DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.    )

Filed by the Registrant  þ

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

¨  Preliminary Proxy Statement

¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

¨  Definitive Additional Materials

¨  Soliciting Material Pursuant to §240.14a-12

Noble Energy, Inc.

 

(Name of Registrant as Specified in its Charter)

Payment of filing fee (check the appropriate box):

 

þ

No fee required.

 

¨

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)

Title of each class of securities to which transaction applies:

 

 

 

  (2)

Aggregate number of securities to which transaction applies:

 

 

 

  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

  (4)

Proposed maximum aggregate value of transaction:

 

 

 

  (5)

Total fee paid:

 

 

 

¨

Fee paid previously with preliminary materials.

 

¨

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)

Amount Previously Paid:

 

 

 

  (2)

Form, Schedule or Registration Statement No.:

 

 

 

 

  (3)

Filing Party:

 

 

 

  (4)

Date Filed:

 

 

 


LOGO

 

NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS

AND PROXY STATEMENT

 

 

Tuesday, April 22, 2014

9:30 a.m. local time

The Woodlands Waterway Marriott Hotel & Convention Center

1601 Lake Robbins Drive, The Woodlands, Texas 77380

 


 

LOGO

 

 

LOGO  

 

 

Dear Stockholder:

 

 

I hope you will join Noble Energy’s Board of Directors, executive management team, employees and alumni at our 2014 Annual Meeting of Stockholders. The attached Notice of Annual Meeting of Stockholders and Proxy Statement will serve as your guide to the business to be conducted at the meeting.

 

 

Last year we redesigned our Proxy Statement to more effectively explain the matters to be addressed at our Annual Meeting. We received many positive

comments on our effort, in particular on the summary at the beginning that provides highlights on detailed information contained elsewhere in the Proxy Statement. My fellow Board members and I are committed to finding ways to provide you with information about the Company in a manner that is easy to access and understand.

We continue to enhance the Compensation Discussion and Analysis that begins on page 26 to better show how our executives’ compensation is linked to performance and more clearly explain our executive compensation program. You will also find detailed information about the qualifications of our director candidates, and why we believe they are the right people to represent you, starting on page 14.

Your vote is very important to us and our business. Prior to the meeting, I encourage you to sign and return your proxy card, or use telephone or Internet voting, so that your shares will be represented and voted at the meeting. Instructions on how to vote are found beginning on page 2.

I hope to see you at the meeting. Thank you for being a stockholder and for the trust you have shown in Noble Energy.

March 21, 2014

Houston, Texas

 

LOGO
Charles D. Davidson
Chairman of the Board and
Chief Executive Officer

 

LOGO


LOGO

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Tuesday, April 22, 2014

The Annual Meeting of Stockholders of NOBLE ENERGY, INC. (the “Company”) will be held on Tuesday, April 22, 2014 at 9:30 a.m. local time at The Woodlands Waterway Marriott Hotel & Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas 77380, for the following purposes:

 

1.

To elect the ten nominees as members of the Board of Directors of the Company to serve until the next annual meeting of the Company’s stockholders;

 

2.

to ratify the appointment of the independent auditor by the Company’s Audit Committee;

 

3.

to approve, in a nonbinding advisory vote, the compensation of the Company’s Named Executive Officers; and

 

4.

to transact such other business as may properly come before the meeting and any adjournment or postponement of the meeting.

The Board of Directors has set March 5, 2014 as the record date for the meeting. This means that holders of record of shares of common stock of the Company as of the close of business on that date are entitled to receive this notice of the meeting and vote at the meeting and any adjournment or postponement of the meeting.

A complete list of the stockholders will be available for examination at the offices of the Company in Houston, Texas during ordinary business hours for a period of 10 days prior to the meeting. This list will also be available to stockholders at the meeting.

March 21, 2014

Houston, Texas

 

By Order of the Board of Directors
LOGO

Arnold J. Johnson

Senior Vice President, General Counsel

and Secretary

 

 

We urge each stockholder to promptly sign and return the enclosed proxy card or to use telephone or Internet voting.
See our Questions and Answers about the Meeting and Voting section for information about voting by telephone or
Internet, how to revoke a proxy and how to vote shares in person.

 

 

i


PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. It does not include all of the information that you should consider and you should read the entire Proxy Statement before voting. In this Proxy Statement, Noble Energy, Inc. may also be referred to as “we”, “us”, “Noble Energy” or the “Company”.

2014 Annual Meeting of Stockholders

 

·

 

Date and Time:

  

Tuesday, April 22, 2014, 9:30 a.m. local time

·

 

Place:

  

The Woodlands Waterway Marriott Hotel &

Convention Center

1601 Lake Robbins Drive

The Woodlands, Texas 77380

·

 

Record Date:

  

March 5, 2014

Voting Matters and Board Recommendations

 

      Our Board’s
Recommendations
     

Election of Director Nominees (page 14)

 

   FOR each
Director Nominee
  

Ratification of Appointment of Independent Auditor (page 23)

   FOR   

Advisory Vote to Approve Executive Compensation (page 25)

   FOR     

Director Nominees (beginning on page 14)

The following table provides summary information about each director nominee. Our Board is not classified and each director stands for election annually.

 

Name      Age         Director
     Since
   Primary Occupation   Committee
Memberships
   Other Public
Company Boards
Jeffrey L. Berenson*   63    2005    President and Chief Executive Officer of Berenson & Company   C, CG   

None

Michael A. Cawley*   66    1995    President and Manager of The Cawley Consulting Group, LLC   A, CG    Noble Corporation
Edward F. Cox*   67    1984    Chair of The New York Republican State Committee   C, CG, E    None
Charles D. Davidson   64    2000    Chairman and Chief Executive Officer of Noble Energy, Inc.   E    None
Thomas J. Edelman*   63    2005    Managing Partner of White Deer Energy   C, CG, E   

Emerald Oil, Inc.

PostRock Energy Corporation

Eric P. Grubman*   56    2009    Executive Vice President of the National Football League   A, CG    None
Kirby L. Hedrick*   61    2002    Former Executive Vice President of Phillips Petroleum Company   C, CG, E    None
Scott D. Urban*   60    2007    Partner in Edgewater Energy LLC   A, CG, E    Pioneer Energy Services Corporation

 

ii


Name      Age         Director
     Since
   Primary Occupation   Committee
Memberships
   Other Public
Company Boards
William T. Van Kleef*   62    2005   

Former Executive Vice President

and Chief Operating Officer of Tesoro Corporation

  A, CG    Oil States International, Inc.
Molly K. Williamson*   68    2013    Scholar, Middle East Institute   C(1), CG, E    None

 

*Independent Director.

 

(1)

Ms. Williamson was added to the Company’s Compensation, Benefits and Stock Option Committee on January 28, 2014.

 

A

Audit Committee

C

Compensation, Benefits and Stock Option Committee

CG

Corporate Governance and Nominating Committee

E

Environment, Health and Safety Committee

2013 Business Highlights (beginning on page 26)

2013 was another year of strong performance by the Company. Business highlights include:

 

·  

Major projects were completed, with Tamar (offshore Israel) and Alen (offshore West Africa) beginning production ahead of schedule;

 

·  

Major projects were sanctioned at Big Bend (phase one of our Rio Grande development) and Gunflint (deepwater Gulf of Mexico);

 

·  

Exploration success was achieved, with announced discoveries at Karish and Tamar Southwest (offshore Israel) and Troubadour and Dantzler (deepwater Gulf of Mexico);

 

·  

Successful appraisal wells were drilled at Leviathan (offshore Israel), Gunflint and offshore Cyprus;

 

·  

Average daily production increased, the DJ Basin by 23% and Marcellus Shale by 60%;

 

·  

Year-end proved reserves increased 19% to 1.4 BBoe; and

 

·  

Acreage positions were enhanced, with a 50,000 acre exchange with another operator in the DJ Basin, a Marcellus Shale acquisition covering a 50% interest in approximately 90,000 acres and divestitures of non-core properties.

 

iii


The following illustrates the directional relationship between Company performance, based on several key metrics, and the total direct compensation (including salary, bonus, stock and option awards and non-equity incentive plan compensation) of our Chairman and Chief Executive Officer (“CEO”) from 2011 to 2013. These key metrics — production, relative controllable unit costs and discretionary cash flow — were chosen because we believe that they correlate to long-term stockholder value.

 

Production

(MBoe/d)

 

Controllable Unit Costs

(percentage relative

to compensation

peer group)

LOGO   LOGO

Discretionary Cash Flow(1)

(Billions)

 

CEO Total Direct Compensation

(Millions)

LOGO   LOGO

(1) Non-GAAP results. See “Non-GAAP Financial Measures” in Appendix A to this Proxy Statement for reconciliation to GAAP results.

Five-Year Total Stockholder Return

The following chart shows how a $100 investment in the Company’s common stock on December 31, 2008 would have grown to over $290 on December 31, 2013, with dividends reinvested quarterly, for those who wish to consider total stockholder return when evaluating executive compensation. The chart also compares the total stockholder return on the Company’s common stock to the same investment in the S&P 500 Index and the Company’s new (2013) and former compensation peer groups over the same period, with dividends reinvested quarterly. As illustrated below, the Company’s common stock outperformed both the S&P 500 Index and the Company’s new and former compensation peer groups during this period.

 

iv


Comparison of Five-Year Cumulative Total Stockholder Return*

 

LOGO

For more complete information regarding the Company’s 2013 performance, please see the Company’s Annual Report on Form 10-K.

Executive Compensation Highlights (beginning on page 29)

Our compensation program is designed to link compensation to performance. In 2013 we increased our emphasis on performance-based compensation, with 70% of our CEO’s target compensation being performance-based. For purposes of the following chart:

 

Ÿ  

Annual bonus is based on operational and financial performance;

 

Ÿ  

stock options are based on absolute stock price appreciation; and

 

Ÿ  

performance shares are based on relative total shareholder return.

 

LOGO

For 2013:

 

·  

Achievement of quantitative metrics (60% weighted) and qualitative goals (40% weighted) resulted in an above-target bonus payout;

 

·  

long-term incentive compensation continued to constitute a substantial portion of our executives’ compensation, with the Compensation, Benefits and Stock Option Committee considering total stockholder return, debt-adjusted per share production growth and reserve replacement in making grants of stock options and restricted stock; and

 

v


·  

25% of the target long-term incentive opportunity is tied to relative total stockholder return.

Our Compensation Committee reviewed the aggregate estimated realizable pay of our CEO relative to CEOs of our peer group companies for the trailing three year period ending December 31, 2012, compared against three-year relative total shareholder return of our peer group companies. The estimated realizable value reflects the aggregate value of base salary, actual bonus paid, “in-the-money” value of stock options, value of restricted stock, an estimated value of outstanding performance awards, and dividends received or accrued as of December 31, 2012.

 

LOGO

The following chart displays our CEO’s targeted compensation for the years 2011 - 2013 compared to the potential realizable compensation as of December 31, 2013. Target bars represent the Compensation Committee’s target compensation decisions for years 2011, 2012, and 2013. Each year’s value is reflective of our CEO’s annual base salary, target bonus opportunity and targeted equity value. Realizable bars for 2011, 2012, and 2013 represent each year’s base salary, actual bonus paid, “in-the-money” value of stock options, value of restricted stock, an estimated value of outstanding performance awards, and dividends received or accrued as of December 31, 2013. We believe this supplemental information is important since the vast majority of reported compensation is an incentive for future performance and will vary depending upon the Company’s performance for the applicable year. As can be seen, the realizable compensation differs from the amounts shown in the 2013 Summary Compensation Table.

 

LOGO

($ in thousands)

 

vi


Recent Enhancements to Compensation Program

 

·  

On July 23, 2013, our Board adopted a policy that prohibits our executive officers and directors from pledging shares of Company stock awarded as compensation for service as an employee or director of the Company (including shares owned as a result of the exercise of compensatory stock options) as collateral for a loan or hedging such shares through a covered call, collar or other derivative transaction. (page 38)

 

·  

On July 22, 2013, our Compensation Committee adopted a policy by which it would allow the continued or accelerated vesting of equity benefits to employees retiring after attaining age 60 with 10 years of service who provide at least six months written notice of retirement and meet certain other requirements. (page 38)

 

·  

Free cash flow has been added as a performance measure under our 2014 Short-Term Incentive Plan, with the quantitative nondiscretionary component of the plan remaining at 60% of the total payout calculation and allocated 15% each to production, relative cash costs and relative total stockholder return and 7.5% each to discretionary cash flow and free cash flow. (page 36)

 

·  

An adjustment has been made to our 2014 compensation peer group to ensure that it continues to be relevant. (page 33)

 

·  

In the fall of 2013, our Compensation Committee approved the termination of our defined benefit plans, with plan liquidation anticipated by the end of calendar year 2015. (page 39)

Important Date for 2015 Annual Meeting of Stockholders (page 13)

Stockholder proposals and nominees for director(s) to be submitted for inclusion in our 2015 Proxy Statement pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), must be received by us by December 23, 2014.

 

vii


 

LOGO

1001 Noble Energy Way

Houston, Texas 77070

  

PROXY STATEMENT

March 21, 2014

 

 

The Board of Directors of Noble Energy, Inc. (the “Board”) is providing you this Proxy Statement to solicit proxies on its behalf to be voted at the 2014 Annual Meeting of Stockholders of Noble Energy, Inc. (the “Company”). The meeting will be held at The Woodlands Waterway Marriott Hotel & Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas 77380 on April 22, 2014, at 9:30 a.m. local time. The proxies may also be voted at any adjournment or postponement of the meeting.

The mailing address of our principal executive offices is 1001 Noble Energy Way, Houston, Texas 77070. We are first mailing this Proxy Statement to our stockholders on or about March 24, 2014.

All properly executed written proxies, and all properly completed proxies submitted by telephone or Internet, that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy unless the proxy is revoked prior to completion of voting at the meeting.

Only owners of record of shares of common stock of the Company as of the close of business on March 5, 2014, the record date, are entitled to notice of, and to vote at, the meeting and at any adjournment or postponement of the meeting. Each owner of record on the record date is entitled to one vote for each share of common stock held. On March 5, 2014 there were 360,650,792 shares of common stock issued and outstanding.

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR

THE 2014 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 22, 2014.

 

The Company’s Proxy Statement for the 2014 Annual Meeting of Stockholders, Annual Report to Stockholders for the fiscal year ended December 31, 2013 and Annual Report on Form 10-K for the fiscal year ended December 31, 2013 are available at https://materials.proxyvote.com/655044.

 

 

1


Questions and Answers about the Meeting and Voting

 

1.

What is a Proxy Statement and what is a proxy?

 

 

A Proxy Statement is a document that the regulations of the Securities and Exchange Commission (“SEC”) require us to give you when we ask you to sign a proxy designating individuals to vote on your behalf. A proxy is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate

someone as your proxy in a written document, that document is also called a proxy or a proxy card. We have designated two of our officers as proxies for the 2014 Annual Meeting of Stockholders. These officers are Charles D. Davidson and Kenneth M. Fisher.

 

 

2.

What is the difference between holding shares as a stockholder of record and as a beneficial stockholder?

 

 

If your shares are registered directly in your name with the Company’s registrar and transfer agent, Wells Fargo Shareowner Services, you are considered a stockholder of

record with respect to those shares. If your shares are held in a brokerage account or bank, you are considered the “beneficial owner” of those shares.

 

 

3.

What different methods can I use to vote?

 

 

By Written Proxy. All stockholders of record can vote by written proxy card. If you are a beneficial owner, you may request a written proxy card or a vote instruction form from your bank or broker.

By Telephone or Internet. All stockholders of record can also vote by touchtone telephone from the U. S. using the toll-free telephone number on the proxy card, or through the Internet, using the procedures and instructions described on the proxy card. Beneficial owners may vote by telephone or Internet if their bank or broker makes those

methods available, in which case the bank or broker will include the instructions with the proxy materials. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares and to confirm that their instructions have been recorded properly.

In Person. All stockholders of record may vote in person at the meeting. Beneficial owners may vote in person at the meeting if they have a legal proxy, as described in the response to question 6.

 

 

4.

What shares are included on the proxy card?

 

 

If you are a stockholder of record, you will receive only one proxy card for all the shares of common stock you hold in certificate form, in book-entry form and in any Company benefit plan. If you hold shares of common stock in any

Company benefit plan and do not vote your shares or specify your voting instructions on your proxy card, the administrators of the benefit plans will not vote your benefit plan shares.

 

 

5.

How do I attend the meeting in person? What do I need to bring?

 

 

You need to bring documentation showing that you owned common stock on the record date, March 5, 2014. You also need to bring a photo ID to gain admission. Please note that the use of cameras, recording equipment, cellular telephones, smartphones or other similar equipment or packages will not be allowed in the meeting room. If you are a beneficial owner, bring the notice or voting

instruction form you received from your bank, brokerage firm or other nominee for admission to the meeting. You may also bring your brokerage statement reflecting your ownership of common stock as of March 5, 2014 with you to the meeting. Please note that you will not be able to vote your shares at the meeting without a legal proxy, as described in the response to question 6.

 

 

2


                        Questions and Answers

 

 

6.

How can I vote at the meeting if I am a beneficial owner?

