In August the Carlyle Energy Mezzanine Opportunities Group gathered an extraordinary group of talented executives in Houston to pay tribute to Bobby Shackouls, former chairman, president and CEO of Burlington Resources Inc. before ConocoPhillips acquired it in March 2006 for $35.6 billion. Shackouls, now semi-retired, advises Carlyle on energy matters.

Because each of the panelists was a senior executive under Shackouls’ command at Burlington back in the day, they said they are marked with “the Burlington tattoo.” Each has since distinguished himself by becoming the successful chairman, president and/or CEO of their own exploration and production (E&P) companies.

The participants were Travis Stice, president and CEO of Diamondback Energy Inc.; Brent Smolik, president, CEO and chairman of EP Energy Corp.; Tommy Nusz, chairman and CEO of Oasis Petroleum Inc.; Mark Ellis, CEO of Linn Energy LLC; and Randy Limbacher, CEO of Samson Resources Corp., the largest privately held independent in the U.S.

CEOs, left to right: Travis Stice, Diamondback Energy; Brent Smolik, EP Energy; Tommy Nusz, Oasis Petroleum; Mark Ellis, Linn Energy; Randy Limbacher, Samson Resources; and Bobby Shackouls, retired chairman and CEO of Burlington Resources.

In the aggregate they helm companies with a market cap of $30.8 billion (assuming that Samson is worth $7.2 billion, which is what it sold to KKR for a couple of years ago, retaining the Samson name).

Each executive took to heart the management lessons learned at Burlington on developing the right organizational structure, strategy and culture, as well as the importance of training and retaining talent. Indeed, in their new roles they have hired their former Burlington colleagues by the dozens--all were well steeped in the corporate culture and leadership role models Shackouls created and that they so admired.

Here are some of the many management nuggets they shared in a panel discussion moderated by Samson’s Limbacher.

Shackouls: I’ve always felt the success of any company--oil or gas--is directly tied to the quality of the people. A lot of people would use the term “young and inexperienced” for these guys back then, but I don’t think they were. They were young, but they’d had a lot of experiences, and all we had to do was put these talented individuals in the right places where they could showcase their abilities for the benefit of our shareholders (they all were shareholders as well) … and that’s exactly what they’ve done for the other entities that they’ve led and worked for in the eight years since the Conoco transaction.

Stice: One thing Burlington did was acknowledge guys with outstanding leadership skills … and in the simplest definition there is of a leader, we really wanted to follow these guys. One other thing that mattered was the culture of accountability. That wasn’t just about expecting accountability from everyone, but it was also assuming positions of accountability. As I was getting started with Diamondback Energy, I wanted to try to integrate that on the organizational side.

Smolik: We had all the basic leadership training and leadership development programs, but maybe more important was that the company was really willing to give relatively inexperienced people a lot of different challenges. In my case, I was there 16 years and my career track was Houston, Denver, Houston, Farmington, Houston, Calgary.

But it wasn’t just different geographies, it was about different roles: management roles, operations, M&A [mergers and acquisitions] roles, corporate planning and strategy. Being able to move around and having a Farmington office in the San Juan Basin was a hell of a learning laboratory. A lot of the view I have about how to add value in our industry came from that period of working in Farmington.

The last thing is, I believe the adage that a lot of what you learn in your career is by example. Most of the time I was there, I worked for Bobby but I worked directly for either Mark, Randy or Tommy, too. So, you get those kinds of examples and you can pick from the best of the best to make your own leadership style. I think that’s at least part of the secret sauce.

Nusz: There was always a focus on setting targets, tracking your results and accountability, but on top of that, it was about applying competencies. What are we good at? How do we be objective about that? How do we continuously improve on what we’re good at? How do we use that to our advantage? Also, it wasn’t just about the what, it was the how. How you get things done, how you interact with people?

One thing we always did was send our people to social-style interactive training, so within our organization, you knew if someone was an analytic, a driver, amiable or expressive. Within a matter of minutes of meeting a person you could figure out what personality type they were and then you knew how to deal with them on a human level. I feel like that was very important.

