Lean Further Into Value - 2024 Oily E&P Compensation Review

The Gist (1) Companies and boards should continue to place greater emphasis on value creation metrics like Return on Capital Employed (ROCE/cROCE), Return on Invested Capital (ROIC), and similar measures within their long-term incentive structures. (2) Industry is still NOT emphasizing growth/resource production growth-Bravo! (3) Capital efficiency targets are becoming increasingly difficult to exceed by a wide margin which has implications for the oil macro.

Show me the incentive, and I will show you the outcome.

-Charlie Munger

This year, I’m excited to introduce my annual compensation reviews. We’ll start with the oil-focused E&Ps, and over the coming weeks, I will roll out additional posts covering the gassy E&Ps, integrateds, oilfield services (OFS), and eventually the refiners and drillers—once we finish the painstaking process of collecting data from hundreds of annual proxy statements.

Incentive structures determine outcomes.

Having spent 15 years on the sell side, I can tell you firsthand that publishing on this topic is a bit taboo—too much risk of losing corporate access. Luckily, I’m no longer held hostage by those constraints.

These days, I get compensated when I gain subscribers—and that only happens through good content. Incentives still driving outcomes!

Let’s get started.

In 2024, awarded compensation for oily E&Ps declined by 2.5% year-over-year—the second straight year of annual declines following the 2022 peak.

The chart above shows awarded compensation, which isn’t necessarily cash in hand given the vesting restrictions tied to various long-term incentive (LTI) instruments.

For a clearer picture, the chart below shows realized compensation—which includes salaries, annual bonuses, exercised options, and vested stock—and it declined by 9% year-over-year.

As you can see, realized compensation levels are heavily influenced by long-term incentive instruments.

A company by company breakdown is provided below.