 

 

You will need to ask your broker, bank or other intermediary to furnish you with a legal proxy. You will need to bring the legal proxy with you to the meeting and hand it in with a signed ballot that will be provided to you at the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you do not have a legal proxy, you can follow the procedures described in the response to question 5 to gain admission to the meeting. However, you will not be able to vote your

shares at the meeting. Accordingly, we encourage you to vote your shares in advance, even if you intend to attend the meeting.

Please note that if you request a legal proxy, any previously executed proxy will be revoked and your vote will not be counted unless you appear at the meeting and vote in person or legally appoint another proxy to vote on your behalf

 

 

7.

What are my voting choices for each of the proposals to be voted on at the 2014 Annual Meeting of Stockholders?

 

 

Proposal    Voting choices and Board recommendations

Item 1: Election of Director Nominees

  

·     Vote in favor of all nominees;

·     vote in favor of specific nominees;

·     vote against all nominees;

·     vote against specific nominees;

·     abstain from voting with respect to all nominees; or

·      abstain from voting with respect to specific nominees.

The Board recommends a vote FOR all nominees.

Item 2: Ratification of Appointment of Independent Auditor

  

·     Vote in favor of the ratification;

·     vote against the ratification; or

·     abstain from voting on the ratification.

The Board recommends a vote FOR the ratification.

Item 3: Advisory Proposal to Approve Executive Compensation

  

·     Vote in favor of the advisory proposal;

·     vote against the advisory proposal; or

·     abstain from voting on the advisory proposal.

The Board recommends a vote FOR the advisory proposal to approve executive compensation.

Directors in uncontested elections will be elected by a majority of the votes cast by the holders of the shares of our common stock voting in person or by proxy at the meeting. A majority of the votes cast means that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that director nominee. The proposals to ratify the appointment of the independent auditor and to approve executive compensation each require approval by holders of a majority of shares of our common stock represented in person or by proxy at the meeting. As an advisory vote, the proposal to approve executive compensation is not binding upon the Company. However, the Compensation Committee, which is responsible for overseeing the Company’s executive compensation program, values the opinions expressed by stockholders and will consider the outcome of the vote when making future compensation decisions.

 

8.

What if I am a stockholder of record and do not specify a choice for a matter when returning a proxy?

 

 

Stockholders should specify their choice for each matter on the proxy card. If no specific instructions are given, proxies which are signed and returned will be voted:

 

·  

FOR the election of all director nominees as set forth in this Proxy Statement;

 

  ·  

FOR the proposal to ratify the appointment of the independent auditor; and

 

  ·  

FOR the advisory proposal to approve executive compensation.

 

 

3


                       Questions  and Answers

 

 

9.

What if I am a beneficial owner and do not give voting instructions to my broker?

 

 

As a beneficial owner, in order to ensure your shares are voted in the way you would like, you must provide voting instructions to your bank, broker or other nominee by the deadline provided in the materials you receive from your bank, broker or other nominee. If you do not provide voting instructions to your bank, broker or other nominee, whether your shares can be voted by such person depends on the type of item being considered for vote.

Nondiscretionary Items. The election of directors and the advisory proposal to approve executive compensation are

nondiscretionary items and may not be voted on by brokers, banks or other nominees who have not received specific voting instructions from beneficial owners.

Discretionary Items. The ratification of the appointment of the independent auditor is a discretionary item. Generally, brokers, banks and other nominees that do not receive voting instructions from beneficial owners may vote on this proposal in their discretion.

 

 

10.

How are abstentions and broker non-votes counted?

 

Abstentions and broker non-votes are included in determining whether a quorum is present, but will not be included in vote totals and will not affect the outcome of the vote on any matter.

 

11.

What can I do if I change my mind after I vote my shares?

 

 

Stockholders can revoke a proxy prior to the completion of voting at the meeting by:

 

·  

Giving written notice to the Company’s Secretary;

 

·  

delivering a later-dated proxy; or

 

·  

voting in person at the meeting (unless you are a beneficial owner without a legal proxy, as described in the response to question 6).

 

 

12.

Are votes confidential? Who counts the votes?

 

 

We will not disclose the votes of specific stockholders except:

 

·  

As necessary to meet applicable legal requirements or to assert or defend claims for or against the Company;

 

·  

in the case of a contested proxy solicitation;

·  

if a stockholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or

 

·  

to allow the independent inspector of election to certify the results of the vote.

We will continue to retain an independent inspector of election to tabulate the proxies and certify the results.

 

 

13.

When will the Company announce the voting results?

 

We will announce the preliminary voting results at the Annual Meeting of Stockholders. The Company will report the final results on our website and in a Current Report on Form 8-K filed with the SEC.

 

14.

Does the Company have a policy about Directors’ attendance at the Annual Meeting of Stockholders?

 

All of our directors are expected to attend each annual meeting of our stockholders. Attendance at our annual meeting will be considered by our Governance Committee in assessing each director’s performance. Last year, all of our directors attended our Annual Meeting of Stockholders.

 

4


                       Questions  and Answers

 

 

15.

Can I access the Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K on the Internet?

 

The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2013 (the “Form 10-K”) are available at https://materials.proxyvote.com/655044.

 

16.

How are proxies solicited and what is the cost?

 

 

We bear all expenses incurred in connection with the solicitation of proxies. We have engaged Okapi Partners LLC to assist with the solicitation of proxies for an estimated fee of $11,500 plus expenses. We will bear the reasonable expenses incurred by banks, brokerage firms,

custodians, nominees and fiduciaries in forwarding proxy material to beneficial owners. Our directors, officers and employees may also solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities.

 

 

17.

How can I contact the Company Secretary?

 

This Proxy Statement directs certain inquiries to the Company Secretary. The Company Secretary may be contacted at the address appearing on page 1 of this Proxy Statement or by calling (281) 872-3100.

 

18.

How can I communicate with the Board of Directors?

 

 

You may contact any member of our Board, any Board committee or any chair of any such committee by mail, electronically or by calling our independent, toll-free compliance line. To communicate by mail with our Board, any individual director, or any group or committee of directors, correspondence should be addressed to our Board or any individual director or group or committee of directors by either name or title. All correspondence should be sent to the Company Secretary at the address shown in this Proxy Statement. To communicate with any of our directors electronically, stockholders should go to our website. Under the heading “About Us — Corporate Governance” you will find a link “Contact the Board” that

may be used for writing an electronic message to our Board, any individual director, or any group or committee of directors. In addition, stockholders may call our independent, toll-free compliance line listed on our website under the same link.

All stockholder communications properly received will be reviewed by the office of our General Counsel to determine whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the appropriate director or directors.

 

 

19.

Where can I find definitions for capitalized terms, abbreviations and acronyms used in this Proxy Statement?

 

We have attempted to include definitions for capitalized terms, abbreviations and acronyms at the place in this Proxy Statement where they are first used. We have also included a quick reference glossary beginning on page 64.

 

5


                            Corporate Governance

 

Corporate Governance

Our website contains a number of documents helpful to your understanding of our corporate governance practices:

 

·  

Corporate Governance Guidelines, which include information regarding the Board’s mission and director responsibilities, director qualifications and determination of director independence;

 

·  

Certificate of Incorporation;

 

·  

By-Laws;

 

·  

charters for each Board committee; and

 

·  

Code of Conduct and Code of Ethics for our Chief Executive Officer, and Senior Financial Officers, and information about how to report concerns about the Company.

You may also obtain copies of these documents by contacting the Company Secretary. Instructions on how to communicate with the Company’s directors are included in response to question 18 in the Questions and Answers section. (page 5)

The Board regularly reviews developments in corporate governance and updates its corporate governance documents and practices as it deems appropriate. Amendments to these documents will be promptly posted on our website.

Board Leadership Structure

 

 

Chairman and Chief Executive Officer

Our Board currently combines the role of chairman of the board with the role of chief executive officer (“CEO”), and maintains a separate empowered lead independent director position to strengthen our governance structure. Our Board believes this provides an efficient and effective leadership model for the Company. Combining the two roles fosters clear accountability, effective decision-making and alignment on corporate strategy. We have not experienced any problematic governance or management issues resulting from our combining of the two roles and, in this combined role, Mr. Davidson has provided strategic, operational and technical expertise, vision and a proven ability to lead the Company.

 

   

 

Board Leadership Structure

   
   
   

·

  Chairman of the Board and CEO: Charles D. Davidson    
   
   

·

  Lead Independent Director: Michael A. Cawley    
   
   

·

 

Active engagement by all Directors, including nine independent Directors

 

   

 

Annual Review of Board Leadership Structure

Our Board recognizes that no single leadership structure is right for all companies and at all times and that, depending on the circumstances, other leadership models, such as a separate independent chairman of the board, might be appropriate.

Our Board will review, at least annually, the continued appropriateness of the Company’s combined chairman/CEO structure, as opposed to a split role or other structure. This review will occur outside the presence of the Chairman and CEO, at a meeting of the Company’s Corporate Governance and Nominating Committee and/or at an executive session of the Board.

Lead Independent Director

Our Lead Independent Director, currently Michael A. Cawley, is elected annually by our Board and has authority described in our Corporate Governance Guidelines that generally includes:

 

·  

Approving the scheduling of regular and, where feasible, special meetings of the Board to ensure that there is sufficient time for discussion of all agenda items;

 

 

6


                            Corporate Governance

 

 

·  

consulting with the Chairman to establish, and approve, the agenda and scope of materials for each Board meeting;

 

·  

presiding at all executive sessions of the independent directors and Board meetings at which the Chairman is not present;

 

·  

serving as a liaison between the Chairman and the independent directors and coordinating the activities of such directors;

 

·  

coordinating the agenda for, and moderating, sessions of the Board’s independent directors;

 

·  

facilitating communications among the other members of the Board; and

 

·  

consulting with the chairs of the Board committees and soliciting their participation to avoid diluting their authority or responsibilities.

 

 

Board and Committees

 

 

In 2013, our Board held nine meetings and committees of the Board held 21 meetings. Each director attended 75% or more of the aggregate of all meetings of the Board and the committees on which the director served during 2013.

Our Board has the following four committees, each with a written charter adopted by the Board and available on our website:

 

·  

Audit Committee;

·  

Corporate Governance and Nominating Committee (“Governance Committee”);

 

·  

Compensation, Benefits and Stock Option Committee (“Compensation Committee”); and

 

·  

Environment, Health and Safety Committee (“EH&S Committee”).

 

 

The following table summarizes the primary purposes of each committee.

 

Committee   Primary Purpose

Audit

 

·

  

Assist the Board in fulfilling its responsibility to oversee the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, and the performance of the Company’s internal audit function and independent auditors; and

 

·

  

prepare a Committee report as required by the SEC to be included in the Company’s annual Proxy Statement.

Governance

 

·

  

Take a leadership role in providing a focus on corporate governance to enable and enhance the Company’s short and long-term performance;

 

·

  

engage in appropriate identification, selection, retention and development of qualified directors consistent with criteria approved by the Board;

 

·

  

develop, and recommend to the Board, a set of corporate governance principles or guidelines applicable to the Company;

 

·

  

advise the Board with respect to the Board’s composition, procedures and committees;

 

·

  

oversee the evaluation of the Board and management; and

 

·

  

oversee the Company’s political activity.

Compensation

 

·

  

Review and approve corporate goals and objectives in the areas of salary and bonus compensation, benefits, and equity-based compensation, as these areas relate to the CEO, evaluating the CEO’s performance based on those goals and objectives and, either as a committee or together with the other independent directors (as directed by the Board) determine and approve the CEO’s compensation level based on that evaluation;

 

·

  

make recommendations to the Board with respect to non-CEO executive officer compensation, incentive compensation plans and equity-based plans that are subject to Board approval;

 

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                            Corporate Governance

 

Committee   Primary Purpose
 

·

  

produce an annual report on executive compensation as required by the SEC to be included in or incorporated by reference into the Company’s Proxy Statement or other applicable SEC filings; and

 

·

  

under delegation from our Board, determine and approve our compensation philosophy, the compensation of our non-CEO executive officers and equity-based compensation applicable to non-executive officer employees.

EH&S

 

·       

  

Assist the Board in determining whether the Company has appropriate policies and management systems in place with respect to environment, health and safety and related matters;

 

·       

  

monitor and review compliance with applicable EH&S laws, rules and regulations; and

 

·       

  

serve as a forum for the review of Company strategy and initiatives in the area of corporate social responsibility.

 

The following table describes the current members of each committee and the number of meetings held during 2013.

 

   Name      Audit(1)      Compensation(2)    Governance(3)      EH&S    

Jeffrey L. Berenson*

          ü    ü     

Michael A. Cawley*

     ü         Chair     

Edward F. Cox*

          ü    ü      Chair    

Charles D. Davidson

                  ü     

Thomas J. Edelman*

          ü    ü      ü     

Eric P. Grubman*

     ü         ü     

Kirby L. Hedrick*

          Chair    ü      ü     

Scott D. Urban*

     ü         ü      ü     

William T. Van Kleef*

     Chair         ü     

Molly K. Williamson*

            ü(4)    ü      ü    

Number of Meetings

     5      8    5      3    

 

  *

Independent directors

 

  (1)

All members of our Audit Committee have been determined to meet the standards of independence required of audit committee members by the NYSE and applicable SEC rules and to be financially literate. Mr. Van Kleef has been determined to be a financial expert.

 

  (2)

All members of our Compensation Committee have been determined to meet the NYSE standards for independence, with each a “Non-Employee Director” as defined in Rule 16b-3 under the Exchange Act, and an “outside director” as defined for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”).

 

  (3)

All members of our Governance Committee have been determined to meet the NYSE standards for independence.

 

  (4)

Ms. Williamson was added to the Compensation Committee on January 28, 2014.

 

8


                            Corporate Governance

 

Oversight of Risk Management

 

 

Our risk management program is overseen by our Board and its committees, with support from our management and external consultants.

 

 
 Oversight of Risk Management
   

·      

   The Board oversees risk management.
   

·      

   Board committees, which meet regularly and report back to the full Board, play significant roles in carrying out the risk oversight function.
   

·      

   Company management is charged with managing risk through robust internal processes and controls.
   

·      

  

External consultants provide independent perspectives on our risk management program and assist in the implementation of enhancements.

 

Our Board

 

·  

Includes enterprise risk management as an agenda item for regular Board meetings, with our Chairman consulting with our Lead Independent Director to define the topic and scope of each discussion; and

 

·  

maintains other processes in support of our risk management effort, such as those by which our Board reviews and approves our capital budget and certain capital projects, hedging policy, new country entry, significant acquisitions and divestitures, equity and debt offerings and the delegation of authority to our management.

Our Audit Committee

 

·  

Assists our Board in fulfilling its responsibility to oversee the integrity of our financial statements and our compliance with legal and regulatory requirements;

 

·  

retains, and interacts directly with, our independent auditors of financial statements and oil and gas reserves; and

 

·  

holds periodic reviews with our management to address financial and related disclosures, key legal and regulatory developments and possible enhancements to our Code of Business Conduct and Ethics.

Our Governance Committee

 

·  

Annually reviews developments in the area of corporate governance and our Corporate Governance Guidelines in order to recommend appropriate actions to our Board;

·  

reviews director independence, Board membership and committee assignments and makes adjustments in order to ensure that we have the appropriate director expertise to oversee the Company’s evolving business operations; and

 

·  

oversees the Company’s political activity.

Our EH&S Committee

 

·  

Assists our Board in determining whether we have appropriate policies and management systems in place with respect to EH&S matters and monitoring and reviewing compliance with applicable EH&S laws, rules and regulations;

 

·  

periodically reviews EH&S performance, our annual EH&S audit schedule, key EH&S legal and regulatory developments and trends; and

 

·  

reviews and advises the Board on Company initiatives in the area of corporate social responsibility.

Our Compensation Committee

 

·  

Reviews our Proxy Statement Compensation Discussion and Analysis and discusses its disclosures with our management;

 

·  

evaluates our CEO’s performance, considering input from our other independent directors on Company risk management efforts and other criteria;

 

·  

reviews our compensation program in an effort to ensure that it remains aligned with our compensation objectives and to address any potential risks that are reasonably likely to have a material adverse effect on the Company; and

 

·  

monitors executive officer compliance with the Company’s stock ownership guidelines.

Our management

 

·  

Maintains committees responsible for enterprise risk management, compliance and ethics, and disclosures;

 

·  

includes a dedicated Chief Compliance Officer; and

 

·  

regularly reports to the Board or its committees on the Company’s risk management practices.

 

 

9


                            Corporate Governance

 

Our external consultants

 

·  

Audit our financial statements and oil and gas reserves;

 

·  

help evaluate the adequacy of our risk management program;

 

·  

assist in the implementation of program enhancements; and

 

·  

help us prepare the risk disclosures in our public filings.

Succession planning

A key responsibility of our CEO and Board in the area of risk management is ensuring that an effective process is in place to provide continuity of Company leadership over the

long-term. Each year, a review of senior leadership succession is conducted by our Board. During this review, the CEO and the independent directors discuss candidates for senior leadership positions, succession timing for those positions and development plans for the highest-potential candidates. This process ensures continuity of leadership over the long-term and forms the basis upon which the Company makes ongoing leadership assignments.

