2016 AGM MIC

[admin]

Thanks for posting this 2126, very useful. Bit of a mixed bag. Whoever came up with the idea to 'align the incentives of shareholders and management' (if my memory doesn't let me down its an economist called Jensen in the early 1970s) has started one of the greatest rackets in history as invariably this is:

• open to gaming or even outright abuse
• often produces perverse incentives
• the relation with performance is tenuous at best, or even non-existent altogether
• it is responsible for ratcheting up executive pay from 30:1 compared to average worker three decades ago to over 300:1 today (I'll leave it to your imagination what that has done to the economy).

I never really understood why people should be burried under all these incentives and bonuses for simply doing their jobs, but perhaps that's just me. Actually it isn't just me as there isn't any evidence people actually work better under these schemes, and often they produce unwelcome side effects (some of which I mentioned above).

There is some of that here. One can't really blame them as much of this, in one form or another is standard practise and widespread (unfortunately). But that doesn't mean shareholders shouldn't try to minimize some of the damage, stuff like:

• Responsible cash management. We seem to have a considerable run-rate
• Incentives to sell the company, or it's biggest prize, IOC's stake in PRL15

Having said this, I do think Hession saved the company by negotiating the Total deal, and I still think that's a good deal so I'm not against him getting a substantial salary, or even a bonus. But basically the BOD should work for us, not for him.

I've also not heard a convincing argument why we need to sell stuff when we have a pending Total payment that really should come within 12 months. I'm ok with selling a 4% or so stake as part of (or preceeding) offtakers, or later we could sell other stuff in order to partly finance our part of the LNG plant. But selling PRL15 now? Why?

[Putncalls]

Good points admin. I'll never understand how that one paper on compensation became soooo popular?

[will2bgreat]

[/quote]

Indo, some of your comments here are indeed worthy of a Philippe award.  Did you not notice that the Forbes data you cite was published in 2006?   Are you aware that the $7m number you like to cite for Hession is both cash and calculated value of RSUs, the latter having vesting periods?  Do you not think that the whole milestone scheme is a direct result of Philippe's inability to reach discernible milestones on any particular timeline?  Or that the need for nailing things down in an employment agreement might flow from Philippe and his brother-in-law signing their first-ever employment contracts with IOC in 2012?  It was Byker's Board (remember Byker?) which negotiated Hession's contract------the same Board that felt Philippe and his brother-in-law had to go.  You are entitled to your opinions and speculations, but please don't suggest that they are anchored in facts.

[/quote]

Katy, You crack me up.

You criticize Phil's ability to reach milestones and completely ignore Mike's misses?

First off, let's take it easy on Phil.  If there was no Phil, there would be no gas or IOC, or Mike to rob us blind.

Second, 6/15, IOC stated the certification would be complete mid-16.  Now they are saying end of 16 or mid-17 if A7 is drilled.  Now I call that a big miss.  IOC may miss their 1 year schedule by one year.  And you are defending these guys.

Third, thank you 2126 for a great summary, but did you miss something?  Isn't the largest and most important milestone for IOC missing from Mike's milestone list; the certification payment?  Did I miss it?  If I didn't, there is something seriously wrong with this company.

[calvin grad]

I may be wrong but I thought Total had right of first refusal  . Only thing Total can not match is a merger..

I believe the smokescreen that OSH or even Woodside is buying Elk Antelope is being created to give Total  government permission to buy out IOC .80 per share would do it .They prove out 14T with Antelope South. They get Bobcat and Raptor so cheap that it makes sense to sell one or two trains of resource to PNG

[Indoreservoir]

[quote='2126' pid='69104' dateline='1462990753']

Won't opine on the 'well-reasoned'  comment- let the reader decide - but on the salary quick fact check as follows:

http://www.forbes.com/lists/2006/12/Oil_...ank_1.html

According to the reference, Rex Tillerson salary is US$4.125 million, and XOM's market cap is some 200x IOC (from memory)., yet our $7 million /yr CEO salary is based on 'Industry Standards"????? (Maybe my $7 million/yr compensation is incorrect, but I thought 2126 quoted this in another thread.)

And don't all those Milestones mentioned above comprise the usual goals for a CEO??? Shouldn't he do those things to earn his $7 million?

