DEF 14A 1 h55214ddef14a.htm DEFINITIVE PROXY STATEMENT def14a
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material Pursuant to §240.14a-12
 
Anadarko Petroluem 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):
þ   No fee required.
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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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):
 
     
     
 
 
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o   Fee paid previously with preliminary materials.
 
o   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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  (3)   Filing Party:
 
     
     
 
 
  (4)   Date Filed:
 
     
     
 


 

(ANADARKO LOGO)
 
 
P.O. Box 1330
Houston, Texas 77251-1330
 
March 31, 2008
 
 
TO OUR STOCKHOLDERS:
 
The 2008 Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Woodlands Resort & Conference Center, 2301 N. Millbend Drive, The Woodlands, Texas, 77380 on Tuesday, May 20, 2008, at 8:00 a.m. (Central Daylight Time).
 
The Notice of the Annual Meeting and Proxy Statement, which are attached, provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the Proxy Statement and will not include a management presentation.
 
Pursuant to new rules promulgated by the Securities and Exchange Commission, we are providing access to our proxy materials over the Internet. As a result, we are mailing to many of our stockholders a Notice of Internet Availability of Proxy Materials (Notice) instead of a paper copy of this Proxy Statement and our Annual Report. The Notice contains instructions on how to access those documents over the Internet, as well as instructions on how to request a paper copy of our proxy materials. All stockholders who do not receive a Notice will receive a paper copy of the proxy materials by mail. We believe that this new process will reduce the environmental impact and lower the costs of printing and distributing our proxy materials.
 
We value your opinions and encourage you to participate in this year’s Annual Meeting by voting your proxy. You may vote by Internet or by telephone using the instructions on the Notice, or, if you received a paper copy of the proxy card, by signing and returning it in the envelope provided. You may also attend and vote at the Annual Meeting.
 
Very truly yours,
 
-s- James T. Hackett
 
JAMES T. HACKETT
Chairman of the Board, President and
Chief Executive Officer


 

(ANADARKO LOGO IN BLACK)
 
P. O. Box 1330
Houston, Texas 77251-1330
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 
The Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Woodlands Resort & Conference Center, 2301 N. Millbend Drive, The Woodlands, Texas, 77380, on Tuesday, May 20, 2008, at 8:00 a.m. (Central Daylight Time) to consider the following proposals:
 
(1) elect three directors;
 
(2) ratify the appointment of KPMG LLP as the Company’s independent auditor for 2008;
 
(3) approve the Anadarko Petroleum Corporation 2008 Omnibus Incentive Compensation Plan;
 
(4) approve the Anadarko Petroleum Corporation 2008 Director Compensation Plan;
 
(5) if presented, consider and vote on two stockholder proposals; and
 
(6) transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.
 
If you are a record holder of common stock at the close of business on March 26, 2008, the record date, then you are entitled to receive notice of and to vote at the meeting.
 
Please take the time to vote by following the Internet or telephone voting instructions provided. If you received a paper copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement.
 
As a stockholder, your vote is very important and the Board strongly encourages you to exercise your right to vote.
 
BY ORDER OF THE BOARD OF DIRECTORS
 
-s- Robert K. Reeves
Robert K. Reeves
Senior Vice President, General Counsel,
Chief Administrative Officer and Corporate Secretary
 
March 31, 2008
The Woodlands, Texas
 
 
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to be Held on May 20, 2008:
The Proxy Statement and Annual Report for 2007 are available at
http://bnymellon.mobular.net/bnymellon/apc.


 

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(ANADARKO LOGO IN BLACK)
 
P. O. Box 1330
Houston, Texas 77251-1330
 
 
PROXY STATEMENT
May 20, 2008
 
GENERAL INFORMATION
 
We are furnishing you this proxy statement in connection with the solicitation of proxies by our Board of Directors to be voted at the Annual Meeting of Stockholders of Anadarko Petroleum Corporation, sometimes referred to as the Company or Anadarko. The Annual Meeting will be held on Tuesday, May 20, 2008. The proxy materials, including this proxy statement, proxy card or voting instructions and our 2007 Annual Report are being distributed and made available on or about April 4, 2008.
 
In accordance with rules and regulations recently adopted by the U.S. Securities and Exchange Commission, or SEC, we have elected to provide access to our proxy materials to our stockholders by providing access to such documents on the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials, or the Notice, was mailed to most of our stockholders on or about April 4, 2008. Stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of the proxy materials to be sent to them, by following the instructions in the Notice.
 
The Notice will also provide instructions on how to inform us to send future proxy materials to you electronically by e-mail or in printed form by mail. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail or printed form will remain in effect until you terminate it.
 
Choosing to receive future proxy materials by e-mail will allow us to provide you with the information you need in a timelier manner, will save us the cost of printing and mailing documents to you, and will conserve natural resources.
 
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
 
Where and when is the Annual Meeting?
 
The Annual Meeting will be at The Woodlands Resort & Conference Center, 2301 N. Millbend Drive, The Woodlands, Texas, 77380, on Tuesday, May 20, 2008, at 8:00 a.m. (Central Daylight Time).
 
Who may vote?
 
You may vote if you were the record holder of Anadarko common stock as of the close of business on March 26, 2008, the record date for the Annual Meeting. Each share of Anadarko common stock is entitled to one vote at the meeting. On the record date, there were 478,386,502 shares of common stock outstanding and entitled to vote at the Annual Meeting.
 
May I attend the Annual Meeting?
 
Yes. Attendance is limited to stockholders of record as of the record date for the Annual Meeting. Admission will be on a first-come, first-served basis. You may be asked to present valid picture identification,


 

such as a driver’s license or passport. If your shares are held in the name of a bank, broker, or other holder of record and you plan to attend the Annual Meeting, you must present proof of your ownership of Company stock, such as a current bank or brokerage account statement reflecting ownership as of the record date for the Annual Meeting, to be admitted. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting.
 
Why did I receive a Notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?
 
This year, in connection with new SEC rules that allow companies to furnish their proxy materials over the Internet, we have sent to most of our stockholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis. A stockholder’s election to receive proxy materials by mail or e-mail will remain in effect until the stockholder terminates it.
 
Why didn’t I receive a Notice in the mail regarding the Internet availability of proxy materials?
 
We are providing certain stockholders, including those who have previously requested to receive paper copies of the proxy materials, with paper copies of the proxy materials instead of a Notice. If you would like to reduce the costs incurred by us in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions provided in your Notice, or if you received a printed version of the proxy materials by mail, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card to vote using the Internet. When prompted, indicate that you agree to receive or access stockholder communications electronically in the future.
 
Can I vote my shares by filling out and returning the Notice?
 
No. The Notice will, however, provide instructions on how to vote by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the Annual Meeting.
 
How can I access the proxy materials over the Internet?
 
Your Notice or proxy card will contain instructions on how to view our proxy materials for the Annual Meeting on the Internet. Our proxy materials are also available at http://bnymellon.mobular.net/bnymellon/apc.
 
What am I voting on?
 
You are voting on:
 
  •  the election of three directors;
 
  •  the ratification of KPMG LLP as our independent auditor for 2008;
 
  •  approval of the Anadarko Petroleum Corporation 2008 Omnibus Incentive Compensation Plan;
 
  •  approval of the Anadarko Petroleum Corporation 2008 Director Compensation Plan;
 
  •  if presented, two stockholder proposals; and
 
  •  any other business properly coming before the Annual Meeting.
 
How does the Board recommend that I vote?
 
The Board recommends that you vote:
 
  •  FOR each of the nominees for director;


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  •  FOR the ratification of KPMG LLP as our independent auditor for 2008;
 
  •  FOR the approval of the 2008 Omnibus Incentive Compensation Plan;
 
  •  FOR the approval of the 2008 Director Compensation Plan; and
 
  •  AGAINST each of the stockholder proposals.
 
Why should I vote?
 
Your vote is very important regardless of the number of shares you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the Company.
 
How do I vote?
 
You may vote by any of the following methods:
 
  •  Vote on the Internet at the website for Internet voting. Simply follow the instructions on the Notice, or if you received a proxy card by mail, follow the instructions on the proxy card and you can confirm that your vote has been properly recorded. If you vote on the Internet, you can request electronic delivery of future proxy materials. Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (EDT) on May 19, 2008.
 
  •  Vote by telephone by following the instructions on the Notice, or if you received a proxy card, by following the instructions on the proxy card. Easy-to-follow voice prompts allow you to vote your shares and confirm that your vote has been properly recorded. Telephone voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (EDT) on May 19, 2008.
 
  •  If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the pre-addressed, postage-paid envelope provided. If you vote by mail and your proxy card is returned unsigned, then your vote cannot be counted. If you vote by mail and the returned proxy card is signed without indicating how you want to vote, then your proxy will be voted as recommended by the Board of Directors. If mailed, your completed and signed proxy card must be received by May 19, 2008.
 
  •  You may attend and vote at the Annual Meeting. The Board recommends that you vote using one of the methods discussed above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. Using one of these methods to vote will not limit your right to vote at the Annual Meeting if you later decide to attend in person. If your shares are held in street name (e.g., held in the name of a bank, broker, or other holder of record) you must obtain a proxy, executed in your favor, from your bank, broker or other holder of record to be able to vote at the Annual Meeting.
 
If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card?
 
No.
 
If I vote by mail, telephone or Internet, may I still attend the Annual Meeting?
 
Yes.
 
Can I change my vote?
 
If you are a stockholder of record, you may revoke your proxy at any time before the voting polls are closed at the Annual Meeting, by the following methods:
 
  •  voting at a later time by Internet or telephone;
 
  •  voting in person at the Annual Meeting;
 
  •  delivering to the Corporate Secretary of Anadarko a proxy with a later date or a written revocation of your proxy; or
 
  •  giving notice to the inspector of election at the Annual Meeting.


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If you are a street name stockholder and you vote by proxy, you may later revoke your proxy by informing the holder of record in accordance with that entity’s procedures.
 
How many votes must be present to hold the Annual Meeting?
 
Your shares are counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. In order for us to hold our Annual Meeting, holders of a majority of our common stock entitled to vote must be present in person or by proxy at the Annual Meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted as present for purposes of determining a quorum.
 
What is a broker non-vote?
 
The New York Stock Exchange, or the NYSE, permits brokers to vote their customers’ shares held in street name on routine matters when the brokers have not received voting instructions from their customers. Brokers may not vote their customers’ shares held in street name on non-routine matters unless they have received voting instructions from their customers. Non-voted shares on non-routine matters are called broker non-votes. Broker non-votes will have no effect on the vote for any matter properly introduced at the Annual Meeting.
 
What are routine matters?
 
The election of directors and the ratification of the independent auditor are examples of routine matters on which brokers may vote even if they have not received instructions from their customers.
 
What are non-routine matters?
 
Non-routine matters are matters such as new equity compensation plans and stockholder proposals.
 
How many votes are needed to approve each of the proposals?
 
The election of each director requires the affirmative vote of a majority of the votes cast for such director. Under our By-Laws, a majority of votes are cast for the election of a director if the number of votes cast “for” the director exceeds the number of votes cast “against” the director, with abstentions and broker non-votes not counted as a vote cast either “for” or “against” the director. The ratification of the independent auditor requires the affirmative vote of a majority of the shares entitled to vote and present in person or by proxy at the Annual Meeting. The approval of each of the new equity compensation plans requires the affirmative vote of the majority of votes cast for each respective proposal, provided that the total votes cast represent a majority of all shares entitled to vote.
 
Could other matters be decided at the Annual Meeting?
 
We are not aware of any matters that will be considered at the Annual Meeting other than those set forth in this proxy statement. However, if any other matters arise at the Annual Meeting, the person named in your proxy will vote in accordance with their best judgment.
 
Where can I find the voting results of the Annual Meeting?
 
We will announce voting results at the Annual Meeting, and we will publish the final results in our quarterly report for the second quarter of 2008. You may access or obtain a copy of this and other reports free of charge on the Company’s website at www.anadarko.com, or by contacting our Investor Relations department at investor@anadarko.com.
 
How can I view the stockholder list?
 
A complete list of stockholders entitled to vote at the Annual Meeting will be available to view during the Annual Meeting. You may access this list at our offices at 1201 Lake Robbins Drive, The Woodlands, Texas 77380 during ordinary business hours for a period of ten days before the Annual Meeting.


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Who pays for the proxy solicitation related to the Annual Meeting?
 
We do.  In addition to sending you these materials or otherwise providing you access to these materials, some of our directors and officers as well as management and non-management employees may contact you by telephone, mail, e-mail or in person. You may also be solicited by means of press releases issued by Anadarko, postings on our website, www.anadarko.com, and advertisements in periodicals. None of our officers or employees will receive any extra compensation for soliciting you. We have retained Morrow & Co., Inc. to assist us in soliciting your proxy for an estimated fee of $7,500, plus reasonable out-of-pocket expenses. Morrow will ask brokers and other custodians and nominees whether other persons are beneficial owners of Anadarko common stock. If so, we will supply them with additional copies of the proxy materials for distribution to the beneficial owners. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the proxy materials to the beneficial owners of Anadarko common stock.
 
If I want to submit a stockholder proposal or nominate a director for the 2009 Annual Meeting, when is that proposal or nomination due?
 
If you are an eligible stockholder and want to submit a proposal for possible inclusion in next year’s proxy statement, your proposal must be delivered to the attention of our Corporate Secretary and must be received at our principal executive offices no later than November 30, 2008 to be considered for inclusion in the proxy statement and form of proxy relating to the 2009 Annual Meeting. We will only consider proposals that meet the requirements of the applicable rules of the Securities and Exchange Commission, or SEC. Similarly, if you wish to nominate an individual for election to our Board of Directors, our By-Laws provide that you must provide your nomination in writing to our Corporate Secretary no later than February 19, 2009 and no earlier than January 20, 2009.
 
How can I obtain a copy of the Annual Report on Form 10-K?
 
Stockholders may request a free copy of our Annual Report on Form 10-K by submitting such request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046. Alternatively, stockholders can access our Annual Report on Form 10-K on Anadarko’s website at www.anadarko.com.
 
Will I get more than one copy of the proxy statement, annual report or Notice if there are multiple stockholders at my address?
 
In some cases, only one copy of this proxy statement, annual report or Notice is being delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of this proxy statement, annual report or Notice to a stockholder at a shared address to which a single copy of the document was delivered. Stockholders sharing an address may also submit requests for delivery of a single copy of the proxy statement, annual report or Notice. To request separate or single delivery of these materials now or in the future, a stockholder may submit a written request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 or an oral request by calling the Corporate Secretary at (832) 636-1000.


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ANADARKO BOARD OF DIRECTORS
 
ITEM 1 — ELECTION OF DIRECTORS
 
The Board of Directors of Anadarko is divided into three classes of directors for purposes of election. One class of directors is elected at each Annual Meeting of stockholders to serve for a three-year term. All of the director nominees listed below are current directors of the Company.
 
At the Annual Meeting, the terms of three directors will expire. All three of the directors have been nominated and, if elected at this meeting, will hold office until the expiration of each of their terms in 2011. Those directors not up for election this year will continue in office for the remainder of their terms.
 
If a nominee is unavailable for election, then the proxies will be voted for the election of another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.
 
Our By-Laws provide for the election of directors by the majority vote of stockholders in uncontested elections. This means the number of votes cast for a nominee’s election must exceed the number of votes cast against such nominee’s election in order for him or her to be elected to the Board of Directors. In addition, each nominee is required to provide an irrevocable letter of resignation that states that he or she will resign in the event that director does not receive the required majority vote. In the event a director fails to receive a majority of votes cast and the Board accepts the resignation tendered, then that director would cease to be a director of Anadarko. Each of the nominees named below has submitted an irrevocable letter of resignation that becomes effective in the event he does not receive a majority of the votes cast for his election and the Board decides to accept such resignation.
 
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.
 
Directors to be Nominated this Year by the Board of Directors for Terms Expiring in 2011
 
John R. Butler, Jr. (69) — Since 1976, Mr. Butler has been Chairman of J. R. Butler and Company, a reservoir engineering company located in Houston, Texas. Since August 2006, Mr. Butler has served as a director of BreitBurn Energy Partners L.P., a publicly-traded upstream master limited partnership, and also serves as a director of the Houston chapter of the National Association of Corporate Directors. He is currently a member of the Society of Petroleum Evaluation Engineers. Mr. Butler has been a director of the Company since 1996.
 
Luke R. Corbett (61) — Mr. Corbett has been a retired business executive since Kerr-McGee Corporation’s merger with Anadarko in August 2006. He served as Chairman and Chief Executive Officer of Kerr-McGee from 1999 until August 2006. Mr. Corbett had been with Kerr-McGee since 1985 when he joined the company’s Exploration and Production Division as vice president of geophysics. In subsequent years, he held a wide array of senior executive positions with Kerr-McGee. Mr. Corbett also serves on the boards of OGE Energy Corporation and Noble Corporation. Mr. Corbett has been a director of the Company since August 2006.
 
John R. Gordon (59) — Mr. Gordon is Senior Managing Director of Deltec Asset Management LLC, an investment firm located in New York, New York. He was President of Deltec Securities Corporation from 1988 until it was converted into Deltec Asset Management LLC. Mr. Gordon has been a director of the Company since 1988.
 
Continuing Directors with Terms Expiring in 2009
 
Robert J. Allison, Jr. (69) — Mr. Allison has been Chairman Emeritus of the Board of the Company since January 2006 and a director since 1985. He was Chairman of the Board from 1986 until December 2005, and served as Chief Executive Officer of the Company from 1986 until January 2002, and from March 2003 until December 2003. Mr. Allison is also a director of Freeport-McMoRan Copper & Gold Inc.


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Peter J. Fluor (60) — Mr. Fluor has been Chairman and CEO of Texas Crude Energy, Inc., a private, independent oil and gas exploration company located in Houston, Texas, since 1990. He has been employed by Texas Crude Energy, Inc. since 1972 and took over the responsibilities of President in 1980. Mr. Fluor serves as lead director of Fluor Corporation, a director of Cameron International Corporation and a director of The Welch Foundation. Mr. Fluor has been a director of the Company since August 2007.
 
John W. Poduska, Sr. (70) — Mr. Poduska is a retired business executive. He was Chairman of Advanced Visual Systems, Inc., a provider of visualization software, from 1992 until 2002. Mr. Poduska is a director of Novell, Inc. and Safeguard Scientific, Inc. He was a director of Union Pacific Resources Group, Inc. from 1995 until 2000. Mr. Poduska has been a director of the Company since 2000.
 
Paula Rosput Reynolds (51) — Ms. Reynolds is President and CEO of Safeco Corporation, a property and casualty insurance company located in Seattle, Washington. Prior to joining Safeco in January 2006, she served as Chairman, President and CEO of AGL Resources Inc., a regional energy services holding company from August 2002 to December 2005. Ms. Reynolds also previously served as President and CEO of Houston-based Duke Energy North America, a subsidiary of Duke Energy, which operated power-generating facilities across the United States, and as Senior Vice President of Pacific Gas Transmission Company, which owned and operated a major natural gas pipeline in the Pacific Northwest. She is also a director of Safeco Corporation and Delta Air Lines, Inc. Ms. Reynolds has been a director of the Company since August 2007.
 
Continuing Directors with Terms Expiring in 2010
 
Larry Barcus (70) — Since January 2008, Mr. Barcus has served as Vice Chairman of L.G. Barcus and Sons, Inc., a general contractor, located in Kansas City, Kansas with operations nationwide. He had previously served as Chairman from 1990 to January 2008. He also served as Chairman of First Community Bancshares and Chairman of First Community Bank, both banking institutions, from 1995 to January 2007. Mr. Barcus has been a director of the Company since 1986.
 
James L. Bryan (71) — Mr. Bryan is a retired business executive. From 1999 until December 2003, Mr. Bryan was Executive Vice President of Newpark Drilling Fluids, Inc., an oilfield services firm headquartered in Houston, Texas. He retired as Senior Vice President of Dresser Industries, Inc. in 1998. He had been a Vice President of Dresser since 1990. Mr. Bryan has been a director of the Company since 1986.
 
H. Paulett Eberhart (54) — Ms. Eberhart has served as President and Chief Executive Officer of Invensys Process Systems, a process automation company located in Plano, Texas, since January 2007. From 2003 until March 2004, Ms. Eberhart was President — Americas of Electronic Data Systems Corporation (EDS), an information technology and business process outsourcing company. From 2002 to 2003, she was Senior Vice President — EDS and President — Solutions Consulting. She was also a member of the Executive Operations Team and Investment Committee of EDS. Ms. Eberhart was an employee of EDS from 1978 to 2004. Ms. Eberhart is a member of Financial Executives International and the American Institute of Certified Public Accountants. Ms. Eberhart also serves as a director of Advanced Micro Devices, Inc. Ms. Eberhart has been a director of the Company since August 2004.
 
James T. Hackett (54) — Mr. Hackett was named President and Chief Executive Officer of the Company in December 2003 and Chairman of the Board of the Company in January 2006. Prior to joining the Company, Mr. Hackett was the Chief Operating Officer of Devon Energy Corporation from April 2003 to December 2003, following Devon’s merger with Ocean Energy, Inc. Mr. Hackett was President and Chief Executive Officer of Ocean Energy, Inc. from March 1999 to April 2003 and was Chairman of the Board from January 2000 to April 2003. He currently serves as a director of Fluor Corporation and Temple-Inland, Inc. and serves as Chairman of the Board of the Federal Reserve Bank of Dallas. Mr. Hackett is retiring from the Temple-Inland Board of Directors effective at Temple-Inland’s May 2, 2008 annual stockholder meeting.


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CORPORATE GOVERNANCE
 
Our Board of Directors recognizes that excellence in corporate governance is essential in carrying out its responsibilities to our constituents, including our stockholders, employees, customers, communities and creditors. Our By-Laws, Corporate Governance Guidelines, Board Committee charters and Code of Business Conduct and Ethics provide the structure for our corporate governance. We have been committed to good governance for several years; a majority of our Board has been comprised of independent directors since the Company became an independent company in 1986. In addition, we have recently implemented the director majority voting standard in uncontested director elections, including the election of our directors at the Annual Meeting.
 
The Audit Committee, the Compensation and Benefits Committee (generally referred to in this proxy statement as the Compensation Committee) and the Nominating and Corporate Governance Committee have each been comprised entirely of independent directors since their inception. The written charters for the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, as amended from time to time, can be found on the Company’s website at http://www.anadarko.com/investor_relations/governance.asp, together with the Code of Business Conduct and Ethics, the Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and the Corporate Governance Guidelines. Any of these documents will be furnished in print free of charge to any stockholder who requests it. You can submit such a request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046.
 
Each director that has served on our Board during 2007 has attended at least 75 percent of the meetings of the Board and of each committee on which he or she served. There were five Board meetings and 27 Board committee meetings in 2007. In addition, each of the incumbent directors, except for Ms. Reynolds and Mr. Fluor who were elected in August 2007, attended the 2007 Annual Meeting of Stockholders. Under the Company’s Corporate Governance Guidelines, directors are expected to attend regularly scheduled Board meetings and meetings of committees on which they serve, as well as the Annual Meeting of Stockholders.
 
Committees of the Board
 
The Board of Directors has four standing committees: the Audit Committee; the Compensation Committee; the Nominating and Corporate Governance Committee; and the Executive Committee. The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are each comprised of independent directors. The Executive Committee is not an independent committee because it has both non-management and management directors as members; however, a majority of the members of the Executive Committee are independent directors. In addition, the Board designates special committees from time to time to address certain significant matters on behalf of the Board. In January 2005, the Board created the Enterprise Resource Planning Committee to provide input and advice to the Company during its implementation of the Enterprise Resource Planning project, which modernized and integrated back-office software systems across the Company. That committee did not meet during 2007 and expired by its terms in February 2007. In August 2007, the Board designated a Master Limited Partnership, or MLP, Special Committee to handle certain Board matters related to the creation and initial public offering of our midstream MLP.


8


 

The table below shows the current membership of each committee of the Board and the number of meetings each committee held in 2007:
 
                         
              Nominating
       
        Compensation
    & Corporate
      MLP Special
Director
  Audit   & Benefits     Governance   Executive   Committee
 
Mr. Allison
                  X    
Mr. Barcus
  X           Chair       Chair
Mr. Bryan
        X     X   X    
Mr. Butler
  X           X   X    
Ms. Eberhart
  Chair           X       X
Mr. Fluor
        X     X        
Mr. Gordon
        X     X   X*   X
Mr. Hackett
                  Chair    
Mr. Poduska
        Chair     X       X
Ms. Reynolds
  X           X        
2007 Meetings
  10     9     4   2   2
 
 
* Serves in his capacity as Lead Director
 
Audit Committee
 
The Board re-appointed Ms. Eberhart and Messrs. Barcus and Butler as members of the Audit Committee in May 2007, and appointed Ms. Reynolds as a member of the Audit Committee upon her election to the Board in August 2007. The Audit Committee elected Ms. Eberhart as its chairperson during 2007. In February 2007, the Board of Directors designated Ms. Eberhart as “an audit committee financial expert” as defined by the SEC.
 
The purpose of the Audit Committee is to assist the Board in monitoring:
 
  •  the integrity of the Company’s financial statements;
 
  •  the Company’s compliance with legal and regulatory requirements;
 
  •  the independent auditor’s qualifications and independence;
 
  •  the performance of the Company’s corporate and independent auditors; and
 
  •  the business practices and ethical standards of the Company.
 
The Audit Committee is also directly responsible for:
 
  •  the appointment, approval of compensation, retention and oversight of the work of the Company’s independent auditor, KPMG LLP;
 
  •  the preparation of the Audit Committee report, which is on page 19; and
 
  •  the appointment, compensation, retention and oversight of the work of the Company’s independent reserve engineering consultants.
 
All of the members of the Audit Committee meet the independence requirements of the NYSE, the Sarbanes-Oxley Act, the Securities Exchange Act and the rules of the SEC adopted thereunder, and the Company’s Corporate Governance Guidelines.


9


 

Compensation Committee
 
The Compensation Committee is responsible for translating our compensation objectives into a compensation strategy that aligns the interests of our executives with that of our stockholders. The Compensation Committee has overall responsibility for:
 
  •  approving and evaluating the Company’s director and executive officer compensation plans, policies and programs;
 
  •  retaining compensation or other consultants to assist in the evaluation of director or executive compensation and otherwise to aid the Compensation Committee in meeting its responsibilities;
 
  •  reviewing the disclosures made in the proxy statement;
 
  •  producing an annual Compensation Committee report, which is on page 20; and
 
  •  approving and evaluating broad-based incentive programs, qualified equity plans and tax-qualified benefit plans to ensure that our compensation philosophy is executed consistently at all levels of the Company.
 
For a more detailed discussion of the composition and responsibilities of the Compensation Committee and the processes and procedures related to the determination of executive compensation, please see the Compensation Committee’s Charter and the Compensation Discussion and Analysis section of this proxy statement beginning on page 21.
 
The Compensation Committee is comprised of four independent, non-employee directors. The Board re-elected Messrs. Bryan, Gordon and Poduska as members of the Compensation Committee in May 2007, and elected Mr. Fluor as a member of the Compensation Committee upon his appointment to the Board of Directors in August 2007. Mr. Poduska was re-elected as chairman of the Compensation Committee by the Board in May 2007.
 
Nominating and Corporate Governance Committee
 
Mses. Eberhart and Reynolds and Messrs. Barcus, Bryan, Butler, Fluor, Gordon and Poduska served as members of the Nominating and Corporate Governance Committee during 2007. Mr. Barcus was appointed as chairman of the Nominating and Corporate Governance Committee in May 2007.
 
