[Editor's note: A version of this story appears in the July 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]

It’s no exaggeration to say the oil and gas business worked in a different world in 1981. Fresh off the oil crises of the 1970s and grappling with price controls and often-suffocating government regulation, the energy business was, nonetheless, in an all-out boom that surpassed even the heady 2013 to 2014 period.

Service station lines—no gasoline—can have a deep impact on the public’s psyche. The business, including its midstream sector, responded.

We all know how that worked out. There are scores of energy players around 40 years ago that long-since disappeared as the oil and gas roller coaster continued to lurch up and down. But one small player that emerged at the time, Plains All American Pipeline, not only survived, but thrived. It ranks No. 8 on Hart Energy’s Midstream 50 list for 2019 of the sector’s largest publicly held firms, with revenues of $34.1 billion and EBITDA of $2.7 billion last year. Not bad for an outfit that started as a small producer, Plains Resources, handling a hundred barrels a day—total.

Hart Energy presented co-founder and recently retired chairman and CEO Greg Armstrong with its Industry Leadership Award at the recent DUG Permian Conference and Exhibition in Fort Worth, Texas.  Following the presentation, Armstrong took time to share his observations on the industry.

Oil and Gas Investor: For a retired fellow, you certainly stay very busy. What keeps you active these days?

Plains All American co-founder and recently retired chairman and CEO Greg Armstrong
“Look, whatever you do, 
do the right thing. 
Focus in on making sure
it’s showing character 
when nobody’s looking.
It’s treating others 
the way you want to have 
them treat yourself.”

Armstrong: Well, one of the things I learned a long time ago is if you want to make God laugh, tell him your plans. It didn’t take too long after retirement to realize that I still had a pretty good pace. I have five part-time jobs, if you will, involved with the energy business, that still keep me pretty busy.

Through the end of this year, I’m still non-executive chairman of Plains All American, and also chairman of the National Petroleum Council.

In addition to that, though, at the beginning of 2019, I became chairman of the Federal Reserve Bank of Dallas. Then, I’m on the board of National Oilwell Varco. I also agreed to teach a class at the University of Oklahoma’s executive MBA program. Collectively, those part-time jobs add up to not a full-time job, but it keeps me pretty busy.

But I’d say the most important role that I have is being grandfather to my three-year-old granddaughter and seven-month-old grandson. I really enjoy spending time with them.



DUG Permian 2019 Conference Video Feat. Fireside Chat With Greg Armstrong


Oil and Gas Investor: How do you manage, as an industry executive, the ups and downs that lead to business success, like you’ve had at Plains All American?

Armstrong: In the early years, when we went public, originally we started as an E&P company, in 1981. At that point in time, we were able to go public with a hundred barrels a day of oil equivalent. That was right before oil prices cratered and the banks started to fail, so I’m not so sure that we really focused in on success in the early ’80s as much as tried to avoid failure. My biggest claim is probably to have survived the ’80s.

Once we got through that, the focus was trying to figure out what skills we had that were actually good, that we could emphasize and build upon. You may recall that oil prices weren’t really deregulated until 1981, and natural gas until the late ’80s-early ’90s. We started focusing on trying to get our product to market, because we had grown from about a hundred barrels a day to about 25,000 barrels a day.

We went through a number of cycles during a time period when we were not able to raise public capital. As a result, we worked really hard, call it sweat equity, so we focused on staying well grounded and not only doing good deals, but avoiding mistakes. We had a major focus on fundamentals and making sure that we were not going with the crowd and the nearest fad, but going with long-term survivability.

Oil and Gas Investor: A phrase you’ve used many times is that your management style is “do the right thing.” What does that mean to you?

Armstrong: Early on when we started, we prided ourselves on not having a lot of internal rules to follow. We all knew what we were trying to do, and we were trying to really emphasize relationships—long-term relationships—as opposed to transactional thinking.

As we got bigger, we realized that we actually needed some rules, or certainly some guidelines for some of the new recruits that we had coming on. We still, before we put anything in writing, would just say, “Look, whatever you do, do the right thing. Focus in on making sure it’s showing character when nobody’s looking. It’s treating others the way you want to have them treat yourself.”

Again, I go back to thinking about relationship management as opposed to transaction thinking.

We still have “do the right thing” as an overarching principle to this day. As a pretty large company, we certainly have rules that we follow, but we’ve also said, if for some reason the situation where you might have to apply a rule that we’ve written doesn’t really get to the right thing, then bend the rules or do the right thing, then ask for forgiveness later on.

Over the years we’ve done a lot of things right, but we have also had more than our fair share of missteps along the way. The things that allowed us to get through those challenging times were the long memories of our counterparties, in many cases, our banks or our capital providers and our customers, in saying, “these guys are going to do the right thing no matter what,” so they stayed in there with us. I think had we left doubt in their minds, there’s probably a good chance we would not be here today.