Wait until the compensation committee gives bonuses to our Execs after cert or buyout. Expect a shodk!

Overpaid and underperforming twit.  Now I know why he used RISC for 2C numbers rather than D&M or NSAI - worth a lot of $ to him. And perhaps explains throwing our cash away on drilling exploration wells for stranded gas rather than asking the government for exploration period extensions.

Indo, some of your comments here are indeed worthy of a Philippe award.  Did you not notice that the Forbes data you cite was published in 2006?   Are you aware that the $7m number you like to cite for Hession is both cash and calculated value of RSUs, the latter having vesting periods?  Do you not think that the whole milestone scheme is a direct result of Philippe's inability to reach discernible milestones on any particular timeline?  Or that the need for nailing things down in an employment agreement might flow from Philippe and his brother-in-law signing their first-ever employment contracts with IOC in 2012?  It was Byker's Board (remember Byker?) which negotiated Hession's contract------the same Board that felt Philippe and his brother-in-law had to go.  You are entitled to your opinions and speculations, but please don't suggest that they are anchored in facts.

Katytrader 1. my apologies on the date - I shouldn't post at 2am after a heavy night out! (Not an excuse, just a fact).

Rex's base pay in 2014 was $2.8 million, pension benefits $4.6 million. Total package was $33 million.  Hession's base salary in 2014 was $1.230 million, and his share based awards $2.14 million and non--eqiuity incentive plan $3.36 million, plus some other minor amounts, for a total of $6.97

2. as i said in my post, the $7 million was a 2126 posted number (I think it was $6.9 million and change). Sorry I didn't check it, but for a nonoperated, $1.5 billion market cap company it is a ludicrous amount, no matter how its constructed. Spent a bit of time checking as above since it seems some people think $7 million is fair.

but i find after looking at the MIC for 2016 and kindly directed to by 2126, that his 2015 total compensation is $10 million, a whoppin 45% increase from 2014. More in another post, but I note that you and others did not bother to mention that little gem.

3. I think milestones are good, but thats how I and most of the rest of the world earn their base pay - by producing. I don't think our $7 million man should be paid extra for these things. They are his base job. Don't you think?

4. And what part of my post is not anchored in facts? You have given no examples.  Indeed, why don't you present some facts yourself in your next post to counter my basic comment - MH is way overpaid?

Thanks

[Stavros]

Ludicrous Speed ... https://www.youtube.com/watch?v=ygE01sOhzz0

This is how fast Hession will leave Singapore after IOC is acquired and he sells his shares and cashes his BONU$

[jft310]

Let's not forget shareholders can vote on Phil type measures but the BOD can and will do what it sees fit . A change of control through merger or sale gets shareholder and PNG govt up or down vote . Not so fast or easy where the govt wants 2-3 plants .
Hession and The BOD can cut deals but shareholders control what happens in change of control situations . Interesting fact retail investors own 48 percent of Interoil shares . That's unusual and means every vote may literally count . We know how 7.5 percent feels , Phil.

[Stavros]

InterOil Management and BOD own how many total shares?
We know how they will vote!

[Indoreservoir]

Headline: MH Made $10 million in 2015, a 45% increase from 2014, and 3-5 times his peer group.

I took a look at the MIC (thanks to 2126 for his excellent directions) and as expected and contrary to some, I found it poorly written. In particular, the lack of detail/supporting documentation is shocking – if you want to make a case, one should do so with facts and not big words without support.

Soooo, I’ll point out some of what I think are some of the bigger whoppers, but they’re all over the document. If I didn’t have a day job I could spend a week on this, but it gets me depressed. I’d sell but I think there is upside in IOC despite the clear intentions of MH and the board to fatten their wallets at shareholder expense.

Page 5: Your Board recognizes the need for fewer directors due to the streamlining of InterOil’s business and believes that an eight (8) member board is appropriate for the current demands on the Corporation. Each of the InterOil Nominees brings a unique set of skills, capabilities, and industry expertise, which are
critical to the Board’s function. The number of nominees to the Board is consistent with InterOil’s peers,
as set out below:

Cairn Energy PLC (9)
Cobalt International Energy Inc. (10)
Karoon Gas Australia Limited (8)
Kosmos Energy Ltd. (11)
Oil Search Ltd. (9)
Ophir Energy Plc (8)
Santos Ltd (8)
Tullow Oil (11)

Comment: I’m not saying its easy to find comparison companies, but these do not fit the bill. Size, stage of development, etc: Cairn, Oil Search, Santos are our peers?
Karoon, and Cobalt?
How many are non-operators developing an LNG plant?
Give me a break. Can’t an executive pay consultant provide a better list of comparison companies? (that’s not a trick question – the answer is hell yes.)

