Documented analysis highlights how top executives are rewarded by bankruptcy courts and corporate boards, despite their companies’ poor performance.
Oil and Gas Bankruptcy Overview
The fracking industry has long been mired in debt, but the oil price wars coupled with a glut in supply and reduced demand, as a result of the pandemic, has put the industry into a tailspin. Seven North American Exploration & Production (E&P) firms have declared bankruptcy in 2020 — the largest of which is Whiting Petroleum.
Additional bankruptcy filings are likely to be announced if companies are unable to meet upcoming debt maturities or management decides financial restructuring is the only path forward. Unfortunately, that may open new avenues for CEOs to enrich themselves at the expense of workers, creditors, and equity owners.
Documented reviewed the 10 largest (by total debt) E&P bankruptcies since 2015, as tracked by Haynes and Boone, LLP.* The findings below are pulled from 14-A proxy filings in the years during and after the bankruptcy filing and from the bankruptcy court docket itself.
Through the Chapter 11 process, these CEOs took home a mix of retention bonuses and sizable equity ownership in the new company. Linn Energy CEO Mark Ellis topped the list, receiving a $6.9M cash incentive payment and $58M in equity compensation the year the company emerged from bankruptcy. For several CEOs, bankruptcy court-approved payments were significantly higher than any previous years’ compensation.
*Note: Whiting Petroleum is omitted because the filing is too recent to provide necessary data. It would otherwise be the second largest company on this list. We were not able to find detailed compensation figures for EnQuest executives.
Oil and Gas Firms – Select Firm to View Case Study
|DATE||CASE NUMBER||DEBTOR||TOTAL DEBT|
|5/16/16||16-32488||SANDRIDGE ENERGY, INC.||$8,260,219,864|
|10/3/19||19-35654||EP ENERGY CORPORATION~||$7,338,004,103|
|5/11/16||16-60040||LINN ENERGY, LLC||$6,056,747,975|
|5/15/16||16-11385||BREITBURN OPERATING LP||$5,817,354,823|
|4/29/16||16-11189||PACIFIC EXPLORATION & PRODUCTION CORP.||$5,320,000,000|
|9/16/15||15-11934||SAMSON RESOURCES CORPORATION||$4,331,775,489|
|4/29/16||16-32202||ULTRA PETROLEUM CORP.||$3,794,864,530|
|11/18/19||19-36444||APPROACH RESOURCES INC.~||$3,689,725,110|
|2/15/18||18-30648||FIELDWOOD ENERGY LLC||$3,343,697,997|
|7/27/16||16-11724||HALCÓN RESOURCES CORPORATION||$3,222,400,000|
SANDRIDGE ENERGY, INC
CEO James Bennett received an unusually large incentive bonus the year the company filed for bankruptcy, relative to previous years. This $8,482,027 bonus was approved by the Pre-Emergence Compensation Committee. According to this committee, Bennett hit 133% of his performance target.
Sandridge’s filings also included this line in the Change of Control section: “Pursuant to the Plan of Reorganization, the consummation of the Plan of Reorganization constituted a “change in control” under each outstanding employment agreement.”
EP ENERGY CORPORATION
In 2019, CEO Russell Parker received a $2,392,800 retention bonus as part of the Key Employee Retention Program agreed through the Chapter 11 process.
LINN ENERGY, LLC
Former Linn Energy CEO Mark Ellis saw the largest compensation increase in this group. Ellis received a $6.9M cash incentive payment the year Linn filed for bankruptcy, and then received $58M in stock awards the year following. The $6.9M award was agreed by the Predecessor’s Compensation Committee, approved by the bankruptcy court, and paid in quarterly cash installments. The $58M in stock awards were approved under the Linn Energy, Inc. 2017 Omnibus Incentive Plan and Linn Energy Holdco LLC Incentive Interest Plan.
BREITBURN OPERATING LP
The bankruptcy court approved Key Employee Incentive Programs in 2016 and 2017. In 2016, CEO Halbert Washburn earned a $3,370,855 cash incentive payout under the KEIP.
PACIFIC EXPLORATION & PRODUCTION CORP
Former CEO Ronald Pantin received two bonuses the year the company filed for bankruptcy: a $1,241,520 cash retention bonus under the company’s Key Employees Retention Program, and $3,008,014 cash severance payment.
SAMSON RESOURCES CORPORATION
Bankruptcy court approved a Management Incentive Plan as part of the global settlement and reorganization plan. The Plan reserved 10 percent of equity in the new company for management, with final timing to be determined by the new board. Documented was unable to obtain the final equity distribution.
ULTRA PETROLEUM CORP
The year Ultra filed, CEO Michael Watford received a $3,252,595 cash payment under the court approved Key Employee Incentive Program. The following year, when the company emerged from bankruptcy, Watford received stock awards valued at $21M.
APPROACH RESOURCES INC
On February 18, 2020, the bankruptcy court approved a Key Employee Retention Plan. Some information in the plan is sealed, so the entire compensation picture is obscured. However, the summary table below gives a sense of the scale of the retention bonus.
FIELDWOOD ENERGY LLC
In the approved Chapter 11 reorganization plan, the Management Incentive Plan outlines equity payments to the CEO and other executives. Fieldwood does not have 14A filings we can view to see the exact amount paid each year. The plan is structured as follows:
HALCÓN RESOURCES CORPORATION
CEO Floyd Wilson’s total compensation rose to $24M the year the company filed for bankruptcy. Included in that total: a $3,275,000 bonus from the Key Employee Retention Program, $8.6M in stock awards, and $11.4M in option awards approved through the reorganization plan.