The other factor is, how do you build business leaders? For us, we grew from within. We didn’t go out and hire mercenaries to come in; we really built from the college program. When they walked in the door, we said, “How do I get that person in a position with the right training to be someone who can either run a division, or be in Bobby’s job someday?”

It wasn’t just the technical stuff either, it was also the business stuff. At one point in the early 1990s, I think just about everyone in the company went to finance and accounting school for nonfinancial managers.

Ellis: I never thought you guys would render me speechless. It all starts with the culture. Bobby set the tone: he talked about delegation; he talked about accountability; he gave us the opportunity to operate with a lot of latitude. He set parameters around what each business unit was supposed to achieve and then he gave us the opportunity to operate around that. Randy held me accountable for a lot of things in my days up in Canada, I remember them very clearly.

Brent talked about different roles and responsibilities. Every one of us worked in a planning role, a chief engineering role, business development--we did something a little bit out of our comfort zone to really prepare us for future leadership. And, we always looked for those other folks who would come in behind us and we would develop some depth in them.

The other thing I’d tell you is that behind each of us within our organizations is someone with a Burlington tattoo who is making us successful as leaders today. There’s a high likelihood that when we step down, there’s someone behind us in our respective companies that also has that Burlington tattoo.

Limbacher: There are a couple things I remember. One is we had some folks at the company that were very good at finding the right people, good at hiring people. You’ll recognize some of those names: John Schiller [now CEO of Energy XXI] worked at Burlington and he hired a lot of really good people, he was really good at that … That’s something everyone needs in their organization.

The other thing is, Bobby didn’t hesitate to take young people and promote them quickly into supervisory and managerial jobs. They were expected to perform. You don’t realize until many years later that if you got that job as a manager 10 years ahead of when someone else typically gets it, you got to go through two or three more business cycles … that allowed you to get all the more training to be in some of these leadership jobs.

The final thing is, and not to take anything away from us, but the timing was great for Burlington [success and growth]. We were in the early stage of the resource plays (we were more in tight-sands plays than unconventional plays), so the skill sets that are necessary to be successful running those kind of plays were the same as in the environment that all of us had [at Burlington].

Limbacher: If there are people from big companies out in the audience that are thinking about acquiring big companies, or just in the process of acquiring anyone, what is the ability to buy a company and not just buy the uniforms, but keep the people and take advantage of that talent? Because clearly, when you spend $35 billion for that kind of talent, to lose it is a major loss. I want to address this because when I was at Conoco, all these Burlington guys quit on me. [Laughter]

Ellis: I’ll address that because at Linn, we do a few transactions, not a whole lot. [Laughter] I think it literally starts from the announcement of the transaction … what we do is meet with the folks in the organization we’re acquiring, making sure they understand the business model, and you start developing them into your own culture. I’m always in the field the day we announce the deal, meeting with them that same day and making sure they understand how we function. Then we do everything we can to stay connected with that workforce during the transition--by the time we close, they really feel like they’re part of our organization.

Shackouls: When we acquired companies in Canada, where we had absolutely no presence when we started, it was critical we kept the majority of the people at the three companies we acquired. Brent and Mark spent an unbelievable amount of time in Calgary working with those individuals and making sure they became Burlington people. We retained a large majority.

Nusz: I think it was huge what these two guys did in Canada … it’s very difficult to transfer culture that way … but after a couple years, it looked like any other BR division.

That’s one of the big challenges for the big guys, especially entering these resource plays. You can’t have two different cultures; you’ve got to have one, to manage these unconventional resources.

Limbacher: On Conoco acquiring Burlington, I’ve thought about that transaction a lot …

You have to make sure the whole organization is on board with [a merger] because the biggest trap for these larger companies, whether majors or large independents, comes down to capital allocation. When you buy a company like a Burlington or XTO, it takes a whole lot of capital and people to keep things going.

What happens is, if you’re rationalizing capital, you can’t shut down these large projects that are going on around the world. Say you’ve got an offshore development or a project that’s in year two of five of the development, but you also want to buy back your stock. You’ve got to get the money from somewhere, so the easiest variable then becomes dialing back on unconventional resource plays.

Limbacher: To what extent do you rely on former BR people?

Smolik: I think at EP we’ve got up to 40 people who are from BR, including our COO.