The Nominating and Corporate Governance Committee has overall responsibility for:
 
  •  recommending nominees for director to the full Board;
 
  •  reviewing the qualifications of existing Board members before they are nominated for re-election to the Board;
 
  •  recommending members of the Board for committee membership;
 
  •  proposing Corporate Governance Guidelines for the Company and reviewing them annually;
 
  •  oversight of the Company’s compliance structure and programs;
 
  •  developing an evaluation process for the Board;
 
  •  overseeing the emergency and expected CEO succession plans; and
 
  •  reviewing and investigating any reports to the Company’s anonymous reporting hotline regarding non-financial matters.
 
Executive Committee
 
The Board re-elected Messrs. Allison, Bryan, Butler, Gordon and Hackett as members of the Executive Committee in May 2007. Mr. Gordon serves on the Executive Committee in his capacity as Lead Director. This Committee is not an independent committee; however, the majority of the members of the Executive


10


 

Committee are independent directors. Mr. Allison, a retired Company executive, and Mr. Hackett, the Company’s Chairman, President and CEO, are members of this Committee. Mr. Hackett is chairman of the Executive Committee. In accordance with the Company’s By-Laws, the Executive Committee acts with the power and authority of the Board in the management of the business and affairs of the Company while the Board is not in session. The Executive Committee has generally held meetings to approve specific terms of financing or other transactions that have previously been approved by the Board.
 
MLP Special Committee
 
The MLP Special Committee of the Board was established in August 2007 to provide oversight on behalf of the Board, and report periodically to the Board as the Committee deems appropriate, in connection with our formation of a midstream MLP and initial public offering of limited partner interests in the MLP. The Board appointed the Lead Director, Mr. Gordon, and the chairperson of each independent Board Committee (Mr. Barcus, Mr. Poduska and Ms. Eberhart) to the MLP Special Committee. The Committee has a term of one year.
 
Board of Directors
 
Director Independence
 
In accordance with NYSE rules, the Board must affirmatively determine the independence of each director and director nominee in accordance with the Company’s director independence standards, which are contained in the Company’s Corporate Governance Guidelines found on the Company’s website at http://www.anadarko.com/investor_relations/governance.asp.
 
Based on these standards our Board, based upon a recommendation from the Nominating and Corporate Governance Committee, has determined that each of the following non-employee directors is independent and has no relationship with the Company, except as a director and stockholder of the Company:
 
     
• Larry Barcus
  • John R. Gordon
• James L. Bryan
  • H. Paulett Eberhart
• John R. Butler, Jr. 
  • John W. Poduska, Sr.
• Peter J. Fluor
  • Paula Rosput Reynolds
 
In addition, the Board has affirmatively determined that: (a) Mr. Hackett is not independent because he is the President and Chief Executive Officer of the Company; (b) Mr. Corbett is not independent because, as part of his change of control agreement with Kerr-McGee Corporation, the Company provided him office space (or compensation for such space) and secretarial assistance through August 2007; and (c) Mr. Allison is not independent because he had been an executive officer of Anadarko for many years and, as part of his retirement package, the Company will continue to provide him use of the Company’s aircraft, office space, secretarial assistance and a monitored residential security system during his lifetime.
 
With respect to Mr. Butler, the Board specifically considered that Mr. Butler’s son-in-law is a non-executive employee of the Company. The Board determined that this does not impact Mr. Butler’s independence. With respect to Mr. Fluor, the Board specifically considered that Mr. Fluor’s daughter is a non-executive employee of the Company. The Board determined that this does not impact Mr. Fluor’s independence. The Board also specifically considered that Invensys Process Systems, Inc. and its affiliates provide the Company with process automation services. In 2007, Anadarko paid Invensys approximately $536,000 in connection with these services. This amount is less than 1% of Invensys’s consolidated gross revenues for its fiscal year ended March 31, 2007. Ms. Eberhart, a director of the Company, became President and CEO of Invensys in January 2007. Finally, the Board specifically considered that Puget Sound Energy, Inc. and its affiliates engage in gas purchases with the Company and its affiliates. Ms. Reynolds, who joined the Company’s Board of Directors in August 2007, is married to Mr. Stephen P. Reynolds, who currently serves as Chairman, President and CEO of Puget. In 2007, Anadarko paid Puget approximately $785,000 in connection with these purchases. This amount is less than 1% of Puget’s consolidated gross revenues for its fiscal year ended at March 31, 2007.


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For information regarding our policy on Transactions with Related Persons, please see page 54 of this proxy statement.
 
Selection of Directors
 
The Company’s Corporate Governance Guidelines require that, with respect to Board vacancies, the Nominating and Corporate Governance Committee: (a) identify the personal characteristics needed in a director nominee so that the Board will possess the qualifications of the Board as a whole as these qualifications are set forth in the Corporate Governance Guidelines; (b) compile, through such means as the Committee considers appropriate, a list of potential director nominees thought to possess the individual qualifications identified in the Corporate Governance Guidelines; (c) if the Committee so determines it to be appropriate, engage an outside consultant to assist in the search for nominees and to conduct background investigations on all nominees regardless of how nominated; (d) review the resume of each nominee; (e) conduct interviews with the nominees meeting the desired set of qualifications; (f) following interviews, compile a short list of nominees (which, at the discretion of the Committee, may consist of a single individual) who may meet, at a minimum, with the Chairman of the Board, the Chief Executive Officer and the Chairman of the Nominating and Corporate Governance Committee and/or the Lead Director; and (g) evaluate the nominee(s) in relationship to the culture of the Company and the Board and its needs.
 
Annual Evaluations
 
The Board and each of the independent committees have conducted self-evaluations related to their performance in 2007. The performance evaluations were supervised by the Nominating and Corporate Governance Committee and discussed by the applicable committee and the Board.
 
Communication with the Directors of the Company
 
The Board of Directors welcomes questions or comments about the Company and its operations. Interested parties may contact the Board of Directors, including the Lead Director or any individual director, at nominating_governance@apcdirector.com or at Anadarko Petroleum Corporation, Attn: Corporate Secretary, 1201 Lake Robbins Drive, The Woodlands, Texas, 77380. Any questions or comments will be kept confidential to the extent reasonably possible, if requested. These procedures may change from time to time, and you are encouraged to visit our website for the most current means of contacting our directors. If you wish to request copies of any of our governance documents, please see page 8 of this proxy statement for instructions on how to obtain them.
 
Stockholder Participation in the Selection of Director Nominees
 
The Nominating and Corporate Governance Committee did not receive any names of individuals suggested for nomination to the Company’s Board of Directors by its stockholders during the past year. However, the Board will consider individuals identified by stockholders on the same basis as nominees identified from other sources. Stockholders wishing to submit the name of an individual for consideration must submit the recommendation in writing to the Company’s Corporate Secretary at the Company’s principal executive offices, including:
 
  •  the name, address and comprehensive biography of the director nominee and an explanation of why the nominee is qualified to serve as a director;
 
  •  the name, address and telephone number of the stockholder or group of stockholders making the recommendation, proof of ownership, number of shares and length of time the shares of the Company’s voting securities have been beneficially owned by the stockholder or group of stockholders, and a representation that the stockholder or group of stockholders is entitled to and will remain entitled to vote at the Company’s next Annual Meeting; and
 
  •  a letter in writing from the individual being recommended certifying his or her willingness to serve, if elected as a director.


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Nominations must be received no earlier than the close of business on the 120th day prior to, and no later than the close of business on the 90th day prior to, the first anniversary of our last Annual Meeting. For more information on stockholder participation in the selection of director nominees, please refer to that section in our Corporate Governance Guidelines and our By-Laws, which are posted on the Company’s website at http://www.anadarko.com/investor_relations/governance.asp.
 
Directors’ Continuing Education
 
The Company’s Director Education Policy encourages all members of the Board of Directors to attend director education programs appropriate to their individual backgrounds to stay abreast of developments in corporate governance and “best practices” relevant to their contribution to the Board of Directors as well as their responsibilities in their specific committee assignments. The Director Education Policy provides that the Company will reimburse the Board of Directors for all costs associated with attending any director education program.
 
Lead Director at the Non-Employee Directors’ Executive Sessions
 
The Board of Directors has elected Mr. Gordon as its Lead Director. As Lead Director, Mr. Gordon’s role is to aid and assist the Chairman and the remainder of the Board of Directors in assuring effective corporate governance in managing the affairs of the Board of Directors and the Company.
 
Additionally, Mr. Gordon presides at executive sessions of the non-employee directors. Executive sessions are held after each regularly scheduled quarterly meeting of the Board of Directors and at any other board meetings as requested by the directors. Mr. Gordon is also a member of the Executive Committee of the Board, providing additional representation for the independent directors in any actions taken by the Executive Committee between Board meetings.
 
Compensation and Benefits Committee Interlocks and Insider Participation
 
The Compensation Committee is made up of four independent, non-employee directors, Messrs. Bryan, Fluor, Gordon and Poduska. No interlocking relationship exists between the members of our Compensation Committee or our executive officers and the board of directors or compensation committee of any other company.
 
Director Compensation
 
Non-employee directors receive a combination of cash and stock-based compensation designed to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Board considers the significant amount of time that directors spend in fulfilling their duties to the Company and its stockholders as well as the skill level required by the Company’s Board members. The Compensation Committee is responsible for determining the type and amount of compensation for non-employee directors. The Compensation Committee directly retained Hewitt Associates LLC in 2007 as its independent consultant to assist in the annual review of director compensation by providing benchmark compensation data and recommendations for program design.
 
Retainer and Meeting Fees.  The non-employee directors receive the following compensation related to retainers and meeting fees:
 
(1) an annual retainer of $50,000;
 
(2) an annual committee membership retainer of $6,000 for each director who serves on the Audit Committee;
 
(3) an annual committee membership retainer of $3,000 for each committee on which the director serves (except for members of the Audit Committee and the MLP Special Committee);


13


 

(4) an annual retainer of $15,000 for serving as the chairman of the Compensation Committee or the Nominating and Corporate Governance Committee, an annual retainer of $25,000 for serving as Audit Committee chairman, an annual retainer of $25,000 for serving as Lead Director;
 
(5) a fee of $2,000 for each Board meeting attended, plus expenses related to attendance; and
 
(6) a fee of $2,000 for each committee meeting attended, plus expenses related to attendance.
 
Members of the MLP Special Committee receive only meeting fees and no other special retainer fees for their service on that committee. Non-employee directors may elect to receive their retainer and meeting fees in cash, common stock or a combination of both. Receipt of compensation in the form of common stock provides non-employee directors the opportunity to increase their personal ownership in the Company and comply with the established director stock ownership guidelines that require directors to hold stock equivalent to three times the annual Board retainer. This option also provides the directors a method to invest in the Company as a stockholder and aligns their interest with the stockholders of the Company. The number of shares issued to directors for payment in lieu of their cash fees is determined at the end of the quarter for which compensation is earned, and is calculated by dividing the closing stock price of the Company’s common stock on the date of grant into the applicable fee for that period.
 
Stock Plan for Non-employee Directors.  Stock-based awards made to non-employee directors are made pursuant to the 1998 Director Stock Plan. In addition to the retainer and meeting fee compensation discussed above, non-employee directors receive annual equity grants. Equity grants to non-employee directors will automatically be awarded each year on the date of the Company’s annual stockholder meeting. For 2007, each non-employee director, other than Ms. Reynolds and Mr. Fluor, received an annual equity grant with a value targeted at approximately $200,000, with 65% of the value delivered in deferred shares and 35% delivered in stock options. The deferred stock will be distributed to the director only when he or she ceases to serve as a director. The options vest one year from the date of grant and expire ten years from the date of grant. For 2007, upon initial election to the Board in August, Ms. Reynolds and Mr. Fluor received an initial grant of approximately $150,000 in deferred shares.
 
Under the Company’s stock ownership guidelines for non-employee directors, each director is required to own Company stock in an amount equal to three times the annual Board retainer. Directors have three years from the date of their initial election to the Board to comply with the guidelines. All non-employee directors currently exceed the Company’s stock ownership guidelines.
 
In February 2008, the Compensation Committee approved, subject to approval by our stockholders at the Annual Meeting, the 2008 Director Compensation Plan. This Plan will replace the 1998 Director Stock Plan. If approved, the 1998 Director Stock Plan will be terminated and no further awards will be made under the plan. The 2008 Director Compensation Plan is described beginning on page 64 and is attached to this proxy statement as Appendix B.
 
Deferred Compensation Program for Non-employee Directors.  Non-employee directors are eligible to participate in the Company’s Deferred Compensation Plan, which allows directors to defer receipt of up to 100% of their board and committee retainers and/or board and committee meeting fees. The Deferred Compensation Plan permits participants to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds. The interest rate earned on the deferred amounts is not above-market or preferential. In general, deferred amounts are distributed to the participant upon termination or at a specific date as elected by the participant. Ms. Reynolds is the only director who elected to defer compensation during 2007.
 
Other Compensation.  Non-employee directors are covered under the Company’s Accidental Death & Dismemberment Plan and the Company pays the annual premium for such coverage on behalf of each director. The Company also provides each director with Personal Excess Liability coverage and pays the annual premium on their behalf.


14


 

Director Compensation Table for 2007
 
The following table sets forth information concerning total director compensation during the 2007 fiscal year for each non-employee director:
 
                                                         
                            Change in
             
                            Pension Value
             
                            and Nonqualified
             
                      Non-Equity
    Deferred
             
    Fees Earned or
    Stock
    Option
    Incentive Plan
    Compensation
    All Other
       
    Paid in Cash
    Awards
    Awards
    Compensation
    Earnings
    Compensation
    Total
 
Name
  ($)     ($)(1)     ($)(2)     ($)     ($)     ($)(3)     ($)  
 
Robert J. Allison, Jr.(4)
    64,000       129,800       135,629       0       0       1,442       330,871  
Larry Barcus(5)
    109,104       129,800       135,629       0       0       1,442       375,975  
James L. Bryan
    101,646       129,800       135,629       0       0       1,442       368,517  
John R. Butler, Jr.(6)
    101,000       129,800       135,629       0       0       1,442       367,871  
Luke R. Corbett(7)
    58,000       129,800       135,629       0       0       1,442       324,871  
H. Paulett Eberhart
    126,000       129,800       135,629       0       0       1,442       392,871  
Peter J. Fluor(8)
    40,000       149,967       0       0       0       577       190,544  
John R. Gordon(9)
    125,000       129,800       135,629       0       0       1,442       391,871  
John W. Poduska, Sr. 
    111,000       129,800       135,629       0       0       5,305       381,734  
Paula Rosput Reynolds(8)(10)
    41,500       149,967       0       0       0       577       192,044  
 
 
(1) The amounts included in the “Stock Awards” column represent the compensation cost recognized by the Company in 2007 related to non-option awards to directors, computed in accordance with Statement of Financial Accounting Standards No. 123(R), or SFAS No. 123(R). For a discussion of valuation assumptions, see Note 6 — Stock-Based Compensation of the Notes to Consolidated Financial Statements included in our annual report under Item 8 of the Form 10-K for the year ended December 31, 2007. As of December 31, 2007, each of the non-employee directors had aggregate outstanding deferred shares as follows: Mr. Allison — 8,350 deferred shares; Mr. Barcus — 26,232 deferred shares; Mr. Bryan — 27,006 deferred shares; Mr. Butler — 14,268 deferred shares; Mr. Corbett — 3,250 deferred shares; Ms. Eberhart — 7,250 deferred shares; Mr. Fluor — 2,972 deferred shares; Mr. Gordon — 20,026 deferred shares; Mr. Poduska — 10,110 deferred shares; and Ms. Reynolds — 2,972 deferred shares.
 
(2) The amounts included in the “Option Awards” column represent the compensation cost recognized by the Company in 2007 related to stock option awards to directors, computed in accordance with SFAS No. 123(R). For a discussion of valuation assumptions, see Note 6 — Stock-Based Compensation of the Notes to Consolidated Financial Statements included in our annual report under Item 8 of the Form 10-K for the year ended December 31, 2007. As of December 31, 2007, each of the non-employee directors had aggregate outstanding stock options as follows: Mr. Allison — 22,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008; Mr. Barcus — 82,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008; Mr. Bryan — 82,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008; Mr. Butler — 82,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008; Mr. Corbett — 17,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008; Ms. Eberhart — 42,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008; Mr. Gordon — 82,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008; and Mr. Poduska — 42,500 vested and exercisable stock options and 3,950 unvested stock options that vest May 16, 2008.
 
(3) For Ms. Eberhart and Messrs. Allison, Barcus, Bryan, Butler, Corbett, Gordon and Poduska, the amounts included in the “All Other Compensation” column include annual premiums paid by the Company for each director’s benefit in the amount of $142 and $1,300, respectively, for Accidental Death & Dismemberment coverage and Personal Excess Liability coverage. For Mr. Fluor and Ms. Reynolds, the amount


15


 

includes $50 for Accidental Death & Dismemberment coverage and $527 for Personal Excess Liability coverage. Additionally, Mr. Poduska was credited with $3,863 in earnings under the Deferred Compensation Plan, as described on page 14.
 
(4) Certain ongoing benefits provided to Mr. Allison, which are not part of his compensation for service as a director of the Company, are discussed on page 54.
 
(5) The amount in the “Fees Earned or Paid in Cash” column for Mr. Barcus includes $750 in retainer fees that should have been paid in 2006, but due to administrative error were not paid until 2007.
 
(6) Mr. Butler elected to receive half of his fees in cash and half in common stock.
 
(7) Certain ongoing benefits provided to Mr. Corbett, which are not part of his compensation for service as a director of the Company, are discussed on page 11.
 
(8) The fees provided to Mr. Fluor and Ms. Reynolds represent the fees earned beginning with their election to the Board in August 2007.
 
(9) Mr. Gordon elected to receive all of his director fees in common stock.
 
(10) Ms. Reynolds deferred $19,750 of her retainer and meeting fees into the Company’s Deferred Compensation Plan.
 
The following table contains the grant date fair value of stock option and deferred share awards made to each non-employee director, as indicated, during 2007.
 
                                     
                          Grant Date Fair
 
                    Exercise or
    Value of Stock
 
                    Base Price of
    and Option
 
        Stock
    Deferred
    Option Awards
    Awards
 
Directors
  Grant Date   Options (#)     Shares (#)     ($/Sh)(1)     ($)(2)  
 
All Directors, excluding
Mr. Fluor and Ms. Reynolds
  May 16           2,750             129,800  
All Directors, excluding
Mr. Fluor and Ms. Reynolds
  May 16     3,950             47.20       56,737  
Mr. Fluor and Ms. Reynolds(3)
  August 6           2,972             149,967  
 
 
(1) Closing stock price on date of grant.
 
(2) The amounts included in the “Grant Date Fair Value of Stock and Option Awards” column represent the grant date fair value of the awards made to non-employee directors in 2007 computed in accordance with SFAS No. 123(R). The value ultimately realized by a director upon the actual vesting of the award(s) or the exercise of the stock option(s) may or may not be equal to the SFAS No. 123(R) determined value. For a discussion of valuation assumptions, see Note 6 — Stock-Based Compensation of the Notes to Consolidated Financial Statements included in our annual report under Item 8 of the Form 10-K for the year ended December 31, 2007.
 
(3) The amounts included for Mr. Fluor and Ms. Reynolds represent the initial equity award they each received upon their election to the Board on August 6, 2007.


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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The information provided below summarizes the beneficial ownership of officers and directors of the Company and owners of more than 5% of outstanding common stock. “Beneficial ownership” generally includes those shares of common stock someone has the power to vote, sell or acquire within 60 days. It includes common stock that is held directly and also shares held indirectly through a relationship, a position as a trustee or under a contract or understanding.
 
Directors and Executive Officers
 
As of March 21, 2008, the directors and executive officers of the Company beneficially owned, in the aggregate, 2,864,490 shares of Anadarko common stock, including shares that may be acquired within 60 days (approximately 0.6% of the outstanding shares entitled to vote at that time).
 
                                 
    Amount and Nature of Beneficial Ownership
    Number of Shares
  Shares
       
    of Common Stock
  Acquirable
  Total
   
    Beneficially
  Within
  Beneficial
  Percent
Name of Beneficial Owner
  Owned(1)(2)   60 Days   Ownership   of Class
 
James T. Hackett
    215,437       407,935       623,372       *  
R. A. Walker
    64,492       69,334       133,826       *  
Karl F. Kurz(3)
    62,256       59,201       121,857       *  
Charles A. Meloy
    30,811       12,734       43,545       *  
Robert K. Reeves
    41,921       221,968       263,889       *  
Robert J. Allison, Jr. 
    532,012       26,450       558,462       *  
Larry Barcus
    111,958       86,450       198,408       *  
James L. Bryan
    27,006       86,450       113,456       *  
John R. Butler, Jr.(3)(4)
    67,059       83,540       150,509       *  
Luke R. Corbett
    3,250       21,450       24,700       *  
H. Paulett Eberhart
    7,250       46,450       53,700       *  
Peter J. Fluor
    3,972       0       3,972       *  
John R. Gordon(3)
    153,909       86,450       240,359       *  
John W. Poduska, Sr. 
    39,296       46,450       85,746       *  
Paula Rosput Reynolds
    3,572       0       3,572       *  
All directors and executive officers as a group, (18 persons)
    1,482,382       1,382,108       2,864,490       *  
 
 
Less than one percent.
 
(1) Does not include shares of common stock which the directors or officers of the Company have the right to acquire within 60 days of March 21, 2008. This column does include shares of common stock held in the Company’s Executive and Director Benefits Trust as a result of the director compensation and deferral elections made in accordance with our benefit plans described elsewhere in this proxy statement. These individuals share voting power with the trustee under that plan and receive dividend equivalents on such shares, but do not have the power to dispose of, or direct the disposition of, such shares until such shares are distributed. In addition, some shares of common stock reflected in this column for certain individuals are subject to restrictions.
 
(2) Does not include the following number of restricted stock units, which do not have voting rights but do receive dividend equivalents: Mr. Hackett, 82,400; Mr. Walker, 20,600; Mr. Kurz, 21,500; Mr. Meloy, 11,500; and Mr. Reeves, 16,800. The terms associated with these awards are described in more detail on page 41.


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(3) Includes shares held in bank or brokerage margin accounts or escrow accounts securing brokerage accounts (Karl F. Kurz, 22,575 shares; John R. Butler, Jr., 19,313 shares; and John R. Gordon, 133,886 shares).
 
(4) Includes 16,000 shares pledged as security for a third-party loan.
 
Certain Beneficial Owners
 
The following table shows the beneficial owners of more than five percent of the Company’s common stock as of December 31, 2007 based on information available as of February 15, 2008.
 
                     
        Amount and Nature
       
        of Beneficial
       
Title of Class
 
Name and Address of Beneficial Owner
  Ownership     Percent of Class  
 
Common Stock
  ClearBridge Advisors, LLC
399 Park Avenue
New York, NY 10022
    41,155,192 (1)     8.82 %
Common Stock
  Neuberger Berman Inc.
605 Third Avenue
New York, NY 10158
    27,063,468 (2)     5.80 %
 
 
(1) Based upon its Schedule 13G filed February 14, 2008 with the SEC with respect to Company securities held as of December 31, 2007, ClearBridge Advisors, LLC has shared voting power as to 34,667,753 shares of common stock and shared dispositive power as to 40,685,492 shares of common stock, and Smith Barney Fund Management LLC has shared voting power as to 469,700 shares of common stock and shared dispositive power as to 469,700 shares of common stock.
 
(2) Based upon its Schedule 13G filed February 13, 2008 with the SEC with respect to Company securities held as of December 31, 2007, Neuberger Berman Inc. has sole voting power as to 21,017,709 shares of common stock, and shared dispositive power as to 27,063,468 shares of common stock, and Neuberger Berman LLC has sole voting power as to 21,017,709 shares of common stock, and shared dispositive power as to 27,063,468 shares of common stock.
 
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 executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC and any exchange or other system on which such securities are traded or quoted, initial reports of ownership and reports of changes in ownership of the Company’s common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by the SEC’s regulations to furnish the Company and any exchange or other system on which such securities are traded or quoted with copies of all Section 16(a) forms they filed with the SEC.
 
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that all reporting obligations of the Company’s officers, directors and greater than ten percent stockholders under Section 16(a) were satisfied during the year ended December 31, 2007, except that in February 2008 a late Form 4 was filed for Robert P. Daniels relating to the charitable donation in 2006 of 100 shares of the Company’s common stock.


18


 

 
AUDIT COMMITTEE REPORT
 
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 of the Board is responsible for independent, objective oversight of the Company’s accounting functions and internal controls over financial reporting. The Audit Committee is composed of four directors, each of whom is independent as defined by the NYSE listing standards. The Audit Committee operates under a written charter approved by the Board of Directors.
 
Management is responsible for the Company’s internal controls over financial reporting. The independent auditor is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards in the United States of America and issuing a report thereon. The independent auditor is also responsible for performing independent audits of the Company’s internal controls over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes.
 
KPMG LLP served as the Company’s independent auditor during 2007 and was appointed by the Audit Committee to serve in that capacity for 2008. KPMG LLP has served as the Company’s independent auditor since its initial public offering in 1986.
 
In connection with these responsibilities, the Audit Committee met with management and the independent auditor to review and discuss the December 31, 2007 financial statements and matters related to Section 404 of the Sarbanes-Oxley Act of 2002. During 2007, the Company changed its method of accounting for its oil and gas exploration and development activities from full cost to the successful efforts method. The Audit Committee met with management and the independent auditor to review and discuss this change in accounting principle. The Audit Committee also discussed with the independent auditor the matters required by Statement on Auditing Standards No. 114 (Communication with Audit Committees).
 
The Audit Committee also received written disclosures from the independent auditor required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and the Audit Committee discussed with the independent auditor that firm’s independence.
 
Based upon the Audit Committee’s (i) review and discussions with management and the independent auditor and (ii) review of the representations of management and the independent auditor, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC.
 
THE AUDIT COMMITTEE
H. Paulett Eberhart, Chairperson
Larry Barcus
John R. Butler, Jr.
Paula G. Rosput Reynolds


19


 

 
COMPENSATION AND BENEFITS COMMITTEE REPORT
ON 2007 EXECUTIVE COMPENSATION
 
The Compensation Committee, listed beginning on page 10, is responsible for establishing and administering the executive compensation programs of the Company. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
 
THE COMPENSATION AND BENEFITS COMMITTEE
 
John W. Poduska, Sr., Chairman
James L. Bryan
Peter J. Fluor
John R. Gordon


20


 

 
COMPENSATION DISCUSSION AND ANALYSIS
 
This Compensation Discussion and Analysis focuses on the following:
 
  •  the principles on which our executive compensation program is based;
 
  •  how we make compensation decisions and determine the amount of each element of compensation;
 
  •  the elements of our total executive compensation program and the reasons why we have chosen these elements; and
 
  •  an analysis of the material compensation decisions made by the Compensation Committee during 2007.
 
How We Make Compensation Decisions
 
Design Principles
 
We believe that the interests of our executive officers must be aligned with the interests of our stockholders and that we must be able to attract and retain highly qualified executive officers as leaders to ensure our success. In support of this belief, our executive compensation programs are designed to adhere to the following principles:
 
  •  a majority of total executive compensation must be in the form of equity compensation tied to our stock price performance;
 
  •  our executives should maintain significant levels of equity ownership;
 
  •  total executive compensation must provide an appropriate mix of both fixed and variable compensation to support a strong pay-for-performance relationship;
 
  •  our performance-based compensation programs must be tied to performance measures that emphasize an increase in stockholder value over time;
 
  •  a meaningful portion of compensation should be forfeitable upon voluntary termination to encourage sustained executive retention;
 
  •  total compensation opportunity and awards should be reflective of each executive officer’s role, experience level and individual contribution to the organization; and
 
  •  our executives must also be motivated to contribute as team members to our overall success, as opposed to merely achieving specific individual objectives.
 
