ConocoPhillips’ shrink-to-grow strategy is doing more than benefitting the company and its shareholders. It turns out the architect of the programme, Jim Mulva, Conoco’s chief executive (pictured), got a 25 per cent increase in total compensation to $17.9m in 2010.
While it is difficult for an outsider to put a dollar amount on Mr Mulva’s value, the turnround he has staged since the economic downturn exposed weaknesses in his acquisition spree is worth noting.
In early 2009, the US’ third biggest oil and gas company by production and market capitalisation, disclosed a 2008 fourth-quarter net loss of $31.8bn; a $34bn writedown; 1,300 in job losses; and a $2.8bn cut in capital spending.
Many wondered how it would survive, and Mr Mulva was forced to consider a variety of options before settling on this one.
It is not easy for anyone to undertake change, particularly if that change involves selling oil and gas assets at a time when obtaining access to new resources is so difficult. In recent years, the rise in resource nationalism amid the growing competition of the state-owned oil companies has made it difficult for the world’s international oil companies to grow production as they have in the past.
But Mr Mulva recognised he had a lot of assets that were not providing value to shareholders. For example, he had bought into Lukoil anticipating it would bring Conoco into new and profitable deals that never materialised. By getting rid of these assets, Mr Mulva can use the proceeds to invest in areas in which Conoco can immediately grow returns. Those include onshore US shale, Canada’s oil sands and deepwater.
Shrinking-to-grow is a risk, but it is one Conoco has – so far – played to its advantage. Mr Mulva has until 2012, when he said he would retire, to ensure the strategy has been fully carried out. He has sold $7bn in assets and has said he might sell up to $10bn more. He will not rush. These are sales he wants good value for. And, in a world of maturing oil and gas resources, he will undoubtedly get such value.
That explains the big compensation. What he is paid for this year and next depend on how well the rest of the programme is carried out.