DUG Permian: Plains-Talking Armstrong On Love, Money

FORT WORTH, Texas—Six months ago, Greg Armstrong retired as CEO of Plains All American Pipeline LP (NYSE: PAA), leaving his successor an enterprise that pulls in $34 billion a year in revenue and two pillars of corporate wisdom: Always do the right thing and never run out of cash.

Good advice for us all, but while the former came naturally to Armstrong, the latter involved hard lessons in tough times.

Armstrong received Hart Energy’s Industry Leadership Award on April 16 at the DUG Permian Basin Conference and Exhibition. He shared what he learned over his career in a fireside chat format with Paul Hart, Midstream Editor-at-Large for Oil and Gas Investor magazine.

Watch: Video of Greg Armstrong at DUG Permian Basin

That career began in 1981, a year before the failure of the Penn Square Bank began a cascade of banking troubles that made capital scarce.

“We realized pretty quickly, once you run out of cash—and we saw companies that did it—you’ve lost all ability to dictate your own future and it’s in somebody else’s hands,” Armstrong said.

But what began as good financial policy quickly became what Armstrong termed “religious fervor.”

“We would literally go home on a Thursday and know that if we didn’t raise capital or in some way bridge the gap by Tuesday we were going to run out of cash,” he said. “So that is where we were, really hand-to-mouth from ’82 through ’92.”

Executives like Armstrong who found their way in the industry by grinding through the oil bust in the 1980s honed their skills by keeping their companies solvent even if nearly always on the edge of financial disaster. When he became CEO in 1992, Armstrong gathered his management team and declared that when the next financial hurdle was cleared, the years of living precariously would end and long-term planning would be the company’s focus.

And it was. Plains executives would pursue projects without fear of capital scarcity because the company’s business model wouldn’t allow it.

“It was always built into our models—raising extra capital or making sure we didn’t get too enthusiastic and deplete the cash that we had,” Armstrong said. “And once you do that, it really allows you to focus on the long term. You may miss an opportunity but you’re not going to step into a problem, so I would encourage everybody: don’t run out of cash. It’s not fun. Just nothing good comes out of that.”

Worse, it devoured Armstrong’s time to the extent that he missed out on many milestones as his children grew up. Part of the reason he retired early, he said, was to be able to spend more time with his grandchildren. He couldn’t get that time back with his children but he was able to shift the company’s culture to encourage young executives to spend more time with their families.

With a financial cushion, younger executives can afford to fail on projects without the risk of the company going under. Or not put in seven-day, 100-hour workweeks to achieve success, as Armstrong and his colleagues had to do during the bust.

But the oil bust claimed more than profits and executive sanity. The tough times wiped out a generation of talent that should have been joining the company, developing skills and moving up the ranks.

“We had a gap,” Armstrong said, “and there was nobody really to push us out of our chairs.”

The founders of Plains developed, by necessity, expertise in multiple areas of the company. As the company stabilized, specialization took over and people found themselves in work silos—poor training for an executive seeking to take over the entire operation.

Armstrong began a cross-development program, rotating executives through different departments. Willie Chiang joined Plains from Occidental Petroleum Corp. (NYSE: OXY) in 2015 as executive vice president and COO. Over the next three years, Chiang would learn the Plains culture and provide new ideas before taking over from Armstrong in October 2018.

It was not just financial prudence that allowed Plains to survive the oil bust and thrive later on. Armstrong’s “do the right thing” ethos, the commitment to show character even when nobody is watching, was the guiding spirit of the company’s workforce even before anybody got around to assembling an employee manual.

“The things that have allowed us to get through those challenging times were the memories of our counterparties—in many cases our banks or our capital providers—saying, ‘these guys are going to do the right thing no matter what,’ and so they stayed in there with us,” Armstrong said. “I think if there were doubt in their minds, there’s probably a good chance that we are not here today.”

Joseph Markman can be reached at jmarkman@hartenergy.com. Twitter handle: @JHMarkman.