Matthew R. Simmons, Chairman, Simmons & Company International
The Way Ahead Interview invites senior figures who shape the E&P industry to share their wisdom, experience, and knowledge with the young E&P professional community. Each interview is an open conversation that explores the careers, advice, and vision of these successful individuals. For this interview, we travel to the Simmons & Company International headquarters in the heart of downtown Houston. Please join us for an inspiring conversation with Matthew R. Simmons, Simmons & Company’s Chairman, as he discusses his passion for analysis and reading. We explore the firm’s origins and delve into its successes as an investment bank focused exclusively on energy.
John Donachie, TWA Interview Editor
What was your first job, and what were your impressions of the oil and gas industry when you started working?
I accidentally stumbled upon my first job. When I was in my second year at Harvard Business School, I reluctantly signed up for a course called Manufacturing Policy. I say reluctantly because of all of the courses I took in my first year, Manufacturing Operations was singularly the most boring. But during a conversation with a finance professor, he recommended this as the best finance course of the second year. A few days later, the school paper listed all the second-year courses, and Manufacturing Policy was rated as the course with the hardest workload in all second-year courses, so it was with great reluctance that I signed up.
Upon completion of the course, before our grades were issued, I was asked to meet with the professor—I was positive I had flunked the course. I was astonished when the professor asked if I would stay on and work at the school as a research associate to rework the case studies in this particular course. This detour is what stopped me from returning to Utah and becoming a commercial banker, which had been my chosen career path when I enrolled. As it turned out, several of the case studies I worked on during this two-year program were on oil companies. The first was on Phillips Petroleum betting its future on building the world’s largest ethylene plant. I then did a case on a new refinery being built in Come-by-Chance, Newfoundland, and another on a merger between three very tiny exploration, production, and refinery companies based in Wyoming called Tesero Petroleum. Frankly, none of this work heavily influenced me in getting interested in oil and gas. I was actually nearing the end of my second year as a case writer when I was on my way to Los Angeles to write a case on American Cement and I stopped in Palm Springs for the weekend. My father, a commercial banker in Utah, was in Palm Springs attending a mergers and acquisitions seminar. When I arrived to spend the weekend with my parents, Dad told me about a really interesting young guy in our class who was apparently a deep-sea diver. When I heard “deep-sea diver,” I assumed he was probably a treasure diver and I was really keen to meet him. So, the next day during the seminar coffee break, I introduced myself to Laddie Handleman. Unknown to me at the time, this chance introduction became my introduction to the oilfield service industry. It turns out that Laddie had founded a company called Californian Divers (“Cal Dive”). The company had grown so fast that they were running out of money and were talking about being acquired by Santa Fe. I asked him why he was considering selling and if he had instead thought about raising some venture capital. I told him that I could probably find a few investors who could put enough capital into his company to give it 2 or 3 more years of growth, and then he could sell the business.
As a result of that happenstance conversation, when I returned to my hotel at the end of the day spent working on the boring American Cement case, Handleman drove down from his base in Santa Barbara armed with a box overflowing with information on his diving company, describing the interesting work they were doing jumping off drilling rigs. I flew up to Santa Barbara on my way back to Boston to spend the day with the diving company’s management team. We reached a handshake agreement that Cal Dive would give up about 35–45% ownership in the company and I would raise about USD 350,000 for them. What I realized later was that they were basically providing services to the offshore oil and gas industry long before the term “oilfield service industry” had been coined.
Within a few months, while I was still in the process of putting the financing memorandum together, Cal Dive changed its name to Oceaneering. The lucky investors who brought the USD 350,000 to the table that summer of 1969 made 60 times their money by the time the company went public in the summer of 1975. In the meantime, I helped the company with approximately a dozen capital-raising projects because they were growing like a weed, and I helped them acquire a score of other diving firms around the world.
By the time of the OPEC oil embargo, I finally had two or three other clients who were also oilfield service companies. I was working out of a little office in downtown Boston. By 1973, I basically spent 85–90% of my time working with this small group of companies who were not oil and gas companies but were providing offshore products and services to oil and gas companies. So, that is how I accidentally ended up spending the rest of my career in the energy business.
