Matt Gallagher is working to conserve cash and cut drilling to keep costs low at his company.
Photo: James Durbin/Parsley EnergyOne of the youngest chief executives in the American oil patch is slashing spending to survive a crash in crude prices, while trying to convince Texas to curtail output for the first time since the 1970s.
Matt Gallagher, the 37-year-old leader of Parsley Energy Inc., PE -2.53% is working to conserve cash and cut drilling to keep costs low at his company as the oil industry faces one of the worst demand drops ever because of the coronavirus pandemic.
From his home in Austin, Mr. Gallagher is also trying to rally fellow Texas oil producers to support a mandatory cut in production, a controversial idea in an industry where wildcatters frown at government intervention, and one that has put his company at odds with several of the industry’s largest drillers.
The Railroad Commission of Texas, which regulates the state’s oil industry, is set to discuss the proposal on Tuesday.
“It’s a way to put a tourniquet on the bleeding,” said Mr. Gallagher, who believes that without broad U.S. market interventions and access to capital, America’s world-leading oil production could be halved to about 6 million barrels a day by 2022. “We’re fighting for a base pulse in the American oil-and-gas industry for the next few years.”
Mr. Gallagher’s emerging leadership role is no surprise to those who know the third-generation oilman, a former Indiana high school quarterback and football player at the Colorado School of Mines who was nicknamed “Smoothie” for his calm demeanor.
Colleagues said Mr. Gallagher’s conservative approach makes him stand out among bombastic Texas oilmen, as does his attention to line-item details and preoccupation with costs and debt. One of his first initiatives since becoming CEO early last year was to scrap plans to build an employee meeting room. The decision saved $300,000 in costs for audiovisual equipment alone.
He also has been an outspoken critic of natural gas flaring in West Texas, one of the industry’s most controversial practices, calling it a “black eye” for the industry because flaring releases carbon dioxide into the atmosphere.
Parsley’s shares have fallen about 62% from the start of the year as oil prices have fallen, compared with a 56% drop for a broad index of U.S. oil-and-gas companies. Oil prices have tumbled 63% this year.
Amid the pandemic, Mr. Gallagher has used virtual meetings with engineers, accountants and human resources professionals to drill into costs and other details, said Bryan Sheffield, Parsley’s executive chairman and previous CEO. Those, Mr. Sheffield acknowledged, are things he likely wouldn’t have examined as closely during his own tenure as chief.
In 2019, Parsley was the 10th-largest oil producer in the Permian Basin of West Texas and New Mexico, according to consulting firm Rystad Energy.
Photo: ernest scheyder/ReutersMr. Sheffield, a self-described “deal junkie,” said he had focused mainly on growing the company in its early days, a strategy that has fallen out of favor with investors in the energy industry. “I recognize, unfortunately, it’s not the time for that,” he said.
Mr. Sheffield pointed in particular to Mr. Gallagher’s quick decision in mid-March to hedge a substantial majority of Parsley’s crude production through 2020 and 2021. If oil prices remain in the low- to mid-$20s a barrel range, the value of Parsley’s oil hedges could be more than $1 billion, up from roughly $350 million at the end of February. That should allow the company to hold net debt to less than 2.5 times pretax earnings, Mr. Sheffield said.
In 2019, Parsley was the 10th-largest oil producer in the Permian Basin of West Texas and New Mexico, according to consulting firm Rystad Energy. The company, valued at $3 billion, had $1.96 billion in revenue last year.
Mr. Sheffield, Parsley’s co-founder, poached Mr. Gallagher a decade ago from Pioneer Natural Resources Co., the company run by his father, Scott Sheffield. For an engineer, Mr. Gallagher had a talent for explaining the nitty-gritty of the oil patch to generalists, after traveling with the elder Mr. Sheffield on investor trips.
“My father didn’t talk to me for about two weeks,” Bryan Sheffield said.
Mr. Gallagher is now working closely with the elder Mr. Sheffield on the effort to persuade Texas regulators to back output cuts. The idea has drawn opposition from larger companies like Exxon Mobil Corp., EOG Resources Inc. and Occidental Petroleum Corp., which have said statewide cuts won’t lift prices and would only disadvantage Texas producers. Such an order “would be extremely short-sighted in today’s complex global economy,” Occidental said in a letter to the Railroad Commission.
Mr. Gallagher maintains Texas companies shouldn’t burn through valuable inventories during a time of low prices. “We’re outside the fairway of normal business conditions, and that’s a time when it’s OK to have some stabilization,” he said.
Mr. Gallagher’s grandfather began operating wells in Wyoming in the 1950s. His father, a petroleum engineer, and three uncles also had different roles in the U.S. oil patch. He first started work on oil field tanks roughly two decades ago, while still in high school.
As he navigates the current crisis, Mr. Gallagher and his team are absorbing new oil market data, interpreting the latest pronouncements from foreign energy ministers and accounting for the growing impact of coronavirus.
To cope with the heavy workload, he makes himself take 15-minute hikes on a trail behind his house. Thanks to Drizly, an app that delivers beer and alcohol in Texas, his company has also had a couple Microsoft Teams happy hours.
Still, he said, he has lost weight because of stress and overtime as his work days drag on, often past twilight hours. Despite being homebound with his wife and two sons, he said he is taking more meetings than he did during Parsley’s initial public offering in 2014.
He likened the oil industry’s mood to a popular internet meme circulating in energy circles on Twitter, which shows actor Matthew McConaughey looking tanned and jovial in his Lincoln car ads—then shows him gaunt and mournful in the film “Dallas Buyers Club.”
“I think we feel all of those (emotions), you just go through them at a much accelerated pace, ” Mr. Gallagher said. “And then you get back to work.”
—Rebecca Elliott contributed to this article.
Write to Collin Eaton at collin.eaton@wsj.com
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