Noble Energy Inc.
NOBLE ENERGY INC (Form: DEF 14A, Received: 03/02/2017 16:13:40)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Exchange Act of 1934
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  IMAGE0A13.JPG

NOBLE ENERGY, INC.
(Exact name of Registrant as specified in its charter)
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Notice of 2017 Annual Meeting of Stockholders and Proxy Statement










LINEOFSIGHT2016ANNUALREPORTC.JPG







Tuesday, April 25, 2017
9:30 a.m. Central time
Four Seasons Hotel
1300 Lamar Street
Houston, Texas 77010





A2COLOR3INCHCONVERTEDA09.JPG
STOVERA14.JPG
Dear Stockholder:
I hope you will join Noble Energy’s Board of Directors, executive management team, employees and alumni at our 2017 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.
2016 was a year of outstanding operational, financial and safety performance. It was also one of great progress on our strategic objectives. Collectively these results have positioned us to deliver top tier long-term stock performance.
Our Board of Directors and executive team are committed to providing you with information about the Company in a manner that is easy to access and understand. Our Proxy Statement is a good example, providing a summary at the beginning that highlights our business and executive compensation program using charts and other graphic depictions we feel may be helpful. This year we have continued our efforts to eliminate redundancy within the document and make it more reader-friendly.
The Compensation Discussion and Analysis that begins on page 37 describes our executive compensation program and shows how our executives’ compensation remains linked to performance. You will also find discussions of the qualifications of our director candidates, and why we believe they are the right people to represent you, starting on page 11.
Your vote is 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 63.
I hope to see you at the meeting. Thank you for being a stockholder and for your support of Noble Energy.
March 2, 2017
Houston, Texas
A201111DAVESTOVERA01.JPG
David L. Stover
Chairman of the Board, President and Chief Executive Officer




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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 25, 2017
The Annual Meeting of Stockholders of NOBLE ENERGY, INC. (the “Company”) will be held on Tuesday, April 25, 2017 at 9:30 a.m. Central time at Four Seasons Hotel, 1300 Lamar Street, Houston, Texas 77010, for the following purposes:

1.
to elect the 10 nominees as members of the Board of Directors of the Company;
2.
to ratify the appointment of the independent auditor by the Company’s Audit Committee;
3.
to approve, in an advisory vote, executive compensation;
4.
to approve, in an advisory vote, the frequency of stockholder vote on executive compensation;
5.
to approve the 2017 Long-Term Incentive Plan;
6.
to consider a stockholder proposal requesting a published assessment of climate change policy impacts, if properly presented at the meeting; and
7.
to transact such other business as may properly come before the meeting and any adjournment or postponement thereof.

The Board of Directors set February 24, 2017 as the record date for the meeting. This means that holders of record of shares of the Company's common stock 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 stockholders will be available for examination at our Company's offices 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 2, 2017
Houston, Texas
By Order of the Board of Directors
SIGNATUREA03.JPG
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, even if planning to attend the meeting in person. 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.
 





Table of Contents
 
 
 
 
 
Proxy Statement Summary
i
 
 
Corporate Governance
2
 
 
Election of Directors (Proposal 1)
11
 
 
2016 Director Compensation
18
 
 
Ratification of Appointment of Independent Auditor (Proposal 2)
20
 
 
Advisory Vote to Approve Executive Compensation (Proposal 3)
22
 
 
Advisory Vote to Approve the Frequency of Stockholder Vote on Executive Compensation (Proposal 4)
23
 
 
Approval of 2017 Long-Term Incentive Plan (Proposal 5)
24
 
 
Consideration of Proposal Regarding Climate Change (Proposal 6)
34
 
 
Compensation Discussion and Analysis
37
 
 
Compensation Tables
51
 
 
Questions and Answers about the Meeting and Voting
63
 
 
Glossary
67
 
 
Appendix A — Non-GAAP Financial Measures
A-1
 
 
Appendix B — Executive Officers
B-1
 
 
Appendix C — 2017 Long-Term Incentive Plan
C-1







PROXY STATEMENT SUMMARY

This summary highlights some of the information contained in the 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”.

2017 Annual Meeting of Stockholders
  Date and Time:
Tuesday, April 25, 2017, 9:30 a.m. Central time
 
 
  Place:
Four Seasons Hotel
1300 Lamar Street
Houston, Texas 77010
 
 
  Record Date:
February 24, 2017

Voting Matters and Board Recommendations
 
Our Board’s Recommendations
Election of Directors
FOR each
Director Nominee
Ratification of Appointment of Independent Auditor
FOR
Advisory Vote to Approve Executive Compensation
FOR
Advisory Vote to Approve the Frequency of Stockholder Vote on Executive Compensation
FOR an ANNUAL advisory vote
Approval of 2017 Long-Term Incentive Plan
FOR
Consideration of Stockholder Proposal Requesting a Published Assessment of Climate Change Policy Impacts
AGAINST

Director Nominees

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*
66
 
2005
 
Chairman and Chief Executive
Officer of Berenson Holdings LLC
 
C, CG
 
None
Michael A. Cawley*
69
 
1995
 
President and Manager of The
Cawley Consulting Group, LLC
 
A, CG
 
Noble Corporation
Edward F. Cox*
70
 
1984
 
Former partner in the law firm of Patterson Belknap Webb & Tyler LLP
 
C, CG, E
 
None
James E. Craddock*
58
 
2015
 
Former Chairman and Chief Executive Officer of Rosetta Resources Inc.
 
C, CG, E
 
None
Thomas J. Edelman*
66
 
2005
 
A managing partner of White Deer Energy
 
C, CG, E
 
None
Kirby L. Hedrick*
64
 
2002
 
Former Executive Vice President of Phillips Petroleum Company
 
C, CG, E
 
None

i



David L. Stover
59
 
2014
 
Chairman and Chief Executive Officer of Noble Energy, Inc.
 
E
 
None
Scott D. Urban*
63
 
2007
 
Partner in Edgewater Energy LLC
 
A, CG, E
 
Pioneer Energy
Services Corporation
William T. Van Kleef*
65
 
2005
 
Former Executive Vice President
and Chief Operating Officer of Tesoro Corporation
 
A, CG
 
Oil States
International, Inc.
Molly K. Williamson*
71
 
2013
 
Scholar, Middle East Institute
 
C,   CG, E
 
None
*Independent Director
A
Audit Committee
C
Compensation, Benefits and Stock Option Committee
CG
Corporate Governance and Nominating Committee
E
Environment, Health and Safety Committee

2016 Business Highlights

2016 was a year of outstanding operational, financial and safety performance. It was also one of great progress on our strategic objectives. Among our accomplishments, we:

delivered a year-over-year volume increase of approximately 18%, resulting in record total sales volumes of 420 thousand barrels of oil equivalent per day;
realized reductions in organic capital expenditures of over 45% from 2015 (excluding the impact of the Rosetta merger), while delivering 7.5% higher production for 10% less capital than our original 2016 plan;
closed the sale of 3.5% working interest in Tamar for $431 million pre-tax, generating cash proceeds of $316 million after-tax;
replaced 192% of production with organic reserve additions (including performance revisions) at less than $5/Boe replacement cost, supported by increased recovery in each onshore area;
optimized our U.S. onshore portfolio by increasing our Delaware (Permian) Basin position with an acreage acquisition and improving our DJ Basin position through an acreage exchange;
dissolved our Marcellus Shale joint venture, providing increased flexibility to focus on our highest return opportunities;
demonstrated our continued project execution proficiency, successfully starting up our Gunflint project in the Gulf of Mexico within budget;
reduced outstanding debt by $850 million and exited the year with $5.2 billion in liquidity;
realized significant reductions from 2015 in unit costs for lease operating and general and administrative expenses;
received net cash proceeds of $299 million from the issuance of Noble Midstream Partners LP common units upon its initial public offering;
continued to advance our world-class Leviathan project toward sanction by securing marketing contracts, working with the Israeli government in its implementation of its natural gas framework, optimizing project design and significantly reducing estimated development costs;
worked with stakeholders and other industry leaders on a constitutional amendment approved by Colorado voters in November that is expected to provide onshore regulatory stability for responsible oil and natural gas development in the state; and
set a new Company safety performance record for Company-contractor Lost Time rate and a Recordable rate consistent with 2015.


ii



Our total stockholder return for 2016 was positive at 17%; however, we ended the year at the lower end of our peer group, coming off a top tier finish in 2015. Despite this disappointing relative total stockholder return, our Compensation Committee believes that the Company made substantial progress toward restructuring and repositioning its portfolio to enable delivery of top tier long-term performance.

2016 Executive Compensation Highlights

Continued Focus on Pay for Performance

Our executive compensation program is described in our Compensation Discussion and Analysis and is designed to attract and retain high quality individuals and link their compensation to performance. In 2016 we continued our emphasis on performance-based compensation, with 63.4% of our CEO's target compensation being performance-based as shown in the following chart.

NBL-2016PROX_CHARTX34356A01.JPG
Performance-based 63.4%
Other 36.5%
ORANGEA01.JPG   STIP
BLUEA02.JPG  Base Salar y
GREENA01.JPG  Stock Options
IMAGE52.JPG  Restricted Stock
GRAYA01.JPG  Performance Award
 
A Three-Year Comparison

Our linkage of pay with performance may be seen over the last three years, as our mixed results in 2014 led our Compensation Committee to fund our STIP at 55% of target and reduce the award values under our LTIP in early 2015 to 75% of target. Improved performance in 2015 resulted in a committee decision to fund our STIP at 125% of target and return our LTIP awards in early 2016 to target level. Our "say on pay" stockholder votes for 2014 and 2015 support our approach, at 97.9% and 95.4% favorability, respectively, of shares voted.

2016 was a year of outstanding operational, financial and safety performance. It was also one of great progress on our strategic objectives. We exceeded the targets under our STIP quantitative component metrics for sales volumes, free cash flow, cash costs per Boe and relative cash costs, but not relative total stockholder return. We also saw favorable results under the plan's qualitative component metrics including strategic initiatives, EH&S performance, absolute total stockholder return, weighted average program rate of return and reserve additions. Our Compensation Committee concluded that these results demonstrated significant progress toward positioning the Company to deliver future top tier long-term stock performance and, against the backdrop of our disappointing relative total stockholder return versus our peers, approved 2016 STIP funding at 140% of target. Equity awards under our LTIP in early 2017 were made at target value.

iii




Looking forward, we continue to believe that our STIP design should focus on motivating the entire organization to achieve operational and financial results that take into account the Company's strategy and operating budget and the current business environment. For 2017, we re-evaluated our STIP considering the potential application of other returns or growth-based metrics. We adjusted the emphasis of certain metrics, and the program now includes onshore drilling and completion rate of return in the quantitative component. Our long-term incentives are designed to motivate and reward executive actions that lead to Company success in any business environment, link pay and performance and align with the long-term interests of our stockholders. 

Performance versus Key Metrics

We believe that several key metrics are reflective of our positive results in 2016 — production sales volumes, total capital spending and controllable unit costs. These areas are among those considered by our Compensation Committee in determining payout under our STIP. As these metrics show, the Company has been increasing production sales volumes while reducing controllable unit costs and capital spending. We are also including a chart reflecting five-year total stockholder return, which assumes a $100 investment in our common stock on December 31, 2011 and compares the total stockholder return of our common stock to that of the median of our peer group, with dividends reinvested quarterly. For the required chart showing our total stockholder return compared to our peer group based on weighted market capitalization, please see our Annual Report on Form 10-K.
NBL-2015PROX_CHARTX34590A03.JPG
*Includes sales from equity method investees.
NBL-2015PROX_CHARTX35640A02.JPG
 
* NBL-2016PROX_CHARTX35620A01.JPG
*Excludes transaction-related acquisition costs, including the Rosetta merger in 2015
and the dissolution of the Marcellus JV in 2016..
NBL-2015PROX_CHARTX37555A02.JPG
*Controllable Unit Cost includes lease operating expense, general and administrative costs *© 2017 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
and sales from equity method investees.

For additional information about our 2016 performance, please see our Annual Report on Form 10-K.

iv





Target versus Realizable Compensation

The chart below illustrates how our executive compensation program delivers strong alignment with Company performance. 2016 was Mr. Stover's second full year as CEO. In setting his compensation for the year our Compensation Committee considered his tenure, scope of responsibilities and level of performance. The “Target” bars represent Mr. Stover’s base salary, target STIP opportunity and grant-date target value of LTIP awards for 2014, 2015 and 2016. The “Realizable” bars represent, as a percentage of target, the total of each year's base salary paid, STIP earned and paid and LTIP award value as of December 31, 2016.

STACKEDBARA26.JPG

Mr. Stover's 2016 LTIP award had an intended grant-date target value of $6.9 million. Based on the Company's stock price at December 31, 2016, the value of this award at that time was approximately $4.2 million.

By design, our executive compensation program will not deliver its intended targeted value unless the stock price appreciates on an absolute basis, the Company meets or exceeds median industry stock performance, and the Company meets or exceeds important financial and operating objectives.

v





Enhancements to our Executive Compensation Program

Our Compensation Committee reviewed the quantitative and qualitative components of our STIP to ensure that the metrics, targets, objectives and weighting for 2017 continue to link pay to performance with:
the quantitative component to remain weighted at 60% and allocated 15% to free cash flow 1 ,10% each to production sales volumes, cash costs per unit of sales volumes and relative cash costs per unit of revenue, and 15% for a new metric for onshore drilling and completion rate of return that allows us to increase our focus on capital efficiency; and
the qualitative component to remain weighted at 40%, to generally consider, without specific weighting, execution of strategic initiatives, safety and environmental performance, absolute stockholder return, weighted average program rate of return and reserve additions/exploration performance.
1 Please see Appendix A for a reconciliation of free cash flow, a non-GAAP financial measure, to net cash
provided by operating activities.

Important Date for 2018 Annual Meeting of Stockholders

Stockholder proposals and nominees for director(s) to be submitted for inclusion in our 2018 Proxy Statement pursuant to our By-Laws or Rule 14a-8 of the Securities and Exchange Act of 1934, as amended (“Exchange Act”), must be received by us no later than November 2, 2017.



vi



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1001 Noble Energy Way
 
PROXY STATEMENT
Houston, Texas 77070
 
March 2, 2017





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 2017 Annual Meeting of Stockholders (the “Annual Meeting”) of Noble Energy, Inc. (the “Company”). The meeting will be held at Four Seasons Hotel, 1300 Lamar Street, Houston, Texas 77010 on April 25, 2017 at 9:30 a.m. Central 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 2, 2017.

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 the Company's common stock as of the close of business on February 24, 2017, 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 the record date, February 24, 2017, there were 435,481,893 shares of common stock issued and outstanding.




 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE 2017 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, 2017.

Our Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2016 are available at www.proxyvote.com.

 

1

 
Corporate Governance


Corporate Governance

Our Website contains a number of documents, available free of charge, that will be helpful to your understanding of our corporate governance practices:
Corporate Governance Guidelines;
Certificate of Incorporation;
By-Laws;
Board committee charters; and
Code of Conduct and Code of Ethics for our Chief Executive and Senior Financial Officers, and information about how to report concerns.
You may also obtain copies of these documents by contacting the Company Secretary.