Page 6: During 2015, only 26% of non-executive directors’ compensation was in cash and the average cash compensation per non-executive director was approximately $81,000 for each of the eight non-executive directors that served for the majority of the year, which includes all Board and committee membership fees.

Comment:
So, our total average compensation was $81,000/.26 = $311,538 for each of our 8 non-exec directors.

From our pay consultants Guerdon Associates http://www.guerdonassociates.com/article...s-in-2015/ published on 9 May 16:

"A 2.3% increase in NED total remuneration represents about $6,000 on the median fee of $179,000."

Uhhh, that’s Aus $ so in US$ that is US$ 130,670. So our directors make 2.38x the median. But of course they’re not overpaid.

And I won’t get into where in the hell they came up with mom&pop shop Guerdon Associates in Sydney for pay consultants. Look at their office on their website. They may be good, but we should be using TowersWatson, Hay Group (for more than on-line database access), or another of the big firms. But I suppose that wouldn’t suit our team’s agenda, now would it?

Next, from Tullow’s YE2014 compensation report,
1. Tullow’s non-executive base fee is 69000 ukpd/year, or about US$ 99,360/year
2. Tullow’s CEO, Aidan Heavey, total compensation in 2014 was UKPd 2.378 million, or US$ 3.42 million, and he owns about 6.4 million shares worth some US$ 40.6 million as of YE 2014.
3. Interestingly,
“Under the Company’s Shareholding Guidelines, each Executive Director is required to build up their shareholdings in the Company’s shares to at least 400% of their salary. Further details of the Shareholding Guidelines are set out on page 92.”

I’m not cherry-picking Tullow, this company is on the list above as a comparison company and was the first oil and gas company listings that came up on a google search for ‘typical oil and gas directors fees’ ; see

http://www.tullowoil.com/Media/docs/defa...f?sfvrsn=6

A few others – 2015 Total Compensation from their company annual reports
Cairn CEO Simon Thompson: US$ 1.86 million and a base salary increase of about 2% over 2014
Oil Search CEO Peter Botten: US$ 3.47 million and a base salary decrease of about 17% over 2014
Santos CEO David Knox: US$ 2.01 million and no change in base salary between 2014 and 2015

Do I need to go further? MH compensation is 3-5 times other CEOs in his comparator group, and would probably be higher multiples if the other smaller companies were included.

pg 9
In addition, the Corporation recently appointed RISC Pty Ltd. (“RISC”) for certain assets. RISC’s appointment was based on a consideration of RISC’s:
• strong understanding of the regional geology of Papua New Guinea, which shares many
geological characteristics with Australia and South East Asia;
• familiarity with analogue fields in the region like Malampaya (Philippines) and Arum-Pase
(Indonesia); and
• familiarity with the COGEH and NI 51-101.

Accordingly, the Board believes the proposed Dissident Reserves Governance Committee Resolution is unnecessary.

Comment: This is ridiculous. Personally I like RISC since John Boardman started them in Perth in the early 1990s (if I recall), but they are NOT a well-known, world-class reserve certifier. Why in the world would they not use one of the named evaluators in the SPA with Total? Could it be that they’re close to MH in Perth and MH’s compensation is tied to the numbers they produce? Naah, couldn’t be!

Arum? Many Indonesia women use that name. Its Arun, and Pase is a small field south of Arun. They don't seem to realize that. And boy those are some real stringent criteria - familiarity with Arum (hmmm - I know a cute waitress named Arum so I'll ask her what this all means), Pase, COGEH and NI 51-101.