Stice: Of six senior executives at Diamonback, five of us are of BR lineage and about half of our people have some kind of BR lineage.

Nusz: We had 13 capital partners at Oasis and 12 were BR guys. We have 20 officers and three-fourths are BR guys. Some of them we caught on the rebound who had gone to Conoco.

Ellis: At Linn early on BR was dominant--it was almost like if you didn’t have that BR tattoo, you weren’t going to go anywhere. I was actually worried about it.

Limbacher: To me, you hire as many as you can find … At Samson, the majority of our senior people are ex-BR.

We’ve got people on this panel running totally different types of companies: MLPs, companies that are more single-basin or resource-play oriented, diverse companies, some people in private equity, some from the public markets--a lot of different business models. So I’d pose this question: If you look back on your experience, what are the things you took away from BR that influence the way you run your business now?

Stice: From Diamondback’s perspective, one of the two or three key credos that we took from Burlington Resources was an extreme focus on execution, low-cost operations and transparency. So when we were putting Diamondback together, we organized ourselves around those key themes. We were a single pure-play in the Permian Basin and quite honestly as I was preparing our S-1, I had Tommy’s Oasis S-1 in front of me, because he was the gold standard at the time for private equity going public.

Smolik: I think for us at EP, the thing that’s been most helpful is you get the strategy right and the assets right and the key people, including the cultural aspects Travis talked about-- execution, accountability and the discipline we put in place at Burlington Resources--then I think it’s pretty easy to run these businesses. But it’s got to be really tightly aligned, knowing what you’re about as a company, how you’re going to differentiate yourself strategically, what you’re going to be really good at.

Nusz: We had eight people [when we started Oasis], but even then we ran it like a BR division, so we set targets, we measured ourselves against those targets, we ran it knowing we would grow over time.

We embraced open and honest communication, respectful communication. In the case where someone did get out of bounds a little bit in a meeting, they’d always come back and say, “Look, I got a little bit out of bounds,” and that’s all that had to be said.

Ellis: My guess is if you look under the hood at any of our companies, you’re going to see some similar things: the way we think about planning, budgeting … probably scorecards exist at every place.

When you look at Burlington’s strengths, they were more on the exploitation side, not so much on the exploration side. We were very good at getting hydrocarbons out of the ground in a very efficient way. The way we approached the San Juan Basin really transformed our organization’s manufacturing of hydrocarbons process, which I think you see a lot of today in these unconventional plays, where you have a very large acreage position.

When I first joined Mike Linn at Linn Energy, I talked to him about how to run an oil and gas company. That was an interesting discussion. Mike came from a very small company background and when I talked to him about putting scorecards and budgets and plans in place, his head started spinning a little bit. But we put them in place and they worked quite well.

Limbacher: One personal leadership thing I’ve learned is that it’s good to both be a mentor, and seek out one or two people in your organization you know you can go to, to talk about anything and get honest feedback, and learn from that.

One day I was sitting in my office and I was perfectly happy, and a person came in and said “I’ve hired you a coach. We all like you, but you can be a real jerk and there’s just a couple things …” I was stunned, but that is so incredibly valuable to have someone who’s willing to do that, from a leadership perspective.

The other thing I learned from Bobby Shackouls is you get the people and the assets and the strategy and you get it right and you stick with it.

ON COMMUNICATION

Shackouls: We had the people part of it right, we had the strategy right, but for the longest time we weren’t communicating our story right to the outside world, and we weren’t communicating the culture and strategy internally in an appropriate and direct manner. Then Ellen DeSanctis came and helped us with that, and I cannot tell you what an incredible difference that made, once we all got on the same page on how we told the story to the outside world, how we told it to the inside world. We got everyone moving in the right direction, and now Ellen’s doing it for ConocoPhillips.

Smolik: One of the things we learned fairly late was, if you take the premise that all leadership is done with some form of communication, then you better be communicating a lot in today’s world.

If you look back 20 or 30 years ago, a lot of the decision making in our business was made at a much higher level than today. Some businesses are still that way today. If you do billion-dollar capital decisions, they are made at a fairly high level, but in these resource plays, many of the decisions, thousands, are going to be made way down in the organization, in real time. So if you’re going to be successful at it, you’ve got to be real good at communicating what’s important, what do we value the most and get that as far down in the organization as you can.

