Marathon Said to Join Oil CEO Search as Bid War Looms
By Jeff Green, Edward Klump and Bradley Olson on March 04, 2013
A wave of shareholder rebellions and executive retirements that’s left at least six North American oil and gas companies searching for chief executive officers is leading toward a bidding war for the industry’s best leaders.
Marathon Oil Corp. (MRO) joined the ranks of companies trying to fill vacancies at the top after the expected heir to its current CEO resigned in December, according to two people familiar with the search who asked not to be identified because the matter is private. The growing competition for CEOs among companies including Occidental Petroleum Corp. (OXY) and Chesapeake Energy Corp. (CHK) may drive up salaries in executive suites as boards attempt to woo away proven talent and retain their own manager bench.
Like star athletes, “there is huge demand and huge competition for the best,” said Steven Goodman, head of the North American energy practice at executive search company Egon Zehnder in Houston. “The talent available to do these jobs is both valuable and limited.”
Canada’s Encana Corp. (ECA), Bill Barrett Corp. (BBG), and KKR & Co. (KKR)’s Samson Resources also are seeking new CEOs, according to company statements and people with knowledge of executive recruiting.
During the past three years, about a third of 175 publicly traded oil explorers and service companies with more than $1 billion in annual revenue have changed CEOs, according to Goodman’s research.
Shallow Benches
About 25 percent of those tapped outside executives to fill the job, according to Goodman’s survey of the companies. In a separate survey on CEO succession, only 15 percent of companies said they have sufficiently deep executive ranks to make a smooth transition, Goodman’s research showed.
Competition among energy companies is going to produce a “rob-Peter-to-pay-Paul executive recruiting environment,” said John Hofmeister, former president of Royal Dutch Shell Plc’s U.S. unit from 2005 to 2008. “This is going to be a factor not only in terms of the CEO, but also at the higher executive levels.”
These days, any executive who unexpectedly leaves his post is evaluated for his potential to fill one of the CEOvacancies. Randy Limbacher, who resigned last week as the head of Houston- based Rosetta Resources Inc. (ROSE), is viewed as a possible candidate for one of the current openings and might make an especially good fit for Chesapeake, the executive recruiters said. Before running Rosetta, Limbacher oversaw exploration and production at Burlington Resources Inc. and ConocoPhillips.
Limbacher did not return a call requesting comment about his interest in another CEO job.
Shifting Market
CEO searches have multiplied as companies adjust to the changing markets created by a boom in oil and gas production from U.S. shale fields. Growing petroleum supplies have lowered prices while competition for equipment and services raised costs, pinching profits and increasing pressure on boards to boost value.
The upheaval created opportunities for investor activists who are pressuring boards to sell assets, reorganize businesses and reconstitute management, often including ditching the current CEO. Activist shareholders have targeted executives and board members at Chesapeake, Hess Corp. (HES), Murphy Oil Corp. (MUR) and SandRidge Energy Inc. (SD) for everything from lacking corporate focus to self-dealing. Hess today announced plans to buy back as much as $4 billion in shares, name six new board members and boost its dividend.
Aubrey McClendon
Chesapeake plunged 25 percent last year amid a drop in natural gas prices and questions about the personal finances of CEO Aubrey McClendon. Since McClendon’s departure was announced on Jan. 29, the stock climbed 3.7 percent through last week as investors await a new leader to reposition the company.
A change in leadership doesn’t guarantee improved company performance, Goodman said. Companies that didn’t change CEOs generated a return of 9.4 percent from 2010 to 2012 compared with a 6 percent return for companies that did bring in new heads, according to his research.
Encana, whose CEO Randall Eresman split off its oil exploration in 2009 to focus the company on natural gas, struggled to adapt to lower gas prices. The company’s stock tumbled 43 percent from the end of 2009 until Eresman’s departure was announced on Jan. 11. The move hasn’t helped Encana’s stock, which fell another 6.1 percent through March 1.
Marathon, the U.S. oil and gas producer that spun off its refining business in 2011, hasn’t said publicly it’s searching for a successor to its current CEO, Clarence Cazalot, who is 62 and approaching retirement age, said the people familiar with the search. His probable successor, David Roberts, unexpectedly resigned in December. Lee Warren, a spokeswoman, declined to comment on whether the Houston-based company is seeking a CEO.
‘Critical Priority’
Cazalot called succession planning a “critical priority,” on a Feb. 6 conference call. “It’s something that, particularly with respect to CEO succession, that the board spends a great deal of time and effort on.”
The biggest job opening in the industry right now is at Occidental, the top onshore crude producer in the continental U.S. Occidental said Feb. 14 it has started a search for a successor to CEO Stephen Chazen less than two years after he took over in May 2011.
From the end of 2008 until the close of 2011, Occidental surged 56 percent as it developed oil assets in the U.S. and overseas locations such as Libya and Yemen. After closing at more than $115 on May 2, 2011, the shares have declined 29 percent through last week. The company said it doesn’t have a time table for choosing a successor to Chazen, 66.
Two Resignations
Bill Barrett, a Denver-based oil and gas company, began the search for a new CEO on Jan. 7 after Fred Barrett resigned. David Adams, who took over at Samson when it was purchased by KKR in 2011, has retired. Kristi Huller, a KKR spokeswoman, didn’t immediately respond to an e-mail seeking comment yesterday.
The group of industry elite most often mentioned for the top jobs is a small one, including both former chief executives and current leaders. Jim Hackett, who stepped down as CEO of Anadarko Petroleum Corp. (APC) in 2012 and relinquishes the executive chairmanship in May, is in demand for his experience in rebuilding struggling companies, according to several recruiters who asked not to be named when discussing potential clients. Under his leadership, Anadarko turned around from a company that had been missing production targets to one of the leading offshore explorers in the world.
Potential Candidates
Doug Foshee, admired for engineering the 2012 sale of El Paso Corp. to Kinder Morgan Inc., is another name frequently appearing on short lists, those recruiters said. Greg Goff, the CEO of San Antonio-based refiner Tesoro Corp. (TSO) whose stock has more than quadrupled to $58.29 under his guidance, also is considered a strong candidate for a bigger energy company.
Foshee didn’t return a voicemail and e-mail requesting comment left after regular business hours. Goff declined to comment. Hackett said through a spokesman that he’s not interested in another CEO job.
“As Mr. Hackett stated at the time of the leadership transition announcement, he served as CEO of a public company for 13 years and intends to pursue other personal interests in the future,” John Christiansen, an Anadarko spokesman, said in an e-mail.
A dearth of talent is making the search for new leaders more difficult. Decades of boom-and-bust cycles have depleted seasoned management, said Jim Hertlein, a managing director for executive search firm Boyden in Houston. The industry nearly stopped hiring after the collapse in oil prices in 1986 and didn’t resume until about 2000, he said.
“Many companies just don’t have the bench strength they need,” Hertlein said. “A true CEO candidate is far rarer than a lot of people realize.”
Given the lack of available candidates, some companies seeking a new CEO will probably have to rely on “second- and third-level” executives and take a chance on less experienced leaders, said Hofmeister, 65, founder of Houston-based Citizens for Affordable Energy.
First published at bloomberg.com on 4 March 2013.
