(Bloomberg) — About three years after Texas oil producer Denbury Inc. emerged from chapter, 4 prime executives are set to gather the ultimate installment of a $121.5 million post-reorganization pay deal that rivals a number of the business’s most beneficiant compensation packages.
Most Learn from Bloomberg
Chief Govt Officer Chris Kendall will obtain the ultimate portion of fairness awards valued in complete at $68.7 million by 12 months finish, based on this 12 months’s proxy assertion. His three prime lieutenants may even cut up the rest of their $52.8 million package deal, simply as the corporate seems to be to shut a $4.9 billion takeover by Exxon Mobil Corp. Kendall’s complete is simply shy of the worth of inventory awards Exxon CEO Darren Woods obtained over the previous three years for working an organization 100 occasions Denbury’s measurement.
Denbury’s payouts, that are tied to share efficiency and staying with the corporate, are because of the executives in December no matter any takeover, although a sale would expedite the method. The coincidental take care of Exxon — whose provide was solely marginally larger than Denbury’s inventory value — highlights the profitable compensation plan and the way awards granted throughout an organization’s darkest days can swell to extraordinary ranges if its fortunes flip.
“It’s not a nasty payday for an organization that got here out of chapter two-and-a-half years in the past,” stated Timm Schneider, an analyst at Schneider Capital Group. “It turns into fascinating from a shareholder perspective as a result of they’re doing this deal at no premium. The optics don’t look nice.”
Denbury shareholders should nonetheless approve Exxon’s all-stock takeover, which received unanimous backing of the corporate’s board. Exxon’s $89.45-a-share provide was simply 2% larger than Denbury’s share value when introduced July 13 and the deal was virtually 20% lower than the typical goal value amongst analysts on the time, based on knowledge compiled by Bloomberg.
Denbury’s inventory fell 0.6% to $90.99 at 10:01 a.m. Monday in New York, according to the slide in crude costs.
Emergence Fairness
Most of Denbury’s incentive package deal stems from so-called post-emergence grants given to executives following its exit from Chapter 11 proceedings in 2020. This sort of fairness award is usually given to executives of bankrupt corporations to entice them to stay with the enterprise via a reorganization and to make up for the truth that their pre-existing fairness was in all probability worn out — as was the case for Denbury’s executives.
“The overwhelming majority of Denbury’s govt compensation outcomes from the 2020 emergence grants, that are practically utterly vested and have been scheduled to be delivered in December 2023, whatever the firm’s pending merger,” an organization spokesperson stated by e mail.
Like most public corporations, Denbury’s compensation plan included an accelerated payout schedule if the corporate will get bought — which might get triggered if the Exxon deal closes as deliberate within the fourth quarter. Kendall’s fairness package deal is greater than double what the CEOs of California Assets Corp. and Talos Vitality Inc. would stand to obtain within the occasion of a sale and better than that of Occidental Petroleum Corp., an organization twelve occasions Denbury’s market worth. California Assets additionally declared chapter in 2020.
Denbury’s payout stands out partly as a result of its inventory has seen a fivefold improve for the reason that firm emerged from chapter, greater than its friends.
Chapter
Denbury was one in every of many US oil and fuel producers to fall into chapter 11 when Covid-19 struck, inflicting vitality costs to plunge. Its specialization in enhanced oil restoration, a high-cost technique of manufacturing crude by pumping carbon dioxide into outdated wells, left it unable to pay money owed, prompting the corporate to file for Chapter 11.
Kendall, who grew to become CEO in 2017, led Denbury via chapter and remained in cost when the corporate re-listed in September 2020. On Dec. 4 that 12 months, the board granted him and key executives fairness awards, based on a 2021 submitting. Half the shares would vest in equal increments over three years whereas the remainder would pay out in full if the inventory topped a sequence of value hurdles, with the very best being $25.75 a share.
Denbury’s inventory simply surpassed these thresholds, averaging $27.50 within the first two months following the award and greater than doubling inside six months as oil costs rebounded, making certain the executives can be entitled to the complete award in the event that they stayed with the corporate.
“It’s unusual to see efficiency targets so clearly unchallenging,” stated Maria Vu, a senior director of North American compensation analysis at proxy advisor Glass Lewis & Co. She described Denbury’s value targets as “unusually missing” in rigor.
Denbury stated in a submitting on the time the awards have been granted that the hurdles “have been rigorous and would signify vital worth creation for stockholders,” with the complete package deal representing a 42% improve from the 30-day common on the grant date.
Denbury additionally benefited from 2022’s Inflation Discount Act that included beneficiant tax rebates for carbon seize and storage, a key local weather resolution favored by Huge Oil, and particularly Exxon. The agency owns the biggest community of carbon dioxide pipelines within the US, largely located close to refineries and chemical vegetation on the Gulf Coast — probably the most concentrated supply of emissions within the US. Denbury might simply repurpose the pipes for carbon seize.
Exxon Supply
Denbury’s inventory rose with oil costs via 2022, and shortly after the IRA handed in August, Bloomberg reported that the corporate started working with advisers on a possible sale. Its shares jumped greater than 12% on the information. On Oct. 10, Exxon was reported to have expressed preliminary curiosity in shopping for the corporate, inflicting one other share spike for Denbury.
When saying a take care of Exxon final month, Kendall stated the board “thought-about numerous options to maximise long-term worth.” Denbury selected Exxon due to its capability to develop the carbon dioxide enterprise and prospects for the oil large’s inventory, which pays the S&P 500’s third-largest dividend, he stated.
Tim Rezvan, a KeyBank Capital Markets analyst, praised Kendall as a CEO of excessive integrity, however acknowledged that traders are sad that Exxon’s provide didn’t have a lot of a premium.
“Shareholders we spoke to have been uniformly upset,” Rezvan stated. “Disappointment all the way in which to cursing to me on the telephone as a result of they have been upset.”
–With help from Anders Melin.
(Updates with share value in sixth paragraph.)
Most Learn from Bloomberg Businessweek
©2023 Bloomberg L.P.
