Bonuses CEO inhibited the reduction of oil production in the U.S.

Bonuses CEO inhibited the reduction of oil production in the U.S.

Moscow. March 14. The unwillingness of the American oil and gas companies to cut production, despite falling fuel prices, partly due to the fact that the bonuses of top managers depend on the achievement of targets in terms of production and size of proven reserves, writes The Wall Street Journal.

This situation stems from the fact that investors are used to looking at energy stocks as securities with the potential to grow and are used primarily to pay attention to their prospects, and not on profitability. In addition, proven reserves are used as collateral for credit.

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According to the WSJ, the bonuses of the heads of the largest mining companies can 75% depends on if they met targets in terms of production and reserves. In most companies, the rate is in the range from 15% to 40%. So, bonus chapters Hess John Hess for exceeding your goals in 2014 amounted to more than $1 million, while Anadarko Petroleum CEO albert Walker received an additional approximately $1.5 million More than half of the bonus of the head of the Chesapeake Douglas Lawler, amounting to $2.7 million, also depended on the increase in production and increase in proven reserves.

“Want to know why the costs of most companies in the sector in the past year substantially exceeded their cash flow? They just paid for it,” – said the head of EOG Resources Inc, William Thomas.

However, shareholders of some firms in rejecting such practice, as the conditions of excess supply and low fuel prices it makes no sense to stimulate production. Investors also began to perceive positive news about production cuts. So, after Continental Resources announced plans to reduce production by approximately 10% in 2016, its shares rose by 4%, whereas in former times such a message, most likely, has fallen off the quotations of its securities.

In addition, the inventory value depreciates also in 2015 the North American company had write-offs in a record amount of about $177 billion.