DEF 14A 1 d131529ddef14a.htm DEF 14A DEF 14A
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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.     )

 

 

Filed by the Registrant  x                             Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material under Rule 14a-12

APACHE CORPORATION

(Name of registrant as specified in its charter)

 

(Name of person(s) filing proxy statement, if other than the registrant)

Payment of Filing Fee (Check the appropriate box):

 

x   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

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  (3)  

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

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

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¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

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Filing Party:

 

     

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Date Filed:

 

     

 

 

 


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LOGO

Dear Fellow Shareholders,

 

LOGO   

On behalf of the entire Board, I would like thank all of our shareholders for your continued support, and as stewards of your company and your capital, we remain focused on near term challenges and long term results.

 

The past twelve months have marked a period of significant transformation at Apache. Management and the Board have swiftly responded to changing market conditions, and consequently, Apache is well positioned relative to peers to compete and succeed in a low oil price environment. We implemented substantial changes in our leadership team, portfolio, and capability – all of which will enable Apache to better drive long-term value in the context of current market headwinds. Key changes include:

 

  Successful CEO transition and appointment of a new CFO

  Aggressive organizational restructuring, attacking our cost structure at every level

  Recalibrated activity level and spending to align with current price environment

  Significantly reduced capital spending and net debt compared to 2014

  Completed sales of LNG and Australian upstream assets to streamline portfolio

With the drop in oil prices and activity, we performed a disciplined, methodical, and scientific evaluation of our existing North American portfolio. We believe we are extremely well positioned to grow production and reserves in a modestly improved price environment. Our existing position, complemented by our recent land acquisitions around our core holdings, position us for the next decade and beyond.

In addition, our approach to corporate governance is thoughtful, forward-looking, and well informed by our shareholders. This spring we further established Apache as an early adopter, by including proxy access in Apache’s bylaws in February 2016. We also believe that an effective Board cannot remain static. We refreshed key Board leadership positions, with myself assuming the Chairmanship and rotating the Chairs of our Corporate Governance and Nominating Committee and our Management Development and Compensation Committee.

Our executive compensation program has a focus on long-term corporate strategy and results. Simply put, we incentivize our management team to execute on value-driving corporate and management objectives, and we hold them accountable for achieving long-term shareholder returns above our peers. Our goals are rigorous, and our expectations of management’s ability to deliver outperforming shareholder returns are high.

Last, as we have done in the past, and will continue to do, we conducted shareholder outreach at an unmatched scope and frequency. The important feedback from our investors throughout the year is critical to our Board making the most informed decisions possible on behalf of our shareholders.

Our Board is keenly aware of the discipline, focus, and consistency required for long-term profitable growth. We are committed to govern with robust oversight through this transformational time, and given the impactful changes we have implemented, we are confident and excited about our potential for differential value creation in the current environment and for years to come.

Thank you for your continued investment in Apache.

Sincerely,

 

LOGO

John E. Lowe

Chairman of the Board

March 28, 2016


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LOGO

One Post Oak Central, 2000 Post Oak Boulevard,

Suite 100, Houston, Texas 77056-4400

 

LOGO

 

Thursday, May 12, 2016

10:00 a.m. Houston Time,

Hilton Houston Post Oak,

2001 Post Oak Boulevard, Houston, Texas

The 2016 annual meeting of shareholders of Apache Corporation, a Delaware corporation, will be held on Thursday, May 12, 2016, at 10:00 a.m. (Houston time), at the Hilton Houston Post Oak, 2001 Post Oak Boulevard, Houston, Texas, for the following purposes:

 

1. Election of the four directors named in the attached proxy statement to serve until the Company’s annual meeting in 2017;

 

2. Ratification of appointment of Ernst & Young LLP as the Company’s independent auditors for fiscal year 2016;

 

3. Advisory vote to approve the compensation of the Company’s named executive officers;

 

4. Approval of the Company’s 2016 Omnibus Compensation Plan; and

 

5. Transaction of any other business that may properly come before the meeting or any adjournment thereof.

Holders of record of the Company’s common stock as of the close of business on March 14, 2016, are entitled to notice of, and to vote at, the annual meeting.

Your vote is important. Whether or not your plan to attend the meeting, we encourage you to vote as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail, the section titled “How to Vote” beginning on page 10 of this proxy statement or, if you requested to receive printed proxy materials, your enclosed proxy card.

Houston, Texas

March 28, 2016

By order of the Board of Directors

 

LOGO

C. L. PEPER

Corporate Secretary

APACHE CORPORATION

 

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Shareholders to be held on May 12, 2016:

This proxy statement, along with the Company’s Annual Report on Form 10-K for the fiscal year ended

December 31, 2015, are available free of charge on the Company’s website at

http://www.apachecorp.com


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PROXY STATEMENT SUMMARY

This executive summary has been provided as an overview of the information contained within this proxy statement. We encourage you to read the entire proxy statement prior to voting.

2015 Business Highlights

 

 

In 2015, the oil and gas industry experienced a challenging commodity price environment, featuring dramatically lower prices for both crude oil and natural gas. We successfully positioned the Company to compete and thrive under these difficult circumstances, delivering greater efficiencies and cost reductions to generate continued growth. Highlights of our operational, strategic, and financial achievements are provided below:

 

 
OPERATIONAL
     
   

 

535 Mboe/d

      Average liquids and natural gas production across operations
      Mboe/d = thousands of barrel of oil equivalents per day
      Crude oil represented 82% of total liquids production
     

 

+3% / +13%

      Increase in North American onshore and International production vs. 2014
      Both numbers exclude tax barrels, noncontrolling interest, and divestitures
     
 
STRATEGIC
     
   

 

$6.2 billion

      Proceeds from strategic divestitures
      Including our interests in the Wheatstone and Kitimat LNG projects and our Australian operations
     

16%

      Reduction of General & Administrative (G&A) Expenses
      23% reduction in our employee base over the last 12 months, and 19 executives over the past 18 months, in light of our reduced asset base
      Created a super-region structure and optimized organization by consolidating Central and Gulf Coast region employees into our Houston Office
     
 
FINANCIAL
     
   
60%+       Reduction in capital spending vs. 2014
     
   
35%       Reduction in average North American drilled and completed well costs vs. 2014
      Including 9% year-over-year per unit reduction in lease operating costs
     
$2.5 billion       Reduction of total debt
      Eliminated $900M of 2017/2018 debt maturies and reduced net long term maturing before 2021 to $700M, or 8% of total debt outstanding
     
2020       Refreshed and extended credit facility to June 2020
      Ended the year with $5B in liquidity, which includes $3.5B in undrawn credit facility and $1.5B in cash
     
2nd Quartile TSR       Finished 2015 with a second-quartile relative TSR rank
      Exceeding 2015 performance of over 70 percent of our peers (12/31/14 – 12/31/15)
     

The Board and management will continue to take steps to position the Company for future success in the new commodity price environment and continue our transition to become a premier exploration and production company with global assets focused on North American growth.

 

APACHE CORPORATION – 2016 Proxy Statement      3


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Corporate Governance Highlights

 

 

 

ü Separate chairman and CEO effective January 20, 2015
ü Independent non-executive chairman effective May 2, 2015
ü Majority vote standard for the election of directors
ü No poison pill
ü Right to call a special meeting at 15 percent
ü Officer and director stock ownership requirements, including pay multiples and hold-until-retirement provisions
ü 20 percent female representation among our non-employee directors
ü Policies against hedging and pledging
ü Clawbacks of incentive awards in the event of a material negative restatement
ü Double triggers for accelerated vesting of equity upon a change in control
ü Board-adopted human rights principles and statement on indigenous peoples
ü Expanded disclosure of our political expenditures
ü Robust Board review and Board refreshment practices
ü Long-standing shareholder engagement practices
ü Proxy access bylaw adopted in February 2016 after supporting a proxy access shareholder proposal in 2015
ü Board declassification and transition to annual election of all directors after a management proposal was approved last year

Board and Shareholder Engagement

 

 

The Board maintains a process for shareholders and interested parties to communicate with the Board. Shareholders and interested parties may write or call our Board as provided below:

 

LOGO

 

    

LOGO

 

    

LOGO

 

    

LOGO

 

WRITE

Corporate Secretary

Apache Corporation

2000 Post Oak Blvd.

Suite 100

Houston, TX 77056-4400

    

CALL

Investor Relations

2813022286

    

EMAIL

www.ir@apachecorp.com

    

GO TO

Apache Annual Meeting www.apachecorp.com/

investors/annual_meeting.aspx

We understand the importance of a robust shareholder engagement program. To that end, Apache’s executives and management attended over 100 in-person shareholder meetings in 2015, including in-person meetings with 24 of our top 25 shareholders. In addition, we: (i) conduct multiple meetings each year with shareholder groups to discuss governance issues, (ii) conduct an annual in-person meeting between our CEO and our environmental, social, and governance shareholders, (iii) participate with our shareholders in various governance forums, and (iv) as appropriate, facilitate meetings between shareholders and our directors. Our meetings and interactions with shareholders are designed to better understand how our shareholders perceive Apache and to provide our shareholders an opportunity to discuss matters that they think deserve attention. We believe our engagement has been productive and provides an open exchange of ideas and perspectives for both us and our shareholders.

 

4      APACHE CORPORATION – 2016 Proxy Statement


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Board Refreshment and Succession

 

 

 

BALANCED

TENURES

      

COMMITTED TO

BOARD REFRESHMENT

 

Members

more than 6

years

 

 

LOGO  

    

 

Mandatory director retirement age of 75

 

Reduction in the board’s average tenure from 17 years in 2013 to 6 years through year-end 2015

 

Members

3 to 5

years

 

 

LOGO  

    

 

Reduction in the average age of the board from 68 in 2013 to 58 through year-end 2015

 

CG&N committee regularly evaluates size and composition of the board

 

Members

0 to 2

years

 

 

LOGO  

    

 

Please see the section on criteria for new board members and re-election of board members on page 24 of this proxy statement.

Board Nominees (pg. 14)

 

 

Below are the directors nominated for election by shareholders to an additional one-year term. The Board recommends a vote “FOR” each of the directors.

 

 

  Name

 

  

Age

 

    

Serving
Since

 

    

Committees Served

 

  

Independent

(Y/N)

 

 

 Annell R. Bay

     60         2014       CG&N (Chairman), MD&C      Y   

 John J. Christmann IV

     49         2015       N/A      N   

 Chansoo Joung

     55         2011       Audit (Chairman), CG&N      Y   

 William C. Montgomery

 

    

 

54

 

  

 

    

 

2011

 

  

 

  

MD&C (Chairman), CG&N

 

    

 

Y

 

  

 

Board and Committee Composition

 

 

The Board of Directors has an Audit Committee, a Corporate Governance and Nominating (“CG&N”) Committee, and a Management Development and Compensation (“MD&C”) Committee. Below are our directors, their committee memberships, and attendance rate for regularly scheduled Board and committee meetings.

 

      BOARD    AUDIT    CG&N    MD&C   

ATTENDANCE

RATE %

Arnell R. Bay

   LOGO        

LOGO

 

   LOGO    100

John J. Christmann IV

   LOGO                   100

Chansoo Joung

   LOGO   

LOGO

 

   LOGO         100

George D. Lawrence

   LOGO    LOGO              100

John E. Lowe

  

LOGO

 

                  100

William C. Montgomery

   LOGO         LOGO   

LOGO

 

   100

Amy H. Nelson

   LOGO    LOGO              100

Rodman D. Patton

   LOGO    LOGO              100

Charles J. Pitman

   LOGO         LOGO    LOGO    100

Daniel W. Rabun

   LOGO              LOGO    100

Peter A. Ragauss

   LOGO    LOGO              100

 

APACHE CORPORATION – 2016 Proxy Statement      5


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Key Qualifications

 

 

The following are some of the key qualifications and skills of our Board.

 

     

CEO/

SENIOR OFFICER

EXPERIENCE

     FINANCIAL
REPORTING
EXPERIENCE
     INDUSTRY
EXPERIENCE
     GLOBAL
EXPERIENCE
    

ENVIRONMENTAL/

REGULATORY
EXPERIENCE

 

Arnell R. Bay

   ü                  ü         ü         ü     

John J. Christmann IV

   ü         ü         ü         ü         ü     

Chansoo Joung

            ü         ü         ü              

George D. Lawrence

   ü         ü         ü         ü         ü     

John E. Lowe

   ü         ü         ü         ü         ü     

William C. Montgomery

            ü         ü         ü              

Amy H. Nelson

            ü         ü                  ü     

Rodman D. Patton

            ü         ü         ü              

Charles J. Pitman

                     ü         ü         ü     

Daniel W. Rabun

   ü         ü         ü         ü         ü     

Peter A. Ragauss

   ü         ü         ü         ü              

The lack of a check mark for a particular item does not mean that the director does not possess that qualification, characteristic, skill, or experience. We look to each director to be knowledgeable in these areas; however, the check mark indicates that the item is a particularly prominent qualification, characteristic, skill, or experience that the director brings to the Board.

2015 Executive Compensation Actions

 

 

Named Executive Officer Compensation (pg. 40)

 

·    No merit-based raises in 2015 for employees, including the NEOs in light of the challenging commodity price environment;

 

·    MD&C Committee accepted management’s recommendation of a 118% annual cash incentive bonus payout, which was the low-end of the 118% to 132% range actually achieved, due to industry-wide, economic conditions;

 

·    Further aligned our annual cash incentive bonus plan with our corporate strategy;

 

·    Improved our performance share program for 2015 to incorporate total shareholder return and two other important financial measures;

 

·    Implemented an Executive Termination Policy providing standardized payments of benefits in the event of involuntary termination; and

 

·    Provided no employment contract to our new CEO and provided over 75 percent of his target compensation in equity-based awards.

 

6      APACHE CORPORATION – 2016 Proxy Statement


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Performance-Based Compensation Outcomes

 

 

Compensation outcomes from performance incentives aligned with the performance achieved as follows:

 

·    The annual cash incentive program delivered a 118% of target outcome to our NEOs based on the operational, financial, and strategic performance factors described in Annual Cash Incentive Bonus (pg. 41).

 

·    The TSR performance shares for the three-year performance period that ended in 2015 paid out at 70% of target based on our relative total shareholder return performance against industry peers from 2013 through 2015.

 

·    Service-vested awards of restricted shares and stock options vested well below originally targeted values based on our absolute stock price performance from 2013 through 2015.

2015 Leadership Succession Highlights

 

 

·    G. Steven Farris retired as CEO and president effective January 20, 2015, after serving the Company for over 27 years. Mr. Farris served as non-executive chairman through May 1, 2015.

 

·    John J. Christmann IV was appointed CEO and president effective January 20, 2015.

 

·    John E. Lowe was elected independent non-executive chairman effective May 2, 2015.

 

·    Stephen J. Riney was appointed as our chief financial officer effective March 3, 2015.

 

·    Thomas E. Voytovich, executive vice president, international and exploration and production technology, left the Company effective November 30, 2015, after serving the Company for nearly 23 years.

Ratification of Auditors (pg. 67)

 

 

Although shareholder ratification is not required, the appointment of Ernst & Young LLP as the Company’s independent auditors for fiscal 2016 is being submitted for ratification at the annual meeting because the Board believes doing so is a good corporate governance practice. The Board recommends a vote “FOR” the ratification of the Company’s independent auditors.

Approval of 2016 Omnibus Compensation Plan (pg. 70)

 

 

The Board recommends a vote “FOR” the approval of the proposed 2016 Omnibus Compensation Plan.

 

APACHE CORPORATION – 2016 Proxy Statement      7


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PROXY STATEMENT

     10   

GENERAL

     10   

PURPOSE OF THE ANNUAL MEETING

     10   

WHO CAN VOTE

     10   

HOW TO VOTE

     10   

VOTING 401(K) SAVINGS PLAN SHARES

     11   

REVOKING A PROXY

     11   

QUORUM

     11   

VOTES NEEDED

     12   

WHO COUNTS THE VOTES

     12   

ELECTION OF DIRECTORS (PROPOSAL NOS. 1 – 4)

     13   

Nominees for Election as Directors

     14   

Continuing Directors

     16   

Director Independence

     20   

Standing Committees and Meetings of the Board of Directors

     22   

Criteria for New Board Members and Re-Election of Board Members

     24   

Report of the Audit Committee

     25   

Director Compensation

     27   

Director Compensation Table

     29   

Securities Ownership and Principal Holders

     30   

Section 16(a) Beneficial Ownership Reporting Compliance

     31   

Equity Compensation Plan Information

     32   

Executive Officers of the Company

     33   

EXECUTIVE COMPENSATION

     34   

Compensation Discussion and Analysis

     34   

Management Development and Compensation Committee Report

     50   

Summary Compensation Table

     51   

All Other Compensation

     53   

Grants of Plan Based Awards Table

     56   

Outstanding Equity Awards at Fiscal Year-End Table

     58   

Option Exercises and Stock Vested Table

     60   

Non-Qualified Deferred Compensation Table

     61   

Potential Payments Upon Termination or Change in Control

     62   

Compensation Committee Interlocks and Insider Participation

     66   

Certain Business Relationships and Transactions

     66   

 

8      APACHE CORPORATION – 2016 Proxy Statement


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RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (PROPOSAL NO. 5)

     67   
ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS (PROPOSAL NO. 6)      69   

APPROVAL OF THE COMPANY’S 2016 OMNIBUS COMPENSATION PLAN (PROPOSAL NO. 7)

     70   

FUTURE SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

     79   

SHAREHOLDERS WITH THE SAME LAST NAME AND ADDRESS

     80   

SOLICITATION OF PROXIES

     80   

Annex A: 2016 OMNIBUS COMPENSATION PLAN

     A-1   

Information on our website and any other website referenced herein is not incorporated by reference into, and does not constitute a part of, this proxy statement.

 

APACHE CORPORATION – 2016 Proxy Statement      9


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PROXY STATEMENT

General

 

This proxy statement contains information about the 2016 annual meeting of shareholders of Apache Corporation. In this proxy statement both “Apache” and the “Company” refer to Apache Corporation. This proxy statement and form of Proxy are being made available to you by the Company’s Board of Directors starting on or about March 28, 2016.

Purpose of the Annual Meeting

 

At the Company’s annual meeting, shareholders will vote on the following matters:

 

·    Proposals 1- 4: election of directors;

 

·    Proposal 5: ratification of appointment of Ernst & Young LLP as the Company’s independent auditors;

 

·    Proposal 6: advisory vote to approve the compensation of the Company’s named executive officers;

 

·    Proposal 7: approval of the Company’s 2016 Omnibus Compensation Plan; and

 

·    Transaction of any other business that properly comes before the meeting. As of the date of this proxy statement, the Company is not aware of any other business to come before the meeting.

There are no rights of appraisal or similar rights of dissenters arising from matters to be acted on at the meeting.

Who Can Vote

 

Only shareholders of record holding shares of Apache common stock at the close of business on the record date, March 14, 2016, are entitled to receive notice of the annual meeting and to vote the shares of Apache common stock they held on that date. The Company’s stock transfer books will not be closed. A complete list of shareholders entitled to vote at the annual meeting will be available for examination by any Apache shareholder at 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400, for purposes relating to the annual meeting, during normal business hours for a period of ten days before the meeting.

As of February 29, 2016, there were 378,512,719 shares of Apache common stock issued and outstanding. Holders of Apache common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors.

How to Vote

 

If your shares of Apache common stock are held by a broker, bank or other nominee (in “street name”), you will receive instructions from them on how to vote your shares. If your shares are held by a broker and you do not give the broker specific instructions on how to vote your shares, your broker may vote your shares at its discretion on “routine” matters to be acted upon at the annual meeting. However, your shares will not be voted on any of the “non-routine” matters described below. An absence of voting instructions on any “non-routine” matters will result in a “broker non-vote.”