Our Board regularly reviews developments in corporate governance and updates our corporate governance documents and practices as appropriate. Amendments to these documents will be promptly posted on our Website.
Board Leadership Structure


2

 
Corporate Governance


Chairman and Chief Executive Officer

Our Board has historically combined the role of chairman of the board with the role of CEO, maintaining a separate empowered lead independent director position to strengthen our governance structure. Our Board believes this provides an efficient and effective leadership model. 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 combining the two roles and, in this combined role, Mr. Stover has provided strategic, operational and technical expertise, vision and a proven ability to lead our Company.

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.

In addition to review at our Board's annual organizational meeting, our Board will review, at least annually, the continued appropriateness of the combined chairman/CEO structure, as opposed to a split role or other structure. All such reviews will occur outside the presence of the Chairman and CEO, at a meeting of the 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;
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.

3

 
Corporate Governance


Board and Committees

In 2016, our Board held 15 meetings and its committees held 20 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 2016.

Our Board has the following four standing 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 primary responsibilities of each committee are summarized below. For more detail, see the committee charters on our Website at www.nblenergy.com, under the heading “About Us – Corporate Governance.”
Committee
 
Key Oversight Responsibilities
Audit
 
Integrity of the Company's financial statements
Disclosure and internal controls
Compliance with legal and regulatory requirements
Administration of the Company's Code of Conduct
Independent auditor qualifications
Internal audit functions

Governance
 
Corporate governance, including the Corporate Governance Guidelines
Director recruitment, retention and development
Board committee structure and membership
Annual Board and committee self-evaluation
Corporate political activities

Compensation
 
CEO and other executive officer compensation structure and amount
Performance evaluations for the CEO and other executive officers
Design and function of incentive compensation programs, including STIP and equity-based plans
Executive officer stock ownership guidelines
Compensation Discussion & Analysis
EH&S
 
EH&S policies and management systems
EH&S performance
Compliance with EH&S legal and regulatory requirements
Corporate social responsibility



Compensation Committee Interlocks and Insider Participation

During fiscal year 2016, Messrs. Berenson, Cox, Craddock, Edelman and Hedrick and Ms. Williamson served as members of the Compensation Committee, and none of them was an officer or employee of the Company or former officer of the Company or had any business relationship or conducted any business with the Company other than as described in the Related Person Transactions disclosure in this Proxy Statement. During fiscal year 2016, none of our executive officers served as a director or member of the Compensation Committee (or other committee of the board performing equivalent functions) of another entity where an executive officer of such entity served as a director of the Company or on our Compensation Committee.


4

 
Corporate Governance


The following table lists the current members of each committee and the number of meetings held during 2016.
Name
 
Audit (1)
 
Compensation
 
Governance
 
EH&S
Jeffrey L. Berenson*
 
 
 
GRAPHICMAN1A43.GIF
 
GRAPHICMAN1A27.GIF
 
 
Michael A. Cawley*
 
GRAPHICMANONGRAYA12.GIF
 
 
 
Chair
 
 
Edward F. Cox*
 
 
 
GRAPHICMAN1A38.GIF
 
GRAPHICMAN1A39.GIF
 
Chair
James E. Craddock* (2)
 
 
 
GRAPHICMANONGRAYA11.GIF
 
GRAPHICMANONGRAYA13.GIF
 
GRAPHICMANONGRAYA08.GIF
Thomas J. Edelman*
 
 
 
GRAPHICMAN1A42.GIF
 
GRAPHICMAN1A46.GIF
 
GRAPHICMAN1A36.GIF
Eric P. Grubman*
 
GRAPHICMANONGRAYA15.GIF
 
 
 
GRAPHICMANONGRAYA14.GIF
 
 
Kirby L. Hedrick*
 
 
 
Chair
 
GRAPHICMAN1A49.GIF
 
GRAPHICMAN1A29.GIF
David L. Stover
 
 
 
 
 
 
 
GRAPHICMANONGRAYA09.GIF
Scott D. Urban*
 
GRAPHICMAN1A41.GIF
 
 
 
GRAPHICMAN1A37.GIF
 
GRAPHICMAN1A33.GIF
William T. Van Kleef*
 
Chair
 
 
 
GRAPHICMANONGRAYA10.GIF
 
 
Molly K. Williamson*
 
 
 
GRAPHICMAN1A26.GIF
 
GRAPHICMAN1A40.GIF
 
GRAPHICMAN1A44.GIF
Number of Meetings
 
6
 
6
 
5
 
3
* Independent Directors

(1)
Each member of our Audit Committee has been determined by the Board to be financially literate and meets the additional criteria for independence of audit committee members as set forth in Securities and Exchange Commission ( SEC ) rule 10A-3(b)(1). Mr. Van Kleef has been determined by the Board to be an audit committee financial expert.
(2)
Mr. Craddock was the CEO of Rosetta Resources Inc. ( Rosetta ) prior to its merger with the Company on July 20, 2015. Our Board has reviewed the applicable rules and regulations of the SEC and the standards and guidance of the NYSE and concluded that Mr. Craddock is independent. As a prior employee of the acquired company, Rosetta, an entity previously unaffiliated with the Company, he may be viewed as independent due to the termination of his employment with Rosetta, concurrent with the closing of the merger.
Board Development and Succession Planning

Our Board plays a key role in the oversight of the Company’s business. We are committed to ensuring that it represents a diversity of qualifications, attributes, skills and experience necessary to our future. We recognize that the investing community is interested in board tenure, diversity and governance — all areas of consideration in our Board succession planning. We know that the most successful boards, like their executive management team counterparts, are ones with the collective chemistry, strength, agility and strategic perspective to meet the challenges of the fast-moving global business environment within which we operate. In our view, our current Board possesses these traits, and we have taken a number of steps to position it for the future.

 
First, we have placed a greater emphasis on understanding governance trends, with our Governance Committee holding periodic discussions on the topic based on information provided by inside and outside experts.

Second, consistent with this emphasis, we have expanded our outreach under our stockholder engagement program, in 2016 visiting with stockholders representing approximately 38% of our stock. We also met with representatives of proxy advisor Glass Lewis. These meetings were invaluable in providing validation of our practices in some areas, while identifying areas for improvement in others. In general, we received positive feedback on our implementation of proxy access and our continued efforts to enhance our public disclosures. We also received suggestions to improve our efforts and disclosures on Board strategy, process and succession planning.

5

 
Corporate Governance



Third, we have evolved our Board self-evaluation process to a more participative discussion. In the current environment, this discussion has involved Board strategy, succession planning (including Board committee leadership and membership) and communication.

Fourth, we have amended our By-Laws to reduce the age at which a director would not stand for election from 75 to 72. We believe that this will facilitate a more orderly succession process that provides for the periodic infusion of new directors and the diversity of their perspectives.
 

Fifth, we have revisited our director compensation program to ensure its alignment with our compensation peer group, reducing the cash fee for each telephonic meeting in which a director participates from $2,000 to $1,000. We believe that this change is consistent with overall peer company practices and, with an increase in the number of special telephonic meetings over the past three years, recognizes the cost efficiency that they provide.

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 Board, play significant roles in carrying out the risk oversight function.
     Our 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 Management
maintains committees responsible for enterprise risk management, compliance and ethics, and disclosures;
includes a dedicated Chief Compliance Officer; and
regularly reports to our Board or its committees on our risk management practices.
Our Independent External Consultants
audit our financial statements, internal control over financial reporting and oil and gas reserves;
help evaluate the adequacy of our risk management program;
assist in the implementation of program enhancements; and
help prepare the risk disclosures in our public filings.

Senior Leadership 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 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 forms the basis for ongoing leadership assignments.



6

 
Corporate Governance


Codes of Conduct

We have adopted a Code of 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. 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.
Stockholder Engagement


In 2015 we formalized a stockholder engagement program that provides for management's annual engagement with some of our key stockholders to obtain feedback on our corporate governance practices. During 2016, we visited with stockholders representing approximately 38% of our stock. Feedback was communicated to, and considered by, our Board.
Director 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 our Board. To assist in this review, our Board has adopted standards for director independence consistent with those of the NYSE and SEC. 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 relevant facts and circumstances, including transactions, relationships and arrangements between each director or any member of the director's immediate family and the Company, our subsidiaries and affiliates. Transactions considered by the Board included:

Company royalty program payments to Mr. Cawley of $10,168 and Mr. Cox of $525,507;
payments to the following portfolio companies of White Deer Energy (“White Deer”), of which Mr. Edelman is a managing partner: $1,324,082 to Patriot Well Solutions LLC (“Patriot”, $841,348 to Flogistix LP (“Flogistix”), $222,277 to Legacy Measurement Solutions (“Legacy”), and $108,484 to Crescent Companies LLC;
payments in the form of charitable contributions totaling $625,860 to the Wildlife Conservation Society, of which Mr. Edelman is a member of the board of trustees; and
payments of approximately $24,345,740 to Oil States International, Inc., of which Mr. Van Kleef is a director.
 
After reviewing these transactions, relationships and arrangements, on February 7, 2017 our Board determined that no material relationship existed that would interfere with the ability of Messrs. Berenson, Cawley, Cox, Craddock, 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, Compensation and Governance Committees 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 its 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 our 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:

7

 
Corporate Governance


the nature of the related person’s interest in the transaction;
the material terms of the transaction, including 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 our best interest; 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.

Mr. Edelman is a managing partner of White Deer Energy, a private equity firm that invests in the oil and gas industry. White Deer manages funds that own equity interests in certain companies with which the Company conducts business. Since January 1, 2016 the Company made payments totaling:
 
$841,348 to Flogistix for the leasing of gas compression units. White Deer manages funds that own a 91% interest in Flogistix. Mr. Edelman has an estimated indirect pecuniary interest of 3.30% in Flogistix;
$1,324,082 to Patriot for coil tubing services. White Deer manages funds that hold a 92% interest in Patriot. Mr. Edelman has an estimated indirect pecuniary interest of 3.34% in Patriot; and
$222,277 to Legacy for the purchase of flow meters. White Deer manages funds that hold a 92% interest in Legacy. Mr. Edelman has an estimated indirect pecuniary interest of 3.33% in Legacy.
Based upon the review and recommendations of our Governance Committee and our Board, we believe these transactions were in our best interest and on terms no less favorable to us than we could have achieved with an unaffiliated party.

During fiscal year 2016, there were no other transactions in excess of $120,000 between our Company and a related person in which the related person had a direct or indirect material interest.
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, 2016, except for a late filing for Mr. Edelman related to an option exercise that occurred on February 1, 2016 that was subsequently reported on a Form 5 filed on January 30, 2017.


8

 
Corporate Governance


Ownership of Equity Securities of the Company
Directors and Named Executive Officers

The following table sets forth, as of February 24, 2017, the shares of our common stock and common units of NBLX beneficially owned by each director, each Named Executive Officer listed in the Summary Compensation Table included in this Proxy Statement, and all directors and executive officers as a group.
 
Noble Energy, Inc. Common Stock Beneficially Owned (1)
Noble Midstream Partners LP (1)
Name
Number of
Shares  (2)
Shares Underlying Stock Options (3)
Total
Percent of  Class
Number of Common Units Beneficially Owned
Percentage of Common Units Beneficially Owned
Director
 
 
 
 
 
 
 
Jeffrey L. Berenson
74,803

 
53,657

128,460

*
Michael A. Cawley
38,387

 
53,657

92,044

*
Edward F. Cox
65,930

(4)  
53,657

119,587

*
James E. Craddock
95,439

 
50,393

145,832

*
Thomas J. Edelman
3,852,878

(5)  
53,657

3,906,535

*
120,000

*
Eric P. Grubman
35,580

 
61,271

96,851

*
Kirby L. Hedrick
131,656

 
53,657

185,313

*
David L. Stover
708,254

 
978,326

1,686,580

*
4,500

*
Scott D. Urban
32,712

 
76,057

108,769

*
William T. Van Kleef
99,830

 
53,657

153,487

*
Molly K. Williamson
13,645

 
24,695

38,340

*
Named Executive Officer (excluding any director named above)
 
 
 


 
 
 
Kenneth M. Fisher
214,707

 
390,010

604,717

*
12,500

*
Susan M. Cunningham
194,171

 
475,170

669,341

*
*
Gary W. Willingham
154,719

(6)  
195,585

350,304

*
10,000

*
Arnold J. Johnson
171,646

(7)  
258,683

430,329

*
All directors and executive officers as a group (21 persons)
6,329,584

(8)  
3,590,831

9,920,415

2.28%
169,680

*

*
Represents less than one percent.
(1)
Unless otherwise indicated, all shares and units are directly held with sole voting and investment power.
(2)
Includes restricted stock awards not currently vested, as follows: 2,534 shares held by each of Messrs. Berenson, Cawley, Cox, Craddock, Edelman, Grubman, Hedrick, Urban, Van Kleef and Ms. Williamson; Mr. Stover — 432,130 shares; Mr. Fisher — 101,586 shares; Ms. Cunningham — 86,047 shares; Mr. Willingham — 95,850 shares; Mr. Johnson — 67,972 shares; and other executive officers — 241,065 shares.
(3)
Consists of shares not outstanding but subject to options that are currently exercisable or that will become exercisable on or before April 25, 2017.
(4)
Includes 28,334 shares held by spouse.
(5)
Includes 600,000 shares held under deferred compensation plans.
(6)
Includes 11 shares indirectly held in a qualified 401(k) plan.
(7)
Includes 5,703 shares indirectly held in a qualified 401(k) plan.
(8)
Includes 16,277 shares indirectly held in a qualified 401(k) plan.


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Corporate Governance


Security Ownership of Certain Beneficial Owners

The following table sets forth, as of February 24, 2017, 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 of Beneficial Owner
Number of Shares
of Common Stock
Beneficially Owned
Percent of Class
Capital Research Global Investors
333 South Hope Street
Los Angeles, CA 90071
52,159,568

(1)  
12.0%
Capital World Investors
333 South Hope Street
Los Angeles, CA 90071
44,548,585

(2)  
10.2%
BlackRock, Inc.
55 East 52 nd  Street
New York, NY 10055
29,463,222

(3)  
6.8%
The Vanguard Group
100 Vanguard Boulevard
Malvern, PA 19355
28,882,095

(4)  
6.6%
State Street Corporation
One Lincoln Street
Boston, MA 02111

28,433,898

(5)  
6.5%
The Growth Fund of America
6455 Irvine Center Drive
Irvine, CA 92618
25,967,053

(6)  
6.0%

(1)
Based upon its Schedule 13G/A filed with the SEC on February 13, 2017 with respect to its beneficial ownership of our common stock, Capital Research Global Investors has sole voting and sole dispositive power with respect to 52,159,568 shares. Beneficial ownership of these shares is disclaimed.
(2)
Based upon its Schedule 13G/A filed with the SEC on February 13, 2017 with respect to its beneficial ownership of our common stock, Capital World Investors has sole voting power and sole dispositive power with respect to 44,548,585 shares. Beneficial ownership of these shares is disclaimed.
(3)
Based upon its Schedule 13G/A filed with the SEC on January 25, 2017 with respect to its beneficial ownership of our common stock, BlackRock, Inc. has sole voting power with respect to 25,512,977 shares and sole dispositive power with respect to 29,463,222 shares.
(4)
Based on its Schedule 13G/A filed with the SEC on February 10, 2017 with respect to its beneficial ownership of our common stock, The Vanguard Group has sole voting power with respect to 673,395 shares, shared voting power with respect to 79,918 shares, sole dispositive power with respect to 28,127,511 shares, and shared dispositive power with respect to 754,584 shares.
(5)
Based upon its Schedule 13G filed with the SEC on February 8, 2017 with respect to its beneficial ownership of our common stock, State Street Corporation has sole voting power with respect to 0 shares, shared voting power with respect to 28,433,898 shares, sole dispositive power with respect to 0 shares and shared dispositive power with respect to 28,433,898 shares.
(6)
Based upon its Schedule 13G filed with the SEC on February 14, 2017 with respect to its beneficial ownership of our common stock, The Growth Fund of America has sole voting, shared voting, sole dispositive and shared dispositive power with respect to 0 shares, but under certain circumstances may vote the shares listed. According to the Schedule 13G, these shares may also be reflected in a filing made by Capital World Investors or Capital Research Global Investors.

