DEF 14A 1 crc-def14a_20170510.htm DEF 14A crc-def14a_20170510.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.         )

 

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Filed by a Party other than the Registrant

 

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Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12

 

CALIFORNIA RESOURCES CORPORATION

 

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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California Resources Corporation
9200 Oakdale Avenue, Suite 900

Los Angeles, CA 91311

 

 

 

Letter to Shareholders from the Chairman of the Board

 

 

 

Dear Shareholders,

 

At its 2014 spinoff, California Resources was structured to create an industry-leading E&P company focused exclusively on California. Conditions at launch were less than ideal with steeply declining commodity prices and a leveraged capital structure that CRC inherited from Occidental. While the substantial debt on our balance sheet from the spinoff along with the severe decline in commodity prices had a significant negative impact on CRC’s stock price, the management team concentrated on the items that were within its control. Entering into 2016, as the cyclical downturn continued and crude oil prices plummeted to the mid-$20 per barrel level, management preemptively focused on managing the business within cash flow, cutting investments by 80% (again), and continuing to strengthen the balance sheet through its liability management program.

 

Management focused on the items within its control by protecting base production, focusing on cost reduction and operating margins, and building an inventory for investment when cash flows increase as prices begin to normalize. These actions prevented the destruction of capital and helped preserve shareholder value through our long-life low-decline assets. Importantly, despite significant reductions in investment capital and expenses, we stayed true to our safety and environmental principles, registering one of our best environmental, health, and safety years ever.

 

Management also reduced outstanding debt by nearly $900 million in 2016.  They have now achieved nearly $1.5 billion in debt reduction from the post-spin peak of almost $6.8 billion, at a small comparative cost of $31 million of additional interest expense. Our team accomplished this significant reduction in outstanding debt with minimal dilution, and without monetizing significant infrastructure or other assets at the bottom of the commodity price cycle.

 

Our management team made many difficult decisions throughout 2016, and I salute their efforts to preserve shareholder value through the depths of the price trough, and to avoid sacrificing the long-term value of the company. The Board and I recognize the near term challenges we face, but also the opportunity set associated with CRC. We continue to believe we have a world-class underexploited resource base in California, and have the management team and strategy to grow shareholder value over the long term.  

 

In addition to our capital structure, our former parent also constructed our initial executive compensation program. As outlined in detail in this proxy statement, the Board and Compensation Committee have taken numerous significant actions since the spinoff to transition to an improved compensation program that better aligns our executive pay practices with shareholders’ interests. The Compensation Committee has actively worked to ensure that management is rewarded for taking prudent steps to create long-term value for shareholders in a very challenging environment. Finally, we have taken into account the laudatory actions of the management team since the spinoff to manage through the downturn, and drive long-term value and returns for the shareholder.

 

 


 

CRC has an active board that is committed to increasing shareholder value. Each of our directors is fully engaged and brings something unique to furthering our objective of increasing shareholder value.

 

I am confident that CRC’s strategy is sound, that Todd and his management team are executing this strategy effectively, and that we are focused on adding long-term value for our shareholders. Furthermore, we are firmly committed to strong corporate governance.

 

CRC has accomplished much in a very challenging year, such as expanding an impressive inventory of resources, implementing process improvements and ingraining a value-based culture. The Board and I believe that CRC’s world-class assets, operational and financial flexibility, and experienced management team provide a powerful combination for shareholders.  

 

Regards,

William “Bill” Albrecht, Chairman

 

 

 

 

 

 


 

IMPORTANT VOTING INFORMATION

If you owned shares of our common stock at the close of business on March 13, 2017, you are entitled to one vote per share upon each matter presented at our 2017 annual meeting of stockholders to be held on May 10, 2017. Stockholders whose shares are held in an account at a brokerage firm, bank or other nominee (i.e., in “street name”) will need to obtain a proxy from the broker, bank or other nominee that holds their shares authorizing them to vote at the annual meeting.

Your broker is not permitted to vote on your behalf on the election of directors and other matters to be considered at the annual meeting, except on ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2017, unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to vote your shares via telephone or the Internet. For your vote to be counted, you will need to communicate your voting decisions to your broker, bank or other nominee before the date of the annual meeting.

YOUR VOTE IS IMPORTANT

 

Your vote is important. Our Board of Directors strongly encourages you to exercise your right to vote. Voting early helps ensure that we receive a quorum of shares necessary to hold the annual meeting.

QUESTIONS

 

If you have any questions about the proxy voting process, please contact the broker, bank or other nominee where you hold your shares. The Securities and Exchange Commission also has a website (www.sec.gov/spotlight/proxymatters.shtml) with more information about your rights as a stockholder. You also may contact our Investor Relations Department by phone at 818-661-6010 or by e-mail at IR@crc.com.

ATTENDING THE ANNUAL MEETING IN PERSON

 

Only stockholders of record or their legal proxy holders as of March 13, 2017 or our invited guests may attend the annual meeting in person. If you plan to attend the annual meeting in person, you must present a valid form of government-issued photo identification, such as a driver’s license or passport. In addition to such personal identification, you will need an admission ticket or proof of ownership of CRC stock to enter the annual meeting. If your shares are registered in your name, you will find an admission ticket attached to the notice regarding the internet availability of proxy materials or the proxy card sent to you. If your shares are held in street name with a broker, bank or other nominee, you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date for the meeting.

 

IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF

PROXY MATERIALS FOR THE STOCKHOLDER MEETING

TO BE HELD ON MAY 10, 2017

The Notice of the 2017 Annual Meeting of Stockholders, the Proxy Statement for the 2017 Annual Meeting of Stockholders and the 2016 Annual Report to Stockholders (which includes the Annual Report on Form 10-K for the fiscal year ended December 31, 2016) of California Resources Corporation are available at http://www.astproxyportal.com/ast/20758/.

 

 

 

 


 

Table of Contents

 

Proxy Statement Summary

1

Notice of the 2017 Annual Meeting of Stockholders

6

2017 Proxy Statement

7

Purposes of the Annual Meeting; Board Recommendations

7

Notice of Internet Availability of Proxy Materials

7

Voting Procedures

7

Record Date

7

Appointment of Proxy Holders

7

Quorum and Discretionary Authority

7

How to Vote Shares Registered in Your Name

8

How to Vote Shares Held in “Street Name”

8

Revoking or Changing a Proxy

9

Required Vote and Method of Counting

9

Majority Voting for Directors

10

Method and Cost of Soliciting and Tabulating Votes

10

Attending the Annual Meeting in Person

10

Spin-off from Occidental

11

Corporate Governance

11

General Overview

11

Our Board of Directors

11

Board Leadership Structure

17

Board Meetings and Attendance

18

Executive Sessions of the Board

18

Committees of the Board

18

Director Independence Determinations

20

Director Overboarding Policy

21

Compensation Committee Interlocks and Insider Participation

21

Communications with Directors

21

The Board’s Role in Risk Oversight

22

Consideration of Director Nominees

22

Certain Relationships and Related Transactions

23

Policies and Procedures

23

Arrangements between CRC and Occidental

24

Other Related Party Transactions

27

Audit Committee Report

27

Compensation Discussion and Analysis

29

Stockholder Approval of Executive Compensation

29

Historical Perspective and 2016 Business Highlights

29

Compensation Philosophy

31

Evolution of Our Compensation Program

32

2014 Compensation Program

32

2015 Compensation Program

34

2016 Compensation Program

37

Linkage Between Pay and Performance

44

2016 Pay Mix is Performance Based

44

Realizable Pay Analysis

44

Target Compensation for Our NEOs

46

Our Executive Compensation Process

48

Role of Compensation Committee

48

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Role of Management

48

Role of Independent Compensation Consultants

48

Use of Compensation Data

48

Compensation Program Best Practices

48

Other Compensation and Benefits

49

Conversion of Occidental Long-Term Incentive Awards in Connection with Spin-off in 2014

51

Key Compensation Policies and Practices

51

Stock Ownership Guidelines

51

Clawback Policy

51

Anti-Hedging and Anti-Pledging Policy

51

Compensation Risk Management

52

Tax Considerations

52

Compensation Committee Report

52

Executive Compensation Tables

53

Summary Compensation Table

53

Grants of Plan-Based Awards

54

Outstanding Equity Awards at December 31, 2016

55

Option Exercises and Stock Vested in 2016

56

2016 Nonqualified Deferred Compensation Table

56

Potential Payments upon Termination or Change in Control

57

Director Compensation

59

Program Objectives

59

Program Elements

59

2016 Compensation of Directors

59

Stock Ownership Information

60

Security Ownership of Directors, Management and Certain Beneficial Holders

60

Section 16(a) Beneficial Ownership Reporting Compliance

61

Proposals Requiring Your Vote

61

Proposal 1:

Election of Directors

61

Proposal 2:

Ratification of the Appointment of the Independent Registered Public Accounting Firm

62

Proposal 3:

Advisory Vote to Approve Named Executive Officer Compensation

62

Stockholder Proposals and Other Company Information

63

Stockholder Proposals and Director Nominations

63

Householding of Proxy Materials

63

2016 Annual Report

64

Annex A–Reconciliation of Non-GAAP Measures and Other Information

A-1

 

 

 

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Proxy Statement Summary

This summary highlights information contained in the proxy statement. This summary does not contain all of the information you should consider, and you should read the entire proxy statement carefully before voting.

2017 Annual Meeting of Stockholders

Date:

May 10, 2017

Time:

11:00 a.m., local time

Place:

Bakersfield Marriott at the Convention Center

 

801 Truxtun Avenue, Bakersfield, California 93301

Record Date:

March 13, 2017

Agenda and the Board’s Recommendation on Voting Matters

The following table summarizes the items that will be brought for a vote of our stockholders at the annual meeting, along with the recommendation of our Board of Directors as to how stockholders should vote on each item.

 

 

 

 

 

 

 

 

Agenda
Item

    

 

 

Description

    

Board’s
Recommendation

 

 

 

 

 

 

1.

 

Proposal 1

 

Election of Messrs. Albrecht, Moncrief and Stevens, each to serve a one-year term and until his successor has been elected and qualified

 

FOR

2.

 

Proposal 2

 

Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2017

 

FOR

3.

 

Proposal 3

 

Advisory vote to approve named executive officer compensation

 

FOR

4.

 

 

 

Transaction of any other business that may properly come before the annual meeting or any adjournment or postponement thereof

 

 

Voting:

 

Stockholders as of the record date are entitled to vote. Each share of common stock entitles its holder to one vote for each director nominee and one vote for each of the proposals to be voted on.

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Directors

The Board of Directors is comprised of eight independent directors, our Chairman, and our President and CEO. The following table provides summary information about each director, including the director nominees and whether the Board of Directors considers each director to be independent under the New York Stock Exchange’s independence standards. We have adopted a majority voting policy with respect to the election of directors to the Board of Directors. See “Required Vote and Method of Counting–Majority Voting for Directors” below.

 

 

 

 

 

 

 

 

 

 

 

Committees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health,

 

 

 

 

 

 

 

 

 

 

Next

 

 

 

 

 

Safety &

 

Nominating &

Director

 

Positions

 

Age

 

Independent

 

Reelection

 

Audit

 

Compensation

 

Environmental

 

Governance

William E. Albrecht

 

Chairman

 

65

 

No

 

2017

 

 

 

 

 

 

 

 

Justin A. Gannon

 

 

 

67

 

Yes

 

2018

 

 

 

 

 

 

Ronald L. Havner, Jr.

 

 

 

59

 

Yes

 

2018

 

 

 

 

 

 

Catherine A. Kehr

 

 

 

54

 

Yes

 

*

 

 

 

 

 

 

Harold M. Korell

 

Lead Independent Director

 

72

 

Yes

 

2018

 

 

 

 

 

 

Harry T. McMahon

 

 

 

63

 

Yes

 

2018

 

 

 

 

 

 

Richard W. Moncrief

 

 

 

74

 

Yes

 

2017

 

 

 

 

 

 

Avedick B. Poladian

 

 

 

65

 

Yes

 

2018

 

 

 

 

 

 

Robert V. Sinnott

 

 

 

67

 

Yes

 

2018

 

 

 

 

 

 

 

Todd A. Stevens

 

President & CEO

 

50

 

No

 

2017

 

 

 

 

 

 

 

 

 

* Ms. Kehr is not standing for reelection, and her term will expire at the 2017 Annual Meeting.

 

At the time of the spinoff, our Board of Directors was temporarily divided into three classes. One of the three classes has been elected each year on a rotating basis to succeed the directors of the subject class whose terms are expiring. The directors originally designated as Class I and II were last elected in 2015 and 2016, respectively. The term of the directors in the class originally designated as Class III expire in 2017. After this year’s election of directors, the terms of each of the directors will all expire in 2018. Commencing with the election of the directors at the 2018 annual meeting, the Board of Directors will cease to be classified, and the directors elected at the 2018 annual meeting (and each annual meeting thereafter) will be elected for a one year term.

 

 

 

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Corporate Governance Highlights

 

Recently Enhanced: Overboarding Policy. The Board amended its existing policy to provide a more restrictive standard for directors who are currently sitting CEOs of public companies, subject to a related company analysis, as applicable.  

 

Majority vote standard. Each director must be elected by a majority of votes cast, not a plurality, in uncontested elections.

 

Clawback Policy. The Board adopted a comprehensive, standalone policy that covers cash, equity, equity-based and other awards under our incentive compensation programs.

 

Anti-Hedging and Anti-Pledging Policy. The Board expanded our Insider Trading Policy to specifically address the hedging or pledging of our securities.

 

Separate Chairman of the Board and CEO.

 

8 out of 10 Board members are independent. The Board has determined 8 out of 10 Board members are independent within the meaning of NYSE listing standards.

 

Independent lead director.

 

Independent Board committees. Each committee is made up of independent directors. Each committee operates under a written charter that has been approved by the Board and is available to stockholders.

 

Each committee has the authority to retain independent advisors.

 

Frequent executive sessions of independent directors. In 2016, the Board held executive sessions on the day of four of the five regularly scheduled Board meetings.

 

No stockholder rights plan (“poison pill”) in effect.

 

Annual election of all directors beginning in 2018.

 

Director evaluation process. Each year, each of the Board committees and the full Board of Directors undertakes a self-assessment of its performance.

 

CEO and management evaluation process. The Board of Directors conducts an annual performance review of management, including the CEO, and periodically reviews succession planning for the CEO.

Business Performance Highlights

In 2016, our management team delivered significant accomplishments against our strategic priorities.

 

2016 Strategic Priorities

Performance on Strategic Priorities

Reduce overall leverage while minimizing dilution to shareholders

  Reduced outstanding debt nearly $1.5 billion, or over 20%, from 2015 peak at an incremental interest cost of $31 million per year. Chose options to maximize deleveraging, minimize recurring cost to the income statement and minimize equity dilution.

Focus on cash margins and controllable items such as efficiency, operating cost and overhead

  Reduced production costs $2.62/Boe or 14% since the Spin-off.

  Reduced capital cost of wells – 2016 program has 23% lower well costs compared to prior similar wells.

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2016 Strategic Priorities

Performance on Strategic Priorities

Maintain base production focusing on higher margin, higher return, low decline crude oil projects

  2016 production declined only 12.5% with only $31 million of Drilling & Completions and Workover Capital Investment.

Fund capital needs within cash flow

  Generated $49 million of free cash flow after capital expenditures for 2016.

