A Failure of Alignment and Accountability April 23, 2019
PDC: An Ineffective Board and Underperforming Management PDC Energy owns high quality assets that are trapped behind a poorly performing team, with a board that is asleep at the wheel. Over the last three years shareholders have borne…
Pay for Under Performance Despite a three-year TSR of -44% (2016-2018), PDCs top five executives were compensated 16.2M in 2018 and a total of 43.8M over the last three years. 50% 16.2M 18.0 14.3M 40% 13.2M 36% 12.0 30% Top 5…
Metrics Dont Matter: 2018 In 2018, the company awarded its management team cash bonuses of 115% of target despite missing four out of five internally-set targets. Source: PDCs proxy statement. 4
Metrics Dont Matter: 2016 2018 PDC introduced two new metrics into its 2019 compensation plan: free cash flow margin and debt- adjusted cash flow per share. With little downside risk for missing targets, new metrics wont matter. Did…
CEO Pay Rising as PDC Stockholder Value is Destroyed Economic Value Added (Destroyed) = NOPAT (Invested Capital * WACC)1 400 8.0 7.0 300 6.3 6.1 6.0 5.8 5.4 4.1 200 Annual Economic Value Destroyed M 3.8 4.0 Annual CEO…
Above Average CEO Pay for Below Average Performance In a recent presentation, PDC included a chart from a May 2018 ISS report implying that it is a top performer. This chart was based on performance data through the end of 2017. Accurate…
COO: Pay For Underperformance The COO Scott Reasoners pay has risen despite missing targets. Well costs have risen and capital efficiency has underperformed. The COO also received a special equity grant in 2017. Scott Reasoner Pay Cost…
EVP Corp Dev and Strategy: Pay For Underperformance Under Lance Laucks watch, PDC has spent 1.9Bn on land, of which 0.74Bn has been impaired, to add 52,000 net acres at an average cost of 35,930/acre. This will rise to 57,840/acre by the…
Excuses for Pay PDCs Board has provided excuses for why management should not be held accountable for missing targets The Committee estimates that without the Wattenberg Field midstream issues, the Company would have been at the high…
Material Weaknesses In Internal Control 2017 10K, Report of Independent Public Accounting Firm (PWC) Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as…
Average Cash Yield for PDCs CEO vs. Outside Shareholders Bart Brookman, PDCs CEO, has generated an average yield on his personal PDC equity of 27% over the last three years.1 This is the amount of cash Bart receives each year (salary,…
Alignment Drives Performance Private equity in the upstream energy sector has materially outperformed the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) over the last ten years despite owning assets in the same basins as public…
A Better Model for PDC Compensation and Governance Kimmeridge believes that more equity and longer hold periods will cause management teams to act like owners. As board members, we would advocate significant change to compensation and…
Summary & Conclusion Kimmeridge believes alignment and accountability drive performance and profitability. Putting PDC on a path to profitability will require a strong board that thinks and acts like owners. Board backgrounds and…
Disclosures 1. Top five executive compensation defined as the total compensation for the five highest-paid PDC executives in a given year. (Slide 3) 2. Kimmeridge defines NOPAT as earnings before interest after taxes (net operating…
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