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Corporate Governance


Stockholder Proposals and Other Matters

We have been notified by certain stockholders that they intend to present one proposal as set forth in this Proxy Statement at our 2017 Annual Meeting for action by the stockholders. Pursuant to Rule 14a-8(l)(1) of the Exchange Act, we will provide the address and number of shares of our common stock held by the proponents of that proposal promptly upon receipt of a written or oral request. Requests should be submitted to the Company Secretary.

 
Stockholder proposals intended to be brought before our 2018 Annual Meeting of Stockholders as an agenda item in accordance with our By-Laws or to be included in our Proxy Statement relating to that meeting pursuant to Rule 14a-8 of the Exchange Act, which is currently scheduled to be held on April 24, 2018, must be received by us at our office in Houston, Texas, addressed to our Company Secretary, no later than November 2, 2017.
 


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Election of Directors (Proposal 1)


Election of Directors (Proposal 1)

Our Board is currently comprised of 11 directors. In January 2017, Mr. Grubman informed us that he will not stand for re-election at the 2017 Annual Meeting. Our Board recommends 10 director nominees as presented below, nine of whom are independent. The business experience of each nominee as well as the qualifications that led our Board to select them 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 and qualified.
Election Process

Our By-Laws provide that the number of directors shall be determined by the Board 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 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 our 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 search 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, between 120 and 150 days before the anniversary date of the mailing of the previous year's proxy materials. Stockholder nominees for directors to be submitted for inclusion in our 2018 Proxy Statement must be received by us by November 2, 2017. Our Corporate Governance Guidelines specify the processes for evaluating nominees for director and
 
the requirements for a stockholder recommendation for a director nominee.

In addition, our By-Laws permit certain qualifying stockholders to include director nominees in our Proxy Statement. This proxy access mechanism allows a stockholder or group of up to 25 stockholders owning at least 3% of the Company’s outstanding common stock continuously for at least three years to submit their own candidate for election to our Board. These nominees may not constitute more than 25% of our Board at any time. Proxy access nominations must be delivered to the Company between 120 and 150 days before the anniversary date of the mailing of the previous year’s proxy materials and satisfy certain other criteria specified in our By-Laws. For inclusion in our 2018 Proxy Statement, proxy access nominations must be received by us no later than November 2, 2017.







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Director Nominee Biographies

Director Qualifications

Our Governance Committee believes that the minimum qualifications for serving as a director 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 our business and affairs 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 or private 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, our business and affairs, 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 ours and senior level executive experience, as well as the ability to make 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 our Company. It will also seek to have our Board represent a diversity of background, experience, gender and race. Our Governance Committee annually reviews its long-term plan for Board composition, giving consideration to the foregoing factors.
2017 Nominees for Director

Upon recommendation of the Governance Committee, our Board has nominated Jeffrey L. Berenson, Michael A. Cawley, Edward F. Cox, James E. Craddock, Thomas J. Edelman, Kirby L. Hedrick, David L. Stover, Scott D. Urban, William T. Van Kleef and Molly K. Williamson for election as director.

Each of the director nominees currently serves on our Board and was elected by the stockholders at our 2016 Annual Meeting of Stockholders. If elected, each nominee will hold office until the 2018 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 our Board, or our Board may reduce the number of directors.

Our Board believes that the combination of the various qualifications, skills and experiences of the 2017 director nominees would contribute to an effective and well-functioning board. Our Board and the Governance Committee believe that, individually and as a whole, these director nominees possess the necessary qualifications to provide effective oversight of the business and quality advice and counsel to our Company’s management.
Qualifications of 2017 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 our Board to conclude that the director is qualified to serve.

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



13

 
Director Nominee Biographies

BERENSONA07.JPG
 
Jeffrey L. Berenson
 
Director since 2005 Age 66

Mr. Berenson is Chairman and Chief Executive Officer of Berenson Holdings LLC, a private investment banking firm in New York City that he co-founded in 1990. From 1978 until such co-founding, 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 previously served on the boards of directors of Epoch Holding Corporation and Patina Oil and Gas (“Patina”) and joined our Board upon completion of our merger with Patina in May 2005.

Qualifications, Attributes, Skills and Experience:

High Level of Financial Literacy — has been in the investment banking business since 1978, and has a thorough understanding of the economic environment in which we operate.

Relevant Chief Executive Officer/President Experience — serves as Chairman 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 our DJ Basin (Colorado) assets through his service as a director of Patina and since that time has had broad exposure to our business through over 11 years of service on our Board.

 
CAWLEYA03.JPG
 
Michael A. Cawley
 
Director since 1995 Age 69

Mr. Cawley has served as President and Manager of The Cawley Consulting Group, LLC since January 2012. He previously served as President and Chief Executive Officer of The Samuel Roberts Noble Foundation, Inc. (the “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 and Cawley, 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.

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 and Cawley, a professional corporation, attorneys at law.

Extensive Knowledge of Our Industry and Business — has historical knowledge of, and broad exposure to, our business through over 21 years of service on our Board.

Strong Governance Experience — worked as an attorney and law firm partner, and for over 16 years has served as our Lead Independent Director and chair of our Governance Committee.

14

 
Director Nominee Biographies

COXA04.JPG
 
Edward F. Cox
 
Director since 1984 Age 70

Mr. Cox is a retired partner in the law firm of Patterson Belknap Webb & Tyler LLP, New York, New York, having served as chair of the firm’s corporate department and as a member of its management committee. He currently serves as chair of the New York Republican State Committee (“NYRSC”). He was elected chair of the New York League of Conservation Voters Education Fund in 2004 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 board of directors of the Foreign Policy Association and the American Advisory Committee of the American Ditchley Foundation. He has served on our Board since 1984.

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, our business through over 32 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.
 
CRADDOCKA06.JPG
 
James E. Craddock
 
Director since 2015 Age 58

Mr. Craddock served as the Chairman and Chief Executive Officer of Rosetta Resources Inc. (“Rosetta”) from February 2013 through July 2015, when Rosetta merged with the Company. He joined Rosetta in April 2008 as Vice President, Drilling and Production Operations, and was named a Senior Vice President in January 2011. From April 2006 to March 2008, Mr. Craddock was Chief Operating Officer for BPI Energy, Inc. (“BPI”), an exploration and production start-up company focused on coal bed methane development. On February 3, 2009, BPI filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Mr. Craddock began his industry career with Superior Oil Company in 1981 and then held a broad range of technical, operational and strategic roles with Burlington Resources Inc. (“Burlington”) and its predecessor companies for more than 20 years. At Burlington, he held a series of positions of increasing responsibility, most recently as Chief Engineer. Mr. Craddock currently serves as a director of Templar Energy LLC. He joined our Board upon completion of our merger with Rosetta in July 2015.

Qualifications, Attributes, Skills and Experience:

High Level of Financial Literacy — has extensive experience in the financial aspects of our business through his leadership roles with several oil and gas companies.

Relevant Chief Executive Officer/President Experience — has served as President and CEO of Rosetta from 2013 through its merger with the Company in 2015 and since that time has had exposure to our business through over one year of service on our Board.

Extensive Knowledge of Our Industry and Business — has historical knowledge of our Permian Basin and Eagle Ford Shale assets through his service as CEO of Rosetta.

15

 
Director Nominee Biographies

EDELMANA04.JPG
 
Thomas J. Edelman
 
Director since 2005 Age 66

Mr. Edelman is a managing partner of White Deer Energy, an energy private equity fund. He founded Patina and served as its Chairman and Chief Executive Officer from its formation in 1996 through its merger with the Company in 2005. Mr. Edelman 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 the First Boston Corporation and from 1975 through 1980 with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman serves on the boards of directors of Corterra Energy, LLC, Epic Midstream LLC, Global Petro Storage Limited, Quanah Panhandle, LLC and Riverside Energy Company LLC. He currently is trustee of the Wildlife Conservation Society, serves on the Advisory Council of Princeton University's Department of Politics, is an Emeritus member of the Investment Committee of The Hotchkiss School and is Chairman Emeritus of Lenox Hill Neighborhood House. He joined our Board upon completion of our merger with Patina in May 2005.

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 our DJ Basin assets through his service as founder, Chairman and CEO of Patina and since that time has had broad exposure to our business through over 11 years of service on our Board.
 
HEDRICKA05.JPG
 
Kirby L. Hedrick
 
Director since 2002 Age 64

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

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 our business through over 14 years of service on our Board.


16

 
Director Nominee Biographies

STOVERA18.JPG
 
David L. Stover
 
Director since 2014 Age 59

Mr. Stover has served as President and Chief Executive Officer of Noble Energy, Inc. since October 2014, and Chairman of the Board since April 2015, previously as President and Chief Operating Officer since April 2009, and Executive Vice President and Chief Operating Officer since August 2006. He joined the Company in 2002 and has served in various other senior leadership capacities, including Senior Vice President of North America and Business Development and Vice President of Business Development. Prior to joining the Company, he held various positions with BP America, Inc., Vastar Resources, Inc. (“Vastar”), and ARCO. He joined our Board in April 2014.

Qualifications, Attributes, Skills and Experience:

High Level of Financial Literacy has extensive exposure to the financial aspects of our business through his leadership roles in several oil and gas companies .

Broad International Exposure has led our exploration and production efforts 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 our operations since 2006.

Active in Community — serves in leadership roles in industry and community organizations in our Houston headquarters area.


 
URBANA05.JPG
 
Scott D. Urban
 
Director since 2007 Age 63

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

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 our business through over nine years of service on our Board.


17

 
Director Nominee Biographies

VANKLEEFA06.JPG
 
William T. Van Kleef
 
Director since 2005 Age 65

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

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 our business through over 11 years of service on our Board.



 
WILLIAMSONA05.JPG
 
Molly K. Williamson
 
Director since 2013 Age 71

Ms. Williamson has served in a unique combination of senior executive policy positions in four cabinet departments 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 past member of the board of directors of the American Foreign Service Association, currently serving on the boards of directors of the American Academy of Diplomacy and International Executive 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 in March 2013.

Qualifications, Attributes, Skills and Experience:

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

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

Knowledge of Our Industry and Business has had exposure to our business through over four years of service on our Board.



18

 
2016 Director Compensation

2016 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 2016, paid pro rata on a monthly basis:
an annual retainer of $75,000;
$2,000 for each Board or committee meeting attended;
$1,000 for each Board or committee meeting attended telephonically (beginning in November 2016);
$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 under which all or a portion of their director fees may be deferred for future payment. 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. The 2005 Plan expired under its own terms on March 31, 2015. On January 27, 2015 our Board adopted a substantially similar 2015 Stock Plan for Non-Employee Directors of Noble Energy, Inc. (“2015 Plan”) (together, the 2005 Plan and the 2015 Plan, the “Director Plans”) as a replacement, which was approved by our stockholders on April 28, 2015.

Stock options are issued with an exercise price equal to the fair market value, as defined in the Director Plans, of our common stock on the date of grant and may be exercised beginning one year after the date of grant. They expire 10 years from the date of grant. Restricted stock is restricted for a period of one year from the date of award. The vesting of stock options and restricted stock under the Director Plans is not contingent upon the satisfaction of any performance criteria and will accelerate in the event of a change of control as defined under the respective 2005 and 2015 plans or, in some cases, only upon a termination of Board membership following a change of control.
 
Newly elected non-employee directors receive, on the date of initial election to our Board, an award with a total value of $250,000 to be allocated one-half to stock options and one-half to restricted stock.

On January 27, 2015, our Board reduced the annual equity awards for non-employee directors from a target value of $200,000 to a target value of $150,000, with one-half of that value allocated to stock options and one-half to restricted stock, in recognition of the adverse business environment. It considered the Company's 2015 positive results in the same environment in making 2016 awards based on the $200,000 target value, with one-half of that value allocated to stock options and one-half to restricted stock, resulting in 9,900 stock options and 3,159 shares of restricted stock being awarded to each non-employee director, effective February 1, 2016. Our Board further considered the Company's 2016 positive results in making 2017 awards, based on the $200,000 target value, resulting in 7,541 stock options and 2,534 shares of restricted stock, effective February 1, 2017.

19

 
2016 Director Compensation

Director Compensation Summary

The table below sets forth certain information concerning the compensation paid or earned in 2016 by our non-employee directors.
Name

Fees
Earned
or Paid
in Cash
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)(3)
Non-Equity
Incentive Plan
Compensation
($)
Change in
Pension Value
and
Non-qualified
Deferred
Compensation
Earnings
($)(4)
All Other
Compensation
($)
Total
($)
Jeffrey L. Berenson
122,000

99,982

99,990

321,972
Michael A. Cawley
147,500

99,982

99,990

347,472
Edward F. Cox
137,500

99,982

99,990

337,472
James E. Craddock
128,000

99,982

99,990

327,972
Thomas J. Edelman
128,000

99,982

99,990

327,972
Eric P. Grubman
120,000

99,982

99,990

319,972
Kirby L. Hedrick
141,000

99,982

99,990

340,972
Scott D. Urban
128,000

99,982

99,990

327,972
William T. Van Kleef
137,000

99,982

99,990

336,972
Molly K. Williamson
128,000

99,982

99,990

4,691
332,663

(1)
Reflects annual retainer and meeting fees paid or earned by our non-employee directors in 2016 . Each non-employee director earned the following: an annual retainer of $ 75,000 and $ 2,000 for each Board or committee meeting attended. Beginning in November 2016, telephonic meetings were paid at a rate of $1,000 per meeting. Mr. Cawley received an additional $ 20,000 for serving as our Lead Independent Director. Messrs. Van Kleef and Hedrick each received an additional $ 15,000 for serving as Chair of our Audit Committee and our Compensation Committee, respectively. Messrs. Cox and Cawley each received an additional $ 7,500 for serving as Chair of our EH&S Committee and our Governance Committee, respectively. During 2016 Ms. Williamson deferred 90% ($115,200) of her retainer and meeting fees under the Non-Employee Director Fee Deferral Plan.

(2)
Reflects the aggregate grant date fair value for restricted stock awarded to our non-employee directors computed in accordance with FASB ASC Topic 718. Restricted stock awarded will vest on the one-year anniversary of the award date. The vesting of the restricted shares will accelerate in the event of an involuntary termination of Board membership following a change of control. Each non-employee director received an award of 3,159 shares of restricted stock on February 1, 2016 that were unvested as of December 31, 2016.

(3)
Reflects the aggregate grant date fair value for non-qualified stock options granted to our non-employee directors, under our 2015 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. Our 2015 Plan defines “fair market value” as the closing price of our common stock on the NYSE on the date of grant. Options granted to our non-employee directors in 2016 will vest on the one-year anniversary of the grant date. The vesting of the options will accelerate in the event of an involuntary termination of Board membership following a change of control. Vesting of these options is not contingent upon the satisfaction of any performance criteria, although none of the options may be exercised until the first anniversary (absent a change of control) or after the tenth anniversary of the date of grant. Each non-employee director received 9,900 non-qualified stock options on February 1, 2016 that were unvested as of December 31, 2016.