Maintain exceptional health, safety and environmental practices

  CRC’s exemplary health, safety and environmental performance in 2016 was recognized by the National Safety Council and the Wildlife Habitat Council.

Compensation Program Highlights

The cyclical downturn in crude oil prices that began in the second half of 2014 continued into 2016, disproportionately affecting CRC’s stock price performance compared to our peers due to the highly leveraged balance sheet our management team inherited from Occidental at our spin-off on       November 30, 2014 and our higher relative cost structure. Our poor stock performance, driven in large part by factors beyond our management’s control, have led to retention challenges due to the significant reduction in realizable compensation for our previously granted long-term incentive awards, which were entirely stock-based.  

2016 Compensation Actions

In 2016, the Compensation Committee continued to refine CRC’s compensation program and made adjustments with a continued focus on paying for performance in the context of a depressed commodity price environment and the significant debt burden the management team inherited at the Spin-off.  Specifically, the Compensation Committee took the following actions in 2016:

 

Reduced base salaries for senior management by 10% and cash retainers for outside directors by 25% during the severest part of the downturn in oil prices during 2016 to conserve cash.

 

Added liquidity performance measures, including debt reduction and other leverage related metrics, to the annual incentive awards to address CRC’s liquidity challenges, further aligning pay with our strategic areas of focus for the current year.

 

Redesigned the long-term incentives, granting a mix of time-vested restricted stock units and cash-based performance incentive awards to promote retention by reducing the stock price risk profile and volatility of our long-term incentives during this period of severely depressed commodity prices, while still paying for performance that will enhance long-term shareholder value.

 

Reduced the grant date target values of long-term incentives for the CEO by 30% and for the other named executive officers by 20% - 30%, due to industry conditions during 2016 and anticipated changes in competitive compensation levels among CRC’s peers.

Compensation Program Practices

Our executive compensation program is designed to motivate our executives to take actions that are aligned with our short- and long-term strategic objectives, appropriately balancing risk versus potential reward. It is well designed, incorporating best practices, and is governed by an engaged Compensation Committee. Our short-term and long-term incentive plans are performance-based and are intended to align with the long-term best interests of shareholders.

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The Compensation Committee has engaged in best practices to align executive pay with Company performance and to ensure good governance in the following ways:

 

We pay for performance. A significant portion of the compensation of our named executive officers is directly linked to the Company’s performance, by way of a compensation structure that includes performance-based annual and long-term incentive awards.

 

We are stockholder-aligned. Annual and long-term incentive awards are based on performance measures that are aligned with the creation of value for our stockholders. A majority of the outstanding long-term incentive awards for our named executive officers are stock-based.

 

We have “double trigger” change in control provisions. Our change in control arrangements for named executive officers require both the occurrence of a change in control event and termination of employment before applicable vesting of awards occurs.

 

We provide market-competitive compensation. Our compensation program is competitive within our industry and recognizes evolving governance practices, which allows us to attract and retain key talent.

 

We have stock ownership requirements. We maintain stock ownership guidelines which require our named executive officers and directors to have meaningful stock ownership in the Company.

 

We have a clawback policy. Our Compensation Recoupment and Clawback Policy allows the Company to require reimbursement of incentive compensation in certain circumstances.

 

We seek independent advice. The Compensation Committee retains an independent advisor to review executive compensation and provide advice to the Compensation Committee.

 

We do not have individual employment agreements. We do not have employment agreements with any of our named executive officers.

 

We do not allow hedging or pledging. Our Insider Trading Policy prohibits certain transactions involving our stock, including hedging and pledging.

 

We do not allow the repricing of stock options. Our equity incentive plan prohibits the repricing or backdating of stock options.

 

We do not offer enhanced retirement benefits. Our nonqualified defined compensation plan provides restorative, but not enhanced, retirement benefits for executives.

 

We do not encourage excessive risk or inappropriate risk taking through our incentive programs. Our plans do not motivate executives to engage in activities that create excessive or inappropriate risk for the Company.  

 

 

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California Resources Corporation
9200 Oakdale Avenue, Suite 900

Los Angeles, CA 91311

 

Notice of the 2017 Annual Meeting of Stockholders

 

 

Meeting Date:

May 10, 2017

Meeting Time:

11:00 a.m., local time

Location:

Bakersfield Marriott at the Convention Center, 801 Truxtun Avenue,

Bakersfield, California 93301

Record Date:

March 13, 2017

Purposes of the 2017 annual meeting of stockholders:

 

(1)

To elect Messrs. Albrecht, Moncrief and Stevens, each to serve a one-year term and until his successor has been elected and qualified;

 

(2)

To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017;

 

(3)

To hold an advisory vote to approve named executive officer compensation; and

 

(4)

To transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof.

Information relevant to these matters is set forth in the accompanying proxy statement.

The close of business on March 13, 2017 was fixed as the record date for the determination of stockholders entitled to receive notice of and to vote at the annual meeting or any adjournment or postponement thereof. Only our stockholders or their legal proxy holders as of the record date or our invited guests may attend the annual meeting in person.

Beginning on or about March 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials to our stockholders containing instructions on how to access the proxy statement and vote online and made our proxy materials available to our stockholders over the Internet.

By Order of the Board of Directors,

Michael L. Preston

Executive Vice President, General Counsel and Corporate Secretary

 

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2017 PROXY STATEMENT

This proxy statement is furnished to you in connection with the solicitation of proxies by and on behalf of the Board of Directors of California Resources Corporation (together with its subsidiaries, referred to herein as “we,” “our,” “us,” the “Company” or “CRC”) for use at the 2017 annual meeting of stockholders to be held on May 10, 2017 at 11:00 a.m., local time, at the Bakersfield Marriott at the Convention Center, 801 Truxtun Avenue, Bakersfield, California 93301, or at any adjournment or postponement thereof (the “Annual Meeting”).

Purposes of the Annual Meeting; Board Recommendations

The agenda for the Annual Meeting includes the following items:

 

Agenda Item

    

Description

    

Board

Recommends
Vote

 

 

 

 

 

Proposal

1

 

Election of Messrs. Albrecht, Moncrief and Stevens, each to serve a one-year term and until his successor has been elected and qualified

 

FOR

 

 

 

 

 

Proposal

2

 

Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2017

 

FOR

 

 

 

 

 

Proposal

3

 

Advisory vote to approve named executive officer compensation

 

FOR

 

 

 

 

 

 

Notice of Internet Availability of Proxy Materials

On or about March 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials to our stockholders of record and beneficial owners who owned shares of our common stock at the close of business on March 13, 2017. The Notice of Internet Availability of Proxy Materials contained instructions on how to access the proxy materials and vote online. We have made these proxy materials available to you over the Internet or, upon your request, have delivered paper versions of these materials to you by mail, in connection with the solicitation of proxies by our Board of Directors for the Annual Meeting.

Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.

Voting Procedures

Record Date

At the close of business on March 13, 2017, the “Record Date” for the determination of stockholders entitled to receive notice of and to vote at the Annual Meeting, there were 42,551,169 shares of common stock outstanding, each share of which is entitled to one vote. Common stock is the only class of our outstanding securities entitled to receive notice of and to vote at the Annual Meeting.

Appointment of Proxy Holders

Our Board of Directors asks you to appoint Todd A. Stevens and William E. Albrecht as your proxy holders (“Proxy Holders”) to vote your shares at the Annual Meeting. You make this appointment by using one of the voting methods described below.

Quorum and Discretionary Authority

The presence at the Annual Meeting of a majority of shares of our common stock issued and outstanding and entitled to vote, present in person or by proxy, is necessary to constitute a quorum in

7


 

order to transact business at the Annual Meeting. Your shares are counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. Abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum is present at the Annual Meeting.

The Chairman of the Annual Meeting or, if directed by the chairperson of the Annual Meeting, a majority of the shares so represented, may adjourn the Annual Meeting from time to time, whether or not there is a quorum represented, and the Proxy Holders will vote the proxies they have been authorized to vote at the Annual Meeting in favor of such an adjournment. In the event a quorum is present at the Annual Meeting but sufficient votes to approve any of the items proposed by our Board of Directors have not been received, the Chairman of the meeting or the Proxy Holders may propose one or more adjournments of the Annual Meeting to permit further solicitation of proxies. A stockholder vote may be taken on one or more of the proposals in this proxy statement prior to such adjournment if sufficient proxies have been received and it is otherwise appropriate.

Our Board of Directors does not know of any other matters that are to be presented for action at the Annual Meeting. However, if other matters properly come before the Annual Meeting, the proxies solicited by the Board of Directors will provide the Proxy Holders with the authority to vote on those matters and nominees in accordance with such persons’ discretion. Where a stockholder has appropriately specified how a proxy is to be voted, it will be voted by the Proxy Holders in accordance with the specification.

How to Vote Shares Registered in Your Name

If you own shares that are registered in your own name, you are a “registered stockholder” and you may attend the Annual Meeting and vote in person. You also may vote by proxy without attending the Annual Meeting in any of the following ways:

 

By Internet.  You may submit a proxy electronically on the Internet by following the instructions provided in the Notice of Internet Availability of Proxy Materials. Please have the Notice of Internet Availability of Proxy Materials in hand when you log onto the website. Internet voting facilities will be available 24 hours a day, 7 days a week, and will close at 11:59 p.m., Eastern Time, on May 9, 2017.

 

By Telephone.  If you request paper copies of the proxy materials by mail, you may submit a proxy by telephone using the toll-free number listed on the proxy card. Please have your proxy card in hand when you call. Telephone voting facilities will close and no longer be available after 11:59 p.m., Eastern Time, on May 9, 2017.

 

In Person.  You may vote in person at the Annual Meeting by completing a ballot, which will be available at the Annual Meeting. Please note that attending the Annual Meeting without completing a ballot will not count as a vote.

 

By Mail.  If you request paper copies of the proxy materials by mail, you may indicate your vote by completing, signing and dating your proxy card and returning it in the reply envelope provided.

For stockholders who have their shares voted by duly submitting a proxy by Internet, telephone or mail, the Proxy Holders will vote all shares represented by such valid proxies in accordance with the Board of Directors’ recommendations as set forth above, unless a stockholder appropriately specifies otherwise.

If you received more than one Notice of Internet Availability of Proxy Materials, your shares are likely registered in different names or with different addresses or are in more than one account. You must separately vote the shares shown on each Notice of Internet Availability of Proxy Materials that you receive in order for all of your shares to be voted at the Annual Meeting.

How to Vote Shares Held in “Street Name”

If you hold shares through a brokerage firm, trustee, bank, other financial intermediary or nominee (known as shares held in “street name”), you will receive from that broker, trustee, bank, financial intermediary or other nominee (the “intermediary”) a voting instruction form that will explain how to direct the voting of your shares through the intermediary, which may include the ability to provide voting instructions via the Internet or by telephone.

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If your shares are held in street name through a brokerage firm that is a member of the NYSE and you want to vote on any of the proposals to be submitted to a vote at the Annual Meeting (except as to Proposal 2), you MUST indicate how you wish your shares to be voted. The broker will vote shares held by you in street name in accordance with your voting instructions, as indicated on your signed voting instruction form or by the instructions you provide via the Internet or by telephone. Absent such instructions, the proxy submitted by the broker with respect to your shares will indicate that the broker is not able to cast a vote with respect to the matter, which is commonly referred to as a “broker non-vote.” Accordingly, if your shares are held in street name, it is important that you provide voting instructions to the broker or other intermediary so that your vote will be counted. Under NYSE rules, Proposal 2 is considered a “routine matter,” and thus a broker is permitted in its discretion to cast a vote on this proposal as to your shares in the event that you do not provide the broker with voting instructions.

If you hold shares in street name and wish to vote your shares in person at the Annual Meeting, you must first obtain a valid proxy from the intermediary. To attend the Annual Meeting in person (regardless of whether you intend to vote your shares in person at the Annual Meeting), you should follow the instructions under “Attending the Annual Meeting in Person” below.

If you received more than one voting instruction form, your shares are likely registered in different names or with different addresses or are in more than one account. You must separately follow the foregoing voting procedures for each voting instruction form that you receive in order for all of your shares to be voted at the Annual Meeting.

Revoking or Changing a Proxy

If you are a registered stockholder, you may revoke your proxy at any time before your shares are voted at the Annual Meeting by:

 

voting again through the Internet or by telephone prior to 11:59 p.m., Eastern Time on May 9, 2017;

 

requesting, completing and mailing in a new paper proxy card, as outlined in the Notice of Internet Availability of Proxy Materials;

 

voting in person at the Annual Meeting by completing a ballot; however, attending the Annual Meeting without completing a ballot will not revoke any previously submitted proxy; or

 

submitting a written notice of revocation to the Corporate Secretary of California Resources Corporation at 9200 Oakdale Avenue, Suite 900, Los Angeles, California 91311 that is received no later than May 9, 2017.

If you are a street-name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your broker, bank or other nominee in accordance with that entity’s procedures.

Required Vote and Method of Counting

Proposal 1. Election of Directors

We have adopted a majority voting policy with respect to the election of directors to the Board of Directors. See “Majority Voting for Directors” below. The election of directors involves a matter on which a broker (or other nominee) does not have “discretionary” authority to vote. If you do not instruct your broker how to vote with respect to this item, your broker may not vote your shares with respect to this proposal. In such case, a broker non-vote may occur. Abstentions and broker non-votes are not considered votes cast and will have no effect on the outcome of the election of directors.

Proposal 2. Ratification of the Appointment of the Independent Registered Public Accounting Firm

The affirmative vote of a majority of the shares present in person, or represented by proxy at the Annual Meeting, and entitled to vote on the matter at the Annual Meeting, is required to approve Proposal 2. Proposal 2 involves a matter on which a broker (or other nominee) does have “discretionary” authority to vote. Even if you do not instruct your broker how to vote with respect to this item, your broker may vote your shares with respect to this proposal in its discretion. With respect to Proposal 2, a vote of “ABSTAIN” will have the same effect as a vote “AGAINST.”

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Proposal 3. Advisory Vote to Approve Named Executive Officer Compensation

The affirmative vote of a majority of the shares present in person, or represented by proxy at the Annual Meeting, and entitled to vote on the matter at the Annual Meeting, is required to approve the recommendations in Proposal 3. Such proposal involves matters on which a broker (or other nominee) does not have “discretionary” authority to vote. If you do not instruct your broker how to vote with respect to this item, your broker may not vote your shares with respect to this proposal. In such case, a broker non-vote may occur. Broker non-votes are not considered to be entitled to vote and will have no effect on the outcome of Proposal 3. Abstentions are treated as present or represented and voting and will have the same effect as a vote “AGAINST.”

With respect to Proposal 3, while this vote is required by law, it will neither be binding on the Company or the Board of Directors nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duty on, the Company or the Board of Directors. However, the views of our stockholders are important to us, and our Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions. We urge you to read the section entitled “Compensation Discussion and Analysis,” including the compensation tables that follow, which discusses in detail how our executive compensation program implements our compensation philosophy.

Majority Voting for Directors

We have adopted a majority voting policy with respect to the election of directors to the Board of Directors. In accordance with our Bylaws, in order to be elected as a director, a director nominee must receive more votes cast “FOR” than “AGAINST” his or her election. This policy does not apply if the number of nominees for director exceeds the number of directors to be elected on or after the tenth day preceding the date we first mail the Notice of Annual Meeting, in which case directors shall be elected by a plurality of shares present in person, or represented by proxy at the Annual Meeting.