In connection with our succession planning efforts, on May 1, 2013 we entered into Retention and Confidentiality Agreements with executive officers Rodney D. Cook and Ted D. Brown that generally provide for their continued employment until agreed dates in 2014, with them in return receiving continued vesting of previously awarded stock options and restricted stock, subject to certain conditions.

 

 

Codes of Business Conduct and Ethics

 

 

We have adopted a Code of Business Conduct that applies to our directors, officers and employees and sets out our policy regarding laws and business conduct, contains other policies relevant to business conduct and sets out a process for reporting violations thereof. On January 28, 2014, our Board approved changes to our code to make adjustments to its policy coverage and implement a more interactive format and structure.

We have also adopted a Code of Ethics for Chief Executive and Senior Financial Officers, violations of which are to be reported to our Audit Committee.

A copy of these codes can be obtained free of charge from our website, or by written request to the attention of the Company Secretary. Amendments to these codes will be promptly posted on our website.

 

 

Independence and Related Person Transactions

 

Director Independence

 

Our Governance Committee annually reviews the independence of all of our non-management directors and reports its findings to the full Board. To assist in this review, the Board has adopted standards for director independence, which are consistent with the NYSE and SEC independence criteria. These independence standards are set forth in our Corporate Governance Guidelines, which are available on our website under the

heading “About Us – Corporate Governance.”

In making independence determinations, our Board considers all relevant facts and circumstances. The following table contains a description of some of the transactions, relationships and arrangements considered by our Board on February 3, 2014 in confirming its determination that these directors are independent.

 

 

Director    Description of Relationship

 

Jeffrey L. Berenson

  

 

President and CEO of Berenson & Company, as well as a former director of Epoch Holding Corporation, a holding company that provides investment management and advisory services. Mr. Berenson is a former director of Patina Oil & Gas Corporation, which we acquired by merger in May 2005.

 

Michael A. Cawley

  

 

Former President, CEO and Trustee of The Samuel Roberts Noble Foundation, Inc. Mr. Cawley received payments totaling approximately $32,078 in 2013 attributable to his interests in certain oil and gas royalties that he purchased from the Company in the 1990s. Mr. Cawley is also a director and member of the Compensation Committee of Noble Corporation, a publicly-traded drilling company with which the Company conducted business in 2013.

 

Edward F. Cox

  

 

Chair of the New York Republican State Committee. Received payments in 2013 totaling approximately $587,516 attributable to his interests in certain oil and gas royalties and interests in two general partnerships that hold royalties and are managed by the Company. Mr. Cox purchased these interests from the Company in the 1980s and 1990s.

 

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                            Corporate Governance

 

Director    Description of Relationship

 

Thomas J. Edelman

  

 

Director of Berenson & Company, as well as managing partner of White Deer Energy, an energy private equity fund that owns oil service companies with which the Company has conducted business. Mr. Edelman is also a director of Emerald Oil, Inc. and PostRock Energy Corporation and is the former Chairman and CEO of Patina, which we acquired by merger in May 2005.

 

Eric P. Grubman

  

 

Executive Vice President of the National Football League.

 

Kirby L. Hedrick

  

 

Former Executive Vice President of Phillips Petroleum Company.

 

Scott D. Urban

  

 

Former Group Vice President, Upstream, for several profit centers at BP. As a partner in Edgewater Energy LLC, an exploration and production consulting and private investment firm, he serves as a lead partner in a private equity company working in the Delaware Basin. Mr. Urban is also a director and chair of the Compensation Committee, and member of the Nominating and Corporate Governance Committee, of Pioneer Energy Services Corporation.

 

William T. Van Kleef

  

 

Director and chair of the Audit Committee of Oil States International, Inc., a publicly-traded company that provides specialty products and services to oil and gas drilling and production companies worldwide and with which the Company conducted business in 2013.

 

Molly K. Williamson

  

 

Scholar with the Middle East Institute, Director of the American Academy of Diplomacy and Director of the International Service Corps.

After reviewing these transactions, relationships and arrangements, our Board affirmatively determined that no material relationship existed that would interfere with the ability of Messrs. Berenson, Cawley, Cox, Edelman, Grubman, Hedrick, Urban or Van Kleef or Ms. Williamson to exercise independent judgment and that each is independent for Board membership purposes. Our Board has also determined that all members of our Audit Committee, Compensation Committee and Governance Committee are independent under the applicable NYSE independence standards and SEC rules.

Related Person Transactions

 

We review all relationships and transactions in which the Company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. We have developed and implemented processes and controls to obtain information from our directors and executive officers with respect to related person transactions and for then determining, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in the transaction.

As required under SEC rules, transactions that are determined to be directly or indirectly material to the Company or a related person are disclosed in our annual Proxy Statement. In addition, our Governance Committee or Board (if appropriate) reviews and approves or ratifies any related person transaction that is required to be disclosed. In the course of its review and approval or ratification of a disclosable related person transaction, consideration is given to:

 

·  

The nature of the related person’s interest in the transaction;

 

·  

the material terms of the transaction, including, without limitation, the amount and type of transaction;

 

·  

the importance of the transaction to the related person;

 

·  

the importance of the transaction to the Company;

 

·  

whether the transaction would impair the judgment or ability of a director or executive officer to act in the best interest of the Company; and

 

·  

any other matters deemed appropriate.

Any director who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction; but that director may be counted in determining the presence of a quorum at the meeting where the transaction is considered.

During fiscal year 2013, there were no transactions in excess of $120,000 between the Company and a related person in which the related person had a direct or indirect material interest.

 

 

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                            Corporate Governance

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Directors, executive officers and more than 10% stockholders are required by SEC regulations to provide us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of the reports furnished to us and written representations that no other reports were required, all Section 16(a) filing requirements applicable to our directors, officers and more than 10% beneficial owners were complied with during the year ended December 31, 2013.

Ownership of Equity Securities of the Company

Directors and Named Executive Officers

 

The following table sets forth, as of March 5, 2014, the shares of common stock beneficially owned by each director, each Named Executive Officer listed in the Summary Compensation Table included in this Proxy Statement, and all directors and Named Executive Officers as a group.

 

    

Common Stock Beneficially Owned(1)

 

   Name   

Number of  

Shares  

Owned(2)  

         

 

Shares

Underlying

Stock

Options(3)

     Total      

Percent   

of Class   

Director

             

Jeffrey L. Berenson

     58,214           58,162           116,376       *

Michael A. Cawley

     39,848           71,762           111,610       *

Edward F. Cox

     46,966      (4)      51,762           98,728       *

Charles D. Davidson

     1,194,379      (5)      1,579,974           2,774,353       *

Thomas J. Edelman

     3,939,848      (6)      74,162           4,014,010       1.1%

Eric P. Grubman

     18,316           42,010           60,326       *

Kirby L. Hedrick

     97,026           71,762           168,788       *

Scott D. Urban

     25,448           56,796           82,244       *

William T. Van Kleef

     102,566           74,162           176,728       *

Molly K. Williamson

     3,760           5,434           9,194       *

Named Executive Officer (excluding any director named above)

             

Rodney D. Cook

     122,519           185,078           307,597       *

Susan M. Cunningham

     147,375           488,650           636,025       *

Kenneth M. Fisher

     135,044           229,662           364,706       *

David L. Stover

     311,819           742,020           1,053,839       *

All directors and Named Executive Officers as a group (14 persons)

     6,243,128             3,731,396           9,974,524       2.8%

 

  *

Represents less than one percent of outstanding shares of common stock.

 

  (1)

Unless otherwise indicated, all shares are directly held with sole voting and investment power.

 

  (2)

Includes restricted stock awards not currently vested, as follows: 1,604 shares held by each of Messrs. Berenson, Cawley, Cox, Edelman, Grubman, Hedrick, Urban and Van Kleef; Ms. Williamson — 3,760 shares; Mr. Cook — 34,444 shares; Ms. Cunningham — 54,287 shares; Mr. Davidson — 214,582 shares; Mr. Fisher — 63,357 shares; and Mr. Stover — 119,055 shares.

 

  (3)

Consists of shares not outstanding but subject to options that are currently exercisable or that will become exercisable on or before May 4, 2014.

 

  (4)

Includes 28,334 shares held by spouse.

 

  (5)

Includes 6,678 shares indirectly held in a qualified 401(k) Plan.

 

  (6)

Includes 1,334,000 shares held under deferred compensation plans.

 

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                            Corporate Governance

 

Security Ownership of Certain Beneficial Owners

 

Set forth in the table below is information about the number of shares held by persons we know to be the beneficial owners of more than 5% of our issued and outstanding common stock.

 

Name and Address    Number of Shares      Percent  
of   Class  
 

FMR LLC

82 Devonshire Street

Boston, MA 02109

                 53,918,413 (1)                15.0%     

Capital World Investors

333 South Hope Street

Los Angeles, CA 90071

     26,703,000 (2)         7.4%     

Blackrock, Inc.

40 East 52nd Street

New York, NY 10022

     21,897,346  (3)         6.1%     

 

  (1)

Based upon its Schedule 13G/A filed with the SEC on February 14, 2014 with respect to its beneficial ownership of our common stock. FMR LLC has sole voting power with respect to 194,435 shares and sole dispositive power with respect to 53,918,413 shares.

 

  (2)

Based upon its Schedule 13G/A filed with the SEC on February 13, 2014 with respect to its beneficial ownership of our common stock. Capital World Investors has sole voting power and sole dispositive power with respect to 26,703,000 shares.

 

  (3)

Based upon its Schedule 13G/A filed with the SEC on January 30, 2014 with respect to its beneficial ownership of our common stock. Blackrock, Inc. has sole voting power and sole dispositive power with respect to 18,774,381 shares.

Stockholder Proposals and Other Matters

Stockholder proposals intended to be brought before the Annual Meeting of Stockholders as an agenda item or to be included in our proxy statement relating to our 2015 Annual Meeting of Stockholders, which is currently scheduled to be held on April 28, 2015, must be received by us at our office in Houston, Texas, addressed to our Secretary, no later than December 23, 2014.

Our Board does not intend to present any other matter at the Annual Meeting of Stockholders and knows of no other matters that will be presented. However, if any other matter comes before the meeting, the persons named in the enclosed proxy intend to vote thereon in accordance with their best judgment.

 

13


       Election of Directors (Proposal 1)

 

Election of Directors (Proposal 1)

As of the date of this Proxy Statement, our Board consists of ten directors, nine of whom are independent. The business experience of each nominee as well as the qualifications that led our Board to select each nominee for election to the Board is discussed below. All directors are elected annually to serve until the next annual meeting and until their successors are elected.

Election Process

 

 

Our By-Laws provide that the number of directors shall be determined by the Board, which has set the number at ten; and that in an election where the number of nominees does not exceed the number of directors to be elected, each director must receive the majority of the votes cast with respect to that director.

Our Board will nominate candidates for election or re-election who agree to tender, promptly following the annual meeting, irrevocable resignations that will be effective upon (a) the failure to receive the required vote at the next annual meeting and (b) acceptance by the Board. In addition, our Board will fill director vacancies

and new directorships only with candidates who agree to tender the same form of resignation promptly following their appointment to the Board.

If an incumbent director fails to receive the required vote for re-election, then, within 90 days following certification of the stockholder vote, our Governance Committee will act to determine whether to accept the director’s resignation and will submit its recommendation for prompt consideration by our Board. The Board will promptly act on the resignation, taking into account the recommendation of the Governance Committee, and publicly disclose its decision and rationale.

 

 

Director Nominations

 

 

Our Governance Committee is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at each Annual Meeting of Stockholders. Nominees may be suggested by directors, members of management, stockholders or, in some cases, by a third-party firm.

Stockholders who wish the Governance Committee to consider their recommendations for nominees for the

position of director should submit a recommendation in writing to the Governance Committee, in care of the Company Secretary, at least 120 calendar days before the anniversary date of the immediately previous year’s annual meeting. Stockholder nominees for directors to be submitted for inclusion in our 2015 Proxy Statement must be received by us by December 23, 2014. Our Corporate Governance Guidelines specify the processes for evaluating nominees for director and the requirements for a stockholder recommendation for a director nominee.

 

 

Director Qualifications

 

 

Our Governance Committee believes that the minimum qualifications for serving as a director of the Company are that a nominee demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to our Board’s oversight of the business and affairs of the Company and have an impeccable record and reputation for honest and ethical conduct in both his or her professional and personal activities. Nominees for director shall be those people who, after taking into account their skills, expertise, integrity, diversity, character, judgment, age, independence, corporate experience, length of service, potential conflicts of interest and commitments (including, among other things, service on the boards or comparable

governing bodies of other public companies, private business companies, charities, civic bodies or similar organizations) and other qualities, are believed to enhance our Board’s ability to manage and direct, in an effective manner, the affairs and business of the Company, including, when applicable, to enhance the ability of the committees of our Board to fulfill their duties and to satisfy any independence requirements imposed by law, regulation or listing standards of the NYSE.

In general, nominees for director should have an understanding of the workings of large business organizations such as the Company and senior level executive experience, as well as the ability to make

 

 

14


       Election of Directors (Proposal 1)

 

independent, analytical judgments, the ability to be an effective communicator and the ability and willingness to devote the time and effort to be an effective and contributing member of our Board. In addition, our Governance Committee will examine a candidate’s specific experiences and skills, time availability in light of other commitments, potential conflicts of interest and independence from management and the Company. Our Governance Committee will also seek to have our Board represent a diversity of backgrounds, experience, gender and race.

Our Governance Committee annually reviews its long-term plan for Board composition, giving consideration to the foregoing factors. Based on this review and subsequent discussions, the committee concluded that the Board would benefit by the addition of a director with broad experience in foreign policy, in particular with respect to the Company’s Eastern Mediterranean operations. As a result, on March 14, 2013, Molly K. Williamson was elected to the Board. In connection with Ms. Williamson’s election, our Governance Committee engaged an executive search firm to assist it in identifying and screening potential Board candidates.

 

2014 Nominees for Director

 

 

Upon recommendation of the Governance Committee, the Board has nominated Jeffrey L. Berenson, Michael A. Cawley, Edward F. Cox, Charles D. Davidson, Thomas J. Edelman, Eric P. Grubman, Kirby L. Hedrick, Scott D. Urban, William T. Van Kleef and Molly K. Williamson for election as directors. All of the nominees are independent under the applicable NYSE independence standards and SEC rules, except Charles D. Davidson.

Each of the director nominees currently serves on the Board and was elected by the stockholders at the 2013 Annual Meeting of Stockholders. If elected, each nominee will hold office until the 2015 Annual Meeting of Stockholders and until his or her successor is elected and qualified. We have no reason to believe that any of the

nominees will be unable or unwilling to serve if elected. However, if any nominee should be unable for any reason or unwilling for good cause to serve, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of Directors.

The Board believes that the combination of the various qualifications, skills and experiences of the 2014 director nominees would contribute to an effective and well-functioning Board. The Board and the Governance Committee believe that, individually and as a whole, the Board possesses the necessary qualifications to provide effective oversight of the business and quality advice and counsel to the Company’s management.

 

 

Qualifications of 2014 Nominees for Director

 

In furtherance of the Director Qualifications discussed above, the following biographies highlight some categories of qualifications, attributes, skills and experience of each director nominee that led the Board to conclude that the director is qualified to serve on our Board.

Our Board recommends a vote FOR the election of each of the director nominees.

 

15


           Director Nominee Biographies

 

LOGO  

 Jeffrey L. Berenson

 

Director since 2005

Age 63

 

Mr. Berenson is President and Chief Executive Officer of Berenson & Company, a private investment banking

     LOGO  

Michael A. Cawley

 

Director since 1995

Age 66

 

Mr. Cawley has served as President and Manager of The Cawley Consulting Group, LLC since January 2012. He

firm in New York City that he co-founded in 1990. From 1978 until co-founding Berenson & Company, he was with Merrill Lynch’s Mergers and Acquisitions department, becoming head of that department in 1986 and then co-head of its Merchant Banking unit in 1988. Mr. Berenson was appointed to the Board of Directors of Patina Oil & Gas Corporation (“Patina”) in December 2002 and joined our Board upon completion of our merger with Patina in May 2005. He previously served on the Board of Directors of Epoch Holding Corporation.

 

Specific Qualifications, Attributes, Skills and Experience

 

         High Level of Financial Literacy — has spent more than 35 years in the investment banking business.

 

         Relevant Chief Executive Officer/President Experience — serves as President and CEO of the private investment banking firm that he co-founded in 1990.

 

         Extensive Knowledge of Our Industry and Business — has historical knowledge of the Company’s DJ Basin (Colorado) assets through his service as a director of Patina and since that time has had broad exposure to the Company’s business through over eight years of service on our Board.

    

previously served as President and Chief Executive Officer of The Samuel Roberts Noble Foundation, Inc. (“Foundation”) from February 1992 until his retirement in January 2012, after serving as Executive Vice President of the Foundation since January 1991. Prior to 1991, Mr. Cawley was the President of Thompson, Cawley, Veazey & Burns, a professional corporation, attorneys at law. Mr. Cawley also served as a trustee of the Foundation from 1988 until his retirement and is a director of Noble Corporation. He has served on our Board since 1995 and has been our Lead Independent Director since 2001.

 

Specific Qualifications, Attributes, Skills and Experience

 

        Relevant Chief Executive Officer/President Experience — served as President and CEO of the Foundation for nearly 20 years and as President of Thompson, Cawley, Veazey & Burns, a professional corporation, attorneys at law.

