After two oil executives made $1.6 billion for the family of late wildcatter J. Cleo Thompson and helped defend them against T. Boone Pickens, the Thompsons rewarded them each with $100 million bonuses. Then they tried to claw it all back.
For the first time in 15 years, oilman Paul Rudnicki was trying to adjust to not being a workaholic. It was 2017 and Rudnicki was living with his family in Santa Barbara in a dream home overlooking the Pacific. He had made a break with the oil industry — having recently been forced out of his job as CFO at Dallas-based Thompson Petroleum Company. He was 40 years old, sitting on a nest feathered with tens of millions of dollars in bonuses from selling west Texas oil fields, and taking time to figure out his next chapter. Until that is, the demand letter arrived from Thompson family attorneys in late 2017, ordering Rudnicki to immediately repay a $100 million bonus they had given him just one year before.
Rudnicki must have been baffled. According to court documents, there was no doubt he had left Dallas-based Thompson Petroleum under a cloud, soon after his former boss Frank Peterman quit over a bonus dispute. The Thompson family, which owns Thompson Petroleum outright, had hired Peterman in 2011 and Rudnicki in 2012 to make sense of the pile of assets left behind when legendary oil wildcatter James Cleo Thompson Jr died in 2010 at age 80. James left the company he had started with his father in the 1950s to his widow Dorothy and his adult daughters Linda Thompson Gordon and Jean Christine Thompson. The surviving Thompsons were not oil dealmakers and, according to emails introduced as evidence, they were initially gleeful that “Jimmie” had sent Peterman and Rudnicki “from Heaven” to take care of his family business. Peterman and Rudnicki did just that, closing five deals in five years for net proceeds of $1.6 billion to the family. The Thompson family was so thrilled after the duo sold a west Texas field called Red Bull to Occidental Petroleum for $1.1 billion that Linda wrote each man a bonus check for $58.2 million, with $41.8 million withheld for taxes.
The “sheer absurdity of the bonus amounts” depicted a “level of greed unfathomable to the average person.”
It was a big bonus, but in a later deposition Rudnicki insisted that he had neither demanded nor expected it. So he was surprised in early 2018 to read allegations made by the Thompsons in their complaint, filed in Dallas County District Court, that he and Peterman had “breached their fiduciary duties by using fear, threats and intimidation” to get bonuses that were really extortion payments. The complaint states that the “sheer absurdity of the bonus amounts” was evidence of a “level of greed unfathomable to the average person.” Those claims set in motion a four-year legal fight and a rare look at the inner workings of a family, which thanks to the miracle of Texas oil fracking suddenly found itself with a billion dollars, then later regretted sharing too much of it, too soon.
James Cleo Thompson, Jr. was one of the last of the old Texas wildcatters. Decades before shale fracking took much of the guesswork out of oil and gas, guys like Thompson would drill high-risk wells on little more than a hunch. Thompson was more successful than most, and operated about 2,000 barrels per day of oil production when he died. But he left a mess. Many records of his disparate interests were only kept on paper files.
The Thompson family was uniquely unqualified to sort this tangle out. There was Dorothy the tough-minded matriarch, who had been a rock for Jimmie, but hadn’t been actively involved in the business and is now 89-years-old. Daughter Linda was “unpleasant, arrogant, and rude” according to Peterman’s court filings (his attorney did not respond to Forbes’ request for comment). She spent most of her time on her horse farm Fossil Gate, where in 2014 she had pled guilty to federal felony indictments for hiring illegal immigrants. According to Peterman, Linda’s sense of entitlement caused employees to “walk on eggshells.” Christy was more amiable, a health nut with a passion for real estate. The trio were suddenly making day-to-day decisions for the company, but they did not have a master plan. Dallas billionaire Ray Hunt supposedly offered to buy, but Dorothy refused to sell.
