Hess Continues Push for Board Nominees in Proxy Fight

Hess Corp. stepped up an ongoing push for its director nominees Monday after two proxy advisory firms last week recommended shareholders back the board slate put forth by dissident holder Elliott Management Corp.

Hess's five director nominees released a letter to shareholders defending their role, while Hess separately accused proxy advisory firm Institutional Shareholder Services Inc. of having an "institutional bias toward activist shareholders," an allegation the firm denied.

The proxy battle between the oil company and Elliott, a hedge fund that owns about 4.52% of Hess's shares, has gone on for months.

Elliott has argued Hess's board has sat by, allowing management to pursue costly and ineffective strategies that have eroded the company's value. Meanwhile, Hess has said it is on track to transform itself into a more focused exploration and production company, and Elliott is pursuing a destructive and flawed plan to break up the company.

Hess shareholders will vote on the board composition at the annual meeting May 16 in Houston.

In Monday's letter, the Hess nominees solicited the support of shareholders, saying Elliott's characterization that Hess's board members are required to support the company's strategic plan as a precondition for serving on the board "is simply false."

In response, Elliott Management called Hess's plea "desperate," adding, "rather than address the real operational and governance issues that have plagued the company for nearly two decades, Hess has decided to attack the independent shareholder advisory services."

Meanwhile, Hess said ISS has "adopted a pervasive policy of bias in favor of the activist," citing a recent New York Times survey that shows the advisory firm has backed the insurgent slate in 73% of cases so far in 2013.

Hess cited prior proxy contests in which ISS has backed the insurgent slate, including battles between AOL Inc. and Starboard Value LP, Motorola Solutions Inc. and Carl Icahn, Actelion Ltd. and Elliott, and Target Corp. and Pershing Square Capital Management.

ISS disputed the charge, saying it has recommended shareholders vote in favor of management nominees in 45% of cases since 2011 and only fully backed a board slate from a dissident shareholder in 12% of circumstances.

In its report last week, ISS cited the company's "significant underperformance," and what it said are signs that the board's "new-found attentiveness to the business is a response to the proxy contest," adding Hess's transformation appears to have occurred only on the surface and a slate of board members already aligned with the company's management isn't in the best position to oversee the company.

Two other proxy firms have weighed in. Glass Lewis & Co. on Wednesday sided with the dissidents, concluding that while the shift toward becoming a pure exploration and production company may be the right one, "we find little cause to suggest that the current board is best suited to oversee that change."

Egan-Jones Proxy Services, however, said Hess's efforts at transformation are translating into lower spending and driving production growth, and the dissidents haven't offered a persuasive strategy.

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Hess Continues Push for Board Nominees in Proxy Fight

Hess Corp. stepped up an ongoing push for its director nominees Monday after two proxy advisory firms last week recommended shareholders back the board slate put forth by dissident holder Elliott Management Corp.

Hess's five director nominees released a letter to shareholders defending their role, while Hess separately accused proxy advisory firm Institutional Shareholder Services Inc. of having an "institutional bias toward activist shareholders," an allegation the firm denied.

The proxy battle between the oil company and Elliott, a hedge fund that owns about 4.52% of Hess's shares, has gone on for months.

Elliott has argued Hess's board has sat by, allowing management to pursue costly and ineffective strategies that have eroded the company's value. Meanwhile, Hess has said it is on track to transform itself into a more focused exploration and production company, and Elliott is pursuing a destructive and flawed plan to break up the company.

Hess shareholders will vote on the board composition at the annual meeting May 16 in Houston.

In Monday's letter, the Hess nominees solicited the support of shareholders, saying Elliott's characterization that Hess's board members are required to support the company's strategic plan as a precondition for serving on the board "is simply false."

In response, Elliott Management called Hess's plea "desperate," adding, "rather than address the real operational and governance issues that have plagued the company for nearly two decades, Hess has decided to attack the independent shareholder advisory services."

Meanwhile, Hess said ISS has "adopted a pervasive policy of bias in favor of the activist," citing a recent New York Times survey that shows the advisory firm has backed the insurgent slate in 73% of cases so far in 2013.

Hess cited prior proxy contests in which ISS has backed the insurgent slate, including battles between AOL Inc. and Starboard Value LP, Motorola Solutions Inc. and Carl Icahn, Actelion Ltd. and Elliott, and Target Corp. and Pershing Square Capital Management.