 

        Extensive Knowledge of Our Industry and Business — has historical knowledge of, and broad exposure to, the Company’s business through over 18 years of service on our Board.

 

         Strong Governance Experience — worked as an attorney, and law firm partner, and for over 13 years has served as our Lead Independent Director and chair of our Governance Committee.

 

16


           Director Nominee Biographies

 

LOGO    

Edward F. Cox

 

Director since 1984

Age 67

 

Mr. Cox is chair of the New York Republican State Committee (“NYRSC”) and was previously for more than five

     LOGO  

Charles D. Davidson

 

Director since 2000

Age 64

 

Mr. Davidson has served as our Chief Executive Officer since October 2000 and as Chairman of our Board since

years a partner in the law firm of Patterson Belknap Webb & Tyler LLP, New York, New York, serving as the chair of the firm’s corporate department and as a member of its management committee. For more than five years he has been chair of the New York League of Conservation Voters Education Fund and, for more than five years prior to his election as NYRSC chair in 2009, was chair of the finance, community college and charter school committees of the Trustees of The State University of New York and of the State University Construction Fund, and was a member of New York’s Merit Selection Constitutional Commission on Judicial Nomination. During the two years leading up to his 2009 election as NYRSC chair, Mr. Cox served as the New York State Chair of Senator John McCain’s presidential campaign. He has served Presidents Nixon, Reagan and H. W. Bush in the international arena, has been a member of the Council on Foreign Relations since 1993 and serves on the boards of the Foreign Policy Association, the Levin Institute (The State University of New York) and the American Ditchley Foundation. He has served on our Board since 1984.

 

Specific Qualifications, Attributes, Skills and Experience:

 

        Broad International Exposure — has served three U.S. presidents in the international arena.

 

         Extensive Knowledge of Our Industry and Business — has historical knowledge of, and broad exposure to, the Company’s business through over 29 years of service on our Board.

 

         Governmental or Geopolitical Expertise — serves as chair of the NYRSC and has served in a presidential campaign leadership role.

 

         Strong Governance Experience — worked as an attorney in private practice, chairing his firm’s corporate department.

    

April 2001. In addition, he served as our President from October 2000 through April 2009. Prior to October 2000, he served as President and CEO of Vastar Resources, Inc. (“Vastar”) from March 1997 to September 2000 (Chairman from April 2000) and was a Vastar director from March 1994 to September 2000. From September 1993 to March 1997, he served as a Senior Vice President of Vastar. From 1972 to October 1993, he held various positions with ARCO.

 

Specific Qualifications, Attributes, Skills and Experience:

 

         High Level of Financial Literacy — has extensive exposure to the financial aspects of our business through his leadership of large independent oil and gas companies.

 

         Relevant Chief Executive Officer/President Experience — has served in President and CEO roles with Vastar and the Company.

 

         Broad International Exposure — has led the Company’s exploration and production in the Eastern Mediterranean and West Africa, as well as other international locations.

 

         Extensive Knowledge of Our Industry and Business — has devoted a career to the oil and gas industry and overseen the Company’s business since 2000.

 

         Governmental or Geopolitical Expertise — has government relations experience while at ARCO and through ongoing interaction with the U.S. government and host company governments in connection with the Company’s operations.

 

        Strong Governance Experience — has served in Chairman of the Board and CEO roles with Vastar and the Company.

 

17


           Director Nominee Biographies

 

LOGO    

  Thomas J. Edelman

 

Director since 2005

Age 63

 

Mr. Edelman founded Patina and served as its Chairman and Chief Executive Officer from its formation in

     LOGO  

 Eric P. Grubman

 

Director since 2009

Age 56

 

Mr. Grubman has served as Executive Vice President of the National Football League since 2004. He was

1996 through its merger with the Company in 2005. He co-founded Snyder Oil Corporation and was its President from 1981 through 1997. He served as Chairman and CEO and later as Chairman of Range Resources Corporation from 1988 through 2003. From 1980 to 1981 he was with First Boston Corporation and, from 1975 through 1980 with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman is currently Managing Partner of White Deer Energy, an energy private equity fund, and serves on the Board of Directors of Emerald Oil, Inc. and PostRock Energy Corporation. He previously served on the Board of Directors of BioFuel Energy Corp. Mr. Edelman is also President of Lenox Hill Neighborhood House, a Trustee and Chair of the Investment Committee of The Hotchkiss School, a member of the Board of Directors of Georgetown University and a director of Berenson & Company. He joined our Board upon completion of our merger with Patina in May 2005.

 

Specific Qualifications, Attributes, Skills and Experience:

 

         High Level of Financial Literacy — has extensive experience with investment banking and private equity funds, as well as financial aspects of our business through leadership of large independent oil and gas companies.

 

        Relevant Chief Executive Officer/President Experience — has served as President and CEO of several independent oil and gas companies and devoted a substantial portion of his career to the oil and gas industry.

 

        Extensive Knowledge of Our Industry and Business — has historical knowledge of the Company’s DJ Basin assets through his service as founder, Chairman and CEO of Patina and since that time has had broad exposure to the Company’s business through over eight years of service on our Board.

    

responsible for Finance and Strategic Transactions from 2004 to 2006 and has served as the League’s President of Business Ventures from 2006 to the present. Mr. Grubman served as Co-President of Constellation Energy Group, Inc. from 2000 to 2001, was partner and co-head of the Energy Group at Goldman Sachs from 1996 to 2000, and worked in its merger department from 1987 to 2000. Mr. Grubman served as an officer in the U.S. Navy from 1980 to 1985. He serves on the Board of Directors of the U.S. Naval Academy Foundation. He joined our Board in January 2009.

 

Specific Qualifications, Attributes, Skills and Experience:

 

         High Level of Financial Literacy — has overseen finance and strategic transactions for the National Football League and previously served as co-head of the Energy Group at Goldman Sachs.

 

        Relevant Chief Executive Officer/President Experience — serves as Executive Vice President of the National Football League and previously served as Co-President of Constellation Energy Group, Inc.

 

        Extensive Knowledge of Our Industry and Business — has worked with the oil and gas industry while with Constellation Energy Group and as partner and co-head of the Energy Group at Goldman Sachs and has had broad exposure to the business through over five years of service on our Board.

 

18


           Director Nominee Biographies

 

LOGO    

 Kirby L. Hedrick

 

Director since 2002

Age 61

 

Mr. Hedrick served as Executive Vice President over upstream operations for Phillips Petroleum Company from 1997

     LOGO  

Scott D. Urban

 

Director since 2007

Age 60

 

Mr. Urban served in executive management positions at Amoco and its successor, BP, from 1977 to 2005.

until his retirement in 2000. In that role, he was responsible for exploration and production and midstream gas gathering, processing and marketing, including activities in 22 countries. He had a varied 25-year career with Phillips, including serving as petroleum engineer from 1975 to 1984 on various onshore and offshore projects in the U.S., the North Sea, Indonesia and the west coast of Africa; Manager of Offshore Operations from 1985 to 1987, responsible for all greater Ekofisk offshore operations for Phillips Pet. Co. Norway; Manager, Corporate Planning from 1987 to 1989; Managing Director from 1990 to 1992, Phillips Pet. Co. UK with upstream and downstream responsibilities, including gas marketing; President and Chief Executive Officer at GPM Gas Co. from 1993 to 1994, responsible for Phillips’ gas gathering, processing and marketing in Texas, Oklahoma and New Mexico; and Senior Vice President, Refining, Marketing and Transportation from 1995 to 1997. He joined our Board in August 2002.

 

Specific Qualifications, Attributes, Skills and Experience:

 

         Relevant Chief Executive Officer/President Experience — has served as Executive Vice President of a major international oil and gas company.

 

         Broad International Exposure — has led various onshore and offshore projects in the North Sea, Indonesia, the west coast of Africa, Norway and the UK.

 

         Extensive Knowledge of Our Industry and Business — has devoted a career to the oil and gas industry and has had broad exposure to the Company’s business through over 11 years of service on our Board.

    

At the time of his retirement from BP in 2005, he was Group Vice President, Upstream for several profit centers including North America Gas, Alaska, Egypt and Middle East and, before that, Group Vice President, Upstream North Sea. He held various positions at Amoco including, at the time of its merger with BP, Group Vice President, Worldwide Exploration. Mr. Urban is also a partner in Edgewater Energy LLC, an investment consulting firm, and a member of the Board of Directors of Pioneer Energy Services Corporation. He joined our Board in October 2007.

 

Specific Qualifications, Attributes, Skills and Experience:

 

         Relevant Chief Executive Officer/President Experience — has served as Group Vice President of a major international oil and gas company.

 

         Broad International Exposure — has led various onshore and offshore projects in Egypt, Middle East and North Sea, with an emphasis on exploration.

 

         Extensive Knowledge of Our Industry and Business — has devoted a career to the oil and gas industry and has had broad exposure to the Company’s business through over six years of service on our Board.

 

19


           Director Nominee Biographies

 

LOGO    

William T. Van Kleef

 

Director since 2005

Age 62

 

Mr. Van Kleef served in executive management positions at Tesoro Corporation (“Tesoro”) from 1993 to

    

LOGO

 

Molly K. Williamson

 

Director since 2013

Age 68

 

Ms. Williamson has served in a unique combination of senior executive policy positions in four cabinet departments

2005, most recently as Tesoro’s Executive Vice President and Chief Operating Officer. During his tenure at Tesoro, he held various positions, including President, Tesoro Refining and Marketing, and Executive Vice President and Chief Financial Officer. Before joining Tesoro, Mr. Van Kleef, a Certified Public Accountant, served in various financial and accounting positions with Damson Oil from 1982 to 1991, most recently as Senior Vice President and Chief Financial Officer. Mr. Van Kleef is also a member of the Board of Directors of Oil States International, Inc. He joined our Board in November 2005.

 

Specific Qualifications, Attributes, Skills and Experience:

 

         High Level of Financial Literacy — is a Certified Public Accountant, serving in various financial and accounting positions throughout his career.

 

         Relevant Chief Executive Officer/President Experience — has served as Executive Vice President and COO of a large refining and marketing company.

 

         Extensive Knowledge of Our Industry and Business — has had broad exposure to the Company’s business through over eight years of service on our Board.

    

of the U.S. government. Her postings included senior foreign policy advisor to the U.S. Secretary of Energy; Deputy Assistant Secretary in the Departments of State, Defense, and Commerce; U.S. interim ambassador to Bahrain; and Chief of Mission and Consul General in Jerusalem during the Madrid peace process which culminated in the Oslo Accords.

 

Ms. Williamson is a scholar with the Middle East Institute, a consultant, frequent lecturer at Johns Hopkins University, and a member of the Boards of Directors of the American Foreign Service Association, American Academy of Diplomacy and International Service Corps. She is a former Foreign Service Officer, having served six U.S. presidents, achieving the rank of Career Minister. She joined our Board on March 14, 2013.

 

Specific Qualifications, Attributes, Skills and Experience:

 

         Broad International Exposure — has extensive experience in foreign policy and international affairs, serving six U.S. presidents.

 

         Governmental or Geopolitical Expertise — has a resumé of broad government service, with expertise in the geopolitics of the Middle East.

 

20


       Director Compensation

 

2013 Director Compensation

Our director compensation program consists of two principal elements: (1) annual retainer and committee fees and (2) equity including stock options and restricted stock. Our Governance Committee reviews our director compensation program annually, based on information provided by our independent compensation consultant.

Annual Retainer and Committee Fees

 

 

Non-employee directors received the following cash fees for 2013, paid pro rata on a monthly basis:

 

·  

An annual retainer of $75,000;

 

·  

$2,000 for each Board or committee meeting attended;

 

·  

$7,500 as an annual fee for the chairs of the Governance Committee and EH&S Committee;

 

·  

$15,000 as an annual fee for the chairs of the Audit Committee and Compensation Committee; and

·  

$20,000 as an annual fee for the Lead Independent Director.

Non-employee directors are also entitled to participate in our Non-Employee Director Fee Deferral Plan by which all or a portion of their director fees may be deferred for future payment by the Company. We also reimburse directors for travel, lodging and related expenses they incur in attending Board and committee meetings and director continuing education programs relevant to their service on our Board.

 

 

Equity

 

 

The 2005 Stock Plan for Non-Employee Directors of Noble Energy, Inc. (“2005 Plan”) provides for grants of stock options and awards of restricted stock to our non-employee directors.

Options are issued with an exercise price equal to the fair market value, as defined in the 2005 Plan, of our common stock on the date of grant and may be exercised beginning one year after the date of grant. The options expire ten years from the date of grant. Restricted stock is restricted for a period of one year from the date of award. The vesting of options and restricted stock are not contingent on the satisfaction of any performance criteria and will accelerate in the event of a change of control of the Company.

Newly elected non-employee directors receive on the date of initial election to our Board a grant and award with a

total value of $250,000 to be allocated one-half to stock options and one half to restricted stock. On December 5, 2011, our Board agreed to set annual equity grants and awards at a total value of $200,000, to be made effective on February 1 and allocated one-half of the value to stock options and one-half to restricted stock.

Accordingly, our Board approved annual grants and awards to each non-employee director of 4,710 stock options and 1,832 shares of restricted stock effective February 1, 2013 and 4,011 stock options and 1,604 shares of restricted stock effective January 31, 2014 (as February 1, 2014 fell on a Saturday). Ms. Williamson received a grant of 5,434 stock options and an award of 2,156 shares of restricted stock upon her election to our Board on March 14, 2013.

 

 

21


       Director Compensation

 

Director Compensation Summary

 

The table below sets forth certain information concerning the compensation earned in 2013 by our non-employee directors.

 

Name   

Fees

Earned

or Paid

in Cash

($)(1)

    

Stock

Awards

($)(2)

    

Option

Awards

($)(3)

    

Total

($)

 

 

Jeffrey L. Berenson

     117,000         100,018         80,329         297,347   

 

Michael A. Cawley

     138,500         100,018         80,329         318,847   

 

Edward F. Cox

     132,500         100,018         80,329         312,847   

 

Thomas J. Edelman

     115,000         100,018         80,329         295,347   

 

Eric P. Grubman

     111,000         100,018         80,329         291,347   

 

Kirby L. Hedrick

     138,000         100,018         80,329         318,347   

 

Scott D. Urban

     117,000         100,018         80,329         297,347   

 

William T. Van Kleef

     124,000         100,018         80,329         304,347   

 

Molly K. Williamson

     81,880         125,026         98,355         305,261   

 

(1)

Reflects annual retainer and meeting fees.

 

(2)

Reflects the aggregate grant date fair value for restricted stock awarded in 2013 under our 2005 Plan, computed in accordance with FASB ASC Topic 718. Each non-employee director was granted 1,832 shares of restricted stock on February 1, 2013 that were unvested as of December 31, 2013. Ms. Williamson was granted 2,156 shares of restricted stock on March 14, 2013, the date she was first elected to our Board, that were unvested as of December 31, 2013.

 

(3)

Reflects the aggregate grant date fair value for nonqualified stock options granted in 2013 under our 2005 Plan, computed in accordance with FASB ASC Topic 718. Options represent the right to purchase shares of common stock at a fixed price per share equal to fair market value on the date of grant. Each non-employee director was granted 4,710 nonqualified stock options on February 1, 2013 that were unvested as of December 31, 2013. Ms. Williamson was granted 5,434 nonqualified stock options on March 14, 2013, the date she first was elected to our Board, that were unvested as of December 31, 2013.

The following directors have option grants outstanding as of December 31, 2013: Mr. Berenson — 58,162 shares; Mr. Cawley — 71,762 shares; Mr. Cox — 51,762 shares; Mr. Edelman — 74,162 shares; Mr. Grubman — 42,010 shares; Mr. Hedrick — 91,762 shares; Mr. Urban — 56,796 shares; Mr. Van Kleef — 74,162 shares; and Ms. Williamson — 5,434 shares.

 

22


   Ratification of Appointment of Independent Auditor (Proposal 2)

 

Ratification of Appointment of Independent Auditor

(Proposal 2)

 

The Audit Committee of our Board has appointed the firm of KPMG LLP to serve as our independent auditor for the fiscal year ending December 31, 2014. This firm has audited our accounts since May 2002. Although action by our stockholders on this matter is not required, our Audit Committee believes that it is important to seek stockholder ratification of this appointment in light of the critical role played by our independent auditor in maintaining the integrity of our financial controls and

reporting. One or more representatives of KPMG LLP are expected to be present at our annual meeting and will be able to make a statement if they so desire and respond to appropriate questions.

Our Board recommends that stockholders vote FOR the ratification of the appointment of KPMG LLP as our independent auditor.

 

 

Matters Relating to the Independent Auditor

 

Accounting Fees and Services for Fiscal Years 2013 and 2012

 

         2013            %            2012            %      

Audit Fees(1)

     $  3,146,261           98.9         $  2,145,382           95.5   

Audit — Related Fees(2)

                           10,000           0.5   

Tax Fees(3)

       34,524           1.1           90,490           4.0   

All Other Fees

                                       
    

 

 

      

 

 

      

 

 

      

 

 

 
     $ 3,180,785            100.0         $ 2,245,872               100.0   

 

  (1)

Audit fees consist of services rendered for the audit of the Company’s annual financial statements, the audit of the effectiveness of the Company’s internal controls over financial reporting, other audit consultation and reviews of the Company’s quarterly financial statements. This category also includes amounts paid for the issuance of consents, foreign statutory audits and similar audit-related work. Fees for 2013 also include amounts paid for the issuance a comfort letter associated with a debt offering.

