This Energy CEO Is Big on Shareholder Return
Charles Davidson is not the most famous natural gas CEO in America. Heck, he's not even the most infamous -- Aubrey McClendon of Chesapeake Energy (NYSE: CHK) wins that one. No, Noble Energy's (NYSE: NBL) Davidson was simply hired to turn around a company and lead its shareholders to happier times. As it turns out, he has pretty much done it -- and all without sacrificing his antique map collection.
Show me the compensation!
There is a ton of money in energy, and oil and gas CEOs are often very handsomely rewarded. It has become a real bone of contention among shareholders, so, Fools, that's where we'll begin!
Many companies will identify in their proxy statements the peer group they use as the benchmark for compensation, so you have a sense of where to look for a comparison if a number seems off. I like to consider total compensation as a percentage of trailing-12-month revenue as well, which allows us to compare and contrast different-sized companies.
Company | TTM Revenue | Total CEO Compensation in 2010 | Compensation as a % of Revenue |
|---|---|---|---|
Noble | $3,200 | $10.3 | 0.32% |
Chesapeake | $9,500 | $21.0 | 0.22% |
Apache (NYSE: APA) | $14,600 | $19.2 | 0.13% |
EOG Resources (NYSE: EOG) | $7,300 | $13.1 | 0.18% |
Ultra Petroleum (NYSE: UPL) | $1,000 | $2.5 | 0.25% |
Devon Energy (NYSE: DVN) | $9,500 | $18.9 | 0.2% |
Occidental Petroleum (NYSE: OXY) | $21,700 | $76.1 | 0.35% |
Sources: Company proxy statements and Yahoo! Finance. Dollar figures in millions.
Despite having one of the lower CEO salaries here, Noble actually pays Davidson the second highest percentage of revenue, after Occidental Petroleum. Chesapeake, go figure, is about average.
What about me?
So why aren't Noble shareholders up in arms over Davidson's "egregious" compensation? His salary has grown from about $2.7 million when he came on in 2001, give or take exercised stock options, to $10.3 million last year. That's about a 381% increase.
However, shareholder returns under Davidson have increased about 15% every year over the same period, good for about a 300% jump over his 10-year tenure. Investors who held Noble prior to Davidson's turnaround of the company are happy to chalk the 81% difference up to a cost-of-living increase and call the whole thing a square deal.
Noble, now
In order to keep up those great returns, Davidson has to keep the company moving forward. In the face of Turkish opposition, Noble commenced exploratory drilling off the coast of Cyprus last month. The field it is exploring has potential to be as big as the Tamar natural gas field. Noble discovered the Tamar off the coast of Israel in early 2009. At the time, it was the largest natural gas field found in the Mediterranean and the largest discovery in Noble's history.
Drilling is not enough these days, especially when the gas fields in the Mediterranean contain more than enough of the resource to sustain local economies. Noble is keen on eventually establishing a liquefied natural gas export facility in the region in order to capitalize on the growing demand for natural gas in foreign markets, particularly Asia. This is the ambition attracting investors to Noble.
Foolish takeaway
According to Forbes, Chuck Davidson is the 13th highest paid CEO in 2011, raking in an anticipated $33 million. Only time will tell if investors will continue to be satisfied enough with his commitment to forward progress and shareholder return to continue to let that go. The power of management can never be underestimated, and, when billions of dollars are involved, it never should.