Unless the election is by plurality vote as set forth above, if an incumbent nominee for director receives an equal or greater number of votes cast “AGAINST” than votes cast “FOR” his or her election, the nominee shall promptly tender his or her resignation to the Board of Directors. Such director resignation will become effective upon acceptance by the Board of Directors of such resignation based on any factors deemed relevant by the Board of Directors. The foregoing summary is qualified by the terms of our majority voting policy, which are included in our Bylaws.

Method and Cost of Soliciting and Tabulating Votes

The Board of Directors is providing these proxy materials to you in connection with the solicitation by the Board of Directors of proxies to be voted at the Annual Meeting. In addition to solicitation by mail, our officers, directors and employees may solicit proxies personally or by telephone, facsimile or electronic means. These officers, directors and employees will not receive any extra compensation for these services. In addition, we will make arrangements with brokerage houses, custodians, nominees and other fiduciaries to send proxy materials to the beneficial owners of our stock, and we will reimburse them for postage and clerical expenses. We will bear the costs of the solicitation, including the cost of the preparation, assembly, printing and, where applicable, mailing of the Notice of Internet Availability of Proxy Materials, the Notice of the 2017 Annual Meeting of Stockholders, this proxy statement, the proxy card and any additional information furnished by us to our stockholders. In addition, we have hired D.F. King & Co., Inc. to assist us in soliciting proxies, which it may do by telephone or in person. We will pay D.F. King & Co. a fee of $7,500, plus expenses.

Attending the Annual Meeting in Person

Only stockholders of record or their legal proxy holders as of the Record Date or our invited guests may attend the Annual Meeting in person. If you plan to attend the Annual Meeting in person, you must present a valid form of government-issued photo identification, such as a driver’s license or passport. In addition to such personal identification, you will need an admission ticket or proof of ownership of CRC stock to enter the annual meeting. If your shares are registered in your name, you will find an admission ticket attached to the notice regarding the internet availability of proxy materials or the proxy card sent to you. If your shares are held in street name with a broker, bank or other nominee, you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the Record Date.

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No cameras, telephones, recording equipment, electronic devices, large bags, briefcases or packages will be permitted at the Annual Meeting. No banners, signs, firearms or weapons will be allowed in the meeting room. We reserve the right to inspect all items entering the meeting room.

The Annual Meeting will be held at the Bakersfield Marriott at the Convention Center, located at 801 Truxtun Avenue, Bakersfield, California 93301.

Spin-off from Occidental

On November 30, 2014, Occidental Petroleum Corporation (“Occidental”) completed the spin-off (the “Spin-off”) of its California oil and gas operations and related assets, liabilities and obligations, which we assumed in connection with the Spin-off from Occidental. As a result, we became a separate, publicly-traded company. The Spin-off was effected through a pro rata distribution to Occidental stockholders of our common stock. Occidental retained 18.5% of our common stock, which it distributed to Occidental’s stockholders on March 24, 2016.

Corporate Governance

General Overview

We are committed to good corporate governance. In furtherance thereof, the Board of Directors has adopted governance documents to guide the operation and direction of the Board and its committees, which include Corporate Governance Guidelines, a Business Ethics Policy (which applies to all directors and employees, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer) and charters for the Audit, Compensation, Nominating and Governance and Health, Safety and Environmental Committees. Each of these documents is available on our website (www.crc.com), and stockholders may obtain a printed copy, free of charge, by sending a written request to California Resources Corporation, Attention: Corporate Secretary, 9200 Oakdale Avenue, Suite 900, Los Angeles, California 91311. We will also promptly post on our website any amendments to these documents and any waivers from the Business Ethics Policy for our directors and principal executive, financial and accounting officers.

Our Board of Directors

At the time of the Spin-off, our Board of Directors was temporarily divided into three classes. One of the three classes has been elected each year on a rotating basis to succeed the directors of the subject class whose terms are expiring. The directors originally designated as Classes I and II were last elected in 2015 and 2016, respectively. The term of the directors in the class originally designated as Class III expires in 2017. After this year’s election of directors, the terms of each of the directors will expire in 2018. Commencing with the election of the directors at the 2018 annual meeting, the Board of Directors will cease to be classified, and the directors elected at the 2018 annual meeting (and each annual meeting thereafter) shall be elected for a one year term.

Ms. Kehr, who is one of the directors in the class originally designated as Class III, is not standing for reelection to the Board of Directors due to her increased responsibilities on another board and other time constraints. As a result, Ms. Kehr’s term will expire at the 2017 Annual Meeting, at which time the size of the Board of Directors will be reduced from ten to nine directors. The Board of Directors values diversity in its membership, and is actively pursuing steps to improve diversity after Ms. Kehr leaves the Board.

Mr. Timothy Sloan resigned from the Company’s Board of Directors effective as of February 28, 2017, as a result of his recent appointment as President and CEO and election to the board of Wells Fargo & Company. At the time of his resignation, Mr. Sloan served on the Compensation Committee and Health, Safety and Environmental Committee of the Board. Mr. Sloan’s decision to resign from the Company’s Board was not related to any disagreement with the Company regarding its operations, policies or practices. The Board elected Mr. Harry McMahon to fill the vacancy resulting from the departure of Mr. Sloan, effective as of March 1, 2017. Mr. McMahon will serve the remaining term of Mr. Sloan (expiring in 2018) as an independent director, and will serve on the Audit Committee and the Compensation Committee of the Board.

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Set forth below is biographical information regarding each of our directors as well as the specific experience, qualifications, attributes and skills that led to the conclusion that such individual should serve as director. There are no family relationships between any of our directors and executive officers. In addition, there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any person was selected as a director or an executive officer, respectively.

 

William E. Albrecht
Chairman

 

•   Former VP at Occidental

•   35+ years’ experience in domestic oil and gas

•   Director of Halliburton Co. and Rowan Companies

 

 

 

Director since: 2014

Age: 65

Mr. Albrecht has served on the Board of Directors of CRC since 2014.  He was appointed as Chairman of the Board in 2016. He served as Executive Chairman of the Board of Directors from 2014 to 2016. Mr. Albrecht served as Vice President of Occidental from 2008 to 2014 and as President, Oxy Oil & Gas, Americas from 2012 to 2014. Mr. Albrecht also served as President—Oxy Oil & Gas, USA from 2008 to 2012. During his tenure with Occidental, Mr. Albrecht had managerial oversight over its upstream assets. Mr. Albrecht has more than 35 years of experience in the domestic oil and gas industry, having previously served as an executive officer for domestic energy producer EOG Resources, and as a petroleum engineer for Tenneco Oil Company. Since 2015, Mr. Albrecht has served on the board of directors of the Rowan Companies, plc an international offshore drilling contractor providing jackups and drill ships for the offshore drilling industry. Mr. Albrecht is a member of its Audit Committee and Health, Safety and Environment Committee and was elected as chairman of the board as of the 2017 annual meeting.  Since 2016, Mr. Albrecht has served on the board of directors of Halliburton Co. and is a member of its Compensation Committee and Health, Safety and Environment Committee. Mr. Albrecht holds a Master of Science degree from the University of Southern California and a Bachelor of Science degree from the United States Military Academy. Mr. Albrecht is a National Association of Corporate Directors (“NACD”) Board Leadership Fellow, and has completed NACD’s comprehensive program of study for directors and corporate governance professionals.

Skills and Qualifications

Mr. Albrecht brings extensive managerial and operational experience in the upstream domestic and international energy business to the Board of Directors. He also has a deep knowledge of our assets that gives the Board a valuable perspective on the specific strengths and challenges associated with our operations. Mr. Albrecht brings broad experience in proactively engaging with regulatory agencies, communities, and other stakeholders that makes him a valuable member of our Board of Directors.

 

 

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Justin A. Gannon

 

•   Former executive at Grant Thornton

•   Audit Partner at Arthur Andersen for 21 years

•   Director of CrossAmerica Partners

 

Director since: 2014

Age: 67

•   Chairman of the Audit Committee

•   Member of the Compensation Committee

Mr. Gannon has served on the Board of Directors of CRC since 2014. Since 2013, Mr. Gannon has acted as an independent consultant and private investor. From 2003 to 2013, Mr. Gannon served in various roles at Grant Thornton LLP, an independent audit, tax and advisory firm, including as National Leader of Merger and Acquisition Development from 2011 to 2013, Central Region Managing Partner from 2010 to 2011, Office Managing Partner in Houston, Texas from 2007 to 2011 and Office Managing Partner in Kansas City, Missouri from 2004 to 2007. From 1971 to 2002, Mr. Gannon worked at Arthur Andersen LLP, including as an Audit Partner for 21 years. Mr. Gannon is also a Director, Chairman of the Audit Committee and Member of the Conflicts Committee of the general partner of CrossAmerica Partners LP, a publicly-traded master limited partnership engaged in motor fuels distribution. He is a former chairman of the Board of Directors of American Red Cross charters in the Tulsa, Oklahoma and San Antonio, Texas areas. Mr. Gannon received a Bachelor of Science degree in Accounting from Loyola Marymount University and is a Certified Public Accountant in Texas (active) and California (inactive).

 

Skills and Qualifications

Mr. Gannon’s more than four decades in financial accounting practice and his private investment experience give him deep insight into financial analysis and management. His experience is especially valuable to the Board because of the extent to which his clients were involved in oil and gas upstream exploration and production. His financial acumen enables Mr. Gannon to guide the Board in its fiscal and strategic oversight of CRC.

 

Ronald L. Havner, Jr.

 

•   Chairman and CEO of Public Storage

•   Director of Avalon Bay

•   2014 Chairman of Board of Governors of National Association of REITs

 

Director since: 2014

Age: 59

•   Member of the Audit Committee

•   Member of the Health, Safety and Environmental Committee

Mr. Havner has served on the Board of Directors of CRC since 2014. Mr. Havner is the Chairman of the Board and Chief Executive Officer of Public Storage, a developer, owner and operator of self-storage facilities. He was elected Vice Chairman and Chief Executive Officer of Public Storage in 2002 and was elected Chairman of the Board in 2011. He joined Public Storage in 1986.  Mr. Havner has been Chairman of the Board of Public Storage’s affiliate, PS Business Parks, Inc. since 1996 and served as its Chief Executive Officer until 2003. He has served on the board of Avalon Bay, a publicly-traded real estate investment company, since 2014 and serves as a member of its Audit Committee and its Investment and Finance Committee. He has been a member of the Board of Governors of the National Association of Real Estate Investment Trusts, Inc. since 2006, and served as its Chairman in 2014. Mr. Havner holds a Bachelor of Arts degree from the University of California in Los Angeles.

 

Skills and Qualifications

Mr. Havner’s experience as Chief Executive Officer of a public, California-headquartered business with locations across the United States and Europe gives him valuable insight into business generally, and business in California in particular. His nearly three decades of experience growing a business gives him valuable perspectives that help CRC implement its business plans. His experience as Chief Executive Officer gives him a broad perspective across corporate functions, including management, operations, finance, human resources and governance.

 

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Catherine A. Kehr

 

•   Board Chair of Southwestern Energy Company

•   Former executive at Capital Research Company

•   Former executive at Atlantic Richfield Company

 

Director since: 2015

Age: 54

•   Chairman of the Compensation Committee

•   Member of the Audit Committee

Ms. Kehr has served on the Board of Directors of CRC since 2015. Ms. Kehr has served on the board of directors of Southwestern Energy since 2011 and is Board Chair, Chair of the Nominating and Governance Committee and a member of the Audit Committee. She retired in 2006 as a Senior Vice President and Director of Capital Research Company, a division of The Capital Group Companies, one of the world’s largest investment management organizations and manager of the American Funds. From 1997 to 2006, she was an investment analyst and fund manager with responsibility for global energy equities for The Capital Group Companies. From 1992 to 1997, she was an investment analyst and fund manager with responsibility for global energy high yield debt for The Capital Group Companies. Prior to her tenure with The Capital Group Companies, she held various managerial positions at Atlantic Richfield Company and Payden & Rygel. In 2001, the Reuters Survey ranked Ms. Kehr among the top 10 individual U.S. fund managers. Ms. Kehr received a Bachelor of Arts from Yale University and an MBA from The Wharton School of the University of Pennsylvania. Ms. Kehr holds the Chartered Financial Analyst designation.

 

Skills and Qualifications

Ms. Kehr brings the Board a valuable investor perspective as an investment professional and portfolio manager. Her financial expertise, global energy experience and governance experience lend strong insights to Board considerations. Ms. Kehr brings to the Board a high level of quantitative and analytic rigor grounded in the energy industry.

 

Harold M. Korell
Lead Independent Director

 

•   Former Chairman of Southwestern Energy Company

•   Former CEO of Southwestern Energy Company

 

Director since: 2014

Age: 72

•   Member of the Nominating and Governance Committee

•   Member of the Health, Safety and Environmental Committee

Mr. Korell has served on the Board of Directors of CRC and as Lead Independent Director since 2014. From 2002 through 2014, Mr. Korell served as the Chairman of the Board of Southwestern Energy Company, an independent energy company engaged in natural gas and oil exploration, development and production. From 2009 to 2010, he served as Southwestern’s Executive Chairman and, from 1999 to 2009, as its Chief Executive Officer. From 1997 to 2009, Mr. Korell served in various other roles at Southwestern, including President and Executive Vice President and Chief Operating Officer. Prior to his tenure at Southwestern, Mr. Korell was Senior Vice President—Operations of American Exploration Company, Executive Vice President of McCormick Resources, held various technical and managerial positions during his 17 years with Tenneco Oil Company, including Vice President of Production, and held various positions with Mobil Corporation. He is a member of the Society of Petroleum Engineers and, until 2010, served as a Board Member for the Independent Petroleum Association of America and the American Exploration & Production Council and as a Board Member and Executive Committee Member for America’s Natural Gas Alliance. He also serves on the Board of Governors at the Colorado School of Mines and the Board of Trustees at the Baylor College of Medicine. Mr. Korell holds a degree in Chemical and Petroleum Refining Engineering from the Colorado School of Mines.

 

 

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Skills and Qualifications

Mr. Korell’s experience over four decades in the oil and gas industry gives him a broad understanding of the upstream oil and gas business as well as the midstream and public utility businesses. Mr. Korell’s leadership during a time of dramatic expansion for his company provides valuable insights into strategic and operational, corporate and governance matters. In addition, Mr. Korell provides a deep understanding of our assets due to his involvement with a number of them early in his career that lend specific knowledge and understanding to Board discussions.

 

Harry T. McMahon

 

•   Former Executive Vice Chairman for Bank of America Merrill Lynch

•   Senior Advisor to G100 Network

 

Director since: 2017

Age: 63

•   Member of the Audit Committee

•   Member of the Compensation Committee

The Board of Directors elected Mr. McMahon to fill the vacancy resulting from the departure of Mr. Sloan, effective as of March 1, 2017. Since 2015 he has been a Senior Advisor to the G100 Network, a Leadership Advisory Consortium focused on CEO and Board Development. From 1983 to 2015 Mr. McMahon served in various positions for Bank of America Merrill Lynch including, most recently, as Executive Vice Chairman (the firm's first following the merger of Merrill Lynch and Bank of America). His other roles included service as Vice Chairman and Co-Head of Global Corporate Finance of Merrill Lynch and over 25 years running Investment Banking for the firm's Western Region. During his career Mr. McMahon advised on more than 400 transactions. Mr. McMahon also serves as a trustee of Claremont McKenna College, and is a director of Cottage Health Systems. Mr. McMahon received a Masters of Business Administration degree from the University of Chicago Booth School of Business and a Bachelor of Arts degree in Economics from Claremont McKenna College.