 

  (2)

Fees for 2012 are associated with the audit of our 401(k) Plan.

 

  (3)

Includes fees paid for tax-related consulting.

Audit Committee Pre-Approval Policies and Procedures

 

The Audit Committee approves all audit and non-audit services to be provided by our independent auditor prior to the receipt of such services. The Audit Committee Chair has the authority to pre-approve services of up to $50,000 rendered by our independent auditor. Any pre-approval of services by the Audit Committee Chair is reported to the Audit Committee at its next scheduled meeting.

All audit-related services, tax services and other services for 2013 set forth in the table above were pre-approved by the Audit Committee Chair or the Audit Committee, as provided above, which in either case determined that such services would not impair the independence of our auditor and are consistent with the SEC’s rules on auditor independence.

 

 

23


Report of the Audit Committee

To the Stockholders of

Noble Energy, Inc.:

The primary purpose of the Audit Committee of the Company’s Board of Directors is to: (1) assist the Board of Directors in fulfilling its responsibility to oversee the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the Independent Auditor’s qualifications and independence, and the performance of the Company’s internal audit function and Independent Auditors and (2) prepare a committee report as required by the SEC to be included in the Company’s annual proxy statement. The Audit Committee’s function is more fully described in its charter, which was adopted by the Audit Committee and the Board of Directors on March 4, 2004 and most recently amended on January 28, 2014 in connection with the Audit Committee’s annual review of its charter. A copy of the charter is available on our website and is also available in print to any stockholder who requests it. The Audit Committee held five meetings during 2013, including regular meetings and a special meeting addressing the Form 10-K filing, earnings release and related matters.

Throughout 2013 and continuing to-date, the Audit Committee has been comprised entirely of independent directors, as defined and required by current NYSE listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and as so determined by our Board of Directors. The Board of Directors also determined that Mr. Van Kleef is an “audit committee financial expert” as that term is defined in Item 401(h) of Regulation S-K.

Review and Discussion

The Audit Committee has reviewed and discussed the Company’s audited financial statements with management. It has also discussed with KPMG LLP, the Company’s Independent Auditor, the matters required to be discussed by Statement of Auditing Standards No. 61 (Communication with Audit Committees), as amended by SAS No. 90 (Audit Committee Communications). Additionally, KPMG LLP has provided to the Audit Committee the written disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and the committee discussed the auditors’ independence with management and the auditors.

The Audit Committee also has considered whether KPMG LLP’s rendering of non-audit services to the Company is compatible with maintaining its independence. The Audit Committee has concluded that the rendering of the non-audit services by KPMG LLP has not impaired its independence.

Based on the Audit Committee’s discussions with management and the Independent Auditor, and its review of the representations of management and the report of KPMG LLP to the Audit Committee, the Audit Committee recommended to the Board of Directors the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC.

February 3, 2014

Audit Committee

William T. Van Kleef, Chair

Michael A. Cawley

Eric P. Grubman

Scott D. Urban

 

24

 


               Advisory Vote to Approve Executive  Compensation (Proposal 3)

 

Advisory Vote to Approve Executive Compensation (Proposal 3)

 

As we do each year, and as required by Section 14A of the Exchange Act, we provide our stockholders with the opportunity to vote to approve, on a nonbinding advisory basis, the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with the SEC’s compensation disclosure rules.

Our compensation program is designed to link compensation to performance. In doing so, we reward our Named Executive Officers for the achievement of short- and long-term operational and financial goals and increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking.

We believe the Company had another strong year in 2013. The Company’s total stockholder return was 35%, which was the seventh highest among our 15-company compensation peer group for that period, and our cumulative stockholder return for the past three fiscal years was 47%.

We describe our executive compensation program, including how it links executive compensation to Company performance, in the Compensation Discussion and Analysis portion of this Proxy Statement beginning on the next page.

The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates

to the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with the SEC’s compensation disclosure rules. The vote is advisory, which means that it is not binding on the Company, our Board or the Compensation Committee. To the extent there is any significant vote against our Named Executive Officer compensation as disclosed in this Proxy Statement, our Compensation Committee will evaluate whether any actions are necessary to address the concerns of stockholders.

Accordingly, we ask our stockholders to vote on the following resolution at our annual meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 2014 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2013 Summary Compensation Table and the other related tables and disclosure.”

Our Board recommends that stockholders vote FOR the approval of the compensation of our Named Executive Officers as disclosed in this Proxy Statement.

 

 

25


   Compensation Discussion and Analysis

 

Compensation Discussion and Analysis

Introduction

 

This Compensation Discussion and Analysis provides you with a description of our executive compensation philosophy and program, the compensation decisions our Compensation Committee has made under that program and the factors considered in making those decisions. It focuses on the compensation of our Named Executive Officers for 2013, who were:

 

Name    Title

Charles D. Davidson

  

Chairman and Chief Executive Officer

David L. Stover

  

President and Chief Operating Officer

Kenneth M. Fisher

  

Executive Vice President and Chief Financial Officer

Rodney D. Cook

  

Senior Vice President and Advisor to the Chief Executive Officer and President

Susan M. Cunningham

  

Senior Vice President, Gulf of Mexico, Africa and Frontier Ventures

Biographical information for our Named Executive Officers, and other executive officers, is included in Appendix B to this Proxy Statement.

2013 Business Highlights

 

 

Our compensation program is designed to link compensation to performance. 2013 was another strong year for the Company:

 

   

Major projects were completed, with Tamar (offshore Israel) and Alen (offshore West Africa) beginning production ahead of schedule;

 

   

Major projects were sanctioned at Big Bend (phase one of our Rio Grande development) and Gunflint (deepwater Gulf of Mexico);

 

   

Exploration success was achieved, with announced discoveries at Karish and Tamar Southwest (offshore Israel) and Troubadour and Dantzler (deepwater Gulf of Mexico);

 

   

Successful appraisal wells were drilled at Leviathan (offshore Israel), Gunflint and offshore Cyprus;

   

Daily production increased, the DJ Basin by 23% and Marcellus Shale by 60%;

 

   

Year-end proved reserves increased 19% to 1.4 BBoe; and

 

   

Acreage positions were enhanced, with a 50,000 acre exchange with another operator in the DJ Basin, a Marcellus Shale acquisition covering a 50% interest in approximately 90,000 acres and divestitures of non-core properties.

Total stockholder return for 2013 was 35%, which was the seventh highest among our 15-company compensation peer group. Our cumulative stockholder return for the past three fiscal years was 47%. The Company also achieved significant results in other areas such as oil and natural gas reserve additions and safety and environmental performance.

 

 

26


   Compensation Discussion and Analysis

 

The following illustrates the directional relationship between Company performance, based on several key metrics, and the total direct compensation (including salary, bonus, stock and option awards and non-equity incentive plan compensation) of our Chairman and Chief Executive Officer from 2011 to 2013. These key metrics — production, relative controllable unit costs and discretionary cash flow — were chosen because we believe that they correlate to long-term stockholder value.

 

Production

(MBoe/d)

 

Controllable Unit Costs

(percentage relative

to compensation

peer group)

LOGO   LOGO

Discretionary Cash Flow(1)

(Billions)

 

CEO Total Direct Compensation

(Millions)

LOGO   LOGO

 

 

(1)

Non-GAAP results. See “Non-GAAP Financial Measures” in Appendix A to this Proxy Statement for reconciliation to GAAP results.

 

27


   Compensation Discussion and Analysis

 

Five-Year Total Stockholder Return

The following chart shows how a $100 investment in the Company’s common stock on December 31, 2008 would have grown to over $290 on December 31, 2013, with dividends reinvested quarterly, for those who wish to consider total stockholder return when evaluating executive compensation. The chart also compares the total stockholder return on the Company’s common stock to the same investment in the S&P 500 Index and the Company’s new (2013) and former compensation peer groups over the same period, with dividends reinvested quarterly. As illustrated below, the Company’s common stock outperformed both the S&P 500 Index and the Company’s new and former compensation peer groups during this period.

Comparison of Five-Year Cumulative Total Stockholder Return*

 

LOGO

For more complete information regarding the Company’s 2013 performance, please see the Company’s Annual Report on Form 10-K.

 

28


   Compensation Discussion and Analysis

 

2013 Executive Compensation Highlights

 

Our compensation program is designed to link compensation to performance. In 2013 we increased our emphasis on performance-based compensation, with 70% of our CEO’s targeted compensation being performance-based. For purposes of the following chart:

 

   

Annual bonuses are based on operational and financial performance;

 

   

stock options are based on absolute stock price appreciation; and

 

   

performance shares are based on relative total shareholder return.

 

LOGO

For 2013:

 

   

Achievement of quantitative metrics (60% weighted) and qualitative goals (40% weighted) resulted in an above-target bonus payout;

 

   

long-term incentive compensation continued to constitute a substantial portion of our executives’ compensation, with the Compensation Committee considering total stockholder return, debt-adjusted per share production growth and reserve replacement in making grants of stock options and restricted stock; and

 

   

25% of the target long-term incentive opportunity is tied to relative total stockholder return.

Our Compensation Committee reviewed the aggregate estimated realizable pay of our CEO relative to CEOs of our peer group companies for the trailing three year period ending December 31, 2012, compared against three-year relative total stockholder return of our peer group companies. The estimated realizable value reflects the aggregate value of base salary, actual bonus paid, “in-the-money” value of stock options, value of restricted stock, an estimated value of outstanding performance awards, and dividends received or accrued as of December 31, 2012.

 

LOGO

 

29


   Compensation Discussion and Analysis

 

The following chart displays our CEO’s targeted compensation for the years 2011 - 2013 compared to the potential realizable compensation as of December 31, 2013. Target bars represent the Compensation Committee’s target compensation decisions for years 2011, 2012, and 2013. Each year’s value is reflective of our CEO’s annual base salary, target bonus opportunity and targeted equity value. Realizable bars for 2011, 2012, and 2013 represent each year’s base salary, actual bonus paid, “in-the-money” value of stock options, value of restricted stock, an estimated value of outstanding performance awards, and dividends received or accrued as of December 31, 2013. We believe this supplemental information is important since the vast majority of reported compensation is an incentive for future performance and will vary depending upon the Company’s performance for the applicable year. As can be seen, the realizable compensation differs from the amounts shown in the 2013 Summary Compensation Table.

 

LOGO

($ in thousands)

Recent Enhancements to Compensation Program

 

 

   

On July 23, 2013, our Board adopted a policy that prohibits our executive officers and directors from pledging shares of Company stock awarded as compensation for service as an employee or director of the Company (including shares owned as a result of the exercise of compensatory stock options) as collateral for a loan or hedging such shares through a covered call, collar or other derivative transaction. (page 38)

 

   

On July 22, 2013, our Compensation Committee adopted a policy by which it would allow the continued or accelerated vesting of equity benefits to employees retiring after attaining age 60 with 10 years of service who provide at least six months written notice of retirement and meet certain other requirements. (page 38)

 

   

Free cash flow has been added as a performance measure under our 2014 Short-Term Incentive Plan, with the quantitative nondiscretionary component of the plan remaining at 60% of the total payout calculation and allocated 15% each to production, relative cash costs and relative total stockholder return and 7.5% each to discretionary cash flow and free cash flow. (page 36)

 

   

An adjustment has been made to our 2014 compensation peer group to ensure that it continues to be relevant. (page 33)

 

   

In the fall of 2013, our Compensation Committee approved the termination of our defined benefit plans, with plan liquidation anticipated by the end of calendar year 2015. (page 39)

 

30


   Compensation Discussion and Analysis

 

Executive Compensation Practices

 

Below we highlight certain executive compensation practices, both what we do and what we don’t do, to provide a better understanding of our compensation program.

 

What We Do

þ   Pay for Performance - We align compensation with performance through financial incentives that are tied to the Company’s operational and financial results. A substantial portion of executive pay is not guaranteed. We set clear operational and financial goals for corporate and business unit performance and differentiate based on individual achievement.

þ   Review Comparative Compensation Data - We review comparative compensation data for our executive officers prior to making annual executive compensation decisions.

þ   Mitigate Undue Risk - We mitigate undue risk associated with compensation, including having a clawback provision, setting multiple performance measures and targets and maintaining robust Board and management processes to identify risks. We do not believe any of the Company’s compensation programs create risks that are reasonably likely to have a material adverse impact on the Company.

þ   Reasonable Post-Employment/Change in Control Provisions - We believe we have reasonable post-employment and change in control arrangements that are generally structured to apply to executive officers in the same manner as the broader employee population.

þ  Modest Perquisites - We provide only modest perquisites that have a sound benefit to the Company’s business.

þ  Stock Ownership Guidelines - We have adopted stock ownership guidelines, which all Named Executive Officers meet.

þ  Regular Review of Share Utilization - We evaluate share utilization by reviewing overhang levels (dilutive impact of equity compensation on our stockholders) and annual run rates (the aggregate shares awarded each year as a percentage of total outstanding shares).

þ  Independent Compensation Consulting Firm - Our Board and its committees benefit from the use of an independent compensation consulting firm that provides no other services to the Company.

 

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   Compensation Discussion and Analysis

 

What We Don’t Do

x   No Employment Contracts - We do not have employment contracts for the Chairman and CEO or other Named Executive Officers (although on May 1, 2013 we entered into separate Retention and Confidentiality Agreements with executive officers Rodney D. Cook and Ted D. Brown that provided for their continued employment until agreed dates in 2014, with them in return receiving continued vesting of previously awarded stock options and restricted stock, subject to certain conditions).

x  No Inclusion of the Value of Equity Awards in Pension or Severance Calculations

x  No Personal Aircraft Use

x  No Separate Change in Control Agreements for Incoming Executive Officers (although Messrs. Davidson and Stover and Ms. Cunningham have pre-existing separate Change in Control Agreements).

x   No Excise Tax Gross-Ups Upon Change in Control

x  No Repricing Underwater Stock Options

x  No Pledging Shares of Company Stock Received as Compensation as Collateral for a Loan, or Hedging such Shares

Results of 2013 Advisory Vote to Approve Executive Compensation

At the 2013 Annual Meeting of Stockholders, we held our third annual advisory vote on executive compensation. Over 90% of the votes cast were in favor of this advisory proposal. The Compensation Committee considered this to be a favorable outcome and believes it conveyed our stockholders’ support of the Compensation Committee’s decisions and our executive compensation program. As a result, the Compensation Committee made no material changes in the structure of the program or pay for performance philosophy for 2013. The committee nonetheless continues to seek ways to enhance our executive compensation program to ensure it remains linked to Company performance and has implemented recent changes previously noted. At the 2014 Annual Meeting of Stockholders, we will again hold an annual advisory vote to approve executive compensation (page 25), and the Compensation Committee will continue to consider the results from this year’s and future advisory votes on executive compensation.

Determining Executive Compensation

 

 

Role of Compensation Committee

Our executive compensation program is overseen by our Compensation Committee, with input from our management and outside compensation consultant. Our Governance Committee, after consultation with our Lead Independent Director, makes recommendations to our Board with respect to the appointment of Board members to all of its committees considering, in the case of our Compensation Committee, criteria such as experience in compensation matters, familiarity with our management and other key personnel, understanding of public company compensation issues, time availability to fulfill committee responsibilities and independence and other regulatory requirements.

Role of Management

Our CEO and our Senior Vice President of Human Resources and Administration provide input to the committee with respect to executive compensation, key job responsibilities, performance objectives and compensation trends. We believe these individuals are best qualified to support the committee in these areas given their understanding of our business and personnel, compensation program and competitive environment. Our Compensation Committee is not obligated to accept management’s recommendations with respect to executive compensation matters, and meets in executive session to discuss such matters outside of the presence of our management. During 2013, the committee held six executive sessions.

 

 

32


   Compensation Discussion and Analysis

 

Role of Independent Compensation Consultant

Our Compensation Committee may retain, at our expense, independent compensation consultants it deems advisable to assist it in executive compensation matters. The committee meets with the compensation consultants, within and outside the presence of our management, to review findings based on market research regarding executive compensation and considers those findings in determining and making adjustments to our executive compensation program.

Our Compensation Committee continued to retain Meridian Compensation Partners, LLC (“Meridian”) as its independent consultant on executive compensation for 2013 after considering all factors relevant to Meridian’s independence from our management and members of our Compensation Committee. The committee considered a number of traits in making this decision.

 

  Compensation Consultant Traits

 

        Effective past performance

 

       Provides services to our Board and its committees, but no other services to the Company

 

       Familiar with our executive compensation program and the programs of our compensation peer group

 

        Offers a comprehensive range of services associated strictly with executive compensation

 

        No conflicts of interest

 

       Maintains policies and procedures designed to avoid conflicts of interest

 

In 2013, the compensation consultant was responsible for reviewing our executive compensation program and providing comparative market data and trends on compensation practices and programs based on an analysis of our peer companies and other factors. Representatives of the compensation consultant participated in all regular scheduled meetings of the committee, including executive sessions without management, and provided input on prevailing trends. The compensation consultant also provided consulting services to our Governance Committee in 2013 in reviewing our non-employee director total compensation. A breakdown of fees paid to the compensation consultant for fiscal years 2013 and 2012 is set out below.