The following directors have option grants outstanding as of December 31, 2016: Mr. Berenson — 53,657 shares; Mr. Cawley — 53,657 shares; Mr. Cox — 53,657 shares; Mr. Craddock — 50,393 shares; Mr. Edelman — 53,657 shares; Mr. Grubman — 61,271 shares; Mr. Hedrick — 53,657 shares; Mr. Urban — 76,057 shares; Mr. Van Kleef — 53,657 shares; and Ms. Williamson — 24,695 shares.

(4)
Reflects above-market earnings under the Director Fee Deferral plan. Above-market earnings are based on the difference between the monthly plan crediting rate of 3.50% and 120% of the monthly long-term applicable federal rate during 2016 (ranging from 2.26% to 3.10%).

20

 
Ratification of Appointment of Independent Auditor (Proposal 2)


Ratification of Appointment of Independent Auditor (Proposal 2)
The Audit Committee of our Board is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm retained to audit our financial statements. The Audit Committee has appointed KPMG LLP as our independent external auditor for 2017. KPMG has been retained as our external auditor continuously since May 2002.

The Audit Committee is responsible for the audit fee negotiations associated with our retention of KPMG. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent external audit firm.

In conjunction with the mandated rotation of the Audit firm's lead engagement partner, the Audit Committee and its chairperson are directly involved in the selection of KPMG's new lead engagement
 
partner. The members of the Audit Committee and our Board believe that the continued retention of KPMG to serve as our independent external auditor is in our best interest and the best interest of our stockholders.

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 2016 and 2015
 
2016

%
 
2015

%
Audit Fees (1)
$
2,360,000

86.1
 
$
3,181,000

79.4
Audit — Related Fees (2)
380,000

13.9
 

Tax Fees

 

All Other Fees (3)

 
827,300

20.6
Total Fees (4)
$
2,740,000

100.0
 
$
4,008,300

100.0
(1)
Services rendered in 2016 and 2015 include auditing our financial statements included in the Company’s annual report filed on Form 10-K and our internal controls over financial reporting and quarterly reviews of our interim financial statements filed on Form 10-Q.
(2)
Includes fees for audits of, and consents related to, comfort letters, foreign statutory audits, employee benefit plans, attest engagements and similar items.
(3)
Fees for the audit and interim reviews of financial statements included in the Form S-1 of Noble Midstream Partners LP filed with the SEC in 2015.
(4)
The amounts and types of fees paid by NBLX to KPMG LLP, its independent auditor, for its fiscal year 2016 amount to $850,000 and are not included in above table. See NBLX Annual Report on Form 10-K filed on February 14, 2017.

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 shall be reported to the Audit Committee at its next scheduled meeting.

All audit-related services, tax services and other services for 2016 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

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Ratification of Appointment of Independent Auditor (Proposal 2)


such services would not impair the independence of our auditor and are consistent with the SEC’s rules on auditor independence.

22



 
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 24, 2017 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 six meetings during 2016, including regular meetings and a special meeting addressing the Form 10-K filing, earnings release and related matters.

Throughout 2016 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 407(d)(5) 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 Auditing Standard No. 1301 (Communication with Audit Committees), as adopted by the Public Company Accounting Oversight Board. 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, 2016, as filed with the SEC.


February 7, 2017




 
 
Audit Committee
William T. Van Kleef, Chair
Michael A. Cawley
Eric P. Grubman
Scott D. Urban

 



23

 
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 an 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 executive compensation program is designed to attract and retain high quality individuals and to link their compensation to performance. We describe this program, including how it links executive compensation to Company performance, in the Compensation Discussion and Analysis portion of this Proxy Statement. We believe that our program continues to be appropriately designed to link compensation to performance.
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 our Company, Board or 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 action is 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 2017 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2016 Summary Compensation Table and the other related tables and disclosures.
Our Board recommends that stockholders vote FOR the approval of the compensation of our Named Executive Officers as disclosed in this Proxy Statement .



24

 
Advisory Vote to Approve the Frequency of Stockholder Vote on Executive Compensation (Proposal 4)

Advisory Vote to Approve the Frequency of Stockholder Vote on Executive Compensation (Proposal 4)

Section 14A of the Exchange Act provides that every six years stockholders must be given the opportunity to vote, on a nonbinding advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our Named Executive Officers, which we refer to as an advisory vote on executive compensation. By voting on this proposal, stockholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation once every one (annually), two or three years. Stockholders also may, if they wish, abstain from casting a vote on this proposal.

At our 2011 Annual Meeting of Stockholders, our stockholders cast the highest number of votes for an annual advisory vote on executive compensation. We have held an advisory vote on executive compensation for each of the past five years accordingly. In light of this result and other factors, our Board has determined that an annual advisory vote on executive compensation will allow our stockholders to provide timely, direct input on our executive compensation philosophy, policies and practices as disclosed in our proxy statement each year. Our Board believes that an annual vote is therefore consistent with our efforts to engage in an ongoing dialogue with our stockholders on executive compensation and corporate governance matters.

We recognize that our stockholders may have different views as to the best approach and we look forward to hearing from them as to their preference on the frequency of an advisory vote on executive compensation.

This vote is advisory, which means that it is not binding on the Company, our Board or the Compensation Committee. Our Board and the Compensation Committee will take into account the outcome of the vote, however, when considering the
 
frequency of future advisory votes on executive compensation. Our Board may decide that it is in the best interest of our stockholders and the Company to hold an advisory vote on executive compensation on a different frequency than the frequency receiving the most votes cast by our stockholders.

The proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining) and, therefore, stockholders will not be voting to approve or disapprove the recommendation of our Board.

Our stockholders' preference regarding frequency of a stockholder advisory vote on executive compensation will be determined by whichever of the choices — annually, every other year or every three years — receives the greatest number of votes cast. If annual votes are approved by the stockholders again, we expect that our next advisory vote on executive compensation will occur at our 2018 Annual Meeting. Shares represented by proxies that are marked to indicate abstentions from this proposal and broker non-votes with respect to this proposal will not affect its outcome. If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote "FOR" a frequency of "one year" for future advisory votes regarding executive compensation.

Our next advisory vote on the frequency of the advisory vote on executive compensation will occur at our 2023 Annual Meeting of Stockholders.

Our Board recommends that our stockholders
vote FOR an annual, "one year," advisory vote on executive compensation.



25

 
Approval of 2017 Long-Term Incentive Plan (Proposal 5)




Approval of 2017 Long-Term Incentive Plan
(Proposal 5)

Our Board recommends that you approve the Noble Energy, Inc. 2017 Long-Term Incentive Plan (the “2017 Plan”). Based upon the recommendation of the Compensation Committee, in January 2017 our Board approved the 2017 Plan. If approved by our stockholders, the 2017 Plan will become effective on April 25, 2017, the date of our annual meeting (the “Effective Date”), and our current 1992 Stock Option and Restricted Stock Plan (the “1992 Plan”) will be frozen so that no further awards will be granted under that plan.

The 2017 Plan authorizes us to issue up to 29,000,000 shares of our common stock. This represents an increase of 15,940,275 shares and 20,882,100 shares, over the shares remaining available under the 1992 Plan as of December 31, 2016 and February 24, 2017 (our record date), respectively. Outstanding awards under the 1992 Plan will continue to be governed by the terms of that plan until vested, exercised, expired or otherwise terminated or canceled.

As of December 31, 2016, there were a total of 433,590,347 shares of our common stock issued and outstanding. In addition to 13,059,725 shares remaining available for issuance under the 1992 Plan at December 31, 2016, there were 563,075 shares available for grant or award under the Noble Energy, Inc. 2015 Stock Plan for Non-Employee Directors (the "2015 Plan"). As of the record date of February 24, 2017, there were a total of 435,481,893 shares of our common stock issued and outstanding. In addition to 8,117,900 shares remaining available for issuance under the 1992 Plan as of February 24, 2017, there were 462,325 shares available for grant or award under the 2015 Plan. The Company had a total of 16,551,759 stock options outstanding with a weighted average exercise price of $43.81 and a weighted average remaining term of 5.60 years, and 3,483,616 shares of restricted stock outstanding, as of the record date.

If the 2017 Plan is not approved by stockholders, the 1992 Plan will continue in effect and we will continue to make grants under the 1992 Plan subject to the limits on shares available thereunder.

In addition, although we have not adopted a policy that all compensation paid to our executive officers must be tax-deductible and we expect that we may
 
pay compensation to our executives that is not fully tax-deductible, the 2017 Plan is intended to allow us to provide performance-based compensation that will be tax-deductible by us without regard to the limits of Section 162(m) of Code. Therefore, for purposes of Section 162(m) of the Code, we are asking our stockholders to approve the list of performance criteria that may be used for purposes of granting awards that are intended to qualify as “qualified performance-based compensation,” or “QPBC,” within the meaning of Section 162(m) of the Code, in the event we choose to seek to structure compensation in a manner that will satisfy the QPBC exception to Section 162(m) of the Code. Should we choose to do so, stockholder approval of such criteria would preserve our ability to satisfy this exception and deduct compensation associated with future performance-based awards to certain executives. The Code limits the deductions a publicly held company can claim for compensation in excess of $1 million paid in a given year to its CEO and its three other most highly compensated executive officers (other than its chief financial officer) (these officers are generally referred to as the “covered employees”). QPBC that meets certain requirements is not counted against the $1 million deductibility cap. Stock options and stock appreciation rights granted under the 2017 Plan generally will qualify as QPBC. Other awards that we may grant under the 2017 Plan may qualify as QPBC if the payment, retention or vesting of the award is subject to the achievement during a performance period of performance goals selected by the committee designated by our Board to administer the 2017 Plan (the “Committee”). The Committee retains the discretion to set the level of performance for a given performance measure under a performance-based award.

Why should our stockholders approve the 2017 Plan?

Equity award grants are an essential component of our compensation program. Our compensation philosophy is based on the belief that we can best create stockholder value if officers, employees, consultants and others performing services for us act and are rewarded as business owners. The 2017 Plan is designed to:


26

 
Approval of 2017 Long-Term Incentive Plan (Proposal 5)




attract and retain highly qualified individuals to perform services for us;
further align the interests of those individual service providers with those of our stockholders; and
more closely link compensation with our performance.

We believe that an equity stake through equity compensation programs effectively aligns service provider and stockholder interests by motivating and rewarding performance that will enhance stockholder value. Approval of the 2017 Plan is critical to our ability to continue our compensation programs that are aligned with stockholders interests.

Our 1992 Plan will no longer have shares available for grant. Of the 77,400,000 shares currently authorized for issuance under the 1992 Plan, 8,117,900 shares remain as of February 24, 2017. We do not believe that this leaves sufficient shares available for more than one additional year of grants and awards. This assumes we continue to grant awards consistent with our historical usage and current practices, and we note that future circumstances may require the Company to change its current equity grant practices. If approved by stockholders, 29,000,000 shares would be available for issuance under the 2017 Plan, which represents an increase of 20,882,100 from the number of shares reserved for issuance and that remain available for future grant under the 1992 Plan as of the record date. This increase would give us the flexibility to continue to responsibly address our future equity compensation needs. While we could increase cash compensation if we are unable to grant equity incentives, we anticipate that we will have difficulty attracting, retaining and motivating employees and other service providers if we are unable to make equity grants to them.

Outstanding Awards under the 1992 Plan and Determination of Share Reserve for the 2017 Plan

The table below presents information about the number of shares that were subject to various outstanding equity awards under the 1992 Plan and the shares remaining available for issuance under the 1992 Plan, each as of February 24, 2017.

 
 
Number of Shares
As a % of Shares Outstanding (1)
Market Value ($ in Millions)(2)
Options outstanding
16,551,759
3.8
608.8
Weighted average exercise price of outstanding options
$43.81
Weighted average remaining term of outstanding options
5.60 years
Restricted stock outstanding
3,483,616
0.8
128.1
Shares available for grant
8,117,900
1.9
298.6
(1)
Based on 435,481,893 shares of our common stock issued and outstanding as of February 24, 2017.
(2)
Based on the closing price of our common stock on February 24, 2017, of $36.78 per share.

In determining whether to recommend the approval of the 2017 Plan, including the share reserve under the 2017 Plan, our Compensation Committee and Board considered the following:

The shares to be initially reserved for issuance under the 2017 Plan will represent an increase of 20,882,100 shares from the number of shares reserved for issuance and that remain available for future grant under the 1992 Plan as of February 24, 2017. If the 2017 Plan is approved, it will represent the only equity plan under which the Company will be able to grant future equity awards to employees and service providers other than non-employee directors, and the Company will no longer grant awards under the 1992 Plan. The 2015 Plan will continue to serve as the plan under which the Company makes equity grants to non-employee directors.

The Company expects the share reserve under the 2017 Plan to provide the Company with enough shares for awards for approximately four to five years, assuming the Company continues to grant awards consistent with its current practices and historical usage, as reflected in its historical burn rate, and further dependent on the price of Company shares and hiring activity during the next few years, and noting that future circumstances may require the Company to change its current equity grant practices. The Company cannot predict its future equity grant practices, the future price of its shares or future hiring activity with any degree of certainty at this time.


27

 
Approval of 2017 Long-Term Incentive Plan (Proposal 5)




In light of the factors described above, and the fact that the ability to continue to grant equity compensation is vital to our ability to continue to attract and retain highly qualified individuals in the highly competitive labor markets in which we compete, the Board has determined that the size of the share reserve under the 2017 Plan is reasonable and appropriate at this time.

Equity Compensation Best Practices Reflected in the 2017 Plan

The 2017 Plan provides the Committee with the flexibility to effectively use the shares under the 2017 Plan to provide incentives to our personnel. The 2017 Plan contains provisions we believe are consistent with best practices in equity compensation and which we believe further protect our stockholders’ interests, including:

Continued Broad-Based Eligibility for Equity Awards. We grant equity awards to a significant number of our employees. By doing so, we link our interests with stockholder interests throughout the organization and motivate these individuals to act as owners of the business. As of February 24, 2017, 1,224 of our active employees held outstanding equity awards.
No Discount Stock Options or Stock Appreciation Rights. All newly granted stock options and stock appreciation rights will have an exercise price equal to or greater than the fair market value of our common stock on the date the stock option or stock appreciation right is granted. For purposes of the 2017 Plan, the fair market value of a share of common stock as of any given date generally will be the closing sale price for a share of our common stock on the NYSE or, if no sale occurred on the date in question, the closing sale price for a share of our common stock on the last preceding date for which such quotation exists. The closing sale price for a share of our common stock on February 24, 2017 was $36.78.
No Automatic Single-Trigger Vesting of Awards. The 2017 Plan does not provide for automatic “single-trigger” accelerated vesting upon a change in control. The 2017 Plan does provide for “double-trigger” accelerated vesting in the event of a change of control while a participant is employed by our Company or an affiliate followed by the termination of employment or service without cause or for good reason (sometimes referred to as
 
constructive termination) within the 24-month period following the change of control.
Limitations on Dividend Payments. Dividends and dividend equivalents may not be paid on awards subject to vesting conditions unless and until such conditions are met.
Limitations on Grants. Individual limits on awards granted to any participant pursuant to the 2017 Plan apply as follows: (i) a maximum number of 800,000 shares of common stock may be subject to stock options and stock appreciation rights granted under the 2017 Plan to any one participant during a fiscal year; (ii) a maximum number of 800,000 shares of common stock may be subject to awards other than stock options and stock appreciation rights granted under the 2017 Plan to any one participant during a fiscal year; and (iii) the maximum aggregate amount of cash that may be paid to any one participant during any fiscal year with respect to one or more performance awards intended to satisfy the requirements for QPBC under Section 162(m) of the Code is $10,000,000 (or in the case of a performance award that provides for a performance period longer than one fiscal year, the foregoing limit multiplied by the number of full fiscal years in the performance period). These numbers may be adjusted to take into account equity restructurings and certain other corporate transactions.
Reasonable Limit on Full Value Awards. For purposes of calculating the shares that remain available for issuance under the 2017 Plan, grants of options and stock appreciation rights (other than stock appreciation rights that may be settled only in cash) will be counted as the grant of one share for each one share actually granted. However, to ensure that the 2017 Plan is not excessively costly regardless of the types of awards granted under the 2017 Plan, all grants of full value awards (other than those that may be settled only in cash) will be deducted from the 2017 Plan’s share reserve as 2.39 shares for every one share actually granted.
No Repricing of Awards. Awards may not be repriced, replaced, regranted through cancellation or otherwise modified without stockholder approval if the effect would be to reduce the exercise price for the shares under the award.