 

Skills and Qualifications

Mr. McMahon's over three decades of investment banking experience will provide the Board with deep insight into financial structuring matters and fashioning innovative strategic solutions. His senior managerial roles, including as Executive Vice Chairman of one of the nation's largest banks and as Senior Advisor to the G100 Network, also give him valuable perspectives on maintaining ties between boards and management.

 

 

Richard W. Moncrief

 

•   CEO of Moncrief Oil International

•   Extensive experience in the upstream oil and gas industry

 

 

 

Director since: 2014

Age: 74

•   Chairman of the Health, Safety and Environmental Committee

•   Member of the Audit Committee

Mr. Moncrief has served on the Board of Directors of CRC since 2014. Mr. Moncrief has been a principal in Moncrief Oil International, Inc., an oil and gas exploration and production company with headquarters in Fort Worth, Texas, since founding the company in 1970. He currently serves as its Chief Executive Officer. Moncrief Oil participates in U.S. and international oil and gas exploration and production. Mr. Moncrief also serves on the boards of trustees for the Amon Carter Museum and the University of Texas Development Board. He holds a Bachelor of Science degree in petroleum engineering as a Distinguished Graduate from the University of Texas.

Skills and Qualifications

Mr. Moncrief’s extensive experience as the head of a large private upstream oil and gas exploration company allows him to bring an in-depth understanding of key industry issues to the Board of Directors. His leadership experience at Moncrief Oil provides him with strategic and management insights from which CRC benefits. Mr. Moncrief offers entrepreneurial expertise forged over years in the business of oil and gas exploration.

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Avedick B. Poladian

 

•   Former COO and EVP of Lowe Enterprises

•   Former Partner at Arthur Andersen

•   Director of Occidental and Public Storage

 

Director since: 2014

Age: 65

•   Member of the Compensation Committee

•   Member of the Nominating and Governance Committee

Mr. Poladian has served on the Board of Directors of CRC since 2014. From 2006 to 2016, Mr. Poladian served as Executive Vice President and Chief Operating Officer of Lowe Enterprises, Inc., a diversified national real estate company active in commercial, residential and hospitality property investment, management and development. Mr. Poladian previously served as Executive Vice President, Chief Financial Officer and Chief Administrative Officer for Lowe from 2003 to 2006. Mr. Poladian was with Arthur Andersen LLP from 1974 to 2002, most recently as a Partner, and is a Certified Public Accountant (inactive). He is a past member of the Young Presidents Organization, the Chief Executive Organization, the California Society of CPAs and the American Institute of CPAs. Mr. Poladian is a director of the YMCA of Metropolitan Los Angeles, a member of the Board of Councilors of the University of Southern California Price School of Public Policy, a member of the Board of Advisors of the Ronald Reagan UCLA Medical Center, and a former Trustee of Loyola Marymount University. He serves as a director and on the Audit Committees of two funds managed by Western Asset Management Funds. He is also a member of the Board of Trustees of Public Storage where he is the Chair of the Audit Committee and the Chair of the Nominating and Corporate Governance Committee. Mr. Poladian also serves as a director of Occidental Petroleum Corporation where he is a member of the Executive Compensation Committee and the Finance and Risk Management Committee, and chair of the Audit Committee. He previously served as a director of California Pizza Kitchen.

 

Skills and Qualifications

Mr. Poladian’s service in a senior management position at one of the world’s largest accounting firms, combined with his experience as Chief Operating Officer and Chief Financial Officer of a diversified real estate company, gives Mr. Poladian deep knowledge of key business issues, including personnel and asset utilization. He also provides insight into all aspects of fiscal management. Through his work on the boards of various entities, Mr. Poladian has garnered valuable insight into our business and corporate governance generally.

 

Robert V. Sinnott

 

•   Co-Chairman of Kayne Anderson Capital

•   Director of PAA GP Holdings

•   Experience at United Energy Resources

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Director since: 2014

Age: 67

•   Chairman of the Nominating and Governance Committee

Mr. Sinnott was appointed to the Board of Directors of CRC in 2014. Mr. Sinnott is co-chairman of Kayne Anderson Capital Advisors, L.P., an investment management firm. Until 2016 he served there as President, Chief Executive Officer and Chief Investment Officer. He also served as a Managing Director there from 1992 to 1996 and as its Senior Managing Director from 1996 until assuming the role of Chief Executive Officer in 2010. He is also President of Kayne Anderson Investment Management, Inc., the general partner of Kayne Anderson Capital Advisors, L.P. Mr. Sinnott served as a director of Kayne Anderson Energy Development Company from 2006 through 2013. He was Vice President and Senior Securities Officer of the Investment Banking Division of Citibank from 1986 to 1992 and previously held positions with United Energy Resources, a pipeline company and Bank of America in its oil and gas finance department. Since 1998, Mr. Sinnott has served on the board of PAA GP Holdings LLC and its predecessor entities. Since January 2017, Mr. Sinnott has been Vice Chairman of the Board of Directors of Kayne Anderson Acquisition Corp., which is a newly

organized blank check company that intends to acquire and operate a business in the energy industry. Additionally, he is a director of the Kayne Anderson Capital Advisors Foundation and a member of the Board of Visitors of the UCLA Anderson School of Management. Mr. Sinnott received a Bachelor of Arts degree from the University of Virginia and a Masters of Business Administration from Harvard University.

 

Skills and Qualifications

As President of a California-based investment company investing in energy and other areas, Mr. Sinnott brings extensive insight into the oil and gas and financial industries to the CRC Board of Directors. His responsibility for analyzing industry players and managing a multi-billion dollar investment enterprise allow him to provide insight on a broad variety of matters affecting the oil and gas industry generally and the company specifically. He brings deep understanding of and insight into strategic alternatives, industry trends, deal structures and finance.

 

Todd A. Stevens
President & CEO

 

•   Former VP Corporate Development at Occidental

•   Former VP California Operations and VP of Acquisitions and Finance at
    Occidental

 

 

Director since: 2014

Age: 50

Mr. Stevens was appointed President, Chief Executive Officer and a Director of CRC in 2014. Mr. Stevens served as Vice President—Corporate Development of Occidental Petroleum Corporation from 2012 to 2014, as Vice President—California Operations, Oxy Oil & Gas from 2008 to 2012, and as Vice President—Acquisitions and Corporate Finance of Occidental from 2004 to 2012. Mr. Stevens holds a Master of Business Administration degree from the University of Southern California and a Bachelor of Science degree from the United States Military Academy.

Skills and Qualifications

Our Board of Directors benefits from Mr. Stevens’ deep knowledge of the oil and gas industry and his expertise in strategically evaluating and valuing oil and gas assets that is derived from years of buying and integrating exploration and production assets, many of which we currently own. Mr. Stevens also brings specific insight into the Company’s operations from his significant managerial experience as an executive at Occidental, including his strong experience in allocating capital and managing Occidental’s and our assets. Mr. Stevens’ extensive experience dealing with California’s regulatory environment, agencies and political landscape and his ability to forge strong ties within the state have proven a valuable asset to the Company.

 

 

Board Leadership Structure

Chairman

The Board of Directors’ leadership structure separates the CEO and Chairman of the Board positions. Mr. Stevens currently serves as our President and CEO. Mr. Albrecht previously held the position of Executive Chairman and transitioned to the role of non-executive Chairman as of the 2016 annual meeting.

The Board of Directors believes that there is no single, generally accepted approach to providing board leadership and that each of the possible leadership structures for a board must be considered in the context of the individuals involved and the specific circumstances facing a company, as the right leadership structure may vary as circumstances change. The Board of Directors believes it is in the best interest of the Company and its stockholders at this time to have separate CEO and Chairman positions, and have an independent director serve as Lead Independent Director working in conjunction with the Chairman. The Board of Directors has found that this structure enables the CEO to focus on operation of the Company’s business, while the Chairman and Lead Independent Director focus on leading the Board of Directors in its oversight role.

Lead Independent Director

The Board of Directors has created the position of Lead Independent Director, selected annually by the Board from among the independent directors. Mr. Korell has served as Lead Independent Director

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since December 2014 when he was selected in connection with the first meeting of the Board after the Spin-off, and the Board selected him to continue in this position at the meeting in February 2017. The Board of Directors believes that the Lead Independent Director position provides additional independent oversight for the Board and management. The responsibilities of the Lead Independent Director include acting as chair at meetings of the Board of Directors when the Chairman is not present, and preparing the agenda and presiding over executive sessions of the non-management directors of the Board of Directors.

Board Meetings and Attendance

During 2016, the Board of Directors held seven meetings, and each of the standing committees held the number of meetings included in the description of the committees set forth below. Each director attended at least 75% of the meetings of the Board of Directors and the standing committees on which he or she served that occurred during such directors’ terms in 2016 other than Mr. Sinnott. However, Mr. Sinnott met the 75% threshold after removing from consideration the two board meetings and one committee meeting held in early May that he could not attend due to an unexpected family emergency.

Pursuant to our Corporate Governance Guidelines, directors are encouraged to attend our annual meetings of stockholders.  Eight incumbent directors attended the annual meeting in early May 2016.  Mr. Sinnott did not attend due to the unexpected family emergency referenced above.

Executive Sessions of the Board

The Board of Directors intends to hold regularly scheduled meetings of independent directors in executive session without management present in conjunction with each regular board meeting. In addition to these regularly scheduled meetings, executive sessions may be called upon the request of any independent director. In 2016, the Board of Directors held executive sessions on the day of four of the regularly scheduled board meetings.

Committees of the Board

As of the date of this proxy statement, our Board of Directors has four separately designated standing committees. The membership and purposes of each of the committees are described below. Each of the committees operates under a written charter adopted by the Board. The Board of Directors and each committee has the power to hire independent legal, financial or other experts and advisors as it may deem necessary, without consulting or obtaining the approval of any officers of the Company in advance.

 

Audit Committee

 

 

 

 

 

Justin A. Gannon,
Chair

 

 

 

Ronald L. Havner, Jr.

 

 

 

Catherine A. Kehr

 

 

 

Harry T. McMahon

 

 

 

Richard W. Moncrief

 

 

 

 

Our Audit Committee is composed entirely of independent directors. In addition to regularly scheduled meetings, the committee meets separately in executive sessions with representatives of our independent auditors, our internal audit personnel and representatives of senior management in performing its functions. The Audit Committee approves the appointment and services of the independent auditors and reviews the general scope of audit services, matters relating to internal controls systems and other matters related to accounting and reporting functions. The Audit Committee monitors the integrity of the financial statements of CRC.  The committee oversees the Company’s compliance with ethical standards, and reviews material related party transactions.  The Audit Committee also considers the qualifications and independence of the independent reserves engineering firm, and approves the selection and appointment of such firm. The Board of Directors determined that all of the members of the Audit Committee are financially literate and have accounting or financial management expertise, each as required by the applicable NYSE listing standards. The Board of Directors also determined that Mr. Gannon qualifies as an audit committee financial expert under the applicable rules of the Securities Exchange Act of 1934, as amended.

 

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5 Meetings in 2016

 

 

 

 

 

Compensation Committee

 

 

 

 

 

Justin A. Gannon

 

 

 

Catherine A. Kehr,
Chair

 

 

 

Harry T. McMahon

 

 

 

Avedick B. Poladian

 

 

Our Compensation Committee is composed entirely of independent directors. The committee is responsible for (i) determining compensation for our Chief Executive Officer and other executive officers, (ii) overseeing and approving compensation and employee benefit policies, (iii) reviewing and discussing with our management the Compensation Discussion and Analysis and related disclosure included in our annual proxy statement, and (iv) overseeing the evaluation of the performance of our executives. The Board of Directors has formed a subcommittee of the Compensation Committee to serve as the “Committee” for purposes of administering our Long-Term Incentive Plan, as defined below, and taking such other actions as the subcommittee determines are advisable for purposes of qualification for certain exemptions set forth in Section 16 of the Securities Exchange Act of 1934, as amended (including Rule 16b-3 thereunder) and Section 162(m) of the Internal Revenue Code of 1986, as amended.  Mr. Gannon and Ms. Kehr are the members of the subcommittee.

 

 

 

 

 

7 Meetings in 2016

 

 

 

 

 

Nominating and Governance Committee

 

 

 

 

 

 

Harold M. Korell

 

 

 

Avedick B. Poladian

 

 

 

Robert V. Sinnott,
Chair

 

 

The Nominating and Governance Committee is composed entirely of independent directors. The committee makes proposals to the Board of Directors for candidates to be nominated by the Board of Directors to fill vacancies or for new directorship positions, if any, which may be created from time to time. The Nominating and Governance Committee develops and recommends a set of corporate governance guidelines to our Board of Directors and oversees the evaluation of our Board and its committees. The Nominating and Governance Committee meets periodically on succession planning. The Company’s Corporate Governance Guidelines state that the CEO should at all times make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals. Each year, the Nominating and Governance Committee determines which directors, if any, qualify as independent, disinterested, non-employee or outside directors under applicable standards.  The Nominating and Governance Committee periodically reviews the advisability or need for any changes in the Board committee structure, and recommends to the Board the composition of each Board committee.

 

 

 

 

 

3 Meetings in 2016

 

 

 

 

 

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Health, Safety and Environmental Committee

 

 

 

 

 

 

Ronald L. Havner, Jr.

 

 

 

Harold M. Korell

 

 

 

Richard W. Moncrief,
Chair

 

Our Health, Safety and Environmental Committee is composed entirely of independent directors. The committee reviews and discusses the status of health, safety and environmental objectives, issues, laws and regulations with management. It also reviews our programs to ensure compliance with applicable laws and regulations, conservation of natural resources and related community engagement and periodically reports to the Board of Directors on matters affecting the Company.

 

 

 

 

 

3 Meetings in 2016

 

 

 

 

 

Director Independence Determinations

To qualify as “independent” under the NYSE listing standards, the Board of Directors must affirmatively determine that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) that would interfere with his or her exercise of independent judgment in carrying out his or her responsibilities as a director. The NYSE independent director criteria include that the director not be our employee and not have engaged in various types of business dealings with us.

The Board of Directors has reviewed all direct or indirect business relationships of which it is aware between each director (including his or her immediate family) and us, including those relationships described under “Related Party Transactions” below, as well as each director’s relationships with charitable organizations, to assess director independence as defined in the listing standards of the NYSE. Based on this evaluation, the Board of Directors has determined that Messrs. Gannon, Havner, Korell, McMahon, Moncrief, Poladian and Sinnott and Ms. Kehr are independent directors as that term is defined in the listing standards of the NYSE. Neither Mr. Albrecht, the Chairman of the Board, nor Mr. Stevens, the President and Chief Executive Officer, is considered by the Board of Directors to be an independent director because of his prior or current employment with CRC.

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Director Overboarding Policy

In response to the low reelection vote for Mr. Havner in 2016 (compared to other director nominees) and the concerns shared with the Company by certain shareholders and shareholder advisory firms, the Board amended its overboarding policy to restrict directors who are currently sitting CEOs of public companies from serving on more than two other public company boards without approval of the Nominating and Governance Committee. Where such boards are for related companies or for companies in the same fund complex, the Board determined that such service will be counted as service on one board, unless the Nominating and Governance Committee determines otherwise.