When I started my career, I used to be a completions engineer and I went through one frack a week and now we’re averaging eight fracks a day. It’s unbelievable the pace, so now all those decisions are being made at a much lower level in the organization. Successful companies that execute the best are going to get that communication thing right.

Stice: From my perspective, having our corporate headquarters in Midland, Texas, this communication thing is really important because I have to assume, with the job market in Midland being what it is, that every employee I have has at least three job offers on their desk at any point in time.

You’ve got to be able to be competitive in the marketplace in terms of compensation, but it goes well beyond that. It goes to the core of why the person is there, and that he sees how his decisions fit in with the corporate direction that we’re going in.

I find that with a lot of our young engineers and geoscientists I spend a differential amount of time communicating so they know, and the whole organization knows, the direction of Diamondback and how what they do matters for the long-term health of the company … and how it could potentially affect the 90-day cycle of a publicly traded company.

Nusz: We have monthly business meetings, so you get everyone together and talk about where you stand relative to where you expect to be. Just in corporate communications we have town hall meetings about every other month.

Especially as organizations get bigger, you tend to get introspective and you’re not out talking to everyone all the time whether it’s networking or from an IR perspective. You’ve got to remind yourself, How do you interact with your service providers, how do you know what the guy across the fence is doing? We spend a lot of time talking about that.

The third thing is how we manage business risk. Especially coming from an engineering-dominated organization when most of us are analytics, we have this driving desire to be right, but there’s no right answer. You can schedule these things out like an engineer does, but you can’t anticipate all these other things that influence how you run your business. A good example is, in the Williston now, we spend a lot of time on micro and macro takeaway infrastructure. We produce it and we have to be more involved in how we move it.

BEST ADVICE

Limbacher: It sounds like I can’t hold a job but I’ve been in three different situations since I left Burlington. The trap I’ve had to avoid falling into is treating every situation like I can take that BR model and slap it on the situation we’re in. Every one of these companies is different and you have to do different portfolio work, people development, cultures are different, there are different needs in each of those organizations. A lot of things I took for granted at Burlington, like a good culture, don’t necessarily exist when you go somewhere else.

You’ve got to take the time … be careful you don’t just get ingrained in “This is the way we used to do it.” You’ve got to be more flexible as you change the situation.

Ellis: I had a discussion a long time ago, before Bobby’s time … and our HR guy told me, “Look Mark, here’s the deal. Your talent’s going to get you just so far. Sponsorship is really what it’s going to mean to you long-term.” Really, your sponsorship and who you want to emulate in your career and who are going to be, your mentors help you develop that leadership talent that allows you to succeed.

Stice: I’d always get these pearls of wisdom from each of these individuals and put them in my “Book of Life.” One of the most meaningful pieces of information I got from one of the individuals on this panel was, If you’ve got weaknesses, acknowledge those, but play to your strengths and build people around you that can help coach you through those weaknesses. The old credo “know thyself” has worked pretty well for me over the last 30 years.

Nusz: Somene told me you can be really smart and good at your job but somebody’s got to be supporting you; you’ve got to have a mentor.

Smolik: Limbacher, who was coaching me on something, told me I manage to be very direct. Sometimes meetings start right before I walk in the door and we’re already on topic and I jump in. Randy took me aside and said, “Smolick, you need to learn to practice a little foreplay. Give people a chance.” It’s been very helpful advice in my career.

Limbacher: A good piece of advice I got along the way is, “No unsustainable trend can go on forever so don’t try to make it that way.” That’s one of the things I learned from Bobby as well. We were in some investments along the way that we needed to get out of, but we knew it was going to be painful from the standpoint of how Wall Street was going to view it, and it was. But when you fast forward four or five years later and look at the changes in the BR portfolio and the things we could do to stop destroying value … It was painful for a few years but it helped transform the company.

Too many times people go down a path and they know it’s the wrong answer, but sometimes you’ve got to bite the bullet and change it and move on.

I remember sitting there at that analyst meeting and Bobby got up to close it and he said, “I guess we could stay here another half hour and see if we can knock another five bucks off the stock price.” But that was a turning point.

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