Oil and Gas Investor: You prepared a list of 20-odd lessons learned that you shared with Plains executives last fall when you retired. No. 1 and No. 20 were both, “Never run out of cash.” So did you hear Kenny Rogers singing, “You got to know when to hold ’em, and you got to know when to fold ’em?” What are your personal insights on how to do that?

Armstrong: One thing to recall from that list of 20 some-odd lessons learned is most of those were the result of us either making a mistake or observing somebody else who made a mistake. Then we tried to learn from both, ours and theirs, experiences.

The never-run-out-of-cash aspect, again, comes because we started in 1981. Penn Square Bank failed shortly after that in 1982. Then it was kind of like name-that-bank that’s going to fail next. Those were very challenging times.

We realized pretty quickly that once you run out of cash, and we saw companies that did, you’ve lost all ability to dictate your own future. It moves into somebody else’s hands.

That was a concept, it became more of a religious fervor, when there were several times that we would literally go home on a Thursday and know that if we didn’t raise capital or some way bridge a gap by Tuesday, we were going to run out of cash.

Really, we kind of lived hand-to-mouth from 1982 through 1992. When I took over as CEO in 1992, I got the management team together, and they said, “We just can’t keep living like this because we’re always on the edge.” We never really had any comfort that we could focus on the long term.

I made a promise to them and to myself, “When we get through this next hump”—and we were really struggling—I said, “We’re never going to go back there.” Since that point in time, we basically always built into our models raising extra capital or making sure we didn’t get too enthusiastic about an opportunity to bleed through the cash that we had.

Once you do that, it really allows you to focus in on the long term. You may miss an opportunity, but you’re not going to step into a company-endangering problem. I would encourage everybody, don’t ever run out of cash. It’s not fun, just nothing good comes out of that.

Oil and Gas Investor: Another point you’ve made is that executives need to find a way to go to soccer matches and Little League games. Why is that important for you, and what difference does that make to a CEO who’s leading a multibillion-dollar enterprise?

Armstrong: As I mentioned, a lot of those lessons learned were from mistakes made, and I have to confess I was probably one of the ones who made the mistake early on of not going to enough soccer games and family events.

My wife is a saint. We had two kids, 12 months apart. But we were struggling so much, I literally worked seven days a week, and often a hundred-plus hours a week during that time period. There were times I would not see my kids for days. My wife would literally bring the kids up to the office on Sunday, pitch out a picnic lunch in front of the desk, and say, “Join us if you can.” If that doesn’t tear at your heart and make you realize you need to reprioritize.

When we got out of that very trying period, I realized I had kind of lost some of our kids’ lives, and so I said, “We’re going to just make it part of this—do the right thing—that as we bring young executives in that they understand how important this is.” You never can get those experiences back. You can go forward, you can do things better, but you can’t ever get it back. So we really emphasize that aspect of it now, so that they avoid those mistakes.

I will just say this: You need to allow people to fail in order to develop their own experiences. I often use an analogy: A two-year-old has to fall before they learn how to walk. Just don’t teach them to walk near the edge of a cliff. Early in the company’s history, we felt like we were always near the edge of the cliff, and so this kind of gets back to the don’t-run-out-of-cash rule. You have to build enough cushion into your model, and your outlook, to allow you to fail and not have to spend every waking hour at the office.

Then, just the last point I would make is, as we got bigger, we got more resources—people resources. If you ask your co-workers to help you manage around an important event—your daughter’s graduation from some society that she’s in, or your son’s soccer game—most people will rally around you. Then, you reciprocate.

Again, I would tell you that’s important to tell people, because we made the mistakes, and I wasn’t there as much as I wanted to be. So part of the reason, actually, for retiring early is I wanted to make sure I could be with my grandkids more. I really try to make sure others don’t make the mistakes that I made.

Oil and Gas Investor: Looking back, how did Plains handle its executive transition? You spent some time to assure things went smoothly before you ended your 20-plus years at the helm, so what were some of the points that you covered that you think went well on the transition to new executive leadership at the firm?

Armstrong: Plains today is about a $30 billion enterprise, and when we started, we literally were sub-$10 million in 1981. A lot of the people who work for us, even today, were folks that we recruited along the way, who all happen to be about the same age as me. A co-founder and business partner of mine, Harry Pefanis, and I actually set out about 15 years ago and said, “We’ve got a problem. Everybody’s the same age.” We were missing a generation. I think many will recall that came from not having a good energy business in the 1980s, so we had a gap, and there was nobody really ready to push us out of our chairs.