Resources and Other Considerations Used in the Compensation Decision-Making Process
 
The Compensation Committee utilizes several different tools and resources in reviewing elements of executive compensation and making compensation decisions. These decisions, however, are not purely formulaic and the Compensation Committee ultimately exercises judgment and discretion in making them.
 
Compensation Consultant.  The Compensation Committee utilizes an independent executive compensation consultant to review executive compensation and benefit programs. In 2007, the Compensation Committee directly retained Hewitt Associates LLC, or Hewitt, as its outside compensation consultant. In this engagement, Hewitt reports directly and exclusively to the Compensation Committee; however, at the Compensation Committee’s direction the consultant works directly with management to review or prepare materials for Compensation Committee consideration. Hewitt attended seven of the nine Compensation Committee meetings in 2007. The Compensation Committee did not engage any consultant other than Hewitt during 2007 to provide executive compensation consulting services. The Compensation Committee’s engagement of Hewitt included the following services:
 
  •  providing relevant market data (including benchmarking, surveys, trends and best practices information) as a background against which the Compensation Committee could consider total executive officer compensation elements and awards;


21


 

 
  •  advising the Compensation Committee on aligning compensation programs with the interests of our stockholders; and
 
  •  attending and participating in Compensation Committee meetings throughout the year as the Compensation Committee deems appropriate.
 
In 2007, Hewitt provided additional services to the Company not related to executive compensation, including broad-based employee compensation and benefits services and actuarial services. In early 2008, we retained a firm other than Hewitt to provide the actuarial services on a go-forward basis. As part of Hewitt’s engagement agreement with the Compensation Committee, any significant new engagement between us and Hewitt is contingent upon notification to the full Compensation Committee. The Compensation Committee reviews the engagement of its independent compensation consultant on an annual basis, and as part of that process reviews a summary of all services provided by Hewitt and related costs.
 
Benchmarking.  Benchmarking is a tool that provides the Compensation Committee a relative comparison of how competitive and reasonable our current executive compensation practices and programs are against companies of similar size and purpose. As part of the benchmarking process, the Compensation Committee utilizes a competitive compensation analysis, prepared by Hewitt, as a frame of reference in making compensation-related decisions.
 
The competitive executive compensation analysis conducted by Hewitt during 2007 continued to reflect increasing levels of executive compensation, driven largely by a shortage of qualified executive talent, high commodity prices and the appreciation of stock prices in the oil and gas industry. This increase is further reflected in the overall size of the compensation packages being offered to all levels of employees by companies within our industry. Because we operate in a very competitive and challenging industry, we target total executive compensation above median levels in order to successfully compete for talent. Offering competitive compensation arrangements to attract and retain our executives is beneficial to us and to our stockholders because it supports continuity in our leadership and operations and allows us to avoid the significant costs and loss of efficiency involved with recruiting and replacing talent.
 
In August 2007, the Compensation Committee conducted its annual review of two benchmarking groups to use as reference points for assessments of competitive executive compensation data:
 
  •  a primary peer group, which consists of select oil and gas industry peer companies similar to us in size, scope and nature of business operations; and
 
  •  a supplemental group, which consists of select companies from diverse industries that are similar to us in size (based primarily on annual revenues).
 
We benchmark total executive compensation against the primary peer group. The supplemental group illustrates broader trends and provides an additional reference point for executive officer positions that are not exclusive to the oil and gas industry.
 
Our current primary peer group consists of the following companies in our industry:

 
  •  Apache Corporation
 
  •  Chesapeake Energy Corporation
 
  •  Chevron Corporation
 
  •  ConocoPhillips
 
 
  •  Devon Energy Corporation
 
  •  EnCana Corporation
 
  •  EOG Resources, Inc.
 
  •  Hess Corporation
 
 
  •  Marathon Oil Corporation
 
  •  Noble Energy, Inc.
 
  •  Occidental Petroleum Corporation
 
  •  Pioneer Natural Resources Company


 
Within the oil and gas industry, there are a very limited number of companies that closely resemble us in size, scope and nature of business operations. Our primary peer group contains companies in our industry that are both larger and smaller in scope and that operate in related business segments in the industry in which we have no operations, such as refining. We compete with these companies for talent and believe the selected companies are currently the most appropriate with respect to executive compensation benchmarking. The


22


 

differences and similarities between us and the companies in our primary peer group are taken into consideration when referencing benchmarks for executive compensation decisions. No changes were made to the primary peer group in 2007.
 
The supplemental group, as listed below, was revised in 2007 based on recommendations from Hewitt and the Compensation Committee’s request that more local companies be reflected in the benchmarking process. The selection of these companies was based primarily on revenue size, capturing companies both above and below our relative position.

 
  •  Automatic Data Processing
 
  •  Baker Hughes, Inc.
 
  •  Baxter International Inc.
 
  •  Burlington Northern Santa Fe Corp.
 
  •  Campbell Soup Company
 
  •  Colgate-Palmolive Co.
 
 
  •  Emerson Electric Company
 
  •  First Data Corporation
 
  •  Gannett Co. Inc.
 
  •  Halliburton Company
 
  •  Illinois Tool Works, Inc.
 
  •  ITT Corporation
 
 
  •  Kellogg Co.
 
  •  PG&E Corporation
 
  •  Praxair, Inc.
 
  •  Texas Instruments Inc.
 
  •  Waste Management, Inc.


 
Tally Sheets.  In order to provide the Compensation Committee a single source for viewing the aggregate value of all material elements of executive compensation, “tally sheets” are created for each of our named executive officers on an annual basis. The tally sheets provide a snapshot of:
 
  •  current total annual compensation, including base salary, annual cash incentives, equity compensation, benefits and perquisites;
 
  •  accumulated unvested equity award values and total stock ownership levels; and
 
  •  estimated termination benefits for a variety of voluntary and involuntary termination events, including change of control.
 
The Compensation Committee does not assign a weighting to the tally sheets in their overall decision making process.
 
Role of CEO and/or Other Executive Officers in Determining Executive Compensation.  Our Chief Executive Officer, Mr. Hackett, provides recommendations to the Compensation Committee for each element of compensation for each of the executive officers other than himself. The Compensation Committee, with input from Hewitt, determines each element of compensation for Mr. Hackett and the other named executive officers. At the Compensation Committee’s request, our executive officers assess the design of and make recommendations related to our compensation and benefit programs, including recommendations related to the appropriate financial and non-financial performance measures used in our incentive programs. Executive officers may also attend meetings at the invitation of the Compensation Committee.
 
Other Considerations.  In addition to the above resources, the Compensation Committee considers other factors when making compensation decisions, such as individual experience, individual performance, internal equity, development and/or succession status, and other individual or organizational circumstances. With respect to equity-based awards, the Compensation Committee also considers the cost of such awards, the impact on dilution, and the relative value of each element comprising total target executive compensation.


23


 

Stock Ownership Guidelines.  We have maintained stock ownership guidelines for executive officers since 1993 with the goal of promoting equity ownership and aligning our executive officers’ interests with our stockholders. The ownership guidelines are currently established at the following minimum levels:
 
                 
        Ownership Status
Position
  Guideline   as of 12/31/2007
 
Chief Executive Officer
    5 x base salary       Exceeds  
Chief Operating Officer
    3 x base salary       Exceeds  
Senior Vice Presidents
    2.5 x base salary       Exceeds  
Vice Presidents
    2 x base salary       Exceeds  
 
The Compensation Committee reviews the stock ownership levels annually. In determining stock ownership levels, we include: shares held directly by the executive; shares held indirectly through our Employee Savings Plan; unvested restricted stock; unvested restricted stock units; and the target number of outstanding performance units. Outstanding unexercised stock options are not included. In addition, the Company has a policy that prohibits directors, officers or employees from engaging in short sales, transactions involving stock options or restricted stock, or other derivative-type transactions relating to our stock.
 
Regulatory Requirements.  Together with the Compensation Committee, we carefully review the design of our compensation programs and related decisions as they relate to current tax, accounting and securities regulations. We seek to comply with all required regulations while providing executive compensation opportunity that is mutually beneficial to us, our employees, and our stockholders and in support of our compensation principles.
 
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits a company’s ability to deduct compensation paid in excess of $1 million during any fiscal year to each of certain named executive officers, unless the compensation is “performance-based” as defined under federal tax laws. Stock options and performance units awarded under the 1999 Stock Incentive Plan and cash awards under the Annual Incentive Plan satisfy the performance-based requirements and, as such, are fully deductible. Because Mr. Hackett’s base salary is above $1 million, the portion of base salary in excess of $1 million is not deductible. Grants of restricted stock unit awards made in 2007 are not considered performance-based and the value of those awards are generally subject to the deductibility limitations under Section 162(m). In March 2008, the Compensation Committee approved a plan to qualify 2009 restricted stock and restricted stock unit grants as “performance-based” compensation under Section 162(m). The Compensation Committee is committed to providing compensation that qualifies as performance-based and is fully deductible. However, the Compensation Committee believes it is important to provide compensation that is not fully deductible when it is in our best interest and the best interest of our stockholders.
 
Section 409A of the Internal Revenue Code provides that all amounts deferred under a nonqualified deferred compensation plan are currently included in gross income, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. We have designed or amended our programs to either be exempt from Section 409A or, if subject to Section 409A, to be in compliance with applicable regulations.
 
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123(R), requires the recognition of expense for the fair value of share-based payments. The statement became effective for us beginning January 1, 2006. We had previously adopted the fair value method of accounting for share-based payments effective January 1, 2003, using the “modified prospective method” described in SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Awards of Stock Options, Performance Units, Restricted Shares and Restricted Stock Units under our 1999 Stock Incentive Plan are accounted for under SFAS No. 123(R). The adoption of SFAS No. 123(R) did not have a material impact on our results of operations or its financial position. We did not make any changes to our programs in 2007 as a result of the implementation of SFAS No. 123(R).


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Elements of Total Executive Compensation
 
The elements of the total compensation program we provide to our executive officers include: base salary, annual cash incentives, equity compensation, and other benefits, including welfare and retirement benefits, perquisites, severance benefits and change of control benefits. We believe that a majority of executive compensation should be performance-based; however, we do not have a specific formula that dictates the overall weighting of each element as a part of total compensation. The Compensation Committee determines total compensation based on a review of competitive compensation data, consistency with our overall compensation philosophy and their judgment as a committee.
 
The table below identifies each element of total compensation and the primary purpose for using each element. The level of each element of direct compensation (both “fixed” and “variable”) is generally targeted between the 50th and 75th percentiles of our primary peer group, unless otherwise specified. When making decisions on each of these elements, the Compensation Committee takes into consideration the multiple factors discussed above in the How We Make Compensation Decisions section.
 
     
Direct Compensation Element
 
Primary Purposes
 
Fixed
   
Base Salary
  Base salary provides a fixed level of income to compensate executives for their level of responsibility and must be competitive against our primary peer group in order to attract and retain qualified talent.
 
 
Variable/Performance-Based
   
Annual Cash Incentives
  Annual cash incentive awards are used to motivate and reward executives for the achievement of short-term Company objectives and/or individual performance goals.
 
 
Restricted Stock/Restricted Stock Units
  These equity awards align the interests of executives with our stockholders by emphasizing long-term growth in our stock value. They also provide an element of attraction and retention and may be used to recognize a promotion or other significant achievements.
 
 
Stock Options
  These equity awards align the interests of executives with our stockholders by emphasizing long-term growth in our stock value. Stock options only provide value to executives when our stock price appreciates. They also provide an element of attraction and retention and may be used to recognize a promotion or other significant achievements.
 
 
Performance Units
  These equity awards are designed to motivate and reward executives for the achievement of longer-term strategic Company objectives that serve to enhance our Total Stockholder Return relative to a specified group of oil and gas companies.


25


 

The charts below illustrate each of the fixed and variable elements as a proportion of the total amount of the executive officers’ total direct compensation. Base salary information is based on salaries that were effective in November 2007, as discussed on page 27, target bonus opportunities effective for 2008, as discussed on page 29, and the estimated grant date value for the 2007 annual equity awards, as discussed on page 32.
 
     
 
 
The above charts indicate that over 85% of total direct compensation is variable and over 70% is in the form of equity grant values, with the CEO having approximately 82% of his compensation in the form of equity. In addition to the above elements of total direct compensation, we also provide indirect elements of compensation, such as retirement and other benefits that are considered a part of the total compensation package offered to our executive officers. These programs are designed to be competitive in our industry and enable us to attract and retain qualified executive talent.
 
     
Indirect Compensation Element
 
Primary Purposes
 
Retirement and Other Benefits
  Retirement programs and other benefits are designed to be competitive in our industry in order to attract and retain qualified employees. These programs are intended to protect against catastrophic expenses (health care, disability and life insurance) and provide an opportunity to save effectively for retirement (pension and retirement savings, or 401(k)).
 
 
Perquisites
  Perquisites do not constitute a significant part of executive compensation. However, a limited number of perquisites are provided in order to deliver a competitive package to attract and retain executive officers.
 
 
Post-Termination Benefits
  Post-termination benefit programs provide a source of temporary, transitional income following an executive officer’s involuntary termination of employment. The existence of such programs serves to facilitate the attraction and retention of executive officers in a volatile and consolidating industry in which formal severance plans are common.
 
Following is a discussion of each compensation element and the specific actions taken by the Compensation Committee in 2007 related to each element, including the implementation of executive compensation program design changes. In determining each of these elements, the Compensation Committee considers the resources discussed above. Each of these elements is reviewed on an annual basis, and may be reviewed at the time of a promotion, other change in responsibilities, other significant corporate events or a material change in market conditions. The same design principles and factors are applied in a consistent manner to all named executive officers. Material differences in the amount of compensation awarded to each of the named executive officers generally reflect the differences in the individual responsibility and experience of each officer and the differences in the amounts of compensation paid to officers in comparable positions in our primary peer group. For example, our CEO’s compensation is significantly higher than the compensation of the other named


26


 

executive officers. This difference in compensation reflects that our primary peer group benchmark data is substantially higher for the CEO role than for the other named executive officer positions, reflecting the higher degree of responsibility and scrutiny the CEO position entails for the image, strategic direction, financial condition, and operating results of the Company.
 
Base Salary
 
The table below reflects the base salaries that were approved by the Compensation Committee in 2007:
 
                         
    Salary as of
    Salary Effective
       
Name
  January 1, 2007     November 2007     Increase %  
 
Mr. Hackett
  $ 1,400,000     $ 1,500,000       7.1 %
Mr. Walker
  $ 525,000     $ 650,000       23.8 %
Mr. Kurz
  $ 475,000     $ 650,000       36.8 %
Mr. Meloy
  $ 475,000     $ 550,000       15.8 %
Mr. Reeves
  $ 440,000     $ 500,000       13.6 %
 
The benchmarking analysis provided by Hewitt showed that base salaries for executives in our primary peer group increased 15% on average from last year’s analysis. As a result of this significant movement, larger than normal increases were approved to maintain a competitive position relative to our primary peer group. Generally, the base salaries for the named executive officers fall within the targeted range (between 50th and 75th percentiles) except as noted below. Mr. Kurz’s base salary was increased from $475,000 to $525,000 in February 2007 and to $650,000 in November 2007 in recognition of his increased responsibilities in his new role as Chief Operating Officer. Despite these significant increases in base salary, Mr. Kurz’s base salary is still positioned slightly below the competitive market median based in part on his experience and relatively new appointment to the Chief Operating Officer role. Mr. Meloy received a larger than normal increase to reflect the value we place internally on operational leadership and to reflect his individual performance over the past year, specifically related to integrating the operations of three separate companies as a result of our acquisitions of Kerr-McGee Corporation and Western Gas Resources, Inc. in 2006. His base salary is positioned above the competitive market 75th percentile to reflect his individual contributions and the emphasis we place on senior operational leadership.
 
Annual Cash Incentives (Bonuses)
 
Our executive officers participate in the Annual Incentive Plan, which we sometimes refer to as the AIP, which was last approved by stockholders in 2004. In February 2007, the Compensation Committee established a baseline performance hurdle under the AIP for the named executive officers of $2.5 billion of cash flow from continuing operations for the fiscal year. If this performance hurdle is not achieved, no bonuses are earned under the AIP. If the performance hurdle is met, the bonus pool is funded at the maximum bonus opportunity level for each named executive officer. The Compensation Committee may apply negative discretion in determining actual awards, taking into consideration our actual performance against corporate annual performance goals (as discussed below), each individual officer’s performance and contributions, and other factors as deemed appropriate by the Compensation Committee. The bonus pool was fully funded based on our exceeding the established performance hurdle by more than $2 billion in cash flow from continuing operations (adjusted to exclude the taxes associated with asset divestitures) for the year ended December 31, 2007.
 
Once the bonus pool is funded, the Compensation Committee uses the following formula as a guideline for applying negative discretion in determining individual bonus payments:
 
(PERFORMANCE GRAPH)


27


 

Individual Target Bonus Opportunities.  Individual target bonus opportunities are generally established to provide bonus opportunities between the 50th and 75th percentile levels of our primary peer group. Individual target bonus opportunities are set as a percentage of base salary. Executive officers may earn up to 200% of their individual bonus target. The bonus targets for 2007 are shown in the table below:
 
                         
    Minimum
    Target
    Maximum
 
    Payout as a
    Payout as a
    Payout as a
 
Name
  % of Salary     % of Salary     % of Salary  
 
Mr. Hackett
    0 %     130 %     260 %
Mr. Walker
    0 %     85 %     170 %
Mr. Kurz
    0 %     100 %     200 %
Mr. Meloy
    0 %     95 %     190 %
Mr. Reeves
    0 %     85 %     170 %
 
Mr. Kurz’s incentive target was increased from 95% to 100% in February 2007 in recognition of his appointment to the role of Chief Operating Officer. Mr. Meloy’s target bonus was established based on internal equity factors rather than the benchmark data in order to reflect the value we place internally on operational leadership; as a result of this approach, his target opportunity is above the 75th percentile of the benchmark data.
 
AIP Performance Score.  In determining the performance score under the Company’s AIP for 2007, the Compensation Committee approved the following internal operational, financial and safety measures and weightings:
 
  •  Operational Measures (Reserve Additions and Production Volumes) — The primary business objectives for an exploration company are to find and produce reserves. Including specific operational goals on reserve additions and production volumes provides a direct line of sight for our operations personnel and gives them a direct stake in our operational successes.
 
  •  Financial Measures (Capital Expenditures and EBITDAX/BOE) — These financial measures focus on financial discipline and encourage employees to manage costs relative to gross margins and the commodity price environment. For AIP purposes, EBITDAX is defined as operating income before exploration expense, depletion, depreciation and amortization expense, impairments, net gains (losses) on sales, and unrealized gains (losses) on derivatives.
 
  •  Safety — The health and safety of our employees is important to us and critical to our success. Accordingly, we include as part of our performance metrics a target total recordable incident rate per 100 employees so that employees are focused on maintaining a safe work environment.
 
In both approving performance goals and measuring the Company’s performance against those goals, the Compensation Committee may use its discretion in determining the extent to which such goals or results properly reflect the Company’s achievement of overall business objectives, including any material changes in the Company’s operations or business objectives during the course of a given year. The table below reflects both the target and performance results against the target for each measure under the AIP:
 
                                 
    Relative
          AIP
    AIP
 
    Weighting
    AIP Target
    Performance
    Performance
 
2007 AIP Performance Goals
  Factor     Performance(1)     Results(1)     Score  
 
Reserve Additions, MMBOE
    25 %     191.6       227.5       44 %
Production Volumes, MMBOE
    25 %     189.2       195.6       57 %
Capital Expenditures, $MM
    20 %   $ 4,200     $ 4,038       32 %
EBITDAX/BOE, $
    20 %   $ 29.58     $ 32.44       28 %
Total Recordable Incident Rate (Safety)
    10 %     .75       0.90       0 %
                                 
Total
    100 %                     161 %


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(1) Target performance goals for 2007 were established based on the Company’s expected portfolio of retained assets for 2007. These goals did not reflect the effect of the Company’s conversion from the full cost method of accounting to the successful efforts method of accounting, which occurred during the second half of 2007. Accordingly, these factors were taken into account in the final determination of performance results for 2007.
 
Individual Performance Adjustments.  In determining a named executive officer’s bonus payment, the Compensation Committee may make an adjustment based on individual performance, while maintaining an overall view toward downward discretion from the maximum bonus pool funding. This adjustment allows the Compensation Committee to recognize an individual’s significant contributions that may not be reflected in the overall AIP performance score. The Compensation Committee did not make any individual performance adjustments for the named executive officers’ 2007 bonus payments in recognition of the team effort exhibited by our senior management in driving the Company’s success.
 
The Annual Incentive Plan awards earned for 2007 and paid to each of the named executive officers are shown in the table below and are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
 
                                                                         
    Base Salary
          Target Bonus
          AIP
          Individual
             
    Earnings for
          as % of Base
          Performance
          Performance
          Actual Bonus
 
Name
  2007           Salary           Score %           Adjustments           Award ($)  
 
Mr. Hackett
  $ 1,415,385       X       130 %     X       161 %     +/−       0       =     $ 2,962,400  
Mr. Walker
  $ 544,231       X       85 %     X       161 %     +/−       0       =     $ 744,780  
Mr. Kurz
  $ 538,462       X       100 %     X       161 %     +/−       0       =     $ 866,923  
Mr. Meloy
  $ 486,555       X       95 %     X       161 %     +/−       0       =     $ 744,186  
Mr. Reeves
  $ 449,231       X       85 %     X       161 %     +/−       0       =     $ 614,772  
 
The Compensation Committee established the following bonus targets for the named executive officers effective January 1, 2008:
 
         
    Target Bonus
 
    as % of
 
Name
  Salary  
 
Mr. Hackett
    130 %
Mr. Walker
    100 %
Mr. Kurz
    100 %
Mr. Meloy
    95 %
Mr. Reeves
    90 %
 
These targets reflect a fifteen and five percent increase over the 2007 bonus targets for Messrs. Walker and Reeves, respectively. These increases were made based on competitive benchmark data and provide each of them with target bonus opportunities that fall between our targeted position of the 50th and 75th percentiles of our primary peer group.
 
Equity Compensation
 
The Compensation Committee makes equity-based awards under our 1999 Stock Incentive Plan. Equity-based awards for named executive officers have typically been made at the regularly scheduled meeting of the Compensation Committee each November. Equity awards for newly-hired executive officers are made on the executive officer’s first day of employment with us. Equity awards made in connection with promotions or in recognition of achievements are approved by the Compensation Committee and the grant date is generally the date of approval.
 
Our annual awards consist of a combination of stock options, time-based restricted stock units and performance unit awards, with each award type allocated to represent approximately one-third of the total


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grant date value for the named executive officers. The Compensation Committee believes this award structure provides a combination of equity-based awards that is performance-based in absolute and relative terms, while also encouraging retention. In addition, the use of performance unit awards and restricted stock units enables us to better manage our stock dilution. Annual equity award levels are generally positioned between the 50th and 75th percentile levels of our primary peer group. Mr. Meloy’s annual award level was established based on internal equity factors rather than the benchmark data in order to reflect the value we place internally on operational leadership; as a result of this approach, his annual equity award is above the 75th percentile of the benchmark data.
 
In November 2007, the Compensation Committee made changes to the design of our annual executive long-term incentive program. Below is a summary of the provisions of each of the equity award types, including a description of any plan design changes made and the reasons for those changes.
 
Stock Options.  Stock options incorporate the following features:
 
  •  the term of the grant does not exceed seven years;
 
  •  the exercise price is not less than the market price on the date of grant;
 
  •  repricing of options to a lower exercise price is prohibited, unless approved by stockholders;
 
  •  options typically vest equally over three years, beginning with the first anniversary of the date of grant; and
 
  •  generally, an executive officer will forfeit any unvested stock options if the executive terminates voluntarily or is terminated for cause prior to the vesting date.
 
Restricted Stock Units.  Restricted stock units were introduced in 2007 to replace the Company’s prior practice of granting shares of restricted stock. Restricted stock units are similar to restricted shares, but also provide executive officers the ability to defer taxation on a voluntary basis. Restricted stock units incorporate the following features:
 
  •  restricted stock units typically vest equally over three years, beginning with the first anniversary of the date of grant;
 
  •  executive officers receive dividend equivalents on the units, but do not have voting rights;
 
  •  generally, an executive officer will forfeit any unvested restricted stock units if the executive terminates voluntarily or is terminated for cause prior to the vesting date; and
 
  •  executive officers have the ability to defer restricted stock unit awards.
 
Performance Units.  Performance units may be earned by the executive officers if specific goals, focused on our long-term strategic objectives, are achieved. Each performance unit award is denominated in shares of our stock, with payout based on performance over a specified performance period. Each executive officer is awarded a target award, with actual payment ranging from 0% to 200% of the target award. Executives do not have voting rights and no dividends are paid on these awards until earned.
 
Historically, our performance unit program was based on the attainment of two separate performance objectives over a three-year performance period. Fifty percent of the award was based on an internal measure, Reserve Replacement Efficiency (RRE) and the remaining fifty percent was based on an external relative measure, Total Stockholder Return (TSR). In 2007, the Compensation Committee approved the following changes to our performance unit program:
 
  •  eliminated RRE as a performance measure and implemented relative TSR as the sole performance measure in order to simplify the program and provide a greater focus on relative stockholder performance;
 
  •  included both a two-year and a three-year performance period for each award that allows for the diversification of payout opportunities over multiple measurement periods; and


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  •  modified the payout scale to allow for reduced payout below median performance to provide appropriate recognition of achievements of long-term strategic business objectives which may not have a direct and immediate impact on our relative TSR.
 
The TSR measure provides an external comparison of our performance against an industry peer group. The industry peer group includes Apache Corporation, ConocoPhillips, Devon Energy Corporation, EnCana Corporation, EOG Resources Inc., Hess Corporation, Marathon Oil Corporation, Noble Energy Inc., Occidental Petroleum Corporation, Pioneer Natural Resources Company and Talisman Energy Inc. If any of these peer companies ceases to exist during the performance period, the Compensation Committee has approved Chevron Corporation, Chesapeake Energy Corporation and XTO Energy, Inc. as replacement companies (in the order provided).
 
The following table reflects the payout scale for the new annual performance unit program:
 
                                                 
Final TSR Ranking
  1   2   3   4   5   6   7   8   9   10   11   12
                                                 
Payout as% of Target
  200%   182%   164%   146%   128%   110%   92%   72%   54%   0%   0%   0%
 
Below is an example of how the performance unit payout scale works, assuming an executive officer received a target award of 20,000 performance units.
 
                                   
          Target
                   
          Performance
  Relative TSR
               
          Units for
  Ranking for
               
          Each
  the
               
Total Target
    Performance
  Performance
  Performance
    Payout
    Actual Payout
  Timing of
Award
    Period   Period   Period     %     Earned   Payout
 
20,000
performance
units
    50% tied to a two-year performance period   10,000
(20,000 x 50%)
    3rd       164 %   16,400 shares
(10,000 x 164%)
  Paid after end of two-year performance period
                                 
    50% tied to a three-year performance period   10,000
(20,000 x 50%)
    10th       0 %   0 shares
(10,000 x 0%)
  Paid after end of three-year performance period
                                   
 
Equity Awards Made During 2007
 
On January 10, 2007, the Compensation Committee approved special stock option awards for Messrs. Hackett, Walker, Kurz, Reeves and certain other executive officers. The grants to named executive officers were made to recognize each executive officer’s performance and leadership in executing the successful acquisitions of Kerr-McGee and Western Gas and the subsequent integration of these companies with Anadarko, as well as leadership during our implementation and integration of accounting and information technology systems. On January 23, 2007, at the request of Messrs. Hackett, Walker, Kurz and Reeves, the Compensation Committee modified the terms of such stock option awards for these officers to raise the exercise price of their stock option awards from $40.51 to $48.90 so that these executive officers could only realize the value of such awards after our stock price exceeded the trading price prior to the announcement of the acquisitions. Each of these executive officers executed an amendment to his respective stock option agreement reflecting this change in exercise price.


