Resilience will help get Devon through downturn
| COMPANY LAYOFFS PAINFUL BUT NECESSARY
DEVON Energy Corp. got its start in 1970 when John Nichols, a certified public accountant, persuaded his attorney son Larry to return from Washington, D.C., and join him in an oil and gas venture. Oklahoma grit and determination, along with sound business principles and a little luck, carried Devon to its place as one of the nation’s leading independent energy companies and a giant of the Oklahoma economy.
Those same things will carry Devon through these challenging times in the oil and gas industry, highlighted by Tuesday’s news that the company was laying off about 1,000 employees, 700 of them in Oklahoma City. Devon had warned in January that cuts would be coming, so the news wasn’t a surprise. But it was still jarring.
These are 700 men and women who, as a result of circumstances out of their control — the ebbs and flows of the global energy market — now must look for work elsewhere. Our wish is that they’re able to find it locally. Although the energy sector in Oklahoma shed about 12,500 jobs in 2015, the city’s economy has diversified considerably in the past 30 years. With companies such as Boeing growing and looking for engineers, Oklahoma City is better equipped to absorb the losses.
Devon had no choice but to trim its workforce. The company, which weathered the oil bust of the 1980s by taking a more conservative approach than many that didn’t survive, has grown steadily over the years, to its peak of roughly 6,600 employees (including its subsidiaries). The current downturn has made that unsustainable.
Devon notes that its drilling budget for this year is in a range of $900 million to $1.1 billion — 75 percent below what it was in 2015. The company’s total operating revenue for the fourth quarter of 2015 was $2.9 billion, compared with $6 billion in the same quarter a year earlier.
CEO Dave Hager said protecting the company’s balance sheet this year is its priority. “We are tailoring activity to current market conditions and are prepared to adjust capital plans throughout the year to ensure we balance capital investment with cash inflows,” Hager said.
No one in Devon Tower is enjoying this week. Instead, company leaders are doing what is necessary to weather the storm until oil prices go back up, which they will in time.
This is the hard reality of life in the private sector. The U.S. energy industry is in the spotlight today, but any business — restaurant, IT firm, florist, you name it — that wishes to survive must adapt in order to do so. It’s a lesson the public sector would do well to embrace. Instead, “more money” is the usual refrain, and all too often any talk of trimming or changing is dismissed, as we saw at the Legislature this week with a modest consolidation bill involving small, low-performing school districts.
In a 2010 interview with The Oklahoman’s Steve Lackmeyer, Larry Nichols said that in the company’s early days, “as we took a step each year, we would focus our eyes on what we thought was a stretch goal and then try to get there.” The focus today is on carrying out a strategic, if painful, restructuring in anticipation of better days ahead.