How do you think this industry stacks up against alternatives, and why should a young professional pursue it?
By the time of the 1973 oil embargo and when prices exploded, I did some quick soul-searching and found that I was really getting bored going back to Boston and working on financing projects for my other clients who were in the paper industry, real estate development, medical, and the electronics business. I found these companies rather dull in comparison to offshore oilfield service. I decided to raise some outside capital to establish a larger group and concentrate our efforts entirely on providing advice to companies who were providing products and services to the offshore oil and gas industry. Houston was the obvious place to establish this firm, and on 1 May 1974, we moved from Boston to Houston.
By the time I decided to do this, it seemed to me that oil and gas was the most interesting industry that I could ever imagine stumbling upon because it cut through technology and you also had to understand big geopolitical issues. It was a very capital-intensive business, and the characters running these companies had larger-than-life personalities. At the time I started Simmons & Company, one of my few worries was the possibility that I would ultimately get bored by concentrating solely in the oilfield service area. Here I am 36 years later, and I think that the industry has gotten more and more interesting and fascinating with each passing year. If you like a dynamic industry, then I cannot imagine a more interesting industry to be in than energy. It is important to remember that the oil industry is the single largest industry on Earth and, in my view, the single most interesting.
What are the most memorable experiences in your career?
I have had so many unbelievably interesting experiences over the course of the last 4 decades that it is really hard to single out one particular experience. I guess I would have to say, as a chapter rather than as one experience, that living through the great oilfield depression of the 1980s and surviving that nightmarish rollercoaster was an experience I will never forget. Witnessing the transformation as the industry shrank by 90%, and undertaking the goriest restructuring work that contributed in a large part to our firm’s success, was an awful thing to go through, but it was this experience that defined my company’s evolution into the world’s most specialized energy investment banking group.
If I had to pick anything else, it would be the time leading up to, researching, and then writing Twilight in the Desert. I started digging into what the reality of the Middle East’s giant oil fields was all about after reading the Journal of Petroleum Technology (JPT), which contained a case study on a limited portion of Saudi Arabia’s giant Ghawar oil field. I read the article through a couple of times, and I wondered if this article was a condensed version of a more detailed technical paper. I also wondered whether there might be any other papers on Ghawar or any of the other Saudi Arabian giant oil fields in SPE’s eLibrary. Mark Rubin, SPE Executive Director, and I were scheduled to be in a press conference for the upcoming Offshore Technology Conference (OTC), so I e-mailed Mark telling him that I had just finished reading the paper in JPT on Ghawar and asked if he could check to see if there were any other papers that had ever been written and if the excerpt I had read came from an expanded report. He suggested I visit the SPE website (given that I was already a member) and search the eLibrary, where all the SPE papers are digitized and available for download. So within about a week, I had downloaded 39 papers, which I spent reading and making copious notes on that spring.
By the time I got to Maine in the summer, I was determined to write a white paper on the issues these SPE papers had raised about the sustainability of Saudi Arabia’s oil output. Before I did that, I thought I should probably be a bit more selective and revisit SPE’s eLibrary to scan for more papers to read. Within days, I had downloaded another 150 papers, and I studied these through August 2003. By the time I had finished reading and rereading these papers, I got the astonishing sense that I might have ended a research effort that no one else had ever undertaken, and I thought that the conclusions that I had reached at the time, assuming I was reading things correctly, were so utterly important that they really deserved to be captured not in a white paper, but rather developed in a book.
Who has helped you the most in your career, and what lessons did you learn from your mentors? Would you name one or two persons who have been most influential for you?
When I became the head of the Harvard Business School Alumni Association, the person who preceded me in this role was a retired senior partner from Goldman Sachs. One evening, he told me about the unforgettable day he was made partner at Goldman Sachs. He was overjoyed, and that evening he contemplated whom he considered the most influential people in his life. One was a grade-school teacher, so he sat down and wrote her a letter that night in which he thanked her and told her that he had just reached the pinnacle of his career.