In 2011 they hired Frank Peterman, who had previously worked for Houston-based HighMount E&P (an oil and gas subsidiary of the Tisch family’s Loews conglomerate). He brought in as CFO, Paul Rudnicki, who had spent more than a decade in business development at Exco Resources, participating in the early “land grab” phase of the great American oil and gas fracking boom. At Thompson Petroleum they found a moribund office that looked straight out of the 1970s, with paper files, weak accounting systems and no plan to develop Jimmie’s disparate legacy assets. His reputation in the industry was as an oil and gas finder who was as conservative with his finances as he was daring with his drilling. He didn’t carry debt, instead he owned a bank and lent money. Dozens of wells he had drilled or partnered on continued to generate solid income after Jimmie died, but the value of his land holdings was far from being maximized — especially in the Permian basin of west Texas. Peterman and Rudnicki discovered that Jimmie had been sitting on oodles of acreage in the southwestern portion of the Permian basin — precisely where drillers were employing the a new combo of horizontal drilling and hydraulic fracturing to tap lucrative layers of shale “source rock.” To prove that rich reserves lay beneath the Thompsons’ hundreds of thousands of acres there, Peterman and Rudnicki got work, drilling more wells in the next five years than Thompson had drilled in decades.
“I truly believe that Jimmy looked down from heaven and found you for us to keep going in the direction we have gone.”
Cash began rolling in. In 2011, Peterman leased out 24,000 acres in Crockett County to another oil company for $55 million. The next year they sold acreage in Reeves County for $250 million and followed up in 2013 with a $110 million sale of oilfield interests to Occidental Petroleum. In 2015 RSP Permian bought Thompson fields in Martin County for $230 million. On June 3, 2016, Dorothy wrote to Mr. Peterman: “I want to say, and I think I have told you before, but I truly believe that Jimmy looked down from heaven and found you for us to keep going in the direction we have gone. You are a blessing to us and we are so grateful that we found you when we did. You were so needed, both then and now! . . . Thank you, Frank, you are truly appreciated and we are grateful for you.”
The Thompson family got in the habit of paying bonuses. After the Reeves County deal Peterman and Rudnicki each received $1.2 million bonuses – as did Linda and Christy. After the Martin County deal all four got $7 million. According to court documents, Dorothy liked that her daughters got direct payments from the company because it was easier than getting distributions from family trusts. All this largesse however didn’t help the sisters get along. According to Peterman’s filings, because of their sour relationship, the “atmosphere within the office became toxic and unbearable.”
T. Boone Pickens
Matt Hawthorne for Forbes
Peterman and Rudnicki knew that the jewel in the Thompson Petroleum crown was an oilfield project called Red Bull, located in Reeves County, Texas on the southwestern side of the Permian Basin. There, under two miles of hardscrabble dirt and tumbleweeds, drillers had identified several horizontal layers of oil-bearing rock that they could steer their drill bits into before “fracking” it by blasting down a high pressure mixture of water laden with sand. Thompson had a 25% stake in 60,000 acres — enough for hundreds of wells – and plenty of big companies were keen to buy it.
But Red Bull came with one big caveat: an unresolved lawsuit against Thompson and its other partners, brought in 2014 by the late oilpatch legend T. Boone Pickens. In 2006 (according to The Last Trial of T. Boone Pickens, by his attorney Chrysta Castaneda) Jimmie Thompson had called Pickens to talk up Red Bull. In 2007 Pickens bought in as a 15% partner. But when the 2009 crash in oil and gas prices decimated Pickens’ portfolio (taking his fortune from $3 billion to less than $1 billion in a year) his interest in funding high-risk drilling also declined. His partners in Red Bull claimed they thought Pickens wanted out because he had temporarily stopped providing fresh capital. Pickens argued, in Dallas County District Court, that just because he had declined to pony up his share to fund early wells at Red Bull, that didn’t mean that he was just relinquishing his rights as a minority partner. Pickens wanted 15% of the value of the entire project, plus damages. And he wanted a jury trial.
It was unclear how much liability the Thompsons really had – after all, other partners had absorbed Pickens’ stake — but the family was scared of Pickens. In an October 14, 2016 email, Dorothy wrote to Linda, “I know the bible says, we are not to hate, but I do hate Boone, the big SOB! […] If Jimmie were here Boone never would have gone up against us.” Linda responded: “I don’t think we owe that old SOB, fart one penny.”
“There was no payor’s remorse about the bonuses. To the contrary, there was elation all around.”
Even as the Pickens case headed to trial, Peterman and Rudnicki courted buyers for their portion of Red Bull. At prevailing prices upwards of $10,000 an acre, the market was hot. They dismissed the Pickens case as merely a “title defect” and they managed to get a bidding war going between Occidental Petroleum and Noble Corp. The price jumped from a $600 million all-stock offer they had received that summer to $1.1 billion cash by October. They took the deal. It was hard not to be excited. Rudnicki wrote to the Thompsons on October 28, 2016: “Congratulations! How does it feel to be billionaires!” Pickens was irate when he heard about the sale and kept pushing for a trial.