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On November 6, 2007, the Compensation Committee approved the following annual long-term incentive awards. These awards, together with the above-referenced awards, are also included in the Grants of Plan Based Awards Table on page 41.
 
                         
          Number of
    Target Number
 
    Number of
    Restricted Stock
    of Performance
 
Name
  Stock Options     Units     Units  
 
Mr. Hackett
    250,000       82,400       87,500  
Mr. Walker
    62,200       20,600       21,800  
Mr. Kurz
    64,900       21,500       22,800  
Mr. Meloy
    34,600       11,500       12,200  
Mr. Reeves
    50,900       16,800       17,800  
 
Also, in November 2007, the Compensation Committee determined that the corporate acquisitions in 2006, the divestitures in 2006 and 2007, and our change to the successful efforts accounting method in 2007 had an impact on both the appropriateness of RRE as a performance measure and our ability to measure RRE under the outstanding performance unit agreements. The Compensation Committee determined that the original performance targets established for RRE in prior performance unit awards did not contemplate these significant organizational changes and were no longer relevant. As a result, in November 2007, the Compensation Committee cancelled, without value and subject to approval by participants, all outstanding performance unit awards that had performance periods ending after December 31, 2007 and had performance metrics of both RRE and relative TSR. This decision allowed for an immediate and complete transition away from RRE as a performance metric. The table below shows the performance unit awards cancelled for each named executive officer.
 
                         
    Number of
    Number of
       
    Performance
    Performance
       
    Units with
    Units with
    Total Number
 
    Performance
    Performance
    of Performance
 
    Period Ending
    Period Ending
    Units
 
Name
  12/31/2008     12/31/2009     Cancelled  
 
Mr. Hackett
    90,000       62,000       152,000  
Mr. Walker
    26,400       15,100       41,500  
Mr. Kurz
    18,600       12,400       31,000  
Mr. Meloy
          12,400       12,400  
Mr. Reeves
    17,200       11,600       28,800  
 
In addition to the annual equity awards set forth above, each of the named executive officers received a one-time transitional performance unit award, with payout based solely on our relative TSR performance over a specified performance period. The purpose of these transitional awards was to recognize that in cancelling the outstanding performance unit awards with one and two years remaining under their performance periods, the executive officers’ total compensation opportunity relative to our primary peer group would not remain competitive. The transitional awards are similar in value and opportunity to only the unexpired portions of the cancelled awards, considering the Company’s performance achieved from their respective grant through the date they were cancelled. Fifty percent of the transitional performance unit awards have a one-year performance period and the remaining fifty percent have a two-year performance period. Both performance periods began on January 1, 2008. The table below reflects the number of units each officer received under this transitional program and are also included in the Grants of Plan-Based Awards Table on page 41:
 
         
    Total Target Number
 
    of Transitional
 
    Performance
 
Name
  Units  
 
Mr. Hackett
    76,200  
Mr. Walker
    20,037  
Mr. Kurz
    15,438  
Mr. Meloy
    9,300  
Mr. Reeves
    14,376  


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Performance Shares/Units — Results for Performance Periods Ending in 2007
 
In February 2008, the Compensation Committee certified the performance results for the four-year performance period ending December 2, 2007 under Mr. Hackett’s performance share award. The performance shares awarded to Mr. Hackett in 2003 were part of his new hire package and provided him the opportunity to earn payouts, based on Anadarko’s relative TSR ranking, for both a two-year performance period and a four-year performance period. A target of 80,000 performance shares was established for each performance period with the opportunity to earn a maximum of 160,000 performance shares for each performance period. In February 2006, based on Anadarko’s relative TSR performance under the prescribed performance matrix for the two-year performance period (December 3, 2003-December 2, 2005), the Compensation Committee awarded Mr. Hackett 28,800 shares. The following table lists the target number of performance shares granted and actual performance shares earned by Mr. Hackett under his performance share award for the four-year performance period that ended December 2, 2007:
 
                 
        Actual
    Target
  Performance Shares
Name
  Performance Shares   Earned
 
Mr. Hackett
    80,000       0  
 
Also in February 2008, the Compensation Committee certified the performance results for the 2005 annual performance unit awards for specified executives with a three-year performance period that ended December 31, 2007. Under the provisions of this award, 50% of the targeted performance units were subject to Anadarko’s relative TSR against a defined group of oil and gas companies and 50% of the targeted performance units were subject to Anadarko’s average RRE for the performance period. The following table lists the target number of performance units awarded and actual performance units earned by the named executive officers under the provisions of the 2005 performance unit awards for the three-year performance period that ended December 31, 2007:
 
                 
        Actual
    Target
  Performance Units
Name
  Performance Units   Earned
 
Mr. Kurz
    9,400       0  
Mr. Reeves
    19,400       0  
 
2008 Omnibus Incentive Compensation Plan
 
In February 2008, the Compensation Committee approved, subject to approval by our stockholders at the Annual Meeting, the 2008 Omnibus Incentive Compensation Plan. This Plan will replace both the AIP and the 1999 Stock Incentive Plan. If approved, the AIP and the 1999 Stock Incentive Plan will be terminated and no further awards will be made under those plans. The Plan is described beginning on page 57 and is attached to this proxy statement as Appendix A.
 
Retirement Benefits
 
Our executive officers participate in the following retirement and related plans.
 
Employee Savings Plan.  The Anadarko Employee Savings Plan is a tax-qualified retirement savings plan that allows participating employees the opportunity to contribute up to 30% of eligible compensation, on a before-tax basis or on an after-tax basis, into their Savings Plan accounts. Eligible compensation for named executive officers includes base salary and certain annual cash incentive payments. Under the Savings Plan, we match an amount equal to one dollar for each dollar contributed by participants up to six percent of their total eligible compensation. This plan is subject to applicable IRS limitations regarding contributions under this plan.
 
Savings Restoration Plan.  The Savings Restoration Plan accrues a benefit substantially equal to the amount that, in the absence of any IRS limitations, would have been allocated to an employee’s account as a matching contribution under the Savings Plan. The Savings Restoration Plan permits participants to allocate the matching contributions among a group of notional accounts that mirror the gains and/or losses of various


33


 

investment funds provided in the Savings Plan. Notional earnings are credited to their account based on the market rate of return provided by the investment funds.
 
Amounts deferred, if any, under the Savings Plan and the Savings Restoration Plan by the named executive officers are included, respectively, in the “Salary” and “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table. Our matching contributions allocated to the named executive officers under the Savings Plan and the Savings Restoration Plan are included in the “All Other Compensation” column of the Summary Compensation Table.
 
Retirement Plans.  Anadarko provides funded, tax-qualified retirement benefits for all U.S. employees, including the named executive officers, under the Anadarko Retirement Plan for legacy Anadarko employees and the Kerr-McGee Corporation Retirement Plan for legacy Kerr-McGee Corporation employees. Due to IRS limitations that restrict the amount of benefits payable under tax-qualified plans, we also sponsor nonqualified restoration plans that cover the named executive officers and certain other employees. These nonqualified restoration plans include the Retirement Restoration Plan for legacy Anadarko employees and the Benefits Restoration Plan for legacy Kerr-McGee Corporation employees. Benefits under the retirement plans are based upon the employee’s years of service and a final average pay calculation.
 
The retirement plans do not require contributions by employees and an employee becomes vested in his or her benefit at the completion of five years of service as defined in the retirement plans. Compensation covered by the retirement plans for the participants includes base salary and certain annual cash incentive payments. The amount of compensation that may be considered in calculating benefits under the retirement plans is limited by IRS regulations.
 
In November 2007, the Compensation Committee amended the Retirement Restoration Plan to provide for certain supplemental retirement benefits for Messrs. Hackett, Walker and Reeves. The amendment provides for a one-time service credit of eight years and five years to Messrs. Walker and Reeves, respectively, if they each remain employed by us until the age of 55. This service credit will be considered applicable service towards our retirement benefit programs, including pension and retiree medical and dental benefits. The amendment also provides that Mr. Hackett will receive a special service credit to be applied towards his eligibility for our retiree medical and dental benefit programs. This benefit will accrue in a manner similar to the special pension crediting in Mr. Hackett’s employment agreement. The value of the retiree medical and dental benefit will be provided to Messrs. Hackett, Walker and Reeves through a lump sum payment upon termination of their employment. However, the lump sum payment for such benefits will not be made to Messrs. Walker and Reeves if, at the time of termination of employment, (1) they have not reached age 55; (2) we no longer provide subsidized retiree and medical benefits; or (3) if they have satisfied the eligibility requirements for the current subsidized retiree medical and dental benefits in normal course under our retiree medical plan. Such payment will not be made to Mr. Hackett if, at the time of termination of employment, (1) we no longer provide subsidized retiree medical benefits; (2) he has satisfied the eligibility requirements for the current subsidized retiree medical and dental benefits in normal course under our retiree medical plan; or (3) he voluntarily resigns or is terminated for cause prior to reaching age 55. The current estimated value of the supplemental pension benefit is approximately $1.75 million for Mr. Walker and approximately $800,000 for Mr. Reeves. The present value of the lump sum payment for the retiree medical and dental for each individual is currently estimated to be between $60,000-$71,000 for retiree-only coverage, $130,000-$155,000 for retiree-plus-spouse coverage, and $170,000-$195,000 for retiree-plus-family coverage.
 
These supplemental retirement benefits were provided to Messrs. Walker and Reeves to recognize that they were both mid-career hires that we would like to retain for the remainder of their careers. Providing them additional service credits recognizes a portion of their prior industry experience and service years which directly benefits us and our stockholders. They are both approximately five years away from the vesting requirement of age 55 and we believe this retention period is significantly long enough to be beneficial to our stockholders. The size of the equity awards that would have otherwise been granted to Messrs. Walker and Reeves, had the supplemental benefits not been provided, was reduced by approximately 50% of the current estimated value of the supplemental pension benefit. These benefits will also be coordinated with these


34


 

individuals’ Key Employee Change of Control Contracts to ensure no duplication of benefits under this arrangement.
 
In addition to the retirement benefits included in the Retirement Restoration Plan and the Benefits Restoration Plan, Messrs. Hackett and Meloy are both eligible to receive supplemental pension benefits upon meeting certain employment conditions under the terms of their employment agreement and retention agreement, respectively. Details of these arrangements, including the accrued benefits for each of the named executive officers, are discussed further in the Employment Agreements section beginning on page 38 and in the Pension Benefits Table on page 45.
 
Other Benefits
 
In addition to the retirement benefits discussed above, we also provide other benefits such as medical, dental, vision, flexible spending accounts, payments for certain relocation costs, life insurance and disability coverage to each named executive officer. These benefits, along with paid time off and holidays, are also provided to all other eligible U.S. based employees.
 
We also maintain a Deferred Compensation Plan for directors and certain employees, including the named executive officers. The Deferred Compensation Plan allows employees to voluntarily defer receipt of up to 75% of their salary and/or up to 100% of their annual incentive bonus payments. The Deferred Compensation Plan permits participants to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds provided in the Savings Plan. In general, deferred amounts are distributed to the participant upon termination or at a specific date as elected by the participant. We do not subsidize or match these deferred amounts. Details regarding participation in the plan by the named executive officers can be found in the Nonqualified Deferred Compensation Table on page 48.
 
Perquisites
 
We provide a limited number of perquisites to the named executive officers to supplement their other compensation. These perquisites are assessed annually as part of the total competitive review and include:
 
  •  Financial Counseling, Tax Preparation and Estate Planning  — Executive officers are eligible to receive reimbursement for eligible expenses up to a specified annual maximum. For 2007, the financial counseling and tax preparation benefits were limited to $18,840 in the first year of use and $11,280 for each following year, although actual costs may be less. The estate planning services are made available to executive officers on an as-needed basis and the services have typically been utilized once every three years. All expenses related to financial counseling, tax preparation and estate planning are considered taxable income to the executive officer.
 
  •  Executive Physical Program — Executive officers are eligible to receive reimbursement for a complete and professional personal physical exam on an annual basis.
 
  •  Personal Excess Liability Insurance — We pay an annual premium to maintain excess liability coverage on behalf of each officer. The annual premium is imputed and considered taxable income to the officer.
 
  •  Personal Use of Corporate Aircraft — We maintain aircraft for business travel purposes. Officers may, from time to time, utilize such aircraft for personal travel. When so utilized, the compensation related to such personal use is imputed and considered taxable income to the executive officer as required by applicable regulations.
 
  •  Country Club Membership — We reimburse officers for monthly dues and any additional business expenses.
 
  •  Entertainment Events and Other — We purchase tickets to various sporting and entertainment events for business purposes. We have also leased recreational facilities for business purposes. If not used for business purposes, we may make these tickets and facilities available to our employees, including our executive officers, as a form of recognition and reward for their efforts.


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Mr. Hackett has voluntarily declined to utilize the financial planning, tax preparation and estate planning perquisites offered by us. As required by the Board, we provide security services for Mr. Hackett at his home. Pursuant to our security policy, we also require Mr. Hackett to use our aircraft for personal use as well as business travel. Any time Mr. Hackett uses our aircraft for personal use, although it is understood that he engages in business activities while in flight, compensation is imputed to Mr. Hackett for that use and for any passengers that accompany Mr. Hackett. Personal use includes his participation on outside board service, which indirectly benefits us.
 
Our incremental cost of the various perquisites provided is included in the “All Other Compensation” column of the Summary Compensation Table. Individual perquisite values are disclosed in the All Other Compensation Table and supporting footnotes following the Summary Compensation Table on page 39.
 
Severance Benefits
 
Officer Severance Plan.  Our named executive officers are eligible for benefits under the Officer Severance Plan. Benefits provided under this plan may vary depending upon the executive officer’s level within the organization and years of service with us and are made at the discretion of the Compensation Committee. Executive officers receiving benefits under the Officer Severance Plan are required to execute an agreement releasing us from any and all claims from any and all kinds of actions arising from the executive officer’s employment with us or the termination of such employment. In practice, we have typically provided the following involuntary termination (as defined on page 49) severance benefits for our executive officers:
 
  •  a payment equal to 2 times the officer’s annual base salary;
 
  •  a payment equal to one year’s target bonus under our Annual Incentive Plan;
 
  •  a pro rata bonus under our Annual Incentive Plan for the year of termination;
 
  •  if not eligible for retirement, a special retirement benefit enhancement equal to the present value at the officer’s current age of the difference between the deferred vested benefit and the subsidized early retirement benefit at age 55;
 
  •  if applicable, the present value of retiree life insurance;
 
  •  a payment equal to the cost of providing financial planning services for two years;
 
  •  the option to continue existing medical and dental coverage levels at current active employee rates for up to 6 months. After 6 months, we will pay the cost of COBRA until the first to occur of (a) 18 months or (b) obtaining comparable coverage as a result of employment with another employer;
 
  •  the vesting of some or all unvested restricted shares, unvested restricted stock units and stock options; and
 
  •  the vesting and payout of some or all outstanding performance units at target level.
 
Change of Control Benefits
 
Key Employee Change of Control Contracts.  We have also entered into key employee change of control contracts with all of our executive officers, including the named executive officers, with the exception of Mr. Hackett whose change of control benefits are included in his employment agreement described on page 38. These key employee change of control contracts have an initial three-year term that is automatically extended for one year upon each anniversary, unless we provide notice not to extend. If we experience a change of control (as defined on page 49) during the term of the executive officer’s contract, then the contract becomes operative for a fixed three-year period. These contracts generally provide that the executive officer’s terms of employment (including position, work location, compensation and benefits) will not be adversely changed during the three-year period after a change of control. If we (or any successor in interest) terminate the executive officer’s employment (other than for cause (as defined on page 49), death or disability), the executive officer terminates for good reason (as defined on page 50) during such three-year period, or upon certain terminations prior to a change of control or in connection with or in anticipation of a


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change of control, the named executive officer is generally entitled to receive the following payment and benefits:
 
  •  earned but unpaid compensation;
 
  •  2.9 times the executive officer’s base salary plus Annual Incentive Plan bonus (based on historic Annual Incentive Plan bonus);
 
  •  our matching contributions which would have been made had the executive officer continued to participate in the Savings Plans for up to an additional three years;
 
  •  the value of any investments credited to the executive officer under the Savings Restoration Plan; and
 
  •  the present value of the accrued retirement benefit under the Retirement Plans and the additional retirement benefits, including retiree medical, which the executive would have received had the executive officer continued service for up to an additional three years.
 
In addition, the change of control contracts provide for a continuation of various medical, dental, disability and life insurance benefits and financial counseling for a period of up to three years. The contracts also provide for outplacement services and the payment of all legal fees and expenses incurred by the executive officer in enforcing any right or benefit provided by the change of control contract. The executive will also be entitled to receive a payment in an amount sufficient to make the executive whole for any excise tax on excess parachute payments imposed under Section 4999 of the Internal Revenue Code. These provisions, in addition to attracting and retaining executive officers, also allow these officers to realize the full value of the intended benefit awarded under these contracts. If an executive officer loses his or her job following a change of control event that meets certain IRS criteria, the executive officer must pay an additional 20% excise tax simply for collecting the pay that is due. The gross-up makes the executive officer whole by paying the 20% excise tax amount and the additional income taxes generated by such payment. It does not pay the executive’s normal income taxes.
 
As a condition to receipt of change of control benefits, the executive officer must remain employed by us and provide services commensurate with his or her position until the executive is terminated pursuant to the provisions of the contract. The executive officer must also agree to retain in confidence any and all confidential information known to him or her concerning us and our business so long as the information is not otherwise publicly disclosed. In 2007, no amounts were paid under the change of control contracts.
 
Change of Control — Equity Plans.  In addition to the change of control benefits discussed above, our equity plans provide that upon a change of control of Anadarko:
 
  •  outstanding options and stock appreciation rights that are not vested and exercisable become fully vested and exercisable;
 
  •  the restrictions on any outstanding restricted stock and restricted stock units lapse; and
 
  •  if any performance unit awards or performance-based restricted stock or restricted stock unit awards are outstanding, they become fully vested and the performance goals are deemed to be earned at target.
 
We believe this “single-trigger” treatment in our stock plans is appropriate because:
 
  •  it provides employees with the same opportunities as our stockholders who are free to sell their equity at the time of the change of control and to realize the value created at the time of the transaction;
 
  •  it ensures that continuing employees are treated the same as terminated employees; and
 
  •  it is particularly appropriate for performance-based equity, given the potential difficulty of replicating or meeting the performance goals after the change of control.
 
Director and Officer Indemnification Agreements
 
We have entered into indemnification agreements with our directors and certain executive officers, in part to enable us to attract and retain qualified directors and executive officers. These agreements require us,


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among other things, to indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses for proceedings for which they may be indemnified and to cover such person under any directors’ and officers’ liability insurance policy that we may maintain from time to time. These agreements are intended to provide indemnification rights to the fullest extent permitted under applicable Delaware law and are in addition to any other rights our directors and executive officers may have under our restated certificate of incorporation, bylaws and applicable law.
 
Employment Agreements
 
We have entered into an employment agreement with Mr. Hackett and a retention agreement with Mr. Meloy. Both agreements are discussed below.
 
Mr. Hackett — Employment Agreement
 
Under the terms of Mr. Hackett’s employment agreement, he receives a minimum annual base salary of $1,500,000, and is eligible for an annual incentive cash bonus at a target of not less than 130% of annual base salary with a maximum annual incentive cash bonus of 200% of the target. This agreement also outlines certain payments and benefits to be paid to Mr. Hackett under various termination scenarios, including:
 
  •  a without cause (involuntary) termination (as defined on page 49) or termination for good reason (as defined on page 50),
 
  •  a without cause (involuntary) termination or termination for good reason within three years after a change of control, or termination in anticipation of a change of control,
 
  •  termination for death or disability, and
 
  •  voluntary termination (other than for good reason).
 
The above scenarios are discussed in more detail on page 49 of this proxy statement. We will provide a gross-up payment to Mr. Hackett to the extent any of the above payments become subject to the federal excise tax relating to excess parachute payments. Pre-change of control severance benefits are conditioned upon the execution of a mutual release between us and Mr. Hackett.
 
Mr. Hackett is also subject to covenants regarding confidentiality, non-competition and non-solicitation. The non-competition obligation applies for one year following Mr. Hackett’s termination of employment with us if Mr. Hackett voluntarily terminates his employment with us (other than for good reason) on or before December 3, 2010. If Mr. Hackett remains employed by us until at least December 3, 2008, the agreement also provides Mr. Hackett with a special pension benefit, computed so that his total pension benefits from us will equal those to which he would have been entitled if his actual years of employment with us were doubled. This service crediting provision was implemented when Mr. Hackett was hired in order to compensate for projected retirement benefits being forgone in leaving his former employer.
 
Mr. Meloy — Retention Agreement
 
Mr. Meloy was an officer for Kerr-McGee at the time of its acquisition by us in August 2006. As a result of our desire to retain him as an executive officer, we entered into a retention agreement with him. The retention benefits were intended to compensate him for certain severance benefits he was otherwise entitled to receive under the change of control agreement he had with Kerr-McGee. Under the terms of his retention agreement, Mr. Meloy is to receive the following benefits:
 
  •  cash payment equal to $1,150,000, 50% of which was paid in August 2007, one year from the closing date of the acquisition and 50% of which is payable in August 2008, two years from the closing date of the acquisition;
 
  •  25,000 shares of restricted stock, 50% of which vested one year from the closing date of the acquisition and 50% of which vests two years from the closing date of the acquisition;


38


 

 
  •  if he stays employed with us for three years from the closing date of the acquisition, he will receive credit for five additional years in age and service towards his pension benefits; and
 
  •  if he is involuntarily terminated without cause or terminates by reason of death or disability prior to three years from the closing date of the acquisition, he will receive age and service credit to age 52.
 
If Mr. Meloy were to voluntarily terminate or be terminated for cause prior to the designated vesting dates, he would forfeit any unvested or unpaid retention benefits.
 
The above descriptions of Mr. Hackett’s employment agreement and Mr. Meloy’s retention agreement are not a full summary of all of the terms and conditions of these agreements and are qualified in their entirety by the full text of the agreements.
 
Conclusion
 
We believe the design of our total executive compensation program aligns the interests of our executive officers with those of our stockholders and provides executive officers with the necessary motivation to maximize long-term operational and financial performance of the Company, while using sound financial controls and high standards of integrity. The programs currently offered have been critical elements in the successful hiring of numerous executives and have been equally effective in retaining executive officers during a period of strong competitive demand and a shortage of talented executives within the oil and gas exploration and production industry. We believe that our executive compensation program will continue to be reflected in positive operational, financial and stock price performance. We also believe that total compensation for each executive officer should be, and is, commensurate with the execution of specified short-term and long-term operational, financial and strategic objectives.
 
EXECUTIVE COMPENSATION
 
Summary Compensation Table For 2007
 
The following table summarizes the compensation of our Chief Executive Officer, Chief Financial Officer and our three highest paid executive officers other than our CEO and CFO for the fiscal year ended December 31, 2007.
 
Summary Compensation Table
 
                                                                         
                            Change in
       
                            Pension Value
       
                            and
       
                            Nonqualified
       
                        Non-Equity
  Deferred
       
                Stock
  Option
  Incentive Plan
  Compensation
  All Other
   
        Salary
  Bonus
  Awards
  Awards
  Compensation
  Earnings
  Compensation
  Total
Name and Principal Position
  Year   ($)   ($)   ($)(1)   ($)(2)   ($)(3)   ($)(4)   ($)(5)   ($)
 
James T. Hackett(6)
                                                                       
Chairman, President and Chief
Executive Officer
    2007       1,415,385       0       6,198,884       3,155,045       2,962,400       693,859       572,368       14,997,941  
      2006       1,316,667       160,860       5,252,940       1,592,237       1,882,834       2,633,633       595,295       13,434,466  
R. A. Walker
                                                                       
Senior Vice President, Finance
and Chief Financial Officer
    2007       544,231       0       1,413,378       757,314       744,780       1,017,885       137,527       4,615,115  
      2006       466,667       0       1,189,283       308,691       535,500       59,493       334,118       2,893,752  
Karl F. Kurz(7)
                                                                       
Chief Operating Officer
    2007       538,462       0       1,094,540       810,201       866,923       149,259       80,517       3,539,902  
      2006       410,417       0       992,798       458,923       404,823       125,726       92,091       2,484,778  
Charles A. Meloy(8)
                                                                       
Senior Vice President,
Worldwide Operations
    2007       486,555       575,000       1,082,205       228,056       744,186       1,416,457       105,228       4,637,687  
Robert K. Reeves
                                                                       
Senior Vice President, General
Counsel and Chief
Administrative Officer
    2007       449,231       0       871,180       928,539       614,772       603,245       81,555       3,548,522  
      2006       423,333       0       1,008,172       549,750       485,775       93,904       89,414       2,650,348  
 
 
(1) The amounts in this column reflect the compensation cost recognized by the Company for the fiscal year ended December 31, 2007, in accordance with SFAS No. 123(R) for non-option stock awards granted


39


 

pursuant to the 1999 Stock Incentive Plan and includes amounts from awards granted in and prior to 2007. For a discussion of valuation assumptions, see Note 6 — Stock-Based Compensation of the Notes to Consolidated Financial Statements included in our annual report under Item 8 of the Form 10-K for the year ended December 31, 2007. For information regarding the non-option stock awards granted to the named executives in 2007, please see the Grants of Plan-Based Awards Table.
 
(2) The amounts in this column reflect the compensation cost recognized by the Company for the fiscal year ended December 31, 2007, in accordance with SFAS No. 123(R) for option awards granted pursuant to the 1999 Stock Incentive Plan and may include amounts from option awards granted in and prior to 2007. For a discussion of valuation assumptions, see Note 6 — Stock-Based Compensation of the Notes to Consolidated Financial Statements included in our annual report under Item 8 of the Form 10-K for the year ended December 31, 2007. For information regarding the option awards granted to the named executives in 2007, please see the Grants of Plan-Based Awards Table.
 
(3) The amounts in this column reflect the cash bonus awards for 2007 that were determined by the Compensation Committee in February 2008 pursuant to the Company’s Annual Incentive Plan. To the extent the payments were not deferred by the named executive officer, they were paid out in February 2008. These awards are discussed in further detail beginning on page 27.
 
(4) The amounts in this column reflect the actuarial increase in the present value of the named executive officer’s benefits under the Company’s Retirement Plan and Retirement Restoration Plan determined by using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements and includes amounts which the named executive officer may not currently be entitled to receive because such amounts are not vested. The Company’s Deferred Compensation Plan does not provide for above-market or preferential earnings so no such amounts are included.
 
(5) The amounts shown in this column for each named executive officer are described further in the All Other Compensation Table below.
 
(6) The amount reflected in the “Bonus” column for Mr. Hackett in 2006 is the value of a special bonus in the form of 3,000 shares of Company stock.
 
(7) Mr. Kurz deferred $80,769 of his 2007 base salary and $130,038 of his 2007 non-equity incentive plan compensation under the Annual Incentive Plan pursuant to the Deferred Compensation Plan.
 
(8) The $575,000 reflected in the “Bonus” column for Mr. Meloy in 2007 is a cash retention bonus paid to him as part of his retention agreement entered into on August 10, 2006. The details of this agreement are discussed on page 38. Compensation information for 2006 is not reflected for Mr. Meloy because he was not a named executive officer last year.
 