In applying this newly amended policy, the Nominating and Governance Committee considered whether Mr. Havner’s role on the boards of Public Storage, PS Business Parks and Avalon Bay would enable him to commit sufficient focus and time to perform responsibly his duties as a director of CRC. The Nominating and Governance Committee determined that Mr. Havner’s service on the boards of Public Storage and PS Business Parks, which are related companies, should be counted as service on one board. In making this determination, the Nominating and Governance Committee considered the substantial overlap between his duties as chief executive officer and chairman of Public Storage and his duties as a director of PS Business Parks, particularly given Public Storage’s 42% ownership of PS Business Parks, the fact that PS Business Parks’ financial results are reflected in Public Storage’s financial statements under the equity method of accounting, and the contractual relationships between Public Storage and PS Business Parks, including the management agreement, property management agreement, license agreement and cost sharing and administration services agreement. In addition, Mr. Havner has a lengthy term of service with both related companies, working as an executive at Public Storage from 1986 to the present, including as CEO since 2002, and acting as the President and CEO of PS Business Parks from 1997 to 2002.  As a result, Mr. Havner has a great familiarity with both businesses. The Nominating and Governance Committee views the time commitment required for the boards of Public Storage and PS Business Parks to be similar to that required for a single board. The Nominating and Governance Committee believes that Mr. Havner’s active participation and attendance at the 2016 meetings of the CRC Board of Directors and the standing committees on which he served further evidence that the time commitments required for these other boards still allow Mr. Havner to commit sufficient time and focus to his CRC director duties.

 

 

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee is now, or at any time since the beginning of 2016 has been, employed by or served as an officer of CRC or any of its subsidiaries or had any business relationship requiring disclosure with CRC or any of its subsidiaries. None of our executive officers is now, or at any time has been, since the beginning of 2016, a member of the compensation committee or board of directors of another entity one of whose executive officers has been a member of our Board of Directors or Compensation Committee.

Communications with Directors

Our Board of Directors welcomes communications from our stockholders and other interested parties. Communications to our Board of Directors, to any committee of our board, to the Lead Independent Director (who presides over the executive sessions of our independent and non-management directors), or to any director in particular, should be sent to:

Board of Directors, Committee Name or director’s name, as appropriate

California Resources Corporation

9200 Oakdale Avenue, Suite 900

Los Angeles, California 91311

We will forward all correspondence directly to the committee or individual director, as appropriate. Our independent directors approved our process for collecting and organizing stockholder communications to the Board of Directors.

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If any stockholder or third party has a complaint or concern regarding accounting, internal accounting controls or auditing matters at CRC, they should send their complaint in writing to Mr. Gannon, the Chairman of the Audit Committee, at the address listed above.

The Board’s Role in Risk Oversight

Our Company’s management is responsible for the day-to-day management of risks to the Company. The Board of Directors has broad oversight responsibility for our risk management programs.

 

Consideration of Director Nominees

Identifying and Evaluating Nominees for Directors

Our Nominating and Governance Committee is responsible for leading the search for individuals qualified to serve as directors and for recommending to the Board nominees as directors to be presented for election at meetings of the stockholders or of the Board of Directors. Our Nominating and Governance Committee evaluates candidates for nomination to the Board of Directors, including those recommended by stockholders, and conducts appropriate inquiries into the backgrounds and qualifications of possible candidates. The Nominating and Governance Committee may retain outside consultants to assist in identifying director candidates in its sole discretion, but it did not engage any outside consultants in connection with selecting the nominees for election at the Annual Meeting.

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Director Criteria, Qualifications, Experience and Diversity

Our Corporate Governance Guidelines contain qualifications that apply to director nominees recommended by our Nominating and Governance Committee. In the event that a vacancy on the Board of Directors arises, the Nominating and Governance Committee will consider and review the candidate’s following qualifications:

 

relevant skills, qualifications and experience;

 

independence under applicable standards;

 

business judgment;

 

service on boards of directors of other companies;

 

personal and professional integrity, including commitment to the Company’s core values;

 

willingness to commit the required time to serve as a Board of Directors member;

 

familiarity with the Company and its industry; and

 

such other matters as the committee deems appropriate.

The Nominating and Governance Committee also will consider the diversity of, and the optimal enhancement of the current mix of talent and experience on, the Board of Directors.

With respect to the reelection of an existing director, the Nominating and Governance Committee will consider and review the director’s:

 

past Board and committee meeting attendance and performance;

 

length of Board service;

 

personal and professional integrity, including commitment to the Company’s core values;

 

relevant experience, skills, qualifications and contributions that the existing director brings to the Board;

 

independence under applicable standards; and

 

such other matters as the committee deems appropriate.

 

Certain Relationships and Related Transactions

Policies and Procedures

Our Board of Directors adopted policies restricting related party transactions. We review all relationships and transactions in which we and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. Our Corporate Secretary’s office implements procedures to obtain information from the directors and executive officers with respect to related party transactions. The Audit Committee reviews and discusses with management and the independent registered public accounting firm any material related party transactions as defined by, and required to be disclosed under, the rules of the Securities and Exchange Commission (“SEC”) and the NYSE. Agreements that embody transactions that are material in amount or significance are filed with the SEC as required.

Our business ethics and corporate policies prohibit significant conflicts of interest. Any waivers of these policies require approval by the compliance officer, or in the case of conflicts of our executive officers or directors, the Board of Directors. Under our Business Ethics and Corporate Policies, conflicts of interest generally are deemed to occur when private or family interests do not appear impartial, interfere or compete with the interests of our Company.

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We have multiple processes for reporting conflicts of interests, including related party transactions. Under our Business Ethics and Corporate Policies, all of our directors and employees are required to report any known or apparent conflict of interest, or potential conflict of interest, to their supervisors, the compliance officer, a member of the corporate compliance committee, our legal counsel, human resources, or the Board of Directors, as appropriate. As part of any review, the following factors are generally considered:

 

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

 

the material terms of the transaction;

 

the importance of the transaction to the related person;

 

the importance of the transaction to us;

 

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

 

whether the transaction might affect a director’s independence under NYSE standards; and

 

any other matters deemed appropriate with respect to the particular transaction.

We also have other policies and procedures to prevent conflicts of interest, including related person transactions. For example, the charter of our Nominating and Governance Committee requires that the committee members assess the independence of the non-management directors at least annually, including a requirement that it determine whether any such directors have a material relationship with us, either directly or indirectly, as defined therein and as further described above under “Director Independence Determinations.”

Arrangements between CRC and Occidental

Separation and Distribution Agreement

The Separation and Distribution Agreement governs the terms of the separation of Occidental’s California oil and gas exploration and production operations and related assets, liabilities and obligations (the “California business”) from Occidental’s other businesses. Generally, the Separation and Distribution Agreement includes the agreements of Occidental and us on the steps taken to complete the separation, including the assets and rights transferred, liabilities assumed or retained, contracts assigned and related matters. The Separation and Distribution Agreement provided for Occidental and us to transfer specified assets and liabilities between the two companies to separate the California business from Occidental’s remaining businesses. As a result of this transfer, we own all assets exclusively related to the California business and certain other assets related to the California business specifically allocated to us. We are also responsible for all liabilities, including environmental liabilities, to the extent relating to the operation or ownership of the California business or any of the assets allocated to us in the separation, as well as all liabilities arising out of, relating to or resulting from certain financing arrangements made in connection with the separation. Occidental retained all other assets and liabilities, including assets and liabilities related to discontinued businesses (other than those businesses that were a part of the California business prior to being discontinued).

Unless otherwise provided in the Separation and Distribution Agreement or any of the related ancillary agreements, all assets were transferred on an “as is, where is” basis.

The Separation and Distribution Agreement also governs the treatment of all aspects relating to indemnification and insurance, and generally provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of the remaining Occidental business with Occidental. The Separation and Distribution Agreement also established procedures for handling claims subject to indemnification and related matters. We and Occidental generally released each other from all claims arising prior to the Spin-off other than claims arising under the transaction agreements, including the indemnification provisions described above.

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Transition Services Agreement

The Transition Services Agreement sets forth the terms on which Occidental provided to us, and we provided to Occidental, on an as-needed basis for 12 to 18 months from the Spin-off, certain services or functions that the companies historically shared.

Tax Sharing Agreement

The Tax Sharing Agreement governs the respective rights, responsibilities, and obligations of Occidental and us with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes. The Tax Sharing Agreement will remain in effect until the parties agree in writing to its termination; however, notwithstanding such termination, the Tax Sharing Agreement will remain in effect with respect to any payments or indemnification due for all taxable periods prior to such termination during which the agreement was in effect.

The Tax Sharing Agreement provides, among other things, that:

 

to the extent that any gain or income is recognized by Occidental (including its subsidiaries) in connection with the failure of the Spin-off or certain transactions undertaken in preparation for, or in connection with, the Spin-off, to qualify for tax-free treatment under the relevant provisions of the Code, CRC will indemnify Occidental for any taxes on such gain or income to the extent such failure is attributable to:

 

o

inaccurate covenants, representations, or warranties by CRC (or any CRC subsidiaries) made in connection with the Tax Sharing Agreement or any tax ruling requested or received from the IRS or opinions of Occidental’s outside tax advisors;

 

o

any breach by CRC (or any CRC subsidiaries) of certain restrictive covenants in the Tax Sharing Agreement; or

 

o

certain other actions taken by CRC; and

 

CRC will bear 50% of the amount of any taxes resulting from gain or income that is recognized by Occidental (including its subsidiaries) in connection with the failure of the Spin-off or a related transaction to qualify for tax-free treatment under the relevant provisions of the Code, to the extent such failure is not attributable to the fault of either party; however, if CRC receives an increase in the tax basis of its depletable, depreciable or amortizable assets as a result of any such tax being imposed, CRC will pay to Occidental an amount equal to any reduction in its tax liability attributable to such basis increase when such reduction in tax liability arises.

Occidental received a private letter ruling from the IRS substantially to the effect that certain aspects of the transactions that were undertaken in preparation for, or in connection with, the Spin-off will not cause the distribution to be taxable to Occidental or its affiliates for federal income tax purposes.

CRC agreed to certain restrictions intended to preserve the tax-free status of certain transactions taken in preparation for, or in connection with, the Spin-off. During the two-year period following March 24, 2016, these covenants restrict CRC’s ability to: (a) voluntarily liquidate or dissolve; (b) merge, convert or consolidate with or into another entity; (c) issue any capital stock or other equity interests, options or rights to acquire capital stock or other equity interests, or any other instruments convertible into or exchangeable for, or that could otherwise result in the issuance of, capital stock or other equity interests; (d) redeem or otherwise repurchase any outstanding capital stock or other equity interests, rights or instruments, other than pursuant to open market stock repurchase programs meeting certain requirements; (e) recapitalize, reclassify, or alter the voting rights of one or more shares of capital stock or other equity interests, rights or instruments; (f) take certain other actions inconsistent with any representation made in any materials provided in connection with any private letter ruling request or opinions of Occidental’s outside tax advisors; (g) increase or decrease the number of members of the Board of Directors of CRC or any pre-Spin-off CRC subsidiary, alter in any way the procedures for the nomination, election, and termination of members of the board, or expand, contract, or otherwise modify the rights of the board to govern the affairs of CRC except in certain circumstances; (h) sell, exchange, distribute, or otherwise dispose of any pre-Spin-off CRC subsidiary or all or a substantial part of the assets of any of the trades or businesses conducted by CRC and the pre-Spin-off CRC subsidiaries (other than sales or transfers of inventory in the ordinary course of business) before the Spin-off except in

25


 

certain circumstances; (i) take, or fail to take, any action that causes the trades or businesses conducted by CRC or any pre-Spin-off CRC subsidiary to cease to be actively conducted in substantially the manner conducted pre-Spin-off; (j) sell, transfer or agree to sell or transfer to any corporate subsidiary any assets held by certain Occidental subsidiaries before Occidental’s internal reorganization in connection with the Spin-off; (k) enter into any negotiations, agreements, understandings, or arrangements with respect to any of the foregoing; and (l) take, or fail to take, any action that could reasonably be expected to cause the Spin-off to fail to qualify as a tax-free transaction under Sections 355, 361 and/or 368(a)(1)(D) of the Code. CRC may take certain actions otherwise subject to these restrictions only if Occidental consents to the taking of such action or if CRC obtains, and provides to Occidental, a private letter ruling from the IRS and/or an opinion from an independent law firm or accounting firm, in either case, reasonably acceptable to Occidental, to the effect that such action would not jeopardize the tax-free status of certain transactions related to the Spin-off.

Employee Matters Agreement

The Employee Matters Agreement governs Occidental’s and our compensation and employee benefit obligations with respect to the current and former employees of each company, and generally allocates liabilities and responsibilities relating to employee compensation and benefit plans and programs. The Employee Matters Agreement provides for, among other things:

 

the assumption (or retention) by us and our subsidiaries of all liabilities and obligations relating to current and former employees of the California business (excluding, with respect to current employees, certain pension obligations and, with respect to former employees, certain pension, retiree medical and nonqualified deferred compensation plan obligations); and

 

the retention by Occidental of all employee and benefit plan-related liabilities and obligations not relating to current or former employees of the California business.

AMI Agreement

The Area of Mutual Interest Agreement (“AMI Agreement”) has a five-year term and sets forth the terms upon which Occidental may acquire an interest in and rights with respect to certain oil and gas properties (the “AMI Interests”) in the United States (excluding California and federal waters offshore California) (the “AMI Area”). Pursuant to the terms of the AMI Agreement, for a period of one year after notice from us, Occidental may elect to exercise an option to acquire an interest in the AMI Interests. Upon exercise, Occidental will acquire an undivided 51% interest in the subject AMI Interests for consideration equal to the sum of (i) 51% of the net acquisition price paid by us for such AMI Interests and (ii) 51% of the drilling and/or operating costs paid by us (net of any reimbursements) in respect of such AMI Interests attributable to any periods after the date of our acquisition of such AMI Interests, and less (iii) 51% of the revenue attributable to such AMI Interests after the date of our acquisition of such AMI Interests, subject to certain limited exceptions. If applicable, in connection with the exercise of Occidental’s option, we will resign as operator and vote for Occidental or its designee as the replacement operator.

Confidentiality and Trade Secret Protection Agreement

Pursuant to the Confidentiality and Trade Secret Protection Agreement, we agreed to keep confidential certain information we learned about Occidental prior to the Spin-off. In order to preserve Occidental’s trade secrets and confidential information and to protect the goodwill transferred to us in connection with the Spin-off, among other things, CRC and Occidental agreed (i) not to hire the other party’s employees for a period of one year following the completion of the Spin-off and (ii) not to solicit the other party’s employees for an additional four years following the expiration of the non-hire restrictions.

Intellectual Property License Agreement

The Intellectual Property License Agreement sets forth the terms on which Occidental, on behalf of itself and its affiliates, licensed certain intellectual property and documentation to us and our affiliates, including software owned by Occidental and its affiliates. We have the right to create derivative works of the software and documentation and use them for our internal business purposes. The Intellectual Property License Agreement also sets forth the terms on which we licensed Occidental and its affiliates certain data and documentation. Occidental and its affiliates have the right to create derivative works of such data and documentation and use them for their internal business purposes.

