Energen CEO Describes His Company’s Strategic Transformations

EnergenJames McManus, Chairman and Chief Executive Officer of Energen Corporation, made a return visit to the School of Business on November 13, 2012 when he spoke with students in the combined MBA and undergraduate capstone class “Strategic leadership through the eyes of the C-Suite.”

McManus described how Energen has transformed its strategy not just once but twice in the past two decades. The first transformation occurred in the mid-1990s when the company shifted its focus from its former core business, Alabama Gas Company, to oil and gas exploration. The second transformation occurred in the last three years, when the company shifted its exploration activities more toward oil and natural gas liquids, and less toward “dry” natural gas.

Both transformations were triggered by management’s confronting some “brutal facts” about their company’s external environment. In the first strategy reset, management concluded that, as reliable as the earnings of a regulated natural gas utility are (and Alagasco still funds much of Energen’s dividends to shareholders), that business model alone would not allow it to grow in the way that shareholders expect.

The second transformation in strategy, toward exploration and development of “liquid” energy sources, was triggered by the precipitous decline in the price of dry natural gas in recent years. Mr. McManus told students that the price has declined from $13 per million cubic feet (MCF) to just $3.50 in recent years. That decline crimped the profitability that part of the company’s business.

Mr. McManus noted that the company will have doubled the relative size of its liquids business in its total energy portfolio between 2010 and 2013 as a result of its strategy shift.

A group of students who had studied the strategy of Energen in depth made a presentation to Mr. McManus and made several recommendations, one of which was that the company consider exploring for and developing alternative fuels. McManus responded by saying that while the company had indeed considered such a move, it concluded that it was better for shareholders if the company acted more like a “hedgehog than a fox” and focused on what it knows best. He also noted that the decline in natural gas prices had also made alternative fuels such as solar and wind power much less attractive.

Energen today has a market capitalization of over $3.3 billion. It has proved oil and gas reserves of over 340 million barrels of oil equivalent, primarily in the Permian Basin in west Texas and the San Juan Basin in New Mexico and Colorado. The company is headquartered in Birmingham.

Energen has given many students at UAB the opportunity to be the first in their families to attend college through the Energen First Scholars Program. The program is aimed primarily at graduates of the Birmingham city school system who are first-generation college students, as well as graduates of central Alabama high schools who are first-generation college students.

“Strategic leadership through the eyes of the C-Suite” is taught by School of Business professor Stephen Yoder and UAB Vice Provost for Administration and Quality Improvement Harlan Sands, and features visits from CEOs of public or other large complex organizations who discuss their organizations’ strategies and how they are developed and implemented.

Pictured left to right: Grant Robinson, Lyndsey Harris, Mr. McManus, Andrew Terry, Jennifer Carter