Peterman wasted no time in discussing bonus payments. According to the Thompsons legal filings, Peterman and Rudnicki encouraged them to divvy up the windfall before its significance settled in, and before Pickens could make a claim on it. According to their complaint, the men “repeatedly told the Thompsons that the Pickens lawsuit was a massive liability that would likely bankrupt them.” They tried to “scare and intimidate.” They told them they could lose the lawsuit and be left with “nothing.” They “used that fear” of the looming trial “to create tremendous leverage.” The Thompsons’ complaint claimed that Peterman banged on a table and insisted he deserved a big bonus “because I’m worth it and because you need me” and because he would not “be around” to keep helping with the Pickens suit if he didn’t get what he wanted. The Thompsons, despite owning 100% of the company, felt “pressured, coerced and threatened into accepting his demands.” Peterman and Rudnicki deny any such manipulations.
Deposition testimony indicates that the $100 million checks for Peterman, Rudnicki, Linda and Christy was Peterman’s idea — rationalized as an even split of 25% each for that $400 million increase in the Red Bull auction price. It didn’t matter that bonuses of this sort were unheard of almost anywhere, let alone at family-owned oil companies. According to depositions, a Thompson attorney asked Peterman and Rudnicki to sign “claw-back” agreements, which would oblige them to hand back certain amounts if, for instance they left the company sooner rather than later. They both declined to sign, but nonetheless received their bonuses. Peterman received check no. 034727 from the Thompson Petroleum Company, signed by Linda in the amount of $58.2 million, with $41.8 million withheld for taxes. Rudnicki, Christy and Linda each got the same amounts.
As Peterman’s attorneys wrote in their motion, “There was no payor’s remorse about the bonuses. To the contrary, there was elation all around.” The joy was compunded by the final outcome of the Boone Pickens trial — in which the Thompsons avoided all financial liability. Pickens initially won damages of $150 million against another defendant, but that was later reduced to less than $20 million. Pickens, who suffered a stroke during the trial, died in 2019 at 91.
It should have been a happy ending, but according to the Thompsons’ complaint, Peterman’s greed knew no bounds and he insisted upon subsequent deal bonuses. When the Thompsons balked, he began to question their interest in a “development and divestment” strategy. Peterman, in his filings, says it wasn’t greed that drove him out, but rather the Thompsons’ unwillingness to continue to support and incentivize his dealmaking. Both Rudnicki and Peterman say in court documents that they had hoped to spend the rest of their careers at Thompson Petroleum, but Peterman quit in early 2017, while Rudnicki departed a few months later. Rudnicki said in deposition that he was surprised when the Thompsons demanded repayment of the bonuses, and it hurt to be accused of “unfathomable” greed. So Rudnicki countersued the Thompsons for payment of $8 million in bonuses promised before he left. Avoiding trial, Peterman settled with the Thompsons in 2019. Rudnicki settled in February, 2022, after Christy Thompson in a deposition disavowed her own attorneys’ allegations that Rudnicki extorted them. Thompson Petroleum Company hasn’t done any big deals since the duo left. Rudnicki, through a spokesman, says he’s “glad to have his good name back” and looks forward to a return to the industry.
What happens to the big pile of cash is now up to Christy Thompson. Sister Linda died in late 2021, childless. Dorothy is believed to be in end-of-life hospice care. Christy, married with no kids, now solely oversees a billion-dollar family office and real estate empire. Through her attorney, Thompson would say only, “I can’t comment on the case, but I can say we have all moved on and I wish Frank and Paul the best. I work hard these days pursuing my passion for real estate.”
Does she ever; last year Christy sold a $20 million mansion in Florida. This year she sold one home in Aspen for $60 million then bought another for $50 million. (Peruse some of her rentals here.) Her home with husband Stephen Hill in the University Park neighborhood of Dallas boasts 24,000 square feet and is covered in the same Bulgarian limestone Greece is using to renovate the Parthenon. Earlier this year she had it on the market for $43 million. In this rarified air, even a $100 million bonus doesn’t last long.
MORE FROM FORBES
Source: https://www.forbes.com/sites/christopherhelman/2022/11/07/the-heiresses-the-oilmen-and-the-200-million-bonus-battle/