All Other Compensation Table
 
The following table describes each component of the All Other Compensation column in the Summary Compensation Table:
 
                                                         
          Payments by
                               
          the Company to
                               
          Employee
                               
          Savings Plan
                               
    Personal
    and Savings
    Club
                         
    Use of
    Restoration
    Membership
    Financial/
    Excess
             
    Aircraft
    Plan
    Dues
    Tax/Estate
    Liability
    Other
    Total
 
Name
  ($)(1)     ($)     ($)     Planning     Insurance     ($)     ($)  
 
James T. Hackett(2)
    371,360       197,893                   1,300       1,815       572,368  
R. A. Walker
    54,240       64,784       17,203             1,300             137,527  
Karl F. Kurz
    11,340       56,597             11,280       1,300             80,517  
Charles A. Meloy(3)
    23,100       56,855       3,848       10,990       1,300       9,135       105,228  
Robert K. Reeves
    14,040       56,100       6,365       3,750       1,300             81,555  
 
 
(1) The value of personal aircraft use is based on the Company’s aggregate incremental direct operating costs, including cost of fuel, maintenance, landing and ramp fees, and other miscellaneous trip-related variable


40


 

costs. Because the Company’s aircraft are used predominantly for business purposes, fixed costs, which do not change based on use of the aircraft, are excluded.
 
(2) The Company’s security policy requires the Chief Executive Officer to use Company aircraft for personal use as well as business travel. The value of travel to board meetings for companies and civic organizations for which Mr. Hackett serves as a director is considered personal use and is included in the amount reported above. The amount in the “Other” column for Mr. Hackett represents the cost of a Company-provided physical examination and expenditures to maintain his home security system.
 
(3) The amount in the “Other” column for Mr. Meloy represents the cash-out of unused vacation time related to his service at Kerr-McGee.
 
Grants of Plan-Based Awards in 2007
 
The following table sets forth information concerning annual incentive awards, stock options, restricted stock units and performance units granted during 2007 to each of the named executive officers:
 
                                                                                         
                                All Other
  All Other
       
                                Stock
  Option
       
                                Awards:
  Awards:
  Exercise or
  Grant Date
        Estimated Future Payouts Under Non-
  Estimated Future Payouts Under
  Number of
  Number of
  Base Price
  Fair Value
        Equity Incentive Plan Awards(1)   Equity Incentive Plan Awards(2)   Shares of
  Securities
  of Option
  of Stock
        Threshold
  Target
  Maximum
  Threshold
  Target
  Maximum
  Stock or
  Underlying
  Awards
  and Option
Name
  Grant Date   ($)   ($)   ($)   (#)   (#)   (#)   Units (#)(3)   Options(4)(#)   ($/Sh)(5)   Awards(6)
 
James T. Hackett
            0       1,820,000       3,640,000                                            
      1/10/2007                                                 122,800     $ 48.90     $ 1,575,880  
      11/6/2007                                                 250,000     $ 59.87     $ 4,639,400  
      11/6/2007                                           82,400                 $ 4,933,288  
      11/6/2007                         23,625       87,500       175,000                       $ 5,732,563  
      11/6/2007                         20,574       76,200       152,400                       $ 4,824,504  
R. A. Walker
            0       446,250       892,500                                            
      1/10/2007                                                 41,000     $ 48.90     $ 526,149  
      11/6/2007                                                 62,200     $ 59.87     $ 1,154,283  
      11/6/2007                                           20,600                 $ 1,233,322  
      11/6/2007                         5,886       21,800       43,600                       $ 1,428,227  
      11/6/2007                         5,410       20,037       40,074                       $ 1,278,614  
Karl F. Kurz
            0       525,000       1,050,000                                            
      1/10/2007                                                 41,000     $ 48.90     $ 526,149  
      11/6/2007                                                 64,900     $ 59.87     $ 1,204,388  
      11/6/2007                                           21,500                 $ 1,287,205  
      11/6/2007                         6,156       22,800       45,600                       $ 1,493,742  
      11/6/2007                         4,168       15,438       30,876                       $ 978,774  
Charles A. Meloy
            0       451,250       902,500                                            
      11/6/2007                                                 34,600     $ 59.87     $ 642,093  
      11/6/2007                                           11,500                 $ 688,505  
      11/6/2007                         3,294       12,200       24,400                       $ 799,283  
      11/6/2007                         2,511       9,300       18,600                       $ 548,655  
Robert K. Reeves
            0       374,000       748,000                                            
      1/10/2007                                                 41,000     $ 48.90     $ 526,149  
      11/6/2007                                                 50,900     $ 59.87     $ 944,582  
      11/6/2007                                           16,800                 $ 1,005,816  
      11/6/2007                         4,806       17,800       35,600                       $ 1,166,167  
      11/6/2007                         3,882       14,376       28,752                       $ 911,004  
 
 
(1) Reflects estimated future cash payouts under the Company’s Annual Incentive Plan. The estimated amounts are calculated based on the applicable annual bonus target and base salary for each named executive officer in effect for the 2007 measurement period. If threshold levels of performance are not met, then the payout can be zero. Actual bonus payouts under the Annual Incentive Plan for 2007 are based on actual base salaries earned in 2007 and are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
 
(2) Reflects the estimated future payout under the Company’s performance unit awards. Executives may earn from 0% to 200% of the targeted award based on the Company’s relative TSR performance over a


41


 

specified performance period. The first award for each named executive represents the 2007 annual performance unit award. Fifty percent of this award is tied to a two-year performance period and the remaining fifty percent is tied to a three-year performance period. The second award for each named executive officer represents a one-time transitional performance unit award. Fifty percent of this award is tied to a one-year performance period and the remaining fifty percent is tied to a two-year performance period. The threshold value represents the minimum payment (other than zero) that may be earned based on the payout scale described on page 31.
 
(3) Reflects the number of restricted stock units awarded in 2007. For accounting purposes, the 2007 annual restricted stock unit awards have a grant date of November 6, 2007. This date is based on the date the Compensation Committee approved the award and the date the terms of the awards were communicated to the participants. The effective grant date for participants is December 3, 2007. The awards vest equally over three years, beginning with the first anniversary of the participant grant date. Executive officers receive dividend equivalents on the units, but do not have voting rights.
 
(4) Reflects the number of stock options each named executive officer was awarded in 2007. These options vest equally over three years, beginning with the first anniversary of the date of grant and have a term of seven years.
 
(5) The exercise price for option awards is generally set as the closing stock price on the date of grant. On January 23, 2007, at the request of Messrs. Hackett, Walker, Kurz and Reeves, the Compensation Committee modified the terms of their January 10, 2007 stock option awards to raise the exercise price from $40.51 (the closing stock price on the grant date) to $48.90 so that they could only realize the value of such awards after the Company’s stock price exceeds the trading price prior to the announcement of the acquisitions of Kerr-McGee and Western Gas.
 
(6) The amounts included in the “Grant Date Fair Value of Stock and Option Awards” column represent the grant date fair value of the awards made to named executives in 2007 computed in accordance with SFAS No. 123(R). The value ultimately realized by the executive upon the actual vesting of the award(s) or the exercise of the stock option(s) may or may not be equal to the SFAS No. 123(R) determined value. For a discussion of valuation assumptions, see Note 6 — Stock-Based Compensation of the Notes to Consolidated Financial Statements included in our annual report under Item 8 of the Form 10-K for the year ended December 31, 2007.


42


 

 
Outstanding Equity Awards at Fiscal Year-End 2007
 
The following table reflects outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2007 for each of the named executives. The table also reflects unvested and unearned stock awards (both time-based and performance-contingent) assuming a market value of $65.69 a share (the closing stock price of the Company’s stock on December 31, 2007).
 
                                                                 
                    Stock Awards
                            Equity Incentive Plan Awards
                                Market
                                Payout
                                Value of
                        Market
  Number of
  Unearned
                    Number of
  Value of
  Unearned
  Shares,
                    Shares or
  Shares or
  Shares,
  Units or
    Option Awards   Units of
  Units of
  Units or
  Other
    Number of Securities
  Option
  Option
  Stock That
  Stock That
  Other Rights
  Rights
    Underlying Unexercised Options   Exercise
  Expiration
  Have Not
  Have Not
  That Have
  That Have
Name
  Exercisable (#)   Unexercisable   Price ($)   Date   Vested (#)   Vested ($)   Not Vested (#)   Not Vested ($)
 
James T. Hackett(1)
    250,000       0       23.3175       12/3/2013       20,000       1,313,800       87,500       5,747,875  
      53,334       26,666       43.5550       11/15/2012       39,000       2,561,910       76,200       5,005,578  
      63,667       127,333       48.6900       12/4/2013       82,400       5,412,856                  
      0       122,800       48.9000       1/10/2014                                  
      0       250,000       59.8700       11/6/2014                                  
R. A. Walker(2)
    25,000       25,000       45.8000       9/6/2012       23,000       1,510,870       21,800       1,432,042  
      15,200       7,600       43.5550       11/15/2012       5,400       354,726       20,037       1,316,231  
      15,467       30,933       48.6900       12/4/2013       9,533       626,223                  
      0       41,000       48.9000       1/10/2014       20,600       1,353,214                  
      0       62,200       59.8700       11/6/2014                                  
Karl F. Kurz(3)
    14,000       0       22.4750       10/31/2009       24,000       1,576,560       22,800       1,497,732  
      8,000       0       33.3650       11/16/2011       3,800       249,622       15,438       1,014,122  
      10,800       5,400       43.5550       11/15/2012       7,866       516,718                  
      12,734       25,466       48.6900       12/4/2013       21,500       1,412,335                  
      0       41,000       48.9000       1/10/2014                                  
      0       64,900       59.8700       11/6/2014                                  
Charles A. Meloy(4)
    12,734       25,466       48.6900       12/4/2013       12,500       821,125       12,200       801,418  
      0       34,600       59.8700       11/6/2014       7,866       516,718       9,300       610,917  
                                      11,500       755,435                  
Robert K. Reeves(5)
    85,000       85,000       26.6000       3/22/2011       3,533       232,083       17,800       1,169,282  
      16,600       0       33.3650       11/16/2011       7,266       477,304       14,376       944,359  
      9,867       4,933       43.5550       11/15/2012       16,800       1,103,592                  
      11,834       23,666       48.6900       12/4/2013                                  
      0       41,000       48.9000       1/10/2014                                  
      0       50,900       59.8700       11/6/2014                                  
 
 
(1) Mr. Hackett’s options vest as follows: 26,666 on 11/15/2008; 63,667 on 12/4/2008, 63,666 on 12/4/2009; 40,934 on 1/10/2008, 40,933 on 1/10/2009 and 40,933 on 1/10/2010; 83,334 on 11/6/2008, 83,333 on 11/6/2009 and 83,333 on 11/6/2010. Mr. Hackett’s restricted stock shares and units vest as follows: 20,000 shares on 11/15/2008; 19,500 shares on 12/4/2008 and 19,500 shares on 12/4/2009; 27,467 units on 12/3/2008, 27,467 units on 12/3/2009, and 27,466 units on 12/3/2010. Mr. Hackett’s performance awards have the following performance periods: 43,750 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009 and 43,750 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2010; 38,100 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2008 and 38,100 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009.
 
(2) Mr. Walker’s options vest as follows: 25,000 on 9/6/2009; 7,600 on 11/15/2008; 15,467 on 12/4/2008 and 15,466 on 12/4/2009; 13,667 on 1/10/2008, 13,667 on 1/10/2009 and 13,666 on 1/10/2010; 20,734 on 11/6/2008, 20,733 on 11/6/2009 and 20,733 on 11/6/2010. Mr. Walker’s restricted stock shares and units vest as follows: 11,500 shares on 9/6/2008 and 11,500 shares on 9/6/2009; 5,400 shares on 11/15/2008;


43


 

4,767 shares on 12/4/2008 and 4,766 shares on 12/4/2009; 6,867 units on 12/3/2008, 6,867 units on 12/3/2009 and 6,866 units on 12/3/2010. Mr. Walker’s performance awards have the following performance periods: 10,900 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009 and 10,900 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2010; 10,018 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2008 and 10,019 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009.
 
(3) Mr. Kurz’s options vest as follows: 5,400 on 11/15/2008; 12,733 on 12/4/2008 and 12,733 on 12/4/2009; 13,667 on 1/10/2008, 13,667 on 1/10/2009 and 13,666 on 1/10/2010; 21,634 on 11/6/2008, 21,633 on 11/6/2009 and 21,633 on 11/6/2010. Mr. Kurz’s restricted stock shares and units vest as follows: 24,000 shares on 5/12/2008; 3,800 shares on 11/15/2008; 3,933 shares on 12/4/2008 and 3,933 shares on 12/4/2009; 7,167 units on 12/3/2008, 7,167 units on 12/3/2009 and 7,166 units on 12/3/2010. Mr. Kurz’s performance awards have the following performance periods: 11,400 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009 and 11,400 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2010; 7,719 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2008 and 7,719 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009.
 
(4) Mr. Meloy’s options vest as follows: 12,733 on 12/4/2008 and 12,733 on 12/4/2009; 11,534 on 11/6/2008, 11,533 on 11/6/2009 and 11,533 on 11/6/2010. Mr. Meloy’s restricted stock shares and units vest as follows: 12,500 shares on 8/10/2008; 3,933 shares on 12/4/2008 and 3,933 shares on 12/4/2009; 3,834 units on 12/3/2008, 3,833 units on 12/3/2009 and 3,833 units on 12/3/2010. Mr. Meloy’s performance awards have the following performance periods: 6,100 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009 and 6,100 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2010; 4,650 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2008 and 4,650 units are tied to a performance period beginning 1/1/2008 and ending 12/31/2009.
 
(5) Mr. Reeves’ options vest as follows: 85,000 on 3/22/2008; 4,933 on 11/15/2008; 11,833 on 12/4/2008 and 11,833 on 12/4/2009; 13,667 on 1/10/2008, 13,667 on 1/10/2009 and 13,666 on 1/10/2010; 16,967 on 11/6/2008, 16,967 on 11/6/2009 and 16,966 on 11/6/2010. Mr. Reeves’ restricted stock shares and units vests as follows: 3,533 shares on 11/15/2008; 3,633 shares on 12/4/2008 and 3,633 shares on 12/4/2009; 5,600 units on 12/3/2008, 5,600 units on 12/3/2009 and 5,600 units on 12/3/2010. Mr. Reeves’ performance awards have the following performance periods: 8,900 are tied to a performance period beginning 1/1/2008 and ending 12/31/2009 and 8,900 are tied to a performance period beginning 1/1/2008 and ending 12/31/2010; 7,188 are tied to a performance period beginning 1/1/2008 and ending 12/31/2008 and 7,188 are tied to a performance period beginning 1/1/2008 and ending 12/31/2009.
 
Option Exercises and Stock Vested in 2007
 
                                 
    Option Awards     Stock Awards  
    Number of Shares
          Number of Shares
       
    Acquired on
    Value Realized on
    Acquired on
    Value Realized on
 
Name
  Exercise (#)     Exercise ($)(1)     Vesting (#)(2)     Vesting ($)(1)  
 
James T. Hackett
    250,000       6,718,575       139,500       7,983,260  
R. A. Walker
    0       0       21,667       1,163,218  
Karl F. Kurz
    160,000       6,220,153       9,600       549,495  
Charles A. Meloy
    0       0       16,434       837,972  
Robert K. Reeves
    0       0       17,766       913,099  
 
 
(1) The Value Realized reflects the taxable value to the named executive officer as of the date of the option exercise or vesting of restricted stock. The actual value ultimately realized by the named executive officer may be more or less than the Value Realized calculated in the above table depending on the timing in which the named executive officer held or sold the shares associated with the exercise or vesting occurrence.
 
(2) Shares acquired on vesting include restricted stock shares whose restrictions lapsed during 2007.


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Pension Benefits for 2007
 
The Company maintains the Anadarko Retirement Plan, or the APC Retirement Plan, and the Kerr-McGee Corporation Retirement Plan, or the KMG Retirement Plan, both of which are funded tax-qualified defined benefit pension plans. In addition, the Company maintains the Anadarko Retirement Restoration Plan, or the APC Retirement Restoration Plan, and the Kerr-McGee Benefits Restoration Plan, or the KMG Restoration Plan, both of which are unfunded, nonqualified pension benefit plans that are designed to provide for supplementary pension benefits due to limitations imposed by the Internal Revenue Code, or IRC, that restrict the amount of benefits payable under tax-qualified plans.
 
APC Retirement Plan and APC Retirement Restoration Plan, collectively the APC Retirement Plans.  The APC Retirement Plans cover all legacy Anadarko United States based employees. The APC Retirement Restoration Plan covers all legacy Anadarko United States based employees that are affected by the IRC limitations. Benefits under these plans are based upon the employee’s years of service and the greater of either:
 
  •  the annual average of the employee’s highest compensation over three consecutive calendar years out of the last 10 years of employment with the Company; or
 
  •  the annual average compensation over the last 36 consecutive months of employment with the Company.
 
The APC Retirement Plans do not require contributions by employees and an employee becomes vested in his or her benefit at the completion of five years of service. Compensation covered by the APC Retirement Plans includes base salary and payments under the Annual Incentive Plan. The amount of compensation for 2007 that may be considered in calculating benefits under the APC Retirement Plan is $225,000 due to the annual IRC limitation. Compensation in excess of $225,000 is recognized in determining benefits payable under the APC Retirement Restoration Plan.
 
Benefits under the APC Retirement Plans are calculated as a “life-only” annuity (meaning that benefits end upon the participant’s death) and are equal to the sum of:
 
  •  1.4% x average compensation x years of service with the Company; plus
 
  •  0.4% x (average compensation – covered compensation) x years of service with the Company (limited to 35 years).
 
Covered compensation is the average (without indexing) of the Social Security taxable wage base during the 35-year period ending with the last day of the year in which an individual reaches Social Security retirement age. Benefits are calculated based on a normal retirement age of 65, however, employees may receive a reduced benefit as early as age 55. Employees may choose to receive their benefits under several different forms provided under the APC Retirement Plans.
 
KMG Retirement Plan and KMG Restoration Plan, collectively the KMG Retirement Plans.  The KMG Retirement Plan covers all legacy Kerr-McGee Corporation United States based employees. The KMG Restoration Plan covers all legacy Kerr-McGee Corporation United States based employees that are affected by the IRC limitations. Benefits under these plans are based upon the employee’s years of service and the average monthly earnings during the 36 highest paid consecutive months of the last 120 months of employment.
 
The KMG Retirement Plans do not require contributions by employees and an employee becomes vested in his or her benefit at the completion of five years of service. Compensation covered by the KMG Retirement Plans includes base salary and payments under the Annual Incentive Plan. The amount of compensation for 2007 that may be considered in calculating benefits under the KMG Retirement Plan is $225,000 due to the annual IRC limitation. Compensation in excess of $225,000 is recognized in determining benefits payable under the KMG Restoration Plan.


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Benefits under the KMG Retirement Plans are calculated as a life-only annuity equal to the sum of Part A and Part B:
 
Part A:
 
  •  1.1% x average compensation x years of service prior to March 1, 1999; plus
 
  •  0.5% x (average compensation – covered compensation) x years of service prior to March 1, 1999 (limited to 35 years).
 
Part B:
 
  •  1.667% x average compensation x years of service on or after March 1, 1999 (limited to 30 years); plus
 
  •  0.75% x average compensation x years of service on or after March 1, 1999 in excess of 30 years; less
 
  •  1% x primary social security benefit x years of service on or after March 1, 1999 as of age 65 (limited to 30 years) x (years of service on or after March 1, 1999 divided by years of service on or after March 1, 1999 at age 65)
 
Covered compensation is the average (without indexing) of the Social Security taxable wage base during the 35-year period ending with the last day of the year in which an individual reaches Social Security retirement age. Benefits are calculated based on a normal retirement age of 65; however, employees may receive a reduced benefit as early as age 52. Employees may choose to receive their benefits under several different forms provided under the KMG Retirement Plans.
 
The present values provided in the below table are based on the pension benefits accrued through December 31, 2007, assuming that such benefit is paid in the same form as reflected in the accounting valuation. The benefits are assumed to commence at the plan’s earliest unreduced retirement age, which is age 62 for the APC Retirement Plans and age 60 for the KMG Retirement Plans. All pre-retirement decrements such as pre-retirement mortality and terminations have been ignored for the purposes of these calculations. The interest rate used for discounting payments back to December 31, 2007 is 6%, consistent with the weighted average discount rate used in the accounting valuation.
 
                             
        Number of
  Present Value of
  Payments
        Years of
  Accumulated
  During
        Credited Service
  Benefit
  Last Fiscal Year
Name
 
Plan Name
  (#)   ($)   ($)
 
James T. Hackett(1)(2)
  APC Retirement Plan     4.0000       102,559       0  
    APC Retirement Restoration Plan     8.0000       3,711,849       0  
R. A. Walker(1)(3)
  APC Retirement Plan     2.0000       42,768       0  
    APC Retirement Restoration Plan     10.0000       1,034,609       0  
Karl F. Kurz
  APC Retirement Plan     7.0000       116,778       0  
    APC Retirement Restoration Plan     7.0000       323,779       0  
Charles A. Meloy(4)
  KMG Retirement Plan     25.5830       584,120       0  
    KMG Restoration Plan     30.5830       3,194,662       0  
Robert K. Reeves(1)(3)
  APC Retirement Plan     4.0000       81,482       0  
    APC Retirement Restoration Plan     9.0000       738,169       0  
 
 
(1) As of December 31, 2007, Messrs. Hackett, Walker, and Reeves were not yet vested in benefits payable under the APC Retirement Plans. A participant becomes fully vested in the plans upon the completion of five years of service with the Company. For Messrs. Hackett, Walker, and Reeves the values under the “Present Value of Accumulated Benefit” column assume that these officers are vested in the APC Retirement Plans.
 
(2) Mr. Hackett has an employment agreement that will provide him with an additional pension service credit under the APC Retirement Restoration Plan if he remains employed with the Company through December 3, 2008. The additional pension service credit was included in his employment agreement to replace his forgone benefits at a previous employer. The value of Mr. Hackett’s APC Retirement Restoration Plan benefit in the table includes the effect of this additional pension service credit assuming its application as of December 31, 2007. However, as of December 31, 2007, Mr. Hackett has not yet earned the right to this


46


 

additional pension service credit. Mr. Hackett’s APC Retirement Restoration Plan value as of December 31, 2007 excluding the effect of the additional pension service credit is $1,492,222, for a total pension value of $1,594,781, all of which will not be vested until 2008.
 
(3) Messrs. Walker and Reeves will be provided additional pension service credits under the APC Restoration Plan if they remain employed until age 55. These additional pension service credits were provided to recognize that they were both mid-career hires that we would like to retain for the remainder of their careers. Providing them additional service credits recognizes a portion of their prior industry and service years which directly benefits us and our stockholders. The value reflected in the APC Retirement Restoration Plan amount includes the effect of this additional pension credit assuming its application as of December 31, 2007. However, as of December 31, 2007, Messrs. Walker and Reeves have not yet earned the right to this additional pension service credit. The value of Mr. Walker’s APC Retirement Restoration Plan benefit as of December 31, 2007 excluding the effect of the additional pension service credit is $124,938, for a total pension value of $167,706. The value of Mr. Reeves’ APC Retirement Restoration Plan benefit as of December 31, 2007 excluding the effect of the additional pension service credit is $270,453, for a total pension value of $351,935.
 
(4) Mr. Meloy has a retention agreement that will provide him with an additional pension service credit under the KMG Restoration Plan if he remains employed with the Company through August 10, 2009. The additional pension service credit was included in his retention agreement to compensate him for certain severance benefits he was otherwise entitled to receive under the change of control agreement he had with Kerr-McGee. The value reflected for Mr. Meloy’s KMG Restoration Plan benefit includes the effect of this addition pension credit assuming its application as of December 31, 2007. However, as of December 31, 2007, Mr. Meloy has not yet earned this right to this additional pension service credit. Mr. Meloy’s KMG Restoration Plan value as of December 31, 2007 excluding the effect of the additional pension service credit is $2,589,754, for a total pension value of $3,173,874.


47


 

 
Nonqualified Deferred Compensation for 2007
 
The Company maintains a Deferred Compensation Plan for directors and certain employees, including the named executive officers. The Deferred Compensation Plan allows certain employees to voluntarily defer receipt of up to 75% of their salary and/or up to 100% of their annual incentive bonus payments. The Deferred Compensation Plan allows directors to defer receipt of up to 100% of their board and committee retainers and/or board and committee meeting fees. The Deferred Compensation Plan permits participants to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds. The notional accounts do not provide for above-market or preferential earnings. In general, deferred amounts are distributed to the participant upon termination or at a specific date as elected by the participant or as required by the Plan. The Company does not subsidize or match any deferrals of compensation into the Plan.
 
The Company has a Savings Restoration Plan that accrues a benefit substantially equal to the amount that, in the absence of certain IRC limitations, would have been allocated to a named executive officer’s account as Company matching contributions under the Savings Plan. Prior to January 2007, amounts in the Savings Restoration Plan received earnings based on the performance of Company stock. In January 2007, the Company amended this Plan so that the earnings are no longer tied to the performance of Company stock, but permits participants to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds provided in the Savings Plan.
 
                                         
    Executive
  Company
      Aggregate
  Aggregate Balance
    Contributions in
  Contributions in
  Aggregate Earnings
  Withdrawals/
  at Last Fiscal
    Last Fiscal Year
  Last Fiscal Year
  in Last Fiscal Year
  Distributions
  Year-End
Name
  ($)   ($)(1)   ($)   ($)   ($)
 
James T. Hackett
                                       
Deferred Compensation Plan
    0       0       0       0       0  
Savings Restoration Plan
    0       180,932       2,734       0       608,999  
R. A. Walker
                                       
Deferred Compensation Plan
    0       0       0       0       0  
Savings Restoration Plan
    0       52,034       2,443       0       76,083  
Karl F. Kurz(2)
                                       
Deferred Compensation Plan
    161,734       0       34,050       0       418,773  
Savings Restoration Plan
    0       41,597       (142 )     0       151,153  
Charles A. Meloy
                                       
Deferred Compensation Plan
    0       0       0       0       0  
Savings Restoration Plan     0       51,201       6,663       0       91,531  
Robert K. Reeves
                                       
Deferred Compensation Plan
    0       0       0       0       0  
Savings Restoration Plan     0       41,446       396       0       126,820  
 
 
(1) Company contributions in the Savings Restoration Plan are reported in the Summary Compensation Table for each of the named executive officers under the “All Other Compensation” column for the fiscal year 2007.
 
(2) Mr. Kurz’s contributions in the Deferred Compensation Plan include $80,769 of his 2007 base salary reported in the Summary Compensation Table under the “Salary” column for the fiscal year 2007 and $80,965 of his 2006 bonus earned in 2006 but paid in 2007 that is reported in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column for the fiscal year 2006.


48


 

 
Potential Payments Upon Termination or Change of Control
 
The following tables reflect potential payments to our named executive officers under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving a change of control or termination of employment of each named executive officer, assuming a December 31, 2007 termination date, and, where applicable, using the closing price of our common stock of $65.69 (as reported on the NYSE as of December 31, 2007). As of December 31, 2007, none of our executive officers were eligible for retirement; accordingly, no table is included for this event.
 
The following are general definitions that apply to the termination scenarios detailed below. These definitions have been summarized and are qualified in their entirety by the full text of the applicable plans or agreements to which our executive officers are parties.
 
“Involuntary Termination” is generally defined as any termination that does not result from the following termination events:
 
  •  resignation;
 
  •  retirement;
 
  •  for cause;
 
  •  death;
 
  •  qualifying disability;
 
  •  extended leave of absence;
 
  •  continued failure to perform duties or responsibilities;
 
  •  a termination in connection with any corporate sale transaction where continued employment is available; or
 
  •  a termination if the employee is eligible to receive benefits from a Key Employee Change of Control Contract.
 