The only “routine” matter to be acted upon at the annual meeting is Proposal No. 5 - ratification of appointment of Ernst & Young LLP as the Company’s independent auditors. All other matters to be acted upon at the annual meeting are “non-routine” matters and, as such, if you hold all or any portion of your shares in street name and you do not give your broker or bank specific instructions on how to vote your shares, your shares will not be voted on any of the following “non-routine” matters:

 

·    Proposal Nos. 1-4 – the election of directors;

 

·    Proposal No. 6 – advisory vote to approve the compensation of the Company’s named executive officers; and

 

·    Proposal No. 7 – approval of the Company’s 2016 Omnibus Compensation Plan.

 

10      APACHE CORPORATION – 2016 Proxy Statement


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If you hold shares of Apache common stock in your own name (as a “shareholder of record”), you may instruct the Company on how to vote your shares:

 

(1) over the Internet by following the instructions provided in the Notice of Internet Availability of Proxy Materials; or

 

(2) if you requested to receive printed proxy materials, by scanning the QR code on the enclosed proxy card with your mobile device (specific directions for using the mobile voting system are shown on the proxy card); or

 

(3) if you requested to receive printed proxy materials, by using the toll-free telephone number listed on the enclosed proxy card (specific directions for using the telephone voting system are included on the proxy card); or

 

(4) if you requested to receive printed proxy materials, by marking, signing, dating, and returning the enclosed proxy card in the postage-paid envelope provided.

When using internet, mobile device, or telephone voting, the voting systems will verify that you are a shareholder through the use of a company number for Apache and a unique control number for you.

Whichever method you use to transmit your instructions, your shares of Apache common stock will be voted as you direct. If you designate the proxies named on the proxy card to vote on your behalf, but do not specify how to vote your shares, they will be voted:

 

·    FOR the election of the nominees for director,

 

·    FOR the ratification of appointment of Ernst & Young LLP as the Company’s independent auditors,

 

·    FOR the advisory vote to approve the compensation of the Company’s named executive officers,

 

·    FOR approval of the Company’s 2016 Omnibus Compensation Plan, and

 

·    In accordance with the judgment of the persons voting the proxy on any other matter properly brought before the meeting, if any are properly raised at the meeting.

If you vote in advance using one of these methods, you may still attend and vote at the meeting.

Voting 401(k) Savings Plan Shares

 

If you are an employee or former employee participating in the Apache 401(k) Savings Plan and have shares of Apache common stock credited to your plan account as of the record date, you will receive printed proxy materials including a proxy card. You have the right to direct the plan trustee regarding how to vote the shares credited to your plan account as of the record date. The trustee for the 401(k) Savings Plan is Fidelity Management Trust Company.

The trustee will vote the shares in your plan account in accordance with your instructions. If you do not send instructions (in the manner described under “How to Vote” above) or if your proxy card is not received by May 9, 2016, the shares credited to your account will be voted by the trustee in the same proportion as it votes shares for which it did receive timely instructions.

Revoking a Proxy

 

You may revoke a proxy before it is voted by submitting a new proxy with a later date by internet, mobile device, telephone or mail (if applicable), by voting at the meeting, or by filing a written revocation with Apache’s corporate secretary. Your attendance at the annual meeting alone will not automatically revoke your proxy.

Quorum

 

The presence at the annual meeting, in person or by proxy, of the holders of a majority of the shares of Apache common stock outstanding on the record date will constitute a quorum, permitting the business of the meeting to be conducted.

 

APACHE CORPORATION – 2016 Proxy Statement      11


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Votes Needed

 

Election of Directors

The affirmative vote of a majority of the votes cast at the annual meeting is required for the election of directors. You may vote FOR or AGAINST any or all director nominees or you may ABSTAIN as to one or more director nominees. As set forth in our bylaws, only votes FOR or AGAINST the election of a director nominee will be counted. Abstentions and broker non-votes count for quorum purposes, but not for purposes of the election of directors. A vote to ABSTAIN is not treated as a vote FOR or AGAINST and, thus, will have no effect on the outcome of the vote.

Ratification of the Appointment of Independent Auditors

The affirmative vote of a majority of the votes cast at the annual meeting is required for ratification of appointment of Ernst & Young LLP as the Company’s independent auditors. You may vote FOR or AGAINST the ratification of appointment of Ernst & Young LLP as the Company’s independent auditors or you may ABSTAIN. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this matter will be counted as shares entitled to vote on the matter. Broker non-votes will also be counted as shares entitled to vote on this matter. A vote to ABSTAIN will have the effect of a vote AGAINST ratification of the appointment of our independent registered public accounting firm.

Advisory Vote to Approve the Compensation of Our Named Executive Officers

You may vote FOR or AGAINST the advisory vote to approve the compensation of our named executive officers or you may ABSTAIN. A majority of the shares of the Company’s common stock present in person or represented by proxy at our annual meeting and entitled to vote must be voted FOR approval of the advisory proposal in order for it to pass. Votes cast FOR or AGAINST and ABSTENTIONS with respect to the proposal will be counted as shares entitled to vote on the proposal. Broker non-votes will not be counted as shares entitled to vote on the proposal. A vote to ABSTAIN will have the effect of a vote AGAINST the proposal.

Approval of the Company’s 2016 Omnibus Compensation Plan

The affirmative vote of a majority of the votes cast at the annual meeting is required for approval of the 2016 Omnibus Compensation Plan. You may vote FOR or AGAINST approval of the 2016 Omnibus Compensation Plan or you may ABSTAIN. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this matter will be counted as shares entitled to vote on the matter. Broker non-votes will not be counted as shares entitled to vote on this matter. A vote to ABSTAIN will have the effect of a vote AGAINST approval of the 2016 Omnibus Compensation Plan.

Other Business

The affirmative vote of a majority of the votes cast at the annual meeting is required for approval of any other business which may properly come before the meeting or any adjournment thereof. Only votes FOR or AGAINST approval of any other business will be counted. Abstentions and broker non-votes count for quorum purposes, but not for the voting on the approval of such other business.

Who Counts the Votes

 

Representatives of Wells Fargo Bank, N.A. will tabulate the votes and act as inspectors of the election.

 

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ELECTION OF DIRECTORS

(PROPOSAL NOS. 1 – 4 )

 

Effective May 14, 2015, the Company’s Restated Certificate of Incorporation was amended to provide that, beginning at the 2016 annual meeting, directors standing for election will be elected to one-year terms. The existing terms of directors elected prior to or at the 2015 annual meeting will not be shortened. The entire Board of Directors will be elected annually beginning at the 2018 annual meeting.

The current terms of directors Annell R. Bay, John J. Christmann IV, Chansoo Joung, and William C. Montgomery will expire at the annual meeting. Each of Ms. Bay, Mr. Christmann, Mr. Joung, and Mr. Montgomery has been recommended by the Company’s Corporate Governance and Nominating Committee and nominated by the Board of Directors for election by the shareholders to an additional one-year term. If elected, Ms. Bay, Mr. Christmann, Mr. Joung, and Mr. Montgomery will serve beginning upon their election until the annual meeting of shareholders in 2017.

A. D. Frazier, Jr., who served as a director since 1997, retired from the Company’s Board of Directors effective October 1, 2015. As a result of his retirement, the size of the Board of Directors was reduced to 11 members.

Unless otherwise instructed, all proxies will be voted in favor of these nominees. If one or more of the nominees is unwilling or unable to serve, the proxies will be voted only for the remaining named nominees. Proxies cannot be voted for more than four nominees. The Board of Directors knows of no nominee for director who is unwilling or unable to serve.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTORS.

 

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Nominees for Election as Directors

Biographical information, including principal occupation and business experience during the last five years, of each nominee for director, is set forth below. Unless otherwise stated, the principal occupation of each nominee has been the same for the past five years. In addition, each nominee’s experience, qualifications, attributes, or skills to serve on our Board are set forth below.

 

ANNELL R. BAY

 

LOGO

Board tenure and responsibilities:

Ms. Bay, 60, joined the Company’s Board of Directors in May 2014. She chairs the Corporate Governance and Nominating Committee and is a member of the Management Development and Compensation Committee.

Experience:
From July 2011 to April 2014, Ms. Bay served as vice president, Global Exploration, of Marathon Oil Corporation, having previously held the position of senior vice president, Exploration, since June 2008.

From August 2004, prior to joining Marathon, Ms. Bay served as vice president, Americas Exploration, of Shell Exploration and Production Company.

Prior to joining Shell, Ms. Bay was vice president, Worldwide Exploration, and vice president, North America Exploration, of Kerr-McGee Oil and Gas Corporation, having been with Oryx Energy prior to its merger with Kerr-McGee.

Ms. Bay serves as a director of Hunting PLC, a London-based energy service provider. She also serves on the advisory boards for the Jackson School of Geology at the University of Texas at Austin, the American Association of Petroleum Geology, and the Independent Petroleum Association of America Education Center.

Skills and qualifications:

With her extensive executive experience in the oil and gas industry, and as a result of her service on the advisory boards of educational and industry organizations, Ms. Bay brings to the Board a wealth of oil and gas exploration and operations, civic, and educational experience.

As a member of public company boards in two countries having significantly different governance regulatory regimes, Ms. Bay also brings unique governance skills and experience to the Board. She is a highly regarded speaker at major governance events on both sides of the Atlantic. She has hosted individual and small group meetings with large and environmental, social, and governance (“ESG”) focused shareholders. As chair of the CG&N Committee, she has overseen the updating of the Company’s governance principles and the adoption of a committee calendar formalizing oversight of key ESG subjects.

JOHN J. CHRISTMANN IV

 

LOGO

Board tenure and responsibilities:

Mr. Christmann, 49, was appointed the Company’s chief executive officer and president, and joined the Company’s Board of Directors, effective January 20, 2015.

Experience:
Prior to joining the Board, Mr. Christmann served as the Company’s executive vice president and chief operating officer, North America, since January 2014.

From January 2010 through December 2013, Mr. Christmann served as region vice president, Permian Region. From January 2004 through December 2009, he served as vice president, Business Development, and from April through December 2003, he served as production manager for the Gulf Coast Region. Prior to that, Mr. Christmann held various positions of increasing responsibility in the business development area since joining the Company in 1997.

Previously, Mr. Christmann was employed by Vastar Resources/ARCO Oil and Gas Company in business development, crude oil marketing, and various production, operational, and reservoir engineering assignments.

Mr. Christmann received his bachelor’s degree in petroleum engineering from the Colorado School of Mines and MBA from Southern Methodist University.

Skills and qualifications:

With over 27 years in the oil and gas industry, including over 18 years at the Company leading both operational and staff functions and most recently serving as chief executive officer, Mr. Christmann has the proficiency and depth to manage and operate a large-scale oil and gas exploration and production company.

Mr. Christmann’s extensive experience in the oil and gas industry has provided him with an in-depth understanding of successful execution and operational management in the field, an appreciation and talent for value-added merger and acquisition activity, and the expertise to oversee the strategic direction of a large, publicly-traded company.

His experience, coupled with his thorough knowledge and understanding of the Company’s assets and unique operations, complement Mr. Christmann’s management strengths and enable him to lead the Company through the complexities of day-to-day operations as well as the macro economic impact of commodity prices.

 

 

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CHANSOO JOUNG

 

LOGO

Board tenure and responsibilities:
Mr. Joung, 55, joined the Company’s Board of Directors in February 2011. He chairs the Audit Committee and is a member of the Corporate Governance and Nominating Committee.

Experience:
From 2005 to 2015, Mr. Joung was a partner and then senior advisor at Warburg Pincus LLC. He was responsible for making and monitoring investments in all sectors of the energy industry, including upstream, gas and gas liquids processing and transportation, and electric power. He was also responsible for global coordination of the firm’s renewables activities, including wind, solar, biofuels, and grid storage.

From 1987 to 2004, Mr. Joung was employed by Goldman Sachs where he held increasingly senior positions, culminating his 17-year career as head of the Americas Natural Resources Group in the investment banking division. His other leadership responsibilities in the investment banking division included stints as co-head of recruiting and co-head of women’s and diversity recruitment and development.

Prior to joining Apache’s board, Mr. Joung served as a director on two other NYSE-listed company boards: Targa Resources Partners, LP, from 2007 to 2011, and Targa Resources Corporation, from 2010 to 2011. He also served as a director on a number of private company boards during his tenure at Warburg Pincus.

Currently, Mr. Joung is a consultant for TPH Asset Management, LLC, an affiliate of Tudor, Pickering, Holt & Co.

Skills and qualifications:

Mr. Joung has spent his career protecting and promoting the interests of energy-sector investors. He has served investor interests from numerous vantage points, including as a board member of public and private companies, as a banker and financier, as a manager of private equity capital, as a consultant and advisor, as an employer, as an advocate for diversity and inclusion, as an employee, and as a personal investor in and manager of renewable investments.

Mr. Joung’s service on the Company’s audit and governance committees reflects his commitment to fairness, integrity, and inclusion, principles for which he is a well-known advocate.

WILLIAM C. MONTGOMERY

 

LOGO

Board tenure and responsibilities:
Mr. Montgomery, 54, joined the Company’s Board of Directors in September 2011. He chairs the Management Development and Compensation Committee and is a member of the Corporate Governance and Nominating Committee.

Experience:
From October 2002 to April 2011, Mr. Montgomery was a partner in the investment banking division of Goldman, Sachs & Co., where he headed the firm’s Americas Natural Resources Group as well as its Houston office and was a member of the Investment Banking Services Leadership Group. Over the span of 22 years as an investment banker, Mr. Montgomery focused globally on large cap energy companies, primarily in the upstream, integrated, and oil service sectors.

Since July 2011, Mr. Montgomery has served as a managing director of Quantum Energy Partners, a private equity firm that focuses on investments in the energy and power industries. He is a member of Quantum Energy’s executive and investment committees. In October 2015, Mr. Montgomery was elected a director of Enterprise Products Holdings LLC, the general partner of Enterprise Products Partners L.P., and serves on its audit and conflicts committee.

Mr. Montgomery has been an active civic leader, chairing the boards of the Houston Museum of Natural Science and the St. Francis Episcopal Day School. He currently serves on the board of trustees of the Kinkaid School, the Episcopal Health Foundation, and the Board of Visitors of the MD Anderson Cancer Center.

Skills and qualifications:

Mr. Montgomery has spent almost his entire career working in the finance industry focusing on large cap energy companies.

Mr. Montgomery’s contributions to the Board are enhanced by his background as an investment banker, where he gained significant experience with the energy industry and energy-related capital markets. The Company benefits from the extensive relationships that Mr. Montgomery has formed throughout his career serving various global energy companies.

Mr. Montgomery has had broad exposure to key issues impacting the upstream, midstream, and oil services sectors. As a managing director of Quantum Energy, Mr. Montgomery provides advice on new and existing investments in the energy and power industries. Quantum Energy’s executive and investment committees set the firm’s strategy and originate and oversee investments in the upstream, midstream, and oilfield service sectors of the oil and gas industry.

 

 

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Continuing Directors

Biographical information, including principal occupation and business experience during the last five years, for each continuing member of the Board of Directors whose term is not expiring at the 2016 annual meeting, is set forth below. Unless otherwise stated, the principal occupation of each director has been the same for the past five years. In addition, each director’s experience, qualifications, attributes, or skills to serve on our Board are set forth below.

 

GEORGE D. LAWRENCE

 

LOGO

Board tenure and responsibilities:
Mr. Lawrence, 65, joined the Company’s Board of Directors in May 1996. He is a member of the Audit Committee.

Experience:
From 1990 until May 1996, Mr. Lawrence was president, chief executive officer, and a director of The Phoenix Resource Companies, Inc., an international publicly owned oil and gas company that merged with Apache in 1996.

In 1985, Mr. Lawrence began his oil and gas career with the predecessor to Phoenix, holding management positions with increasing responsibility, culminating in his appointment as president and chief executive officer and his service as a director until the Phoenix and Apache merger.

Since retiring from Phoenix, Mr. Lawrence has been a private investor.

Prior to entering the oil and gas business, Mr. Lawrence served in the Environmental Enforcement Section of the United States Department of Justice, his last position there being assistant chief.

Skills and qualifications:

During his tenure as president and chief executive officer of Phoenix, Mr. Lawrence gained valuable corporate leadership experience in all aspects of business, including finance, securities, operations, strategy, and risk.

At Phoenix and its predecessor, Mr. Lawrence was extensively involved in international operations spread over several continents, and he was especially instrumental in leading Phoenix’s operations in Egypt, an area that remains important to Apache’s operations.

His dedication to environmental responsibility stemming from his service in the Department of Justice Environmental Enforcement Section continues to this day.

Term Expires

2018

JOHN E. LOWE

 

LOGO

Board tenure and responsibilities:
Mr. Lowe, 56, joined the Company’s Board of Directors in July 2013, and became non-executive chairman as of May 2, 2015.

Experience:
Mr. Lowe enjoyed a 30-year career with ConocoPhillips and Phillips Petroleum Company, serving in positions of increasing responsibility during that time. Most recently, he served as assistant to the chief executive officer of ConocoPhillips, a position he held from 2008 until Phillips 66 was spun-off from ConocoPhillips in 2012.

Previously, Mr. Lowe held a series of executive positions in the exploration and production, commercial, and planning areas of ConocoPhillips, including executive vice president, exploration and production from 2007 to 2008; executive vice president, Commercial from 2006 to 2007; and executive vice president, planning, strategy, and corporate affairs from 2002 to 2006, as a part of which his responsibilities included government relations, public affairs, and corporate technology.

Mr. Lowe is a member of the board of directors for Phillips 66, Houston, Texas, and TransCanada Corporation, Calgary, Alberta. He is a senior executive advisor to Tudor, Pickering, Holt & Co. He is a former board member of Agrium Inc., Chevron Phillips Chemical Co. LLC, DCP Midstream LLC, and DCP Midstream GP, LLC, the general partner of DCP Midstream Partners LP.

Skills and qualifications:

With over 30 years of experience in the oil and gas industry, and as an executive of ConocoPhillips, a director of Phillips 66, a director of TransCanada, a senior executive advisor to Tudor, Pickering, Holt & Co., and a former director of Agrium, Chevron Phillips Chemical, DCP Midstream, and DCP Midstream GP, Mr. Lowe brings valuable experience to the Board, including experience identifying, assessing, and minimizing risks faced by oil and gas companies.

Term Expires

2018

 

 

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AMY H. NELSON

 

LOGO

Board tenure and responsibilities:
Ms. Nelson, 46, joined the Company’s Board of Directors in February 2014. She is a member of the Audit Committee.

Experience:
Ms. Nelson is the president of Greenridge Advisors, LLC, which she founded in 2007 as an energy services and equipment consulting firm focused on the development, execution, and financing of growth strategies. Ms. Nelson advises her clients on strategy development, capital allocation, acquisition evaluation, and infrastructure development. Her clients span a broad range of oilfield service, product, and geographic markets.

From 2000 to 2007, Ms. Nelson served as a vice president of SCF Partners, an oilfield service and equipment-focused private equity firm, where she concentrated on investment strategy, investment execution, and portfolio company management.

From 1992 to 1998, Ms. Nelson worked for Amoco Production Company in planning, project management, and engineering roles.

Since 2009, Ms. Nelson has been an adjunct professor of management at Rice University’s Jesse H. Jones Graduate School of Business.

Skills and qualifications:

Ms. Nelson has devoted her career to serving companies in the oil and gas industry. Ms. Nelson’s experiences have provided her with valuable insight into corporate strategy, capital allocation, and the assessment and management of risks faced by oil and gas companies.

Over the past decade, Ms. Nelson has also developed substantial water-related expertise in unconventional field development water cycle, including treatment technologies, water delivery and take-away temporary and permanent infrastructure, frac-water sources, containment and salt water disposal, management of access rights to ground, surface, industrial, and municipal water sources, and management of regulatory and compliance issues. Ms. Nelson’s understanding of this important environmental subject enhances her contributions to the Board.