 

     2013     %     2012     %  

Executive Compensation Fees

  $ 140,747        85      $ 142,512        85   

Director Compensation Fees

    24,838        15        25,149        15   

Total

  $ 165,585        100      $ 167,661        100   

Compensation Considerations

Compensation Benchmarking

When making compensation decisions, we also benchmark the compensation of our CEO and other executive officers relative to that paid to similarly-situated executives at companies that we consider to be our peers. Our Compensation Committee maintains a compensation peer group of companies, which consists of larger and smaller publicly-traded oil and gas exploration and production companies that have similar operating and financial characteristics to ours. Our Compensation Committee, with the assistance of our CEO and the compensation consultant, reviews the composition of the peer group annually to ensure that companies remain relevant for comparative purposes.

There are a number of factors considered in determining our compensation peer group, such as similarity of operations, relevant market valuation, stock exchange membership, location of headquarters, business profile, production and reserves and the identity and operations of companies that consider us to be one of their peers. Taking these factors into account, our Compensation Committee approved the following compensation peer group for 2013:

 

  2013 Compensation Peer Group

 

 

        Anadarko Petroleum Corp.

 

       Apache Corp.

 

        Cabot Oil & Gas Corp.

 

       Chesapeake Energy Corp.

 

        Continental Resources, Inc.

 

       Devon Energy Corp.

 

        EOG Resources, Inc.

 

       Hess Corp.

 

  

        Marathon Corp.

 

       Murphy Oil Corp.

 

        Newfield Exploration Company

 

       Noble Energy, Inc.

 

        Pioneer Natural Resources Co.

 

       Range Resources Corp.

 

        Southwestern Energy Co.

 

For 2014, our Compensation Committee decided to remove Newfield Exploration Company from the compensation peer group given the growing dissimilarity of its characteristics to those of the Company.

Use of Compensation Data

Over the course of the year, our Compensation Committee analyzes the comparative total compensation of our executive officers. To facilitate this analysis, our CEO and our Senior Vice President of Human Resources and Administration work with the compensation consultant to provide the committee with comparative compensation data that includes base salary and short-term incentive

 

 

33


   Compensation Discussion and Analysis

 

plan and long-term incentive plan elements; also providing separate summary information on post-employment compensation trends, benefits and other relevant factors. This information reflects recent publicly available information and other market data. We believe that it provides our Compensation Committee with a sufficient basis to analyze the comparative total compensation of our executive officers.

Internal Pay Equity

We believe that our executive compensation program should be internally consistent and equitable. Our Compensation Committee considers the relationship between our CEO’s total compensation and that of our other Named Executive Officers, as well as the consistency and equity among all non-CEO Named Executive Officers. For 2013, the committee concluded that our CEO’s compensation was reasonable compared to that of our President and Chief Operating Officer (“COO”) and other Named Executive Officers, recognizing the CEO’s broad responsibility and accountability for Company strategy and operations, compliance and controls, and investor and other stakeholder relations.

Our Compensation Committee likewise found that the 2013 total compensation of each of our remaining Named Executive Officers was internally consistent and equitable in light of their respective roles, responsibilities and reporting relationships.

CEO Pay Ratio

Our Compensation Committee recognizes that executive compensation is an evolving area. We are still awaiting rules to be adopted to implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 relating to compensation clawbacks, hedging transactions, and pay ratio and pay for performance disclosures. In the absence of final rules, our Board has adopted a compensation clawback policy and a policy with respect to the hedging and pledging of our stock, which are discussed elsewhere in this Proxy Statement. In this regard, we have elected to disclose an estimate of the ratio between the pay of our Chairman and CEO and the median for all of our other employees.

Our Chairman and CEO’s annual total direct compensation for 2013 was $9,720,334 as reflected in the Summary Compensation Table. We estimate that the median of the annual total direct compensation of all of our employees, excluding our Chairman and CEO, was $114,376 for 2013. As a result, we estimate that our Chairman and CEO’s total annual direct compensation was approximately 85 times that of the median annual total direct compensation of all of our other employees.

The foregoing estimate may not be reflective of the pay ratio information required under rules, if any, that ultimately are adopted by the SEC.

 

 

What We Pay and Why: Elements of Compensation

 

Our compensation program is designed to attract and retain high quality employees. We have three elements of total direct compensation: base salary, our short-term incentive plan and our long-term incentive plan. The following table summarizes these three components, as well as our post-employment compensation programs.

 

Component   Base Salary   Short-Term Incentive
Plan
  Long-Term Incentive
Plan
  Post-Employment
Compensation
Programs

Type

 

      cash

 

      annual cash bonus

 

      annual stock
option grant and
restricted stock awards

 

      qualified and non-qualified plans

Purpose

 

      deliver baseline cash compensation commensurate with experience and expertise in role

 

      motivate performance and compensate employees for annual contributions

 

      incentivize retention
through long-term
compensation
opportunities

 

       align long-term interests of employees and stockholders

 

      incentivize retention by providing financial security in, and a tax-efficient means to save for, retirement

Structure

 

      market-based, considering salary range for job grade and responsibilities

 

      performance-based quantitative and qualitative factors

 

      equity grants of stock
options with 10 year
terms and restricted
stock vesting over 3
years (performance
component beginning
with 2013 awards)

 

 

      plans and programs with broad eligibility

 

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   Compensation Discussion and Analysis

 

Base Salary

Base salary adjustments for our Named Executive Officers are individually determined by the Compensation Committee after consideration of:

 

   

Breadth, scope and complexity of the role;

 

   

fairness (employees with similar responsibilities, experience and historical performance are treated comparably);

 

   

current compensation; and

 

   

individual performance.

We do not set the base salary of any employee, including any Named Executive Officer, at a certain multiple of the salary of another employee. There are two situations that may warrant a change to base salary: annual adjustments and promotions or changes in role.

Annual Adjustments

All employees’ base salaries are reviewed annually for possible adjustments. Increases in base salary are not automatic or guaranteed.

Promotions or Changes in Role

Base salary may also be adjusted to recognize differing responsibilities resulting from a change in an employee’s role or a promotion to a new position. Increases are not guaranteed for a promotion or change in role.

2013 Adjustments

Adjustments in base salary for certain of our Named Executive Officers were approved by our Compensation Committee on October 21, 2013, effective November 1, 2013, as follows:

 

   

Mr. Davidson received no increase;

 

   

Mr. Stover received a 3.5% increase;

 

   

Mr. Fisher received a 3.0% increase;

 

   

Ms. Cunningham received a 2.9% increase; and

 

   

Mr. Cook received no increase.

Short-Term Incentive Plan

Our short-term incentive plan (“STIP”) is available to all of our full-time employees, including our Named Executive Officers. The target STIP bonus for an employee is the employee’s base salary at year-end multiplied by the percentage factor assigned to the employee’s salary

classification. The target bonus percentage factors for our Named Executive Officers for 2013 were as follows:

 

Mr. Davidson     110
Mr. Stover     100
Mr. Fisher     85
Ms. Cunningham     75
Mr. Cook     75

Payout under the plan may range from 0 to 2.5 times the aggregate target bonus pool for all employees. No Named Executive Officer received a STIP bonus in excess of 2.5 times such officer’s target bonus percentage factor for 2013.

In January of each year, our Compensation Committee approves annual STIP quantitative performance-based measures, including their relative weighting and specific targets. The measures, weighting and targets are communicated to our executive officers at that time.

Our Compensation Committee approves the target for each quantitative measure after considering prior year operational and financial results, the Board-approved budget, planned projects and capital spending plans for the upcoming year. Our Compensation Committee also considers that the achievement of those targets can be significantly affected by availability of labor and equipment, acquisitions and sales, weather, product demand and pricing, competition, regulatory changes and other industry conditions that cannot be determined with certainty at the time the targets are set. We believe that our targets are set aggressively in light of these variables and require achievement of significant performance.

The targets for the annual STIP quantitative measures may include certain adjustments that are not normally included in publicly reported results. For example, production and discretionary cash flow performance results are adjusted to negate the effects of any significant acquisitions or divestitures that occurred during the performance period.

Payout curves were approved for each quantitative measure at the time targets were set, ranging from a factor of 0 to 2.5, with a 1.0 factor at each target. Our Compensation Committee reviewed information provided by Company management on actual performance for each measure, as reflected below, as applied to the measure’s payout curve to determine the bonus factor for that measure. Each bonus factor was then multiplied by the weighting for its respective measure, with the sum of the bonus factors, as adjusted for weighting, yielding the STIP quantitative nondiscretionary performance-based component. Our Compensation Committee likewise considered the Company’s operational and financial results in areas such as those noted below in determining the qualitative discretionary component factor.

 

 

35


   Compensation Discussion and Analysis

 

Quantitative Measures (60% weighted)

Our Compensation Committee considered the Company’s 2013 results against targets in the following four areas in arriving at the quantitative nondiscretionary STIP component:

 

Measure   Weight   Target   Result(1)   Factor

Production

  15%   278.1 MBoe/d   278.5 MBoe/d   1.00

Relative Controllable Unit Costs

  15%   50th Percentile of Peers   5th out of 15   1.64

Discretionary Cash Flow

  15%   $3.4 billion   $3.526 billion(2)   1.28

Relative Total Stockholder Return

  15%   50th Percentile of Peers   7th out of 15   1.21

Final quantitative nondiscretionary factor

      -   -   1.28

 

  (1)

The results for production and discretionary cash flow were adjusted to negate the impact of acquisitions and divestitures that occurred during the year.

  (2)

Non-GAAP financial measure. The Company defines discretionary cash flow as net cash provided by operating activities before changes in working capital, cash exploration costs, current tax expense of earnings adjustments and certain other adjustments.

Qualitative Measures (40% weighted)

The Compensation Committee also considered the Company’s 2013 results in the following operational financial and other areas in arriving at the qualitative discretionary STIP component:

 

Measure      Result

Additions to proved oil and natural gas reserves

    

369% replacement of production

Safety and environmental performance

    

Company had record best lost time incident rate

Financial controls

    

Balance sheet maintained, with credit facility extension and successful bond offering

Exploration success

    

Israel and deepwater Gulf of Mexico discoveries, total resources discovered slightly under target due to Nicaragua dry hole

Strategic initiatives

    

Successful start-ups of Tamar, Alen and the Company’s new Houston headquarters, with various other transactions closed

Divestiture program

    

Over $300 million in proceeds received

Relative total stockholder return

    

One-year: 35%, 7th out of 15 among our compensation peer group

Five-year: 191%, 4th out of 15 among our compensation peer group

Final qualitative discretionary factor

    

1.82

 

Taking into account the 1.28 final quantitative nondiscretionary factor and 1.82 final qualitative discretionary factor noted above, and their relative weighting, an overall weighted factor of 1.5 was applied to the Company’s aggregate target bonus pool to determine the total bonus amount to be paid. This amount was then allocated between executive officers and other employees. In the case of executive officers, the committee considered the performance of the CEO as measured against operational and financial goals submitted by the CEO earlier in the year, as well as the CEO’s assessment of the performance of the other executive officers as measured against goals each submitted earlier in the year for his or her business unit or organization, and allocated the pool

based on that assessment of individual performance and each executive officer’s respective target bonus percentage factor. A cash payout under the plan based on the Company’s 2013 performance occurred in February 2014.

For 2014, the quantitative nondiscretionary component of the STIP remains weighted at 60%, allocated 15% each to production, relative cash costs and relative stockholder return and 7.5% each to discretionary cash flow and free cash flow. We believe that the approved targets for these 2014 measures will be appropriately difficult to achieve since they will be affected by many of the same challenges and uncertainties as described above. While those targets are disclosed above in the context of

 

 

36


   Compensation Discussion and Analysis

 

historical 2013 performance, we believe that the disclosure of 2014 targets would result in competitive harm to us and are therefore omitted since (a) we are engaged in a highly competitive business, (b) we may pursue opportunities in areas without first publicly disclosing our intention to do so and (c) disclosure of these targets might enable our competitors to determine our strategic areas of interest and priorities throughout the year. We also do not believe that the disclosure of 2014 targets is material to an understanding of our 2013 executive compensation program as covered by this Proxy Statement.

Long-Term Incentive Plan

Under our long-term incentive plan (“LTIP”) our Compensation Committee may make grants of stock options, restricted stock and performance units. Stock options and restricted stock are granted under our 1992 Stock Option and Restricted Stock Plan (“1992 Plan”).

In 2013 we applied a performance-based vesting requirement to a portion of the restricted stock granted. These shares will not vest unless the Company achieves minimum threshold stockholder returns relative to our industry peers. See the discussion below for more information on these awards.

Approval of Grants

In approving grants, our Compensation Committee assesses the Company’s relative three-year performance versus our compensation peer group on measures such as total stockholder return, debt-adjusted per share production growth and reserve replacement. Other considerations include input from the CEO, market data provided by the compensation consultant, executive officer total compensation and internal pay equity. Grants for the CEO and other executive officers are approved by our Compensation Committee and discussed with our Board, outside the presence of the CEO and the other executive officers.

The regular Board and Compensation Committee meeting schedule for the upcoming year is set in April of the prior year, with regular Board meetings held in January, April, July, October and December. Our Compensation Committee meetings are usually held the day before each Board meeting. The timing of these meetings is not determined by executive officers and is usually in advance of the announcement of earnings. We do not time the release of material non-public information for the purpose of affecting the values of executive compensation. Our Compensation Committee may be aware of approximate earnings results at the time of making equity grant decisions, but it does not adjust the size or timing of grants to reflect possible market reaction.

Generally, annual stock option and restricted stock grants are approved at a January meeting of our Compensation Committee. Stock options and restricted stock are granted annually on February 1 (or the preceding business day if February 1 falls on a Saturday, Sunday or holiday). It is our policy to make grants to executive officers and other employees at the same time. However, specific grants of stock options or restricted stock may be approved at other regular or special meetings to recognize the completion of a significant transaction or project, a change in an employee’s responsibility or a specific achievement, or as an inducement to, or for the retention of, employment. No special grants were made to executive officers in 2013. We communicate grants to executive officers and other employees shortly after the date of approval, in accordance with our customary practices.

Terms of Grants

Stock option grants represent the right to purchase shares of our common stock over a period of up to ten years at fair market value, as defined in the 1992 Plan. Stock options vest ratably over a three-year period and awards of restricted stock prior to 2013 vest 20% on the first anniversary of the award date, an additional 30% on the second anniversary of the grant date and the remaining 50% on the third anniversary of the grant date. Beginning with grants in 2013, performance criteria are being applied to the portion of restricted stock that will vest on the third anniversary of the award date, with the number of shares vesting adjusted for the Company’s relative total stockholder return ranking as a percentile versus our compensation peer group for the period beginning January 1 of the year of award and ending December 31 of the third year thereafter.

The performance vesting restricted stock awarded in 2013 will vest as shown in the chart below, based on our relative total stockholder return ranking (versus compensation peer group) for the three-year period from 2013 through 2015:

 

Company Percentile Rank      Payout%  
90th percentile or higher        200%   

75th percentile or higher

       150%   

50th percentile or higher

       100%   

25th percentile

       50%   

Below 25th percentile

       0%   

If the percentile level of the Company’s total stockholder return ranking falls between two levels indicated above, the amount vested will be determined on the basis of a straight-line interpolation between the two levels. Dividends (to the extent declared) paid on restricted stock will be equal to the amount paid to other stockholders but will be retained by the Company and will only vest and be paid if and when the restricted stock vests.

 

 

37


   Compensation Discussion and Analysis

 

 

On July 22, 2013, our Compensation Committee adopted a policy by which it would allow the continued or accelerated vesting of equity benefits to employees retiring after attaining age 60 with 10 years of service who provide at least six months written notice of retirement and meet certain other requirements.

Stock Ownership Guidelines

Our Board has adopted stock ownership guidelines for our officers and non-employee directors that are set out in our Corporate Governance Guidelines. We believe that our stock ownership guidelines reinforce the alignment of the long-term interests of our executive officers, non-employee directors and stockholders. We also believe that they help discourage the taking of excessive business risks.

Each officer listed below is expected to own a number of our shares with a value that is a multiple of the officer’s current base salary and each non-employee director is expected to own a number of shares with a value that is a multiple of the director’s annual cash retainer, as follows:

 

Position   Multiple
Chief Executive Officer   6.0X base salary
President   3.0X base salary
Chief Financial Officer   3.0X base salary
Senior Vice President   2.5X base salary
Vice President   2.0X base salary
Non-Employee Director   5.0X annual cash retainer

Holding Requirement

Individuals not meeting these guidelines within a prescribed timeframe will be required to retain 50% of any net shares they subsequently acquire upon the vesting of restricted stock and/or the exercise of stock options until the required ownership multiple is met.

On December 9, 2013, our Compensation Committee and Governance Committee reviewed the holdings of our officers and non-employee directors, finding that all of our officers and non-employee directors were in compliance with the guidelines (or, in the case of recently elected officers or non-employee directors, were within the permitted timeframe to come into compliance with the guidelines).