When we started in the 1980s, our executives wore many, many hats, and communication wasn’t a problem. When an issue would come up, we all had experience across every part of the company. But we realized we hadn’t rotated our newer folks, people were in silos, they weren’t really having cross experiences.

So we focused at that point in time on what I call executive succession or senior management succession. We started cross-development training, rotating people through different things. We got through establishing a good executive succession about 10 years ago, and we started feeling pretty good. Then we realized, hey, we’re also part of the problem at the very top.

Ultimately, I visited with the board, and I said, “I’ve been doing this for, (at that time) probably about 23 years, you really want me out of here two years before I’m ready, not two years after I was ready to go, because it’s just not healthy for the company.” I’m a big enough shareholder that I want to get it done right and leave the company in good hands.

Instead of identifying three people and making them compete for the position, we identified one person to succeed me. We were going to spend three years transitioning and training, and so we did that. We brought in Willie Chiang from Occidental.

Prior to that, Willie ran all of ConocoPhillips’ midstream and downstream. We spent three years doing two things. One was making sure he understood our culture, what we had developed and what worked for us. The second thing was to encourage Willie to bring in new ideas. That was because Harry and I had only worked at, really, one company for our entire careers. I spent 37 to 38 years at Plains.

Willie was able to bring in some new ideas, a fresh look. We started looking at some of our assets and saying we need to sell some of them. We did some things that were unusual for us, because he brought new ideas. Over that three-year period, Willie was able to get a chance to meld in with the management team, so you didn’t feel like you’ve just hired a new CEO, and that he felt like he had to put his fingerprints on everything. Knock on wood, so far it’s worked very, very, very well.

“Plains today is about a $30 billion enterprise, and when we started, we literally were sub-$10 million in 1981.”

Oil and Gas Investor: All this ties into an issue that the entire industry faces right now: The big crew change, the rollover of management and staff of people who began their careers in this business in the 1970s and 1980s. What do you feel energy executives need to be doing to assure that the crew change goes smoothly to avoid disruptions in the next few years?

Armstrong: I think it’s happening in many companies right now, and I’ll just make a comment. I’d say prior to the big recession, we were concerned that the attitudes of the young people we were recruiting out of college was a little bit, “What can you do for me?” They didn’t bring passion to the business.

It seemed like the Great Recession kind of levelled that attitude. Today, we’ve got really great talent in the organization; I think everybody’s probably able to recruit the same quality of talent. If you’re joining the energy business today and you’re coming out of college, you’re doing it because you have a passion for it and a desire to want to do it. That’s not the way it was prior to the big recession, I think, so we’ve got that going for us.

The other thing is to try and recognize that it’s different today than 30 years ago. I mean, graduates have so many more technological and data resources available to them. There’s not a question you can’t ask somebody that’s in their mid-20s to early-30s that, with an iPhone or a computer, they cannot answer in about four or five minutes.

Used to, we had to go to the library or find somebody that had the knowledge. You kind of have to build that realization into today’s work environment and realize their work ethic’s going to be a little bit different. They also can’t sit in front of a computer 12 hours a day and not feel like they need a break. We’ve tried to learn and adjust to their capabilities and the resources they have.

We’ve also tried to get them out of their comfort zone, because we’ve got some who come into the company and they really like what they’re doing. They’re passionate, and they’re learning, but it’s all within the same area, so we rotate them into different parts of the company. We may take a financially based person and put them into marketing or operations. We try to get them out into the field a little bit.

Right now we’ve sent several people to Midland, which is a great place to be. It is also a challenge. You’ve got to find a place to live, and you’ve got to find a way to get around. I tell people right now, the traffic in Midland and West Texas, in general, is probably comparable now to Los Angeles, so you’ve got to get them ready for that.

It’s rotation, making sure they realize they’re important to you and that they’ve got a career, but they need to rotate through different areas of the organization and get a broad base of knowledge so that they can learn how to manage companies, as opposed to just departments.

Oil and Gas Investor: Elaborating on your point, many energy executives have made the point that the younger generation is different overall. What are the strengths and weaknesses of the managers you see coming along?

Armstrong: In overall relative terms, the younger generation has almost unlimited access to information as a result of the internet, smartphones, computers and software tools. As a result, on the strengths side, compared to when I started my business career almost 40 years ago, the younger generation has a better grasp of the macro issues and conceptual challenges. They are able to assemble, process and analyze data much more rapidly and thoroughly and can identify analogous situations and assess what did and didn’t work.

On the weaknesses side, some of these same advantages become burdens. It seems like there is less mentoring than was routine 40 years ago, and they sometimes are placed in sink-or-swim situations much earlier, career-wise, with less real-life experience. As a result, there may be a tendency to think they have it all nailed down and not be open to the idea of looking around corners for the unknowns.

