麦格理-美股-石油勘探与产品行业-美国石油勘探与产品：动机与管理调查-521-29页.pdf

incentives in the US E&P space. We had been writing on the topic for a few years and traction with

E&P firms was limited. The goal of the meeting was to drive more substantial and concrete change.

Fast forward 20 months to today, where 68% of firms now actively incentivize returns in their STIPs, up

from 13% in 2016 (the latest data available at the time of our meeting in NYC), and 27% of firms

include free cash flow or some similar variant of that calculation as an incentive metric.

During that meeting in 2017, a key part of the discussion revolved around what role incentivizing free

cash flow should play in management incentives. Some argued that free cash flow should be apparent

at all levels of the pyramid, while others felt that its existence as a metric at that point was a bridge too

far and may be viewed as a stretch for most firms. As a result, it was our decision to leave corporate

derived from a close focus on costs and leverage levels. All of these items act in tandem and the

simple end goal of generating free cash flow by any and all means necessary (asset sales) is not

equivalent to true and sustained free cash flow generation.

With momentum growing on free cash flow focus and a small group of firms more actively incentivizing

free cash flow (or a substantially similar metric), we foresee a bootstrapping effect over the next couple

of years in which firms must again alter and update their STIP plans to more accurately address a key

value driver. It is our hope that investors remain steadfast and continue the pressure with the same

vigor and intensity in which the movement on returns-based metrics saw results achieved in less than 2

years.

With respect to free cash flow, operators that have placed additional importance on free cash flow

within their 2018 STIP include EOG, NBL, CHK, and XOG. As noted previously, we see this as an

provided threshold levels)

shareholder friendly.

addition of FCF yield as well as NBL’s continuation of free cash flow with an added capital efficiency

metric also stands out. Further, names with an all-in rate of return metric include CLR and PE.