Attracting investors
U.S. energy firms are focusing more effort on pleasing their shareholders as energy stocks have failed to recover as quickly as oil prices.
Shareholders have gainedextraordinary attention from their own companies this year as oil and natural gas firms increasingly are meeting their demands and catering to their desires.
Publicly traded companies all have a responsibility to pay attention to their shareholders, who own the companies and — at least in theory — determine their direction. But shareholdersof oil and natural gascompanies are enjoying particular mindfulness now.
Energy stock prices tumbled in 2014 and 2015 as oil prices cratered to 14-year lows. But over the second half of 2017, oil prices doubled while stock prices floundered.
More than $700 billion moved out of the oil and natural gas space in recent years as investors instead focused on other sectors, including the flashing FAANG stocks of Facebook, Apple, Amazon, Netflix and Google.
Focusing on demands, debt and cost savings
To attract new investors and retain the shareholders they have, oil and natural gas companies have changed the way they do business, focusing on debt reduction and cost savings over increased production and the acquisition of new acreage and reserves. They also are paying much more attention to specific shareholder demands.
Chesapeake Energy Corp. directors last month reached settlements with two shareholders groups shortly before the company’s annual meeting. The shareholders planned to present proposals that would require the company to reveal additional information about the money it spends on certain lobbying and political spending efforts, andto develop a report assessingthe long-term effect of climate change and how the company’s actions affect the environment.
“We appreciate the constructive dialogue,” Chesapeake Chairman Brad Martin said to the presenting shareholders at the meeting. “I appreciate the nature of these relationships.”
In turn, the shareholders praised the company and its directors for their willingness to work with them.
“We are delighted the work, engagement and process has resulted in our recognition that we are working together on this issue,” said Julie Skye, principal of Tulsabased Skye Advisors. She proposed the spending disclosure on behalf of the Boston-based Unitarian Universalist Church.
Devon Energy Corp. directors this week approved a massive expansion of the company’s share buyback program, part of an effort to drive up the company’s stock price. The company now plans to buy back $4 billion in stock — about 20 percent of the outstanding shares. The company also is working to repay $1 billion in debt and boost the dividend payment.
“All those actions are very shareholderfriendly,” CEO Dave Hager said during the company’s annual meeting Wednesday. “We think that will be positive to the share price.”
The wrong kind of attention
Pleasing shareholders always is important for leaders of publicly traded companies, but the attention is heightened now, both because executives believe their stocks are underpriced and because of concerns that low prices could lead to unwanted attention from activist investors and potential buyers.
The ongoing proxy fight at SandRidge Energy illustrates part of the concern. Corporate raider Carl Icahn is trying to take control of the SandRidge board and has said that if he is successful, he might make a bid to buy the company.
That fight is ongoing, with a proxy vote scheduled for the company’s June 19 annual meeting. Regardless of the outcome, that conflict already has cost SandRidge millions of dollars. In a regulatory filing in February, SandRidge executives said the company spent $4.5 million in the fourth quarter for legal and consulting fees “related to shareholder activism.” The company also paid a $3.7 million termination fee when it bowed to Icahn’s demands and backed out of a planned purchase of Bonanza Creek Energy Inc.
Pleasing shareholders always has been the top priority for public companies, but shareholders don’t always demand as much attention as they are now, Tulsa money manager Jake Dollarhide said.
“A company’s board has one fiduciary responsibility, which is to maximize value for shareholders,” said Dollarhide, president of Longbow Asset Management Co. “A board of directors’ mission is not to maximize the happiness of employees. It is to put shareholders first.”
In general, the industry’s efforts so far appear to be working, he said.
“This disconnect between the recovery in oil prices and a lack of a bull market with oil and gas shares, I think, is about to end,” said Dollarhide. “In the second half of last year and the first of this year, oil and gas stocks are doing better.”