Pg 10-37: voting rules etc so jumped ahead rather than trudge through it

Pg 38 Comparator Group

core focus on oil and gas exploration and development each having a market capitalisation of a similar order of magnitude to InterOil.

and from page 41:
Ophir Energy Plc
• Cobalt International Energy Inc.
• Karoon Gas Australia Limited
• Africa Oil Corporation
• Beach Energy Limited
• Kosmos Energy Ltd
• Tullow Oil
• Oil Search Ltd
• Santos Ltd
• Cairn Energy PLC


Comment: uhh, that order of magnitude would be $1 billion to $10 billion market cap. Lets see, in US$: Ophir $691 million Cobalt $1.18 billion, Karoon $243 million,, Africa $655 million, Beach $925, Kosmos $2.08 billion, Tullow $3.28 billion, Oil Search $7.7 billion, Santos $5.6, Cairn $1.7 billion.

So, four of their comparison companies don’t match their words. I point this out to make the simple point of how sloppily written the MIC is, and this applies to many other places in the document which show a lack of attention to detail and supporting facts.

Ladies and Gentlemen, this I believe is how your IOC is run – sloppily with a lack of attention to detail (except for the Board’s compensation).

And I am not saying PM would be better, but he perhaps wouldn’t be pissing away $10 million on a CEO.

pg 39
With effect from April 1, 2015, Named Executive Officers’ base salaries were increased by an
average of 4.9% based on relative market based benchmarking and in line with base salary
increases for employees.

Comment:
In what developed country was inflation 4.9% in 2015? Surely not in Singapore - it was 1% in 2014, and -0.5% in 2015. And I can assure you MANY, MANY oil and gas companies awarded no pay rise in 2015 (or 2016). My company (mid-tier Canadian company) with a market cap some 10 times Interoil did not give pay rises to expatriates, Canadian or US staff in 2015 or 2016.


Pg 43
In 2015, Dr. Hession received two exploration bonuses in relation to the Bobcat and Raptor discoveries pursuant to the terms of his employment contract totalling $3,024,500. Dr. Hession in conjunction with the Compensation Committee agreed to accept these bonuses in the form of RSUs in lieu of cash, totaling $3,024,500 in RSUs.

Comment:
DR. Hession, This is, perhaps, the most concerning payment of all.

1. I’m sure MH had a lot to do with those prospects (yeah, right). But they certainly put MH in the position of arguing FOR spending rapidly depleting cash on exploration, rather than trying to work with the government to defer that exploration to a date when we have cash. In my view, this is a conflict of interest. Sort of like paying executives for reserve adds - who would do that, and what can it lead to? (Shell, maybe?). Poor corporate governance to pay for this sort of thing - its just too tightly linked and perhaps explains why a small company certifier (RISC) was used..

2. Its not good practice to line an oil and gas company CEO of a similarly sized company get exploration success bonuses, IMHO. It is his JOB to do this work, so why should he get huge bonuses for exploration success? Did he get the licenses, decide where to drill, or in fact DO ANYTHING to warrant these huge bonuses? Does anyone thing Rex, Peter (Woodside), or Aidan (Tullow) get such bonuses?

I could go on, but I tire.

Pg 49
Total MH compensation is US$ 10.136 million in 2015
Base pay increased 5% to US$ 1,291,500/year

Comment: WTF??????

Start with as 5% pay rise for 2015, which most other companies are not giving as stated previously, but a whopping 45% increase in total compensation between 2014 and 2015.

Anyone know what the share price did in 2015? Oh, let me check: 2 Jan 2016, US$ 49.05, 31 Dec 2015, US$ 31.42, or a drop of 36%!! And since our now $10 million man was appointed CEO, the stock price has dropped from roughly $75/share to yesterday's $32.11, or 57%. Boy, he's really added shareholder value!

Talk about comparison groups all you want on share price, but there is something out of sync here.

Does the man or board have no shame?

And they’re CFO , EVP, and COO had sizeable % increases in base salaries. - CFO 14% increase, EVP 41%, and COO 10.6%. WHY? OK the EVP moved to PNG, but 41% increase?


Thats enough. As John Mitchell said of the Watergate investigation in the early days, in his drawl: “It just gets more ridiculous as it goes along”

I won’t go into detail on the foolish Milestones (page 42) for MH, but I have to point out that one milestone is for starting the Process Design Basis, and another is for finishing it. And Total is doing this work, not MH/IOC! It boggles the mind.

Throw the bum out (or at least control his payday).

[ArtM72]

Indo -

You should find someplace to get that published.