Oil Industry Maintains Country Club Culture During Downturn

(Bloomberg) - Horizontal shales deep under the earth’s surface are important to an energy company’s balance sheet, but so is what happens above the grass line - especially if that grass is owned by an exclusive Texas country club.

From lunch-time dealmaking to mergers devised over 18 holes, elite country clubs in energy’s heartland offer oil and natural gas executives a chance to brush elbows with other drilling bigwigs. That kind of access makes five-digit annual dues worth the cost - or at least that’s what the executives using these private clubs hope they can convince their shareholders.

Even as the oil industry undergoes its deepest downturn in a generation, about one fifth of CEOs at energy companies in the Standard & Poor’s 500 Index were eligible to be reimbursed for club dues last year, the biggest share among all industries, according to data compiled by Bloomberg.

“It’s a networking tool. When I’ve gone to these clubs, it has always been all business there," said Brent Longnecker, chief executive officer of compensation consultant Longnecker & Associates, citing the transactional nature of the oil and gas business. “One day they’re competing for properties, but then the very next day they’re working side-by-side in a joint venture."

Club Dues

Businesses are paying up to give top bosses access to the likes of Houston’s River Oaks Country Club and the Dallas Country Club.

Anadarko Petroleum Corp., based in The Woodlands, Texas, spent $34,489 in 2015 on unspecified "club membership dues" for CEO Al Walker, data compiled by Bloomberg show, marking the highest club dues of any company in the S&P 500 that breaks out that data.

David Porges, CEO of U.S. energy explorer EQT Corp., had "country and dining club annual dues" of $15,922. Noble Energy Inc.’s David Stover reported "club memberships" of $9,512 last year, while Valero Energy Corp.’s Joseph Gorder received $8,803 for "reimbursement of club membership dues." The filings show these dues as a component of executive compensation but don’t specify which clubs the fees go toward.

Representatives for Anadarko, Noble and Valero did not return phone and e-mail messages seeking comment. A spokeswoman for EQT said in an e-mail that the company’s "executive compensation philosophy is such that compensation, including perquisites, is paid at or below the median of our executive peer group."

To limit costs, some firms maintain a club membership that’s tied to the CEO role and gets passed on when a new person gets the job, according to John Ellerman, founding partner of compensation consultant Pay Governance in Dallas. That saves the company from having to cover initiation fees that can top $100,000 at certain clubs.

Shareholder Pushback

Companies often require executives to pay for any use of the membership that isn’t business-related and club dues typically make up a small part of an executive’s total pay package. But they can still draw ire from investors of companies whose shares have slumped during the worst financial crisis in the nation’s oil industry.

Crude prices have fallen by more than half since the middle of 2014, forcing oil explorers to slash more than $100 billion in spending last year. In total, the global oil and gas industry has cut about 350,000 jobs during this most recent downturn.

On Monday, oil dropped for a fourth day, the longest stretch of declines in more than a month.

These club membership perks “can convey a certain image of senior executive entitlement that some shareholders don’t react well to,” said John Roe, a managing director at a unit of proxy adviser Institutional Shareholder Services Inc. Still, he said, “Providing reasonable perquisites with legitimate business purposes seldom results in failed shareholder votes."

To keep expenses in check, company directors usually examine all expenses, including club fees, line by line, said Longnecker.


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Copyright 2016 Bloomberg News.

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