Kimmeridge hedge fund criticizes high executive compensation in energy sector

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July 20 (Reuters) – Energy-focused private equity firm Kimmeridge Energy Management Co LLC on Tuesday released a white paper criticizing the high salaries of executives at U.S. oil producers in a year that marked the one of the worst downturns in the industry.

The COVID-19 pandemic and a price war between oil giants Saudi Arabia and Russia last year have pushed crude prices to historic lows, exacerbating a more than six-year slowdown that has frustrated investors in the face of the weak yields.

Total compensation for CEOs of 27 U.S. oil producers fell 14% last year from 2019, but that was only a 1% drop from 2018 levels, the newspaper said. Stock prices are down 60% in 2020 compared to 2018.

The short-term incentive payout as a percentage of goal exceeded 100% for 7 of 27 companies examined, along with CNX Resources Corp (CNX.N), Range Resources Corp (RRC.N), EQT Corp (EQT.N) and APA Corp (APA.O), formerly Apache, tops the list.

The companies did not immediately respond to requests for comment.

Kimmeridge’s newspaper said that while annual bonuses in 2020 were paid below target, the median payout of 95% still seemed “unwarranted” high for a year while the median share price return was negative. by 36%.

Commodity prices should no longer serve as a key factor in rewarding executives, according to the newspaper, and Kimmeridge believes long-term incentives for the CEO should be entirely performance-based.

“Rising commodity prices may temporarily ease some of the pressure from investors on governance reform, but it’s important to remember that this is a highly cyclical industry destined to repeat the mistakes of the world. past if the underlying issues regarding alignment and accountability are not properly addressed. “

Kimmeridge earlier this year launched a proxy battle at Ovintiv Inc (OVV.N), formerly Encana, settling the fight for a seat on the oil and gas producer’s board of directors.

Reporting by Arathy S Nair in Bengaluru; Editing by Devika Syamnath

Our Standards: Thomson Reuters Trust Principles.


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