Term Expires

2017

RODMAN D. PATTON

 

LOGO

Board tenure and responsibilities:
Mr. Patton, 72, joined the Company’s Board of Directors in December 1999. He is a member of the Audit Committee.

Experience:
Mr. Patton has over 30 years of experience in oil and gas investment banking and corporate finance activity.

From 1993 until April 1999, Mr. Patton served as managing director in the Merrill Lynch Energy Group. Prior to joining Merrill Lynch, he was with The First Boston Corporation (later Credit Suisse First Boston) and Eastman Dillon, Union Securities (later Blyth Eastman Dillon).

From 2001 until his retirement in April 2015, Mr. Patton served as a director of NuStar GP, LLC (formerly Valero GP, LLC), San Antonio, Texas, most recently as lead independent director, chairman of its audit committee, and a member of its compensation committee. NuStar GP LLC is the general partner of NuStar Energy L.P. (formerly Valero L.P.), owner and operator of crude oil and refined products pipeline, terminalling, and storage assets.

Skills and qualifications:

As a managing director at Merrill Lynch, First Boston (later Credit Suisse), and other investment banks, Mr. Patton gained extensive experience advising oil and gas companies on capital structure, strategy, and direction. Mr. Patton also gained valuable experience in the assessment and management of risks faced by oil and gas companies. As a former investment banker and as chairman of NuStar GP’s audit committee, Mr. Patton brings to the Board extensive financial reporting expertise.

Term Expires

2018

 

 

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CHARLES J. PITMAN

 

LOGO   

Board tenure and responsibilities:

Mr. Pitman, 73, joined the Company’s Board of Directors in May 2000. Mr. Pitman served as lead director from February 2013 until May 2015 and is a member of the Corporate Governance and Nominating Committee and the Management Development and Compensation Committee.

Experience:

Mr. Pitman retired from BP Amoco plc in late 1999. During his 24-year career at Amoco and BP Amoco, Mr. Pitman served in a variety of leadership positions in the United States and multiple international locations, principally in the Middle East. Notably, Mr. Pitman served as president of Amoco Egypt Oil Company from 1992 to 1996, president of Amoco Eurasia Petroleum Company from 1997 to 1998, and regional president BP Amoco plc - Middle East/Caspian/Egypt/India from December 1998 until his retirement in 1999.

Prior to joining Amoco, Mr. Pitman served in the United States Department of State as a Foreign Service officer and attorney-adviser.

Since his retirement from BP Amoco, Mr. Pitman served as a non-executive director and chairman of Urals Energy Public Company Limited, an oil exploration and production company operating in Russia, from 2005 until 2009; chairman of the board of First Calgary Petroleums Ltd., an oil and gas exploration company engaged in exploration and development activities in Algeria in 2008; and sole member of Shaker Mountain Energy Associates LLC from 1999 to 2007.

Skills and qualifications:

Having served in executive and director capacities at Amoco and BP Amoco in numerous international locations, particularly Egypt, Mr. Pitman has valuable experience in and knowledge of the oil and gas industry in the Middle East, Russia, and North Africa.

Mr. Pitman’s vast experience in international oil and gas and the knowledge and relationships he developed while serving in the U.S. State Department provide valuable insight for the benefit of Apache’s operations, both domestic and abroad.

Term Expires

2018

DANIEL W. RABUN

 

LOGO

Board tenure and responsibilities:
Mr. Rabun, 61, joined the Company’s Board of Directors in May 2015. He is a member of the Management Development and Compensation Committee.

Experience:
From 2007 to his retirement in May 2015, Mr. Rabun served as the chairman of Ensco plc. He retired as president and chief executive officer of Ensco in June 2014, having held the office of chief executive officer for more than seven years and president for more than eight years.

From 1986 through 2005, prior to joining Ensco, Mr. Rabun was a partner with the international law firm of Baker & McKenzie LLP, where he provided legal advice to oil and gas companies.

Mr. Rabun is a non-executive director of Golar LNG Ltd. During 2012, he served as chairman of the International Association of Drilling Contractors. Mr. Rabun has also been a certified public accountant since 1976.

Skills and qualifications:

Mr. Rabun brings a variety of experiences to our board, including service as chairman of the board, president, and chief executive officer of Ensco, an offshore drilling services company, based in London. During Mr. Rabun’s term at Ensco, Ensco drilled some of the most complex wells for super majors, national oil companies, and independent operators in nearly every strategic oil and gas area in the world, from the North Sea to the “golden triangle” of the Gulf of Mexico, Brazil, and West Africa, and from the Middle East and the Mediterranean to Asia and Australia.

Mr. Rabun’s international experience, global perspective, experience with strategic acquisitions, and financial acumen from having served as a public company’s chairman, president, and chief executive officer assist the Board in the assessment and management of risks faced by oil and gas companies.

Term Expires

2018

 

 

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PETER A. RAGAUSS

 

LOGO

Board tenure and responsibilities:
Mr. Ragauss, 58, joined the Company’s Board of Directors in December 2014. He is a member of the Audit Committee.

Experience:
In October 2014, Mr. Ragauss retired from Baker Hughes after serving eight years as senior vice president and chief financial officer.

From 2003 to 2006, prior to joining Baker Hughes, Mr. Ragauss was controller, Refining and Marketing, for BP Plc. From 2000 to 2003, he was chief executive officer for Air BP. From 1998 to 2000, he was assistant to group chief executive for BP Amoco. He was vice president of Finance and Portfolio Management for Amoco Energy International when Amoco Corporation merged with BP.

From 1996 to 1998, Mr. Ragauss served as vice president of Finance for El Paso Energy International. He held positions of increasing responsibility at Tenneco, Inc., from 1993 to 1996, and Peabody & Co. Incorporated, from 1987 to 1993.

Skills and qualifications:

Mr. Ragauss brings a wealth of accounting, financial, and executive experience to the Board, having held senior positions, including as chief executive officer, chief financial officer, controller, and vice president finance. His wide and varied experiences in the oil and gas industry, including in the area of finance, have provided him with a unique understanding and insight concerning the risks faced by oil and gas companies.

Term Expires

2017

 

 

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Director Independence

During 2015 and the first two months of 2016, the Board of Directors evaluated all business and charitable relationships between the Company and the Company’s non-employee directors (all directors other than Mr. Christmann) and all other relevant facts and circumstances. As a result of the evaluation, the Board of Directors determined, as required by the Company’s Governance Principles, that each non-employee director is an independent director as defined by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc. (“NYSE”), The NASDAQ National Market (“NASDAQ”), and the Securities and Exchange Commission (“SEC”). The Company’s Governance Principles are available on the Company’s website (www.apachecorp.com).

Subject to some exceptions, these standards generally provide that a non-employee director will not be independent if (a) the director is, or in the past three years has been, an employee of the Company; (b) the director or a member of the director’s immediate family is, or in the past three years has been, an executive officer of the Company; (c) the director or a member of the director’s immediate family has, in the past three years, received more than $120,000 per year in direct compensation from the Company (other than for service as a director or, for the immediate family member, as a non-executive employee); (d) the director is an employee, or the director or a member of the director’s immediate family is employed as a partner, of Ernst & Young LLP, the Company’s independent registered public accountants, or the director has an immediate family member who is a current employee of such firm and works in any capacity on the Company’s audit, or the director or an immediate family member was within the last three years a partner or employee of such firm and personally worked on the Company’s audit within that time; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where an Apache executive officer at the same time serves or served on the compensation committee; or (f) the director is an employee, or a member of the director’s immediate family is an executive officer, of a company that makes payments to, or receives payments from, Apache in an amount which, in any twelve-month period during the past three years, exceeds the greater of $200,000 or two percent of the consolidated gross revenues of the company receiving the payment.

The Company’s Governance Principles require that the independent directors meet in executive session at least twice each year and, in 2015, they met six times in executive session. These executive sessions are chaired by a non-executive chairman or a lead director. Pursuant to the Company’s Governance Principles, the non-executive chairman or lead director is an independent director who is elected from time to time, but not less than annually, by the affirmative vote of a majority of the independent directors. In addition to chairing the executive sessions, the non-executive chairman or lead director discusses management’s proposed meeting agenda with the other independent directors and reviews the approved meeting agenda with our chief executive officer, leads the discussion with our chief executive officer following the independent directors’ executive sessions, ensures that the Board’s individual group and committee self-assessments are done annually, leads periodic discussions with other Board members and management concerning the Board’s information needs, and is available for discussions with major shareholders. Charles J. Pitman served as the Company’s lead director from February 2013 to May 2015. Effective May 2, 2015, John E. Lowe was appointed non-executive chairman. The role and responsibilities of the non-executive chairman or lead director and the method established for communication of concerns to the independent directors are included in the Company’s Governance Principles.

Reporting of Concerns to Independent Directors

Anyone who has concerns about the Company may communicate those concerns to the independent directors. Such communication should be mailed to the Company’s corporate secretary at 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400, who will forward such communications to the independent directors.

Board Leadership Structure and Risk Oversight

Board Leadership Structure

At different times in the Company’s history the positions of chair and chief executive officer have been split or combined as circumstances have warranted. Consistent with good governance practices, the Company took the opportunity presented by the retirement of our former chief executive officer and president G. Steven Farris, effective May 1, 2015, to create a position for an independent non-executive chairman. Independent director John E. Lowe was appointed non-executive chairman effective May 2, 2015. The board regularly reviews all aspects of its governance profile, including the board leadership structure and will make changes as appropriate.

 

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Risk Oversight

The goal of the Company’s risk management process is to understand and manage risk; management is responsible for identifying and managing the risks, while directors provide oversight to management in this process. Management identifies the significant risks facing the Company and the approaches to mitigate such risk. The Company’s Governance Principles state that in addition to its general oversight of management, the Board of Directors is responsible for a number of specific functions, including assessing major risks facing the Company and reviewing options for their mitigation.

Our Board of Directors has three standing independent committees: Audit, Corporate Governance and Nominating, and Management Development and Compensation. Our Audit Committee is primarily responsible for overseeing the Company’s risk management processes on behalf of the Board. The Audit Committee charter provides that the Audit Committee should discuss and consider the process by which senior management of the Company and the relevant departments assess and manage the Company’s exposure to risk, and discuss the Company’s major financial risk exposure and the steps management has taken to monitor, control, and report such exposures. In addition, the Audit Committee reports to the Board of Directors, which also considers the Company’s risk profile. The Audit Committee and the Board of Directors obtain input from management regarding the most significant risks facing the Company and the Company’s risk management strategy.

The Audit Committee and the Board ensure that the risks undertaken are consistent with the Board’s tolerance for risk. While the Board is responsible for setting, monitoring, and maintaining the Company’s risk management policies and practices, the Company’s executive officers and members of our management team are responsible for implementing and overseeing our day-to-day risk management processes. Additionally, the Board has created a Corporate Risk Committee composed of members of our management team. The Corporate Risk Committee monitors and manages risks and is tasked with, among other things, ensuring sound policies, procedures, and practices are in place to address corporate-wide management of risks. The Company believes that this division of responsibility is the most effective way to monitor and control risk.

In addition to the oversight provided by our full Board of Directors, Audit Committee, executive officers and the members of our management team, including our Corporate Risk Committee, our independent directors hold regularly scheduled executive sessions as often as they deem appropriate, but in any event at least twice each year. These executive sessions provide an additional avenue through which we monitor the Company’s risk exposure and policies regarding risk management.

For risk considerations in our compensation programs, please see “Compensation Discussion and Analysis – Risk Considerations in Our Compensation Programs” included in this proxy statement.

 

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Standing Committees and Meetings of the Board of Directors

The Board of Directors has an Audit Committee, a Corporate Governance and Nominating (“CG&N”) Committee, and a Management Development and Compensation (“MD&C”) Committee. The Stock Plan Committee was combined with the MD&C Committee effective May 14, 2015, with all responsibilities assumed by the MD&C Committee. Actions taken by these committees are reported to the Board of Directors at the next Board meeting. During 2015, each of the Company’s current directors attended at least 75 percent of all meetings of the Board of Directors and committees of which he or she was a member. All directors, except Mr. Lawrence, attended the Company’s 2015 annual meeting of shareholders held on May 14, 2015.

 

Name    Board      Audit      CG&N      MD&C      Stock
Plan(1)
 

Annell R. Bay(2)

     LOGO              LOGO           LOGO        

John J. Christmann IV(3)

     LOGO                 

G. Steven Farris(4)

     LOGO                 

A. D. Frazier, Jr.(5)

     LOGO                 LOGO           LOGO     

Chansoo Joung

     LOGO           LOGO           LOGO           

George D. Lawrence(6)

     LOGO           LOGO              LOGO        

John E. Lowe(7)

     LOGO                 LOGO           LOGO     

William C. Montgomery

     LOGO              LOGO           LOGO           LOGO     

Amy H. Nelson

     LOGO           LOGO              

Rodman D. Patton

     LOGO           LOGO              

Charles J. Pitman(8)

     LOGO              LOGO           LOGO           LOGO     

Daniel W. Rabun(9)

     LOGO                 LOGO        

Peter A. Ragauss

     LOGO           LOGO                                

No. of Meetings in 2015

     16         9         5         6         2   

LOGO Chairman of the Board

LOGO Committee Chairman

 

(1) The Stock Plan Committee was combined with the MD&C Committee effective May 14, 2015, with all responsibilities assumed by the MD&C Committee.
(2) Ms. Bay was appointed to the MD&C Committee effective May 14, 2015.
(3) Mr. Christmann was appointed to the Board of Directors effective January 20, 2015.
(4) Mr. Farris retired from the Board of Directors effective May 1, 2015.
(5) Mr. Frazier retired from the Board of Directors effective October 1, 2015.
(6) Mr. Lawrence was appointed to the Audit Committee effective May 14, 2015, and was a member of the MD&C Committee until May 14, 2015.
(7) Mr. Lowe was appointed Non-Executive Chairman of the Board effective May 2, 2015. Mr. Lowe was member of the MD&C and Stock Plan Committees until May 14, 2015.
(8) Mr. Pitman served as lead director from February 5, 2013 until May 14, 2015, and was appointed to the MD&C Committee effective September 16, 2015.
(9) Mr. Rabun joined the Board of Directors on May 13, 2015, and was appointed to the MD&C Committee effective May 14, 2015.

 

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Audit Committee

The Audit Committee assists the Board of Directors in fulfilling its oversight responsibility relating to (i) the integrity of the Company’s consolidated financial statements, accounting and financial reporting processes, and systems of internal controls over accounting and financial reporting; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the independent auditor’s qualifications, independence, and performance, including sole authority for appointment, compensation, oversight, evaluation, and termination; (iv) the performance of the Company’s internal audit function; (v) the report of the Audit Committee required by the rules of the SEC, as included in this proxy statement; and (vi) the fulfillment of the other responsibilities set out in its charter. The Audit Committee charter, as adopted by the Board of Directors and which reflects applicable SEC, NYSE, and NASDAQ rules and regulations, is available on the Company’s website (www.apachecorp.com).

As described more fully above in “Board Leadership Structure and Risk Oversight,” the Audit Committee is also tasked with overseeing the guidelines, policies, and controls governing the process by which management of the Company assesses and manages the Company’s exposure to risk.

The Board of Directors has determined that all members of the Audit Committee qualify as financial experts, as defined in Item 407 of Regulation S-K under the Securities Act of 1933, as amended, and each are considered “financially literate” under NYSE rules. During 2015 and the first two months of 2016, the Board of Directors reviewed the composition of the Audit Committee pursuant to the rules of the SEC, NYSE, and NASDAQ governing audit committees. Based on this review, the Board of Directors confirmed that all members of the Audit Committee are “independent” under the SEC, NYSE, and NASDAQ rules.

CG&N Committee

The duties of the CG&N Committee include recommending to the Board of Directors the slate of director nominees submitted to the shareholders for election at each annual meeting and proposing qualified candidates to fill vacancies on the Board of Directors. The CG&N Committee is also responsible for developing corporate governance principles for the Company, reviewing related party transactions, and overseeing the evaluation of the Board of Directors. During 2015 and the first two months of 2016, the Board of Directors reviewed the composition of the CG&N Committee pursuant to the rules of the NYSE and NASDAQ governing nominating and governance committees. Based on this review, the Board of Directors confirmed that all members of the CG&N Committee are “independent” under the NYSE and NASDAQ rules. The CG&N Committee charter, as adopted by the Board of Directors, is available on the Company’s website (www.apachecorp.com).

The CG&N Committee considers director nominee recommendations from executive officers of the Company, independent members of the Board, and shareholders of the Company, as well as recommendations from other interested parties. The CG&N Committee may also retain an outside search firm to assist it in finding appropriate nominee candidates. Shareholder recommendations for director nominees received by Apache’s corporate secretary (at the address for submitting shareholder proposals and nominations set forth under the heading “Future Shareholder Proposals and Director Nominations” below) are forwarded to the CG&N Committee for consideration.

MD&C Committee

The MD&C Committee reviews the Company’s management resources and structure and administers the Company’s compensation programs and retirement, stock purchase, and similar plans. Under the provisions of its charter, the MD&C Committee may, at its discretion and if allowed by applicable laws or regulations, delegate all or a portion of its duties and responsibilities to a subcommittee of the MD&C Committee composed of at least two members. During 2015 and the first two months of 2016, the Board of Directors reviewed the composition of the MD&C Committee pursuant to the rules of the NYSE and NASDAQ governing compensation committees. Based on this review, the Board of Directors confirmed that all members of the MD&C Committee are “independent” under the NYSE and NASDAQ rules. The Stock Plan Committee was combined with the MD&C Committee effective May 14, 2015, with all responsibilities described below assumed by the MD&C Committee. The MD&C Committee charter, as adopted by the Board of Directors, is available on the Company’s website (www.apachecorp.com).

Stock Plan Committee

Until its combination with the MD&C Committee, effective May 14, 2015, the principal purpose of the Stock Plan Committee was to assist the Board of Directors in the discharge of its responsibilities related to equity-based compensation for the Company’s employees, including the named executive officers. The members of the Stock Plan Committee were “outside directors” as defined by applicable federal tax law or regulations of the Internal Revenue Service. The duties of the Stock Plan Committee included (i) administration of the Company’s equity-based compensation plans

 

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and programs and approval, award, and administration of grants made thereunder, (ii) certification of performance goals and their achievement, (iii) making recommendations to the Board of Directors with respect to the Company’s equity-based compensation plans and programs, and (iv) any other duties and responsibilities expressly delegated to the Stock Plan Committee by the Board of Directors relating to equity-based compensation plans and programs.

Committee Charters

As noted above, you can access electronic copies of the charters of the Audit Committee, CG&N Committee, and MD&C Committee of the Board of Directors on the Company’s website (www.apachecorp.com). Our Governance Principles and our Code of Business Conduct, which meet the requirements of a code of ethics under applicable SEC regulations and NYSE and NASDAQ standards, each document as amended from time to time, are available on the Company’s website. You may request printed copies of any of these documents by writing to Apache’s corporate secretary at 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400.

Criteria for New Board Members and Re-Election of Board Members

The CG&N Committee considers the following criteria in recommending new nominees or the re-election of directors to the Company’s Board of Directors and its committees:

 

    Expertise and perspective needed to govern the business and strengthen and support senior management – for example: strong financial expertise, knowledge of international operations, or knowledge of the petroleum industry and/or related industries.

 

    Sound business judgment and a sufficiently broad perspective to make meaningful contributions.

 

    Interest and enthusiasm in the Company and a commitment to become involved in its future.

 

    The time and energy to meet Board of Directors commitments.

 

    Ability to constructively participate in discussions, with the capacity to quickly understand and evaluate complex and diverse issues.

 

    Dedication to the highest ethical standards.

 

    Dedication to the highest health, safety, and environmental standards.

 

    Supportive of management, but independent, objective, and willing to question and challenge both openly and in private exchanges.

 

    An awareness of the dynamics of change and a willingness to anticipate and explore opportunities.

