Oil Bust No Problem: It’s Good to Be an Energy CEO

CEOs of Bankrupt Oil Companies Get Huge Pay Packages.

By Irina Slav, Oilprice.com:

The oil price rout that sent several hundred U.S. oil and gas companies under seems to be largely over, and in a somewhat surprising turn of events, some chief executives of companies that filed for bankruptcy protection in the last two years are doing better than they did when oil traded at over $100 a barrel.

A Wall Street Journal analysis cites the CEO of Ultra Petroleum, for example, who received a portion of 7.5 percent of new shares, to be issued after the company emerges from bankruptcy protection. In absolute terms, this translates into about $35 million – a tenfold jump on Michael Watford’s annual salary in the pre-crisis years.

Another chief executive, Seventy Seven Energy’s Jerry Winchester, got a stock package of 440,000 shares that were worth $6.6 million when the company emerged from bankruptcy last August, which have now swelled to $16 million, thanks to the $1.76-billion acquisition of Seventy Seven by Patterson-UTI Energy.

According to analysts, the post-bankruptcy treatment of CEOs in the U.S. energy industry is not unusual. What’s unusual is the size of some of their compensations, clearly demonstrating the revitalizing effect that higher oil and gas prices have had on some industry players. Both those that filed for bankruptcy protection when the time was right, and those that missed the bankruptcy protection train, trying to hang on for as long as possible.

By the same token, the CEOs of Big Oil and those independent energy companies that survived without having to resort to bankruptcy filings are still doing very well. Some of them are even having their salaries increased thanks to the better price environment.

The chief executives of Anadarko, EOG Resources, Noble Energy, and Cabot Oil & Gas received a combined salary increase of $2.7 million last year. That’s despite the sub-$30 lows that West Texas Intermediate hit early in the year, reflecting the growing optimism throughout the rest of the year, supported by a gradual recovery in prices.

All in all, the senior management of most big oil and gas companies emerged from the price crisis not just unscathed, but also richer in many cases. Except BP’s Bob Dudley, that is.

Last year, amid oil prices of around $40 per barrel, close to two-thirds of BP’s shareholders voted against the remuneration report suggested by the company for its board. The vote surprised many given that it happened at one of the biggest oil companies in the world, but it clearly signaled that investors are not always too happy about CEO salaries, especially when the company is not doing as well as it could.

Another case in point was Schlumberger’s Paal Kibsgaard’s paycheck for 2015: he received total compensation of $18.3 million, down by just $200,000 from the previous year while Schlumberger laid off 25,000 employees and its share price shed 18 percent. But now, Schlumberger is recovering nicely with Kibsgaard at the helm, thanks to renewed demand for oilfield services in the U.S. and abroad.

BP, apparently, is not doing so well. Sky News recently reported that in a bid to avoid another shareholder revolt at this year’s general meeting, the company decided to shave off around $6.24 million (GBP 5 million) from Dudley’s total compensation for the next three years. From now until 2019, he will be able to only earn 112.5 percent of his basic salary per year if the company’s performance targets are met, down from 150 percent.

So, even if oil and gas prices are nowhere near the highs from three or four years ago, it’s still good to be an energy CEO. For some, it’s even better than before. By Irina Slav, Oilprice.com

Here’s the other side of the coin, those who lost out on the Fed’s “wealth effect.” Read…  This Economy is Ruined for Many Americans

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  13 comments for “Oil Bust No Problem: It’s Good to Be an Energy CEO

  1. FDR Liberal says:

    Unfortunately this is not news anymore, per se. Yes, energy CEOs raking in millions in salary or bonuses when there company didn’t perform so much so that they filed for bankruptcy protection or had to lay off thousands of employees is news to this reader but CEOs “earning” compensation for substandard performance of their company is not news. The overall level of mediocrity and poor performance at the CEO level yet their remuneration for options and salary would lead one to think that 80% of companies were increasing sales 7 – 8% percent a year, growing market share, investing in their plant, equipment and personnel, ROA at 3:1 or higher, et al.

  2. wkevinw says:

    CEO/Executive pay has been out of control for 20+ years. Bob Nardelli (one time voted the worst CEO of all time), took $250million out of Home-Depot while managing it into the ground. His tenure/history is a great story. Even with terrible executive performance, the business model and momentum allowed Home-Depot to survive and thrive after he left (proving the CEO is far from the whole story).

