In other energy news… Nabors pay package

This blog has been a bit fixated on all things related to electricity in Texas recently (for really good reasons, mind you) but in case you think we’ve forgotten about Houston’s other energy business….

Eugene M. Isenberg. Chairman of the board, director and chief executive officer Nabors Industries

There’s been a bit of hubbub over a Wall Street Journal article this week regarding death benefits for executives, including that of Houston’s own Eugene Isenberg, chairman and CEO of drilling giant Nabors Industries:

If Mr. Isenberg died tomorrow, Nabors would owe his estate a “severance” payment of at least $263.6 million, company filings show. That’s more than the first-quarter earnings at the Houston oil-service company.

The stock price hasn’t slipped significantly in reaction to the story this week, a reflection of the fact that the heft of the Nabors pay package is old news. The severance package was actually larger last year — about $525 million according to last year’s installment of our annual executive pay survey (includes searchable database!!).
Isenberg has been a regular fixture on the top of our list for years due to the structure of his pay plan that was set up more than 20 years ago when he took the driller out of bankruptcy. From last year’s story, Isenberg was eligible for ” …up to $329 million in cash — the equivalent of three times his highest bonus in recent years — [and] $50 million in stock and stock options, and […] a $146 million payment to cover taxes.”
As we noted last year shareholders and analysts barely shug at the annual disclosure (which Nabors has traditionally been clearer than most companies at spelling out).

“Most investors are very well aware of his pay package when they buy the stock,” said Marshall Adkins, an analyst with Raymond James who follows the drilling industry. “Gene’s been exceptionally good at making money for shareholders, so they’re not going to complain.”

Analysts at Houston-based Simmons & Co. observed in a research note this week: “The passivity on the part of NBR’s Board and shareholders continue to amaze on this front – does anyone care?”
Simmons notes NBR’s change in control package approximates 5 percent of the company’s equity market capitalization and that the next largest change in control package in the business belongs to Weatherford International at about $180 millon or 0.60 percent of the company’s equity market capitalization.

“With ~$1.45B of cash on the balance sheet, this is hardly a crippling blow to the company’s balance sheet notwithstanding the questionable corporate governance practices related to excutive compensation but, nonetheless it would vault the company’s debt to cap from 39.5% to 46%.”

“It’s not as if NBR’s management has delivered consistently excellent performance to warrant such profligate treatment – while the stock is up 60-65% this year (OSX ~16%), NBR has been a conspicuous underperformer over the past two years (’07 = NBR -8%, OSX +51%, ’06 = NBR -21%, OSX +10%).”

“We suggest to NBR’s Board that there is no time such as the present to rebalance an executive compensation scheme that had been far too extravagant, for far too long.”