Form 4: Sitio Royalties Corp. Executive Receives Stock Grants

Andrew Dax McDavid, an Executive Vice President at Sitio Royalties Corp., received grants of restricted stock units (RSUs) and performance stock units (PSUs) on February 27, 2024.

Summary

• Andrew Dax McDavid, Executive Vice President at Sitio Royalties Corp., reported changes in beneficial ownership on February 29, 2024.
• On February 27, 2024, McDavid was granted 24,105 restricted stock units (RSUs) and 72,314 performance stock units (PSUs) under the company's Long Term Incentive Plan (LTIP).
• The RSUs vest in equal one-third installments annually, starting February 27, 2025, contingent upon continuous service.
• The PSUs' vesting depends on achieving an annualized absolute total shareholder return performance goal over a three-year period (last 20 trading days of 2023 through the last 20 trading days of 2026), with the actual number of PSUs earned ranging from 0% to 200% of the target number.

Sentiment

Score: 7

Explanation: The sentiment is neutral to slightly positive. The grants align executive interests with shareholder value, but the ultimate value depends on performance.

Positives

• The grants of RSUs and PSUs align executive compensation with the long-term performance of Sitio Royalties Corp.
• The vesting schedules for both RSUs and PSUs incentivize continued service and achievement of performance goals.

Risks

• The actual number of PSUs earned could be significantly lower than the target if the performance goals are not met.
• The vesting of both RSUs and PSUs is contingent upon the reporting person's continuous service, creating a risk of forfeiture if employment is terminated.

Future Outlook

The number of PSUs ultimately vesting will depend on the company's performance against a pre-defined total shareholder return target over a three-year period.

Industry Context

Equity grants are a common practice in the oil and gas industry to incentivize executives and align their interests with those of shareholders. The specific terms of the grants, such as vesting schedules and performance metrics, vary from company to company.

Comparison to Industry Standards

• Comparing Sitio Royalties Corp.'s equity compensation practices to those of similar-sized royalty companies would provide a better understanding of whether the grant sizes and performance metrics are in line with industry norms.
• Companies like Viper Energy Partners LP (VNOM) and Black Stone Minerals, L.P. (BSM) could be considered for benchmarking purposes, focusing on their long-term incentive plans and the proportion of equity-based compensation.

Stakeholder Impact

• Shareholders: The grants aim to align executive interests with shareholder value creation.
• Employees: The LTIP provides incentives for employees, including the reporting person, to contribute to the company's success.

Next Steps

• Monitor the vesting of the RSUs on the annual anniversary dates.
• Track the company's performance against the total shareholder return target to estimate the potential vesting of the PSUs.

Key Dates