    Anyway, these people are grossly overpaid.

    In one of the weaknesses of “free economies”, if the market (e.g. for executives) is small and protected enough, prices (salaries) can rise out of all proportion to any economically determined norm. Because all the boards are looking out for each other, these people are protected from competition. The out of control cost/price/compensation is predictable.

  3. Paulo says:

    A Mom and Pop CEO, with greater direct responsibilities, longer hours of work, and no chance to delegate work or point the finger, are lucky to get by (let alone reap windfall bonuses).

    Public Oil CEOs, well, apparently there are few limits.

    It is absolutely amazing how profitable it can be when you play with other people’s money, have a ‘pet’ board of directors, and a shareholder input process that eliminates criticism and consequences.

    These are the same CEOs that lay off their employees, restrict pay rates, view the environment as just another expense and problem, and donate to powers who will limit social benefits and redistribution of wealth and opportunity, (except for themselves, of course). :-)

    Nice gig if you can get it, (or live with your self).


    • hidflect says:

      In the course of my career I’ve had occasion to bump into a few CEO’s and my conclusion is they’re functionally dysfunctional. They have a character defect that just happens to be exactly what’s required to be an effective CEO. If they lived in a small hamlet they probably would’ve been lynched…

  4. Gershon says:

    Remember when America was a Constitutional Republic instead of a neo-feudal oligarchy?

    Neither do I.

  5. Nik says:

    Great Similarity Here….with the Pay Lots of Newly Drafted NFL Quarter-Backs Get…considering they Have NO NFL Experience…! lolol

    • Coaster Noster says:

      I believe that sports pay is an enabling factor that allows these huge CEO salaries to slide out of the headlines so easily. Seeing the Nardelli/Home Depot story here brought back my memory (I was extremely angry at the time and buttonholed too many friends about it) but…the story faded under the onslaught/avalanche/tsunami of information and “news”.

      Owners of sports franchises are an extremely wealthy group, and there is no social pressure on them, except to “overpay salaries” and bring a “winner” in for the fans.

  6. michael Engel says:

    I agree with you 100%, but you will never be able to have a boss
    above, or change. Ownership is part of your personality.
    When you make good profit, you will spend some on CAPEX and
    save some for bad days. perhaps give yourself a token gift.
    Sick days, or long vacations, are prohibited.
    The biggest problem is to phase yourself out, to transfer the helm
    to your next generation and to stay in the shadow, to allow what
    YOU might consider mistakes, to make sure you are not a threat.
    We read about slaves by the FIRE sector.
    We are the slave owner and we have one and only one slave,
    yourself !!!
    True, but we are definitely not parasite sucking blood !!!
    We love the hard work, we love to sweet and if it works, that’s your
    biggest reward. Many complements or thanks, you will never get,
    but you get glimpse of it, it’s in ether.

  7. Yoshua says:

    Shale oil hasn’t made a dime in profit so far. The CEO’s must be compensated for their hopeless situation. As the net energy of the global oil production continues to fall, the oil price will fall as well. The Ponzi economy will eventually collapse at some point.

  8. Khemkaran Deonarine says:

    Could a calculation be done as to how many “good” workers jobs saved = these million$$ CEO salaries or payouts ? It may justify firing the CEO’s or not having any CEO at all & saving a few hundred jobs. Could anyone say : what does a CEO really do?

    • Coaster Noster says:

      CEOs by and large simply act (IMHO) as a “pivot” around which the next tier of staff (e.g. CFO, COO, etc) find connection and coordination. Each of those, in turn, rely on staff to do the heavy grind, while they get overpaid just the same as the CEO. In the case of executive compensation, the phrase might be….

      “The lifting of all boats, under the supposition that a high tide will arrive eventually, and “lift all boats”, is the reason to spend the money to lift all boats.”

      This 300x disparity between the rise of CEO/executive pay and average compensation of employees at any given publicly-traded firms is the great conundrum of our time. Private enterprise means “hands off” and no gov’t regulation. Yet private enterprise in the form of excess greed and unwarranted compensation is sowing the seeds of destruction of the whole system. But, without hunger in the streets, and plenty of drugs and television and internet to mollify people, things will proceed apace for decades.

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