New York – Alvarez & Marsal (A&M), a leading global professional services firm, has released its Compensation & Benefits "20-2021 Oil and Gas Exploration & Production Compensation Report." The report, with supporting commentary from Equilar, a leading Board Intelligence Solutions provider, analyzes executives’ and board of directors’ compensation arrangements at the largest U.S. E&P companies.

The 2020/2021 Oil and Gas Exploration & Production (E&P) Compensation Report, authored by A&M Compensation & Benefits practice Managing Directors Brian Cumberland, J.D. Ivy and Allison Hoeinghaus, assesses total compensation, annual and long-term incentive (LTI) compensation and change-in-control benefits trends. The report notes that LTIs make up the largest portion of an executive’s compensation package. Severance and the accelerated vesting of LTIs comprise the most substantial portion of executives’ change-in-control benefits.

Detailed below are key research findings:

• Through the first two quarters of 2020, 44 percent of the companies in the study have announced a reduction in executive compensation. Many of these reductions though are temporary and apply only to base salary.
• The most common cash severance multiple for CEOs and CFOs is between 2 and 2.99 times compensation, utilized for 49 percent of the CEOs and 53 percent of the CFOs.
• The most valuable benefit received in connection with a change in control is accelerated vesting and payout of LTI, making up 53 percent and 56 percent of the total for CEOs and CFOs, respectively.
• Annual incentive plan metrics are varied and diverse. Production is the most prevalent metric, followed by health, safety and environmental, lease operating expenses, and strategic plans.
• Time-vesting restricted stock/restricted stock units and performance-vesting awards are the most common form of long-term incentive compensation, utilized by 82 percent and 79 percent of companies, respectively. For performance-vesting awards, relative total shareholder return is the most common performance metric, used by 89 percent of companies. Use of alternative metrics like return on invested capital (ROIC) continue to rise.

“More than 240 U.S. E&P companies have filed for bankruptcy since 2015. Due to fluctuating oil prices and economic volatility, we anticipate the bankruptcies in this sector will likely increase during the remainder of 2020 and into 2021,” said Mr. Cumberland. “A lack of meaningful equity ownership coupled with an uncertain company future can lead to executive retention and motivation difficulties. Our research demonstrates the depth of executive compensation challenges facing the E&P sector. A&M’s results-oriented approach and commitment to maximizing value helps clients bridge the compensation gap between the onset of financial hardships and healthy go-forward restructuring plans.”

About Alvarez & Marsal

Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) for leadership, action and results. Privately held since its founding in 1983, A&M is a leading global professional services firm that provides advisory, business performance improvement and turnaround management services. When conventional approaches are not enough to create transformation and drive change, clients seek our deep expertise and ability to deliver practical solutions to their unique problems.

With over 5,000 people across four continents, we deliver tangible results for corporates, boards, private equity firms, law firms and government agencies facing complex challenges. Our senior leaders, and their teams, leverage A&M’s restructuring heritage to help companies act decisively, catapult growth and accelerate results. We are experienced operators, world-class consultants, former regulators and industry authorities with a shared commitment to telling clients what’s really needed for turning change into a strategic business asset, managing risk and unlocking value at every stage of growth.

To learn more, visit: AlvarezandMarsal.com. Follow A&M on LinkedIn, Twitter, and Facebook.

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CONTACT:

Kelsey Eidbo, 415-732-7804, Infinite Global

Sandra Sokoloff, Senior Director of Global Public Relations, Alvarez & Marsal, 212-763-9853