All decisions to recommend the nomination of a new nominee for election to the Board of Directors or for the re-election of a director are within the sole discretion of the CG&N Committee.

All director candidates are evaluated, and the decision of whether or not to nominate a particular candidate is made, based solely on Company- and work-related factors and not with regard to a candidate’s or director’s inclusion in any protected class or group identified in the Company’s anti-discrimination policy.

The above criteria and guidelines, together with the section of the Company’s Governance Principles entitled “Qualifications of Board Members” constitute the policy of the CG&N Committee regarding the recommendation of new nominees or the re-election of directors to the Company’s Board of Directors or its committees. The Company’s Governance Principles are available on the Company’s website (www.apachecorp.com).

Diversity

Company policy precludes directors and employees from discriminating against any protected group. Company policy also precludes directors and employees from basing work-related decisions on anything other than work-relevant criteria. The Company’s approach to diversity complements these policies without conflicting with them. We believe that Board diversity in all its aspects is essential to our business. Our criteria for Board selection, summarized in this section, operates as our diversity policy.

 

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Report of the Audit Committee

The following report of the Audit Committee of the Company shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The Audit Committee is operated under a charter that specifies the scope of the Committee’s responsibilities. The charter, which is reviewed annually and available on the Company’s website (www.apachecorp.com), was last amended effective July 16, 2014.

The Board of Directors has determined that all five members of the Committee are independent based upon the standards adopted by the Board, which incorporate the independence requirements under applicable laws, rules, and regulations, including the listing standards of the New York Stock Exchange and the NASDAQ National Market and Rule 10A-3 of the Securities Exchange Act of 1934, as amended.

The Company’s management has the primary responsibility for preparing the Company’s financial statements, managing the accounting and financial reporting processes, devising and maintaining the systems of internal controls over financial reporting, and assessing the effectiveness of internal controls over financial reporting. Ernst & Young LLP, Apache’s independent registered public accounting firm (the “independent auditors”), is responsible for the integrated audit of the consolidated financial statements and auditing the Company’s internal controls over financial reporting. The Committee’s responsibility is to monitor and oversee these processes and procedures on behalf of the Board of Directors.

The Audit Committee held nine meetings during fiscal year 2015, including the five in-person meetings referenced below. The meetings of the Audit Committee are designed to facilitate and encourage communication among the Audit Committee, the Company, the Company’s internal audit function, and the Company’s independent auditors. Meeting agendas are set based upon the Audit Committee Charter and also include suggested topics from Committee members and/or other relevant topics. At all five of the Audit Committee meetings held in person during 2015, the Committee met with the internal auditors and the independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, including internal controls over financial reporting, and the overall quality of the Company’s financial reporting.

The Committee is responsible for oversight of the qualifications, performance, and independence of the Company’s independent auditors and annually determines whether to retain the Company’s current independent auditors or retain another auditor. In doing so, the Audit Committee takes into consideration a number of factors, including the historical and recent performance of the independent auditors and lead partner, its global capabilities, its knowledge of the Company’s operations and industry, external data relating to audit quality and performance, including recent Public Company Accounting Oversight Board (United States) (“PCAOB”) reports, and independence. The Audit Committee recognizes the importance of maintaining the independence of the Company’s independent auditors, in both fact and appearance.

The Audit Committee discussed with the Company’s internal auditors and the independent auditors the overall scope and plans for their respective audits. In addition, the Audit Committee reviewed with the independent auditors, which is responsible for expressing an opinion on the conformity of the Company’s audited consolidated financial statements with U.S. generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee by the standards of the PCAOB, including PCAOB Auditing Standard No. 16, Communications With Audit Committees, the rules of the Securities and Exchange Commission, and other applicable regulations. In addition, the Audit Committee has discussed with the independent auditors the firm’s independence from Company management and the Company, including the matters in the letter from the firm required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, and considered the compatibility of non-audit services with the independent auditors’ independence.

The Audit Committee also reviewed and discussed together with management, the internal auditors, and the independent auditors the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, including the clarity of disclosures in the financial statements, the results of management’s assessment of the effectiveness of the Company’s internal controls over financial reporting, and the independent auditors’ audit of the Company’s internal controls over financial reporting.

 

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In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors has approved, that the audited consolidated financial statements and management’s assessment of the effectiveness of the Company’s internal controls over financial reporting be included in the Annual Report on Form 10-K for the year ended December 31, 2015, filed by the Company with the Securities and Exchange Commission.

 

February 23, 2016    Members of the Audit Committee
  

Chansoo Joung, Chairman

George D. Lawrence

Amy H. Nelson

Rodman D. Patton

Peter A. Ragauss

 

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Director Compensation

Summary of 2015 Director Compensation

Under the terms of the Company’s Non-Employee Directors’ Compensation Plan and the Non-Employee Directors’ Restricted Stock Units Program, each non-employee director receives an annual retainer, paid one-third in cash and two-thirds in stock.

The equity component of the annual board retainer for the Company’s non-employee directors is not paid out until the non-employee director retires or otherwise leaves the Board of Directors.

The retirement plan for the Company’s non-employee directors limits participation to those members first elected to the Board of Directors on or before June 30, 2014.

Non-Employee Directors’ Cash Compensation

During 2015, under the terms of the Company’s Non-Employee Directors’ Compensation Plan, each non-employee director received an annual cash retainer of $100,000 for service on the Board of Directors, and the chair of each committee received an additional cash retainer. There were no separate meeting attendance fees.

In May 2015, the Non-Employee Directors’ Compensation Plan was amended to provide for an additional cash retainer of $100,000 annually for the Company’s non-executive chairman of the Board. Prior to May 2015, the lead director received an additional retainer of $25,000 annually.

Under the terms of the Non-Employee Directors’ Compensation Plan, non-employee directors can defer receipt of all or any portion of their cash retainers. Deferred cash amounts accrue interest equal to the Company’s rate of return on its short-term marketable securities. Once each year, participating directors may elect to transfer all or a portion of their deferred cash amounts into the form of shares of Apache common stock. After such election, amounts deferred in the form of Apache common stock accrue dividends as if the stock were issued and outstanding when such dividends were payable. All deferred amounts, as well as accrued interest and dividends, are maintained in a separate memorandum account for each participating non-employee director. Amounts are paid out in cash and/or shares of Apache common stock, as applicable, upon the non-employee director’s retirement or other termination of his or her directorship, or on a specific date, in a lump sum or in annual installments over a ten-year (or shorter) period. During 2015, one non-employee director deferred all of his cash retainer fees.

Non-Employee Directors’ Restricted Stock Units Program

During 2015, the Company’s Non-Employee Directors’ Restricted Stock Units Program (the “RSU Program”), established pursuant to the Company’s 2011 Omnibus Equity Compensation Plan, provided that all non-employee directors were eligible to receive grants of restricted stock units (“RSUs”) at the end of each calendar quarter, with the number of RSUs calculated by dividing $50,000 by the fair market value of a share of Apache common stock on the date of grant, rounded down to the nearest whole number.

In May 2015, the RSU Program was amended to provide that the Company’s non-executive chairman of the Board was eligible to receive additional grants of RSUs at the end of each calendar quarter, with the number of RSUs calculated by dividing $25,000 by the fair market value of a share of Apache common stock on the date of grant, rounded down to the nearest whole number.

Each RSU is equivalent to one share of Apache common stock. If applicable, the grant is prorated for the non-employee director’s or non-executive chairman’s service during the calendar quarter.

The RSUs vest as of the grant date, with 100 percent automatic, mandatory deferral into the Outside Directors’ Deferral Program (the “Deferral Program”) established pursuant to the Company’s 2011 Omnibus Equity Compensation Plan. Deferrals are invested in stock units with each stock unit being equivalent to one share of Apache common stock. Stock units accrue dividends as if the stock was issued and outstanding when such dividends were payable, and all dividend amounts are invested in additional stock units. All stock units are maintained in a separate memorandum account for each non-employee director. Stock units in the Deferral Program will be converted to shares of common stock and paid out upon the non-employee director’s retirement or other termination of his or her directorship.

 

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Annual Review of Director Compensation

In our annual review of director compensation, the benchmarking analysis provided to the Board for 2015 indicated that the average director compensation would remain the lowest of our Compensation Peer Group (as defined in the Compensation Discussion and Analysis section) at that time.

Director Share Ownership Requirement

The Company has a minimum share ownership requirement for non-employee directors that requires each non-employee director to directly own shares and/or share equivalents the total value of which is equal to or greater than six times the annual board retainer paid in cash, excluding additional retainers for service as a committee chair or as non-executive chairman. Based on an annual board cash retainer of $100,000, each non-employee director is required to own shares and/or share equivalents the total value of which is at least $600,000. Non-employee directors must meet the ownership requirement within three years of the later of (i) July 16, 2014 or (ii) the date of his or her appointment to the Board of Directors. Once achieved, each non-employee director must continue to meet the minimum share ownership requirement for the duration of his or her service on the Board.

As of February 29, 2016, each non-employee director, other than Ms. Bay, Ms. Nelson, Mr. Rabun, and Mr. Ragauss, directly owned shares of the Company’s common stock and/or share equivalents with total value equal to or greater than $600,000 (six times the annual cash board retainer). Each of Ms. Bay and Ms. Nelson has until July 16, 2017, to meet the requirement; Mr. Ragauss has until December 16, 2017, to meet the requirement; and Mr. Rabun has until May 13, 2018, to meet the requirement. See beneficial ownership information under the heading “Securities Ownership and Principal Holders” below.

Pledging and Hedging Policies

The Company has a pledging policy that prohibits non-employee directors and executive officers from holding Apache securities in a margin account or pledging any Apache securities as collateral for a loan. The Company also has a hedging policy that prohibits non-employee directors and executive officers from entering into any hedge, or other transaction (such as puts, calls, options, or other derivative securities), in Apache securities that has the effect of limiting the risk of ownership of Apache common stock or stock options. As of the date of this proxy statement, each non-employee director was in compliance with the Company’s pledging and hedging policies.

Outside Directors’ Retirement Plan

An unfunded retirement plan for non-employee directors was established in December 1992. The Outside Directors’ Retirement Plan was most recently amended on July 16, 2014, effective as of June 30, 2014, to (i) limit participation to those members first elected to the Board of Directors on or before June 30, 2014 and (ii) specify that the amount of benefits will be determined as of the earlier of the date the non-employee director ceases to be a member of the Board of Directors or June 30, 2014, at which date the annual cash board retainer was $150,000.

The plan is administered by the MD&C Committee and generally pays an annual benefit equal to 100 percent of the retired director’s annual cash board retainer for a period based on length of service. Payments are made either (i) on a quarterly basis, for a maximum of ten years, or (ii) in a single lump sum equal to the net present value of the quarterly payments to which the director is entitled, and are paid from the general assets of the Company. In the event of the director’s death prior to receipt of all benefits payable under the plan, the remaining benefits are payable to the director’s surviving spouse or designated beneficiary until the earlier of the termination of the payment period or the death of the surviving spouse or designated beneficiary. During 2015, benefits were paid under this plan to five former directors who retired from the Company’s Board of Directors in 2012, 2013, 2014, or 2015.

Prior Plan for Directors’ Equity Compensation

The Equity Compensation Plan for Non-Employee Directors, originally established in February 1994, was terminated in January 2007. The original expiration date for this plan was July 1, 2009, with a maximum of 50,000 shares of common stock (115,500 shares after adjustment for the Company’s 2002 and 2003 stock dividends and 2004 stock split) for awards granted during the term of the plan. However, in February 2007, the plan was amended to provide that no new awards would be granted subsequent to January 1, 2007, and no awards have been made since that date. The plan continues in existence solely for the purpose of governing still-outstanding awards made prior to January 1, 2007.

Awards were made from shares of common stock held in the Company’s treasury and were automatic and non-discretionary. All shares awarded under the plan have vested, have full dividend and voting rights, and are not eligible for sale while the non-employee director is still serving as a member of the Board of Directors.

 

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Director Compensation Table

The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2015:

 

Name(1)
(a)
 

Fees Earned

or Paid in

Cash

($)

(b)

   

Stock
Awards(2)
($)

(c)

   

Option
Awards
($)

(d)

   

Non-Equity
Incentive

Plan
Compensation
($)

(e)

   

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings

($)

(f)(7)

   

All Other
Compensation
($)

(g)

   

Total
($)

(h)

 

Annell R. Bay

    109,478        199,871                                    309,349   

G. Steven Farris(3)

    28,239        56,396                                    84,635   

A.D. Frazier, Jr.(4)

    76,841        149,886                             37,500 (6)      264,227   

Chansoo Joung

    120,000        199,871                                    319,871   

George D. Lawrence

    107,363        199,871                                    307,234   

John E. Lowe

    166,484        266,329                                    432,813   

William C. Montgomery

    118,159        199,871                                    318,030   

Amy H. Nelson

    100,000        199,871                                    299,871   

Rodman D. Patton

    100,000        199,871                                    299,871   

Charles J. Pitman

    109,203        199,871                                    309,074   

Daniel W. Rabun(5)

    63,461        126,866                                    190,327   

Peter A. Ragauss

    100,000        199,871                                    299,871   

 

(1) Employee directors do not receive additional compensation for serving on the Board of Directors or any committee of the Board. John J. Christmann IV, the Company’s chief executive officer and president, is not included in this table as he was an employee of the Company during 2015. The compensation he received as an employee of the Company is shown in the Summary Compensation Table.

 

(2) Grant date fair value, as computed in accordance with FASB ASC Topic 718, of restricted stock units granted during 2015 to each non-employee director based on the per share closing price of the Company’s common stock on grant date.

 

   None of the non-employee directors had unvested restricted stock units or restricted Apache common stock at year-end 2015.

 

(3) Mr. Farris retired as the Company’s chief executive officer and president, effective January 20, 2015. The compensation he received as an employee of the Company is shown in the Summary Compensation Table. Mr. Farris served as non-executive chairman of the Board of Directors from January 20, 2015, until his retirement from the Board of Directors on May 1, 2015.

 

(4) Mr. Frazier retired from the Board of Directors effective October 1, 2015.

 

(5) Mr. Rabun was appointed to the Board of Directors effective May 13, 2015.

 

(6) Benefits paid pursuant to the Outside Directors’ Retirement Plan.

 

(7) Earnings not included in column (f) of the Director Compensation Table as they are not above-market or preferential earnings.

 

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Securities Ownership and Principal Holders

The following tables set forth, as of February 29, 2016, the beneficial ownership of (i) each director or nominee for director of the Company, (ii) the principal executive officer, the principal financial officer, and the three other most highly compensated executive officers who served as officers of the Company during 2015, and (iii) all directors and executive officers of the Company as a group. All ownership information is based upon filings made by those persons with the SEC and upon information provided to the Company.

 

Title of Class   Name of Beneficial Owner   Amount and Nature of
Beneficial Ownership (1)
    Percent of Class

Common Stock, par value $0.625

  Annell R. Bay     5,722     (3)    *
  Chansoo Joung     36,572     (3)    *
  George D. Lawrence     56,914     (2)(3)    *
  John E. Lowe     13,157     (3)    *
  William C. Montgomery     26,434     (3)    *
  Amy H. Nelson     8,639     (3)    *
  Rodman D. Patton     57,236     (2)(3)    *
  Charles J. Pitman     46,639     (2)(3)    *
  Daniel W. Rabun     2,896     (3)    *
  Peter A. Ragauss     4,284     (3)    *
  John J. Christmann IV     350,014     (5)(6)(7)    *
  Stephen J. Riney     97,415     (7)    *
  P. Anthony Lannie     181,109     (5)(6)(7)    *
  W. Kregg Olson     198,809     (4)(5)(7)    *
  James L. House     106,421     (4)(5)(6)(7)    *
  Timothy J. Sullivan     79,662     (4)(5)(6)(7)    *
  All directors, nominees, and executive officers as a group (including the above named persons)     1,509,289     (4)(5)(6)(7)    *

 

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

 

(1) All ownership is sole and direct unless otherwise noted. Inclusion of any common shares not owned directly shall not be construed as an admission of beneficial ownership. Fractional shares have been rounded to the nearest whole share.

 

(2) Includes vested restricted common shares awarded under the Company’s Equity Compensation Plan for Non-Employee Directors.

 

(3) Includes the following common share equivalents related to retainer fees deferred under the Company’s Non-Employee Directors’ Compensation Plan and/or the Company’s Outside Directors’ Deferral Program: Ms. Bay –5,722; Mr. Joung – 6,287; Mr. Lawrence – 16,106; Mr. Lowe – 7,789; Mr. Montgomery – 6,287; Ms. Nelson – 6,139; Mr. Patton – 26,566; Mr. Pitman – 6,716; Mr. Rabun – 2,896; and Mr. Ragauss – 4,284.

 

(4) Includes the following common stock equivalents held through the Company’s Deferred Delivery Plan: Mr. Olson –15,910; Mr. House – 2,781; Mr. Sullivan – 4,366; and all executive officers as a group – 23,727.

 

(5) Includes the following common shares issuable upon the exercise of outstanding employee stock options which are exercisable within 60 days: Mr. Christmann – 45,439; Mr. Lannie – 64,564; Mr. Olson – 60,713; Mr. House –33,093; Mr. Sullivan – 19,946; and all executive officers as a group – 295,630.

 

(6) Includes shares held by the trustee of the Company’s 401(k) Savings Plan and related Non-Qualified Retirement/Savings Plan: Mr. Christmann – 26,911; Mr. Lannie – 10,857; Mr. House – 12,651; Mr. Sullivan – 179; and all executive officers as a group – 75,070.

 

(7) Includes the following restricted stock units granted under the Company’s 2007 and 2011 Omnibus Equity Compensation Plans: Mr. Christmann – 246,545; Mr. Riney – 91,415; Mr. Lannie – 76,703; Mr. Olson – 70,915; Mr. House – 54,764; Mr. Sullivan – 47,152; and all executive officers as a group – 696,849.

 

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The following table sets forth the only persons known to the Company, as of February 29, 2016, to be the owners of more than five percent of the outstanding shares of the Company’s common stock, according to reports filed with the SEC:

 

Title of Class  

Name and Address of

Beneficial Owner

  Amount and Nature of
Beneficial Ownership
    Percent of Class  

Common Stock

par value $0.625

 

BlackRock, Inc.

55 East 52nd Street

New York, New York 10055

    27,582,816  (a)      7.3   
     

Common Stock

par value $0.625

 

Dodge & Cox

555 California Street, 40th Floor

San Francisco, California 94104

    26,014,684  (b)      6.9   
     

Common Stock

par value $0.625

 

T. Rowe Price Associates, Inc.

100 E. Pratt Street

Baltimore, Maryland 21202

    22,700,042  (c)      6.0   
     

Common Stock

par value $0.625

 

The Vanguard Group

100 Vanguard Blvd.

Malvern, Pennsylvania 19355

    22,694,824  (d)      6.0   

 

(a) Per Schedule 13G/A filed by BlackRock, Inc. on February 10, 2016.
(b) Per Schedule 13G/A filed by Dodge & Cox on February 12, 2016.
(c) Per Schedule 13G/A filed by T. Rowe Price Associates, Inc. on February 11, 2016.
(d) Per Schedule 13G/A filed by The Vanguard Group on February 10, 2016.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and officers, as well as beneficial owners of ten percent or more of the Company’s common stock, to report their holdings and transactions in the Company’s securities. Based on information furnished to the Company and contained in reports provided pursuant to Section 16(a), as well as written representations that no other reports were required for 2015, the Company’s directors and officers timely filed all reports required by Section 16(a).

 

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Equity Compensation Plan Information

The following table summarizes information as of December 31, 2015, relating to the Company’s equity compensation plans, under which grants of stock options, restricted stock units, and other rights to acquire shares of Apache common stock may be granted from time to time.