“For Cause” is generally defined as:
 
  •  the willful and continued failure of the executive to perform substantially the executive’s duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness) or material breach of any material provision in an employment agreement (if applicable), after written demand for substantial performance is delivered to the executive by the Board or the CEO of the Company which specifically identifies the manner in which the Board or CEO believes that the executive has not substantially performed the executive’s duties, or
 
  •  the willful engaging by the executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
 
A “Change of Control” is generally defined as any one of the following occurrences:
 
  •  any individual, entity or group acquires beneficial ownership of 20% or more of either the outstanding shares of our common stock or our combined voting power;
 
  •  individuals who constitute the Board (as of the date of either a given change of control contract or an award agreement under our equity plans, as applicable) cease to constitute a majority of the Board, provided that an individual whose election or nomination as a director is approved by a vote of at least a majority of the directors as of the date of either the change of control contract or an award agreement under our equity plans, as applicable, will be deemed a member of the incumbent Board;


49


 

 
  •  a reorganization, merger or consolidation or sale or other disposition of all or substantially all of our assets or the acquisition of assets of another entity, unless following the business combination:
 
  –  all or substantially all of the beneficial owners of our outstanding common stock prior to the business combination own more than 60% of the outstanding common stock of the corporation resulting from the business combination;
 
  –  no person, entity or group owns 20% or more of the outstanding voting securities of the corporation resulting from the business combination; and
 
  –  at least a majority of the board of the corporation resulting from the business combination were members of our Board prior to the business combination; or
 
  •  approval by our stockholders of our complete liquidation or dissolution.
 
“Good Reason” is generally defined as any one of the following occurrences within three years of a Change of Control:
 
  •  diminution in Executive’s position, authority, duties or responsibilities that were effective immediately prior to the Change of Control, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
 
  •  any failure by the Company to provide compensation to the Executive at levels that were effective immediately prior to the Change of Control, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
 
  •  any material change in the location, as defined in the applicable agreement, where the Executive was employed immediately preceding the Change of Control, or the Company requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Change of Control;
 
  •  any termination by the Executive for any reason during the 30-day period immediately following the first anniversary of a Change of Control;
 
  •  any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted in their Change of Control or Employment Agreement; or
 
  •  any failure by the Company to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume the terms provided in the Executive’s Change of Control or Employment Agreement.
 
“Disability” is generally defined as the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.
 
Additional details of the post-termination arrangements can be found in the Compensation Discussion and Analysis on page 36.


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Involuntary For Cause or Voluntary Termination
 
                                         
    Mr. Hackett     Mr. Walker     Mr. Kurz     Mr. Meloy     Mr. Reeves  
 
Supplemental Pension Benefits(1)
  $     $     $ 317,933     $ 2,058,829     $  
Nonqualified Deferred Compensation(2)
  $ 608,999     $ 76,083     $ 569,926     $ 91,531     $ 126,820  
Total
  $ 608,999     $ 76,083     $ 887,859     $ 2,150,360     $ 126,820  
 
 
(1) Reflects the lump-sum present value of vested benefits related to the Company’s supplemental pension benefits.
 
(2) Reflects the combined vested balances in the nonqualified Savings Restoration Plan and Deferred Compensation Plan.
 
Involuntary Not For Cause Termination
 
                                         
    Mr. Hackett     Mr. Walker     Mr. Kurz     Mr. Meloy     Mr. Reeves  
 
Cash Severance(1)
  $ 10,350,000     $ 1,950,000     $ 1,950,000     $ 2,197,500     $ 1,450,000  
Pro-rata Bonus for 2007(2)
  $ 1,950,000     $ 462,596     $ 538,462     $ 462,228     $ 381,846  
Accelerated Equity Compensation(3)
  $ 26,313,744     $ 8,835,036     $ 7,885,648     $ 4,139,907     $ 8,745,412  
Supplemental Pension Benefits(4)
  $ 5,480,959     $     $ 539,251     $ 5,740,082     $  
Nonqualified Deferred Compensation(5)
  $ 608,999     $ 76,083     $ 569,926     $ 91,531     $ 126,820  
Health and Welfare Benefits(6)
  $ 238,433     $ 58,913     $ 268,082     $ 49,114     $ 52,828  
Financial Counseling(7)
  $     $ 23,929     $ 23,929     $ 23,929     $ 23,929  
Total
  $ 44,942,135     $ 11,406,557     $ 11,775,298     $ 12,704,291     $ 10,780,835  
 
 
(1) Mr. Hackett’s value assumes three times his base salary plus target bonus; all other named executive officer values assume two times base salary plus one times target bonus. Mr. Meloy’s cash severance value also includes his unvested retention bonus of $575,000, which is scheduled to vest August 10, 2008, but would vest earlier in the event of an involuntary not for cause termination.
 
(2) Mr. Hackett’s value assumes payment of a pro-rata bonus based on the target bonus percentage and base salary in effect as of December 31, 2007; all other named executive officer values assume a pro-rata bonus based on target bonus percentages effective for the 2007 AIP and eligible earnings as of December 31, 2007.
 
(3) Reflects the in-the-money value of unvested stock options, the target value of unvested performance units, and the value of unvested restricted stock shares and units, all as of December 31, 2007.
 
(4) For all named executive officers except for Mr. Hackett, the values include a special retirement benefit enhancement that is equivalent to the additional supplemental pension benefits that would have accrued assuming they were eligible for subsidized early retirement benefits. Values exclude vested amounts payable under the qualified plans available to all employees. All values include special pension credits, if applicable, provided through an employment agreement, retention agreement, the APC Retirement Restoration Plan or the KMG Restoration Plan. Messrs. Walker and Reeves are not yet vested in their accrued benefits under the APC Retirement Restoration Plan. If the Compensation Committee chose to accelerate the vesting, the present value of the accrued benefits would equal $248,928 and $522,381, respectively.
 
(5) Reflects the combined vested balances in the nonqualified Savings Restoration Plan and Deferred Compensation Plan.
 
(6) Mr. Hackett’s value represents 18 months of health and welfare benefit coverage and the lump sum value of subsidized retiree medical benefits; all other named executive officer values represent 24 months of health and welfare benefit coverage. All amounts are present values determined in accordance with SFAS No. 106 — Employer’s Accounting for Postretirement Benefits other than Pensions. Mr. Kurz’s value also includes the present value of a retiree death benefit in the Management Life Insurance Plan, or


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MLIP. The MLIP provides for a retiree death benefit equal to one times final base salary. This retiree death benefit is only applicable to participants who were employed by the Company on June 30, 2003. Therefore, this benefit is only applicable to Mr. Kurz.
 
(7) Values assume financial counseling services continue for two years after termination. Mr. Hackett does not currently use this company-provided service and therefore benefits are not assumed to be extended to him after termination.
 
Change of Control: Involuntary Termination or Voluntary For Good Reason
 
                                         
    Mr. Hackett     Mr. Walker     Mr. Kurz     Mr. Meloy     Mr. Reeves  
 
Cash Severance(1)
  $ 10,350,000     $ 3,437,950     $ 3,058,987     $ 3,506,975     $ 2,858,748  
Pro-rata Bonus for 2007(2)
  $ 1,950,000     $ 535,500     $ 404,823     $ 461,026     $ 485,775  
Accelerated Equity Compensation(3)
  $ 26,313,744     $ 8,835,036     $ 7,885,648     $ 4,139,907     $ 8,745,412  
Supplemental Pension Benefits(4)
  $ 8,457,039     $ 1,764,166     $ 1,023,296     $ 6,134,522     $ 1,306,169  
Nonqualified Deferred Compensation(5)
  $ 1,217,909     $ 289,473     $ 759,794     $ 273,516     $ 304,259  
Health and Welfare Benefits(6)
  $ 306,733     $ 246,946     $ 293,683     $ 73,837     $ 79,478  
Outplacement Assistance
  $ 30,000     $ 30,000     $ 30,000     $ 30,000     $ 30,000  
Financial Counseling(7)
  $     $ 33,795     $ 33,795     $ 33,795     $ 33,795  
Excise Tax and Gross-up(8)
  $ 13,045,776     $ 4,291,590     $ 3,422,340     $ 3,694,714     $ 3,168,999  
Total
  $ 61,671,201     $ 19,464,456     $ 16,912,366     $ 18,348,292     $ 17,012,635  
 
 
(1) Mr. Hackett’s value assumes three times his base salary plus target bonus; all other named executive officer values assume 2.9 times the sum of base salary plus the highest bonus paid in the past three years. Mr. Meloy’s cash severance value also includes his unvested retention bonus of $575,000, which is scheduled to vest August 10, 2008, but would vest earlier in the event of an involuntary termination or voluntary termination for good reason under a change of control situation.
 
(2) Mr. Hackett’s value assumes payment of pro-rata bonus based on the target bonus percentage and base salary in effect as of December 31, 2007; all other named executive officer values assume the full-year equivalent of the highest annual bonus the officer received over the past three years.
 
(3) Includes the in-the-money value of unvested stock options, the target value of unvested performance units, and the value of unvested restricted stock shares and units, all as of December 31, 2007.
 
(4) The values include a special retirement benefit enhancement that is equivalent to the additional supplemental pension benefits that would have accrued assuming the named executive officers were eligible for subsidized early retirement benefits. Values exclude vested amounts payable under the qualified plans available to all employees. All values include special pension credits, provided through an employment agreement, retention agreement, the APC Retirement Restoration Plan, the KMG Restoration Plan and change of control agreement.
 
(5) Includes the combined balances in the nonqualified Savings Restoration Plan and Deferred Compensation Plan plus an additional three years of employer contributions into the Savings Restoration Plan based on each officer’s current contribution rate to the Plan.
 
(6) Values represent 36 months of health and welfare benefit coverage. Messrs. Hackett’s and Walker’s values also include the lump sum value of subsidized retiree medical benefits. All amounts are present values determined in accordance with SFAS No. 106 — Employer’s Accounting for Postretirement Benefits other than Pensions. Mr. Kurz’s value also includes the present value of a retiree death benefit in the MLIP. The MLIP provides for a retiree death benefit equal to one times final base salary. This retiree death benefit is only applicable to participants who were employed by the Company on June 30, 2003. Therefore, this benefit is only applicable to Mr. Kurz.


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(7) Values assume financial counseling services continue for three years after termination. Mr. Hackett does not currently use this company-provided service and therefore benefits are not assumed to be extended to him after termination.
 
(8) Values estimate the total payment required to make each executive whole for the 20% excise tax imposed by Section 280G of the IRC.
 
Disability
 
                                         
    Mr. Hackett     Mr. Walker     Mr. Kurz     Mr. Meloy     Mr. Reeves  
 
Cash Severance(1)
  $     $     $     $ 575,000     $  
Pro-rata Bonus for 2007(2)
  $ 1,840,000     $ 462,596     $ 538,462     $ 462,228     $ 381,846  
Accelerated Equity Compensation(3)
  $ 26,313,744     $ 8,835,036     $ 7,885,648     $ 4,139,907     $ 8,745,412  
Supplemental Pension Benefits(4)
  $     $     $ 317,933     $ 6,134,522     $  
Nonqualified Deferred Compensation(5)
  $ 608,999     $ 76,083     $ 569,926     $ 91,531     $ 126,820  
Health and Welfare Benefits(6)
  $ 1,231,424     $ 380,569     $ 389,660     $ 329,708     $ 295,654  
Total
  $ 29,994,167     $ 9,754,284     $ 9,701,629     $ 11,732,896     $ 9,549,732  
 
 
(1) Mr. Meloy’s cash severance value includes his unvested retention bonus of $575,000, which is scheduled to vest August 10, 2008, but would vest earlier in the event of termination by reason of disability.
 
(2) Represents payment of a pro-rata target bonus based on target bonus percentages effective for the 2007 AIP and eligible earnings as of December 31, 2007.
 
(3) Reflects the in-the-money value of unvested stock options, the target value of unvested performance units, and the value of unvested restricted stock shares and units, all as of December 31, 2007.
 
(4) Reflects the lump sum present value of vested benefits related to the Company’s supplemental pension benefits. Mr. Meloy’s value includes the special pension credits provided through his retention agreement.
 
(5) Reflects the combined vested balances in the nonqualified Savings Restoration Plan and Deferred Compensation Plan.
 
(6) Reflects the continuation of additional death benefit coverage provided to officers of the Company until age 65. All amounts are present values determined in accordance with SFAS No. 106 — Employer’s Accounting for Postretirement Benefits other than Pensions.
 
Death
 
                                         
    Mr. Hackett     Mr. Walker     Mr. Kurz     Mr. Meloy     Mr. Reeves  
 
Cash Severance(1)
  $     $     $     $ 575,000     $  
Pro-rata Bonus for 2007(2)
  $ 1,840,000     $ 462,596     $ 538,462     $ 462,228     $ 381,846  
Accelerated Equity Compensation(3)
  $ 26,313,744     $ 8,835,036     $ 7,885,648     $ 4,139,907     $ 8,745,412  
Supplemental Pension Benefits(4)
  $     $     $ 317,933     $ 6,134,522     $  
Nonqualified Deferred Compensation(5)
  $ 608,999     $ 76,083     $ 569,926     $ 91,531     $ 126,820  
Life Insurance Proceeds(6)
  $ 7,081,039     $ 2,045,633     $ 2,045,633     $ 1,730,921     $ 1,573,564  
Total
  $ 35,843,782     $ 11,419,348     $ 11,357,602     $ 13,134,109     $ 10,827,642  
 
 
(1) Mr. Meloy’s cash severance value includes his unvested retention bonus of $575,000, which is scheduled to vest August 10, 2008, but would vest earlier in the event of termination by reason of death.
 
(2) Represents payment of a pro-rata target bonus based on target bonus percentages effective for the 2007 AIP and eligible earnings as of December 31, 2007.
 
(3) Includes the in-the-money value of unvested stock options, the target value of unvested performance units, and the value of unvested restricted stock shares and units, all as of December 31, 2007.


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(4) Includes the lump sum present value of vested benefits related to the Company’s supplemental pension benefits. Mr. Meloy’s value includes the special pension credits provided through his retention agreement.
 
(5) Includes the combined vested balances in the nonqualified Savings Restoration Plan and Deferred Compensation Plan.
 
(6) Includes amounts payable under additional death benefits provided to officers and other key employees of the company. These liabilities are not insured, but are self-funded by the Company. Proceeds are not exempt from federal taxes; values shown include an additional tax gross-up amount to equate benefits with nontaxable life insurance proceeds. Values exclude death benefit proceeds from programs available to all employees.
 
TRANSACTIONS WITH RELATED PERSONS
 
The Company recognizes that related person transactions can present potential or actual conflicts of interest and it is the Company’s preference that related person transactions are avoided as a general matter. However, the Company also recognizes that there are situations, including certain transactions negotiated on an arm’s length basis, where related person transactions may be in, or may not be inconsistent with, the best interest of the Company or our stockholders. Therefore, the Company has procedures for the approval, ratification and review of ongoing related person transactions. Either the Board’s Nominating and Corporate Governance Committee or the full Board (as determined by the Nominating and Corporate Governance Committee) will review, ratify or approve, as necessary, any related person transactions prior to the transaction being entered into, or ratify any related person transactions that have not been previously approved, in which a director, five percent owner, executive officer or immediate family member of any such person has a material interest, and which the transaction is in an amount in excess of $120,000, either individually or in the aggregate of several transactions during any calendar year. This review typically occurs in connection with regularly scheduled Board of Directors meetings.
 
Ongoing Benefits
 
In 2004, the Company and Mr. Allison entered into an agreement that replaced the Memorandum of Understanding dated October 26, 2000 between the Company and Mr. Allison. The 2004 agreement was effective as of Mr. Allison’s retirement from the Company in December 2003 and provides that during Mr. Allison’s lifetime, he has the use of the Company’s aircraft, or an alternative aircraft, for up to 200 hours annually. If the Company no longer maintains an aircraft, the Company will provide to him an annual payment sufficient to allow him to secure comparable aircraft usage. In addition, the agreement provides that the Company will furnish Mr. Allison, during his lifetime, office space, secretarial assistance, office utilities and a monitored security system for his personal residence.
 
Item 2 — RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITOR
 
The Audit Committee has appointed KPMG LLP, an independent registered public accounting firm, to audit the Company’s financial statements for 2008. The Board of Directors, at the request of the Audit Committee, is asking you to ratify that appointment.
 
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF KPMG LLP TO AUDIT THE COMPANY’S FINANCIAL STATEMENTS FOR 2008. If the stockholders do not ratify the appointment of KPMG LLP, the Audit Committee will make the final determination of the independent auditor for 2008.


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INDEPENDENT AUDITOR
 
KPMG LLP, an independent registered public accounting firm, served as the Company’s independent auditor during 2007. Representatives of KPMG LLP will be present at the meeting to make a statement, if they desire to do so, and to respond to appropriate questions from stockholders.
 
The following table presents fees for the audits of the Company’s annual consolidated financial statements for 2007 and 2006 and for other services provided by KPMG LLP.
 
                 
    2007     2006  
 
Audit Fees
  $ 7,965,000     $ 6,426,000  
Audit-related Fees
    3,206,000       866,000  
Tax Fees
    242,000       366,000  
All Other Fees
    0       0  
                 
Totals
  $ 11,413,000     $ 7,658,000  
                 
 
Audit fees are primarily for the audit of the Company’s consolidated financial statements, including the audit of the effectiveness of the Company’s internal controls over financial reporting and the reviews of the Company’s financial statements included in the Form 10-Qs. During 2007, the Company incurred approximately $1,125,000 related to the Company’s change in accounting principle from full cost to successful efforts.
 
Audit-related fees are primarily for the audits of the Company’s benefit plans, other audits, consents, comfort letters and certain financial accounting consultation. During 2007 and 2006, the Company incurred approximately $1,595,000 and $197,000, respectively, of audit-related fees associated with properties divested by the Company. These amounts are included in the table above and are reimbursable by the purchasers of the properties. Approximately $938,000 of the audit-related fees are associated with the formation and audit of Western Gas Partners, LP, a newly formed 100% owned subsidiary of the Company who filed a registration statement on Form S-1 in 2007.
 
Tax fees are primarily for tax planning compliance and services including approximately $234,000 and $285,000 in 2007 and 2006, respectively, for services related to individual income tax services for Company employees in connection with foreign assignments. The Audit Committee has concluded that the provision of tax services is compatible with maintaining KPMG LLP’s independence.
 
The Audit Committee adopted a Pre-Approval Policy with respect to services which may be performed by KPMG LLP. This policy lists specific audit-related and tax services as well as any other services that KPMG LLP is authorized to perform and sets out specific dollar limits for each specific service, which may not be exceeded without additional Audit Committee authorization. The Audit Committee receives quarterly reports on the status of expenditures pursuant to that Pre-Approval Policy. The Audit Committee reviews the policy at least annually in order to approve services and limits for the current year. Any service that is not clearly enumerated in the policy must receive specific pre-approval by the Audit Committee or by its Chairman, to whom such authority has been conditionally delegated, prior to engagement. During 2007, no fees for services outside the scope of audit, review, or attestation that exceed the waiver provisions of 17 CFR 210.2-01(c)(7)(i)(C) were approved by the Audit Committee.


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ITEMS 3 AND 4 — APPROVAL OF NEW COMPENSATION PLANS
 
In February 2008, the Board of Directors unanimously approved the following plans, subject to stockholder approval:
 
  •  the 2008 Omnibus Incentive Compensation Plan, or the Omnibus Plan; and
 
  •  the 2008 Director Compensation Plan, or the Director Plan.
 
The effective date for both the Omnibus Plan and the Director Plan will be the date they are approved by our stockholders. Collectively, these plans play an important role in our human resource and business strategy. The Omnibus Plan will enable us to attract, motivate and retain experienced and highly qualified individuals in an environment that is challenged with tremendous competition for new talent as well as experienced industry specialists. The Director Plan will enable us to successfully attract and retain highly qualified and experienced individuals to serve as members of our Board of Directors.
 
The Board believes that stockholder approval of the Omnibus Plan and the Director Plan is important to allow us to continue to appropriately motivate and compensate employees and non-employee directors who are in a position to contribute materially to the success and long-term objectives of the Company. Consistent with our compensation philosophy, we believe stock-based compensation fosters and strengthens our employees’ and our directors’ sense of proprietorship and personal involvement in the Company. By holding a personal stake in Anadarko, these individuals are encouraged to devote their best efforts towards the achievement of our business objectives and our success, thereby advancing the interests of Anadarko and our stockholders.
 
The table and footnotes below provide updated supplemental information to the Equity Compensation Plan Table disclosed in Item 12 of our Annual Report on Form 10-K, which was filed with the SEC on February 29, 2008.
 
         
    Equity Compensation Plans
 
    Approved by Security Holders  
 
Number of securities remaining available for future issuance under equity compensation plans as of December 31, 2007
    7,996,038  
Awards granted to employees and non-employee directors under the Company’s existing equity compensation plans from January 1, 2008 to March 14, 2008
    2,401,154  
Awards cancelled and returned for issuance under the Company’s existing equity compensation plans from January 1, 2008 to March 14, 2008
    70,844  
Number of securities remaining available for issuance under the Company’s existing equity compensation plans as of March 14, 2008
    5,665,728  
 
As of March 14, 2008, the Company had 5,015,539 stock options outstanding with a weighted average exercise price of $44.45 and a weighted average remaining contractual term of 5.3 years. Additionally, as of March 14, 2008, the Company had 6,636,067 shares of unvested restricted stock and restricted stock units outstanding, and had performance unit awards outstanding covering a maximum of 934,424 shares.


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2008 OMNIBUS INCENTIVE COMPENSATION PLAN
 
ITEM 3 — APPROVAL OF THE 2008 OMNIBUS INCENTIVE COMPENSATION PLAN
 
We currently maintain the 1999 Stock Incentive Plan (or the 1999 Plan) and the Annual Incentive Plan from which we make equity-based and cash-based incentive awards to employees, respectively. As of March 14, 2008, there were approximately 4,959,646 shares of our common stock reserved and available for future awards under the 1999 Plan. If the Omnibus Plan is approved by stockholders, all future equity and cash incentive awards to employees will be made from the Omnibus Plan and we will not grant any additional awards under the 1999 Plan and the Annual Incentive Plan. Equity awards previously granted under the 1999 Plan will remain outstanding in accordance with their terms. Any shares that remain available for grant under the 1999 Plan at the time of stockholder approval will be rolled into the Omnibus Plan and will be counted toward the maximum share authorization being requested for the Omnibus Plan.
 
The Omnibus Plan provides for the granting of awards in any combination of the following:
 
  •  stock options;
 
  •  stock appreciation rights;
 
  •  restricted stock and/or restricted stock units;
 
  •  performance shares and/or performance units;
 
  •  incentive awards;
 
  •  cash awards; and
 
  •  other stock-based awards.
 
We are seeking stockholder approval for a maximum share authorization of 33,000,000 common shares under the Omnibus Plan.
 
Importantly, the Omnibus Plan does not allow downward repricing of stock options (without stockholder consent), reloads or the granting of discounted options. Provisions have been included to meet the requirements for deductibility of executive compensation under Section 162(m) of the Internal Revenue Code with respect to performance-based compensation awarded to participants the Plan Administrator deems are subject to Section 162(m).
 
The following is a general summary of the material provisions of the Omnibus Plan and is qualified in its entirety by the full text of the Omnibus Plan, which is attached to this proxy statement as Appendix A. Capitalized terms not defined in the summary are defined in the plan document.
 
Term of Plan.  The Omnibus Plan will expire 10 years from date of stockholder approval.
 
Participants.  Employees of our Company or any Affiliate of our Company are considered eligible participants under the Omnibus Plan.
 
Shares Authorized.  Subject to stockholder approval, a maximum share authorization of 33,000,000 common shares is reserved for issuance under the Omnibus Plan. Following stockholder approval, any common shares remaining under the 1999 Plan (approximately 4,959,646 common shares estimated as of March 14, 2008) will be rolled over into the Omnibus Plan. In no event will the maximum number of common shares available under the Omnibus Plan, including any shares rolled over from the 1999 Plan, exceed 33,000,000. The shares to be delivered under the Omnibus Plan may be made available from any combination of shares held in Anadarko’s treasury or authorized but unissued shares of Anadarko’s common stock.
 
The Omnibus Plan is a flexible authorization plan. Shares issued as full value awards (that is, awards other than stock options or stock appreciation rights) count against the Omnibus Plan’s share authorization at a rate of 2.27 to 1, while shares issued as stock options or stock appreciation rights count against the share authorization at a rate of 1 to 1.


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Shares are counted against the authorization only to the extent they are actually issued. Shares which terminate by expiration, forfeiture, cancellation, or otherwise are settled in cash in lieu of shares, or exchanged for awards not involving shares, will again be available for grant under the Omnibus Plan, including those awards granted under the 1999 Plan. The full number of Stock Appreciation Rights granted that are to be settled by the issuance of shares will be counted against the number of shares authorized for award under the Omnibus Plan, regardless of the number of shares actually issued upon settlement of such Stock Appreciation Rights. Any shares of stock withheld to satisfy tax withholding obligations, shares tendered to pay the exercise price of an award and shares repurchased on the open market with the proceeds of an option exercise will not be eligible to again be available for grant.
 
The number of shares authorized to be issued under the Omnibus Plan, as well as individual limitations and exercise prices, will be subject to adjustments for stock dividends, stock splits, recapitalizations, mergers, or similar corporate events. No adjustments will be made if such adjustments would result in adverse taxation to a participant under Section 409A of the Internal Revenue Code.
 
Limitations on Awards.  The Omnibus Plan imposes annual per-participant award limits. The annual per-participant limits are as follows:
 
     
Award(s)
 
Annual Limit
 
Stock Options
  Maximum 2,500,000 shares to any one individual
Stock Appreciation Rights
  Maximum 2,500,000 shares to any one individual
Restricted Stock or Restricted Stock Units
  Maximum 1,500,000 shares or the value of 1,500,000 shares to any one individual
Performance Shares or Performance Units
  Maximum 1,500,000 shares or the value of 1,500,000 shares to any one individual
Incentive Awards
  Maximum $10,000,000 to a Covered Employee
Cash Awards
  Maximum award to any one individual may not exceed greater of $10,000,000 or the value of 1,500,000 shares
Other Stock-Based Awards
  Maximum 1,500,000 shares to any one individual
 
Administration.  Unless otherwise specified by the Board, the Compensation Committee is the Plan Administrator with respect to all Covered Employees and all Section 16 Insiders and the Management Committee is the Plan Administrator with respect to all other employees. The Management Committee will consist of the CEO, provided that such individual is a member of the Board, and any other member of the Board as the Board may determine from time to time. The Plan Administrator is responsible for administering the Omnibus Plan and has the discretionary power to interpret the terms and intent of the Omnibus Plan and any related documentation, to determine eligibility for awards and the terms and conditions of awards, to adopt rules, regulations, forms, instruments and guidelines and to exercise such powers and perform such acts as are deemed necessary or advisable to promote the best interests of Anadarko with respect to the Omnibus Plan. Determinations of the Plan Administrator made under the Omnibus Plan are final and binding. The Plan Administrator may rely on officers, employees or other agents of the Company to handle the day-to-day administrative matters of the Omnibus Plan.
 
Award Terms.  All awards to employees under the Omnibus Plan are subject to the terms, conditions and limitations as determined by the Plan Administrator. Awards may be made in combination with, in replacement of, or as alternatives to, grants under the Omnibus Plan or other plans of our Company or subsidiaries, including plans of any acquired entity.
 