Policy on Stock Hedging and Pledging

On July 23, 2013, our Board adopted a policy that prohibits our executive officers and directors from pledging shares of Company stock awarded as

compensation for services as an employee or director of the Company (including shares owned as a result of the exercise of compensatory stock options) as collateral for a loan or hedging such shares through a covered call, collar or other derivative transaction.

2013 Compensation of Named Executive Officers

Our Compensation Committee, with input from our other independent directors, evaluates Mr. Davidson’s performance on an annual basis. This evaluation provides the basis for the determination of Mr. Davidson’s compensation and considers the Company’s operational and financial results as well as other areas such as leadership development, risk management, balance sheet management, strategic growth initiatives and succession planning.

In determining the compensation of Messrs. Stover, Fisher, and Cook and Ms. Cunningham for 2013, our Compensation Committee considered their respective roles, responsibilities and reporting within the Company; their respective contributions to the overall performance of the Company; the performance of their respective business units or organizations; comparisons to our compensation peer group; and internal pay equity.

The following table provides a comparison of each of our Named Executive Officer’s respective 2012 and 2013 total direct compensation. (Dollar amounts below are expressed in thousands.)

 

Charles D. Davidson

 

Year

 

Base

Salary($)

   

Bonus

($)

   

STIP

Award($)

   

Equity
Awards($)

    Total
Direct
Comp.($)
   

% Change

vs. 2012

 

2013

    1,125.0        —          1,856.3        6,739.0        9,720.3        -3.4

2012

    1,125.0        —          2,165.6        6,775.1        10,064.7           
David L. Stover

 

Year

 

Base

Salary($)

   

Bonus

($)

   

STIP

Award($)

   

Equity
Awards($)

    Total
Direct
Comp.($)
   

% Change

vs. 2012

 

2013

    713.4        —          1,102.5        3,667.5        5,483.4        -8.4

2012

    679.9        —          1,242.5        4,065.1        5,987.5           

Kenneth M. Fisher

 

Year

 

Base

Salary($)

   

Bonus

($)

   

STIP

Award($)

   

Equity
Awards($)

    Total
Direct
Comp.($)
   

% Change

vs. 2012

 

2013

    572.3        —          788.4        2,017.2        3,377.9        -1.2

2012

    552.8        —          789.9        2,077.6        3,420.4           

Susan M.
Cunningham

 

Year

 

Base

Salary($)

   

Bonus

($)

   

STIP

Award($)

   

Equity
Awards($)

    Total
Direct
Comp.($)
   

% Change

vs. 2012

 

2013

    522.0        —          550.0        1,696.1        2,768.1        -22.5

2012

    502.8        —          675.6        2,393.8        3,572.2           
Rodney D. Cook

 

Year

 

Base

Salary($)

   

Bonus

($)

   

STIP

Award($)

   

Equity
Awards($)

    Total
Direct
Comp.($)
   

% Change

vs. 2012

 

2013

    480.0        300.0        539.3        1,651.3        2,970.6        -14.5

2012

    458.5        —          623.6        2,393.8        3,476.0           
 

 

38


   Compensation Discussion and Analysis

 

We believe that Mr. Davidson’s compensation level is consistent with the objectives of our compensation program, provides an appropriate mix of fixed and variable compensation, rewards leadership performance by Mr. Davidson that produced some key results by the Company in 2013 and provides motivation for the future achievement of short- and long-term goals necessary to stockholder value creation.

We also believe that the payments and awards to our other Named Executive Officers are appropriate in light of the Company’s performance in 2013 and reflect the relative contributions of these individuals, including Mr. Stover’s role in the growth of our domestic and international businesses; Mr. Fisher’s leadership within the Company’s financial organization; Ms. Cunningham’s role in our exploration program and Gulf of Mexico, Africa and new frontier areas; and Mr. Cook’s role in the progress made in our international development projects.

On January 27, 2013, our Compensation Committee approved the following stock option grants and restricted stock awards under our 1992 Plan to our Named Executive Officers:

 

         

Targeted Shares of
Restricted Stock

 
     Stock
Options
   

(Time-based)

    (Performance-based)  

Charles D. Davidson

    173,064        33,656        33,656   

David L. Stover

    94,184        18,316        18,316   

Kenneth M. Fisher

    51,802        10,074        10,074   

Susan M. Cunningham

    43,560        8,470        8,470   

Rodney D. Cook

    42,382        8,242        8,242   

In determining the level of these grants and awards, our Compensation Committee considered market data provided by our compensation consultant regarding our compensation program and appropriate long-term incentive grant levels in light of compensation peer group practices and our relative performance versus that group.

Post-Employment Compensation

Our post-employment compensation is provided under qualified and nonqualified defined benefit plans, qualified and nonqualified defined contribution plans, and either individual change of control agreements or, alternatively, a change of control plan.

Qualified Defined Benefit Plan

In 2013, after a detailed review, the Company determined that an enhanced defined contribution plan for all eligible employees would be better aligned with our compensation plan objectives and would avoid the increasing regulatory and reporting burdens associated with maintaining a

defined benefit pension plan. In the fall of 2013, we notified our employees, including the participating NEOs, that effective December 31, 2013 our qualified defined benefit plan (the “Retirement Plan”) would be terminated and liquidated. In connection with the termination, the Company approved several plan enhancements including (i) providing that the participant’s final average monthly compensation will not be less than the participant’s highest average monthly rate of compensation for any one calendar year prior to the termination, (ii) vesting certain unvested benefits, (iii) offering early retirement subsidies to participants who had not yet reached age 55, and (iv) preserving the interest rate in use as of the termination date for calculating future lump sum payments if that would result in a larger payment. In connection with the termination, all active employees and deferred vested participants will be provided distributions either in cash or in the form of an annuity to be purchased from an insurance company. We anticipate that the Retirement Plan will be completely liquidated by the end of calendar year 2015. For additional information about the benefits available to participating Named Executive Officers under our Retirement Plan, please see “Pension Benefits” on page 50 of this Proxy Statement.

Nonqualified Defined Benefit Plan

Our nonqualified defined benefit plan (“Restoration Plan”) is an unfunded plan that provides the benefits under the Retirement Plan’s benefit formula that cannot be provided by the Retirement Plan because of the annual compensation and annual benefit limitations applicable to the Retirement Plan under the Internal Revenue Code. The amount of an employee’s monthly Restoration Plan benefit will depend upon the employee’s final average monthly compensation, age and the number of his or her years of credited service (which is limited to a maximum of 30 years). Restoration Plan benefits are calculated using the same methodology utilized for our Retirement Plan. Employees originally hired before May 1, 2006, which include all of our Named Executive Officers except Mr. Fisher, continued to accrue benefits under the Restoration Plan through December 31, 2013.

We amended our Restoration Plan effective December 31, 2013 to freeze the accrual of benefits under the plan in coordination with the termination of our Retirement Plan so that no additional benefits will accrue under the Restoration Plan after December 31, 2013. Benefits accrued under the Restoration Plan as of that date will be frozen, and payments under the Restoration Plan will continue to be made in ordinary course without acceleration of payment. Participants in the Restoration Plan who remain employed by us upon final liquidation and distribution of assets of the Retirement Plan may elect to have the lump sum present value of their

 

 

39


   Compensation Discussion and Analysis

 

Restoration Plan benefits converted into an account balance under our nonqualified deferred compensation plan. For additional information about the benefits available to participating Named Executive Officers under our Restoration Plan, please see “Pension Benefits” on page 50 of this Proxy Statement.

Qualified Defined Contribution Plan

Our qualified defined contribution plan (“401(k) Plan,” formerly referred to as the Thrift Plan) is a tax-qualified retirement savings plan generally available to our employees, including our Named Executive Officers. The 401(k) Plan allows participants to contribute the lesser of up to 50% of their basic compensation, or the limit prescribed by the Internal Revenue Code, on a pre-tax basis. The Company matches 100% of the first six percent of a participant’s eligible pre-tax contribution. Participants are 100% vested in the Company’s contributions after three years of service, vesting 34%, 67% and 100% following years one, two and three.

In addition, since 2006, the Company has made the following age-weighted contribution to the 401(k) Plan for each participant whose initial employment date with the Company was on or after May 1, 2006 (which does not include any of our Named Executive Officers except Mr. Fisher):

 

Age of Participant   

Contribution
Percentage

(Below the FICA
Taxable Wage Base)

    

Contribution
Percentage

(Above the FICA
Taxable Wage Base)

 

Under 35

     4%         8%   

At least 35 but under 48

     7%         10%   

At least 48

     9%         12%   

Starting in 2014, these age-weighted contributions will also be made to participants whose initial employment dates with the Company were prior to May 1, 2006. The contributions made to our 401(k) Plan by or for a participant are credited to accounts maintained for such participant under the plan. The amounts credited to a participant’s account are invested at the direction of the participant in various investment fund options available under the 401(k) Plan, including investment in shares of our common stock.

Effective beginning in 2014, an additional transition contribution equal to 6% of a participant’s basic compensation will be made to the accounts of certain eligible employees who were participating in the Retirement Plan when it terminated on December 31, 2013 and who meet certain other criteria.

Nonqualified Deferred Compensation Plan

Our nonqualified deferred compensation plan (“Deferred Compensation Plan”) allows executive officers, and certain other employees, to save for retirement in a tax-effective way at a favorable cost to us. Under the Deferred Compensation Plan, participants are allowed to defer portions of their salary and bonus and to receive certain matching and age-weighted contributions that would have been made to our 401(k) Plan if the 401(k) Plan had not been subject to Internal Revenue Code compensation and contribution limitations. Under this unfunded program, amounts deferred by the participant have been credited annually with interest at a rate equal to the greater of 125% of the 120-month rolling average of 10-year U.S. Treasury notes or the 120-month rolling average of the prime rate as published in The Wall Street Journal.

We amended our Deferred Compensation Plan effective January 1, 2014 to:

 

   

Allow participants to elect, in lieu of having their accounts credited with the interest rate described above, to have their accounts adjusted to reflect the results of an array of notional investment options;

 

   

provide for additional contribution credits to be made for certain participants that are designed to offset the financial impact to them of the freezing of benefit accruals under the Retirement Plan; and

 

   

establish additional account balances for those participants who elect to have the lump sum present value of their Restoration Plan benefits converted into an account balance under the Deferred Compensation Plan.

Change of Control Arrangements

We have adopted change of control arrangements for our executive officers and certain other employees. A change of control of the Company could result in a material change in the leadership and direction of the Company, creating uncertainties among employees and executive officers in such areas as the continuity of management, continued employment opportunities, and our ability to execute existing programs. These arrangements are intended to preserve morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change of control of the Company. Based on information provided by our compensation consultant, we believe that these arrangements are common practice and align our executive officer interests with those of our stockholders by enabling our executive officers to consider corporate transactions that are in the best interest of stockholders without undue concern over whether the transactions may jeopardize their continued employment.

 

 

40


   Compensation Discussion and Analysis

 

 

All of our change of control arrangements include provisions regarding severance benefits that our executive officers and certain other employees may be entitled to receive if they are terminated within two years following a change of control of the Company. Under these arrangements, if a Named Executive Officer is terminated for any reason (other than for cause, disability or death) within two years after a change of control, we will then pay or provide the following to that Named Executive Officer:

 

   

All unpaid salary and expenses;

 

   

a lump sum equal to a multiple of his or her annual cash compensation (made up of annual salary and bonus) ranging from 2.5 times to 2.99 times;

 

   

an amount equal to his or her pro rata target bonus for the then-current year;

 

   

life, disability, medical and dental insurance benefits, upon his or her written request, ranging among Named Executive Officers from 30 to 36 months or such shorter period until the executive obtains substantially equivalent coverage from a subsequent employer; the vesting of his or her stock options and restricted stock; and

 

   

reimbursement for reasonable fees up to $15,000 for out-placement employment services.

If we terminate the Named Executive Officer for cause, no benefit is payable to, or with respect to, that Named Executive Officer under our change of control arrangements. A termination for cause may only be made by the affirmative vote of a majority of the members of our Board.

Our change of control arrangements include a plan or, in the alternative, individual change of control agreements. Specifically, on October 24, 2006, our Board approved a Change of Control Severance Plan for Executives (“Executive Change of Control Plan”), which became effective on that date. The plan covers our executive officers, provided that they are not already party to pre-existing change of control agreements with us. All of our Named Executive Officers, except Messrs. Fisher and Cook, are parties to pre-existing change of control agreements and therefore may not participate in the plan at this time. Messrs. Fisher and Cook currently participate in our Executive Change of Control Plan.

Our change of control arrangements previously provided for a tax gross-up payment to the Named Executive Officer that would fully offset the effect of (a) any excise tax imposed by Section 4999 of the Internal Revenue

Code upon the benefits payable under such arrangements (or under any other Company plan, arrangement or agreement), and (b) any federal, state or local income tax or additional Section 4999 excise tax that is attributable to the tax gross-up payment. Effective February 1, 2011, the tax gross-up provision was eliminated from all of our individual change of control agreements and our Executive Change of Control Plan.

Severance Benefit Plan

Our Severance Benefit Plan (“Severance Benefit Plan”) is an unfunded plan that provides for severance benefits to eligible employees, including our executive officers, in certain instances based upon years of completed service. The severance benefits are comprised of:

 

   

A cash payment of two weeks of base salary pay for every year of completed service, with a minimum of 12 weeks of pay and a maximum of 52 weeks of pay;

 

   

a prorated STIP payment based on the number of months of employment during the calendar year of termination;

 

   

six months of reduced-rate contributions under our medical and dental plans; and

 

   

twelve weeks of coverage under our employee assistance plan.

Perquisites

We do not consider perquisites to be a material component of executive compensation. In 2013, certain of our executive officers received modest personal benefits that have a sound benefit to the Company’s business, such as club membership dues reimbursement and comprehensive physical examinations.

Other Compensation Matters

Health and Welfare Programs

We offer a number of other benefits to our executive officers pursuant to benefit programs that provide for broad-based employee participation. These benefit programs include medical, dental and vision insurance, long-term disability (“LTD”) and short-term disability insurance, life and accidental death and dismemberment (“AD&D”) insurance, health and dependent care, flexible spending accounts, relocation/expatriate programs and services, educational assistance, employee assistance and certain other benefits.

 

 

41


   Compensation Discussion and Analysis

 

 

Indemnification Agreements

We have entered into an indemnification agreement with each of our non-employee directors and our executive officers. These agreements provide for us to indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or executive officers and to advance their expenses incurred as a result of a proceeding as to which they may be indemnified. We also cover such persons under a directors’ and officers’ liability insurance policy that we choose, at our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted under applicable law and are in addition to any other rights the individual may have under our Certificate of Incorporation, By-Laws and applicable law. We believe these indemnification agreements enhance our ability to attract and retain knowledgeable and experienced executive officers and non-employee directors.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code may limit our ability to deduct annual compensation in excess of $1,000,000 that is paid to our CEO and other Named Executive Officers, unless that compensation is “performance-based compensation” within the meaning of

Section 162(m) and the regulations promulgated thereunder. We believe that all of the stock options and performance-based restricted shares granted under the 1992 Plan qualify as performance-based compensation and therefore are not subject to the deduction limitation of Section 162(m). However, the salary and STIP payouts paid to our executive officers, the time-vested restricted stock awards, and certain payments provided for under our change of control arrangements with the Named Executive Officers are not exempt from this deduction limit.

Although we consider tax deductibility in the design and administration of our executive compensation plans and program, we believe that there are circumstances where our interests are best served by maintaining flexibility in the way compensation is provided, even if it results in the non-deductibility of certain compensation under the Internal Revenue Code.

Rules under generally accepted accounting principles determine the manner in which we account in our consolidated financial statements for grants of equity-based compensation to our employees. Our accounting policies for equity-based compensation are further discussed in Note 12 to our consolidated financial statements, included in our 2013 Annual Report on Form 10-K.

 

 

42


REPORT OF THE COMPENSATION, BENEFITS

AND STOCK OPTION COMMITTEE

ON EXECUTIVE COMPENSATION

The following report of the Compensation, Benefits and Stock Option Committee of the Board of Directors shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules, except for the required disclosure in this Proxy Statement, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (“Exchange Act”), and the information shall not be deemed to be incorporated by reference into any filing made by the Company under the Securities Act of 1933 or the Exchange Act.

The Compensation, Benefits and Stock Option Committee has reviewed the Compensation Discussion and Analysis contained in this Proxy Statement and discussed this disclosure with management. Based on this review and discussions with management, the Compensation, Benefits and Stock Option Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for filing with the SEC.

March 12, 2014

Compensation, Benefits and

Stock Option Committee

Kirby L. Hedrick, Chair

Jeffrey L. Berenson

Edward F. Cox

Thomas J. Edelman

Molly K. Williamson

 

43

 


                                                            Compensation Tables

 

Summary Compensation Table

The following table sets forth summary information concerning the compensation earned by our Named Executive Officers during 2011, 2012 and 2013.