ISS disputed the charge, saying it has recommended shareholders vote in favor of management nominees in 45% of cases since 2011 and only fully backed a board slate from a dissident shareholder in 12% of circumstances.

In its report last week, ISS cited the company's "significant underperformance," and what it said are signs that the board's "new-found attentiveness to the business is a response to the proxy contest," adding Hess's transformation appears to have occurred only on the surface and a slate of board members already aligned with the company's management isn't in the best position to oversee the company.

Two other proxy firms have weighed in. Glass Lewis & Co. on Wednesday sided with the dissidents, concluding that while the shift toward becoming a pure exploration and production company may be the right one, "we find little cause to suggest that the current board is best suited to oversee that change."

Egan-Jones Proxy Services, however, said Hess's efforts at transformation are translating into lower spending and driving production growth, and the dissidents haven't offered a persuasive strategy.

Copyright (c) 2013 Dow Jones & Company, Inc.

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Two Nominees, Two Opportunities for Growth

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

In the coming months, President Obama will have to make two huge decisions about the future of American energy policy: whether to permit the Keystone XL pipeline and whether to allow Shell to move forward with its Arctic offshore drilling program. Coincidentally, both decisions may be influenced by the President's new appointments at the State Department and the Interior Department.

With Nebraska Governor Heineman's approval this week of the new route through Nebraska, the stage is set to bring more than 4 years of wrangling, delay, and political posturing on the Keystone XL pipeline to a close. Once the State Department conducts an environmental review that is already underway, there will be nothing preventing President Obama from making a final decision on the project - finally.

The President's decision to reject Keystone XL's application for a permit last January, despite the fact that the Department of State has affirmed that Keystone XL would be the safest pipeline ever constructed, was a political move meant to allay environmentalists until after the election. After suffering significant blowback from labor groups and the majority of Americans who support the project, the President enthusiastically supported construction of the southern leg of the pipeline and invited TransCanada to reapply for the permit that they need to cross the border from Alberta into Montana.

The delays and route changes that TransCanada has been forced to endure have added more than a billion dollars to the cost of the project, suspended tens of thousands of high paying jobs, delayed relief at the pump for millions of American drivers and prevented the project from pumping more than $20 billion into the U.S. economy.

As the State Department makes its final Environmental Impact Statement and National Interest Determination, supporters of the pipeline should make clear to both the White House and to the President's nominee for Secretary of State, Massachusetts Senator John Kerry, the importance of the project to the U.S. economy. Members of the Senate should ensure that Mr. Kerry pledges not to inject politics into the Department's review of the project in his confirmation hearings.

At the other end of the country, another energy company is wading through arbitrary delays and red tape in its efforts to develop resources off the Alaskan coast. In 2005 and 2008, the federal government sold Shell leases in the Beaufort and Chukchi Seas with a good faith agreement that the company would be able to explore the leases for oil and natural gas. In 2007, a federal court prevented Shell from drilling wells in the area due to a lawsuit by environmental groups. It happened again in 2009 and 2011 when baseless lawsuits aimed at the federal approvals process stopped the project from moving forward. Despite years of insisting that Alaskan offshore energy is part of the President's "all of the above" energy strategy, Secretary Salazar and the Department of the Interior has failed to permit the project in a timely manner.

Now, Mr. Salazar is departing Washington for the family ranch in Colorado, leaving the future prospects of the Alaska project in limbo. President Obama and his new nominee for Secretary of the Interior must understand the consequences of imposing further delays on the Alaskan offshore project. Beyond simply setting a standard of bad business on the part of the federal government, delay by the Interior Department would also jeopardize efforts by other energy companies invested in the region and would diminish the United States' ability to lead in Arctic energy development.

The potential energy and economic benefits of the Keystone XL project and Shell's Arctic development are staggeringly large. The pipeline project would create 20,000 jobs and pour $20 billion into the U.S. economy. Offshore Alaskan energy development will create more than 54,000 jobs annually for 50 years and generate $300 billion in revenue for the U.S. Treasury. We cannot afford further delay.

President Obama and Sen. Kerry should move quickly to give final approval to the Keystone XL pipeline. Meanwhile, Congress should ensure that his nominee to lead the Interior Department understands the importance and benefits of energy development off Alaskan shores. It would be a boon for the U.S. economy, and the U.S. energy consumer.

Michael Whatley is the executive vice president of Consumer Energy Alliance in Washington D.C.

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