 

    (a)     (b)     (c)  

Plan Category

  Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
(#)
    Weighted-Average
Exercise
Price of Outstanding
Options, Warrants  and
Rights
($)
    Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans
(Excluding Securities Reflected
in
Column (a))
(#)
 
Equity compensation
plans approved by
security holders(1)(5)
    10,361,201        91.52 (3)      17,983,040 (4) 
Equity compensation
plans not approved by
security holders(2)(5)
    202,630               580,013   

TOTAL

    10,563,831        91.52 (3)      18,563,053   
(1) Includes the Company’s 2005 Stock Option Plan, 2007 Omnibus Equity Compensation Plan, and 2011 Omnibus Equity Compensation Plan.

 

(2) Includes the Company’s Non-Employee Directors’ Compensation Plan and Deferred Delivery Plan.

 

  The Company’s Deferred Delivery Plan allows officers and certain key employees to defer income from restricted stock units granted under the 2007 Omnibus Equity Compensation Plan and the 2011 Omnibus Equity Compensation Plan in the form of deferred units. Each deferred unit is equivalent to one share of Apache common stock. Distributions from the plan are made, at the election of the participant, beginning five years from deferral or upon termination of employment.

 

(3) Weighted average exercise price of outstanding stock options; excludes restricted stock units, performance-based stock units, and deferred stock units.

 

(4) Available for grant under the 2011 Omnibus Equity Compensation Plan, as of December 31, 2015.

 

(5) See Note 10 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2015, for the material features of the 2005 Stock Option Plan, 2007 Omnibus Equity Compensation Plan, and 2011 Omnibus Equity Compensation Plan.

 

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Executive Officers of the Company

Biographical information for the executive officers of the Company is set forth below. Biographical information for John J. Christmann IV is set forth above under the caption “Nominees for Election as Directors.”

MARGERY M. HARRIS, 55, was appointed executive vice president - human resources in December 2011, having been senior vice president - human resources since February 2011, and vice president – human resources since September 2007. Prior to joining the Company, she was consultant/principal of MMH Consulting Services, a privately-held human resources consulting firm, from 2006 to September 2007, executive vice president and senior vice president - human resources with Texas Genco LLC, a wholesale power generator, from 2005 to 2006, and senior vice president - human resources and administration of Integrated Electrical Services, Inc., from 2000 to 2005. Ms. Harris worked for Santa Fe Snyder (successor to Santa Fe Energy Resources) from 1995 to 2000 in a variety of human resources capacities, including vice president – human resources.

JAMES L. HOUSE, 54, was appointed senior region vice president – Houston region on June 1, 2015, where he is responsible for Apache’s operations in Canada, U.S. Midcontinent, U.S. Gulf Coast, Gulf of Mexico, and international new ventures, having been U.K. region vice president and managing director of Apache North Sea from June 2006 through May 2015. Mr. House previously served as Apache North Sea operations director from October 2005 to June 2006, general manager of joint venture Khalda Petroleum Company, Egypt, from April 2001 to October 2005, general manager of Apache Poland from June 1999 to April 2001, general manager of joint ventures Qarun Petroleum Company and East Beni Suef Petroleum, Egypt, from May 1998 to June 1999 and from October 1997 to May 1998, respectively. Prior to that, he held positions of increasing responsibility as a petroleum engineer since joining the Company in 1991. Previously, Mr. House worked for Amoco Production Company as a petroleum engineer in West Texas, Houston, and New Orleans, Louisiana.

REBECCA A. HOYT, 51, was appointed senior vice president, chief accounting officer, and controller in August 2014, having been vice president, chief accounting officer, and controller since November 2010. She previously served as the Company’s vice president and controller since November 2006, assistant controller since 2003, and held positions of increasing responsibility within the accounting area since joining the Company in 1993. Previously, Ms. Hoyt was an audit manager with Arthur Andersen LLP, an independent public accounting firm, from 1992 to 1993.

P. ANTHONY LANNIE, 61, was appointed executive vice president and general counsel in August 2009, and was interim chief financial officer from October 9, 2014 through March 2, 2015. Mr. Lannie served as senior vice president and general counsel since May 2004, and vice president and general counsel since March 2003. Prior to joining the Company, he was president of Kinder Morgan Power Company, Houston, Texas, from 2000 through February 2003, and president of Coral Energy Canada in 1999. Mr. Lannie was senior vice president and general counsel of Coral Energy, an affiliate of Shell Oil Company and Tejas Gas Corporation, from 1995 through 1999, and of Tejas Gas Corporation from 1994 until its combination with Coral Energy in 1998.

W. KREGG OLSON, 62, was appointed executive vice president – corporate reservoir engineering in August 2009, having been senior vice president – corporate reservoir engineering since September 2007, and vice president – corporate reservoir engineering since January 2004. Prior to that, Mr. Olson served as director of technical services from 1995 through 2003, and held positions of increasing responsibility within corporate reservoir engineering since joining the Company in 1992. Previously, he was associated with Grace Petroleum Corporation.

STEPHEN J. RINEY, 55, was appointed executive vice president on February 18, 2015, and chief financial officer effective March 3, 2015. Prior to joining the Company, he served as chief financial officer for BP Exploration and Production from July 2012 to January 2015, and global head of mergers and acquisitions for BP plc from January 2007 to June 2012.

TIMOTHY J. SULLIVAN, 60, was appointed executive vice president – operations support effective January 1, 2016, having been senior vice president – operations support since June 2015. In this role, he supports the Company’s chief executive officer in operational strategy, goal setting, capital allocation, market intelligence, and marketing. Previously, he served as region vice president – Canada, and president of Apache Canada from January 2013 through May 2015, reservoir engineering manager for the Central region from January 1997 to January 2013, and senior reservoir engineer from 1986 through 1996. Prior to joining the Company, Mr. Sullivan worked in various engineering roles for Cotton Petroleum Corporation and Texaco Inc.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Compensation Discussion and Analysis (“CD&A”) section describes the compensation program for our Named Executive Officers (“NEOs”). Our current NEOs, who also served in 2015, are:

 

Name

   Title

John J. Christmann IV

   Chief Executive Officer and President

Stephen J. Riney

   Executive Vice President and Chief Financial Officer

P. Anthony Lannie

   Executive Vice President and General Counsel

W. Kregg Olson

   Executive Vice President – Corporate Reservoir Engineering

James L. House

   Senior Region Vice President – Houston Region

Timothy J. Sullivan

   Senior Vice President – Operations Support

Apache’s executive team changed significantly in 2015:

 

  ·    Mr. Christmann was appointed Chief Executive Officer and President on January 20, 2015, following the retirement of our former CEO Mr. G. Steven Farris.
  ·    Mr. Riney was appointed Executive Vice President on February 18, 2015 and Chief Financial Officer on March 3, 2015, replacing Mr. Lannie who served as interim Chief Financial Officer from October 9, 2014 through March 2, 2015.
  ·    Mr. House was appointed Senior Region Vice President – Houston Region on June 1, 2015. He previously served as the UK region vice president and managing director of Apache North Sea.
  ·    Mr. Sullivan was appointed Senior Vice President – Operations Support on June 1, 2015 and was appointed Executive Vice President – Operations Support on January 1, 2016. He previously served as the Canada region vice president and president of Apache Canada Ltd.

Our Summary Compensation Table includes the following individuals who were no longer employed with Apache as of December 31, 2015:

 

Name

   Former Title    Departure Date

G. Steven Farris

   Chairman, Chief Executive Officer, and President    Jan. 20, 2015*

Thomas E. Voytovich

   Executive Vice President, International and Exploration and Production Technology    Nov. 30, 2015

* Refers to retirement date as Chief Executive Officer and President. Mr. Farris served as Executive Chairman through May 1, 2015, after which he was succeeded by Independent Chairman John E. Lowe.

2015 Compensation Highlights

 

 

 

  ·    No merit-based raises in 2015 for employees, including the NEOs in light of the challenging commodity price environment, and

 

  ·    MD&C Committee accepted management’s recommendation of a 118% annual cash incentive bonus payout, which was the low-end of the 118% to 132% range actually achieved, due to industry-wide, economic conditions.

In 2015, we continued an effort begun in 2013, after receiving feedback from our shareholders, to comprehensively review and modify the Company’s executive compensation programs to ensure that they support our pay-for-performance philosophy, align executives’ interests with those of our shareholders, and attract, motivate, and retain exceptional executive talent. As a result, we made the following changes to our executive compensation programs for 2015:

 

  ·    Further aligned our annual cash incentive bonus plan with our corporate strategy,

 

  ·    Improved our long-term Performance Share program to incorporate total shareholder return and two other important financial measures,

 

  ·    Implemented an Executive Termination Policy providing standardized payments of benefits in the event of termination without cause,

 

  ·    Adopted an Executive Compensation Clawback Policy, and

 

  ·    Aligned our new CEO’s target compensation closely with the median of our peers.

 

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Table of Contents

 

CD&A OVERVIEW

  35

Who We Are

  35

Our Compensation Philosophy

  36

2015 Business Highlights – A Year of Transition and Strategic Action

  36

Shareholder Outreach

  37

Pay Best Practices

  38

OUR APPROACH TO PAY

  39

Peer Groups and Data

  39

ELEMENTS OF THE 2015 COMPENSATION PROGRAM

  40

Base Salary

  40

Annual Cash Incentive Bonus

  41

Long-Term Compensation

  44

Benefits

  46

Compensation Decisions With Respect to 2016

  46

Other Matters

  48

DECISION MAKING PROCESS

  48

Role of the Board of Directors

  48

Role of the Management Development and Compensation Committee

  48

Role of the Compensation Consultant

  48

Role of Management

  49

RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAMS

  49

TAX LEGISLATION RELATED TO COMPENSATION

  49

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT

  50

CD&A Overview

Who We Are

 

 

Apache Corporation is an oil and gas exploration and production company with operations in the United States, Canada, Egypt, and the UK. In 2015, we operated an average of 39 rigs worldwide and drilled 693 gross wells, 543 of which were North American onshore.

Our operating regions include:

 

  (i) North America, which is comprised of the Permian, MidContinent/Gulf Coast, and Canada onshore regions and the Gulf of Mexico offshore region,

 

  (ii) Egypt, and

 

  (iii) U.K. North Sea.

 

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LOGO

We have a portfolio of high-quality assets with robust inventory in North America, higher-cash margin assets in Egypt and the North Sea, and longer-term exploration prospects. In addition to improving operational efficiencies, liquidity, and our financial position, our strategy is to prioritize our discretionary capital to higher rate-of-return opportunities in Egypt and the North Sea and to key strategic testing in North America onshore. However, we believe that if commodity prices improve from current market levels, we will be able to increase our capital plan accordingly with a greater focus on growth in our onshore North America assets. Accordingly, we will maintain capital allocation and operational flexibility to respond quickly to changing oil prices, and we have developed specific plans for increasing activity in the event prices and costs come back into better alignment.

Our Compensation Philosophy

 

 

Our executive compensation philosophy is to design compensation programs that:

 

  ü Attract, retain, and reward top talent

 

  ü Align our executives’ interests with those of our shareholders by paying for performance

 

  ü Provide a substantial portion of our compensation in long-term equity-based compensation to reward performance over the long-term and align the compensation of our top executives with the shareholder experience.

2015 Business Highlights – A Year of Transition and Strategic Action

 

 

In 2015, the oil and gas industry experienced a challenging commodity price environment, featuring dramatically lower prices for both crude oil and natural gas. Apache responded quickly and decisively to this new operating landscape. Over the last year, we divested a material amount of non-core assets, significantly reduced costs, drilled more productive wells, and continued to mature several resource plays. We also reduced our employee base by approximately 23 percent over the last 12 months, and 19 executives over the past 18 months, to align our cost structure better with our reduced asset base.

In January 2015, we completed a multi-year succession-planning process with the retirement of our long-serving CEO, G. Steven Farris, and the appointment of John J. Christmann IV, formerly executive vice president and chief operating officer-North America, as CEO and president. We incorporated into this transition the appointment of independent director John E. Lowe as separate chairman of the Board, effective May 2, 2015. In addition, we appointed Stephen J. Riney as chief financial officer, effective March 3, 2015.

The decisive actions taken this year to restructure our organization and significantly improve operational efficiency has begun to show results. Though our absolute shareholder returns were negative this year, and the company posted substantial reductions in earnings – driven in large part by oil prices that were 47 percent lower on average in 2015 than 2014 – Apache performed meaningfully above our oil and gas peers on relative basis.

Highlights of our operational, strategic, and financial achievements are provided below:

 

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OPERATIONAL
     
   

 

535 Mboe/d

      Average liquids and natural gas production across operations
      Mboe/d = thousands of barrel of oil equivalents per day
      Crude oil represented 82% of total liquids production
     

 

+3% / +13%

      Increase in North American onshore and International production vs. 2014
      Both numbers exclude tax barrels, noncontrolling interest, and divestitures
     
 
STRATEGIC
     
   

 

$6.2 billion

      Proceeds from strategic divestitures
      Including our interests in the Wheatstone and Kitimat LNG projects and our Australian operations
     

16%

      Reduction of General & Administrative (G&A) Expenses
      23% reduction in our employee base over the last 12 months, and 19 executives over the past 18 months, in light of our reduced asset base
      Created a super-region structure and optimized organization by consolidating Central and Gulf Coast region employees into our Houston Office
     
 
FINANCIAL
     
   
60%+       Reduction in capital spending vs. 2014
     
   
35%       Reduction in average North American drilled and completed well costs vs. 2014
      Including 9% year-over-year per unit reduction in lease operating costs
     
$2.5 billion       Reduction of total debt
      Eliminated $900M of 2017/2018 debt maturies and reduced net long term maturing before 2021 to $700M, or 8% of total debt outstanding
     
2020       Refreshed and extended credit facility to June 2020
      Ended the year with $5B in liquidity, which includes $3.5B in undrawn credit facility and $1.5B in cash
     
2nd Quartile TSR       Finished 2015 with a second-quartile relative TSR rank
      Exceeding 2015 performance of over 70 percent of our peers (12/31/14 – 12/31/15)

The Board and management will continue to take steps to position the company for future success in the new commodity price environment and continue our transition to become a premier exploration and production company with global assets focused on North American growth.

Shareholder Outreach

 

At our 2015 Annual Meeting, our say on pay proposal received support from 82% percent of our shareholders who voted on the proposal. Though the Board is encouraged that a substantial majority of our shareholders supported our compensation program design, it recognized there was room for improvement from those results, and sought to understand and address any significant areas of shareholder concern.

Accordingly, we engaged with the majority of our shareholders in 2015. Over the course of the year, our engagement team conducted over 100 in-person meetings with our shareholders, including in-person meetings with 24 of our top 25 shareholders. The engagement team often included independent director representation, as gathering and incorporating

 

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shareholder feedback is a Board priority. A key objective of these engagement sessions was to solicit shareholder feedback on strengthening our compensation program. Subsequently, that feedback was relayed directly to the Board, who considered it while evaluating opportunities to further enhance our executive compensation program for 2016.

 

What We Heard    Change Implemented
Several shareholders expressed some concern with the design of our former CEO’s severance arrangement in January 2015, which was governed under his 1988 employment agreement and Apache’s legacy severance practices.   

    In February 2015, we adopted a formal Executive Termination Policy that provides standardized benefits and minimizes execessive payouts in the event of termination without cause.

 

    None of our employees, including our new CEO and all of our other NEOs, have an employment contract.

Additionally, after reviewing our compensation benchmarking data and the feedback we received from shareholders, the MD&C Committee made the following changes to our program in 2016:

 

  ·    Decreased annual target bonuses for the majority of executives to more closely align with the market median;
  ·    Decreased the annual target equity awards for nearly all employees, with the most significant reductions occurring at the executive-level;
  ·    Adjusted the executive equity mix to include a portfolio of equity vehicles: performance shares, restricted stock units, and stock options;
  ·    Modified the portion of performance-based equity awards granted to the CEO; and
  ·    Adjusted the payout scale of the TSR program to further align with peers.

We firmly believe that the changes that have been made to our compensation program are responsive to shareholder concerns and that our compensation program effectively aligns executive compensation with the key drivers of long-term growth and economic value creation for our shareholders.

Pay Best Practices

 

Our compensation best practices include:

 

·    Significant Performance-Based Pay: 58 percent and 38 percent of the ongoing pay mix for our CEO and current NEOs is variable and performance-based, respectively. At least half of the target compensation for our CEO and other NEOs for 2015 is variable and performance-based.
·    Long-term vesting: Our equity-based pay vehicles have multi-year vesting periods to reward long-term performance and deter inappropriate risk taking.
·    Multiple Performance Measures: We use multiple metrics to evaluate Company performance, covering both short- and long-term performance objectives.
·    Stock Ownership Requirements: We have stock ownership requirements for our directors and officers; our CEO must hold six-times base salary in stock; all officers and directors have hold-until-retirement or termination requirements in addition to their multiple-of-pay holding requirements. All our NEOs comply with, and own shares sufficient to meet, these ownership requirements.
·    No Repricing: Our stock options cannot be repriced, reset, or exchanged for cash if under water without shareholder approval.
·    Anti-Pledging Policy: We prohibit our directors and executive officers from holding Apache securities in a margin account or pledging any Apache securities as collateral for a loan.
·    Double Trigger Change in Control Provisions: We have a formal policy of requiring a double trigger to receive cash severance and to receive accelerated vesting of equity awards upon a change in control.
·    Clawback: Each equity award is conditioned on repayment or forfeiture as required by existing law, including Sarbanes-Oxley Act of 2002 and Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, under a newly adopted Executive Compensation Clawback Policy, each executive officer’s incentive award is subject to repayment or such other means of recovery (or a combination thereof) as the Board determines appropriate in the event of a material negative restatement as the result of fraud, intentional misconduct, or gross negligence by such executive officer.
·    Minimum Vesting: We amended our 2011 Omnibus Equity Compensation Plan to require three-year minimum vesting (in full) of equity awards to employees (including our executive officers). We have also retained such three-year minimum vesting requirement in our proposed 2016 Omnibus Compensation Plan.

 

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·    Employment Contracts: Effective with the retirement of our former CEO, all of our employees are employed “at will,” with no employment contracts.
·    Executive Termination Policy: In 2015, we implemented a policy that standardizes executive separation terms and minimizes the risk of excessive payouts.

Our Approach to Pay

Our approach to compensation takes into account external market and internal parity concerns as well as recruitment, retention, and long-term performance goals, which drive shareholder value.

Peer Groups and Data

 

Peer group data contributes to our external market parity, recruitment, retention, and performance analysis. To assemble the right peer group, our MD&C Committee uses eight criteria, ranked in the following order:

 

1. Industry: companies with our 6-digit GICS code (101020 – Oil, Gas and Consumable Fuels)

 

2. Market Capitalization: companies +/-2.5x Apache’s market cap

 

3. Revenues: companies +/-2.5x Apache’s revenues

 

4. Assets: companies +/-2.5x Apache’s assets

 

5. United States headquarters

 

6. Compete with Apache for talent

 

7. List Apache as a peer in their 2015 proxy statement

 

8. List a peer of Apache as a peer in their 2015 proxy statement

Of the 11 peer companies Apache used in 2014, seven met all eight criteria and the remaining four met at least five of the criteria. Based on this, the MD&C Committee decided to keep the same peer group for 2015:

Anadarko Petroleum Corporation

Chesapeake Energy Corporation

ConocoPhillips

Devon Energy Corporation

EOG Resources, Inc.

Hess Corporation

Marathon Oil Company

Murphy Oil Corporation

Noble Energy, Inc.

Occidental Petroleum Corporation

Pioneer Natural Resources Company

We also relied on this peer group for the relative TSR measurement within our 2015 Performance Share Program.

Over the last few years, we also worked with some of our peers as well as executives at the proxy advisory services to improve peer group reporting for our sector. As a result, starting in 2015, the proxy advisory services used a new approach that takes into account the unique features of exploration and production companies. We consider this a good example of constructive engagement.

