Øre-pinching Norwegians pay for Chesapeake CEO’s $75m bonus

One of the more amusing idiosyncrasies thrown up by the FT’s investigation into the pay of energy industry chief executives involves the companies that in 2008 handed their bosses the highest and the lowest compensation package.

It appears StatoilHydro, the Norwegian state oil company that paid its chief executive $1.8m in 2008 and cut his bonus because of the global economic crisis, helped finance the $112m pay package the board of Chesapeake Energy, the US natural gas producer, paid its chief executive, Aubrey McClendon.

Onlookers may be getting a chuckle out of the situation, but Norwegians are not laughing, Nordic sources tell Energy Source.

Here is what happened:

The Statoil Story:

Statoil, the Norwegian oil company, about two-thirds of which is owned by the state, paid Helge Lund, its chief executive, $1.8m in 2008. Statoil’s compensation package is one of the smallest in the industry and the only one in the group that was fundamentally altered because of the economic downturn. The economic uncertainty prompted the company to cut in half – to 25 per cent of pay – the bonus Mr Lund was able to receive for 2008 and the last quarter of 2007.

The Chesapeake Story:

The most significant bonus of 2008 was that of Aubrey McClendon, chief executive of Chesapeake Energy, one of the US’s biggest natural gas producers. Mr McClendon, who founded Chesapeake in 1989, received a bonus of more than $75m after Chesapeake’s falling stock price forced him to sell more than 90 per cent of his shares to meet a margin call from his creditors. His total compensation for 2008 was $112m.

How the two Collide:

Chesapeake says Mr McClendon deserved the bonus for the shareholder value he achieved and for two deals he struck, one with Statoil and one with BP.

Both European companies bought into Chesapeake’s shale gas position in 2008. In November Statoil announced it would pay $3.4bn to take a stake in Chesapeake’s shale position, giving the Norwegian company access to natural gas reserves of 3bn barrels of oil equivilant and to gas production of 200,000 barrrels of oil equivalent a day after 2020.

(Statoil is to spend $1.25bn on a 32.5 per cent stake in Chesapeake’s Marcellus shale gas assets, which cover 1.8m acres in the Appalachia region of the north-eastern US. It has also agreed to invest $2.13bn as a 75 per cent share of the cost of drilling and completing wells in the area during 2009-12.

StatoilHydro also has the right to a 32.5 per cent share in any additional leases acquired by Chesapeake in the Marcellus shale.)

In addition Statoil gets to tap into the shale gas knowledge of Chesapeake and Chesapeake gets access to international markets – Statoil’s strength – in future world – wide cooperation. BP struck a similar deal.

Oil and gas chief executives: Are they worth it? (FT, 30/11/09)
Energy bosses rake it in despite downturn (FT, 30/11/09)
Executive pay at US energy groups higher (FT, 30/11/09)

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