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Other Related Party Transactions

In addition to the related party transactions described in “Arrangements between CRC and Occidental” above, this section discusses other transactions and relationships with related persons since the beginning of our most recently completed fiscal year.

Marketing Transactions

We sell and purchase products with subsidiaries of Plains All American Pipeline, L.P. (“Plains”). Occidental owns approximately 12% of the general partner of Plains. Funds managed by Kayne Anderson Capital Advisors L.P. and affiliates (“Kayne Anderson”) own approximately 12% of the general partner of Plains, approximately 2.95% of the limited partner units of Plains and an additional approximately 7.71% general partner interest in Plains GP Holdings, L.P. (the public portion of the general partner). Occidental appoints a director, and Mr. Sinnott serves as a director, for the general partner of Plains. For the year ended December 31, 2016, transactions with Plains accounted for approximately $131 million of our net sales.

Transactions with Related Persons, Promoters and Certain Control Persons

Certain funds controlled by Kayne Anderson Investment Management, Inc. (“Kayne Anderson Investment”), of which Mr. Sinnott serves as President, purchased in 2015 and sold in 2016, approximately $63 million in aggregate principal amount of our 6% senior notes due 2024. During 2016, certain funds controlled by Kayne Anderson Investment purchased and as of January 24, 2017 continued to hold, approximately $63.4 million in aggregate principal amount of our 8% senior notes due 2022, and approximately $7.5 million in aggregate principal amount of our first-lien, second-out term loan credit facility. Mr. Sinnott did not participate in Kayne Anderson’s decision-making process with respect to these transactions.

Wells Fargo & Company, of which Mr. Sloan currently serves as President and Chief Executive Officer, or its affiliates (“Wells”) acted as a Joint Book-Running Manager for, and initial purchaser for approximately $430 million in aggregate principal amount of, our senior unsecured notes in 2014. As of January 26, 2017, Wells no longer held any of such notes. Wells is a lender and Documentation Agent under our Revolving Credit Facility and Term Loan Facility. Wells’ portion of the total commitments as of December 31, 2016, and the maximum aggregate principal amount outstanding in 2016, under our Revolving Credit Facility and Term Loan collectively was approximately $127.4 million and $149.8 million, respectively. Wells received interest of approximately $4.4 million under the Revolving Credit Facility and Term Loan in 2016 at interest rates varying between 2.65% and 5.75%. Wells also received fees of approximately $900,000 under the Revolving Credit Facility and Term Loan. Wells also acted as trustee under the senior unsecured notes indenture until March 2016, after which responsibility was transitioned to a new trustee. Mr. Sloan did not participate in Wells’ decision-making process with respect to these transactions.

Audit Committee Report

The Audit Committee of the Board of Directors of California Resources Corporation (“CRC”) approves the appointment and services of the independent registered public accounting firm, and monitors (1) the integrity of the financial statements of CRC; (2) the independent registered public accounting firm’s qualifications, independence and performance; (3) the effectiveness and performance of CRC’s internal audit function; (4) CRC’s system of disclosure controls and procedures, internal control structure over financial reporting and compliance with ethical standards; and (5) the compliance by CRC with legal and regulatory requirements related to financial statements.

The Board of Directors has determined that each of the members of the Audit Committee satisfies the standards of independence established under the SEC’s rules and regulations and listing standards of the NYSE. The Board of Directors has further determined that each of the members of the Audit Committee is financially literate and that Mr. Gannon is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

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In connection with our financial statements for the year ended December 31, 2016, the Audit Committee has:

 

reviewed and discussed with management the audited financial statements contained in CRC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016;

 

discussed with CRC’s independent registered public accounting firm, KPMG LLP, the matters required to be discussed by Auditing Standard No. 16;

 

received the written disclosures from KPMG LLP as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence;

 

discussed with KPMG LLP its independence from CRC and members of its management;

 

considered any non-audit services in assessing auditor independence; and

 

had an executive session with KPMG LLP to provide them with the opportunity to discuss any other matters that they desired to raise without management present.

Based on the review and discussions with CRC’s management and independent registered public accounting firm, as set forth above, the Audit Committee recommended to CRC’s Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, for filing with the SEC.

Audit Committee,

Justin A. Gannon

Ronald L. Havner, Jr.

Catherine A. Kehr

Richard W. Moncrief

February 24, 2017

 

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) provides a description of the elements and key features of our compensation program, as well as context and rationale for decisions made with respect to the compensation for our “named executive officers” or “NEOs” for the year ended December 31, 2016, who are identified below:

 

 

 

Name

    

Position

Todd A. Stevens

 

President and Chief Executive Officer

Marshall D. Smith

 

Senior Executive Vice President and Chief Financial Officer

Robert A. Barnes

 

Executive Vice President–Operations

Charles F. Weiss

 

Executive Vice President–Public Affairs

Darren Williams

 

Executive Vice President–Exploration

Stockholder Approval of Executive Compensation

As recommended by our Board of Directors, a majority of stockholders expressed their preference in an advisory vote in 2015 for an advisory vote on executive compensation occurring every year, and we have implemented that recommendation. In 2016, we held our stockholder advisory vote on the compensation paid to our named executive officers in 2015, which resulted in a 95% approval of such compensation. The Compensation Committee considered the results of last year’s advisory vote on executive compensation and many other factors in designing our executive compensation programs as discussed below in this CD&A, including the Compensation Committee's assessment of the interaction of our compensation programs with our corporate business objectives, evaluations of our programs by the Compensation Committee's independent compensation consultant, and review of data relating to pay practices of our compensation peer group.

Historical Perspective and 2016 Business Highlights

The severe and extended downturn in oil prices that began in the second half of 2014 and continued into 2016 created a very challenging environment for oil and gas companies.

CRC was spun off from our former parent, Occidental Petroleum Corporation, on November 30, 2014. Occidental initially capitalized CRC with $6 billion of debt and also left CRC with additional debt relating to financing costs and negative working capital of nearly $300 million, burdening CRC with a substantial debt load of $6.3 billion. This capitalization and Spin-off occurred just as the downturn in commodity prices began.

Occidental formed CRC to hold all of Occidental’s oil and gas operations in California. These oil and gas fields utilize higher levels of secondary and tertiary recovery extraction methods and have a higher absolute number of wells than many of our oil and gas peer companies. These factors result in a higher cost structure relative to peer companies in our industry.

Our highly debt-burdened balance sheet, combined with substantially lower EBITDAX realized since the Spin-off due to the sustained low oil price environment, resulted in a significantly higher debt to EBITDAX ratio than our industry peers. This highly leveraged position, resulting from decisions made by Occidental prior to the Spin-off along with the relatively higher cost structure of our assets, has been a significant factor disproportionately affecting our stock price performance in a negative manner compared to our industry peers. For perspective, CRC’s equity market capitalization decreased almost 70%, from $2.8 billion at the Spin-off to $0.9 billion at December 31, 2016. The tables below compare CRC’s leverage ratio, cost structure and stock performance to peers.

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Leverage Ratio                       Cost Structure                            Equity Performance

1 Calculations of Adjusted EBITDAX, Net Debt (debt less cash), Production Cost and G&A for the Peers have been made using publicly available data and may not be comparable across companies presented due to differences in methods used between companies or availability of specific elements.

CRC’s management team responded aggressively after the Spin-off to address the challenges faced by the Company as a result of the depressed commodity price environment and the leveraged capital structure placed on CRC prior to the Spin-off by Occidental. Our priorities have been to deleverage our balance sheet, focus on cash margins and cost containment, maintain our base production, build our inventory and operate within our cash flow. As a result of these priorities, CRC has had very limited capital available to invest and, as a result, production has declined, compared to CRC’s peers who had greater access to capital because of their lower leverage.

To address stockholder concerns regarding CRC’s leverage, our management team focused on the difficult task of reducing our debt in the low commodity price environment. Since the second quarter following the Spin-off, when our debt level reached its peak, management has achieved significant reductions in our debt without unduly increasing our interest costs or significantly diluting our equity. Certain of these reductions required amendments to our credit facility, which were successfully negotiated by management. The table below outlines the different mechanisms our management team employed to reduce CRC’s outstanding debt, as well as the progress our management team made in 2016 in addressing our strategic priorities.

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In 2016, our management team delivered significant accomplishments against our strategic priorities.

 

2016 Strategic Priorities

Performance on Strategic Priorities

Reduce overall leverage while minimizing dilution to shareholders

  Reduced outstanding debt nearly $1.5 billion, or over 20%, from 2015 peak at an incremental interest cost of $31 million per year. Chose options to maximize deleveraging, minimize recurring cost to the income statement and minimize equity dilution.

Focus on cash margins and controllable items such as efficiency, operating cost and overhead

  Reduced production costs $2.62/Boe or 14% since the Spin-off.

  Reduced capital cost of wells – 2016 program has 23% lower well costs compared to prior similar wells.

Maintain base production focusing on higher margin, higher return, low decline crude oil projects

  2016 production declined only 12.5% with only $31 million of Drilling & Completions and Workover Capital Investment.

Fund capital needs within cash flow

  Generated $49 million of free cash flow after capital expenditures for 2016.

Maintain exceptional health, safety and environmental practices

  CRC’s exemplary health, safety and environmental performance in 2016 was recognized by the National Safety Council and the Wildlife Habitat Council.

In summary, our stock price performance has been largely driven by factors outside of our management’s control. Occidental determined the amount of leverage on CRC’s balance sheet prior to the Spin-off from Occidental. These high debt levels and the prolonged downturn in oil prices have been the primary factors in our stock price performance relative to our peers. Our management team has made significant accomplishments in 2016 in deleveraging our balance sheet and strengthening CRC’s strategic position for an oil price recovery.

Compensation Philosophy

The following core principles form the foundation of our compensation program:

First, compensation programs should motivate our executives to take actions that are aligned with our short- and long-term strategic objectives, and appropriately balance risk versus potential reward.

Second, a high percentage of senior executives’ pay should be based on performance to ensure the highest level of accountability to stockholders.

Third, performance pay should offer an opportunity for above average compensation when our performance exceeds our goals balanced by the risk of below average compensation when it does not.

Fourth, our compensation programs should focus our executives on the long-term performance of the Company, thereby more closely aligning our executives’ interests with those of our stockholders.

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Evolution of Our Compensation Program

To provide the context for our 2016 compensation program, below is a description of the evolution of our program and the changes made from our initial program at the Spin-off in 2014 through our 2016 program. On May 31, 2016, we completed a reverse stock split using a ratio of one share of common stock for every ten shares then outstanding. Share and per share amounts included herein have been adjusted to reflect this reverse stock split.

2014 Compensation Program

CRC’s 2014 compensation program was developed by Occidental’s management and Occidental’s Compensation Committee prior to the Spin-off. Occidental considered the following matters important to the development of our 2014 compensation program:

 

Market practices of peer companies

 

The need for a smooth transition and retention of talent from Occidental to CRC

 

The need to attract executive talent from outside of Occidental

 

The need for CRC to have an initial compensation program immediately following the Spin-off that would serve until CRC’s management and Compensation Committee had the opportunity to consider an appropriate program in line with CRC’s objectives going forward.

2014 CEO Compensation Program Elements

Our 2014 compensation program for our CEO was comprised of the following elements, which are discussed in more detail below:  

2014 Peer Companies

The compensation decisions made by Occidental considered the market practices of a group of peer companies that were generally similar in operations and scope to CRC, as measured by expected market capitalization and expected revenue for CRC following the Spin-off. Because the peer companies were selected by Occidental in early 2014, prior to the finalization of the Spin-off terms and the severe downturn in oil prices, CRC’s expected market capitalization and revenue used to determine comparable peer companies were significantly higher than the actual market capitalization and revenue realized following the Spin-off. This resulted in compensation targets that were higher than the peer group used in 2015 and 2016 by CRC’s Compensation Committee.

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Occidental set 2014 compensation levels generally targeted to market median for the peer companies it selected.

2014 Annual Incentive Results

Due to the timing of the Spin-off in December 2014, CRC’s management and Compensation Committee had very little influence on the 2014 compensation program, and were only responsible for determination of the payout of the annual incentive. In determining the payouts under the 2014 annual incentive, CRC’s Compensation Committee recognized the strong financial and operational performance achieved for the year, in addition to the successful execution of the Spin-off, despite the dramatic downturn in oil prices. However, in early 2015, the CRC Compensation Committee exercised discretion in determining the payouts of the 2014 annual incentive to recognize the adverse impact of the oil price decline on the financial results and shareholder value and set payouts in the range (100 – 113%) of the target incentive amounts for the senior executives despite the strong operational and individual performance in 2014 that warranted higher above-target payouts.

2014 Long-Term Incentives

The 2014 compensation program set by Occidental included the following types of long-term incentives, which were intended to align interests of management with those of stockholders by linking realized compensation over the long term to appreciation in CRC’s stock price:

 

Performance-based Restricted Stock – These restricted stock awards have a three-year performance period from the grant date. The performance criterion for this award was a cumulative EBITDA threshold based on the number of calendar quarters between January 1, 2015 and the end of the three-year performance period. If the performance criterion is not attained by the end of seven years following the grant date, the award will forfeit in its entirety.

 

Stock Options – The 2014 stock options were granted with an exercise price that was 10% above the stock value at the time of the grants. One-third of these options vest at the end of each subsequent year and remain exercisable until seven years following the grant date. We used a Black-Scholes valuation based on the historical volatility of our peer companies to convert the grant date value of the option grant into a number of options, since CRC’s stock did not have sufficient history to calculate an appropriate volatility factor for the valuation.  

The CEO Realizable Pay discussion on page 44 illustrates the high degree of alignment between the 2014 long-term incentives and shareholder performance. The stock price at the time of the Spin-off was $73.70 compared to $21.29 as of December 31, 2016, an approximate 71% decrease. As a result of the leverage burden from Occidental at the time of the Spin-off, the realizable value of the 2014 long-term incentives has decreased by 90% from the target grant values. 60% of the target value of the 2014 long-term incentives was provided in the form of stock options that have an exercise price of $81.10, requiring a 380% increase in the stock price before value is realized from those awards. The decline in the stock price as a result of the leverage burden from Occidental has reduced the realizable value of the 2014 compensation program for our CEO and other members of the management team to 30% of the intended value, in line with the 71% decrease in the stock price.

2014 Conversions and Payouts of Prior Occidental Compensation Arrangements

All prior unvested Occidental long-term incentive awards held by our named executive officers were converted to CRC long-term incentive awards at the time of the Spin-off, as discussed on page 51. The CEO Realizable Pay discussion on page 44 illustrates the impact the decrease in stock price has had on the realizable value of those pre-CRC awards, reducing their value by over 70% for the CEO, further aligning interests of management with stockholders. While the decline in realizable values of long-term compensation aligns our management’s interests with stockholders, the factors which contributed to this decline were largely outside of management’s control.

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The 2014 compensation shown in the Summary Compensation Table on page 53 includes amounts related to compensation arrangements and programs entered between the executives and Occidental prior to the Spin-off. For Mr. Stevens, $850,000 was paid in settlement of an Occidental Retention Agreement and $565,000 was paid in settlement of an Occidental Return on Assets award granted in 2009. For Mr. Smith, $500,000 was paid as a one-time cash sign-on award and $2,500,000 was provided in the form of a one-time sign-on grant of Occidental restricted stock. For Mr. Williams, $600,000 was paid as a one-time cash sign-on award and $600,000 was provided in the form of a one-time sign-on grant of Occidental restricted stock.  The Occidental restricted stock grants were converted to CRC long-term incentive awards at the time of the Spin-off, as discussed on page 51.

