Drilling for answers at Petroleum Development…
The past month has had its ups and downs for the shareholders of Petroleum Development Corporation (PETD), partly because of the market’s uneven jags, and partly because of transitions within the company itself. Yet for three of the company’s executives, at least, a nice financial cushion has surely made the ride more comfortable than it might have been.
An 8-K filed June 16 discloses that Chairman and CEO Richard McCullough resigned from his posts, and the board tapped independent director James Trimble to fill the jobs of CEO/President right away. The board simultaneously decided that it was a good time to separate the Chairman and the CEO positions, noting that the move is “part of the Company’s ongoing effort to engender sound corporate governance best practices.”
The filing also stated that the newly departed McCullough “will receive those benefits set forth under Section 7(d)” of his April 19, 2010 Employment Agreement, so long as he gives the company a general release, doesn’t compete with it, keeps its secrets, and doesn’t make disparaging remarks about his former employer.
We would be shocked if McCullough chooses not to cooperate, because the company is prepared to pay him $4.125 million in separation pay, as well as $30,000 a year from 2012 through 2021 as a non-qualified deferred supplemental retirement benefit; continued COBRA coverage; immediate vesting of any unvested stock options, stock appreciation rights and restricted stock; shares representing the vested portion of his 2008 and 2009 performance share awards, and a bit more money. Petroleum Development’s filing indicates that a “separate severance agreement” with McCullough will soon be signed and filed.
Trimble, the new CEO/President, has been on Petroleum Development’s board since 2009. He has a lot of experience at other oil and gas companies, including leading two privately-held companies through troubled workout solutions and guiding one of them through a Chapter 11 bankruptcy case. Trimble will get an annual base salary of $625,000, plus he is eligible for a target annual performance bonus worth the same amount. He also got a $2 million-dollar award of restricted stock, which will vest on a pro-rata basis over three years. And – as with McCullough’s agreement – the company states that Trimble’s will be signed and filed with the SEC.
Finally, Jeffrey C. Swoveland, the new Non-Executive Chairman of the Board, will get an annual retainer of $100,000, together with any other fees that he currently gets for serving on the board of directors, on which he has served since 1991. Swoveland previously held the title “Presiding Independent Director” (which only paid $27,500 per year), but that position has been eliminated.
Our friends at the Motley Fool pointed out that Petroleum Development took the unusual step of announcing senior management changes on a Saturday, June 11. That’s even sneakier than the normal Friday night dump. Doing so says “there’s some problem management hoped would escape investors’ notice.” That may be the case, although the company hasn’t explained anything yet.
We found one possibility – but it’s only that at this point – in Petroleum Development’s Feb. 24, 2011 10-K; the company disclosed that a lawsuit had been filed (in federal court in West Virginia) which alleged that Petroleum Development had failed to pay the proper amount of royalties. It then said:
“As of December 31, 2010, the Company has a total accrual of $6.2 million related to this suit. Given the inherent uncertainty in actions of this nature, the Company is unable to predict the ultimate outcome of this case at this time; however, it could result in a loss in excess of the amount accrued.”
However, at this point, all we can do is watch for the agreements to be filed, and wait for the company to give investors more detail about exactly what is going on.
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