It’s been a very good month for Occidental Petroleum Corp. Chairman and Chief Executive Ray Irani.
On July 19, the 72-year-old Irani inked a deal with the board of the Westwood oil giant extending his contract five years to 2015 with the potential to reap up to $80 million over the next four years if the company surpasses certain performance targets. That’s on top of the $464 million in compensation and stock grants and exercised options that Irani pulled down in 2006, which made him L.A.’s richest chief executive.
The move drew some criticism from corporate watchdogs, but stock analysts seemed focused on something different.
Just nine days earlier, Occidental announced that its largest new project in decades and one of the biggest natural gas projects in the world finally had begun operation off the Qatar coast. Occidental’s 24 percent stake in the Dolphin project will likely comprise about 10 percent of the company’s total current production when the project fully ramps up early next year. That translates into several hundred million dollars in annual revenues for Occidental over the next 25 years.
That announcement had helped propel Occidental’s stock to a record high of $64 per share before slipping back to $58 per share during last week’s market selloff.
Occidental received a “strong buy” recommendation from Pavel Molchanov, petroleum industry analyst in the Houston office of Raymond James & Associates Inc. “Part of the reason why we like the stock so much is because we see this Dolphin project as a significant driver of their future growth. It’s one of the largest natural gas projects in the entire world.”
Yet most of the attention this month has been focused on Irani’s contract extension. Under its terms, Irani would be eligible for up to $58 million in cash and stock if Occidental earned a return on equity of at least 54 percent over the next three years. He would be eligible for another $24 million if Occidental’s total return to shareholders over the next four years exceeds industry benchmarks. Also drawing scrutiny was the contract extension’s five-year length.
“To employ anybody on a contract of this length flies in face of the market and also of good corporate governance. It’s expensive for companies to buy their way out of such a contract and shareholder protests have centered around this for some time now,” said Paul Hodgson, senior research associate at the Corporate Library, a corporate watchdog and research group based in Portland, Me.
Under terms of the contract extension, if the board decided to terminate Irani’s contract before it expires in May 2015, it would have to pay Irani up to three times his maximum total annual compensation.