2015 Compensation Program

In January 2015, immediately following the Spin-off, the newly-formed CRC Compensation Committee engaged Meridian Compensation Partners (“Meridian”) as its independent compensation consultant to assist with the review and development of the 2015 compensation program.

2015 CEO Compensation Program Elements

Our 2015 compensation program for our CEO was comprised of the following elements, which are discussed in more detail below:  

 


34


 

2015 Peer Group

The CRC Compensation Committee updated the compensation peer group, selecting oil and gas exploration and production companies that had similar operating and financial characteristics to CRC, as measured by enterprise value, asset value and equity market capitalization as shown below (in millions):

        

 

Enterprise

Assets Most

Equity

 

Value

Recent Quarter

Market Cap

Company

(Mar 2015)

(Dec 2014)

(Mar 2015)

Whiting Petroleum Corp

 

$11,869

 

 

$14,020

 

 

$6,319

 

Newfield Exploration Co

 

$8,587

 

 

$9,598

 

 

$5,709

 

EP Energy Corp

 

$7,141

 

 

$10,219

 

 

$2,565

 

Denbury Resources Inc

 

$6,148

 

 

$12,728

 

 

$2,600

 

Energen Corp

 

$5,860

 

 

$6,138

 

 

$4,823

 

SM Energy Co

 

$58,252

 

 

$6,517

 

 

$3,486

 

QEP Resources Inc

 

$4,773

 

 

$9,287

 

 

$3,660

 

WPX Energy Inc

 

$4,444

 

 

$8,798

 

 

$2,237

 

Oasis Petroleum Inc

 

$4,634

 

 

$5,938

 

 

$1,980

 

Concho Resources Inc

 

$17,416

 

 

$11,800

 

 

$13,806

 

Cabot Oil & Gas Corp

 

$13,945

 

 

$5,438

 

 

$12,214

 

Range Resources Corp

 

$11,863

 

 

$8,747

 

 

$8,790

 

Cimarex Energy Co

 

$11,176

 

 

$8,725

 

 

$10,082

 

Murphy Oil Corp

 

$9,640

 

 

$16,742

 

 

$8,293

 

Parsley Energy

 

$2,365

 

 

$2,051

 

 

$1,738

 

 

 

 

 

 

 

 

 

 

 

  25th Percentile

 

$5,313

 

 

$6,327

 

 

$2,583

 

  50th Percentile

 

$7,414

 

 

$6,798

 

 

$4,823

 

  75th Percentile

 

$11,519

 

 

$11,009

 

 

$8,542

 

 

 

 

 

 

 

 

 

 

 

California Resources Corp

 

$9,281

 

 

$12,497

 

 

$2,935

 

  Percentile Rank

 

62%

 

 

84%

 

 

31%

 

 

The Compensation Committee believed that this group of peer companies was more comparable to CRC with respect to the complexity, assets, total capitalization and scope of CRC’s operations than peer companies that would be selected based on equity market capitalization alone. Due to our highly leveraged balance sheet and resulting depressed equity market capitalization (see Historical Perspective and 2016 Business Highlights on page 29), companies with similar equity market capitalization tended to be much smaller in size, scope, and complexity than CRC. The Compensation Committee did not believe executives at these smaller companies faced comparable responsibilities and challenges.  

The target value or our CEO’s 2015 compensation was evaluated by CRC’s Compensation Committee using this new peer group and our CEO’s target value was generally targeted near the new peer group median.

2015 Base Salary

The CRC Compensation Committee made no changes to the named executive officers’ base salaries in 2015, due to the position of current base salaries relative to the 2015 peer companies.

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2015 Annual Incentive Design and Result

The CRC Compensation Committee then designed the annual incentive for 2015, with performance measures that focused on achievement of financial, operating and strategic goals that were aligned with creation of shareholder value. 60% of the 2015 bonus opportunity was based on key quantitative Company metrics and 40% on individual operational and strategic goals focused on activities intended to increase shareholder value as shown below.

 

Performance Measure (1)

Component Weighting

(a)

Threshold (50% Payout)

Target

(100% Payout)

Maximum (200% Payout)

2015 Results

Component Payout as Percent of  Target

(b)

Resulting Potential % of Target Bonus Payout
(a) x (b)

Value Creation Index (VCI)

25%

1.10

1.20

1.30

1.20

100%

25%

Production (000’s of BOEPD)

15%

155

158

160

160

195%

29.3%

Production and G&A Costs per BOE

10%

$24.75

$24.10

$22.25

$22.37

194%

19.4%

Health, Safety and Environmental (HSE)

 

10%

 

 

 

 

 

180%

 

18%

-Combined IIR (50%)

-Spill prevention rate (25%)

-Increase in net water supplied (25%)

 

0.7

 

99.998%

 

 

1%

0.6

 

99.9985%

 

 

2%

0.5

 

99.999%

 

 

3%

0.54

 

99.9997%

 

 

13%

 

 

Strategic and Individual

Objectives

 

40%

 

Multiple Individual Measures

Target - Maximum

100% - 200%

40% - 80%

 

 

 

 

 

 

 

 

Range of Potential Payouts

131.7% - 171.7%

 

 

 

 

 

Negative Discretion Applied by Compensation Committee

(40%) - (80%)

 

 

 

 

 

 

Final Payout

 

 

91.7%

 

(1)

Descriptions of the performance measures are as follows:

 

Performance Measure

Description

Value Creation Index

We use a Value Creation Index (VCI) metric for project selection and capital allocation across our portfolio of opportunities.  We calculate VCI for each of our projects by dividing the net present value of the project’s expected pre-tax cash flow over its life by the present value of the investments, each using a 10% discount rate.

Production

Average daily production

Production Costs and G&A Costs

Average of the sum of production cost and G&A cost per barrel of oil equivalent (BOE)

HSE – Combined IIR

Injury and illness incidence rate of employees and contractors

HSE – Spill Prevention Rate

Ratio of (BOE produced minus net reportable oil spill volume) to BOE produced

HSE – Increase in net water supplied

Percentage increase in net water supplied to agriculture

 

The CRC Compensation Committee’s assessment of the 2015 annual incentive performance concluded that results were at or above target for all of the financial and operating performance measures, producing potential payouts well above the target incentive amounts. Despite our management team’s strong performance with respect to the 2015 performance measures, the CRC Compensation Committee exercised negative discretion in determining the bonus payouts by recognizing only the portion of the incentive for the quantitative Company Performance Measures, with no payouts associated with the Strategic and Individual Objectives portion. As a result, the payouts were reduced to 91.7% of the target bonus amount from potential payouts of 131.7% to 171.7%. The Compensation Committee’s decision not to attribute any portion of the bonus payout to the Strategic and Individual Objectives was primarily the result of CRC’s stock price performance and the desire to further align pay with stockholder interests and preserve cash during a very challenging commodity price environment. However, as discussed above under Historical Perspective and 2016 Business Highlights on page 29, CRC’s stock price performance was driven in large part by Occidental’s decision to spin off the Company with a highly leveraged balance sheet.

36


 

2015 Long-Term Incentives

The 2015 long-term incentives were redesigned to use three types of awards which were all share-based, aligning interests of management with those of stockholders:

 

Performance Stock Units, representing 50% of the grant value, designed to link compensation to achieved performance against key financial goals of relative total shareholder return (TSR) over a three-year period and average Value Creation Index (VCI) over a two-year period, as well as changes in share price, with performance-based payouts of stock. The performance peer group for the TSR portion includes the 2015 compensation peer group together with Noble Energy, Inc., Energy XXI, Ltd. and Pioneer Natural Resources Company. The potential payouts for the TSR portion of the award are limited to target if the absolute TSR for CRC is negative.

 

Restricted Stock Units, representing 30% of the grant value, intended to promote retention of executives with time-vested payouts of stock over a three-year period.

 

Stock Options, representing 20% of the grant value, linking realizable compensation over the long-term to appreciation in the stock price with vesting over three years and an exercise period ending seven years after the grant date. We used a Black-Scholes valuation based on the historical volatility of our peer companies to convert the grant date value of the option grant into a number of options, since CRC’s stock did not have sufficient history to calculate an appropriate volatility factor for the valuation.  

As illustrated in the CEO Realizable Pay discussion on page 44, the 2015 long-term incentives are strongly aligned with stockholder interests. The stock price at the time of the grant of the 2015 awards was $42.00. With the stock price as of December 31, 2016 down to $21.29, an approximate 50% decrease, the realizable value of the 2015 long-term incentives has decreased over 57%.

2016 Compensation Program

In 2016, the CRC Compensation Committee continued to refine the compensation program and made adjustments with a continued focus on paying for performance in the context of a depressed commodity price environment and the significant debt burden the management team inherited at the Spin-off. In making changes to the 2016 compensation program, the Compensation Committee also considered the potential shareholder dilution effects of the 2016 program due to the severely depressed stock price had the prior program continued. To provide grant date values of share-based awards similar to those provided in 2014 and 2015, shareholder dilution would have been close to 9%.  

Occidental’s decision to spin off CRC with a highly leveraged balance sheet, and the resulting impact on the share price due to the sustained downturn in oil prices, has also led to retention challenges due to the significant reduction in realizable compensation under our previously granted long-term awards (see Realizable Pay Analysis on page 44). The Compensation Committee believes it is in the stockholders’ best interests to retain the current management team and provide a compensation program that does not have the same risk profile and volatility as the share price while the management team continues to work to reduce leverage.


37


 

2016 CEO Compensation Program Elements

Our 2016 compensation program for our CEO was comprised of the following elements, which are discussed in more detail below:  

2016 Peer Group

The Compensation Committee reviewed our 2015 compensation peer companies and affirmed that they were still appropriate to use as our 2016 compensation peer companies (see 2015 Peer Companies on page 35). The Compensation Committee believes that this group of peer companies continues to be more similar to CRC with respect to the complexity, assets, total capitalization and scope of CRC’s operations than peer companies that would be selected based on equity market capitalization alone. For the reasons described above relating to our highly leveraged balance sheet and oil fields that by their nature have a higher cost to operate, the sustained depressed oil price environment has had a larger impact on our stock price compared to other oil and gas companies (see Historical Perspective and 2016 Business Highlights on page 2929). Companies with similar equity market capitalization tend to be much smaller in size, scope, and complexity than CRC due to our depressed equity market capitalization. The Compensation Committee does not believe executives at these smaller companies face comparable responsibilities and challenges.  Further, the Compensation Committee does not believe that smaller companies represent the competitive market for our executive team’s skills and experience and that setting CRC compensation levels consistent with these companies would penalize our management team for factors beyond their control, causing substantial retention problems at a time when CRC needs an experienced management team.

2016 Base Salaries

Responding to the industry downturn, and to conserve cash, in March 2016 the Compensation Committee approved a temporary reduction of the base salaries of the NEOs by 10% during the severe downturn in oil prices. The Compensation Committee acted to restore the salaries of the NEOs on a prospective basis to their previous levels in October of 2016, after a modest recovery in oil prices, resulting in an overall 6% reduction in base salaries for 2016 compared to 2015.

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2016 Annual Incentive Design

The annual incentive component of our 2016 compensation program was designed to promote the achievement of financial, operating and strategic results that are aligned with creation of shareholder value. The performance measures are comprised of quantitative Company measures for 60% of the target annual incentive and qualitative individual objective measures for 40% of the target annual incentive.

To further align our strategic areas of focus for the year, the CRC Compensation Committee made adjustments to the performance measures for the 2016 annual incentive to address CRC’s liquidity challenges, including debt reduction and the leverage covenants in our bank agreements. The table below provides the weightings for each performance measure and the threshold, target, and maximum performance criteria as established by the Compensation Committee in March 2016. Also shown in the table are the actual 2016 results under each quantitative performance measure and the resulting percentage of target bonus payout.

 

Performance

Measure (1)

Component Weighting

(a)

Threshold (50% Payout)

Target

(100% Payout)

Maximum (200% Payout)

2016 Results

Component Payout as Percent of  Target

(b)

Resulting % of Target Bonus Payout
(a) x (b)

 

Investment

 

Value Creation Index (VCI)

 

 

 

5%

 

 

 

1.1

 

 

 

1.2

 

 

 

1.3

 

 

 

2.03

 

 

 

200%

 

 

 

10.00%

 

Operations

 

Production

Production Costs per BOE

G&A Expenses

 

 

 

5%

5%

5%

 

 

 

136

$16.25

$240

 

 

 

139

$15.75

$230

 

 

 

142

$15.25

$220

 

 

 

140.0

$15.40

$233

 

 

 

133%

170%

85%

 

 

 

6.67%

8.50%

4.25%

 

Health, Safety & Environmental (HSE)

 

 

5%

 

 

 

 

 

 

 

 

 

-Combined IIR (33%)

 

 

0.65

 

0.55

 

0.45

 

0.49

 

160%

 

2.67%

-Spill prevention rate (33%)

 

99.9998%

99.9993%

99.9997%

99.9999%

200%

3.33%

-Increase in net water supplied (33%)

 

 

159%

 

162%

 

164%

 

255%

 

200%

 

3.33%

 

Liquidity

 

-EBITDAX

-Interest Coverage

-Debt

 

 

 

10%

10%

15%

 

 

 

$429

1.00

$5.0

 

 

 

$450

1.15

$4.5

 

 

 

$472

1.30

$4.0

 

 

 

$616

1.59

$5.26

 

 

 

200%

200%

0%

 

 

 

20.0%

20.0%

0.00%

 

Total Quantitative Measures

 

60%

 

 

 

131.25%

 

78.75%

 

Strategic and Individual Objectives

40%

Multiple Individual Measures

 

0% - 200%

0% - 80%

 

 

 

 

 

 

 

Range of Potential Payouts

78.75% - 158.75%

 

 

 

 

 

Negative Discretion Applied by Compensation Committee

-

 

 

 

 

 

 

Final Payout Range

 

78.75% - 158.75%

 

 

(1)

Descriptions of the performance measures are as follows:

39


 

 

Performance Measure

Description

Value Creation Index

We use a Value Creation Index (VCI) metric for project selection and capital allocation across our portfolio of opportunities.  We calculate VCI for each of our projects by dividing the net present value of the project’s expected pre-tax cash flow over its life by the present value of the investments, each using a 10% discount rate.

Production

Total production in thousands of barrels of oil equivalent per day (BOEPD)

Production Costs

Average adjusted production cost per barrel of oil equivalent (BOE), excluding cost of reinstated retirement and matching contributions which were suspended in March of 2016 and later reinstated but not considered in setting the metrics (Production cost of $15.61 per BOE - $0.21 per BOE of reinstated retirement and savings contributions = $15.40 per BOE)

G&A Expenses

Total adjusted general and administrative expense (millions), excluding cost of reinstated retirement and matching contributions which were suspended in March of 2016 and later reinstated but not considered in setting the metrics (G&A of $248 million - $15 million of reinstated retirement and matching contributions = $233 million)

HSE – Combined IIR

Injury and illness incidence rate of employees and contractors

HSE – Spill Prevention Rate

Ratio of (BOE produced minus net reportable oil spill volume) to BOE produced

HSE – Increase in net water supplied

Water supplied to agriculture divided by fresh water purchased

EBITDAX

Consolidated EBITDAX (millions) per our Credit Agreement (as per Third Amendment)

Interest Coverage

Interest expense ratio (EBITDAX divided by interest expense) per Credit Agreement

Debt

Long-term debt principal amount (billions)

 

All executives were given the same Investment, Operations, and Liquidity quantitative measures. The actual 2016 results against these goals yielded a payout of 131.25% of target for the quantitative measures portion of the annual incentive.