In addition to the data gathered from the peers above, we use (i) the most recent compensation data provided by our Consultant (defined below), (ii) industry size-based surveys, (iii) our own labor market data, and (iv) Fortune 500 proxy statement data on CEO pay for companies with similar market capitalizations.

The MD&C Committee also assesses other types of horizontal data as well as numerous vertical assessments as input into each of our four main elements of pay: base salary, annual bonus, long-term compensation, and benefits.

 

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In 2015, our new CEO’s target compensation aligned closely with the median of our peers:

2015 CEO Target Compensation Rank Among Peers

 

LOGO

 

Median*

   $ 1,250,000       $ 1,687,500       $ 9,714,212       $ 12,904,220   

Apache

   $ 1,100,000       $ 1,430,000       $ 8,970,000       $ 11,500,000   

 

  *   Peer data includes most recently disclosed information available at the time Mr. Christmann’s target compensation as CEO was determined.

Elements of the 2015 Compensation Program

Base Salary

 

Our ability to recruit and retain executive talent depends on setting competitive base salaries. We begin with an analysis of base pay relative to the market. We make adjustments based on vertical variables such as pay parity relative to other officers and internal accountability. We review base salaries annually as a whole and individually every 12 months, unless circumstances require otherwise. For non-CEO NEO salaries, we solicit CEO input. The 2015 earnings and salaries paid to the NEOs were:

 

Named Executive Officer      2015
Earnings
($)
      

January 1, 2015
Salary*

($)

      

December 31, 2015
Salary

($)

 

John J. Christmann IV

       1,081,551           725,000           1,100,000   

Stephen J. Riney

       578,437           650,000           650,000   

P. Anthony Lannie

       675,000           675,000           675,000   

W. Kregg Olson

       625,000           625,000           625,000   

James L. House

       529,167           500,000           550,000   

Timothy J. Sullivan

       464,584           400,000           500,000   

G. Steven Farris

       91,426           1,750,000             

Thomas E. Voytovich

       664,583           725,000             

 

*Value shown for Mr. Riney reflects salary on his date of hire, effective February 10, 2015.

As the result of significant organizational changes that occurred in 2015, three executives received raises in connection with their promotions: (i) John J. Christmann IV was promoted to Chief Executive Officer and President on January 20, 2015, (ii) James L. House was promoted to Senior Region Vice President, Houston Region from Region Vice President, North Sea on June 1, 2015, and (iii) Timothy J. Sullivan was promoted to Senior Vice President – Operations Support from Region Vice President, Canada on June 1, 2015.

The base salaries for Messrs. Lannie and Olson remained unchanged throughout 2015. The base salaries for Messrs. Farris and Voytovich remained unchanged until their respective retirement or departure dates.

 

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Annual Cash Incentive Bonus

 

Our annual cash incentive plan is designed to motivate and reward executives for achieving key business objectives that continue to drive Apache’s success and generate returns for our shareholders. We set annual cash incentive bonus targets hierarchically starting with a multiple of base salary. Actual annual bonus payouts are based on our achievement of a variety of financial, operational and management objectives (“the corporate performance element”), each officer’s individual achievement (“the individual performance element”), and any needed exceptional adjustments.

Corporate Performance Element

The corporate performance element consists of corporate objectives-weighted 70 percent-and management objectives-weighted 30 percent.

Corporate Objectives

Our corporate objectives represent our key operational and strategic goals for the year, each weighted 60 percent and 40 percent, respectively. Points attributed to each goal range from 50 percent at threshold, 100 percent at target, and 150 percent at maximum, with interpolation for results between these ranges. No points are awarded for achievement below threshold.

The operational goals include the fundamental aspects of our business aimed to focus employee efforts on increasing production and reserves in a safe and environmentally responsible manner, while prudently managing costs. The strategic goals include a list of specific objectives designed to support the execution of our plan for the particular year. In 2015, the results of our key operational and strategic goals yielded the following results:

 

Corporate Objectives – 2015 Corporate Goals    Weighting      Result    Achievement    Total Points  

Operational Goals*

                           

1. Production of 445 Thousand Barrels of Oil Equivalent/Day (MBOED)

     15%       486 MBOED    Above maximum      22.5   

2. Replace 50% of 2015 production through Exploration and Development adds**

     15%       51%    Slightly above target      15.5   

3. Maximize Cash Flow per Barrel Sold through Cost Management:

     15%            

· $10.15 Lease Operating Expense (LOE) per Barrels of Oil Equivalent (BOE)

      $9.51    Between target and maximum      10.7   

· $4.18 General and Administrative (G&A) per BOE (Gross G&A Spend/BOE)

      $3.69    Above maximum      11.3   

4. Achieve an After Tax Rate of Return on 2015 Drilling Program of 15% (threshold of 5%)

     10%       13.41%    Slightly below target      9.2   

5. Health, Safety, Security, and Environmental:

     5%            

· Total Workforce Recordable Incident Rate (TRIR) of less than 0.89

      .76    Above maximum      2.5   

· Total Workforce Days-Away-Restricted-Time Rate (DART) of less than 0.50

      .37    Above maximum      2.5   

· Vehicle Incident Rate (VIR) of less than 1.06

            .87    Above maximum      2.5   

 

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Corporate Objectives – 2015 Corporate Goals    Weighting      Result    Achievement    Total Points  

Strategic Goals

                           
The strategic goals for 2015 were set to continue to shift the focus of Apache’s portfolio to North America and consisted of various objectives such as:      40%          All strategic goals achieved at target***      40   

· Refine the North America organization to fit the go forward strategy

  

· Keep capex and dividends within cash flow

           

· Expand forward year cash flow multiple relative to peer average

           

· Monetize $75 million of infrastructure assets

           

· Develop business and strategic plans for North Sea and Egypt and communicate externally

           

· Develop a process to generate a consolidated multi scenario five-year plan

           

· Reach decision point on implementation of successful efforts

           

· Implement plan to identify, measure, and develop future leaders

           

Total Corporate Goal Achievement

     100%                   117   

*Excludes Australian operations, which were divested in 2015.

**Ryder Scott Company, L.P. Petroleum Consultants reviewed over 92% of both proved reserves and value associated with new wells drilled during the year.

***We achieved the strategic goals as follows: (i) announced new organization structure on June 1, 2015 employing a super region operating model to further refine North America operations, (ii) kept capex and dividends within cash flow at $62 WTI, $65 Brent, and $2.90 Natural Gas, (iii) average Apache multiple for 2015 increased by 42% from 2014, while the peer average multiple increased 39%, (iv) monetized $559 million of infrastructure assets, (v) five-year plan presented at strategic planning meeting forming the basis of the go forward strategy for both North Sea and Egypt, (vi) plan presented to the Board, which includes enhancements to capital allocation, optimization of key, near-term shareholder value drivers (e.g., EBITDA, production growth), and capital structure, (vii) plan presented to the Board so that it could reach a decision point on implementation of successful efforts, and (viii) partnered with an outside consultant to complete first and second phases of executive development assessments.

Why These Objectives Are Used

 

  1. Production of 445 Thousand Barrels of Oil Equivalent/Day (MBOED): Production is one of the key drivers of value in our business. The Annual Bonus Plan includes rigorous production targets, set at the beginning of the year based on expected production, to ensure executives are focused on protecting and delivering base production and executing the drilling program with maximum efficiency and a high well success rate.

 

  2. Replace 50% of 2015 production through Exploration and Development adds: This metric was added to ensure efforts to replenish our reserve base continues to remain strong through excellence in exploration and well development.

 

  3. Maximize Cash Flow per Barrel Sold through Cost Management: A per-unit cash flow metric to ensure maximum profitability from production operations through management of costs that are within our control. Cash Flow per Barrel is impacted by lease operating expenses and general and administrative expenses.

 

  4. Achieve an After Tax Rate of Return on 2015 Drilling Program of 15%: A return metric rewards the efficiency of capital allocation to profitable drilling activities.

 

  5. Health, Safety, Security, and Environmental: Apache is committed to ensuring it provides a safe workplace and that a culture of safety and environmental responsibility is instilled at every level of our organization. Programs such as our “Aim for Zero” initiative seek to empower our employees to maintain a sustainable culture where everyone returns home safely at the end of the day and conducts business with no impact to the environment. For the past several years, our NEO’s bonus program included ambitious targets to improve safety and environmental goals every year. In light of the excellent progress we have made, for 2016 Apache’s health and safety goal targets will be set to the top quartile of our peer group.

 

  6. Strategic Goals: In addition to safe, efficient and profitable operations, management was also tasked with a number of important strategic goals to ensure we remain on track for future growth. Each strategic objective was chosen because it represents an important component of competitive advantage for Apache.

 

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Management Objectives

Our management objectives are a robust set of tactical goals developed by management, which are assessed and approved by the MD&C Committee. In essence, the management objectives are the goals each of our regions and corporate departments strive for in order to execute on our long-term strategy successfully. These 42 objectives for 2015 fall into the following four main categories:

 

  i.   planning and development,

 

  ii.   cost and operating efficiency,

 

  iii.   drilling and prospect inventory, and

 

  iv.   health, safety, security, and environment.

For 2015, each of the objectives represent no more than two percent of an officer’s annual cash incentive bonus.

We achieved 120 percent of the 2015 management objectives. Additionally, the MD&C Committee can award credit for extraordinary objectives when warranted. One extraordinary objective relating to drilling and prospect inventory was achieved in 2015.

The total 2015 achievement of the corporate performance element ranged from 118 percent to 132 percent due to variability in the attainment of the strategic objective component. The MD&C Committee accepted management’s recommendation of a 118% annual cash incentive bonus payout due to industry-wide economic conditions, as shown below.

 

Goal   

Results

(%)

    

Weighting

(%)

    

Total

(%)

 

Corporate Objectives

     117         70         82   

Management Objectives

     120         30         36   

Total 2015 Achievement

                       118   

Individual Performance Element

Using the corporate and management objectives as a foundation, the MD&C Committee receives input from the CEO, assesses the bonus numbers against market conditions and, where needed, further tailors annual cash incentive bonuses to the responsibilities and performance of each executive. Our CEO evaluates region officers based on region goals and performance as part of those officers’ bonus assessment.

Annual Incentive Bonuses Awarded for 2015

The CEO’s annual bonus is determined by the MD&C Committee and recommended to the Board for approval. The MD&C Committee accepted the CEO’s recommendation with respect to annual bonuses for the other NEOs. The bonuses awarded to the NEOs for 2015 were:

 

Name    2015 Target Bonus
(%)
   2015 Target Bonus
($)
   2015 Annual Cash
Incentive Bonus
($)
   Bonus as Percent
of Target
(%)

John J. Christmann IV

   130    1,406,017    1,659,100    118

Stephen J. Riney

   100    578,437    750,000    130

P. Anthony Lannie

   100    675,000    700,000    104

W. Kregg Olson

   100    625,000    600,000    96

James L. House

   100    529,167    550,000    104

Timothy J. Sullivan

   100    464,584    550,000    118

The bonuses awarded to Messrs. House and Sullivan were based on a combination of the corporate performance results as described above and business unit results of the North Sea and Canada regions, respectively, during their terms as Region Vice Presidents in the first half of 2015. Messrs. Farris and Voytovich did not receive a bonus for 2015, as they were not employed by the Company at the time of the bonus payout. Mr. Riney received an additional $500,000 non-performance based sign-on bonus in conjunction with his employment, which is recoverable by the Company if he voluntarily terminates his employment within two years of his hire date.

 

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Long-Term Compensation

 

 

We make long-term, equity-based compensation available to substantially all of our employees to promote a company-wide ethic of ownership and entrepreneurialism. For our executive officers, we currently use two equity-based vehicles-RSUs and Performance Shares-to capture the merits and spread the limitations of each pay vehicle.

At the beginning of 2015, we apportioned Mr. Christmann’s long-term compensation: 60 percent in Performance Shares and 40 percent in RSUs. The other NEOs received 50 percent in Performance Shares, and 50 percent in RSUs.

 

LOGO

Restricted Stock Units

Our employees, including our NEOs, also receive RSUs. Generally, the RSUs are granted to substantially all employees based on a target percentage of base salary. Awards vest ratably over three years. Grantees receive one share of common stock for each RSU that vests.

The number and value of the Performance Shares and RSUs we granted to our NEOs in 2015 are shown in the following chart:

 

       Performance Shares            RSUs  
Name      (#)       

Value*

($)

            (#)        Value*
($)
 

John J. Christmann IV

       80,268           5,194,945             111,702           6,864,365   

Stephen J. Riney

                 1,325,871             67,355           4,254,669   

P. Anthony Lannie

       21,140           1,368,181             23,215           1,345,774   

W. Kregg Olson

       19,574           1,266,829             21,496           1,246,123   

James L. House

       13,049           844,531             16,552           959,519   

Timothy J. Sullivan

       11,092           717,874             15,047           872,275   

Thomas E. Voytovich

       25,680           1,662,010               24,935           1,445,482   

*Values shown reflect the amounts in the Grants of Plan-Based Awards table. Note that the targeted grant date values of long-term compensation and the actual grant date values shown in these tables vary somewhat due to the prospective nature of targets. The amounts that will be realized by the NEOs from these awards may differ substantially from the grant date values.

Included in these values are the one-time 50,000 promotional and 45,000 sign-on RSU awards made to Messrs. Christmann and Riney, respectively, in connection with their new roles. Both awards have holding provisions designed for retentive purposes, whereby 60 percent must be held until retirement or termination of employment with the Company. Mr. Farris did not receive equity awards during 2015.

 

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Because Mr. Riney joined Apache after the start date of the 2015 Performance Share performance period, he received a performance contingent cash plan in place of performance shares. The payout of his award will be based on the same metrics and targets used in the 2015 Performance Share program.

Performance Shares

The Performance Share program was designed to align executive pay with achievement of operational and financial metrics that are the most impactful to the shareholders. Our plan incorporates both relative and absolute metrics to provide a more comprehensive and balanced evaluation of our long-term business performance. Performance Shares target a percentage of base salary; are tied to our performance over three-year periods; vest (if achievement warrants and the executive remains employed by the Company) in two even portions at the end of the measurement period and the subsequent year. The shares are subject to similar double-trigger requirements as our other change-in-control provisions. The shares are based on three different measures of performance:

 

LOGO

As of December 31, 2015, year-one results would have resulted in a 105% payout under the Performance Share program had it been vested.

Relative TSR (50%)

To maintain our focus on total shareholder return, half of the measure of performance for the Performance Shares is based on relative TSR performance. Our TSR performance is measured relative to our Compensation Peers over a rolling three-year period. There is no payout for being in the bottom quartile, and there is a cap at target payout (one-times payout) in the event absolute TSR for Apache is negative over the performance period, notwithstanding the relative performance of our TSR. For the TSR portion of the Performance Share program, the maximum payout is 1.5 times the target award. As of December 31, 2015 and using the average of the last 60 trading days’ closing prices to calculate the beginning and end prices, Apache ranked 8th in its peer group for the year-one results of the TSR portion of the Performance Share program, which would have resulted in a 0.80 payout.

The performance period for the 2013 TSR Program began on January 1, 2013, and ended on December 31, 2015. Apache was ranked 14th of 19 in its peer group for that period, resulting in a 0.70 payout. The 2012, 2011, and 2010 TSR Plans yielded a zero payout.

Cash Flow from Operations and Reserve Adds per Debt Adjusted Share (25% each)

To provide a balance between market-based measures of performance and internal financial and operational measures, Cash Flow from Operations and Reserve Adds per Debt Adjusted Share were included in the 2015 program. After an extensive analysis of performance measures, it was determined that the combination of these metrics most closely contributed to generating returns. These metrics are evaluated annually during a three-year performance period against respective performance targets determined at the beginning of each year. Average performance over the three-year

 

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period is measured as a percentage above or below target. The threshold payout of 50 percent is achieved at 10 percent below target, and the maximum payout of 150 percent is achieved at 10 percent above target. While we recognize using a 3-year average of annual periods for a long-term compensation program is uncommon, this structure allows us the ability to set more accurate targets in the current commodity price environment. This is not intended to be a long-term solution, but until prices stabilize, we feel this program design provides a more precise measure of performance of these two metrics throughout the performance period.

As of December 31, 2015, year-one results for Cash Flow from Operations and Reserve Adds per Debt Adjusted Share were $3,004 MM and .35, respectively, both exceeding their respective targets of $2,800 MM and .27.

Benefits

 

 

Our named executive officers receive the standard benefits received by all employees including: group health (medical, dental, pharmacy, and vision), group life, accidental death and dismemberment, business travel accident, disability plans, defined contribution retirement plans (a Money Purchase Retirement Plan and a 401(k) Savings Plan), and vacation.

General Executive Policies

As part of their total compensation, our named executive officers are eligible for additional benefits that are designed to maintain market competitiveness. These include a comprehensive annual physical examination, an individual cash-value-based variable universal life insurance policy of two times base salary, an enhanced individual long-term disability policy for 75 percent of eligible earnings, and continued Apache and employee tax deferred contributions to a non-qualified retirement/savings plan once limits are reached in qualified retirement plans.

Use of Property

Our operations are spread around the globe, including in locations that present a variety of physical and geo-political risks. For both business efficiency and security reasons, we require the chief executive officer to use Apache’s aircraft for all air travel, unless good business judgment would require otherwise.

More details on the above benefits are presented under “All Other Compensation” following the “Summary Compensation Table.”

Compensation Decisions With Respect to 2016

 

 

Annually in December, the MD&C Committee receives executive compensation benchmarking data from our independent compensation consultant, Meridian Compensation Partners (the “Consultant”), to ensure market alignment with our peers. After review of this information in 2015, and in an effort to continually refine our compensation programs, the MD&C Committee made the following changes for 2016:

 

  ·    Decreased annual target bonuses for the majority of executives to more closely align with the market median;
  ·    Decreased the annual target equity awards for nearly all employees, with the most significant reductions occurring at the executive-level;
  ·    Adjusted the executive equity mix to include a portfolio of equity vehicles: performance shares, restricted stock units and stock options;
  ·    Modified the portion of performance-based equity awards granted to the CEO; and
  ·    Adjusted the payout scale of the TSR program to further align with peers.

 

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Base Salary

Due to their increased responsibilities resulting from organizational restructuring, effective January 1, 2016, base salaries were increased for three NEOs as follows:

 

Named Executive Officer   

December 31, 2015
Salary

($)

    

January 1, 2016
Salary

($)

 

Stephen J. Riney

     650,000         675,000   

James L. House

     550,000         600,000   

Timothy J. Sullivan

     500,000         625,000   

Messrs. Riney and House received base salary increases of $25,000 and $50,000, respectively, while Mr. Sullivan received an increase in conjunction with his promotion to Executive Vice President – Operations Support effective on January 1, 2016.

2016 Annual Bonus Structure

For 2016, the corporate plan will continue to include operational and strategic objectives, however, the management objectives have been discontinued. Based on shareholder feedback, the management objectives added complexities to the annual incentive plan and were therefore removed from the annual bonus plan calculation for 2016.

Largely driven by industry conditions, market data presented in late 2015 indicated we were above median for some executive roles. To address this and adhere to our compensation philosophy, target bonuses were decreased for our executives effective January 1, 2016.

Long-Term Compensation Awards in 2016

Consistent with adjustments made to annual bonus targets, the 2016 target long-term compensation values were also reduced for the majority of the executive team to further align with the market median. Market data reviewed indicated 49 percent of the average equity value granted to peer CEOs was performance-based, and for executives below the CEO, was less than 40 percent. The data also highlighted that stock options were being awarded by 64 percent of our peers.

To maintain competitiveness with our peers and to include an appropriate balance of equity vehicles in our long-term compensation program, we adopted a portfolio approach to our awards for 2016 utilizing performance shares, restricted stock units, and stock options. For the CEO and EVP levels, the 2016 long-term compensation awards were based 50 percent in performance shares, 35 percent in restricted stock units, and 15 percent in options. For the other NEOs, this mix consisted of 50 percent in performance shares, 40 percent in restricted stock units, and 10 percent in options.

