(Bloomberg) — Nearly three years after oil producer Denbury, Texas emerged from bankruptcy, four senior executives are set to collect the final installment of a $121.5 million post-reorganization pay deal that rivals some of the industry’s most generous compensation packages.
Most Read from Bloomberg
CEO Chris Kendall will receive the final portion of the stock awards totaling $68.7 million by the end of the year, according to this year’s proxy statement. His three top aides will also split the remainder of the $52.8 million package, just as the company looks to close on a $4.9 billion deal by Exxon Mobil Corp. Kendall’s total is just shy of the amount of stock awards Exxon CEO Darren Woods has earned over the past three years for running a company 100 times the size of Denbury.
Denbury’s payments, which are tied to performance sharing and staying with the company, are due to executives in December regardless of any acquisition, though the sale would speed up the process. The serendipitous deal with Exxon — whose bid was only marginally higher than Denbury’s share price — highlights the lucrative compensation plan and how prizes awarded during the company’s darkest days could swell to extraordinary levels if its fortunes turn around.
“It’s not a bad payday day for a company that emerged from bankruptcy two and a half years ago,” said Tim Schneider, an analyst with Schneider Capital Group. “It becomes interesting from a shareholder perspective because they’re doing this deal without a premium. The optics don’t look great.”
Denbury shareholders still had to agree to an all-stock acquisition of Exxon, which won unanimous support from the company’s board of directors. Exxon’s bid of $89.45 a share was only 2% higher than Denbury’s share price when it was announced on July 13, and the deal was nearly 20% below the average price target among analysts at the time, according to data compiled by Bloomberg.
Denbury shares fell 0.6 percent to $90.99 at 10:01 a.m. Monday in New York, in line with lower crude oil prices.
The emergence of property rights
Most of Denbury’s incentive package stems from so-called post-emergence grants given to executives after it emerges from Chapter 11 proceedings in 2020. This type of stock award is usually given to executives at bankrupt companies to entice them to stay in business through reorganization and compensation for The fact that pre-existing property rights may have been wiped out – as was the case for the Danbury executives.
“The vast majority of Denbury executive compensation results from 2020 impression grants, which were awarded almost entirely and were scheduled for delivery in December 2023, regardless of the pending corporate merger,” a company spokesperson said via email.
Like most public companies, Denbury’s compensation plan included an accelerated payout schedule if the company was sold — which would run if the Exxon deal closed as planned in the fourth quarter. Kendall’s stock package is more than double what CEOs of California Resources Corp. would get. and Talos Energy Inc. In the sale condition and higher than that offered by Occidental Petroleum Corp., a company worth twelve times the market value of Denbury. California Resources also filed for bankruptcy in 2020.
Denbury’s payout stands out in part because its shares have seen a fivefold increase since the company emerged from bankruptcy, more than that of its peers.
Denbury was one of several US oil and gas producers to fall into bankruptcy when the COVID-19 virus hit, sending energy prices plummeting. Its specialization in enhanced oil recovery, a high-cost method of producing crude oil by pumping carbon dioxide into old wells, left it unable to pay the debt, prompting the company to file for Chapter 11.
Kendall, who became CEO in 2017, led Denbury through bankruptcy and remained in charge when the company was reincorporated in September 2020. On December 4 of that year, the board of directors awarded him and the two key executives equity awards, according to a 2021 filing. Half of the shares are in equal increments over three years while the remainder will be paid out in full if the stock passes a series of price hurdles, with the highest price being $25.75 per share.
Denbury stock easily crossed those thresholds, averaging $27.50 in the first two months after the award was awarded and more than doubling within six months as oil prices rebounded, ensuring executives would get the full award if they stayed with the company.
“It’s not uncommon to see performance targets so challenging,” said Maria Fu, senior director of compensation research in North America at the acting advisory firm Glass Lewis & Associates.
The hurdles “were tough and will represent significant shareholder value creation,” Denbury said in a statement at the time of the awards, with the full package representing a 42% increase over the 30-day average in the award date.
Denbury also benefited from the 2022 Inflation Reduction Act that included generous tax cuts for carbon capture and storage, a key climate solution favored by major oil companies, especially Exxon. The company has the largest network of carbon dioxide pipelines in the United States, and is largely located near refineries and chemical plants on the Gulf Coast – the most concentrated source of emissions in the United States. Denbury could easily repurpose the tubes for carbon capture.
Denbury stock has rallied with oil prices through 2022, and shortly after the IRA passed in August, Bloomberg reported that the company began working with advisors on a potential sale. Its shares jumped more than 12% on the news. On October 10, it was reported that Exxon showed initial interest in buying the company, which caused another rally in Denbury stock.
When announcing the deal with Exxon last month, Kendall said the board “considered a number of alternatives to maximize long-term value.” He said Denbury chose Exxon because of its ability to grow its CO2 business and the prospects for shares of the oil giant, which pays the third-largest dividend for the S&P 500.
Tim Rezvan, a KeyBank Capital Markets analyst, praised Kendall as a CEO with a high level of integrity, but acknowledged that investors were unhappy that Exxon’s bid didn’t have many bonuses.
“The shareholders we spoke to were uniformly disappointed,” Radwan said. “Disappointment all the way to cursing me over the phone because they were upset.”
– with assistance from Anders Melin.
(Updates with share price in sixth paragraph.)
Most Read by Bloomberg Businessweek
© 2023 Bloomberg LP