28

 
Approval of 2017 Long-Term Incentive Plan (Proposal 5)




No Cancellation of Underwater Awards. Stock options and stock appreciation rights that are under water may not be canceled in exchange for cash or for the purpose of granting a replacement award of a different type.
Tax Gross-Ups. The 2017 Plan does not provide for any tax gross-ups.
 
Summary of Terms of the 2017 Plan

The following description of the 2017 Plan is a summary, does not purport to be a complete description of the 2017 Plan and is qualified in its entirety by the full text of the 2017 Plan. A copy of the 2017 Plan is attached to this proxy statement as Exhibit C and is incorporated herein by reference.

Purposes. The 2017 Plan allows for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, stock awards and other incentive awards to employees and other service providers of the Company and its affiliates who are in a position to make a positive contribution to the success of the Company and its affiliates. The purposes of the 2017 Plan are to attract and retain highly qualified individuals to perform services for the Company and its affiliates, to further align the interests of those individuals with those of our stockholders and to more closely link compensation with Company performance. The 2017 Plan will provide an essential component of the Company’s total compensation package, reflecting the importance that we place on aligning the interests of our service providers with those of our stockholders.

Administration. The 2017 Plan provides for administration by the Committee, which may be the Compensation Committee or such other committee as our Board may designate. The Committee will have the authority to make all determinations under, prescribe all forms for use with, and adopt rules for the administration of, the 2017 Plan. The Committee has the right to delegate to one or more officers of the Company any right granted to the Committee under the 2017 Plan, except where such delegation would (i) violate state corporate law or (ii) fail to satisfy the requirements for QPBC under Section 162(m) of the Code with respect to making awards to, or otherwise with respect to awards granted to, individuals who are covered employees receiving awards that are intended to constitute QPBC within the meaning of Section 162(m) of the Code.

 
Eligibility. Employees and other service providers of the Company and our affiliates who, in the opinion of the Committee, are in a position to make a positive contribution to the success of the Company and our affiliates are eligible to participate in the 2017 Plan. The Committee determines the type and size of award and sets the terms, conditions, restrictions and limitations applicable to the award within the confines of the 2017 Plan’s terms. We anticipate that all of our executive officers and approximately 843 other current employees will participate in the 2017 Plan.

Available Shares. The maximum number of shares of common stock available for grant under the 2017 Plan is 29,000,000. For purposes of this share limit, (i) the grant of stock options reduces the share limit one share for each share subject to such an award, (ii) the grant of stock appreciation rights that may be paid or settled only in common stock, or in either cash or common stock (or a combination thereof), reduces the share limit one share for each share subject to such an award, (iii) the grant of restricted stock or stock awards reduces the share limit 2.39 shares for each share subject to such an award, and (iv) the grant of restricted stock units, performance awards or other incentive awards that may be paid or settled only in common stock, or in either cash or common stock, reduces the share limit 2.39 shares for each share subject to such an award. The grant of stock appreciation rights, restricted stock units, performance awards or other incentive awards that may be paid or settled only for cash will not affect the share limit. If any award other than an award that may be paid or settled only for cash is canceled or forfeited, or terminates, expires or lapses, for any reason, the shares then subject to such award will again be available for grant of awards under the 2017 Plan and will be added back to the number of shares available for grant on the same numerical basis as was used upon grant to reduce the number of shares available for grant of awards. Shares (i) tendered (either actually or by attestation) or withheld to satisfy an exercise price or tax withholding obligation for an award, or (ii) repurchased by the Company using stock option proceeds will not again be available for issuance under the 2017 Plan. The 2017 Plan contains anti-dilution provisions that provide that, in the event of an equity restructuring or certain other corporate transactions, adjustments will be made in the maximum number of shares subject to the 2017 Plan, the award limits described below and the exercise price per share of outstanding awards.


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Award Limits. The maximum number of shares of common stock that may be issued pursuant to incentive stock options under the 2017 Plan is 14,000,000 shares. The maximum number of shares of common stock that may be subject to stock options and stock appreciation rights granted under the 2017 Plan to any one person during a fiscal year is 800,000 shares. The maximum number of shares of common stock that may be subject to awards other than stock options and stock appreciation rights granted under the 2017 Plan to any one person during a fiscal year is 800,000 shares. The maximum aggregate amount of cash that may be paid to any one person during any fiscal year with respect to one or more performance awards intended to satisfy the requirements for QPBC under Section 162(m) of the Code is $10,000,000 (or, in the case of a performance award that provides for a performance period longer than one fiscal year,the foregoing limit multiplied by the number of full fiscal years in the performance period).

No Repricing or Reload Rights. Except adjustment for certain corporate changes in accordance with the provisions of the 2017 Plan, no award may be repriced, replaced, regranted through cancellation or otherwise modified without stockholder approval, if the effect would be to reduce the exercise price for the shares underlying such award. Further, no stock option or stock appreciation right that is underwater may be canceled in exchange for a cash payment or for the purpose of granting a replacement award of a different type.

Types of Awards

Stock Options. The 2017 Plan provides for the grant of incentive stock options intended to meet the requirements of Section 422 of the Code and nonqualified stock options that are not intended to meet those requirements. Incentive stock options may be granted only to employees of the Company and its affiliates. All stock options will be subject to terms, conditions, restrictions and limitations established by the Committee, including rules as to exercisability in the event of termination of employment or service, as long as they are consistent with the terms of the 2017 Plan.

Generally, the exercise price of a stock option granted under the 2017 Plan may not be less than the fair market value of the common stock on the date of grant. However, the exercise price may be less if the stock option is granted in connection with a transaction and complies with certain
 
requirements of the Code. Incentive stock options must be granted at 100% of fair market value (or, in the case of an incentive stock option granted to a 10% stockholder, 110% of fair market value). The exercise price of a stock option may be paid in cash (or equivalents), in shares of Company common stock that the participant already owns, or such other consideration as the Compensation Committee approves.

Stock Appreciation Rights (“SARs”). A stock appreciation right entitles the participant to receive an amount in cash and/or shares of common stock, as determined by the Committee, equal to the amount by which our common stock appreciates in value after the date of the award. The Committee will determine when the SAR will vest and become exercisable. Generally, the exercise price of a SAR will not be less than the fair market value of the common stock on the date of grant. However, the exercise price may be less if the stock is granted in connection with a transaction and complies with special rules under Section 409A of the Code. No SAR will be exercisable later than 10 years after the date of the grant. The Committee will set other terms, conditions, restrictions and limitations on SARs, including rules as to exercisability in the event of termination of employment or service.

Restricted Stock and Restricted Stock Units (“RSUs”). Restricted stock is common stock that must be returned to us if certain conditions are not satisfied. The Committee will determine the restriction period and may impose other terms, conditions and restrictions on restricted stock, including vesting upon achievement of performance goals pursuant to a performance award and rules as to vesting in the event of termination of employment or service. The Committee also may require the participant to pay for restricted stock. Subject to the terms and conditions of the award agreement related to restricted stock, a participant holding restricted stock will have the right to receive dividends on the shares of restricted stock during the restriction period, vote the restricted stock and enjoy all other stockholder rights related to the shares of common stock. Restricted stock (and any associated dividends) generally will be held by the Company in escrow for the participant’s benefit until such time as the restricted stock is either forfeited by the participant or the restrictions thereon terminate. Upon expiration of the restriction period, the participant is entitled to receive shares of common stock not subject to restriction.


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Approval of 2017 Long-Term Incentive Plan (Proposal 5)




Restricted stock units are fictional shares of common stock. The Committee will determine the restriction period and may impose other terms, conditions and restrictions on RSUs, including vesting upon achievement of performance goals pursuant to a performance award and rules as to vesting in the event of termination of employment or service. Upon the lapse of restrictions, the participant is entitled to receive one share of common stock or an amount of cash equal to the fair market value of one share of common stock as provided in the award agreement. An award of RSUs may include the grant of a tandem dividend equivalent cash right or dividend equivalent unit right. A dividend equivalent cash right is a contingent right to receive an amount in cash equal to the cash distributions made with respect to a share of common stock during the period the RSU is outstanding. A dividend equivalent unit right is a contingent right to have additional RSUs credited to the participant equal to the number of shares of common stock (at fair market value) that may be purchased with the cash dividends. No dividend equivalent cash right or dividend equivalent unit right will vest or be payable sooner than the date on which the underlying RSU has vested.

Performance Awards. A performance award is an award payable in cash (including an annual bonus award) or common stock (or a combination thereof) upon the achievement of certain performance goals over a performance period. Performance awards may be combined with other awards to impose performance criteria as part of the terms of the other awards. For each performance award, the Committee will determine (i) the amount a participant may earn in the form of cash or shares of common stock or a formula for determining the amount payable to the participant, (ii) the performance criteria and level of achievement versus such performance criteria that will determine the amount payable or number of shares of common stock to be granted, issued, retained and/or vested, (iii) the performance period over which performance is to be measured, which may not be shorter than one year, (iv) the timing of any payments to be made, (v) restrictions on the transferability of the award and (vi) other terms and conditions that are not inconsistent with the 2017 Plan.

The Committee will determine whether specific performance awards are intended to constitute QPBC within the meaning of Section 162(m) of the Code and even if stockholders approve the performance criteria set forth in the 2017 Plan for purposes of the QPBC exception, the Committee
 
may determine to pay compensation that is not QPBC under Section 162(m) of the Code and that is not deductible by reason thereof. To qualify as QPBC, the applicable performance criteria will be selected from the list below in accordance with the requirements of Section 162(m) of the Code.

The performance measure(s) to be used for purposes of performance awards may be described in terms of objectives that are related to the individual participant or objectives that are company-wide or related to a subsidiary, division, department, region, function or business unit of the Company or an affiliate in which the participant is employed or with respect to which the participant performs services, and may consist of one or more of any combination of the following:

Performance Measure Criteria
an amount or level of earnings or cash flow

earnings or cash flow per share (whether on a pre-tax, after-tax, operational or other basis)

return on equity or assets

return on capital or invested capital and other related financial measures

cash flow or EBITDA

revenues

income, net income or operating income

expenses or costs or expense levels or cost levels (absolute or per unit)

proceeds of sale or other disposition

share price

total stockholder return

operating profit

profit margin

capital expenditures

net borrowing, debt leverage levels, credit quality or debt ratings

the accomplishment of mergers, acquisitions, dispositions, or similar business transactions

net asset value per share

economic value added

individual business objectives

growth in reserves or production

finding and development costs

safety results

 
 


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Approval of 2017 Long-Term Incentive Plan (Proposal 5)




Prior to the payment of any compensation pursuant to a performance award that is intended to be QPBC, the Committee must certify the extent to which the performance goals and other material terms of the award have been achieved or satisfied. The Committee also has the authority to reduce, but not to increase, the amount payable in cash and the number of shares of common stock to be issued, retained or vested pursuant to such a performance award.

Stock Awards. Stock awards are shares of common stock awarded to participants that are subject to no restrictions. Stock awards may be issued for cash consideration or for no cash consideration.

Other Incentive Awards. The Committee may grant other incentive awards under the 2017 Plan based upon, payable in or otherwise related to, shares of common stock if the Committee determines that the other incentive awards are consistent with the purposes of the 2017 Plan. Other incentive awards will be subject to any terms, conditions, restrictions or limitations established by the Committee. Payment of other incentive awards will be made at the times and in the forms, which may be cash, shares of common stock or other property, established by the Committee.

New Plan Benefits. As of the date of this Proxy Statement, no executive officer or other employee of the Company has been granted any awards under the 2017 Plan. The awards, if any, that will be granted to eligible persons under the 2017 Plan are subject to the discretion of the Committee and, therefore, are not determinable.

Change of Control. In the event of a change of control while a participant is employed by our Company or an affiliate followed by the termination of employment or service without cause or for good reason within the 24-month period following the change of control, each award outstanding under the 2017 Plan to such participant will become immediately vested and fully exercisable upon such termination and any restrictions applicable to the award will lapse on that date, provided that any performance award with performance-based vesting will vest upon such termination according to the performance achieved as measured through the last day of the month immediately preceding the date of such termination of employment or service. Upon a change of control where the Company is not the surviving entity (or survives only as a subsidiary of another entity), unless the Committee determines
 
otherwise, all outstanding stock options and SARs that are not exercised at or before the occurrence of the change of the control will be assumed by or replaced with comparable options and rights in the surviving entity (or a parent of the surviving entity) in accordance with Code requirements, and other outstanding awards will be converted into similar awards of the surviving entity (or a parent of the surviving entity). The Committee also has discretion, no later than the commencement of the change of control, to require any participant holding an award to surrender such award in exchange for appropriate consideration as described in the 2017 Plan.

Withholding Taxes. All applicable withholding taxes will be deducted from any payment made under the 2017 Plan, withheld from other compensation payable to the participant, or be required to be paid by the participant (or be subject to a participant’s election to pay) prior to the making of any payment of cash or common stock under the 2017 Plan. Payment of withholding taxes may be made by withholding shares of common stock from any payment of common stock due or by the delivery by the participant to the Company or the applicable affiliate of previously acquired shares of common stock, in either case having an aggregate fair market value equal to the amount of the required withholding taxes.

Transferability. Generally, no award may be sold, transferred, pledged, exchanged, or disposed of, except by will or the laws of descent and distribution. However, if provided in the award agreement, nonqualified stock options may be transferred by a participant to a permitted transferee.

Clawback Provision. By accepting or exercising any award granted under the 2017 Plan, each participant agrees to abide and be bound by any policies adopted by the Company, including our compensation recoupment policy as contained in our Code of Conduct, as amended from time to time, and any other policies adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or exchange listing standards promulgated thereunder, providing for the repayment and/or forfeiture of any award or payment resulting from an accounting restatement or similar circumstances.

