From producers to utilities, the oil and gas industry's revolving door of CEOs, CFOs and COOs is significantly busier than usual.
Since the beginning of June, at least 19 C-suite executives have announced plans to leave their posts in the oil and gas sector.
Industry experts said that while the rising tide of executive turnover is often situation-specific, a combination of stressed balance sheets, spending cuts and corporate ownership changes exacerbated by low equity values and volatile commodity prices are in part responsible for the high volume of C-suite changes.
Drillers and pipeline operators are under pressure to pivot away from a growth-at-any-cost approach as their stock prices underperform the S&P 500 and abundant supplies of both crude oil and natural gas prevent prices from sustaining substantial gains. Since reaching a 2018 peak of $74.34 per barrel on Oct. 5, the price of West Texas Intermediate crude oil has dropped 23% to settle at $57.10 per barrel on Aug. 13.
The shift toward cutting spending and returning more capital to investors, along with the oilfield services segment's efforts to realign overcapitalized assets, can be too much for some seasoned executives to swallow, the experts said.
"The number of these executive changes [is] being influenced in part by a less than optimistic outlook for the industry, number one," Steve Raben, a Houston-based consultant at energy industry executive search firm Preng & Associates said in an interview. "Number two, people's equity has not grown and they're not maybe too convinced that it's going to grow, so if they can cash out what they have now, that may be better than seeing further depreciation or just treading. The third factor is that a lot of these people in C-suite positions are in their late fifties to mid-to-late sixties and they're just tired and saying, 'Why should I fight this for another three or four years?'"
In a scenario that parallels some of Raben's description, Whiting Petroleum Corp. CFO Michael Stevens decided to step down ahead of a July 31 second-quarter earnings release that reported a surprise loss and prompted the driller to scale back its production guidance for the rest of the year and cut 33% of its workforce.
Changing investor preferences also drive more mergers and acquisitions as well as business-related restructurings, which generate higher levels of turnover by shaking up management teams.
Frustrated by a massive loss in valuation since Appalachian shale driller EQT Corp.'s November 2017 merger with Rice Energy Inc., for example, shareholders on July 10 voted to immediately replace CEO Robert McNally with Toby Rice to shepherd lower costs and increase cash flows.
More shale drilling and services firms could see C-suite turnover in the immediate future as energy market headwinds persist.
"I think we are going to see more heads roll," Price Futures analyst Phil Flynn said in an email. "You can't just blame the executive, but it's like a manager of a baseball team. When the team doesn't hit it's the manager to blame."
EnLink Midstream LLC Executive Chairman Barry Davis' unexpected return to the CEO role on Aug. 8, meanwhile, was a response to the pipeline company's underwhelming relationship with private equity owner Global Infrastructure Partners, which acquired Devon Energy Corp.'s stakes in the company and its master limited partnership in 2018 ahead of an internal consolidation announced in October 2018.
Other midstream transitions were anticipated in connection with changes at the sponsor level, including Western Midstream Partners LP's CEO and COO overhaul following Occidental Petroleum Corp.'s completed merger with Anadarko Petroleum Corp., while the CEO, COO and CFO of Noble Midstream Partners LP's general partner have all resigned since the end of June amid rumors that parent Noble Energy Inc. is looking to unload its ownership interest as it completes a strategic review. At the root of those concluded and potential transactions, investors' frustration with struggling unit prices can be seen, according to Mizuho Securities USA LLC Managing Director Gabriel Moreen.
"I can't recall a time period where there's been this much turnover within midstream," Moreen said in an interview. "I would imagine there would be even more if it weren't for the MLP structure making it difficult for investors to effectuate change in the C-suite."
CBRE Clarion Securities portfolio manager and MLP expert Hinds Howard agreed that controlling general partners' reluctance to relinquish ownership often precludes the new management some partnerships need.
"It would be great to see some new blood, but more than likely we'll continue to see these small partnerships be run by some version of the same old guys," Howard said in an interview.
On the gas utilities side, both Atmos Energy Corp. and New Jersey Resources Corp. recently announced the departure of their CEOs, effective Sept. 30.
Bankrupt California utility Pacific Gas and Electric Co. also named former AES Corp. executive Andrew Vesey as CEO. Parent company PG&E Corp. is fielding financing proposals for a reorganization, and the utility will file a plan in the coming weeks as part of its Chapter 11 bankruptcy proceeding.