OKLAHOMA CITY—“If this industry has shown anything, it’s shown the consistent ability to adapt, and also to embrace technology, to find solutions and to remain profitable.”

That’s the message Dave Hager, COO of Devon Energy, emphasized at Hart Energy’s DUG Midcontinent conference on Feb. 25.

“We have been here before,” Hager said, referring to the oil and gas price decline, “at least three other times in my career.”

Hager noted previous price drops that included 1985-86, when the price of oil dropped 67% in four months; 1990-91, when oil declined 49% in four months; 2008, when oil fell 78% in six months, and finally 2014-15, when oil dropped 57% in seven months.

Hager also pointed out that the current situation is not a repeat of 1985-86, when demand was only 62 million barrels per day (MMbbl/d) and spare capacity was 10 MMbbl/d to 13 MMbbl/d. Today, demand is 92 MMbbl/d and spare capacity is less than 3 MMbbl/d.

“I look at this as an opportunity for the industry,” Hager said, referring to the current slowdown brought about by declining oil and gas prices. “It’s an opportunity to get the cost structure right and also to embrace the technology that will allow us to grow when prices recover."

“We think there are three basic keys to success in this environment,” Hager said. “One, you’ve got to have top-tier assets. You want to have the best possible assets you can. I often use a simple expression that big fields get bigger. At least, that’s the experience that I’ve had in my career. If you’re in the heart of a good field, good things will happen. I’ve also seen the opposite happen. Marginal areas get worse. At times like these, you want to have your assets located in top tier areas. We feel we have that in our Eagle Ford position, our Permian position, our Anadarko position and even our heavy oil position in Canada."

Hager also emphasized the importance of superior execution. “You have to execute cleanly, and obviously at these prices there isn’t a lot of wiggle room for execution.”

The third key is to have financial strength and flexibility, Hager said. “As much as we like to think what the price of oil will is going to be—and we do believe longer term prices are going to be higher than they are today—but the trajectory to get back to these higher prices is uncertain. You have to be flexible and you have to be nimble to adapt to the price as it manifests itself."

The focus must be on revenue and on cost, Hager said, “and you have to work both sides of that equation. It’s real easy during this period of low oil and gas prices to say, ‘I’m just going to focus on the cost side and I’m going to get costs as low as I possibly can, and that’s my singular goal.’"

“Yes, it is important to get costs down, and I don’t want to diminish that. It is an important element in the overall results. But the other side of the equation is to focus on the revenue side, and that’s where technology can help out at times like this.”

It’s not just a matter of cutting costs, Hager said, “it’s also a matter of retaining the key people that have the ability to implement new technology and new techniques that will drive the revenue side. I often get asked ‘what about the G&A, how does that affect the people side of it,’ and I can tell you that at Devon, while we’re very mindful of the environment that we are in, at the same time we recognize that the leverage that people have on driving technology in this business is probably higher than with any other industry. So, we think it’s important to keep the people that drive the results, both on revenue as well as watching the cost side."

“I think that’s what conferences like this are about,” Hager said. “It’s important that we learn new technology. We are lifelong learners, and I think that’s one thing that this industry has done historically as well as through this challenged environment that we’re in. We’ll continue to do that and we’ll emerge out the other side with stronger companies.”

During 2014, Hager said, Devon delivered U.S. oil growth of 82%, fourth-quarter top-line production increased 20%, proved oil reserves were at an all-time high, and midstream operating profits set a record.

In estimating Devon’s 2015 outlook, Hager said the company expects oil production growth of 20% to 25% and top line barrels of oil equivalent (boe) growth of about 5%, with both achievable despite a capital expenditure reduction of 20% below 2014 levels.

Hager said that there are two simple concepts to remember. “One, things are seldom as bad as they seem, and now we’re in a low-price environment, and certainly there’s a lot of concern out there. I’ll tell you one trivial fact. We have done studies internally here as to what future prices will be, and I can tell you that the forward curve is probably one of the worst predictors of future oil and gas prices out there. Nine months ago, it was over $100 a barrel and no one saw anything going down. Now we’re at the opposite end of it and everybody is concerned. Things are seldom as bad as they seem, and of course, the reverse is also true. Things are seldom as good as they seem."

“We understand that there’s an upside," Hager said. “We’ve been through a downside before and I’m confident that our company and all the companies in the industry will respond to this and be successful in the future.”

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