On my flight back to Houston that same night, I recall thinking that I had never had a singular moment in my life similar to that of becoming a Goldman Sachs partner. My career had been a constantly evolving series of events. But, had a similar event come to pass, to whom would I have written those letters? By the end of the evening, I wrote a letter to my father and I wrote a letter to my professor, C. Wickham Skinner, who was the professor who asked me to do work for him as a case writer. Throughout my life, my father was a steadfast and remarkable role model, constantly extolling the virtues of working hard, balancing time between work and family, and honing one’s intellect while always maintaining the highest integrity. And Skinner had, and still has, a profound influence on how I think. He taught me the innumerable benefits of developing a specialized firm. Both of these incredible individuals ended up being lifelong mentors and constant inspirations.
This issue of TWA is focused on the debate surrounding peak oil and how oilfield technology will influence the industry in the future. What advice can you offer young professionals on how to adapt to the future industry in their developing careers?
On the issue of peak oil, over the course of the coming weeks, the U.S. General Accounting Office in Washington, DC, will unveil the results of the peak analysis they have been working on for the past year and a half. They will be making some pretty sharp recommendations to the U.S. Dept. of Energy regarding the urgency of starting to address the risk of peak oil. Also, the National Petroleum Council is now in the last stages of ploughing through the most exhaustive study they have ever undertaken, which was requested by the U.S. Secretary of Energy. This is expected to be finalized in June and will hopefully outline how real this issue is. Over the course of the next year, the issue of peak oil, what it is all about, and what it means as a risk to the world will be far more fully explored. I think it will end up replacing global warming as the single biggest worry that we, collectively as a planet, need to address.
In the context of younger people in the industry, the reason that peak oil is such an immense challenge is that we have a society that blissfully assumes we will have plentiful, inexpensive energy forever. We are now on a course to have our oil and gas usage grow by 50 to 60% over the course of the next 25 to 36 years, while oil and gas supply, in all likelihood, is nearing (or at) a sustainable peak and then will head south.
The urgent need to speed up things to try to stabilize our production base will never be a bigger challenge. In light of that, the industry’s demographics are extremely bifurcated today—75% of the industry’s workforce are either approaching or are already beyond their 50th birthday, and 25% are under age 35. What we are missing is the generation of people that we never hired between 1982 and 2000.
Also, in this context, it is extremely important for this industry to come to grips with what technology did and did not do. One of the problems, and it is something I have raised at OTC and various other forums, is that we actually overhyped technology. On one hand, we have invented a phenomenal suite of new technical approaches to the industry, but on the other hand, we started talking too often like “3D seismic is eliminating the dry hole.” Wrong! “Horizontal-drilling extended-wellbore completions will make it easier to produce oil and gas.” Wrong! All this has done is accelerate decline curves.
It is very important for our next generation of professionals to get a lot smarter about what technology really was able to do and about the almost insurmountable difficulties that we face in developing new oilfield technology. All of these great devices that are available today were on the drawing board in 1974. So it takes a long period of time to develop innovative ways to get oil out of the ground.
What do you enjoy most about your job?
The analysis. I am basically an inveterate energy analyst when it comes right down to it. I do not play golf and I do not play tennis, but I really do enjoy taking a stack of papers riddled with numbers and analyzing them. Wickham Skinner and I were discussing the way most institutions have organized jobs and how we tend to assign entry-level people the task of analyst. Then, the best-of-the-best analysts quickly get extricated from the analyst ranks and become managers of analysts. And then, if they really succeed in that role, they become managers of other people. By the time they are at the peak of their career, they have not personally analyzed anything in 30 years whereas the commonality between Skinner and me is that we just love getting up in the morning and having some genuine data to analyze.
If you have trained yourself to be an analyst over a 30- to 40-year period and you are doing just as much analysis well into the future as you are today, then you are going to become much better. Skinner is now 83, and he uses the analogy that his tennis game is pretty rusty and he is a lot slower than he was, but he can still beat some very good tennis players just by outsmarting them.
One of the blowbacks I got from a handful of my most vocal critics when Twilight in the Desert came out was that a nontechnical person has no reason on Earth to think he can read a technical paper and understand its content. Over the years, I have laughed at the sheer notion that a nontechnical person cannot understand technical issues. Baloney! If a smart analyst applies himself rigorously, he has every right in the world to read a paper on atomic energy, highlight the areas he does not understand, and then find someone who is an expert who can explain the features of the main issues. The fact that most people avoid reading papers on issues they are unfamiliar with in the first place is what keeps many important issues in the dark so often.