2016 Annual Incentive Result

For each of our NEOs, the Compensation Committee considered the executive’s performance in 2016 against the individual’s strategic and individual objectives in determination of the payout amounts under the 2016 Annual Incentive. Each of the NEOs had individual objectives covering the following areas:

 

-

Execution of strategic plan and initiatives

 

-

Debt management

 

-

Quality and consistency of risk management efforts

 

-

Results of ongoing and planned regulatory approval processes

 

-

Outreach and dialogue with stakeholders on key community and public policy issues

 

-

Succession planning and leadership development

 

-

Shareholder relations

 

Based on the performance assessments of our CEO and the other NEOs against their respective Strategic and Individual objectives by our CEO, and reflecting the business and commodity price challenges the management team effectively dealt with in 2016 (see Historical Perspective and 2016 Business Highlights on page 29), the Compensation Committee approved the following 2016 annual incentive payouts:

 

Name

Base Salary

 

Target (% of Salary)

 

(a)

 

 

Target in $

 

(b)

 

Quantitative Component $

[60% * (a) * 131.25%]

 

(c)

 

Individual Component Result

(% of target)

 

(d)

 

Individual Component $

[40% * (a) * (c)]

 

(e)

 

Total Payout $

[(b) + (d)]

 

Total % of Target

[(e) / (a)]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Todd A. Stevens

$

825,000

 

 

100%

 

$

825,000

 

$

650,000

 

 

200%

 

$

660,000

 

$

1,310,000

 

 

159%

 

Marshall D. Smith

$

600,000

 

 

100%

 

$

600,000

 

$

473,000

 

 

195%

 

$

467,000

 

$

940,000

 

 

157%

 

Robert A. Barnes

$

400,000

 

 

90%

 

$

360,000

 

$

284,000

 

 

195%

 

$

281,000

 

$

565,000

 

 

157%

 

Charles F. Weiss

$

425,000

 

 

75%

 

$

318,750

 

$

251,000

 

 

175%

 

$

224,000

 

$

475,000

 

 

149%

 

Darren Williams

$

450,000

 

 

90%

 

$

405,000

 

$

319,000

 

 

136%

 

$

221,000

 

$

540,000

 

 

133%

 

 

40


 

2016 Long-Term Incentives

The extraordinarily severe industry conditions (discussed in the Historical Perspective and 2016 Business Highlights section on page 29) continued into 2016 and prompted the Compensation Committee to redesign the performance-based long-term incentive awards to address the following objectives:

 

Retention of our management team in light of the substantial erosion of realizable pay caused by the linkage of the long-term incentive program to the leverage, financial risk profile and volatility of the share price as a result of the debt placed on our balance sheet by Occidental.

 

Minimize shareholder dilution as a result of the extraordinarily low share prices at the time of the 2016 grants (close to 5% shareholder dilution would have resulted from proceeding on the prior compensation program with grants of traditional stock-paid performance awards and options).

 

Ensure a long-term incentive risk profile consistent with long-term interests of stockholders.

 

Motivation of our executives to impact positive change in areas over which they have control, noting that the stock price performance is strongly influenced by the balance sheet issues described above that are largely outside of management’s control.  

In 2016, our long-term incentives continued to be provided in a mix of time-vested restricted stock unit awards and performance-based awards, to promote retention and pay for performance. The total grant values were allocated half to time-vested restricted stock unit awards and half to performance-based awards, which are described under 2016 Performance Incentive Award below. We did not grant any stock options in 2016.

 

The Compensation Committee decided to reduce the grant date target values of our 2016 long-term incentives by 30% from 2015 levels based on industry conditions and anticipated changes in competitive compensation levels among our peers. The reductions in the long-term incentive values for 2016 were expected to be in line with anticipated reductions by CRC’s peer companies and were not indicative of any decreased executive performance.

2016 Restricted Stock Unit Award The 2016 Restricted Stock Unit Award (RSU Award) is a stock-based, stock-settled long-term incentive award intended to primarily promote retention and enhance alignment with stockholder interests through development of ownership in the Company with time-vested payouts, with one-third of the units vesting at the end of each year during the three-year period commencing at the grant date.

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2016 Performance Incentive Award The 2016 Performance Incentive Award (PIA Award) is a cash-based, cash-settled long-term performance award with performance measures based 50% on CRC’s unit costs per BOE relative to industry peers with similar cost structures and 50% on VCI, both measured over a three-year period. The PIA Award vests, subject to attainment of the performance measures, three years after the grant date. This award structure addressed the above concerns as follows:

 

The cash-based nature of the PIA Award reduced the overall risk profile and volatility of the total compensation program since the target performance award value is not directly linked to the stock price. The amounts that will be realized by the executives will be driven solely by the results attained against the performance measures. While these awards do not have the direct stockholder alignment that a stock-based award would have, the Compensation Committee determined that (a) success in achieving these performance measures should contribute directly to improved stock price performance and is within management’s control and (b) stockholder interests would be better served in this extraordinary situation by promoting retention of the current management team.  

 

The cash-settled nature of the PIA Award eliminates the potential shareholder dilution that would have been created by continuing with prior stock-settled performance awards.

 

The performance measures for the 2016 PIA Award continue to focus the management team on making decisions that will enhance shareholder value over the long term. The VCI measure drives our capital allocation decisions to ensure that we focus spending on the highest return projects. The relative cost performance metrics ensure that management continues to control costs and maximize our margins relative to our peers. These factors are within management’s control.

The peer companies chosen for the relative unit cost performance measures under these awards were selected based upon companies with similar asset and operating cost characteristics to CRC, rather than similar size to CRC as used for compensation benchmarking purposes. The peer companies selected by the CRC Compensation Committee for the 2016 PIA are: Anadarko Petroleum Corporation, BP p.l.c., Canadian Natural Resources Limited, Cenovus Energy Inc., Chevron Corporation, ConocoPhillips Company, Denbury Resources Inc., Exxon Mobil Corporation, Hess Corporation, Husky Energy Inc., Imperial Oil Limited, Marathon Oil Company, Occidental Petroleum Corporation, Royal Dutch Shell plc, and Suncor Energy Inc. This peer group was not used for compensation benchmarking purposes.

Grant amounts related to the 2016 PIA Award do not appear in the SCT for 2016 on page 53, since they are not equity-based awards.  Rather, the cash amounts earned, if any, under the awards will appear in the SCT for 2019, the year the award will be paid.

The PIA Award will vest at the end of three years from the grant date based on achieved performance against pre-determined performance criteria. The following table summarizes key features of the PIA Award granted to our named executive officers.  

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Key Terms of the 2016 Performance Incentive Award

 

 

 

 

Award Feature

Unit Cost Component

Value Creation Index
(VCI) Component

Component Weight

50%

50%

Performance Period

January 1, 2016 –
December 31, 2018

January 1, 2016 –
December 31, 2018

Performance Measure

Change in CRC Cost per BOE minus Change in Peer Group Cost per BOE where:

    Change in CRC Cost per BOE is the percentage change in weighted average of CRC’s Cost per BOE for the years 2016, 2017 and 2018, weighted by CRC’s production for each year compared to CRC’s Cost per BOE for the year 2015.  

    Change in Peer Group Cost per BOE is the percentage change in the average of the Cost per BOE for the peer companies for 2016, 2017 and 2018 compared to the Average Cost per BOE for the peer companies for 2015.  

    Cost per BOE is the sum of production costs and general and administrative expenses measured on a per-barrel of oil equivalent (“BOE”) basis.

Cumulative VCI calculated as the weighted average of the VCI results for 2016, 2017, and 2018, weighted based on discounted capital invested for each year.

Vesting Date

August 1, 2019

Form of Payout

Cash

Payout Range (1)

Threshold Payout

75% of Target

75% of Target

Performance Resulting in Threshold Payout

Change in CRC cost per BOE minus change in Peer Group cost per BOE less than or equal to 10%

Cumulative VCI of 1.1

Target Payout

100% of Target

100% of Target

Performance Resulting in Target Payout

Change in CRC cost per BOE equal to change in Peer Group cost per BOE

Cumulative VCI of 1.3

Maximum Payout

200% of Target

200% of Target

Performance Resulting in Maximum Payout

Change in CRC cost per BOE minus change in Peer Group cost per BOE less than or equal to -10%

Cumulative VCI of 1.5 or higher

 

(1)

Payouts interpolated for performance results between threshold and target or target and maximum.


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Linkage Between Pay and Performance

Our compensation program is well designed to link the pay realized by our executives to the performance of CRC and the returns to our stockholders, while also providing retention incentives necessary to retain our executives through this challenging period.  

2016 Pay Mix is Performance Based

The pay mix at target grant date values for our chief executive officer and other named executive officers for 2016 was primarily long-term and performance-based.

 

Pay Mix of Chief Executive Officer

 

Average Pay Mix of NEOs

 

 

 

 

 

 

 

 

 

o

Salary

o

Performance-Based Long-Term Incentive

 

 

 

 

o

Annual Incentive

o

Time-Vested Long-Term Incentive

 

Realizable Pay Analysis

As discussed in the Historical Perspective and 2016 Business Highlights on page 29, we believe that factors beyond CRC management’s control, the significant debt burden placed on CRC by Occidental and the sustained severe downturn in oil prices, have been largely responsible for CRC’s stock price performance. CRC’s Compensation Committee has worked diligently to adjust the compensation program each year since the Spin-off giving consideration to management’s performance, alignment with stockholder interests, competitive market practice, and the desire to retain the management team through this critical period.


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The chart below illustrates the degree to which our CEO’s realizable pay has been impacted by the decline in the stock price since the Spin-off.  

Notes regarding the CEO Realizable Pay:

 

Pre-2014 Converted Awards are CRC restricted stock awards granted to replace unvested Occidental awards at the time of the Spin-off. These awards were not granted by the CRC Compensation Committee and were not based on CRC service.

 

2014 Base Salary reflects three months at the CRC Base Salary of $825,000 and nine months at the Occidental Base Salary of $425,000.

 

2014 realizable Annual Incentive reflects payout at 105% of target. The CRC Compensation Committee exercised its discretion to reduce the payout, given the deteriorating oil price conditions at the time, in determination of the bonus payout based on the CEO’s performance in 2014 that would have supported a higher payout.

 

2014 realizable Long-Term Incentives are all stock-based and reflect 60% of the target long-term incentive value in the form of stock options that are significantly underwater with an exercise price of $81.10 compared to the stock price of $21.29 as of December 31, 2016.

 

2015 Base Salary reflects the full year at the CRC Base Salary, which was not increased over the initial Base Salary at the time of the Spin-off.

 

2015 realizable Annual Incentive reflects payout at 92% of target. The Compensation Committee exercised negative discretion in the determination of the payout based on economic conditions at the time of the payout, reducing the payout from above target to 92% of target.

 

2015 realizable Long-Term Incentives are all stock-based and reflect 20% of the target long-term incentive value in the form of stock options that are significantly underwater with an exercise price of $42.00 compared to the stock price of $21.29 as of December 31, 2016. Also reflects TSR portion of long-term incentive projected to pay out at 0% due to the stock price performance through December 31, 2016.

 

2016 realizable Base Salary reflects a 10% reduction from March 2016 to October 2016 implemented to conserve cash during the most severe period of the downturn in oil prices.

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2016 target Long-Term Incentives reflect a 30% reduction in the grant date values to be consistent with anticipated changes in peer company grant values due to the sustained downturn in oil prices.

 

2016 realizable Long-Term Incentives reflect the effect of the increase in the stock price from the May 27, 2016 grant date ($15.40) to December 31, 2016 ($21.29).

Target Compensation for Our NEOs

Set forth below are the individual components of the 2016, 2015 and 2014 annual compensation programs for our named executive officers, if they were named executive officers for the relevant period. Long-term incentives reflect the target grant date values of awards. The 2016 long-term incentive levels, as discussed on page 41, reflect the Compensation Committee’s decision that the grant date values of our 2016 long-term incentives be reduced by 30% from 2015 levels based on industry conditions at the time and anticipated changes in competitive compensation levels among our peers. The reductions in the long-term incentive values for 2016 were expected to be in line with anticipated reductions by CRC’s peer companies and were not indicative of any decreased executive performance.

 

Todd A. Stevens–President and Chief Executive Officer

Target Compensation

 

2016

 

 

 

2015

 

 

 

2014

 

Base Salary

$

 

825,000

 

(1)

$

 

825,000

 

 

$

 

825,000

  (4)

Annual Incentive at Target

$

 

825,000

 

 

$

 

825,000

 

 

$

 

825,000

 

Long-Term Incentive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Incentive Award at Target

$

 

1,750,000

 

(2)

$

 

0

 

 

$

 

0

 

Performance Stock Unit Award at Target

$

 

0

 

 

$

 

2,500,000

 

 

$

 

2,000,000

 

Restricted Stock Unit Award

$

 

1,750,000

 

(3)

$

 

1,500,000

 

 

$

 

0

 

Stock Option Award

$

 

0

 

 

$

 

1,000,000

 

 

$

 

3,000,000

 

Total Annual Cash and Equity Compensation at Target

$

 

5,150,000

 

 

$

 

6,650,000

 

 

$

 

6,650,000

  (5)

 

Marshall (Mark) D. Smith–Senior Executive Vice President and Chief Financial Officer

Target Compensation

 

2016

 

 

 

2015

 

 

 

2014

 

 

 

Base Salary

$

 

600,000

 

(1)

$

 

600,000

 

 

$

 

600,000

 

(6)

 

Annual Incentive at Target

$

 

600,000

 

 

$

 

600,000

 

 

$

 

600,000

 

 

 

Long-Term Incentive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Incentive Award at Target

$

 

900,000

 

(2)

$

 

0

 

 

$

 

0

 

 

 

Performance Stock Unit Award at Target

$

 

0

 

 

$

 

1,000,000

 

 

$

 

1,200,000

 

 

 

Restricted Stock Unit Award

$

 

700,000

 

(3)

$

 

600,000

 

 

$

 

0

 

 

 

Stock Option Award

$

 

0

 

 

$

 

400,000

 

 

$

 

1,800,000

 

 

 

Total Annual Cash and Equity Compensation at Target

$

 

2,800,000

 

 

$

 

3,200,000

 

 

$

 

4,200,000

 

(7)

 

 

Robert A. Barnes–Executive Vice President–Operations

Target Compensation

 

2016

 

 

 

 

 

 

 

 

Base Salary

$

 

400,000

 

(1)

 

 

 

 

 

 

Annual Incentive at Target

$

 

360,000

 

 

 

 

 

 

 

 

Long-Term Incentive

 

 

 

 

 

 

 

 

 

 

 

Performance Incentive Award at Target

$

 

437,500

 

(2)

 

 

 

 

 

 

Performance Stock Unit Award at Target

$

 

0

 

 

 

 

 

 

 

 

Restricted Stock Unit Award

$

 

437,500

 

(3)

 

 

 

 

 

 

Stock Option Award

$

 

0