Devon Energy’s Gaspar on Consolidation: Everyone is Expendable, Including Him

SAN ANTONIO—More than 19 months after Devon Energy Corp. merged with WPX Energy, COO Clay Gaspar sees a too-crowded oil and gas industry with executives who should recognize that being “expendable” comes with the job.

In the fallout from the Devon-WPX merger, half of the executive team was left without a job and Gaspar “knew going in there was a 50:50 chance that was going to be me in the process,” he said.

“I truly believe in the benefit to the shareholders; that it was going to be worth the exercise,” he said. “That’s really what we’re paid for, especially on the public side. You’re paid to be expendable at some point, if necessary.”

Gaspar, who served as WPX COO prior to the company’s merger with Devon, made the remarks at the TIPRO Summer Conference during a wide-ranging discussion that including ESG, global energy needs and carbon offsets.

Devon this year has made its first moves since closing its merger with WPX, both to consolidate positions in plays where it operates.

“Real splashy, overpaying, overhyped, underperforming mergers—that doesn’t help the industry move continually in the right direction as we should.”—Clay Gaspar, Devon Energy Corp.

In July, the company completed its purchase of RimRock Oil and Gas LP’s Williston Basin assets for $865 million cash. Then, in August, the company announced it would double its footprint in the Eagle Ford Shale with a $1.8 billion deal to acquire private operator Validus Energy.

Validus’ position in the Eagle Ford, adjacent to Devon’s, includes 42,000 net acres in Karen’s County, Texas, and produces an average of 35,000 boe/d.

Gaspar said on Aug. 25 the industry remains “fractured.”

“There’s still too many of us, to many of me, too many accounting shops and too many legal shops and too many of us trying to do essentially the same thing,” he said.

Gaspar sees consolidation wringing out efficiencies in the upstream, midstream and services sector that will make the industry better.

“Comparing us to other industries, it is amazing the number of us trying to do what we do, [and] just the natural inefficiencies,” he said.

The largest headwind for consolidation is price volatility, with price valleys and peaks. Whether at a steady $100 or $50, a consistent price would allow buyers and sellers to have a place to start “the conversation.”

WPX and Devon began talks in July 2020 in the midst of full lockdowns and social distancing with the goal of driving the value of both businesses. He said the first conversations were “like flirting or something.”

“It’s like, ‘how are you? Do you want to get together for coffee sometime?’”

Eventually, the two companies approached a potential merger by addressing what each considered “non-starters” even before signing non-disclosure agreements.

“I think that helped us get an understanding of where we were relative to each other,” he said.

But as with other companies, the personal interest of executives remains a barrier to consolidation moves that could result in job losses. Public company executives need to “keep front and center” that they’re working for the owners, stakeholders and communities they serve.

“I am pro consolidation. It just hasn’t been communicated well,” he said. 

Deals that don’t work logically can be detrimental to further consolidation. “Real splashy, overpaying, overhyped, underperforming mergers—that doesn’t help the industry move continually in the right direction as we should,” he said.

Gaspar also addressed the energy transition and ESG, particularly as environmentalists vilify oil and gas companies. Conversations need to be more centered and that the industry should avoid being defensive and negative.

“The transition or evolution is always happening,” he said. “If you start in very aggressive and negative, you’re labeled a denier and the ears are shut.”

He prefers to acknowledge bad things about the industry, such as carbon emissions, and then the good, including reliable energy before finding middle ground with practical ways to address increased energy demand.

“The crisis that’s happening with energy scarcity, it’s an incredible opportunity to have those conversations,” he said.

Gaspar, who heads Devon’s ESG functions, said there are also value-creation opportunities in reducing emissions.

“Now, they may not be heads up as good of an investment as drilling a well, but they are value-creating,” he said.

Devon is investing $100 million this year in facility retrofits, changing valves and building out additional infrastructure so that the company doesn’t have to flare.

“We spend a lot of time on our midstream partners, making sure they have compression, takeaway capacity, processing capacity,” he said. “And by the way, this $100 million has a very significant positive cash return.”

Gaspar said that some projects are easier than others and that, ultimately, a negative offset may be necessary to make the math work to reach net-zero emissions.

“The good news is we don’t have to solve that one today,” he said.