How important is it for a young professional to develop commercial acumen to support his technical skills in today’s competitive working environment?
If you do not learn communication skills with the ability to sell people on your ideas and have strong written skills, I do not care how technical you are, you are going to box yourself in. I think that learning how to bridge being technical and commercial, and then effectively communicating this both on paper and verbally, ultimately defines a successful executive.
What lessons can young professionals learn from your success?
I am pretty astonished that I could start out almost 40 years ago knowing nothing about the energy business. I had no background in energy and never took a single energy class. I had never worked for an investment banking firm either but decided to launch a speciality energy investment banking firm and then lived through the worst depression of the energy industry in the 20th century. If there is any one thing that I can credit this success to, it is that we set high goals and then made sure to live by them. We were never afraid of hard work. Specialization always beats being a generalist, and if you identify goals that are possible to attack and you keep at them long enough, then almost anybody can succeed.
You have a very busy professional life, but what is your ideal escape?
I have several hobbies. I believe they have turned out to be fabulously valuable to maintain some balance in my life. My favorite hobby is water coloring, and the thing that is so terrific about water coloring is that you have to shut down the busy side of your brain and concentrate on making sure you understand how shapes relate to each other and colors relate to each other. Water coloring, accidentally, ended up making me a far better analyst than I ever would have been had I not picked up the hobby.
I love reading. I probably plough through about 50 books a year and I think that has made me a far more balanced person. These cover a wide range of topics, but with a huge slant toward history books. Whenever a great novel comes out, I always make sure to buy it, but generally, I tend to read nonfiction. I recently have been devouring the limited number of books on ocean energy.
When I was in high school, speed reading was very popular. At the time, John Kennedy was running for U.S. president and one of his attributes was the speed at which he could read. So, I took a speed reading course when I was in high school. I do not know if they even teach it any more, but learning how to read fast was invaluable. It allows me to pick up a 700-page book and get through it in a day if I really concentrate. I think that people who never learned how to read fast think, “I’ve got to read that report tonight! How am I ever going to get through it?”
I also like cooking. Cooking is a sort of artistic exercise and fully taxes one’s organizational skills. My wife and I are blessed with five daughters, so I try my best to spend a fair amount of quality time with all of them. I continuously run into people who say they are just too busy to have a hobby or were so busy that their family life had to be sacrificed for their careers. I do not buy it! I have been extremely busy, but learning how to balance your life is a phenomenal exercise in time management. You have got to figure out how to segment your day in such a way that you can block off some time to do the things you really want to do. For me, reading and painting ended up being phenomenal hobbies and have ultimately made me a better business person, too.
How does your company maintain a competitive position in today’s market?
Today’s market is so incredibly different from the investment banking world or the economy back in 1974 when we first embarked on the path we have followed ever since. But for some odd reason, I had the foresight to pick four basic business goals and set them down on paper. The first was to totally specialize, and at that time I said specialize in companies providing services and equipment to the oil and gas industry, but now we say total specialization in energy. The second goal, from which the words have never varied, was to provide the highest-quality advice that anyone has ever provided. I have always said this goal is especially important because high quality is a kind of conceptual term, but when you say you are going to provide the highest quality, that puts you on a standard from which you cannot deviate. The third goal was to pride ourselves on being small and highly specialized. And the fourth was to have fun.
These four goals are as relevant now as they were in 1974. I was so lucky to have the inspiration to pick those out of thin air. They seem to all work well together. Too many companies have a mission statement in which the three or four things that they are trying to achieve are incompatible with each other. I think there is a certain harmony about our four goals, which is why we still have them today.
What are the key technology challenges you see for the E&P industry now and in the next 10 years?
One of the things about an oil basin that is in irreversible decline is that if you do not accelerate your pace of discovering oil and gas and accelerate the pace of technology, the decline curves overtake you. I think you can look at what is happening in North American natural gas; we are having to drill three times as many wells to maintain supply.
