Diplomacy Is Among Changes Likely at Unocal With New CEO
When Forbes magazine ran a particularly tough article this summer about Fred L. Hartley, then chief executive of Unocal, New York analyst Philip Popkin’s quotes were highly critical.
Popkin is not just any analyst. He is the energy analyst for the College Retirement Equities Fund, which is Unocal’s 12th-largest stockholder with nearly 1.4 million shares. Responding in the article, Hartley snorted that analysts are “peons.”
In the past, remarks like that were all in a day’s work for the hard-bitten Hartley, 71, who has never had much time for emissaries from the investment community. He calls them “two-bit bums from New York.”
But this time, it occurred as Unocal was about to announce Hartley’s resignation as chief executive. Shortly after the article appeared, Popkin says, a senior member of Unocal management was on the phone apologizing for Hartley’s comments.
And by last week, Popkin was at Unocal Center in downtown Los Angeles for a private meeting with Hartley’s successor, Richard J. Stegemeier, who solicited Popkin’s advice on running the company.
The tale says as much about Stegemeier, who became chief executive on July 1, as it does about Hartley, who remains chairman.
A 60-year-old career Unocal executive who says he was Hartley’s hand-picked successor and a man who even looks like the ex-Unocal boss, Stegemeier has no criticism for the man he understudied. And he minimizes the scope of the changes he is implementing, suggesting that his predecessor might have done the same things.
But he makes clear at the same time that he is eager to distinguish himself from the powerful but uneven legacy left by Hartley after 24 years atop the country’s 15th-largest oil company.
“Fred has turned the company over to me, the board has turned the company over to me,” Stegemeier said in an interview. “It is my responsibility to run the company and I will do it as I see fit, in my style, and I expect to be a very strong leader. I am not a caretaker.”
Congratulated on his promotion, he says with a laugh, “Well, I’ve sought it long enough.”
And later, he says: “The culture of a company is very important, and I think that culture is set by the man on the top. It’s been set for the last 24 years or so by Fred Hartley. He’s been the soul of the company. . . . That is now my responsibility. I will be the soul of the company.”
Stegemeier cheerfully admits to a difference in personality from the often combative Hartley. No glad-hander, he is nonetheless open and diplomatic. Those traits show through in his handling of questions at the company’s annual shareholder meeting, an arena where Hartley was prone to inappropriate remarks.
Some Early Changes
There are more concrete signs of change under Stegemeier, including his effort to sidle up to those two-bit bums from New York. Next month, he leaves for the dreaded Big Apple and four other cities to meet with analysts and shareholder groups.
It will be the first such trip by Unocal’s top executive since at least 1985, the watershed year in Unocal’s recent history. That was when Hartley successfully fought a takeover by T. Boone Pickens Jr., but took on a load of debt that weakened the vast company he had built.
The heavy debt magnified investor dissatisfaction with Unocal’s low stock price--the company’s liquidation value is deemed by some to be twice its recent stock price of $36 per share--and has brought demands that assets be sold off to hasten the payments on the debt.
Stegemeier said his meetings with analysts will help him to “get out and find out what this whole investment world is all about . . . and set aside any old biases they might have had.” Stegemeier’s first earnings report was far more detailed, bringing Unocal into conformance with the rest of the oil industry.
Under Hartley, said analyst Popkin, “The owners didn’t count. All Mr. Stegemeier would have had to do is say ‘Hello’ and it would have been more forthcoming than they have been in the past.”
As previously reported, Stegemeier has put Unocal’s headquarters building up for sale along with numerous other pieces of real estate, closed down part of an outmoded Texas refinery and promoted a bevy of young executives. He has granted his senior executives far more spending authority and acknowledges that he might sell part or all of Unocal’s big Chicago refinery.
At a company where sheer fear of Hartley was said to ooze through the walls, Stegemeier singles out the effort to give his executives more authority--and make them more accountable--as one of his biggest priorities.
“We want people to be a part of the decision-making process and be accountable for whatever they do, not always delegate or look upward,” he said.
But nothing would more clearly symbolize a break from the past than closing down Unocal’s temple to alternative energy in Parachute, Colo. And that now seems likely under Stegemeier.
Reflecting Hartley’s lifelong interest in squeezing oil from shale, the company is producing about 5,000 barrels of crude oil per day from rocks that it has mined from the side of a mountain on the western slope of the Rockies. The venture is underwritten by $30 per barrel in federal price supports, a taxpayer subsidy that lets Unocal get about $46 per barrel for the costly stuff.
Will Still Drain Cash
It is deemed a noble experiment in the energy community, an attempt to perfect the technology for the day when oil is worth $40 or $50 per barrel. But it cost Unocal shareholders some $850 million in the process and has been a fat target for corporate raider Pickens and other critics.
Though the project has been entirely written off on the company’s books, Stegemeier confirmed that it will drain about $30 million in cash this year before taxes. He says that if the drain can’t be halted by year’s end--which would require production of 8,000 barrels a day, a level that has eluded Unocal in five years of trying--the operation will probably be closed.
Though his background is in research and he talks enthusiastically about the oil-shale potential, Stegemeier as chief executive says the Colorado venture is just another “under-performing asset.”
Does this mean that the new Unocal is guided strictly by the next quarter’s financial results?
“If we stop the project, the future experience would be lost. The past will not be lost,” Stegemeier says. “It would not stop our interest or our experimentation with oil shale. . . . It may be time to take a breather.
“I’m probably taking a slightly harder look at it than Fred, if you need to draw a distinction. Fred would agree that we’ve got to make the thing pay off. I guess I’m being pretty hard-nosed about saying we’ve given it a good, hard, long run, let’s fish or cut bait.”
