(Updates with comment from analyst in sixth paragraph.)
Feb. 15 (Bloomberg) -- Occidental Petroleum Corp., the largest onshore crude producer in the continental U.S., has started a search for a successor to Chief Executive Officer Stephen Chazen less than two years after he took over.
Occidental’s board has formed a committee to work with an executive search firm, the Los Angeles-based company said in a statement yesterday. Occidental will review both internal and external candidates and doesn’t have a time table for choosing a successor to Chazen, 66, who became CEO in May 2011.
“People knew, based on Chazen’s age, that he wasn’t going to be a 10-year CEO,” Tim Rezvan, an analyst at Sterne Agee & Leach Inc., said in a phone interview this morning. “He has spoken about setting up the succession plan for a while and they’ve set up a pretty good bench of internal candidates.”
Activist shareholders have called for CEO changes at several energy companies in the past year, including Hess Corp. and SandRidge Energy Inc. Occidental has lost more than 20 percent of its value since Chazen succeeded Ray Irani, who was chairman and CEO of the company for more than 11 years. Irani, who continues to serve as executive chairman, will retire at the end of 2014, the company has said.
The oil producer has been plagued by delays and ballooning costs at its California oilfields, prompting Chazen to institute cost-saving measures such as simplified well designs and cheaper drilling methods.
Chazen was well regarded by investors and some shareholders found the nature and tone of the announcement “strange,” Paul Sankey, an analyst with Deutsche Bank AG in New York, said in a note to investors today.
Occidental fell 2.5 percent to $84.71 at the close in New York. The shares have gained 11 percent this year.
The company reported fourth-quarter profit last month that beat analysts’ estimates as domestic production reached a record for the ninth consecutive quarter. Quarterly results included a $1.1 billion writedown for the value of natural gas assets.
Occidental may be considering separating its chairman and CEO roles if Chazen steps into the executive chairman position when Irani retires, Brian Youngberg, an analyst at Edward Jones in St. Louis, said in a phone interview yesterday.
“The company is a little more challenged now,” said Youngberg, who rates the company’s shares a buy and doesn’t own them. “They have some cost pressures, which they are addressing. The stock has lagged some of its peers.”
Strengthening its corporate governance may help ward off a move by an activist investor, he said.
“We have seen increased activity with activist investors with companies who have lagged their peers,” Youngberg said. “The thing an activist may look for would be a change in executive compensation and separation of the CEO and chairman,” he said.
Relational Investors LLC, one of the firms agitating for board changes and asset sales at Hess, exited its position in Occidental in the fourth quarter of 2012, selling about $222 million in shares, according to a filing yesterday.
Occidental yesterday increased its dividend 18.5 percent to an annual rate of $2.56 a share, from $2.16 a share. The shares were unchanged at $86.91 at 8:56 a.m. in New York.
Occidental has been criticized by investors in the past for paying its top executives too highly. Last March, Occidental reduced Chazen’s compensation package after facing complaints about Irani’s CEO salary in 2010.
Chazen received $31.7 million in 2011 compared with $38.1 million the year before when he was president, according to a filing with the U.S. Securities and Exchange Commission. Chazen’s compensation included $1.27 million in salary, a $1.34 million bonus and $28.6 million in cash and stock awards.
Irani received $49.8 million in cash, stock and other benefits versus $76.1 million in 2010, when his compensation nearly doubled, making him the highest-paid CEO in the energy industry.
--Editors: Tina Davis, Charles Siler