment to another $240 million in dividends this year.” Tillman puts a sympathetic hand on his shoulder. “Man, I just love buying stuff. I love deals. It’s in the blood. And when you’re in Midland, you have to do deals to stay in the flow.”
Lee’s face contorts to a slightly confused expression. “But this shale beast, whoo boy, it declines like a mutha. You gotta keep drilling and drilling and drilling and buying and buying. And then, after all this hard work with deals and stuff, I get slapped upside the head with a reminder that we produce a commodity and we’re not the lowest on the cost curve. I sure wish I had that money back too, Lee. I have no idea how much cutting and shrinking I’m going to have to do now.” Lee nods his head in understanding as Stice concludes with “I really just like doing deals.”
The huddle is broken up as the organization’s Chairmen Emeritus, former CEO of ExxonMobil Rex Tillerson takes the stage. At the helm of ExxonMobil in 2006 and 2007, he oversaw annual buybacks of over $30 billion per year, juiced by $7 billion in dividends. Several CEOs in attendance can barely conceal their jealousy of his legacy Shareholder Friendly accomplishments. Sensing the dour mood in the near empty dining room, Tillerson opts for the short and sweet delivery. He taps thrice on the microphone. No one in the room picks up their head to pay attention.
“This year’s award for Outstanding Achievement in the Realm Shareholder Friendly Initiatives goes to Dave Hager in recognition for having retired the highest percentage of common stock with Devon Energy’s buyback program.” Applause is muted. CEO of Cabot Oil & Gas Dan Dinges, seated alone in the front of the room, lifts his arms in exasperation and mutters something about no respect for the $1.2 billion in buybacks he’s overseen in the last three years.
Still in the corner, Hager snorts and turns to leave the dining room.
On the way out, he passes a table where Dave Stover (CEO of Noble Energy) and David Wood (CEO of Gulfport Energy) are seated. Stover, who launched an ill-advised $300 million buyback in 2018 in anticipation of future free cash flow, offers a few tepid words of praise to Hager. Wood, whose company bought back $230 million of stock in the last two years en route to its current market capitalization of $63 million, is just happy to be there and shouts out “Atta boy Hager!”
Hager snorts once again, steps over a tumbleweed blocking the exit, and slams the door behind him.
Source of featured image: Oil and Gas