 

Name and

Principal Position

  Year        

Salary

($)(1)

    Bonus($)    

Stock  

Awards  

($)(2)  

   

Option

Awards

($)(3)

   

Non-Equity

Incentive Plan

Compensation

($)(4)

   

Change in

Pension Value

and Non-

Qualified

Deferred

Compensation

Earnings($)(5)

   

All Other

Compensation

($)(6)

   

Total

($)

 

  Charles D. Davidson

    2013        1,125,000               3,787,477        2,951,607        1,856,250        4,219,830        79,472        14,019,636   

Chairman and Chief

    2012        1,125,000               3,750,031        3,025,060        2,165,625        2,102,110        78,703        12,246,529   

Executive Officer

    2011        1,069,719               3,500,030        2,864,040        1,856,250        2,123,823        78,059        11,491,921   
                                                                         

  David L. Stover

    2013        713,414               2,061,191        1,606,308        1,102,500        2,455,659        56,511        7,995,583   

President and Chief

    2012        679,930               2,250,018        1,815,042        1,242,500        866,440        51,615        6,905,545   

Operating Officer

    2011        632,476               1,799,964        1,472,953        1,081,363        886,629        54,428        5,927,813   
                                                                         

  Kenneth M. Fisher

    2013        572,321               1,133,678        883,483        788,449        5,116        113,574        3,496,621   

Executive Vice President and

    2012        552,817               1,149,955        927,690        789,919        997        111,896        3,533,274   

Chief Financial Officer

    2011        528,738               999,970        818,327        763,440        518        104,417        3,215,410   
                                                                         

  Susan M. Cunningham

    2013        522,048               953,172        742,916        550,030        1,515,840        48,521        4,332,527   

Senior Vice President,

    2012        502,817               1,324,984        1,068,854        675,588        624,323        250,501        4,447,067   

Gulf of Mexico, Africa and Frontier Ventures

    2011        478,738               875,030        715,972        614,093        622,657        19,586        3,326,076   
                                                                         

  Rodney D. Cook

    2013        480,000        300,000        934,642        716,680        539,259        3,020,029        26,117        6,016,727   

Senior Vice President

    2012        458,522               1,324,984        1,068,854        623,620        1,107,771        25,052        4,608,803   

and Advisor to the CEO and President

    2011        429,486               875,030        715,972        564,370        1,173,636        25,173        3,783,667   

 

  (1)

Certain of our Named Executive Officers deferred a portion of their base salaries under our Deferred Compensation Plan:

 

Name    Year      Percentage of
Salary Deferred
     Amount
Deferred ($)
 
       

Charles D. Davidson

     2013         45      506,250   
       2012         45      506,250   
       2011         45      481,374   
       

David L. Stover

     2013         6      42,805   
       2012         6      40,796   
       2011         5      31,264   
       

Kenneth M. Fisher

     2013         4      22,893   
       2012         4      22,113   
       2011         3      15,862   

 

  (2)

Reflects the aggregate grant date fair value of restricted stock awarded under our 1992 Plan, which was computed in accordance with FASB ASC Topic 718. Shares awarded in 2013 will vest according to the following schedule: 40% after year one and 60% after year two. Performance restricted stock awarded in 2013 will vest three years after the date of grant upon, and subject to a formula related to, the Company’s achievement of certain levels of total stockholder return (“TSR”) relative to a pre-determined compensation peer group. Shares awarded in 2011 and 2012 will vest according to the following schedule: 20% on the first anniversary of the award date; an additional 30% on the second anniversary of the award date; and the remaining 50% on the third anniversary of the award date. The vesting of these 2011 and 2012 shares is not contingent upon the satisfaction of any performance goals. See the Grants of Plan-Based Awards table for information on restricted stock awarded in 2013.

 

  (3)

Reflects the aggregate grant date fair value of nonqualified stock options granted under our 1992 Plan. Options represent the right to purchase shares of common stock at a price per share equal to fair market value on the date of grant. Options will vest ratably over three years in equal installments on the first, second and third anniversaries of the date of grant. Vesting of these options is not contingent upon the satisfaction of any performance goals, although none of the options may be exercised before the first anniversary (absent a change of control of the Company) or after the tenth anniversary of the date of grant. See the Grants of Plan-Based Awards table for information on stock options granted in 2013.

 

44


                                                            Compensation Tables

 

 

  (4)

Reflects payments under our STIP based on the achievement of certain performance goals during the year indicated. STIP awards earned during the year indicated were paid or deferred in February of the following year, as follows:

 

Name    Year      STIP
Payout($)
 

Charles D. Davidson

     2013         1,856,250   
       2012         2,165,625   
       2011         1,856,250   

David L. Stover

     2013         1,102,500   
       2012         1,242,500   
       2011         1,081,363   

Kenneth M. Fisher

     2013         788,449   
       2012         789,919   
       2011         763,440   

Susan M. Cunningham

     2013         550,030   
       2012         675,588   
       2011         614,093   

Rodney D. Cook

     2013         539,259   
       2012         623,620   
       2011         564,370   

 

  (5)

Reflects during the year indicated: (a) the aggregate increase in actuarial present value of the Named Executive Officer’s benefits under our Retirement Plan and Restoration Plan; and (b) the above-market Deferred Compensation Plan earnings, as follows:

 

Name    Year     

Increase in

Retirement and

Restoration Plans ($)(a)

    

Deferred

Compensation

Above-Market

Earnings($)(b)

 

Charles D. Davidson

     2013         3,510,498         709,332   
       2012         1,893,070         209,040   
       2011         1,855,729         268,094   

David L. Stover

     2013         2,391,405         64,254   
       2012         848,025         18,415   
       2011         863,759         22,870   

Kenneth M. Fisher

     2013                 5,116   
       2012                 997   
       2011                 518   

Susan M. Cunningham

     2013         1,515,840           
       2012         624,323           
       2011         622,657           

Rodney D. Cook

     2013         2,999,969         20,060   
       2012         1,102,420         5,351   
       2011         1,167,383         6,253   

 

  (a)

Beginning of year values for calculating the aggregate increase in actuarial present value reflect a 3.75% discount rate for the Retirement Plan and Restoration Plan; end of year values reflect a 3.25% discount rate for the Retirement Plan and a 3.00% discount rate for the Restoration Plan. Present values are based on the same actuarial assumptions and measurement dates used to determine the pension benefit obligations disclosed in Note 12 to our consolidated financial statements included in our 2013 Annual Report on Form 10-K, except that for years 2011 and 2012 for purposes of the present value calculations, participants are assumed to work until age 65 and commence their benefits at that time.

 

    

Effective December 31, 2013, the Company adopted an amendment to the Retirement Plan to cease benefit accruals and to terminate the plan (see “Pension Benefits” section for more information). The Company anticipates that the Retirement Plan benefits will be distributed to the participants in 2015. Therefore, for 2013, the present value calculations assume that the participants will commence their benefit on December 31, 2015 (for Mr. Davidson it is assumed that he will commence his benefit on his 65th birthday in 2015). The following factors contributed to the 2013 increase (with the respective percentage that each factor contributed to the total increase for each named executive officer): (i) normal growth of benefit due to an additional year of benefit accrual (for Mr. Davidson 34%, for Mr. Stover 26%, for Ms. Cunningham 26% and for Mr. Cook 19%), (ii) lower discount rates used for the present value calculation (for Mr. Davidson 2%, for Mr. Stover 8%, for Ms. Cunningham 8% and for Mr. Cook 9%), (iii) the change in the definition of final average earnings in connection with the plan termination (for Mr. Davidson 64%, for Mr. Stover 30%, for Ms. Cunningham 26% and for Mr. Cook 29%), and (iv) due to the anticipated distribution of plan benefits in 2015, the present value calculation assumes that participants will commence their benefit on December 31, 2015 (as opposed to age 65) which includes the effect of capturing the value of pre-65 early retirement subsidies (these subsidies were not

 

45


                                                            Compensation Tables

 

 

reflected in the 2011 and 2012 increase since it was assumed that benefits commenced at age 65) and a shorter discounting period (for Mr. Davidson 0%, Mr. Stover 36%, for Ms. Cunningham 40% and for Mr. Cook 43%). Assuming the named executive officers commence their benefits at age 65, the 2013 increase would have been as follows: for Mr. Davidson, $3,510,498; for Mr. Stover, $1,538,835; for Ms. Cunningham, $902,771; and for Mr. Cook, $1,711,430).

  (b)

Above-market earnings in 2013 are based on the difference between the plan crediting rate of 4.90% and 120% of the annual long-term Applicable Federal Rate as of September 2012 (2.62%); earnings in 2012 are based on the difference between the plan crediting rate of 5.06% and 120% of the annual long-term Applicable Federal Rate as of September 2011 (4.30%); and earnings in 2011 are based on the difference between the plan crediting rate of 5.54% and 120% of the annual long-term Applicable Federal Rate as of September 2010 (4.41%).

 

  (6)

All other compensation includes:

 

Name   Year     401(k) Plan
Matching
Contributions
($)
    Deferred
Compensation
Plan
Matching
Contributions
($)
    Club
Memberships
($)
    Insurance
Premiums
($)
    Holiday
Bonus
($)
    Physical
Examinations
($)
    Profit Sharing
Plan
Contributions
($)(a)
    Temporary
Expatriate
Assignment
Compensation
($)(b)
 

Charles D. Davidson

    2013        15,300        52,200        9,928        1,872        172                        
      2012        15,000        52,500        9,174        1,872        157                        
      2011        14,700        49,483        9,110        1,872        157        2,150                 

David L. Stover

    2013        15,300        27,505        9,512        1,872        172        2,150                 
      2012        15,000        25,796        8,790        1,872        157                        
      2011        14,700        23,249        8,728        1,872        157        5,135                 

Kenneth M. Fisher

    2013        15,300        19,039        11,923        1,872        172               65,268          
      2012        15,000        18,169        11,178        1,872        157        2,485        63,035          
      2011        14,700        17,024        9,832        1,872        157               60,245          

Susan M. Cunningham

    2013        15,300                      1,872        172                      30,600   
      2012        15,000                      1,872        157                      232,885   
      2011        14,700                      1,794        157        2,935                 

Rodney D. Cook

    2013        15,300               8,848        1,797        172                        
      2012        15,000               8,176        1,719        157                        
      2011        14,700               8,119        1,610        157                        

 

  (a)

Mr. Fisher received Profit Sharing Plan contributions for 2013, 2012 and 2011 as of the last day of each calendar year. A portion of Mr. Fisher’s 2013 Profit Sharing contribution ($18,200) was deposited into Mr. Fisher’s Profit Sharing Plan contribution account in our 401(k) Plan. The remaining portion of Mr. Fisher’s 2013 Profit Sharing Plan contribution ($47,068) was credited to Mr. Fisher’s account in our nonqualified Deferred Compensation Plan. A portion of Mr. Fisher’s 2012 Profit Sharing contribution ($18,000) was deposited into Mr. Fisher’s Profit Sharing Plan contribution account in our 401(k) Plan. The remaining portion of Mr. Fisher’s 2012 Profit Sharing Plan contribution ($45,035) was credited to Mr. Fisher’s account in our nonqualified Deferred Compensation Plan. A portion of Mr. Fisher’s 2011 Profit Sharing contribution ($17,800) was deposited into Mr. Fisher’s Profit Sharing Plan contribution account in our 401(k) Plan. The remaining portion of Mr. Fisher’s 2011 Profit Sharing Plan contribution ($42,445) was credited to Mr. Fisher’s account in our nonqualified Deferred Compensation Plan.

 

  (b)

In 2013, Ms. Cunningham completed a temporary expatriate assignment in Israel. As part of the Company’s expatriate assignment policy, the amounts in this column include the following compensation uplifts: expatriate assignment premium in the amount of $10,200, expatriate hardship pay in the amount of $13,600 and an expatriate location premium in the amount of $6,800. In 2012, Ms. Cunningham received the following compensation uplifts as part of the Company’s expatriate assignment policy: expatriate assignment premium in the amount of $31,615, expatriate hardship pay in the amount of $42,154 and an expatriate location premium in the amount of $21,077. In addition, the 2012 amount includes imputed income in the amount of $133,318 which represents federal income and FICA taxes paid on behalf of Ms. Cunningham as part of the Company’s expatriate assignment tax equalization policy. Finally, this amount includes a short-term relocation allowance payment of $3,000 which was grossed up for federal income and FICA taxes in the amount of $1,721.

 

46


                                                            Compensation Tables

 

 

      

As reflected in the Summary Compensation Table above, the salary received by each of our Named Executive Officers as a percentage of their respective total compensation during the year indicated was as follows:

 

Name    Year      Percentage of
Total
Compensation
 

Charles D. Davidson

     2013         8.0
       2012         9.2
       2011         9.3

David L. Stover

     2013         8.9
       2012         9.9
       2011         10.7

Kenneth M. Fisher

     2013         16.4
       2012         15.7
       2011         16.4

Susan M. Cunningham

     2013         12.1
       2012         11.3
       2011         14.4

Rodney D. Cook

     2013         8.0
       2012         10.0
       2011         11.4

Grants of Plan-Based Awards

The table below sets forth information regarding grants of plan-based awards made to our Named Executive Officers during 2013.

 

Name   Approval
Date(1)
    Grant
Date(1)
    Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
 

Estimated Future

Payouts

Under Equity

Incentive

Plan Awards (2)

    All Other
Stock
Awards:
Number of
Shares of
Stock (#)
(3)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
(4)
    Exercise
or Base
Price of
Option
Awards
($/Sh)(5)
    Grant Date
Fair Value of
Stock
and Option
Awards ($)(6)
 
      Threshold
($)
  Target
($)
   

Max

($)

  Threshold
(#)
    Target
(#)
   

Max

(#)

         

Charles D. Davidson

    1/26/2013        2/1/2013            1,237,500                                                               
      1/26/2013        2/1/2013                        16,828        33,656        67,312                                1,950,028   
      1/26/2013        2/1/2013                                                33,656                        1,837,449   
      1/26/2013        2/1/2013                                                        173,064        54.60        2,951,607   

David L. Stover

    1/26/2013        2/1/2013            713,414                                                               
      1/26/2013        2/1/2013                        9,158        18,316        36,632                                1,061,229   
      1/26/2013        2/1/2013                                                18,316                        999,962   
      1/26/2013        2/1/2013                                                        94,184        54.60        1,606,308   

Kenneth M. Fisher

    1/26/2013        2/1/2013            486,473                                                               
      1/26/2013        2/1/2013                        5,037        10,074        20,148                                583,688   
      1/26/2013        2/1/2013                                                10,074                        549,990   
      1/26/2013        2/1/2013                                                        51,802        54.60        883,483   

Susan M. Cunningham

    1/26/2013        2/1/2013            391,536                                                               
      1/26/2013        2/1/2013                        4,235        8,470        16,940                                490,792   
      1/26/2013        2/1/2013                                                8,470                        462,420   
      1/26/2013        2/1/2013                                                        43,560        54.60        742,916   

Rodney D. Cook

    1/26/2013        2/1/2013            360,000                                                               
      1/26/2013        2/1/2013                        4,121        8,242        16,484                                477,541   
      1/26/2013        2/1/2013                                                8,242                        457,101   
      1/26/2013        2/1/2013                                                        42,382        54.60        716,680   

 

  (1)

All grants were approved by our Compensation Committee, and were effective and priced on the date of grant.

 

  (2)

Represents the shares of restricted stock granted under our 1992 Plan in 2013. The shares will vest on February 1, 2016 if specified performance goals are met. Performance goals for determining vesting are described in the CD&A under the heading “Long-Term Incentive Plan.”

 

47


                                                            Compensation Tables

 

 

  (3)

Represents the shares of restricted stock awarded under our 1992 Plan in 2013. The shares will vest according to the following schedule: 40% of the award will vest on the first anniversary of the award date and remaining 60% of the award will vest on the second anniversary of the award date. Dividends declared on shares of restricted stock are accrued during the two-year restricted period and will be paid upon vesting of restricted shares.

 

  (4)

Represents grants of nonqualified stock options under our 1992 Plan in 2013. Options represent the right to purchase shares of common stock at the price per share (equal to fair market value on the date of grant) indicated in the table. Options will vest ratably over three years in equal installments on the first, second and third anniversaries of the date of grant.

 

  (5)

Exercise price at “fair market value” was defined in our 1992 Plan as the closing price of our common stock on the NYSE on the date of grant. The closing price of our common stock on February 1, 2013 was $54.60.

 

  (6)

Reflects grant date fair values of restricted stock and nonqualified stock options granted to our Named Executive Officers on February 1, 2013 computed in accordance with FASB ASC Topic 718. In connection with Mr. Cook’s entry into a Retention and Confidentiality Agreement with the Company on May 1, 2013, his plan-based award fair values were adjusted in accordance with FASB ASC Topic 718.

 

48


                                                            Compensation Tables

 

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information with respect to restricted stock and stock options held by our Named Executive Officers as of December 31, 2013.

 

Name  

Number of

Securities

Underlying

Unexercised

Options (#

Exercisable)

   

Number of

Securities

Underlying

Unexercised

Options (#

Unexercisable)

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options (#)

    

Option

Exercise

Price

($)

     Option
Expiration
Date
   

Number of

Shares or

Units of

Stock

Held That

Have Not

Vested #

   

Market

Value of

Shares

or Units

of Stock

Held

That

Have

Not

Vested

($)(7)

   

Equity

Incentive

Plan

Awards:

Number

of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested #(8)

   

Equity

Incentive

Plan

Awards:

Market