Under the Omnibus Plan, employees may be granted either incentive stock options that comply with the requirements of Section 422 of the Internal Revenue Code or nonqualified stock options that do not comply with those requirements. Stock options must have an exercise price per share that is not less than the fair market value of our common stock on the date of grant, except in the case of stock options granted in assumption of, or in substitution for, outstanding awards previously granted by an acquired company or a company with which Anadarko combines. Subject to certain adjustment provisions that only apply to specified corporate events or the approval of our stockholders, the exercise price of all stock options granted under the


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Omnibus Plan may not be decreased. Stock options have a maximum term of ten years from the date of grant. Employees may pay the exercise price with cash or its equivalent, with previously acquired shares of our common stock, or by any other means approved by the Plan Administrator, including by means of a broker-assisted exercise.
 
Stock appreciation rights may be granted under the Omnibus Plan in tandem with a stock option, in whole or in part, or may be granted separately. The exercise price of a stock appreciation right may not be less than the fair market value of our common stock on the date of grant, except in the case of stock appreciation rights granted in assumption of, or in substitution for, outstanding awards previously granted by an acquired company or a company with which Anadarko combines. Subject to certain adjustment provisions that only apply to specified corporate events or the approval of our stockholders, the exercise price of all stock appreciation rights made under the Omnibus Plan may not be decreased. Stock appreciation rights have a maximum term of ten years from the date of grant.
 
A restricted stock award consists of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. Rights to dividends may be extended to and made part of a restricted stock award, at the discretion of the Plan Administrator. A holder of restricted stock is treated as a current stockholder and is entitled to voting rights. A restricted stock unit award results in the transfer of shares of stock to the participant only after specified conditions are satisfied. Rights to dividend equivalents, payable in cash or shares, may be extended to and made part of any restricted stock unit award, at the discretion of the Plan Administrator. A holder of a restricted stock unit award is treated as a stockholder with respect to the award only when the shares of common stock are delivered in the future. Except as permitted by the Plan Administrator and specified in the award agreement, restricted stock and restricted stock unit awards settled in stock that are not performance-based will vest over a minimum period of three years, and restricted stock and restricted stock unit awards settled in stock that are performance-based will vest over a minimum period of one year.
 
A performance award (whether granted as a performance share or a performance unit) consists of a grant made subject to the attainment of one or more performance goals for a specified performance period (as determined by the Plan Administrator) and may be intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code. Performance awards will only be earned by participants if the performance goals are met for the performance period. At the discretion of the Plan Administrator and as prescribed in the award agreement, payment may be made in the form of cash, shares or a combination of cash and shares.
 
Incentive awards consist of grants denominated in cash and may be intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code. The Plan Administrator will determine the performance goals applicable to the payout for incentive awards to Covered Employees for each performance period. The Compensation Committee cannot adjust an incentive award upward for a Covered Employee, but retains the discretion to adjust the incentive award downward. At the discretion of the Plan Administrator, payment of incentive awards may be made in cash and/or other equity-based awards as provided under the Omnibus Plan and will be paid no later than March 15 following the end of the calendar year for which the incentive awards are applicable.


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For any awards intended to meet the requirements of Section 162(m) of the Internal Revenue Code, the grant or vesting of such awards may be based upon one or more performance goals that apply to the specified participant, one or more business units of the company, or the Company as a whole. Prior to the payment of any award based on the achievement of performance goals intended to qualify under Section 162(m) of the Internal Revenue Code, the Compensation Committee must certify in writing that the applicable performance goals and any material terms were, in fact, satisfied. The business criteria (defined as “Performance Goals” under the Omnibus Plan) on which performance goals intended to qualify compensation as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code may be based are:
 
             
Financial Goals
  • Earnings

• Revenues

• Debt level

• Cost reduction targets

• Interest-sensitivity gap levels

• EBITDAX
 
• Earnings per share

• Cash flow from operations

• Equity ratios

• Capital expended

• Weighted average cost of capital

• Return on assets

• Debt/proved developed reserves (PDP)
 
• Net income

• Free cash flow

• Expenses

• Working capital

• Operating or profit margin

• Return on equity or capital employed

• Debt/proved reserves
             
Operating Goals  
• Amount of the oil and gas reserves
  • Oil and gas reserve additions

• Costs of finding oil and gas reserves
  • Oil and gas replacement ratios

• Natural gas and/or oil production
             
Corporate and Other Goals
  • Total shareholder return

• Asset quality levels

• Investments

• Satisfactory internal or external audits

• Achievement of balance sheet or income statement objectives
  • Market share

• Assets

• Asset sale targets

• Value of assets

• Employee retention/attrition rates

• Improvement of financial ratings
  • Charge-offs

• Non-performing assets

• Fair Market Value of Common Stock

• Regulatory compliance

• Safety targets

• Economic value added
 
Cash awards may be made to participants as determined by the Plan Administrator. The Plan Administrator will determine the terms and conditions of such cash awards, including whether the payout of such awards is subject to the achievement of performance goals.
 
Other stock-based awards may be equity-based or equity-related awards other than stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares or performance units. The terms and conditions of other stock-based awards will be determined by the Plan Administrator. Payment under any other stock-based awards may be made in common stock or cash, as determined by the Plan Administrator.
 
Termination of Employment.  Unless otherwise specified in a participant’s award agreement, all unvested and/or unexercisable awards will automatically be forfeited upon termination of employment for any reason. With respect to options or stock appreciation rights, the participant will have at least three (3) months following termination in which to exercise the vested portion of the awards. In the event of a termination for cause (as defined in the Omnibus Plan), all of a participant’s awards, whether vested or unvested, exercisable or unexercisable, will automatically be forfeited. The Plan Administrator will have sole discretion for determining termination provisions for awards.
 
Treatment of Awards Upon a Change of Control.  In the event of a “change of control” of Anadarko, as defined in the Omnibus Plan, any outstanding stock option or stock appreciation right will become fully


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exercisable, and any outstanding performance share, performance unit, restricted stock, restricted stock unit, other stock-based award or other cash award that was forfeitable will become non-forfeitable and fully vested, and to the extent applicable, will be converted into shares of Anadarko common stock or cash, as applicable.
 
Clawback Provision.  In the event the Company is required to prepare an accounting restatement as a result of material noncompliance, the Plan Administrator may determine that a Participant who is deemed to have knowingly engaged or failed to prevent such misconduct will be required to reimburse the Company an amount equal to any Award earned or accrued during the 12-month period following the first public issuance or filing with the United Stated Securities and Exchange Commission.
 
Transferability of Awards.  Award rights may not be transferred, assigned, pledged or hypothecated in any manner other than by will or by the applicable laws of descent and distribution unless the Participant has received the Company’s prior written consent. However, as outlined in the Omnibus Plan, certain transfers may be made to “permitted transferees” upon approval of the Plan Administrator.
 
Amendment to the Plan.  Subject to the Board of Directors, the Plan Administrator may amend the Omnibus Plan as it may deem proper and in the best interests of Anadarko, provided however that to the extent required by applicable law, regulation or stock exchange rule, stockholder approval will be required. No change can be made to any award granted under the Omnibus Plan without the consent of the participant if such change would impair the right of the participant under the provisions of the award to acquire or retain common stock or cash that the participant may have otherwise acquired.
 
U.S. Federal Income Tax Consequences
 
The following is a brief description of the federal income tax treatment that will generally apply to awards made under the Omnibus Plan, based on federal income tax laws currently in effect. The summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. The exact federal income tax treatment of an award will depend on the specific nature and form of such award.
 
Incentive Stock Options.  An employee generally will not recognize taxable income upon grant or exercise of an incentive stock option. However, the amount by which the fair market value of the shares on the exercise date of an incentive stock option exceeds the purchase price generally will constitute an item of adjustment for alternative minimum tax purposes, and may therefore result in alternative minimum tax liability to the option holder. Incentive stock option tax treatment will be available only if the participant has been an employee of Anadarko or its subsidiaries within three months of the date of exercise. Anadarko will not be entitled to any business expense deduction on the grant or exercise of an incentive stock option. If the employee has held the shares acquired upon exercise of an incentive stock option for at least two years after the date of grant and for at least one year after the date of exercise, upon disposition of the shares by the employee, the difference, if any, between the sales price of the shares and the exercise price of the option will be treated as a long-term capital gain or loss. If the employee does not satisfy these holding period requirements (a “disqualifying disposition”), the employee will generally recognize ordinary income for the year of disposition, in an amount equal to the excess of the fair market value of the shares on the date the option was exercised over the option exercise price (or, if less, the amount realized upon disposition over the exercise price). Any excess of the amount realized by the employee on the disqualifying disposition over the fair market value of the shares on the date of exercise of the option will be a short-term capital gain. Anadarko generally will be entitled to a deduction in the year of disposition equal to the amount of ordinary income recognized by the employee. The employee’s basis in the shares acquired upon exercise of an incentive stock option is equal to the exercise price paid, plus any amount includible as ordinary income as a result of a disqualifying disposition. A subsequent disqualifying disposition of shares acquired upon exercise of an incentive stock option will eliminate the alternative minimum taxable income adjustment if the disposition occurs in the same taxable year as the exercise. A disqualifying disposition in a subsequent taxable year will not affect the alternative minimum tax computation in the earlier year.
 
Nonqualified Stock Options.  An employee will not recognize any income at the time of grant of a nonqualified stock option and Anadarko will not be entitled to a tax deduction with respect to such grant.


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Generally, upon exercise of a nonqualified stock option, the employee will recognize ordinary income in an amount equal to the amount by which the fair market value of the shares on the date of exercise exceeds the exercise price of the option. Subject to any deduction limitation under Section 162(m) of the Code (which is discussed below), Anadarko will be entitled to a federal income tax deduction in the year of exercise in the same amount as the taxable compensation recognized by the employee. The employee’s basis in the stock for purposes of measuring the amount of gain will be the exercise price paid to Anadarko plus the amount of compensation includible in income at the time of exercise. An employee’s subsequent disposition of shares acquired upon the exercise of a nonqualified stock option will ordinarily result in long-term or short-term capital gain or loss, depending on the holding period of the shares.
 
Generally, the shares received on exercise of an option or stock appreciation right under the Omnibus Plan are not subject to restrictions on transfer or risks of forfeiture and, therefore, the participant will recognize income on the date of exercise of a nonqualified stock option or stock appreciation right. However, if the optionee is subject to Section 16(b) of the Exchange Act, the Section 16(b) restriction will be considered a substantial risk of forfeiture for tax purposes. Under current law, employees who are either directors or officers of the Company will be subject to restrictions under Section 16(b) of the Exchange Act during their term of service and for up to six months after termination of service. Exchange Act Rule 16b-3 provides an exemption from the restrictions of Section 16(b) for the grant of derivative securities, such as stock options, under qualifying plans. The Omnibus Plan is intended to satisfy the requirements for exemption under Exchange Act Rule 16b-3. Therefore, the grant of awards will not be considered a purchase and the exercise of the awards to acquire the underlying shares of the Company common stock will not be considered a purchase or a sale. Thus, ordinary income will be recognized and measured on the date of exercise.
 
Payment of Option Exercise Price in Shares.  If a nonqualified option is exercised by tendering previously owned shares of Anadarko common stock in payment of the exercise price, then, instead of the treatment described above, the tender generally will not be considered a taxable disposition of the previously owned shares and no gain or loss will be recognized with respect to the equivalent number of new shares (the “exchanged shares”) acquired at the time of exercise. The employee’s basis and holding period for the exchanged shares will be the same as the previously owned shares exchanged. The employee will, however, have ordinary income equal to the fair market value on the date of exercise of the new additional shares received in excess of the number of exchanged shares. The employee’s basis in the new additional shares will be equal to the amount of such compensation income and the holding period will begin on the date of exercise. However, if an incentive stock option is exercised by tendering previously owned shares of Anadarko common stock in payment of the exercise price, if the previously owned shares were acquired on the exercise of an incentive stock option and have not satisfied statutory holding period requirements, a disqualifying disposition will occur and the employee will recognize income and be subject to other basis allocation and holding period adjustments with respect to the exchanged shares.
 
Stock Appreciation Rights and Performance Awards.  When stock appreciation rights are exercised or when performance awards are settled or paid, the amount of cash and the fair market value of property received by the employee (including shares) will be ordinary income, unless the property is subject to transfer restrictions or forfeiture.
 
Restricted Stock.  Restricted Stock granted under the Omnibus Plan may, in the determination of the Plan Administrator, be subject to rights of repurchase, forfeiture and other transfer restrictions. The tax consequences of stock granted under the Omnibus Plan depends on whether the stock is subject to restrictions and, if so, whether the restrictions are deemed to create a “substantial risk of forfeiture” under Section 83 of the Code (for example, stock granted under the Omnibus Plan that is subject to forfeiture if the employee terminates employment prior to the time the restrictions lapse, which right lapses over a period of continued employment, is considered a “substantial risk of forfeiture” under Section 83 of the Code). If stock is not subject to a “substantial risk of forfeiture,” the employee normally will recognize taxable ordinary income equal to the value of the stock on the date on which the stock is granted less any amount paid for that stock. If the stock is subject to a “substantial risk of forfeiture,” the employee normally will recognize taxable ordinary income as and when the “substantial risk of forfeiture” lapses in the amount equal to the fair market value of the shares at the time they are no longer subject to the “substantial risk of forfeiture” less the amount


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paid for the stock. Upon disposition of the stock, the employee will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for the stock plus any amount recognized as ordinary income upon grant or vesting of the stock. The gain or loss will be long- or short-term depending on how long the employee held the stock.
 
A recipient of stock subject to a “substantial risk of forfeiture” may make an election under Code Section 83(b) to recognize ordinary income on the date the employee receives the restricted stock, rather than waiting until the “substantial risk of forfeiture” lapses. If the employee makes a Section 83(b) election, the employee will be required to recognize as ordinary income on the date the employee receives the stock grant the difference, if any, between the fair market value of the stock on the award date and the purchase price paid. If the employee makes a Section 83(b) election, the employee will not be required to recognize any income when the “substantial risk of forfeiture” lapses.
 
The shares acquired will have a cost basis equal to the fair market value on the date the restrictions lapse (or the date of grant if a Section 83(b) election is made). When the employee disposes of the shares acquired, any amount received in excess of the share’s cost basis will be treated as long- or short-term capital gain, depending upon the holding period of the shares. If the amount the employee receives is less than the cost basis of the shares, the loss will be treated as long- or short-term capital loss, depending upon the holding period of the shares.
 
Other Awards.  In addition to the types of awards described above, the Omnibus Plan authorizes certain other awards that may include payments in cash, common stock, or a combination of cash and common stock. The tax consequences of such awards will depend upon the specific terms of such awards. Generally, however, a participant who receives an award payable in cash will recognize ordinary income with respect to such award at the earliest time at which the participant has an unrestricted right to receive the amount of the cash payment, and the Company will be entitled to a corresponding deduction at that time. In general, the sale or grant of stock to a participant under the Omnibus Plan will be a taxable event at the time of the sale or grant if such stock at that time is not subject to a substantial risk of forfeiture or is transferable within the meaning of Section 83 of the Internal Revenue Code in the hands of the participant. (For such purposes, stock is ordinarily considered to be transferable if it can be transferred to another person who takes the stock free of any substantial risk of forfeiture.) In such case, the participant will recognize ordinary income, and the Company will be entitled to a deduction, equal to the excess of the fair market value of such stock on the date of the sale or grant over the amount, if any, paid for such stock. Stock that at the time of receipt by a participant is subject to a substantial risk of forfeiture and that is not transferable within the meaning of Section 83 generally will be taxed under the rules applicable to Restricted Stock as described above.
 
Other Tax Issues.  The terms of awards granted under the Omnibus Plan may provide for accelerated vesting or payment of an award in connection with a change of control of the Company. In that event and depending upon the individual circumstances of the recipient, certain amounts with respect to such awards may constitute “excess parachute payments” under the “golden parachute” provisions of the Internal Revenue Code. Pursuant to these provisions, a participant will be subject to a 20% excise tax on any “excess parachute payments” and the Company will be denied any deduction with respect to such payment.
 
In general, Section 162(m) of the Internal Revenue Code imposes a $1,000,000 limit on the amount of compensation that may be deducted by the Company in any tax year with respect to the Company’s named executive officers, including any compensation relating to an award granted under the Omnibus Plan. Compensation that is considered to be performance-based will not have to be taken into account for purposes of the $1,000,000 limitation, and accordingly, should be deductible by the Company without limitation under Section 162(m). Provided an option is approved by a committee comprised of two or more “outside directors,” has an exercise price of at least fair market value on the date of grant, the plan under which the option is granted imposes a per person limit on the number of shares covered by awards and the material terms of the plan under which the option is granted have been disclosed to and approved by stockholders, any compensation deemed paid by the Company in connection with the disqualifying disposition of incentive stock option shares or the exercise of non-statutory options will qualify as performance-based compensation for purposes of Section 162(m). An award may also qualify as performance-based compensation if the administrator conditions


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the grant, vesting, or exercisability of such an award on the attainment of a pre-established objective performance goal.
 
If any award granted under the Omnibus Plan is considered deferred compensation under Internal Revenue Code Section 409A, then certain requirements must be met for the deferral to be effective for federal tax purposes. These requirements include: ensuring that any election to defer made by the employee is done within the time period(s) permitted by Section 409A; certain limitations on distributions; and, the prohibition of accelerating the time or schedule of any payment of deferred amounts except in certain permitted circumstances. If these requirements are not met, the employee will be immediately taxable on such purportedly deferred amounts, a penalty of 20% of such amounts deferred after December 31, 2004 will be imposed, and interest will accrue at the underpayment rate plus one percent on the underpayments that would have occurred had the compensation been includible in the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture.
 
The taxable income resulting from awards under the Omnibus Plan, other than incentive stock options, will constitute wages subject to withholding and the Company will be required to make whatever arrangements are necessary to ensure that funds equaling the amount of tax required to be withheld are available for payment, including the deduction of required withholding amounts from the employee’s other compensation and requiring payment of withholding amounts as part of the exercise price or as a condition to receiving shares pursuant to an award. The Company will generally be required to withhold applicable taxes with respect to any ordinary income recognized by a participant in connection with awards made under the Omnibus Plan. Whether or not such withholding is required, the Company will report such information to the Internal Revenue Service as may be required with respect to any income attributable to transactions involving awards.
 
Dividends paid on the restricted shares prior to the lapse of restrictions will be taxable as additional compensation income to the recipient in the year received and subject to withholding.
 
New Plan Benefits
 
All awards granted under the Omnibus Plan are subject to the discretion of Anadarko’s Compensation Committee or the Board of Directors, as appropriate. Therefore, the total benefits that will be received by any particular person or group under the Omnibus Plan are not determinable at this time. To date, no awards have been made under the Omnibus Plan. The closing price of a share of Anadarko common stock as reported by the NYSE on March 14, 2008 was $64.50.
 
For more information on the number of shares subject to outstanding options, warrants, and rights and other awards under the Prior Plans, see the supplemental equity compensation plans table on page 56 of this proxy statement.
 
The approval of the Omnibus Plan requires the affirmative vote of a majority of the votes cast on the proposal, provided that the total votes cast represent a majority of all shares entitled to vote. Abstentions and broker non-votes are not counted as votes cast, and therefore do not affect the outcome of the proposal.
 
For the reasons stated above, THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE 2008 OMNIBUS INCENTIVE COMPENSATION PLAN.
 
2008 DIRECTOR COMPENSATION PLAN
 
ITEM 4 — APPROVAL OF THE 2008 DIRECTOR COMPENSATION PLAN
 
We currently maintain the 1998 Director Stock Plan (or the 1998 Plan) from which we make equity awards to non-employee directors. The 1998 Plan also allows our directors to elect payment of all or a portion of their fees and retainers in common shares. While an adequate number of common shares remain under the 1998 Plan, we believe that the 2008 Director Compensation Plan (or the Director Plan) incorporates additional flexibility that is required to design and offer competitive compensation programs for non-employee directors. Following stockholder approval of the Director Plan, all future equity awards and director compensation will


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be made from the Director Plan and we will not grant any additional equity awards under the 1998 Plan. Equity awards previously granted under the 1998 Plan will remain outstanding in accordance with their terms.
 
In addition to providing for the payment of Board and Committee service, the Director Plan provides for the granting of equity awards in any combination of the following:
 
  •  nonqualified stock options;
 
  •  stock appreciation rights;
 
  •  restricted stock and/or restricted stock units; and
 
  •  other stock-based awards.
 
We are seeking stockholder approval for a maximum authorization of 1,500,000 common shares under the Director Plan.
 
Importantly, the Director Plan does not allow downward repricing of stock options (without stockholder consent), reloads or the granting of discounted options.
 
The following is a general summary of the material provisions of the Director Plan and is qualified in its entirety by the full text of the Director Plan, which is attached to this proxy statement as Appendix B. Capitalized terms not defined in the summary are defined in the plan document.
 
Term of Plan.  The Director Plan will expire 10 years from date of stockholder approval.
 
Administration.  In the absence of a specific Board designation to the contrary, the Director Plan will be administered by the Compensation Committee. The Compensation Committee will interpret the Director Plan, will prescribe, amend and rescind rules relating to the Plan as it deems proper and in the best interest of Anadarko and will take any other actions necessary for the administration of the Plan.
 
Participants.  Each non-employee director of Anadarko will be eligible to participate in the Director Plan immediately upon his or her election to our Board of Directors. As of February 12, 2008, the date the Board adopted the Plan, there were nine directors eligible to participate.
 
Shares Authorized.  Subject to stockholder approval, a maximum authorization of 1,500,000 common shares is reserved for issuance under the Director Plan. The shares to be delivered under the Director Plan may be made available from any combination of shares held in Anadarko’s treasury or authorized but unissued shares of Anadarko’s common stock.
 
The Director Plan is a flexible authorization plan. Shares issued as full value awards (that is, awards other than stock options or stock appreciation rights) count against the Director Plan’s share authorization at a rate of 2.27 to 1, while shares issued as stock options or stock appreciation rights count against the share authorization at a rate of 1 to 1.
 
Shares are counted against the authorization only to the extent they are actually issued. Shares which terminate by expiration, forfeiture, cancellation, or otherwise are settled in cash in lieu of shares, or exchanged for awards not involving shares, will again be available for grant under the Director Plan. The full number of Stock Appreciation Rights granted that are to be settled by the issuance of shares will be counted against the number of shares authorized for award under the Director Plan, regardless of the number of shares actually issued upon settlement of such Stock Appreciation Rights. Any shares of stock withheld to satisfy tax withholding obligations, shares tendered to pay the exercise price of an award and shares repurchased on the open market with the proceeds of an option exercise will not be eligible to again be available for grant.
 
The number of shares authorized to be issued under the Director Plan will be subject to adjustments for stock dividends, stock splits, recapitalizations, mergers, or similar corporate events. No adjustments will be made if such adjustments would result in adverse taxation to a participant under Section 409A of the Internal Revenue Code.
 
Award Terms.  All awards to non-employee directors under the Director Plan are subject to the terms, conditions and limitations as determined by the Plan Administrator.


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Under the Director Plan, non-employee directors may be granted nonqualified stock options. Stock options must have an exercise price per share that is not less than the fair market value of our common stock on the date of grant, except in the case of stock options granted in assumption of, or in substitution for, outstanding awards previously granted by an acquired company or a company with which Anadarko combines. Subject to certain adjustment provisions that only apply to specified corporate events or the approval of our stockholders, the exercise price of all stock options granted under the Director Plan may not be decreased. Stock options have a maximum term of ten years from the date of grant. Non-employee directors may pay the exercise price with cash or its equivalent, with previously acquired shares of our common stock, or by any other means approved by the Plan Administrator, including by means of a broker-assisted exercise.
 
Stock appreciation rights may be granted under the Director Plan in tandem with a stock option, in whole or in part, or may be granted separately. The exercise price of a stock appreciation right may not be less than the fair market value of our common stock on the date of grant, except in the case of stock appreciation rights granted in assumption of, or in substitution for, outstanding awards previously granted by an acquired company or a company with which Anadarko combines. Subject to certain adjustment provisions that only apply to specified corporate events or the approval of our stockholders, the exercise price of all stock appreciation rights made under the Director Plan may not be decreased. Stock appreciation rights have a maximum term of ten years from the date of grant.
 
A restricted stock award consists of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. Rights to dividends may be extended to and made part of a restricted stock award, at the discretion of the Plan Administrator. A holder of restricted stock is treated as a current stockholder and is entitled to voting rights. A restricted stock unit award results in the transfer of shares of stock to the participant only after specified conditions are satisfied. Rights to dividend equivalents, payable in cash or shares, may be extended to and made part of any restricted stock unit award, at the discretion of the Plan Administrator. A holder of a restricted stock unit award is treated as a stockholder with respect to the award only when the shares of common stock are delivered in the future. Except as permitted by the Plan Administrator and specified in the award agreement, restricted stock and restricted stock unit awards will be subject to a time vesting period of no less than one year from the date of grant.
 
Board Compensation.  The Board of Directors will establish, by resolution or otherwise, from time to time, the amount of each participant’s compensation. For purposes of the Director Plan, the term “compensation” means the participant’s annual retainer and meeting fees, if any, for each regular or special meeting of the Board and for any committee meetings attended. Such compensation will be determined in accordance with our By-Laws and will be paid, unless deferred by the participant in accordance with the terms of the Director Plan or our Deferred Compensation Plan, within thirty days after the end of the Plan Quarter (as defined in the Director Plan) in which it is earned. The Plan Administrator, if necessary, may determine prior to the beginning of the applicable Plan Quarter for which the compensation is to be paid that payment will be made at a later date.
 
By December 31 of the calendar year, or at such later time as may be provided under Section 409A of the Internal Revenue Code, a participant will be entitled to elect to receive his or her compensation for the following year in any combination of cash, deferred cash, common stock and deferred shares of common stock. If no election is received for the specified year, the participant will be deemed to have made an election to receive their compensation in the form of undeferred cash. Elections are irrevocable and will apply to the compensation earned during the year for which the election is effective.
 
If a participant elects to have all or a specified percentage of his or her compensation for a given year deferred in cash or shares of common stock, such cash or common stock, as the case may be, will be recorded in a deferred account as of the date the compensation otherwise would have been paid. If a participant elects to defer compensation in cash, the participant’s deferred account will be credited with an amount equal to the amount deferred. Deferred cash elections are only available pursuant to the Director Plan if the participant is not otherwise eligible to participate in one of our other deferred compensation plans or programs which allow participants to defer their cash compensation. If a participant elects to defer compensation in the form of


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shares of deferred common stock, or if an amount is required to be taken in shares of deferred common stock, the participant’s account will be credited with an amount equal to the amount deferred plus a premium (or Conversion Premium), as may be specified by the Board, for the purpose of determining the number of shares of common stock which will be credited to the participant’s account (or Common Stock Deferral).
 
The actual number of shares of common stock which will be credited to the participant’s deferred account will equal the Common Stock Deferral divided by the fair market value of the common stock on the applicable Payment Date (as defined in the Director Plan). With respect to shares of common stock credited to a participant’s deferred account, the participant will have the right to receive dividend equivalents and other distributions thereon. The Board or Compensation Committee may determine that dividend equivalents and other distributions will be paid in cash on a current basis or reinvested promptly in additional shares of common stock and such additional shares will be credited to the participant’s deferred account.
 