The 2016 Performance Program is similar to the 2015 Program, utilizing the same three metrics:

 

  ·    Relative Total Shareholder Return (weighted 50%)
  ·    Cash Flow from Operations (weighted 25%)
  ·    Reserve Adds per Debt Adjusted share (weighted 25%)

For the relative TSR portion of the program, the same 11 peer companies will be utilized for comparison. For 2016, the TSR ranking scale was adjusted to further align with our peers, nearly all of which have a maximum of 2.00 times target:

 

TSR Rank   1   2   3   4   5   6   7   8   9   10   11   12

Payout

  2.0   2.0   1.75   1.5   1.25   1.0   .80   .60   .40   0.0   0.0   0.0

These awards are eligible for dividend equivalents that accumulate during the performance period (if dividends are declared and paid by the Company during such period), subject to the resulting performance multiple. Dividends will be paid following the end of the performance period, based on the same vesting schedule as the underlying awards if a payout is warranted, or forfeited if the underlying awards are forfeited.

The performance shares have a cap at target payout in the event absolute TSR for Apache is negative over the performance period, notwithstanding the relative performance of the shares. The shares will vest 50 percent at the end of the three-year performance period, with the remaining 50 percent vesting one year later.

 

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Other Matters

 

Clawback Policy

In December 2015, the Board adopted a policy for the recovery of incentive compensation awarded to all executive officers after adoption of the policy. In the event of a material negative restatement of Apache’s financial statements as the result of fraud, intentional misconduct, or gross negligence of an executive officer, the Board has the right to recover from such executive officer all or a portion of the award based on the restated results. Further information on our clawback, anti-hedging, and pledging policies can found at our website at www.apachecorp.com.

Decision Making Process

Role of the Board of Directors

 

Executive compensation decision making is a core Board responsibility. The independent members of the Board review, modify as needed, and approve the MD&C Committee’s recommendations for the CEO’s total compensation. The entire Board is responsible for this same process in establishing the other NEOs’ compensation.

Role of the Management Development and Compensation Committee

 

The MD&C Committee, which met six times in 2015, assesses the effectiveness of our compensation programs. Its key responsibilities are:

 

·    To review our goals and objectives, evaluate performance in light of such goals, and recommend the CEO’s compensation to the Board for approval by the independent directors. This review is handled in independent sessions.

 

·    To make recommendations to the Board concerning the base salary, incentive and equity-based compensation plans for executive officers other than the CEO.

 

·    To review and recommend to the Board broad-based, long-term compensation programs for executive and non-executive employees.

 

·    To ensure compensation does not incentivize excessive risk.

 

·    To review and discuss with management CEO and management succession planning and management development.

The Stock Plan Committee was combined with the MD&C Committee in May 2015, with all responsibilities assumed by the MD&C Committee, which are reflected in the revised MD&C Committee charter. Until then, the key responsibilities of the Stock Plan Committee, which met twice in 2015, included:

 

·    Administration of our equity-based compensation plans and the approval, award, and administration of grants under the same, including certification of performance goals and their achievement.

 

·    Make recommendations to the Board regarding our equity-based compensation plans.

 

·    Prepare a summary of the grants and awards made under our equity-based compensation plans and programs for the MD&C Committee for use in our proxy statement.

 

·    Any other duties or responsibilities expressly delegated to the Stock Plan Committee by the Board relating to our equity-based compensation plans and programs.

Each of the MD&C Committee’s four members meets the independence requirements of the New York Stock Exchange and the NASDAQ listing standards. Effective with the combination of responsibilities in May 2015, each member of the MD&C Committee is an outside director within the meaning of Section 162(m) of the Internal Revenue Code. The MD&C Committee’s charter is available on our website.

Role of the Compensation Consultant

 

 

The Board has authorized the MD&C Committee to retain an independent compensation consultant. The MD&C Committee engaged the Consultant to provide independent compensation advice and data. The Consultant annually assesses our compensation program’s potential for risk and its competitiveness relative to our peers. The Consultant did not provide any services to Apache other than the compensation-related services to the Board.

 

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Each year the MD&C Committee reviews the independence of the Consultant and obtains written certification that the Consultant complies with its own independence rules. The MD&C Committee determined that the Consultant was independent during 2015.

Role of Management

 

 

In addition to the use of the Consultant, the MD&C Committee receives compensation recommendations and evaluations of the executive group from the CEO. The MD&C Committee, along with each of the independent directors, is authorized by the Board to obtain information from and work directly with any employee in fulfilling its responsibilities. Our executive vice president of human resources prepares materials for the CEO and the MD&C Committee for the exercise of their distinct, but interrelated, compensation responsibilities. The MD&C Committee also utilizes the data provided by the Consultant, including recommendations for the associated compensation values derived from their reports. The MD&C Committee carefully considers the recommendations of the CEO, management, and the Consultant, to reach final determinations in order to recommend actions to the Board.

Risk Considerations in Our Compensation Programs

The MD&C Committee does not believe our compensation programs encourage inappropriate risk taking. The MD&C Committee, with assistance from the Consultant, arrived at this conclusion for the following reasons:

 

·    Our employees receive both fixed and variable compensation. The fixed portion provides a steady income regardless of the Company’s stock performance. This allows executives to focus on the Company’s business without an excessive focus on the Company’s stock price performance.

 

·    The goals and objectives for the annual cash incentive bonus are set to avoid overweighting any single factor that, if not achieved, would result in the loss of a large percentage of compensation.

 

·    Our equity awards for executives generally vest over three- to five-year periods, which discourages short-term risk taking. Our substantial equity holding requirements extend these time frames further.

 

·    Our equity ownership requirements encourage a long-term perspective by our executives.

 

·    Our equity compensation plan provides that our executives’ unvested long-term equity compensation is forfeited upon voluntary termination.

 

·    Our incentive programs have been in place for many years, and we have seen no evidence that they encourage excessive risk taking.

 

·    Essentially all of our employees participate in our equity-based compensation programs, regardless of business unit, which encourages consistent behavior across the Company.

Tax Legislation Related to Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a limit, with certain exceptions, on the amount that a publicly held corporation may deduct in any tax year commencing on or after January 1, 1994, for the compensation paid or accrued to its chief executive officer and three highest compensated officers (other than the principal executive officer or the principal financial officer). The MD&C Committee periodically reviews our compensation plans based upon these regulations to determine what further actions or changes, if any, would be appropriate.

Our 2005 Stock Option Plan, 2007 Omnibus Equity Compensation Plan, and 2011 Omnibus Equity Compensation Plan (including the 2013 and 2014 TSR Programs) were approved by our shareholders and grants made under such plans qualify as “performance-based” under the regulations. Our existing annual cash incentive compensation plan and special achievement bonuses do not meet the requirements of the regulations, as the shareholder approvals necessary for exemption were not sought. However, these plans operate similarly to prior or other existing plans and are designed to reward the contribution and performance of employees and to provide a meaningful incentive for achieving Apache’s goals, which in turn enhances shareholder value. No further grants can be made under the 2005 Stock Option Plan or the 2007 Omnibus Equity Compensation Plan. While the MD&C Committee cannot predict how our compensation policies may be further affected by this limitation, it is anticipated that executive compensation paid or accrued pursuant to our compensation plans that have not met the requirements of the regulations will not result in any material loss of tax deductions in the foreseeable future.

 

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Internal Revenue Code section 409A requires “nonqualified deferred compensation plans” to meet requirements in order to avoid acceleration of the recipient’s federal income taxation of the deferred compensation. The Internal Revenue Service issued final regulations in April 2007 regarding the application of Section 409A, which were generally effective January 1, 2009. Prior to effectiveness, companies were expected to comply in “good faith” with the statute, taking note of the interim guidance issued by the Internal Revenue Service. We amended several of our benefit plans in order for them to be exempt from Section 409A, while we continue to provide benefits through several plans that remain subject to Section 409A. The terms of these plans were amended before January 1, 2009, as necessary, and are intended to meet the requirements of the final regulations.

Management Development and Compensation Committee Report

The Management Development and Compensation Committee of the Board of Directors of Apache Corporation reviewed and discussed with management the Compensation Discussion and Analysis set forth above, and based upon such review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

March 10, 2016    Members of the Management Development and Compensation Committee
   William C. Montgomery, Chairman
   Annell R. Bay
   Charles J. Pitman
   Daniel W. Rabun

 

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Summary Compensation Table

The table below summarizes the compensation for the individuals listed below for all services rendered to the Company and its subsidiaries during fiscal years 2015, 2014, and 2013. The persons included in this table are the Company’s principal executive officer, principal financial officer, and the three other most highly compensated executive officers (the “NEOs”) who served as executive officers of the Company during 2015.

 

Name and

Principal Position

(a)

 

Year

(b)

   

Salary

($)

(c)

   

Bonus(1)

($)

(d)

   

Stock
Awards(2)

($)

(e)

   

Option

Awards(2)

($)

(f)

   

Non-Equity

Incentive

Plan

Compen-
sation(3)

($)

(g)

   

Change in

Pension

Value and
Nonqualified

Deferred

Compensation

Earnings(4)

($)

(h)

   

All Other

Compen-
sation(5)
($)

(i)

   

Total

($)

(j)

 

John J. Christmann IV (6)
Chief Executive Officer and President

    2015        1,081,551               12,059,310               1,659,100               339,870        15,139,831   
    2014        725,000               3,633,341               625,000               368,775        5,352,116   
    2013                                                           

Stephen J. Riney (7)
Executive Vice President and Chief Financial Officer

    2015        578,437        500,000        4,254,669               750,000               104,883        6,187,989   
    2014                                                           
    2013                                                           

P. Anthony Lannie (8)
Executive Vice President and General Counsel

    2015        675,000               2,713,954               700,000               190,647        4,279,601   
    2014        665,625               2,661,844               575,000               203,596        4,106,065   
    2013        650,000        350,000        1,847,491        790,670        650,000               203,333        4,491,494   

W. Kregg Olson
Executive Vice President, Corporate Reservoir Engineering

    2015        625,000               2,512,952               600,000               169,498        3,907,450   
    2014                                                           
    2013                                                           

James L. House (9)
Senior Region Vice President, Houston Region

    2015        529,167               1,804,051               550,000               1,918,415        4,801,633   
    2014                                                           
    2013                                                           

Timothy J. Sullivan (10)
Executive Vice President, Operations Support

    2015        464,584               1,590,149               550,000               1,197,119        3,801,852   
    2014                                                           
    2013                                                           

G. Steven Farris (11)
Chairman, Chief Executive Officer and President

    2015        91,426                                           7,207,651        7,299,077   
    2014        1,750,000               8,085,121                             365,351        10,200,472   
    2013        1,750,000               6,622,307        1,981,728                      874,210        11,228,245   

Thomas E. Voytovich (12)

Executive Vice President, International and Exploration and Production Technology

    2015        664,583               3,107,492                             2,055,621        5,827,696   
    2014        725,000               3,633,341               625,000               464,883        5,448,224   
    2013        657,452               4,255,774        821,082        657,450               156,215       

 

6,547,973

 

  

 

 

(1) With the exception of Mr. Lannie in 2013 and Mr. Riney in 2015, the NEOs were not entitled to receive payments that would be characterized as bonus payments. Mr. Lannie received a one-time payment in connection with his work on the Company’s divestiture transactions in 2013, and Mr. Riney received a one-time payment in connection with joining the Company in 2015. See footnote (3) for payments under the Company’s incentive compensation plan.

 

(2) Value of restricted stock unit and stock option awards made during the fiscal year based upon aggregate grant date fair value, determined in accordance with applicable FASB ASC Topic 718. The discussion of the assumptions used in calculating the aggregate grant date fair value of the RSU awards can be found in the footnotes to the Grants of Plan Based Awards Table below and in Note 10 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2015. For stock options, the estimated fair value is based upon principles of the Black-Scholes option pricing model. The Black-Scholes model utilizes numerous arbitrary assumptions about financial variables such as interest rates, stock price volatility, and future dividend yield. The value of the restricted stock unit and stock option awards is expensed ratably over the term of the award.

 

(3) Amounts reflected under column (g) are paid pursuant to the Company’s incentive compensation plan as described under “Annual Cash Incentive Bonus” in the Compensation Discussion and Analysis.

(footnotes continued on following page)

 

APACHE CORPORATION – 2016 Proxy Statement      51


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(4) Earnings from the Non-Qualified Deferred Compensation Table are not included as they are not above-market or preferential earnings.

 

(5) For additional information on All Other Compensation, see discussion, table, and footnotes below.

 

(6) Mr. Christmann was appointed chief executive officer and president, effective January 20, 2015.

 

(7) Mr. Riney was appointed executive vice president on February 18, 2015, and chief financial officer effective March 3, 2015.

 

(8) Mr. Lannie, the Company’s executive vice president and general counsel, served as interim chief financial officer from October 9, 2014 through March 2, 2015.

 

(9) Mr. House was appointed senior region vice president, Houston region, effective June 1, 2015.

 

(10) Mr. Sullivan was appointed senior vice president, operations support, effective June 1, 2015, and executive vice president, operations support, effective January 1, 2016.

 

(11) Mr. Farris retired as chief executive officer and president, effective January 20, 2015.

 

(12) Mr. Voytovich, executive vice president, international and exploration and production technology, left the Company effective November 30, 2015.

 

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All Other Compensation

Officers participate in two qualified retirement plans. The 401(k) Savings Plan provides a match up to the first eight percent of base pay and incentive bonus. The Money Purchase Retirement Plan provides an annual six percent company contribution into the same investment choices as the 401(k) Savings Plan with the exception of Company stock. Additionally, officers can elect to participate in the Non-Qualified Retirement/Savings Plan to defer beyond the limits in the 401(k) Savings Plan and continue Company contributions which exceed the limits in the qualified plans. The investment choices mirror those in the 401(k) Savings Plan and the Money Purchase Retirement Plan. The Deferred Delivery Plan allows officers the ability to defer income in the form of deferred units from the vesting of restricted stock units under the Company’s 2007 Omnibus Equity Compensation Plan and 2011 Omnibus Equity Compensation Plan. The contributions into both non-qualified plans are reported in the Non-Qualified Deferred Compensation Table. The Company does not have a defined benefit plan for U.S. employees.

Apache provides U.S. employees with two times their base salary under group term life insurance. Executives receive the first $50,000 of coverage under the same group term life insurance plan, and the remaining amount to bring them up to two times salary is provided in the form of whole life insurance policies.

During 2015, the Board required John J. Christmann IV to use the Company’s aircraft for all air travel for security reasons and to facilitate efficient business travel, unless good business judgment requires otherwise. Even though the Company considers these costs a necessary business expense rather than a perquisite for Mr. Christmann, in line with SEC guidance, the following table includes the amounts attributable to each Named Executive Officer’s personal aircraft usage. Executives are not reimbursed for the taxes on the income attributable to the personal use of corporate aircraft. The methodology for the valuation of non-integral use of corporate aircraft for disclosure in the Summary Compensation Table, in compliance with SEC guidance, calculates the incremental cost to the Company for personal use of the aircraft based on the cost of fuel and oil per hour of flight; trip-related inspections, repairs and maintenance; crew travel expenses; on-board catering; trip-related flight planning services; landing, parking, and hanger fees; supplies; passenger ground transportation; and other variable costs. Additionally, the value of trips attributable to philanthropic interests was included, even though they are seen as contributing to the goodwill of the Company. In addition, Standard Industry Fare Level tables, published by the Internal Revenue Service, are used to determine the amount of compensation income that is imputed to the executive for tax purposes for personal use of corporate aircraft.

In addition to the benefits for which all employees are eligible, the Company also covers the cost of an annual physical and the full cost of enhanced long-term disability coverage for executive officers.

The Company provides various forms of compensation related to expatriate assignment that differ according to location and term of assignment, including: foreign service premium, foreign assignment tax equalization, location pay, housing and utilities, home leave and travel, goods and services allowance, relocation expense, and tax return and visa preparation. These items have been reflected in the following table under Foreign Assignment Allowances for the amounts that pertain to Mr. House, Mr. Sullivan, and Mr. Voytovich. Mr. House, as region vice president-North Sea, resided in Scotland from June 2006 to June 2015; Mr. Sullivan, as region vice president-Canada, resided in Canada from January 2013 to June 2015; and Mr. Voytovich, as region vice president – Egypt, resided in Egypt from June 2009 to February 2012.

 

APACHE CORPORATION – 2016 Proxy Statement      53


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The following table provides a detailed breakdown of the amounts for fiscal years 2015, 2014, and 2013 under “All Other Compensation” in the Summary Compensation Table:

 

Description   Year    

John J.

Christmann

IV

($)

   

  Stephen J.

Riney

($)

   

  P. Anthony

Lannie

($)

   

  W. Kregg

Olson

($)

   

James L.
House

($)

   

Timothy J.
Sullivan

($)

   

G. Steven

Farris

($)

   

Thomas E.

Voytovich

($)

 

Company Contributions

Retirement Plans

    2015        33,900        35,000        35,000        35,000        35,000        35,000        7,314        21,200   
    2014        33,100               34,500                             34,500        34,500   
      2013                      33,500                             33,500        33,500   

Company Contributions

Non-Qualified Plan

    2015        205,017        45,981        140,000        119,000        91,408        74,317               81,967   
    2014        144,742               149,688                             210,500        159,043   
      2013                      148,500                             771,500        128,543   

Life Insurance Premiums

    2015        53,765        8,700        421        393        340        7,199        85        411   
    2014        448               415                             2,736        448   
      2013                      63                             63        63   

Use of Company Property

    2015        23,809 (a)                                                  
    2014                                                  39,147 (a)      8,740 (a) 
      2013                                                  26,237 (a)        

Enhanced Long-Term

    2015        15,879        15,202        15,226        15,105        11,012        7,849        (15,927     10,482   

Disability Coverage

    2014        12,441               15,193                             78,468        19,114   
      2013                      15,110                             42,910        11,292   

Amounts Related to

    2015                                                  7,216,179 (e)      1,934,061 (e) 

Retirement or Resignation

    2014                                                           

Agreements

    2013                                                           

Dividend Equivalents on

    2015        7,500                             3,750                      7,500   

Unvested Restricted Stock

    2014        9,900               3,800                                    9,900   

Units

    2013                      6,160                                    10,350   

Foreign Assignment

Allowances(b)

    2015                                    1,776,905 (c)      1,072,754 (c)               
    2014                                                         233,138 (c) 
      2013                                                         (27,533 )(c) 

Domestic Relocation

Allowance and Expenses

    2015                                                           
    2014        168,144 (d)                                                  
      2013                                                           

Total – 2015

      339,870        104,883        190,647        169,498        1,918,415        1,197,119        7,207,651        2,055,621   

Total – 2014

      368,775               203,596                             365,351        464,883   

Total – 2013

                          203,333                             874,210        156,215   

 

(a) These amounts for 2015, 2014, and 2013 are for use of corporate aircraft.

 

(b) Executives assigned to foreign countries typically incur a change in their overall tax liability because most of the components of assignment compensation that are provided in addition to base salary are taxable in the United States and in the foreign country. Therefore, the Company’s expatriate assignment policy provides that it will be responsible for any additional foreign or U.S. taxes due as a direct result of the international assignment and the executive remains financially responsible for the tax which he/she would have incurred if he/she had continued to live and work in the United States. Pursuant to this policy, the Company withheld from each of Mr. Voytovich’s and Mr. House’s compensation an amount equivalent to the taxes that would have been due had he remained in the United States. Those funds were used to help pay taxes due in the United States and in Egypt (Mr. Voytovich) or Scotland (Mr. House) during the period of his foreign assignment. The Company paid taxes due in excess of Mr. Voytovich’s and Mr. House’s withholding that were incurred as a result of their foreign assignments.

