Oil Giant Files For Bankruptcy While Its Executives Receive $25 Million Dollars
Chesapeake Energy, one of the nation’s largest and most successful oil and gas producers, suddenly found itself saddled with too much debt and fierce competition from Saudi Arabian and Russian producers, causing dramatic declines in oil prices. This unfavorable situation worsened with the adverse effects of Covid-19, forcing people to radically reduce or completely forsake their travel plans. Ultimately, the company had little other choices than file for Chapter 11 bankruptcy protection Sunday.
The company, founded by legendary wildcatter Aubrey McClendon in 1989 with $50,000, grew to become a dominant player in this sector. Chesapeake championed a revolutionary—some say “harmful”—new technique called fracking, which is horizontal drilling into the earth using hydraulic fracturing to tap enormous troves of natural gas. This practice has led the company to great fortunes. The shale boom also helped America become one of the world’s largest oil and natural gas producers and freed the United States from reliance upon other oil-producing countries.
The company took on staggering amounts of debt in its rapid pursuit of aggressive growth. McClendon left the company in 2013 under a cloud of questionable activities. He was subsequently indicted on March 1, 2016 and charged with conspiring to rig bids on energy leases in Oklahoma. Always the larger-than-life character, he perished in a headline-grabbing manner. McClendon died in a terrible car accident. The day after his indictment, his vehicle smashed head-on into a concrete barrier going at a speed of roughly 90 mph.
Doug Lawler took over the role as CEO and was tasked with getting the company back on track and dealing with the large debt burden, which was nearly as much debt as Exxon and Chevron combined. A confluence of events worked against Lawler. A poorly timed reorganizational pivot—costing $4 billion—didn’t work out well. Lawler had to contend with the impact of the Covid-19 pandemic, which hit all of the oil producers hard. Since people weren’t traveling, the need for oil plummeted, as did the price of the commodity and the company’s stock price.
Chesapeake was also caught up in the Russia–Saudi Arabia oil price war of 2020. The two countries supposedly fought over the production of oil, which ultimately made the price precipitously fall. When that happens, it becomes harder for companies, like Chesapeake, to stay profitable. It's been said that the Russia-Saudi battle was really a ruse to harm the powerful shale-fracking movement by the U.S., which made America independent of both those countries and a major competitor.
Chesapeake's share price plummeted over 93% since January—from $172 per share to $11.85, as of close on Friday.
Despite the decreasing fortunes of the company, CBS reported that last year Lawler remained the highest-paid CEO in Oklahoma with $15.4 million in compensation, according to a ranking compiled by the Associated Press and Equilar. Prior to filing for bankruptcy, the Wall Street Journal reported, “Chesapeake also offered 21 high-ranking employees cash-retention payments totaling about $25 million.” According to Equilar, “Lawler’s realized pay through the end of last year totaled more than $48 million.”
Chesapeake’s filing indicated, “The Board and Compensation Committee, with the advice of their independent compensation consultant and legal advisors, determined that the historic compensation structure and performance metrics would not be effective in motivating and incentivizing the company’s workforce.” There were some retention and bonus-waiving restrictions put into place.
In a statement, Lawler said, “We deeply appreciate the hard work and commitment of our employees, who remain focused on safely and efficiently executing our business. We look forward to working productively with our suppliers, business partners and all stakeholders throughout this process.” The chief executive added, "Over the last several years, our dedicated employees have transformed Chesapeake's business—improving capital efficiency and operational performance, eliminating costs, reducing debt and diversifying our portfolio.”
Lawler and Chesapeake’s executives aren’t the only ones who were financially taken care of before the bankruptcy. After 100 years in business, the once-beloved retailer, J.C. Penney, filed for bankruptcy protection and paid out millions of dollars to top executives right before it happened. In a regulatory filing, it was disclosed that J.C. Penney CEO Jill Soltau received a $4.5 million bonus. Three top executives, including chief financial officer Bill Wafford, chief merchant officer Michelle Wlazlo and chief human resources officer Brynn Evanson each received a $1 million payout.
Hertz, the well-known car rental company that’s been an American fixture at airports, handed out over $16 million in bonuses days before filing for bankruptcy. Hertz paid a $700,000 bonus to chief executive Paul Stone. Chief financial officer Jamere Jackson was awarded $600,000 and chief marketing officer Jodi Allen received $189,633, according to the Wall Street Journal.
Following the pattern of J.C. Penney, Hertz and other large, big-name companies that sought bankruptcy protection, GNC paid out about $4 million in cash bonuses to top executives, prior to the Chapter 11 filings. The rewards—officially called “retention bonuses”—for failing included $2.2 million for CEO Kenneth Martindale, who joined the company in September 2017. He was paid $7.1 million in 2019. The chief financial officer received $795,000 and three other C-level executives were awarded a total $918,000. There’s one small caveat though—executives will have to return 25% of their after-tax bonuses if the company does not emerge from Chapter 11 protection within a year.
The children’s party venue, Chuck E. Cheese, filed for Chapter 11 bankruptcy protection Thursday. The company is owned by powerhouse private equity firm Apollo Global Management. Chuck E. Cheese also desires to keep operating during their bankruptcy and beyond. CEO David McKillips lamented that the pandemic period has "been the most challenging event in our company's history." However, he’s "confident" about its future. He should be, as McKillips is personally being taken care of. Despite the bankruptcy and difficult time ahead, the company delivered around $3 million in retention bonuses to its top three executives before the bankruptcy was announced. McKillips received $1.3 million, President Roger Cardinale got $900,000 and CFO Jay Howell was awarded $675,000.
Companies claim that the “retention” bonuses are necessary to keep management teams in place. This tone-deaf defense ignores the obvious uncomfortable questions: Why should the executives who preside over a failing company be richly rewarded? Shouldn’t their pay be clawed back due to poor performance? Wouldn’t it be reasonable to replace them with outside professionals who were able to effectively run their companies successfully during the same tough times?
In all of these matters, the workers are left out of the conversation. Thousands of people will be pushed out into the worst job market since the Great Depression—with little prospects for finding a comparable new job anytime soon. Studies show that the majority of Americans don’t have an emergency fund that would last them three to four months. Why doesn’t the board of directors at the companies who file for bankruptcy protection—at least—set aside some of the millions of dollars allocated to CEOs and executives to the workers who desperately need the help?
https://www.forbes.com/sites/jackkelly/2020/06/29/oil-giant-files-for-bankruptcy-while-its-executives-receive-25-million-dollars/#309dcfbc41ae