Payment.  Payment of compensation deferred by a participant generally will be made or, in the case of installments over a period of years, begin to be made in the month following the date on which the participant ceases to be a director of Anadarko. As directed by the election made by the participant at the time of deferral, deferred cash will be paid in either an immediate lump-sum cash payment, a lump sum cash payment at a specified future date or in periodic installments over a specified period of years. As directed by the participant’s election made at the time of deferral, deferred common stock will be distributed to the participant in either an immediate lump-sum distribution, a lump sum distribution at a specified future date or annual installments over a specified period of years; provided, however, such distribution may be delayed until a later date as may be necessary to comply with Section 16(b) of the Securities Exchange Act of 1934, as amended. The amount which will be paid and/or distributed to a participant (or to the participant’s beneficiary in the case of a participant’s death) will equal the amount credited to the participant’s deferred account in the form of cash, plus any interest thereon, plus a number of shares of common stock equal to the number of whole shares credited to the participant’s deferred account. No fractional shares of common stock will be distributed. The value of any fractional shares of common stock will be paid in a lump-sum cash payment.
 
The balances of a participant’s deferred account will be distributed in full to the participant’s beneficiary in the event of a participant’s death or Permanent Disability (as defined in the Director Plan). In the case of an unforeseeable emergency (as defined in the Director Plan), a participant may request a distribution from his or her deferred account in accordance with Section 409A of the Internal Revenue Code.
 
Change of Control.  In the event of a change of control, all stock options, stock appreciation rights and other stock-based awards will become fully vested and exercisable and the restriction periods applicable to shares of restricted stock and restricted stock units will immediately lapse. Irrespective of a participant’s deferral elections, all cash deferrals and stock deferrals will be paid to a participant (or his or her beneficiary in the case of the participant’s death) within 30 days after the date of the change of control, or at a later time as may be required to enable the participant to avoid liability under Section 16(b) of the Exchange Act. However, the accelerated vesting of restricted stock, restricted stock units and other stock-based awards and the immediate payment of cash deferrals and stock deferrals will not be made to a participant if, following a change of control, the participant continues to serve as a member of the Board of the Company or its successor.
 
For purposes of the Director Plan, Change of Control has the same meaning given such term in the 2008 Omnibus Incentive Compensation Plan, which is subject to the approval of Anadarko’s stockholders at the Annual Meeting.
 
Termination and Amendment.  Subject to our Board of Directors, the Compensation Committee may from time to time amend the Plan as it may deem proper and in the best interest of Anadarko; provided, however, stockholder approval will be requested to the extent required by applicable law, regulation or stock exchange. Subject to Section 409A of the Internal Revenue Code, the Board of Directors may suspend or terminate the Plan at any time. No amendment, suspension or termination may impair the right of a participant (or his or her beneficiary in the case of the participant’s death) to receive benefits accrued under the Director Plan prior to the effective date of such amendment, suspension or termination.


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U.S. Federal Income Tax Consequences
 
The following is a brief description of the federal income tax treatment that will generally apply to awards made under the Director Plan, based on federal income tax laws currently in effect. The summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. The exact federal income tax treatment of an award will depend on the specific nature and form of such award.
 
Nonqualified Stock Options.  A participant will not recognize any income at the time of grant of a nonqualified stock option and Anadarko will not be entitled to a tax deduction with respect to such grant. Generally, upon exercise of a nonqualified stock option, the participant will recognize ordinary income in an amount equal to the amount by which the fair market value of the shares on the date of exercise exceeds the exercise price of the option. Anadarko will be entitled to a federal income tax deduction in the year of exercise in the same amount as the taxable compensation recognized by the participant. The participant’s basis in the stock for purposes of measuring the amount of gain will be the exercise price paid to Anadarko plus the amount of compensation includible in income at the time of exercise. A participant’s subsequent disposition of shares acquired upon the exercise of a nonqualified stock option will ordinarily result in long- or short-term capital gain or loss, depending on the holding period of the shares.
 
Generally, the shares received on exercise of an option or stock appreciation right under the Director Plan are not subject to restrictions on transfer or risks of forfeiture and, therefore, the participant will recognize income on the date of exercise of a nonqualified stock option or stock appreciation right. However, if the optionee is subject to Section 16(b) of the Exchange Act, the Section 16(b) restriction will be considered a substantial risk of forfeiture for tax purposes. Under current law, directors of the Company will be subject to restrictions under Section 16(b) of the Exchange Act during their term of service and for up to six months after termination of service. Exchange Act Rule 16b-3 provides an exemption from the restrictions of Section 16(b) for the grant of derivative securities, such as stock options, under qualifying plans. The Director Plan is intended to satisfy the requirements for exemption under Exchange Act Rule 16b-3. Therefore, the grant of awards will not be considered a purchase and the exercise of the awards to acquire the underlying shares of the Company common stock will not be considered a purchase or a sale. Thus, ordinary income will be recognized and measured on the date of exercise.
 
Payment of Option Exercise Price in Shares.  If a nonqualified option is exercised by tendering previously owned shares of Anadarko common stock in payment of the exercise price, then, instead of the treatment described above, the tender generally will not be considered a taxable disposition of the previously owned shares and no gain or loss will be recognized with respect to the equivalent number of new shares (the “exchanged shares”) acquired at the time of exercise. The participant’s basis and holding period for the exchanged shares will be the same as the previously owned shares exchanged. The participant will recognize ordinary income equal to the fair market value on the date of exercise of the new shares received in excess of the number of exchanged shares. The participant’s basis in the new additional shares will be equal to the amount of such income and the holding period will begin on the date of exercise.
 
Stock Appreciation Rights.  When stock appreciation rights are exercised, the amount of cash and the fair market value of property received by the participant (including shares) will be ordinary income, unless the property is subject to transfer restrictions or forfeiture.
 
Restricted Stock.  Restricted Stock granted under the Director Plan may, in the determination of the Plan Administrator, be subject to rights of repurchase, forfeiture and other transfer restrictions. The tax consequences of stock granted under the Director Plan depends on whether the stock is subject to restrictions and, if so, whether the restrictions are deemed to create a “substantial risk of forfeiture” under Section 83 of the Code (for example, stock granted under the Director Plan that is subject to forfeiture if the director terminates service prior to the time the restrictions lapse, which right lapses over a period of continued service, is considered a “substantial risk of forfeiture” under Section 83 of the Code). If stock is not subject to a “substantial risk of forfeiture,” the participant normally will recognize taxable ordinary income equal to the value of the stock on the date on which the stock is granted less any amount paid for that stock. If the stock is subject to a “substantial risk of forfeiture,” the participant normally will recognize taxable ordinary income as


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and when the “substantial risk of forfeiture” lapses in the amount equal to the fair market value of the shares at the time they are no longer subject to the “substantial risk of forfeiture” less the amount paid for the stock. Upon disposition of the stock, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for the stock plus any amount recognized as ordinary income upon grant or vesting of the stock. The gain or loss will be long- or short-term depending on how long the participant held the stock.
 
A recipient of stock subject to a “substantial risk of forfeiture” may make an election under Code Section 83(b) to recognize ordinary income on the date the participant receives the restricted stock, rather than waiting until the “substantial risk of forfeiture” lapses. If the participant makes a Section 83(b) election, the participant will be required to recognize as ordinary income on the date the participant receives the stock grant the difference, if any, between the fair market value of the stock on the award date and the purchase price paid. If the participant makes a Section 83(b) election, the participant will not be required to recognize any income when the “substantial risk of forfeiture” lapses.
 
The shares acquired will have a cost basis equal to the fair market value on the date the restrictions lapse (or the date of grant if a Section 83(b) election is made). When the participant disposes of the shares acquired, any amount received in excess of the share’s cost basis will be treated as long- or short-term capital gain, depending upon the holding period of the shares. If the amount the participant receives is less than the cost basis of the shares, the loss will be treated as long- or short-term capital loss, depending upon the holding period of the shares.
 
Other Awards.  In addition to the types of awards described above, the Director Plan authorizes certain other awards that may include payments in cash, common stock, or a combination of cash and common stock. The tax consequences of such awards will depend upon the specific terms of such awards. Generally, however, a participant who receives an award payable in cash will recognize ordinary income with respect to such award at the earliest time at which the participant has an unrestricted right to receive the amount of the cash payment, and the Company will be entitled to a corresponding deduction at that time. In general, the sale or grant of stock to a participant under the Director Plan will be a taxable event at the time of the sale or grant if such stock at that time is not subject to a substantial risk of forfeiture or is transferable within the meaning of Section 83 of the Internal Revenue Code in the hands of the participant. (For such purposes, stock is ordinarily considered to be transferable if it can be transferred to another person who takes the stock free of any substantial risk of forfeiture.) In such case, the participant will recognize ordinary income, and the Company will be entitled to a deduction, equal to the excess of the fair market value of such stock on the date of the sale or grant over the amount, if any, paid for such stock. Stock that at the time of receipt by a participant is subject to a substantial risk of forfeiture and that is not transferable within the meaning of Section 83 generally will be taxed under the rules applicable to Restricted Stock as described above.
 
Other Tax Issues.  The terms of awards granted under the Director Plan may provide for accelerated vesting or payment of an award in connection with a change of control of the Company. In that event and depending upon the individual circumstances of the recipient (e.g., whether the Director owns more than one percent of the fair market value of all classes of outstanding stock of the Company), certain amounts with respect to such awards may constitute “excess parachute payments” under the “golden parachute” provisions of the Internal Revenue Code. Pursuant to these provisions, a participant will be subject to a 20% excise tax on any “excess parachute payments” and the Company will be denied any deduction with respect to such payment.
 
If any award granted under the Director Plan is considered deferred compensation under Internal Revenue Code Section 409A, then certain requirements must be met for the deferral to be effective for federal tax purposes. These requirements include: ensuring that any election to defer made by the participant is done within the time period(s) permitted by Section 409A; certain limitations on distributions; and, the prohibition of accelerating the time or schedule of any payment of deferred amounts except in certain permitted circumstances. If these requirements are not met, the participant will be immediately taxable on such purportedly deferred amounts, a penalty of 20% of such amounts deferred after December 31, 2004 will be imposed, and interest will accrue at the underpayment rate plus one percent on the underpayments that would


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have occurred had the compensation been includible in the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture.
 
Dividends paid on the restricted shares prior to the lapse of restrictions will be taxable as additional compensation income to the recipient in the year received and subject to withholding.
 
New Plan Benefits
 
The grant of awards under the Director Plan is subject to the discretion of Anadarko’s Compensation Committee or the Board of Directors, as appropriate. It is not possible to specify the amount of benefits that will be paid to each participant under the Director Plan since each participant’s ultimate benefit will depend upon his or her election to receive cash, deferred cash, or deferred shares of common stock. To date, no awards have been granted to participants under the Director Plan. See page 13 of this proxy statement for a more detailed description of the compensation currently paid to Anadarko’s non-employee directors. The closing price of a share of Anadarko common stock as reported by the NYSE on March 14, 2008 was $64.50.
 
For more information on the number of shares subject to outstanding options, warrants, and rights and other awards under the Prior Plans, see the supplemental equity compensation plans table on page 56 of this proxy statement.
 
The approval of the Director Plan requires the affirmative vote of a majority of the votes cast on the proposal, provided that the total votes cast represent a majority of all shares entitled to vote. Abstentions and broker non-votes are not counted as votes cast, and therefore do not affect the outcome of the proposal.
 
For the reasons stated above, THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE 2008 DIRECTOR COMPENSATION PLAN.
 
ITEM 5 — IF PRESENTED, CONSIDER AND VOTE UPON A STOCKHOLDER PROPOSAL REGARDING DECLASSIFICATION OF THE COMPANY’S BOARD OF DIRECTORS
 
Gerald R. Armstrong, located at 820 Sixteenth Street, No. 705, Denver, Colorado 80202-3227, telephone (303) 355-1199, the beneficial owner of more than $2,000 worth of the Company’s common stock, has notified the Company that he intends to present the following resolution at the meeting for action by the stockholders.
 
Proposal by Gerald R. Armstrong
 
RESOLUTION
 
That the shareholders of ANADARKO PETROLEUM CORPORATION request its Board of Directors to take the steps necessary to eliminate classification of terms of the Board of Directors to require that all Directors stand for election annually. The Board declassification shall be completed in a manner that does not affect the unexpired terms of the previously-elected Directors.
 
STATEMENT
 
The proponent believes the election of directors is the strongest way that shareholders influence the directors of any corporation. Currently, our board of directors is divided into three classes with each class serving three-year terms. Because of this structure, shareholders may only vote for one-third of the directors each year. This is not in the best interest of shareholders because it reduces accountability.
 
U. S. Bancorp, Associated Banc-Corp, Piper-Jaffray Companies, Fifth-Third Bancorp, Pan Pacific Retail Properties, Qwest Communications International, Xcel Energy, Greater Bay Bancorp, North Valley Bancorp, Pacific Continental Corporation, Regions Financial Corporation, CoBiz Financial Inc., Marshall & Illsley Corporation, and Wintrust Financial, Inc. are among the corporations electing directors annually because of the efforts of the proponent.


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The performance of our management and our Board of Directors is now being more strongly tested due to economic conditions and the accountability for performance must be given to the shareholders whose capital has been entrusted in the form of share investments.
 
A study by researchers at Harvard Business School and the University of Pennsylvania’s Wharton School titled “Corporate Governance and Equity Prices” (Quarterly Journal of Economics, February, 2003), looked at the relationship between corporate governance practices (including classified boards) and firm performance. The study found a significant positive link between governance practices favoring shareholders (such as annual directors election) and firm value.
 
While management may argue that directors need and deserve continuity, management should become aware that continuity and tenure may be best assured when their performance as directors is exemplary and is deemed beneficial to the best interests of the corporation and its shareholders.
 
The proponent regards as unfounded the concern expressed by some that annual election of all directors could leave companies without experienced directors in the event that all incumbents are voted out by shareholders. In the unlikely event that shareholders do vote to replace all directors, such a decision would express dissatisfaction with the incumbent directors and reflect a need for change.
 
If you agree that shareholders may benefit from greater accountability afforded by annual election of all directors, please vote “FOR” this proposal.
 
Board of Directors’ Statement Regarding Proposal
 
After careful consideration of the stockholder proposal, and on the recommendation of the Nominating and Corporate Governance Committee, the Board has concluded that it is in the best interests of the Company and its stockholders to maintain the Company’s current classified board structure.
 
Under the Company’s Restated Certificate of Incorporation and By-Laws, the Board is divided into three classes, with directors elected to staggered three-year terms. Approximately one-third of the Company’s directors stand for election each year and the entire Board can be replaced in the course of three annual meetings. We believe the Company’s classified board structure strengthens the independence of our non-employee directors and enhances the Board’s ability to develop and execute long-term strategic planning by providing stability, continuity and experience.
 
Independence
 
The Board believes that the longer assured term of office provided by three-year terms, rather than one-year terms, increases the independence of our non-employee directors. With one-year terms, directors are less insulated from management or other groups who may have an agenda that is not aligned with the long-term interests of all stockholders. Independence may also be enhanced when directors are not concerned about being re-nominated by the Company’s other directors every year. The classified current board structure permits our directors to act independently and to focus on the long-term interests of the Company and its stockholders.
 
Stability, Continuity and Experience
 
The Company’s classified board provides stability, continuity, and ensures that a majority of the Company’s directors at any given time have prior experience as directors of the Company. Under the current system, after an election, at least two-thirds of the Board will typically have had at least one year of experience as a director of the Company. Board continuity enables directors to develop substantive knowledge about the Company, its business strategy, and its long-term strategic goals. Directors with three-year terms are able to build on past experience with the Company and their knowledge about its business and affairs and are well positioned to make long-term strategic decisions that are in the best interest of the Company and its stockholders.


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Director Quality
 
A classified Board also assists Anadarko in attracting and retaining highly qualified directors who are willing to make a longer-term commitment to the Company. Directors who agree to serve three-year terms demonstrate a willingness to commit the time and resources necessary to understand the Company, its operations and its competitive environment. Given the current corporate governance climate, in which many qualified individuals are increasingly reluctant to serve on public boards, Anadarko could also be placed at a competitive disadvantage in recruiting qualified director candidates if their Board service could potentially be limited to a one-year period.
 
Accountability
 
The Board also believes that annual elections for each director are not necessary to promote accountability. All directors are required to uphold their fiduciary duties to Anadarko and its stockholders, regardless of the length of their term of office. Accountability depends on the selection of responsible and experienced individuals, not on whether they serve terms of one year or three years.
 
The Board is committed to sound corporate governance practices that will benefit Anadarko’s stockholders and regularly re-examines these practices. The Board has implemented a variety of measures to further foster accountability, including adoption of Corporate Governance Guidelines that focus on the independence and quality of directors, the effective functioning of the Board, and an annual evaluation of the Board and its committees. The Board has further demonstrated this commitment by its recent adoption of a majority vote standard for director elections.
 
Protection Against Unfair and Abusive Takeover Practices
 
A classified Board reduces the Company’s vulnerability to unfriendly or unsolicited takeover tactics that may not be in the best interests of the Company’s stockholders. A classified Board structure encourages potential acquirers to initiate arms-length negotiations with management and seasoned directors. Because only one-third of Anadarko’s directors are elected at any annual meeting of stockholders, at least two annual meetings would be required to replace a majority of the Board and to dismantle other stockholder protection measures. This gives the directors the time and leverage necessary to evaluate the adequacy and fairness of any takeover proposal, consider alternative proposals, and to ultimately negotiate the best result for all stockholders. The classified board structure does not prevent or preclude unsolicited takeover attempts, but it empowers the incumbent Board to negotiate terms to maximize the value of the transaction to all Anadarko’s stockholders.
 
Declassification of the Board would eliminate these benefits and could make the Company a target for unsolicited hostile overtures from investor groups focusing on short-term financial gains. A mere attempt to obtain control, even if unsuccessful, can seriously disrupt the conduct of the business of a company and cause it to incur substantial expense.
 
In particular, in recent years, hedge funds and other activist investors increasingly have been using the threat of a proxy fight to pressure boards to put the company in play or to take other actions that produce short-term gains at the expense of strategies that would achieve meaningful long-term stockholder value. Classified board structures have been shown to be an effective means of protecting long-term stockholder interests against these types of abusive tactics.
 
Recommendation Only
 
This stockholder proposal is a request that the Board take the steps necessary to eliminate the classified board structure. Approval of this proposal by stockholders would not in itself effectuate the changes contemplated by the proposal. Further action by stockholders and the Board would be required to amend the Company’s Restated Certificate of Incorporation and By-Laws.
 
THE BOARD RECOMMENDS THAT YOU VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL.


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ITEM 6 — IF PRESENTED, CONSIDER AND VOTE UPON A STOCKHOLDER PROPOSAL REGARDING AN AMENDMENT TO ANADARKO’S NON-DISCRIMINATION POLICY TO INCLUDE SEXUAL ORIENTATION AND GENDER IDENTITY.
 
The New York City Employees’ Retirement System, together with other related funds, located at 1 Centre Street, New York, NY 10007-2341, telephone (212) 669-2651, is the beneficial owner of more than $2,000 worth of the Company’s common stock, and has notified the Company that it intends to present the following resolution at the meeting for action by the stockholders.
 
SEXUAL ORIENTATION
 
Submitted By William C. Thompson, Jr., Comptroller, City of New York, on
behalf of the Boards of Trustees of the New York City Pension Funds
 
WHEREAS, corporations with non-discrimination policies relating to sexual orientation have a competitive advantage to recruit and retain employees from the widest talent pool;
 
Employment discrimination on the basis of sexual orientation diminishes employee morale and productivity;
 
The company has an interest in preventing discrimination and resolving complaints internally so as to avoid costly litigation and damage its reputation as an equal opportunity employer;
 
Atlanta, Seattle, Los Angeles, and San Francisco have adopted legislation restricting business with companies that do not guaranteed equal treatment for lesbian and gay employees and similar legislation is pending in other jurisdictions;
 
The company has operations in and makes sales to institutions in states and cities which prohibit discrimination on the basis of sexual orientation;
 
A recent National Gay and Lesbian Taskforce study has found that 16% -44% of gay men and lesbians in twenty cities nationwide experienced workplace harassment or discrimination based on their sexual orientation;
 
National public opinion polls consistently find more than three-quarters of the American people support equal rights in the workplace for gay men, lesbians, and bisexuals;
 
A number of Fortune 500 corporations have implemented non-discrimination policies encompassing the following principles:
 
1) Discrimination based on sexual orientation and gender identity will be prohibited in the company’s employment policy statement.
 
2) The company’s non-discrimination policy will be distributed to all employees.
 
3) There shall be no discrimination based on any employee’s actual or perceived health condition, status, or disability.
 
4) There shall be no discrimination in the allocation of employee benefits on the basis of sexual orientation or gender identity.
 
5) Sexual orientation and gender identity issues will be included in corporate employee diversity and sensitivity programs.
 
6) There shall be no discrimination in the recognition of employee groups based on sexual orientation or gender identity.
 
7) Corporate advertising policy will avoid the use of negative stereotypes based on sexual orientation or gender identity.


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8) There shall be no discrimination in corporate advertising and marketing policy based on sexual orientation or gender identity.
 
9) There shall be no discrimination in the sale of goods and services based on sexual orientation or gender identity, and
 
10) There shall be no policy barring on corporate charitable contributions to groups and organizations based on sexual orientation.
 
RESOLVED:  The Shareholders request that management implement equal employment opportunity policies based on the aforementioned principles prohibiting discrimination based on sexual orientation and gender identity.
 
STATEMENT:  By implementing policies prohibiting discrimination based on sexual orientation and gender identity, the Company will ensure a respectful and supportive atmosphere for all employees and enhance its competitive edge by joining the growing ranks of companies guaranteeing equal opportunity for all employees.
 
Board of Directors’ Statement Regarding Proposal
 
Anadarko Petroleum Corporation is proud of its commitment to a diverse and harassment-free workplace. Although the Company has historically had a de facto policy prohibiting discrimination on the basis of sexual orientation, in response to this proposal we recently updated our written policy to reflect this principle. Accordingly, our policy now prohibits discrimination on the basis of race, ethnicity, national origin, color, gender, sexual orientation, age, citizenship, veteran’s status, marital status, disability or any other legally-protected status. You can view our entire Code of Business Conduct and Ethics at http://www.anadarko.com/PDF/CodeBusinessConductEthics2005.pdf. Our corporate values also require our employees to act with the highest ethical standards, respect diversity in thought, practice and culture, and never to tolerate intimidation. We believe that our current policies adequately reflect our strong commitment to non-discrimination, and that we have already substantially implemented the principles reflected in the above proposal. We therefore believe that there is no need to adopt this proposal.
 
THE BOARD RECOMMENDS THAT YOU VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL.
 
BY ORDER OF THE BOARD OF DIRECTORS
 
-s- Robert K. Reeves
 
Robert K. Reeves
Senior Vice President, General Counsel,
Chief Administrative Officer and Corporate Secretary
 
Dated: March 31, 2008
The Woodlands, Texas
 
See enclosed proxy card — please vote promptly
 
Appendices:
 
A — 2008 Omnibus Incentive Compensation Plan
 
B — 2008 Director Compensation Plan


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APPENDIX A
 
 
ANADARKO PETROLEUM CORPORATION
 
2008 OMNIBUS INCENTIVE COMPENSATION PLAN
 
Effective as of [May   , 2008]


A-1


 

TABLE OF CONTENTS
 
                 
SECTION 1 PURPOSES
    A-5  
SECTION 2 DEFINITIONS
    A-5  
 
2.1
    AWARD     A-5  
 
2.2
    AWARD AGREEMENT     A-5  
 
2.3
    BENEFICIARY     A-5  
 
2.4
    BOARD     A-5  
 
2.5
    CASH AWARDS     A-5  
 
2.6
    CAUSE     A-5  
 
2.7
    CHANGE IN CAPITALIZATION     A-6  
 
2.8
    CHANGE OF CONTROL     A-6  
 
2.9
    CODE     A-7  
 
2.10
    COMMON STOCK     A-7  
 
2.11
    COMPANY     A-7  
 
2.12
    COVERED EMPLOYEE     A-7  
 
2.13
    EFFECTIVE DATE     A-7  
 
2.14
    EMPLOYER     A-7  
 
2.15
    EXCHANGE ACT     A-7  
 
2.16
    FAIR MARKET VALUE     A-7  
 
2.17
    FULL VALUE AWARD     A-8  
 
2.18
    INCENTIVE AWARD     A-8  
 
2.19
    INCENTIVE STOCK OPTION     A-8  
 
2.20
    MANAGEMENT COMMITTEE     A-8  
 
2.21
    MAXIMUM ANNUAL EMPLOYEE GRANT     A-8  
 
2.22
    NONQUALIFIED OPTION     A-8  
 
2.23
    OPTION     A-8  
 
2.24
    OPTION PRICE     A-8  
 
2.25
    OTHER STOCK-BASED AWARD     A-8  
 
2.26
    PARTICIPANT     A-8  
 
2.27
    PERFORMANCE GOALS     A-9  
 
2.28
    PERFORMANCE PERIOD     A-10  
 
2.29
    PERFORMANCE SHARES     A-10  
 
2.30
    PERFORMANCE UNITS     A-10  
 
2.31
    PERMITTED TRANSFEREE     A-10  
 
2.32
    PLAN     A-10  
 
2.33
    PLAN ADMINISTRATOR     A-10  
 
2.34
    PRIOR PLANS     A-10  
 
2.35
    RESTRICTED STOCK     A-10  
 
2.36
    RESTRICTED STOCK UNITS     A-10  
 
2.37
    RESTRICTION PERIOD     A-11  
 
2.38
    RULE 16B-3     A-11  
 
2.39
    SECTION 16 INSIDER     A-11  
 
2.40
    SECTION 162(M)     A-11  
 
2.41
    SECTION 409A     A-11  
 
2.42
    SPECIFIED EMPLOYEE     A-11  


A-2


 

                 
 
2.43
    STOCK APPRECIATION RIGHT     A-11  
 
2.44
    SUBSIDIARY     A-11  
SECTION 3 ADMINISTRATION
    A-11  
 
3.1
    PLAN ADMINISTRATOR     A-11  
 
3.2
    AUTHORITY OF PLAN ADMINISTRATOR     A-12  
 
3.3
    INDEMNIFICATION OF PLAN ADMINISTRATOR     A-12  
 
3.4
    DELEGATION TO MANAGEMENT COMMITTEE     A-13  
SECTION 4 ELIGIBILITY
    A-13  
SECTION 5 SHARES AVAILABLE FOR THE PLAN
    A-13  
 
5.1
    AGGREGATE SHARES     A-13  
 
5.2
    LIMITATIONS     A-14  
 
5.3
    ADJUSTMENTS IN AUTHORIZED SHARES     A-14  
 
5.4
    EFFECT OF CERTAIN TRANSACTIONS     A-15  
SECTION 6 STOCK OPTIONS
    A-15  
 
6.1
    GRANT OF OPTIONS     A-15  
 
6.2
    SPECIAL PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS     A-16  
 
6.3
    TERMS OF OPTIONS     A-16  
SECTION 7 STOCK APPRECIATION RIGHTS
    A-19  
 
7.1
    GRANT OF STOCK APPRECIATION RIGHTS     A-19  
 
7.2
    EXERCISE OF STOCK APPRECIATION RIGHTS     A-19  
 
7.3
    SPECIAL PROVISIONS APPLICABLE TO STOCK APPRECIATION RIGHTS     A-19  
 
7.4
    NO REPRICING     A-20  
SECTION 8 PERFORMANCE SHARES AND PERFORMANCE UNITS
    A-20  
 
8.1
    GRANT OF PERFORMANCE SHARES AND PERFORMANCE UNITS     A-20  
 
8.2
    VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS     A-20  
 
8.3
    PAYMENT OF PERFORMANCE SHARES AND PERFORMANCE UNITS     A-20  
 
8.4
    FORM AND TIMING OF PAYMENT     A-20  
SECTION 9 RESTRICTED STOCK
    A-21  
  </