Amendment and Termination. Our Board may at any time suspend, terminate, amend or modify the 2017 Plan, but may not without stockholder approval make any modification or amendment that operates (i) to

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Approval of 2017 Long-Term Incentive Plan (Proposal 5)




increase the total number of shares of common stock that may be issued under the 2017 Plan (other than adjustments in connection with certain corporate reorganizations and other events) or to change the designation or class of persons eligible to receive awards under the 2017 Plan, or (ii) to effect any change for which stockholder approval is required by or necessary to comply with applicable law or the listing requirements of an exchange or association on which the common stock is then listed or quoted. Upon termination of the 2017 Plan, the terms and provisions thereof will continue to apply to awards granted before termination. No suspension, termination, amendment or modification of the 2017 Plan will adversely affect in any material way any award previously granted under the 2017 Plan, without the consent of the participant.

Effectiveness. The 2017 Plan will become effective upon approval by the stockholders at the Company’s 2017 Annual Meeting. Unless terminated earlier, the 2017 Plan will terminate on January 23, 2027.

United States Federal Income Tax Consequences

The following summary is based on an analysis of the Code as currently in effect, existing laws, judicial decisions, administrative rulings, regulations and proposed regulations, all of which are subject to change. Moreover, the following is only a summary of United States federal income tax consequences. Actual tax consequences to participants may be either more or less favorable than those described below depending on the participants’ particular circumstances. State and local tax consequences may in some cases differ from the federal tax consequences. The following summary of the income tax consequences in respect of the 2017 Plan is for general information only. Interested parties should consult their own advisors as to specific tax consequences of their awards, including the applicability and effect of state, local and foreign laws.

Incentive Stock Options. No income will be recognized by a participant for federal income tax purposes upon the grant or exercise of an incentive stock option. The basis of shares transferred to a participant upon exercise of an incentive stock option is the price paid for the shares. If the participant holds the shares for at least one year after the transfer of the shares to the participant and two years after the grant of the stock option, the participant will recognize capital gain or loss upon sale of the shares
 
received upon exercise equal to the difference between the amount realized on the sale and the basis of the stock. In these circumstances, we will not be entitled to any deduction for federal income tax purposes. Generally, if the shares are not held for that period, the participant will recognize ordinary income upon disposition in an amount equal to the excess of the fair market value of the shares on the date of exercise over the amount paid for the shares, or if less (and if the disposition is a transaction in which loss, if any, will be recognized), the gain on disposition. Any additional gain realized by the participant upon the disposition will be a capital gain. If this occurs, we will be entitled to a tax deduction equal to the ordinary income amount the participant recognizes. The excess of the fair market value of shares received upon the exercise of an incentive stock option over the option price for the shares is an item of adjustment for the participant for purposes of the alternative minimum tax. Therefore, although no income is recognized upon exercise of an incentive stock option, a participant may be subject to alternative minimum tax as a result of the exercise.

Nonqualified Stock Options. No income is expected to be recognized by a participant for federal income tax purposes upon the grant of a nonqualified stock option. Upon exercise of a nonqualified stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the amount paid for the shares. Income recognized upon the exercise of a nonqualified stock option will be considered compensation subject to withholding at the time the income is recognized, and, therefore, the participant’s employer must make the necessary arrangements with the participant to ensure that the amount of the tax required to be withheld is available for payment. Nonqualified stock options are designed to provide the employer with a deduction equal to the amount of ordinary income recognized by the participant at the time of the recognition by the participant, subject to the deduction limitations described below.

Stock Appreciation Rights. There is expected to be no federal income tax consequences to either the participant or the employer upon the grant of SARs. Generally, the participant will recognize ordinary income subject to withholding upon the receipt of payment pursuant to SARs in an amount equal to the aggregate amount of cash and the fair market value of any common stock received. Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax

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Approval of 2017 Long-Term Incentive Plan (Proposal 5)




deduction equal to the amount includible in the participant’s income.

Restricted Stock. If the restrictions on an award of shares of restricted stock are of a nature that the shares are both subject to a substantial risk of forfeiture and are not freely transferable (within the meaning of Section 83 of the Code), the participant will not recognize income for federal income tax purposes at the time of the award unless the participant affirmatively elects to include the fair market value of the shares of restricted stock on the date of the award, less any amount paid for the shares, in gross income for the year of the award pursuant to Section 83(b) of the Code. In the absence of this election, the participant will be required to include in income for federal income tax purposes on the date the shares either become freely transferable or are no longer subject to a substantial risk of forfeiture (within the meaning of Section 83 of the Code), the fair market value of the shares of restricted stock on such date, less any amount paid for the shares. The employer will be entitled to a deduction at the time of income recognition to the participant in an amount equal to the amount the participant is required to include in income with respect to the shares, subject to the deduction limitations described below. If a Section 83(b) election is made within 30 days after the date the restricted stock is received, the participant will recognize ordinary income at the time of the receipt of the restricted stock, and the employer will be entitled to a corresponding deduction, equal to the fair market value of the shares at the time, less the amount paid, if any, by the participant for the restricted stock. If a Section 83(b) election is made, no additional income will be recognized by the participant upon the lapse of restrictions on the restricted stock, but, if the restricted stock is subsequently forfeited, the participant may not deduct the income that was recognized pursuant to the Section 83(b) election at the time of the receipt of the restricted stock.

Dividends on restricted stock accumulated during the restricted period that are paid to the participant at the end of the restricted period will be additional compensation taxable as ordinary income to the participant subject to withholding, unless the participant made an election under Section 83(b) of the Code. Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the dividends includible in the participant’s income as compensation. If the participant has made a
 
Section 83(b) election, the dividends will be dividend income, rather than additional compensation, to the participant.

If the restrictions on an award of restricted stock are not of a nature that the shares are both subject to a substantial risk of forfeiture and not freely transferable, within the meaning of Section 83 of the Code, the participant will recognize ordinary income for federal income tax purposes at the time of the transfer of the shares in an amount equal to the fair market value of the shares of restricted stock on the date of the transfer, less any amount paid therefor. The employer will be entitled to a deduction at that time in an amount equal to the amount the participant is required to include in income with respect to the shares, subject to the deduction limitations described below.

Restricted Stock Units. There will be no federal income tax consequences to either the participant or the employer upon the grant of restricted stock units. Generally, the participant will recognize ordinary income subject to withholding upon the receipt of cash and/or transfer of shares of common stock in payment of the restricted stock units in an amount equal to the aggregate of the cash received and the fair market value of the common stock so transferred. Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the amount includible in the participant’s income.

Dividend Equivalents. Generally, a participant will recognize ordinary income subject to withholding upon the receipt of cash and/or transfer of shares of common stock in payment of any dividend equivalent cash rights or dividend equivalent unit rights in an amount equal to the cash the participant receives or the fair market value of the common stock so transferred, as applicable. Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the amount includible in the participant’s income.

Performance Awards. There will be no federal income tax consequences to either the participant or the employer upon the grant of performance awards. Generally, the participant will recognize ordinary income subject to withholding upon the receipt of cash and/or shares of common stock in payment of performance awards in an amount equal to the aggregate of the cash received and the fair market value of the common stock so transferred.

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Approval of 2017 Long-Term Incentive Plan (Proposal 5)




Subject to the deduction limitations described below, the employer generally will be entitled to a corresponding tax deduction equal to the amount includible in the participant’s income.

Stock Awards. The participant will recognize income for federal income tax purposes at the time of the stock award and, subject to the deduction limitations described below, the employer will be entitled to a corresponding deduction.

Other Incentive Awards. The tax treatment of other incentive awards will depend on the type of award. In general, the participant will be subject to income tax withholding at the time when the ordinary income is recognized. Subject to the deduction limitations described below, the participant’s employer will be entitled to a tax deduction at the same time and for the same amount.

Limitations on the Employer’s Compensation Deduction. Section 162(m) of the Code limits the deduction certain employers may take for otherwise deductible compensation payable to certain executive officers of the employer to the extent the compensation paid to such an officer for the year exceeds $1 million, unless the compensation is QPBC, is approved by the employer’s stockholders, and meets certain other criteria.

Excess Parachute Payments. Section 280G of the Code limits the deduction that the employer may take for otherwise deductible compensation payable to certain individuals if the compensation constitutes an “excess parachute payment.” Excess parachute payments arise from payments made to disqualified
 
individuals that are in the nature of compensation and are contingent on changes in ownership or control of the employer or certain affiliates. Accelerated vesting or payment of awards under the 2017 Plan upon a change in ownership or control of the employer or its affiliates could result in excess parachute payments. In addition to the deduction limitation, a disqualified individual receiving an excess parachute payment is subject to a 20% excise tax on the amount thereof.

Application of Section 409A of the Code. Section 409A of the Code imposes an additional 20% tax and interest on an individual receiving nonqualified deferred compensation under a plan that fails to satisfy certain requirements. For purposes of Section 409A, “nonqualified deferred compensation” includes equity-based incentive programs, including some stock options, stock appreciation rights and restricted stock unit programs. The awards made pursuant to the 2017 Plan will be designed to comply with the requirements of Section 409A of the Code to the extent the awards granted under the 2017 Plan are not exempt from coverage. However, if the 2017 Plan fails to comply with Section 409A in operation, a participant could be subject to the additional taxes and interest.

Our Board recommends that stockholders vote FOR the approval of the Noble Energy, Inc. 2017 Long-Term Incentive Plan.




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Consideration of Proposal Regarding Climate Change (Proposal 6)

Consideration of Proposal Regarding Climate Change (Proposal 6)

Presbyterian Church (USA), acting as primary filer on behalf of Dignity Health, Mercy Investment Services, Inc., Portico Benefit Services and Rockefeller & Co., (the “Proponent”) has notified us that it intends to present the following proposal at the annual meeting for action by our stockholders. The Proponent has furnished evidence of ownership of at least $2,000 in market value of the Company’s common stock for at least one year prior to the date the proposal was submitted. The proposal has been considered by our Board, which has concluded that its adoption would not be in our best interest or the best interest of our stockholders. For the reasons following the proposal, our Board recommends a vote “Against” this stockholder proposal.

The proposal and supporting statement are presented as received from the Proponent in accordance with the rules of the SEC. The Board and the Company disclaim any responsibility for its content.

WHEREAS: Climate change, and actions to mitigate and adapt to it, will meaningfully affect the demand for, and costs associated with, carbon-based fuels.

Global action on climate change is accelerating. In November 2016 the Paris Agreement entered into force and its goal of keeping global temperature rise well below 2 degrees Celsius is already shaping national policy decisions.

Action to address climate change is likely to have a negative impact on demand for oil. According to the International Energy Agency (IEA), transportation accounts for more than one fifth of global carbon dioxide emissions, requiring rapid adoption of new technologies to keep temperatures within limits.

The IEA forecasts that electrification of transport will play a critical role in achieving required greenhouse gas reductions. In October 2016, Fitch Ratings described electric cars as a “resoundingly negative” threat to the oil industry and urged energy companies to plan for “radical change.”

In June 2016, the credit rating agency Moody’s indicated that it would begin to analyze carbon transition risk based on scenarios consistent with
 
the Paris Agreement, and noted the high carbon risk exposure of the energy sector.

The prolonged downturn in oil prices has underscored the risks associated with investing in complex, high cost projects like the deepwater projects Noble is counting on for growth. The uncertainty around future demand growth in light of climate change has led competitors like ConocoPhillips to test capital planning decisions against multiple carbon-constrained scenarios to avoid the risk of stranded assets.

The increasing likelihood of public policy action and viability of technological advancements aimed at addressing climate change make it vital that Noble provide investors with more detailed analyses of the potential risks to its business under a range of scenarios. While Noble’s website notes that climate policy “could have a significant impact on our future operations and reduce demand for our products” it has not presented sufficiently detailed information to allow investors to assess the resilience of our company’s portfolios under various carbon-constrained scenarios.

RESOLVED: Shareholders request that by 2018 Noble Energy publish an assessment of long term portfolio impacts of public climate change policies, at reasonable cost and omitting proprietary information. The assessment can be incorporated into existing reporting and should analyze the impacts on Noble Energy’s oil and gas reserves and resources under a scenario in which reduction in demand results from carbon restrictions and related rules or commitments adopted by governments consistent with the globally agreed upon 2 degree target. The reporting should assess the resilience of the company’s full portfolio of reserves and resources through 2040 and beyond and address the financial risks associated with such a scenario.

Our Board recommends that stockholders vote AGAINST the approval of this proposal for the following reasons:

Our stockholders considered and rejected substantially similar proposals in 2016 and 2015. The 2016 proposal received support from 19.8% of

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Consideration of Proposal Regarding Climate Change (Proposal 6)

the shares present and eligible to vote while the 2015 proposal received support from 15.4% of the shares present and eligible to vote. We have actively engaged with the Proponent over the last few years in an effort to gain a better understanding of its position on climate change. We have spoken on the telephone numerous times, visited at stockholder meetings and hosted meetings in our offices on at least two occasions. While this engagement has been cordial and productive, our Board continues to oppose the proposal for the reasons discussed below.

We are committed to being a responsible steward of the environment. We believe that taking prudent, practical and cost-effective action to reduce emissions is the right thing to do. We publish an annual sustainability report that sets forth our policies and strategies relating to corporate sustainability, including a discussion of our performance and initiatives in reducing our impact on the environment. In our annual reports on Form 10-K and other public filings, we include disclosures regarding both the risks and the opportunities that may arise from the global response to climate change. Our most recent sustainability report and Annual Report on Form 10-K are available on our Website. We also report climate change risks and opportunities to the Carbon Disclosure Project. As part of this disclosure, for each identified risk, we describe potential financial implications, methods used to manage these risks and the associated costs.

We do not believe it would be in the best interest of our stockholders to expend significant corporate funds and time preparing an additional report that is premised on speculative scenarios and assumptions and possibly would include proprietary information that could be valuable to our competitors. We believe that the proposal would require us to engage in speculation on matters outside our control far into the future, including the request to “assess the resilience of the company’s full portfolio of reserves and resources through 2040 and beyond.” SEC regulations that mandate how reserves are valued and how risks related to those reserves must be disclosed require that undeveloped proved reserves must have a plan to be developed within five years. In contrast, the proposal would have us consider risks and opportunities related not only to undeveloped proved reserves, but unproved reserves and theoretical future reserves more than twenty years into the future, and beyond. The requested report would require considerable
 
speculation about the future of not just oil, but all fossil fuels.

Our operations are subject to various federal, state, local and foreign host country laws and regulations relating to the protection of the environment. Many of these laws and regulations are subject to change as a result of political trends, changes in public policy and other developments. The Company has no unique expertise to assess the goals of policymakers with respect to climate change, both in the U.S. and internationally, and what steps those policymakers may take to achieve those goals. We cannot predict with meaningful certainty what laws and regulations will be adopted or amended in response to global climate change. We do not see a clear path for creating a report based on what political bodies such as the United States Congress, state legislatures and over 40,000 local and municipal governmental bodies in the United States or the 191 other foreign governments that have signed on to the Paris Agreement may do “through 2040 and beyond.” This task is made exponentially more difficult by virtue of the fact that the Paris Agreement, which is cited by the Proponent, has not been ratified by the United States Senate and does not have any binding enforcement mechanisms in place to ensure compliance with its terms by the government of the United States or any other government. Adding to the near-term uncertainty regarding the impact of climate change policy, the new administration and the Republican Congress have pledged to adopt new policies aimed at increasing the production of oil and natural gas resources in the United States and repeal or amend certain executive orders and regulatory policies that have restricted or adversely impacted development. In sum, the proposal calls for a report that would be principally based on speculative assumptions about a legislative and regulatory environment that is inherently unpredictable.