 

(c) The 2015 amount (Mr. House) includes $1,330,993 for tax equalization, $139,037 in relocation allowance, $119,914 for housing and utilities, $77,686 for home leave and travel expenses, $45,208 in foreign service premium, $44,746 for goods and services allowance, $9,478 for car allowance, $9,093 for dependent tuition, and $750 for tax return preparation.

(footnotes continued on following page)

 

54      APACHE CORPORATION – 2016 Proxy Statement


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     The 2015 amount (Mr. Sullivan) includes $882,198 for tax equalization, $60,758 for housing and utilities, $56,333 in relocation allowance and expenses, $41,875 in foreign service premium, $26,795 for goods and services allowance, $4,045 for car allowance, and $750 for tax return preparation.

 

     The 2014 amount (Mr. Voytovich) is for tax equalization adjustments related to 2013.

 

     The 2013 amount (Mr. Voytovich) includes $151,950 in tax credits related to foreign assignment, $57,399 in relocation allowance and expenses, $27,024 in location pay, $15,305 for housing and utilities, $11,582 in foreign service premium, $7,540 for goods and services allowance, $4,417 for home leave and travel expenses, and $1,150 for tax return and visa preparation.

 

(d) This amount for 2014 includes $70,536 for relocation allowance and $97,608 for relocation expenses.

 

(e) In connection with Mr. Farris’ retirement, he entered into a retirement agreement effective January 20, 2015. In connection with Mr. Voytovich leaving the Company, he entered into a release and settlement agreement effective November 30, 2015. For additional information on these agreements, see Potential Payments upon Termination or Change in Control Arrangements below.

 

  These amounts for 2015 include (i) for Mr. Farris – $1,658,574 for continued base salary, $2,625,000 for 50 percent of annual maximum cash incentive compensation, $1,400,000 for lump sum payment, $1,513,200 for continued vesting of equity awards in 2015, and $19,405 for continued health benefits; and (ii) for Mr. Voytovich – $1,933,333 for lump-sum payment and $728 for continued health benefits.

 

APACHE CORPORATION – 2016 Proxy Statement      55


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Grants of Plan Based Awards Table

The table below provides supplemental information relating to the Company’s grants of restricted stock units during fiscal year 2015 to the Named Executive Officers. There were no stock options or stock appreciation rights granted during fiscal year 2015. Also included, in accordance with SEC rules on disclosure of executive compensation, is information relating to the estimated grant date fair value of the grants. Neither the values reflected in the table nor the assumptions utilized in arriving at the values should be considered indicative of future stock performance.

 

          Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards
    Estimated Future Payouts
Under Equity Incentive Plan
Awards
   

All Other
Stock
Awards:
Number
of Shares
of Stock
or Units

(#)(4)

(i)

   

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)

(j)

   

Exercise
or Base
Price of
Option
Awards

($/Sh)
(k)

   

Grant
Date Fair
Value
of Stock
and
Option
Awards

($)(4)

(l)

 

Name

(a)

   

 

Grant Date

(b)

  

  

   
 
 
 

 

 

    
    
    
Threshold

($)

(c)

 
 
 
  

  

  

   

 

 

Target

($)

(d)

  

  

  

   

 

 

Maximum

($)

(e)

  

  

  

   

 

 

Threshold

(#)

(f)

  

  

  

   

 

 

Target

(#)(3)

(g)

  

  

  

   

 

 

Maximum

(#)

(h)

  

  

  

       
John J. Christmann IV              1,406,017 (1)      2,812,033 (1)                                                  
    02/19/2015                             0        80,268        120,402                             5,194,945   
    02/18/2015                                                  50,000                      3,287,500   
      06/15/2015                                                  61,702                      3,576,865   
Stephen J. Riney              578,437 (1)      1,156,874 (1)                                                  
             1,325,871 (2)      1,988,807 (2)                                                  
    02/19/2015                                                                         
    02/18/2015                                                  45,000                      2,958,750   
      06/15/2015                                                  22,355                      1,295,919   
P. Anthony Lannie              675,000 (1)      1,350,000 (1)                                                  
    02/19/2015                             0        21,140        31,710                             1,368,181   
      06/15/2015                                                  23,215                      1,345,774   
W. Kregg Olson              625,000        1,250,000                                                    
    02/19/2015                             0        19,574        29,361                             1,266,829   
      06/15/2015                                                  21,496                       1,246,123   
James L. House              529,167 (1)      1,058,333 (1)                                                  
    02/19/2015                             0        13,049        19,574                             844,531   
      06/15/2015                                                  16,552                      959,519   
Timothy J. Sullivan              464,584 (1)      929,168 (1)                                                  
    02/19/2015                             0        11,092        16,638                             717,874   
      06/15/2015                                                  15,047                      872,275   
G. Steven Farris              137,139 (1)      274,279 (1)                                                  
    02/19/2015                                                                         
      06/15/2015                                                                         
Thomas E. Voytovich              664,583 (1)      1,329,166 (1)                                                  
    02/19/2015                             0        25,680        38,520                             1,662,010   
    06/15/2015                                                  24,935            1,445,482   

 

(1) Reflects estimated possible payouts under the Company’s annual incentive compensation plan. The estimated amounts are calculated based on the applicable annual bonus target and base salary earnings for each NEO in effect for the 2015 measurement period. Beginning with the 2012 annual incentive bonus awards, a maximum payout not to exceed 200 percent of target was established. The Company’s annual incentive compensation plan does not contain thresholds. Actual incentive bonus awards granted for 2015 are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

 

(2) Because Mr. Riney’s employment date occurred after the start of the performance period for the 2015 Performance Share program (discussed below), he was awarded a performance contingent cash plan in place of performance shares. The payout of this award will be based on the same metrics and targets used in the 2015 Performance Share program.

 

(3) For the grants made on February 19, 2015, the number of RSUs granted is shown as the target number, while the maximum number assumes a multiple of 1.50. The threshold level shown is zero.

 

  On February 19, 2015, pursuant to the 2011 Omnibus Equity Compensation Plan, the Company established the 2015 Business Performance Program Specifications for corporate and regional executives and key employees who

(footnotes continued on following page)

 

56      APACHE CORPORATION – 2016 Proxy Statement


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  are employed on or before December 31, 2014. These employees, including the executives named in the Summary Compensation Table, were granted the right to receive RSUs, the number of which will be determined based on the Company’s achievement of three different measures of performance:

 

  - Total shareholder return (“TSR”) as compared to a peer group of 11 companies (weighted 50%) – discussed below.

 

  - Cash flow from operations and reserves added per debt adjusted share (weighted 25% each) – evaluated annually during the performance period against respective performance targets determined at the beginning of each year, with performance measured as a percentage above or below target. The threshold payout is established with achievement ten percent below target, and the maximum payout is set at achievement ten percent above target.

 

  At the conclusion of the three-year performance period, which began on January 1, 2015 and will end on December 31, 2017, a calculation of the Company’s achievement of the performance measures will be made and the resulting percentage achievement will be applied to the target shares to derive the number of shares awarded. If achievement warrants, vesting will begin on January 1, 2018, with 50 percent of the adjusted number of RSUs vesting immediately and 50 percent vesting as of January 1, 2019. Employees must be employed during the entire performance period and on the date of vesting.

 

  For the TSR performance measure, at the conclusion of the three-year performance period, the Company’s performance will be directly ranked within the peer group. If the Company’s TSR ranks from 1 to 9, this will result in the application of a single multiplier to 50% of the target number of RSUs as follows:

 

  TSR Rank   1     2     3     4     5     6     7     8     9     10     11  

  Payout Multiple

    1.50        1.50        1.50        1.30        1.20        1.10        0.90        0.80        0.70        0.00        0.00   

 

  However, if the Company ranks 10 or 11, there will be no achievement for this portion of the award. Also, the RSU grant will be capped at target payout (1.0) in the event absolute TSR for Apache is negative over the performance period, regardless of the percentage achieved.

 

  TSR is determined by dividing (i) the sum of the cumulative amount of a company’s dividends for the performance period (assuming same-day reinvestment into the company’s common stock on the ex-dividend date) and the share price of the company at the end of the performance period minus the share price at the beginning of the performance period by (ii) the share price at the beginning of the performance period.

 

(4) This column reflects the number of RSUs granted under the terms of the 2011 Omnibus Equity Compensation Plan. The grant date fair value of these awards, calculated in accordance with FAS 123R, is based on a closing price of the Company’s common stock on the date of grant. Except as discussed below, the RSUs are generally non-transferable and no dividends are paid on such units until vested. The RSUs granted to Mr. Christmann on February 18, 2015, vest ratably over four years; the RSUs granted to Mr. Riney on February 18, 2015, vest ratably over five years; and the RSUs granted on February 19, 2015 and June 15, 2015, vest ratably over three years.

 

  The 2011 Omnibus Equity Compensation Plan is administered by the MD&C Committee of the Company’s Board of Directors. RSUs granted under the 2011 Omnibus Equity Compensation Plan are subject to appropriate adjustment in the event of reorganization, stock split, stock dividend, combination of shares, merger, consolidation, or other recapitalization of the Company. Upon both a change of control of the Company and termination of employment, all outstanding RSUs become automatically vested as of the date of such change of control. A change of control occurs when a person, partnership, or corporation acting in concert, or any or all of them, acquires more than 20 percent of the Company’s outstanding voting securities. A change of control shall not occur if, prior to the acquisition of more than 20 percent of the Company’s voting securities, such persons, partnerships, or corporations are solicited to do so by the Company’s Board of Directors.

 

APACHE CORPORATION – 2016 Proxy Statement      57


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Outstanding Equity Awards at Fiscal Year-End Table

The table below provides supplemental information relating to the stock-based awards held by the NEOs as of December 31, 2015:

 

    Option Awards     Stock Awards  

Name

(a)

 

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)

(b)

   

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)

(c)

   

Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)

(d)

   

Option
Exercise
Price ($)

(e)

   

Option
Expiration
Date

(f)

   

Number
of Shares
or Units of
Stock
That Have
Not

Vested

(#)

(g)

   

Market Value
of Shares or
Units of Stock
That Have Not

Vested(1)

($)

(h)

   

Equity

Incentive
Plan Awards:
Number of
Unearned
Shares,

Units or Other
Rights That
Have Not
Vested (#)

(i)

   

Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units or

Other Rights
That Have Not
Vested(1)

($)

(j)

 

John J. Christmann IV

    3,500                      71.88        05/03/2016        6,000 (8)      266,820        12,996 (3)      577,932 (3) 
    3,900                      74.10        05/02/2017        1,105 (2)      49,139        2,897 (5)      128,830 (5) 
    2,417                      135.83        05/07/2018        4,390 (4)      195,223        9,794 (9)      435,539 (9) 
    3,200                      82.55        05/06/2019        16,800 (7)      747,096        80,268 (10)      3,569,518 (10) 
    5,357                      99.30        05/05/2020        14,528 (6)      646,060       
    5,230                      126.61        05/04/2021        50,000 (11)      2,223,500       
    8,778        2,926 (2)             82.63        05/22/2022        61,702 (12)      2,743,888       
      13,057        13,057 (4)             80.89        05/16/2023                                   

Stephen J. Riney

                                       22,355 (12)      994,127       
                                         45,000 (13)      2,001,150                   

P. Anthony Lannie

    2,500                      74.10        05/02/2017        1,724 (2)      76,666        10,301 (3)      458,085 (3) 
    6,417                      135.83        05/07/2018        5,734 (4)      254,991        4,162 (5)      185,084 (5) 
    5,600                      82.55        05/06/2019        11,517 (6)      512,161        7,764 (9)      345,265 (9) 
    10,463                      99.30        05/05/2020        23,215 (12)      1,032,371        21,140 (10)      940,096 (10) 
    8,836                      126.61        05/04/2021           
    13,693        4,565 (2)             82.63        05/22/2022           
      17,055        17,055 (4)             80.89        05/16/2023                                   

W. Kregg Olson

    3,200                      71.88        05/03/2016        1,580 (2)      70,263        9,509 (3)      422,865 (3) 
    3,700                      74.10        05/02/2017        5,292 (4)      235,335        3,842 (5)      170,854 (5) 
    3,750                      135.83        05/07/2018        10,631 (6)      472,761        7,167 (9)      318,716 (9) 
    4,400                      82.55        05/06/2019        21,496 (12)      955,927        19,574 (10)      870,456 (10) 
    9,416                      99.30        05/05/2020           
    7,952                      126.61        05/04/2021           
    12,552        4,184 (2)             82.63        05/22/2022           
      15,743        15,743 (4)             80.89        05/16/2023                                   

James L. House

    2,167                      135.83        05/07/2018        3,000 (8)      133,410        7,169 (3)      318,805 (3) 
    5,189                      99.30        05/05/2020        1,105 (2)      49,139        2,897 (5)      128,830 (5) 
    5,089                      126.61        05/04/2021        3,990 (4)      177,435        5,403 (9)      240,271 (9) 
    8,778        2,926 (2)             82.63        05/22/2022        8,016 (6)      356,472        13,049 (10)      580,289 (10) 
      11,870        11,870 (4)             80.89        05/16/2023        16,552 (12)      736,067                   

Timothy J. Sullivan

    3,200                      74.10        05/02/2017        246 (2)      10,940        4,323 (3)      192,244 (3) 
    1,370                      82.55        05/06/2019        3,000 (14)      133,410        1,690 (5)      75,154 (5) 
    2,089                      99.30        05/05/2020        3,192 (4)      141,948        5,736 (9)      255,080 (9) 
    1,851                      126.61        05/04/2021        6,412 (6)      285,142        11,092 (10)      493,261 (10) 
    1,950        651 (2)             82.63        05/22/2022        15,047 (12)      669,140       
      9,496        9,496 (4)             80.89        05/16/2023                                   

G. Steven Farris

    28,150                      71.88        05/03/2016        10,826 (2)      481,432        42,267 (3)      1,879,613 (3) 
    31,050                      74.10        05/02/2017        12,317 (4)      547,737       
    10,900                      82.55        05/06/2019        23,625 (6)      1,050,604       
    102,539                      99.30        05/05/2020           
    61,852                      126.61        05/04/2021           
    86,025        28,675 (2)             82.63        05/22/2022           
      42,746        42,747 (4)             80.89        05/16/2023                                   

(table continued on following page)

 

58      APACHE CORPORATION – 2016 Proxy Statement


Table of Contents
    Option Awards     Stock Awards  

Name

(a)

 

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)

(b)

   

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)

(c)

   

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)

(d)

   

Option
Exercise
Price
($)

(e)

   

Option
Expiration
Date

(f)

   

Number
of Shares
or Units
of Stock
That Have
Not
Vested

(#)

(g)

   

Market Value
of Shares or
Units of
Stock
That Have
Not

Vested(1)

($)

(h)

   

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)

(i)

   

Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or

Other Rights
That Have
Not Vested(1)

($)

(j)

 

Thomas E. Voytovich

    2,900                      71.88        05/03/2016        6,000 (8)      266,820        12,996 (3)      577,932 (3) 
    3,000                      74.10        05/02/2017        637 (2)      28,327       
    2,167                      135.83        05/07/2018        1,610 (16)      71,597       
    3,500                      82.55        05/06/2019        16,800 (7)      747,096       
    5,440                      99.30        05/05/2020        2,659 (15)      118,246       
    6,008                      126.61        05/04/2021        3,814 (12)      169,609       
    9,655        1,688 (2)             82.63        05/22/2022           
    17,711        4,790 (16)             80.89        05/16/2023           

 

(1) Based on the per share closing price of the Company’s common stock of $44.47 on December 31, 2015.

 

(2) Vests on 05/22/2016.

 

(3) Final amount based on the Company’s business performance results from 01/01/2014 – 12/31/2014; vests ratably on 12/31/2016 and 12/31/2017.

 

(4) Vests ratably on 05/16/2016 and 05/16/2017.

 

(5) Final amount based on the Company’s total shareholder return from 01/01/2013 – 12/31/2015, of which 50% vested as of 12/31/2015 and the balance vests ratably on 12/31/2016 and 12/31/2017.

 

(6) Vests ratably on 05/13/2016, 05/13/2017, and 05/13/2018.

 

(7) Vests ratably on 11/11/2016, 11/11/2017, and 11/11/2018.

 

(8) Vests ratably on 05/22/2016 and 05/22/2017.

 

(9) Amount that vests will be based on the Company’s total shareholder return from 01/01/2014 – 12/31/2016; no payout value unless vesting occurs. Through 12/31/2015, the Company’s total shareholder return rank equals 8 out of 12 for a 0.60 multiple under the 2014 Performance Program.

 

(10) Amount that vests will be based on the Company’s total shareholder return and business performance from 01/01/2015 – 12/31/2017; no payout unless vesting occurs. Through 12/31/2015, the Company’s total shareholder return ranks 8 out of 12 for a 0.80 multiple and for the performance measures 105% of target under the 2015 Performance Program.

 

(11) Vests ratably on 03/01/2016, 02/18/2017, 02/18/2018, and 02/18/2019.

 

(12) Vests ratably on 07/01/2016, 06/15/2017, and 06/15/2018.

 

(13) Vests ratably on 03/01/2016, 02/18/2017, 02/18/2018, 02/18/2019, and 02/18/2020.

 

(14) Vests ratably on 02/05/2016, 02/05/2017, and 02/05/2018.

 

(15) Vests on 05/13/2016.

 

(16) Vests on 05/16/2016.

 

APACHE CORPORATION – 2016 Proxy Statement      59


Table of Contents

Option Exercises and Stock Vested Table

The table below provides supplemental information relating to the value realized upon the exercise of stock options and upon the vesting of restricted stock units and conditional grants during fiscal year 2015 for each NEO:

 

       Option Awards            Stock Awards  

Name

(a)

    

Number of
Shares Acquired
on Exercise

(#)

(b)

      

Value
Realized on
Exercise

($)

(c)

           

Number of
Shares Acquired
on Vesting

(#)(1)

(d)

    

Value
Realized
on Vesting

($)(1)

(e)

 

John J. Christmann IV

       1,000           14,670             20,166         1,122,572   

Stephen J. Riney

                                       

P. Anthony Lannie

                             13,484         761,895   

W. Kregg Olson

       3,600           43,075             12,415         701,181   

James L. House

                             10,682 (2)       610,750 (2) 

Timothy J. Sullivan

                             6,855 (3)       398,711 (3) 

G. Steven Farris

       31,750           309,245             31,123         1,513,200   

Thomas E. Voytovich

       3,200           44,728               18,243         1,055,801   
(1) Reflects restricted stock units vested under the terms of the 2007 Omnibus Equity Compensation Plan and the 2011 Omnibus Equity Compensation Plan.
(2) For Mr. House, includes compensation of $56,277 that was deferred under the terms of Apache’s Deferred Delivery Plan related to the vesting of 900 restricted stock units.
(3) For Mr. Sullivan, includes compensation of $68,370 that was deferred under the terms of Apache’s Deferred Delivery Plan related to the vesting of 1,000 restricted stock units.

 

60      APACHE CORPORATION – 2016 Proxy Statement


Table of Contents

Non-Qualified Deferred Compensation Table

The table below provides supplemental information relating to compensation deferred during fiscal year 2015 under the terms of the Non-Qualified Retirement/Savings Plan and/or the Deferred Delivery Plan by the NEOs:

 

Name

(a)

         

Executive
Contributions in
Last FY

($)

(b)

    

Registrant
Contributions in
Last FY

($)

(c)

    

Aggregate
Earnings
in Last FY

($)

(d)

          

Aggregate
Withdrawals/
Distributions

($)

(e)

    

Aggregate
Balance

at Last FYE

($)

(f)

 

John J. Christmann IV

    (1)         208,417         205,017         (114,141     (3 ) (4)      0         1,272,552   
    (2)         0         0         455        (4 )      57,191         0   

Stephen J. Riney

    (1)         22,275         45,981         (45     (3 ) (4)      0         47,305   
    (2)         0         0         0          0         0   

P. Anthony Lannie

    (1)         76,000         140,000         (179,488     (3 ) (4)      0         907,067   
    (2)         0