With respect to the talent pool in general, although the Green Movement or anti-fossil fuels philosophy and associated misconceptions probably cause some great talent to avoid the energy business, for those that do pursue a career in energy, they seem to be passionate, better-rounded talent and more open-minded than was the norm prior to the great recession.

Oil and Gas Investor: You recently said the secret to business success is to always look ahead, to connect the dots. Now, that’s easier said than done, but given your business success over nearly 40 years, what advice would you give to managers to do that?

Armstrong: We do a lot of scenario planning. One of the things that we’ve often found is people build business models, but it’s all based upon everything going right or pretty close to right.

We learned early on—again, we were trying to learn how to walk near the edge of a cliff—that we just couldn’t afford to fail. So we ran many scenarios. We would assume things didn’t work, and we would say, “What’s our game plan to not run out of cash, if for some reason it took longer to develop something or the business had to adjust?”

In fact, we would call what I would say were audible plays along the way based upon the fact things did not work out the way we wanted. But we had anticipated what could happen and we had a game plan for that in most cases.

We’re very much focused on fundamentals—certainly in the midstream—connecting those dots and understanding where things are going to go. We were talking recently a little bit about, for example, there are undeveloped areas right now where producers can make internal returns of 20%-plus, sometimes closer to 30%. But there’s a lack of infrastructure there. So the question is, well, why aren’t we building the infrastructure there anticipating that need?

The problem is, some of these same producers own acreage in other areas that’s making 40% or 50% rates of return, so it’s a capital allocation issue. It’s not just finding an opportunity but finding the context of that opportunity.

Again, I go back to you have to connect all the dots. If Wall Street was to open up and flood the market with capital, then those 20% to 30% rate-of-return projects are going to get drilled, and they’re going to need pipeline projects.

However, in the environment that we’re in and foreseeably will be in, which emphasizes drilling within cash flow, I think you’re going to have to stay more in the major fairways of the best projects, and those are not in those promising but more remote areas.

Oil and Gas Investor: What do you see happening in the Permian in the near future?

Armstrong: The resource potential of the Permian is so huge, the ultimate pace of technological refinement and resource development will likely be tied to world demand levels. That said, in almost any event, we’ll probably see Permian crude oil production creep on up to over 7 million barrels a day over the next five years, which represents an approximate 75% increase over current levels. The slope of the line won’t be constant, but it should trend upward most every year and will bring with it both challenges and opportunities.

A big portion of that oil volume growth will come in the form of lighter crude and condensate. In addition to West Texas Intermediate, we will also have a separate crude grade referred to as WTL, or West Texas Light, that will have a 45- to 50-degree API gravity, with a wide range of condensates above the 50-degree mark.

Along with that crude oil volume growth will come significant natural gas and NGL volumes. Takeaway capacity for oil, natural gas and NGL are all pretty tight right now, but there are sufficient takeaway infrastructure projects in progress as we speak that will allow for this type of volume growth for all three commodities. Produced water volumes in the Permian will also grow significantly, which will need to be disposed of or recycled. The water issue will be a more localized solution, and a number of companies are actively working on that aspect as well.

A big challenge for the Permian Basin is how will the energy companies work with the communities to handle a sustained increase in activity levels and its impact on labor force, roads, traffic, schools, housing, hospitals, etc.? A group of 20 energy companies, including Plains, formed the Permian Strategic Partnership to address these issues and, I believe, has raised over $100 million. It is this type of visionary leadership that will be required to harmonize business and community opportunities, needs and challenges.

Oil and Gas Investor: Given your executive experience, what do you see happening in the oil and gas business for, say, the next five years?

Armstrong: I think it’s going to be—in the U.S.—Permian led. I think that will continue to position the U.S. to be the marginal provider of crude oil to the world. Over the last 15 years, we have reduced our net imports from around 13 million barrels per day to just over 1 million barrels per day currently. Over the next year or so, that will turn into a positive net export number. Each million barrels per day of reduced imports improves the U.S. annual trade balance by about $20 billion. That does not include the multi-velocity benefits to the U.S. GDP associated with jobs, materials, taxes, etc.

Some people have issues about, well, what about conservation, or what if U.S. demand goes down a million barrels a day? That’s fine. We will just export a million barrels a day more, because there are places in the world where there’s a lack of infrastructure to be able to use anything other than petroleum.

Today, the U.S. is probably, if you add everything up—crude oil, NGL, refinery gain, and I’ll put ethanol in there, because it’s a petroleum competitor—we’re about 18.5 million barrels a day. I see that number climbing on up another 3 to 4 million barrels a day, so it’s going to be a great time in the U.S.—if we don’t get in our own way, and hopefully if Washington, D.C., allows us to do what we’re good at, which is be successful with a capitalist market.

Paul Hart can be reached at pdhart@hartenergy.com.