Preparing a report on the impact of a presupposed global response to climate change as requested by the Proponent would require the allocation of significant corporate resources without providing our stockholders with commensurate value. An analysis based on the parameters set forth by the Proponent would also be speculative and risks confusing and misleading investors about our actual performance. We therefore do not believe that it would be in the best interest of our stockholders to expend corporate funds and time engaging in such speculative projections.


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Consideration of Proposal Regarding Climate Change (Proposal 6)

The Proponent cites forecasts of the IEA; however, the main scenario in the IEA’s World Energy Outlook 2016 does not forecast a reduction in global energy or oil demand through 2040. Rather, the IEA’s main scenario forecasts that there will be a 30% rise in global energy demand to 2040, that global oil demand will continue to rise through 2040 to 103 million barrels per day and that the rise in electric cars (cited by the Proponent as a threat to the oil industry) will reduce 2040 global oil demand by only around 1.3 million barrels per day, or less than 1.3% of global oil demand based on the IEA’s forecast.

For these reasons, our Board does not believe that it would be in our best interest or the best interest of our stockholders to prepare the requested report.

Our Board recommends that our stockholders vote AGAINST this stockholder proposal.

38

 
Compensation Discussion and Analysis


Compensation Discussion and Analysis
Introduction

This Compensation Discussion and Analysis describes our executive compensation program, the 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 2016, who were:
Name
Title
David L. Stover
Chairman, President and Chief Executive Officer
Kenneth M. Fisher
Executive Vice President and Chief Financial Officer
Susan M. Cunningham
Executive Vice President, EH&S Regulatory and New Frontiers
Gary W. Willingham
Executive Vice President, Operations
Arnold J. Johnson
Senior Vice President, General Counsel and Secretary

Biographical information for our Named Executive Officers, and other executive officers under the Exchange Act, is included in Appendix B to this Proxy Statement.
2016 Executive Compensation Overview

2016 was a year of outstanding operational, financial and safety performance for the Company. It was also one of great progress on our strategic objectives. We exceeded the targets under our STIP quantitative component metrics for sales volumes, free cash flow, cash costs per Boe and relative cash costs, but not relative total stockholder return. We also saw favorable results under the plan's qualitative component metrics including strategic initiatives, EH&S performance, absolute total stockholder return, weighted average program rate of return and reserve additions. The Compensation Committee concluded that these results demonstrated significant progress toward positioning the Company to deliver future top tier long-term stock performance and, against the backdrop of our disappointing relative total
 
stockholder return versus our peers, approved 2016 STIP funding at 140% of target. Equity awards under our LTIP in early 2017 were made at target value.

We recognize that a single year of positive operational and financial results does not change the current business environment or immediately and significantly improve stockholder return. However, we believe that our short- and long-term incentive programs motivate and reward executive actions that lead to Company success in any business environment, are appropriately designed and administered to pay for performance and are aligned with the long-term interests of our stockholders. 


39

 
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 executive compensation program.
 
What We Do
 
 
What We Don't Do
 
 
þ   Pay for Performance ,   through significant portions of pay at risk, clear performance targets and individual differentiation.
þ   Review Comparative Compensation Data ,    prior to making executive compensation decisions.
þ   Mitigate Undue Risk , 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 our compensation programs create risks that are reasonably likely to have a material adverse impact.
þ   Reasonable Post-Employment/Change of Control Provisions , generally structured to apply to executive officers in the same manner as the broader employee population.
þ   Modest Perquisites , providing only those that have a sound value to our business.
þ   Stock Ownership Guidelines , which all Named Executive Officers meet.
þ   Regular Review of Share Utilization , including 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 , that provides no other services to our Company.
þ  Vesting of Performance Shares Upon Change of Control , beginning in 2016, based on actual performance, following a change of control.
þ  Double-Trigger Equity Vesting Acceleration , beginning with awards granted in 2016, in the event of a change of control, automatic accelerated vesting of restricted stock, stock options and cash awards will only occur upon termination without cause or for good reason.
 
 
ý   No Employment Contracts  for our Named Executive Officers.
ý   No Inclusion of the Value of Equity Awards in Pension or Severance Calculations.
ý   No Personal Aircraft Use.
ý   No Separate Change of Control Agreements for Incoming Executive Officers, although Mr. Johnson and Ms. Cunningham have pre-existing separate Change of Control Agreements.  
ý   No Excise Tax Gross-Ups Upon Change of Control.
ý   No Repricing Underwater Stock Options.
ý   No Liberal Recycling of Shares Under the 1992 Plan, the 2017 Plan or the Director Plans.
ý   No Pledging Shares of Company Stock Received as Compensation as Collateral for a Loan, or Hedging such Shares.

 



40

 
Compensation Discussion and Analysis


Results of 2016 Advisory Vote to Approve Executive Compensation


At the 2016 Annual Meeting of Stockholders, we held our sixth annual advisory vote on executive compensation. Our "say on pay" stockholder votes for 2014 and 2015 support our approach to executive compensation, at 97.9% and 95.4% favorability, respectively, of shares voted. Our Compensation Committee believes that these votes convey our stockholders’ support of its decisions and our executive compensation program. As a result, it made no material changes to the structure of the program for 2016. At our 2017 Annual Meeting of Stockholders, we will again hold an annual advisory vote to approve executive compensation, as well as one to approve the frequency of that vote, and the Compensation Committee will continue to consider the results.
Determining Executive Compensation

Role of Compensation Committee

Our executive compensation program is overseen by our Compensation Committee, with input from our management and independent compensation consultant. In its oversight role the committee is responsible for making compensation decisions involving our CEO and other executive officers and evaluating their performance for compensatory purposes.

Role of Management

Our CEO and our Senior Vice President of Human Resources and Administration provide input to our Compensation 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 given their understanding of our business and personnel, compensation program and competitive environment. The committee is not obligated to accept management’s recommendations and meets in executive session to discuss executive compensation. During 2016, the committee held five executive sessions.

Role of Compensation Consultants

Our Compensation Committee may retain, at our expense, independent consultants to assist it in executive compensation matters. The committee meets with these consultants, within and outside the presence of management, to review findings based on market research 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 2016, after considering Meridian’s
 
independence from our management and members of our Compensation Committee and the following compensation consultant traits:
effective past performance;
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; and
maintains policies and procedures that prevent conflicts of interest.
In 2016 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 meetings of the committee, including executive sessions without management. The compensation consultant also provided consulting services to our Governance Committee in 2016 with respect to our non-employee director total compensation. A breakdown of fees paid to the compensation consultant for 2016 and 2015 is set out below.
 
2016
%
2015
%
Executive Compensation Fees
$
200,425

89
$
176,542

88
Director Compensation Fees
24,358

11
24,412

12
Total
$
224,783

100
$
200,954

100

Compensation Considerations

Compensation Benchmarking

When making compensation decisions, we also benchmark the compensation of our CEO and other

41

 
Compensation Discussion and Analysis


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. The committee, with the assistance of our CEO and compensation consultant, reviews the composition of the peer group annually to ensure that it remains relevant for comparative purposes.

There are a number of factors considered in determining our compensation peer group, such as similarity of operations, relevant business valuation, stock exchange membership, business profile, production and reserves and companies that consider us to be one of their peers. Our Compensation Committee approved the following compensation peer group for 2016, and will continue with the same compensation peer group for 2017, to be considered along with the Company for comparison purposes:
 
 
 
 
 
     Anadarko Petroleum Corp.
     Apache Corp.
     Cabot Oil & Gas Corp.
     Chesapeake Energy Corp.
     Continental Resources, Inc.
     Devon Energy Corp.
     EOG Resources, Inc.

    Hess Corp.
    Marathon Oil Corp.
    Murphy Oil Corp.
    Pioneer Natural Resources Co.
    Range Resources Corp.
    Southwestern Energy Co.

 
 
 
 
 

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 independent compensation consultant to provide the committee with data that include base salaries and short- and long-term incentive opportunities. They also provide 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 the 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. In its review of total compensation, 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 those Named Executive Officers. For 2016, the committee concluded that our CEO’s compensation was reasonable compared to that of our other Named Executive Officers, recognizing the CEO’s broad responsibility and accountability for Company strategy and operations, compliance and controls and investor and government relations. The committee likewise found that the 2016 compensation of each of our remaining Named Executive Officers was internally consistent and equitable in light of their respective roles, responsibilities, accountabilities and reporting relationships.

CEO Pay Ratio

For the last three years, we elected to disclose an estimate of the ratio between the pay of our CEO and the median for all of our other employees. A final rule on CEO pay ratio has been adopted by the SEC, with disclosure currently required to be made in the proxy statement for our 2018 Annual Meeting of Stockholders. The Acting Chairman of the SEC has directed the staff to reconsider the implementation of the rule. At this time, the Acting Chairman's directive does not delay the implementation of the pay ratio disclosure requirement. We have attempted to incorporate the methodology of the final rule in our pay ratio calculation for 2016 and, for consistency, have utilized the same median employee for 2015 and 2016.

Mr. Stover had 2016 annual total compensation of $ 10,137,682 and 2015 annual total compensation of $ 7,253,154 as reflected in the Summary Compensation Table included in this Proxy Statement. Our median employee's annual total compensation for 2016 was $128,050 and for 2015 was $139,440. 2015 total compensation for purposes of this comparative calculation included a one time payment representing the Company's buyout of retiree medical benefits. Taking this into

42

 
Compensation Discussion and Analysis


account, we estimate that Mr. Stover's annual total compensation was approximately 79 times and 52 times that of our median employee in 2016 and 2015, respectively.

Compensation Clawback

Our Compensation Committee has adopted a policy that allows the Company, under certain circumstances (such as a restatement of financial or reserve reporting or material noncompliance with
 
federal securities laws or the Company's codes of conduct), to recoup incentive-based compensation from current or former executive officers. Our policy will be revised, if appropriate, to conform to any final listing standards that may be adopted by the NYSE under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.



What We Pay and Why: Elements of 2016 Executive Compensation

We have three elements of total direct compensation for 2016: base salary, our short-term incentive plan and our long-term incentive plan. The following table summarizes these three elements, as well as our post-employment compensation programs.
 
 
Base Salary
 
Short-Term Incentive Plan
 
Long-Term Incentive Plan
 
Post-Employment
Compensation
Programs
Type
 
  cash
 
   annual cash bonus
 
   stock options
   time-based restricted shares and phantom unit cash awards
   performance-based restricted shares
 
   qualified and non-qualified plans
Purpose
 
   deliver baseline cash compensation commensurate with role and expertise
 
   motivate performance and compensate employees for annual contributions
 
   reward for performance tied to absolute and relative price appreciation
   align long-term interests of employees and stockholders
   incentivize retention through long-term compensation opportunities

 
   incentivize retention by providing financial security in, and a tax-efficient means to save for, retirement
Structure
 
   market-based, considering responsibilities
 
  performance-based quantitative and qualitative factors
 
   stock options with 10 year term, vesting over three years
   for our CEO, time-based restricted shares vesting 40% in year one and 60% in year two, and performance-based restricted shares vesting after three years based on relative total stockholder return
   for our non-CEO executives, time-based restricted shares vesting 80% in year one and 20% in year two, phantom unit cash awards vesting 100% in year two, and performance-based restricted shares and related phantom units vesting after three years based on total stockholder return
 
   plans and programs with broad applicability

43

 
Compensation Discussion and Analysis


2016 Target Compensation of Named Executive Officers

The following table provides a comparison of the intended value components of total direct compensation for each of our Named Executive Officers in 2016.
Name
2016 Base Salary
($)
2016 Target STIP Opportunity
($)
2016 Target LTIP Opportunity
($)(1)
2016 Target Total Direct Compensation
($)
David L. Stover
950,000
1,045,000
 
6,887,500
 
8,882,500
 
Kenneth M. Fisher
610,000
518,500
 
2,280,000
 
3,408,500
 
Susan M. Cunningham
560,000
448,000
 
1,900,000
 
2,908,000
 
Gary W. Willingham
500,000
400,000
 
2,090,000
 
2,990,000
 
Arnold J. Johnson
480,000
360,000
 
1,520,000
 
2,360,000
 
(1) Equity values reflect the intended target LTIP opportunity, not the expense valuations shown in the Summary Compensation and Grants of Plan Based Awards tables.

We believe that Mr. Stover's 2016 target total direct compensation, and that of our other Named Executive Officers, is consistent with the objectives of our executive compensation program, provides an appropriate mix of fixed and performance-based compensation, rewards leadership that produced a number of key results during the year and provides for the continued achievement of short- and long-term goals necessary for stockholder value creation. Actual total direct compensation is shown in this CD&A and our compensation tables.
Summary of Elements of Compensation

Base Salary

Base salary for each of our Named Executive Officers is individually determined by our Compensation Committee after consideration of:
breadth, scope and complexity of the role;
fairness (executive officers with similar responsibilities, experience and historical performance are treated comparably);
current compensation; and
individual performance.
We do not set the base salary of any executive officer as a fixed percentage of other officer salaries. There are two situations that may warrant a change to base salary: annual market adjustments and changes in role.

2016 Adjustments for Named Executive Officers

No adjustments were made to the base salaries of our Named Executive Officers in 2016.


44

 
Compensation Discussion and Analysis


Short-Term Incentive Plan

Our STIP is available to our executive officers and other full-time employees and provides the opportunity to receive a performance-based cash bonus in February of each year based on the prior year's results. The total bonus pool is determined considering those results as measured against quantitative targets and qualitative objectives set early in the performance year. The weighting and targets for the quantitative measures and objectives for the qualitative measures are communicated to our executive officers at the time they are set. Individual bonus amounts take into account the Company's performance, the employee’s business unit or group performance and individual performance applied to a target STIP bonus that represents the employee’s base salary at year-end multiplied by a percentage factor assigned to the employee’s salary classification. The funded STIP pool may range from 0 to 2.5 times the aggregate target bonus pool for all employees.

The target for each quantitative measure and objective for each qualitative measure take into account prior year results and current year strategic objectives, planned projects and capital spending plans. We believe that they are set aggressively in light of these variables and require achievement of significant performance. The targets for the quantitative measures provide for adjustments to account for the effects of certain unplanned events that may arise during the year, such as significant acquisitions or divestitures.

Our Compensation Committee reviews information provided by our management on actual results for each quantitative measure. The sum of the bonus factors, as adjusted for weighting, yields the final quantitative weighted factor. Our Compensation Committee likewise considers our results as measured against objectives in determining the final qualitative weighted factor.

2016 Quantitative Measures (60% weighted)

Our Compensation Committee compared our 2016 results to targets in the following areas in arriving at the final quantitative weighted factor for our STIP:
Measure
Weight
Target
Result
Factor
Sales volume (production)
10%
393.7 MBoe/d
419.5 MBoe/d
.250
Free Cash Flow (1)
15%
$0 million
$981 million
.375
Cash costs/sales volumes
10%
$7.48 per BoE
$6.05 per BoE
.250
Relative cash costs/revenue
10%
50th Percentile of Peers
6th out of 14
.136
Relative Total Stockholder Return
15%
50th Percentile of Peers
14th out of 14
.0
Final quantitative factor at 60% weighting
 
 
 1.011
(1)
Non-GAAP financial measure, see reconciliation schedule at Appendix A.