The industry is going to have to learn how to get along with its diminishing infrastructure and workforce. The offshore industry particularly faces a tremendous challenge. For instance, the average age of the 600 offshore rigs we have operating around the world is 25 years. We have rarely ever worked a rig beyond 25 years, so we will have to figure out how to get along with a lot fewer rigs while we try to rebuild the fleet. For a young professional in this industry today, the world is your oyster.
What involvement have you had with professional organizations such as SPE, and what benefits do you see from such professional organizations?
I always tried hard to put together an educational and entertaining presentation, and as a result of that, by the end of the 1980s, I had given a multitude of talks to various groups about the need to consolidate and the need to restructure. Then, in the 1990s, I started being invited to participate in programs at the OTC, SPE conferences, and other energy symposiums.
I never realized that it would end up changing my life completely. Today, I am mainly an unpaid, voluntary, professional energy speaker. The preparation for so many of those talks has forced me to close the loop on many of the ideas stirring in the back of my mind. There is no organization in the industry that has been more meaningful to shape my thinking than SPE. For me, the OTC showcased how many companies there were besides Oceaneering in this fascinating world of providing equipment and services to the offshore oil and gas industry.
Last year, I was very gratified to be recognized in the form of a special award by the OTC for 30 years of service to the industry. Now that I am familiar with the power of the SPE eLibrary, when someone mentions something about, say, the North field, I immediately go to SPE’s eLibrary to see if any new papers have been posted. I do not know if the industry is aware of how much information is lurking in the SPE eLibrary.
What changes would you make to the way our industry attracts people?
I think the industry has done a really lousy job of properly articulating the remarkable importance that energy has for the world. I also think the industry has done an awful job of not making clear the problems that lie ahead of us. There seems to be a stance that if you are running a major oil company, then it is your job to calm people down. Many individuals owe it to themselves to figure out the issues that we face. We could do a much better job of paying attention to the problems. There seems to be a mantra “don’t bring attention to our problems, we’ll just get in trouble” rather than “bring attention to our problems so people will know what we are doing.” Also, the industry needs to go back to square one and learn how to recruit the highest-quality people graduating from our universities. We need the best of the best, as these young people will be stretched beyond their imagination as they tackle our energy issues.
Finally, what lessons can you share about leadership? How can a young professional achieve and maintain a successful career?
Leadership is a little bit like being an entrepreneur; it is hard to train for it. You cannot even pretend that you have a shot at being a leader in any organization unless you get highly involved outside of your day-to-day work. A lot of people say they want to be a leader but do not have time for all of this extracurricular stuff. But it is the extracurricular stuff that forces you to get involved with other companies in the industry. If you really want to be a leader, you need to learn to balance and juggle a whole array of issues simultaneously. Being a leader is all about character and competence, and I most importantly think that character always rules the day over competence.
Matthew R. Simmons is Chairman of Simmons & Company International, a specialized energy investment banking firm. The firm has completed approximately 600 investment banking projects for its worldwide energy clients at a combined dollar value in excess of USD 77 billion.
Simmons was raised in Kaysville, Utah. He graduated cum laude from the University of Utah and earned an MBA degree with distinction from Harvard Business School. Simmons & Company began as a small investment bank/advisory firm in Boston. Today, the firm has approximately 145 employees and is one of the largest energy investment banking groups in the world.
Simmons is a Trustee of The Farnsworth Art Museum in Rockland, Maine, and serves on the Board of Directors of Brown-Forman Corporation, The Initiative for a Competitive Inner City (Boston), the Houston Technology Center, and the Center for Houston’s Future. Along with his wife, he cochairs of the National Trust Council. He also serves on the University of Texas M.D. Anderson Cancer Center Foundation Board of Visitors in Houston and is a Trustee of the Bermuda Biological Station for Research. In addition, he is past Chairman of the National Ocean Industry Association. Simmons serves on the Board of Dean’s Advisers of Harvard Business School and is a past President of the Harvard Business School Alumni Association and a former member of the Visiting Committee of Harvard Business School. He is a member of the National Petroleum Council, the Council on Foreign Relations, and The Atlantic Council of the United States.
Simmons is the author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, has published numerous articles in industry journals, and is a frequent speaker at government forums and energy symposiums.
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17 September 2018
27 August 2018