45

 
Compensation Discussion and Analysis


2016 Qualitative Measures (40% weighted)

The Compensation Committee also compared our 2016 results to objectives in the following areas in arriving at the final qualitative weighted factor for our STIP:
Measure
Weight
Result
Strategic initiatives
12%
Favorable dissolution of our Marcellus joint venture. Launched NBLX IPO and completed CONE asset drop. Executed Greeley Crescent divestiture and PDC trade in the DJ Basin. Favorable results with respect to onshore regulatory stability in Colorado. Advanced Leviathan project (Israel) toward sanction. Maintained robust liquidity, protected investment grade credit rating and reduced outstanding debt.
EH&S performance
8%
Company - Contractor Recordable/Lost Time rates at 0.38 and 0.04 respectively. The Recordable rate is consistent with 2015 performance, while the Lost Time rate represents a new Company record, down 0.07 from 2015.
Total stockholder return
8%
The Company's share price at the close of 2016 was $38.06 compared to $32.93 at the close of 2015. Our total return for the year was 17%, which placed us 14th in our 14-company peer group. We were 7th out of 14 companies on the two year return and 7th out of 14 companies on the five year return.
Weighted average program rate of return
6%
Actual 2016 weighted average program rate of return was approximately 19% better than our target.
Additions to proved oil and natural gas reserves
6%
Reserve additions (excluding acquisition, divestiture and price revisions but including performance revisions) totaled 296 MMBoe versus a target of >80 MMBoe. No discovered resources as we limited the exploration drilling program to one well in 2016 (Silvergate in GOM) and one appraisal well (Katmai) that did not reach its target.
Final qualitative factor at 40% weighting


0.39

In considering the quantitative and qualitative factors shown above, our Compensation Committee placed a particular positive emphasis on the Company's safety culture and performance and progress against strategic initiatives, offset by our disappointing relative stockholder return, in arriving at a final overall factor of 1.4 (140%) which was applied to our 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 the CEO, the committee considered his performance as measured against operational and financial goals he submitted earlier in the year. In the case of the other executive officers, the committee considered the CEO's assessment of each of their respective performance as measured against goals submitted earlier in the year.

2016 STIP Payout for Named Executive Officers

A cash payout under the plan based on our 2016 performance occurred in February 2017, with the breakdown by Named Executive Officer as follows:
 
Base Salary as of Dec. 31, 2016
($)
Target STIP
(% of Salary)
Target STIP
($)
Actual STIP Paid for 2016 Performance
($)
Percent of Target Opportunity
Mr. Stover
950,000
 
110%
1,045,000
 
1,463,000
 
140.0%
Mr. Fisher
610,000
 
85%
518,500
 
728,642
 
140.5%
Ms. Cunningham
560,000
 
80%
448,000
 
529,034
 
118.1%
Mr. Willingham
500,000
 
80%
400,000
 
613,409
 
153.4%
Mr. Johnson
480,000
 
75%
360,000
 
505,904
 
140.5%

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Compensation Discussion and Analysis



Long-Term Incentive Plan

Under our LTIP, the members of our Compensation Committee who are “outside directors” within the meaning of Section 162(m) of the Code and “non-employee” directors under Rule 16b-3 promulgated under the Exchange Act may grant stock options, restricted stock, phantom units and performance awards. These grants are made under our 1992 Plan.

Approval of Awards

Awards approved for the CEO and other executive officers are discussed with our Board, outside the presence of the CEO and other executive officers. Generally, annual stock options, restricted stock, phantom units and performance awards are approved at a January meeting and in advance of the announcement of earnings. Our Compensation
 
Committee may be aware of approximate earnings results at the time award decisions are made, but it does not adjust the size or timing of awards to reflect possible market reaction. Awards 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 awards to executive officers and other employees at the same time.

Off-cycle equity awards may be approved at other regular or special meetings of the committee 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 off-cycle awards were made to executive officers in 2016.

We communicate awards to executive officers and other employees shortly after the date of approval, in accordance with our customary practices.

2016 Awards for Named Executive Officers

Our Compensation Committee considered scope of responsibilities, internal equity between Named Executive Officers and market comparisons in determining award values. The following table shows the intended equity award values for each Named Executive Officer:
 
Target Value of
Stock Options
($)
 
Target Value of Restricted Stock
 
Target Total Value
($)(1)
 
(Time-based)
($)
(Performance-based)
($)
David L. Stover
2,295,834
 
2,295,833
 
2,295,833
 
6,887,500
 
Kenneth M. Fisher
760,000
 
760,000
 
760,000
 
2,280,000
 
Susan M. Cunningham
633,334
 
633,333
 
633,333
 
1,900,000
 
Gary W. Willingham
696,666
 
696,667
 
696,667
 
2,090,000
 
Arnold J. Johnson
506,666
 
506,667
 
506,667
 
1,520,000
 
(1) Equity values reflect the intended target LTIP opportunity, not the expense valuations shown in the Summary Compensation and Grants of Plan Based Awards tables.

Terms of 2016 Awards

Stock options represent the right to purchase shares of our common stock over a period of up to 10 years at the grant date fair market value, as defined in the 1992 Plan. They vest ratably over a three-year period.

Time-based restricted stock will vest 40% on the first anniversary and 60% on the second anniversary for our CEO. Non-CEO executives received time-based restricted stock that will vest 80% on the first anniversary and 20% on the second anniversary. In
 
addition, non-CEO executives received phantom unit cash awards, with the economic equivalent of one share of Company stock, to be settled in cash and vest 100% on the second anniversary. Performance-based restricted stock and related phantom units will vest on the third anniversary of the award date, with the number of shares vesting adjusted for our 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. Awards made on February 1, 2014 vested on February 1, 2017 with the Compensation

47

 
Compensation Discussion and Analysis


Committee approving a payout factor of .77 based on the Company's total stockholder return at the 38th percentile of the compensation peer group relevant to the award.

The performance-based restricted shares and related phantom units awarded in 2016 vest as shown in the chart below, based on our relative total stockholder ranking (versus compensation peer group) during the three-year performance period.
Company Percentile Rank
Payout %
Relative to Target
90 th  percentile or higher
200%
75 th  percentile or higher
150%
50 th  percentile or higher
100%
25 th  percentile or higher
50%
Below 25 th  percentile
0%

If the percentile level of our 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. If the Company's total stockholder return over the three-year performance period is negative, the maximum payout percentage is 100%. Our CEO was awarded performance-based restricted shares, where all levels of payout upon vesting will be paid in Company common stock. Our non-CEO executives were awarded performance-based restricted shares and related phantom units with the economic equivalent of one share of Company common stock, where payout earned up to 100% would be payable in Company common stock and payout earned over 100% would be payable in cash. Dividends (to the extent declared) paid on restricted stock will be equal to the amount paid to our other stockholders but will be retained by us and will only vest and be paid if and when the restricted stock vests.

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 these guidelines reinforce the alignment of the long-term interests of our executive officers, non-employee directors and stockholders and 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
Chief Financial Officer
3.0X base salary
Executive Vice President
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 time frame 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 5, 2016 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 time frame to come into compliance with the guidelines).

Policy on Stock Hedging and Pledging

Our Board has 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 (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. Our policy will be revised, if appropriate, to conform to any final rules that may be adopted by the SEC under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Post-Employment Compensation

Our post-employment compensation is provided under qualified and non-qualified savings and retirement plans, a severance plan, and either individual change of control agreements or, alternatively, a change of control plan.

48

 
Compensation Discussion and Analysis


Qualified Defined Benefit Plan

We terminated our qualified defined benefit plan (the “Retirement Plan”) at the end of calendar year 2013. For additional information about the benefits available to participating Named Executive Officers under our Retirement Plan, please see “Pension Benefits” in the Summary Compensation Table section of this Proxy Statement.

Non-qualified Defined Benefit Plan

Our non-qualified defined benefit plan (“Restoration Plan”) is an unfunded plan that provided benefits under the terminated Retirement Plan’s benefit formula that could not be provided by the Retirement Plan because of the annual compensation and benefit limitations applicable to the Retirement Plan under the Code. Employees originally hired before May 1, 2006, which includes 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. Payments under the Restoration Plan will continue to be made in ordinary course without acceleration of payment. Certain participants in the Restoration Plan elected to have the lump sum present value of their Restoration Plan benefits converted into an account balance under our non-qualified deferred compensation plan. For additional information about the benefits available to participating Named Executive Officers under our Restoration Plan, please see “Pension Benefits” in the Compensation Table section of this Proxy Statement.

Qualified Defined Contribution Plan

Our qualified defined contribution plan (“401(k) Plan”) is a tax-qualified retirement savings plan generally available to our employees, including our Named Executive Officers. It allows participants to contribute the lesser of up to 50% of their basic compensation, or the limit prescribed by the Code. We match such contributions dollar-for-dollar up to 100% of the first six percent of a participant’s eligible compensation. Participants are 100% vested in the Company’s matching contributions after three years of service, vesting 34%, 67% and 100% following years one, two and three.

 
In addition, we make the following age-weighted contribution to the 401(k) Plan for each participant:
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%

Participants are 100% vested in these contributions after three years of service, cliff vesting 100% following year three. 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.

An additional transition contribution equal to 6% of a participant’s basic compensation is 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. Participants are always 100% vested in these contributions.

Non-qualified Deferred Compensation Plan

Our non-qualified deferred compensation plan (“Deferred Compensation Plan”) allows executive officers, and certain other employees, to save for retirement in a tax-effective way. Under the Deferred Compensation Plan, participants are allowed to defer portions of their salary and bonus and to receive certain matching, age-weighted and transition contributions that would have been made to our 401(k) Plan if the 401(k) Plan had not been subject to Code compensation and contribution limitations. The plan also provides account balances for those participants who elected to have the lump sum present value of their Restoration Plan benefits converted into an account balance under the Plan.
Under this unfunded program, a participant may elect to have his or her accounts 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 or to have their accounts adjusted to reflect the results of an array of notional investment options.


49

 
Compensation Discussion and Analysis


Change of Control Arrangements

We have adopted change of control arrangements for our executive officers and certain other employees. A change of control could result in a material change in the leadership and direction of our 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. 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.

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. Under these arrangements, if a Named Executive Officer is terminated, including a constructive termination, 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;
reimbursement for reasonable fees up to $15,000 for out-placement employment services; and
 
in some cases continued vesting and exercise of stock options.
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. The plan covers our executive officers, provided that they are not already party to pre-existing change of control agreements with us. Ms. Cunningham and Mr. Johnson are parties to pre-existing change of control agreements and therefore may not participate in the plan at this time. Messrs. Stover, Fisher and Willingham currently participate in our executive change of control plan.

In addition, stock options and restricted stock granted pursuant to our 1992 Plan prior to 2016 generally provide for accelerated vesting of all or a portion of the award upon a change of control of the Company. Stock options, restricted stock and cash awards granted under the 1992 Plan after 2015 generally provide for accelerated vesting of all or a portion of the award if the participant is terminated for reasons other than cause or resigns for good reason within two years following a change of control.

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
12 weeks of coverage under our employee assistance plan.



50

 
Compensation Discussion and Analysis


Perquisites

We do not consider perquisites to be a material component of our executive compensation. In 2016, certain of our executive officers received modest personal benefits that have a sound value to our 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- and short-term disability insurance, life and accidental death and dismemberment insurance, health and dependent care flexible spending accounts, relocation/expatriate programs and services, educational assistance, employee assistance and certain other benefits.

In late 2014 we discontinued retiree healthcare benefits and implemented a buyout of eligible pre-age 65 active employees. Employees who retired prior to that time and were participating in retiree medical benefits were transitioned to a defined contribution model effective as of January 1, 2016.

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, in 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 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 (other than our CFO), unless that compensation is “performance - based compensation” within the meaning of Section 162(m) and the regulations promulgated thereunder. To satisfy certain requirements under 162(m), only members of our Compensation Committee who are “outside directors” under Section 162(m) and “non-employee” directors under Rule 16b-3 may approve awards under our 1992 Plan. We believe that all of the stock options and performance-based restricted shares and related cash awards 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 Named Executive Officers, the time-vested restricted stock awards and time-vested cash 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 Code.

Rules under GAAP 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 2016 Annual Report on Form 10-K.

51



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, 2016 for filing with the SEC.

February 28, 2017

Compensation, Benefits and
Stock Option Committee

Kirby L. Hedrick, Chair
Jeffrey L. Berenson
Edward F. Cox
James E. Craddock
Thomas J. Edelman
Molly K. Williamson



52

 
Compensation Tables

Compensation Tables

Summary Compensation Table

The following table sets forth summary information concerning the compensation earned by our Named Executive Officers during 2014, 2015 and 2016.
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
($)(6)
Total
($)
David L. Stover
Chairman, President and Chief Executive Officer (Elected CEO October 2014)
2016
950,000


5,104,499

2,295,831

1,463,000

53,634

270,718

10,137,682

2015
950,000


2,411,406

2,250,000

1,306,300

39,270

296,178

7,253,154

2014
763,943


1,986,720

1,661,868

488,500

186,049

223,031

5,310,111

Kenneth M. Fisher
Executive Vice President and Chief Financial Officer
2016
610,000


1,689,725

759,995

728,642

4,899

124,997

3,918,258

2015
610,000


864,075

806,248

656,500

4,066

163,973

3,104,862

2014
590,096


1,041,745

871,475

306,200

2,743

132,285

2,944,544

Susan M. Cunningham
Executive Vice President, EHSR & New Frontiers
2016
560,000


1,408,103

633,331

529,034

49,238

120,900

3,300,606

2015
560,000


683,257

637,504

517,300

17,087

152,225

2,567,373

2014
538,366


775,238

648,539

240,000

123,900

131,324

2,457,367

Gary W. Willingham*
Executive Vice President, Operations (Elected October 2014)
2016
500,000


1,548,883

696,658

613,409

111

122,450

3,481,511

2015
500,000


683,257

637,504

517,600

92

145,832

2,484,285

Arnold J. Johnson Senior Vice President, General Counsel and Secretary
2016
480,000


1,126,484

506,667

505,904

56,996

118,175

2,794,226

2015
480,000


502,338

468,745

445,800

47,375

144,346

2,088,604

2014
449,712


605,741

506,665

187,900

141,330

114,153

2,005,501

*Mr. Willingham was not a Named Executive Officer prior to 2015.
(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
($)
David L. Stover
2016
5%
47,500

2015
5%
47,500

2014
5%
38,197

Kenneth M. Fisher
2016
6%
36,600

2015
5%
30,500

2014
4%
23,604

Gary W. Willingham
2016
5%
25,000

2015
5%
25,000

Arnold J. Johnson
2016
3%
14,400

2015
3%
14,400

2014
3%
13,491



53

 
Compensation Tables

(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. Restricted Shares awarded will vest according to the following schedule: 40% after year one and 60% after year two for Mr. Stover and 80% after year one and 20% after year two for Mr. Fisher, Ms. Cunningham, Mr. Willingham and Mr. Johnson for 2016 grants. Phantom unit cash awards granted to non-CEO officers in 2016 will vest 100% after year two. Performance restricted stock and related phantom units awarded will vest three years after the date of grant upon, and subject to a formula related to, our achievement of certain levels of total stockholder return relative to a pre-determined compensation peer group. See the Grants of Plan-Based Awards table for information on restricted stock awarded in 2016 .
(3)
Reflects the aggregate grant date fair value of non-qualified 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) 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 2016 .
(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.

(5) Reflects during year indicated: (a) the aggregate increase in actual present value of the Named Executive Officer's benefits under our Retirement 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)
David L. Stover
2016

53,634

2015

39,270

2014
159,516

26,533

Kenneth M. Fisher
2016

4,899

2015

4,066

2014

2,743

Susan M. Cunningham
2016

49,238

2015

17,087

2014
123,900