DEF 14A 1 def14a.htm DEF 14A pdce_Current_Folio_DEF14A (2020)

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 ☒

 

Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a‑12

 

 

 

 

PDC ENERGY, INC.

(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):

No fee required.

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

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

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

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

Fee paid previously with preliminary materials.

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

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 

 

 

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PDC ENERGY, INC.

1775 Sherman Street, Suite 3000

Denver, Colorado 80203

(303) 860‑5800

April 8, 2020

Dear Stockholder of PDC Energy, Inc.:

You are cordially invited to attend the 2020 Annual Meeting of PDC Energy, Inc. to be held on May 26, 2020, at 8:00 a.m. Mountain Time, at Lincoln Crossing at 1775 Sherman Street, Denver, Colorado 80203 (the “Annual Meeting”).

The accompanying Notice of Annual Meeting and Proxy Statement 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. 

We hope you will join us at the Annual Meeting. Your vote is extremely important this year regardless of the number of shares you own. We value your opinion and encourage you to participate by voting your proxy card. Whether or not you plan to attend personally, it is important that your shares be represented at the Annual Meeting. You may vote your shares by using the telephone or Internet voting options described in the attached Notice of Annual Meeting and proxy card. If you receive a proxy card by mail, you may cast your vote by completing, signing and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot attend in person.

 

 

 

Sincerely,

 

Picture 1

 

Barton R. Brookman
President and Chief Executive Officer

 

 

 

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON

Tuesday, May 26, 2020

April 8, 2020

To the stockholders of PDC Energy, Inc.:

The 2020 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held on May 26, 2020, at 8:00 a.m. Mountain Time at Lincoln Crossing at 1775 Sherman Street, Denver, Colorado 80203, for the following purposes:

·

To approve a proposal to amend the Company’s Certificate of Incorporation to declassify the Board of Directors (the “Board”) and to provide for the immediate annual election of directors (Proposal No. 1);

·

If Proposal No. 1 to declassify the Board is approved, to elect eight directors nominated by the Board, each for a term of one year (Proposal No. 2);

·

If Proposal No. 1 to declassify the Board is not approved, to elect the two directors nominated by the Board as Class I directors, each for a term of three years (Proposal No. 3);

·

To approve, on an advisory basis, the compensation of the Company’s named executive officers (Proposal No. 4);

·

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020 (Proposal No. 5);

·

To approve an amendment to the Company’s 2018 Equity Incentive Plan to increase the maximum number of shares of common stock of the Company that may be issued pursuant to awards under the 2018 Equity Incentive Plan (Proposal No. 6); and

·

To transact any other business that may properly come before the meeting and at any and all adjournments or postponements thereof.

The Board has fixed the close of business on March 31, 2020 as the record date for determining the stockholders having the right to receive notice of, to attend and to vote at the Annual Meeting or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum.

We intend to hold our annual meeting in person. However, we are sensitive to the public health and travel concerns our stockholders may have and recommendations that public health officials may issue in light of the evolving COVID-19 situation. As a result, we may impose additional procedures or limitations on meeting attendees or may decide to hold the meeting in a different location or solely by means of remote communication (i.e., a virtual-only meeting).  Because there are certain costs associated with holding a

 

virtual-only meeting, we currently plan to address COVID-19 concerns relating to the meeting by having directors and others whose physical presence at the meeting is not essential attend the meeting via teleconference.  In addition, (i) stockholders and others may listen to the meeting in real-time by calling (877) 798-9351 and entering code 2783435992 and (ii) stockholders may submit questions they would like to have answered at the meeting by sending those questions to our Corporate Secretary in advance of the meeting at the address set forth in “Information About Voting and the Meeting—Contact Information”.  We believe that these procedures will reduce risks relating to COVID-19 and provide many of the benefits of a virtual-only meeting while minimizing associated costs.  We will continue to monitor the COVID-19 situation and if changes to our current plan become advisable, we will disclose the updated plan on our proxy website (www.proxyvote.com).  We encourage you to check this website prior to the meeting if you plan to attend.

If you are a record holder of shares, or an owner who owns shares in “street name” and obtains a “legal” proxy from your broker, bank, trustee or nominee, you still may attend the Annual Meeting and vote your shares or revoke your prior voting instructions.

Your vote is especially important to us at this Annual Meeting. Regardless of the number of shares of our common stock that you own, your vote will be very important. Thank you for your continued support, interest and investment in the Company.

 

 

 

By Order of the Board of Directors,

 

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Nicole L. Martinet
Senior Vice President, General Counsel and Secretary

 

 

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PDC ENERGY, INC.


PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS


To be held on May 26, 2020 at
8:00 a.m. Mountain Time at
Lincoln Crossing
1775 Sherman Street

Denver, Colorado 80203

The accompanying proxy is being solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the “Company,” “we,” “us” or “our”) to be voted at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 26, 2020, at 8:00 a.m. Mountain Time and at any and all adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about April 8, 2020, we began mailing proxy materials to stockholders. For information on how to vote your shares, see the instructions included on the proxy card or instruction form described under “Information About Voting and the Meeting” herein.

IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY

OF PROXY MATERIALS FOR THE ANNUAL MEETING

TO BE HELD ON MAY 26, 2020

The Notice of Annual Meeting, the Proxy Statement for the 2020 Annual Meeting, and the 2019 Annual Report, which includes the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2019, are available at www.proxyvote.com.

 

 

TABLE OF CONTENTS

 

 

PROXY STATEMENT SUMMARY 

1

PROPOSAL NO. 1—AMEND THE CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD AND PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF DIRECTORS 

2

PROPOSAL NO. 2—ELECTION OF EIGHT DIRECTORS, IF PROPOSAL NO. 1 IS APPROVED 

4

Board of Directors 

4

Name, Principal Occupation for Past Five Years and Other Directorships 

5

STANDING COMMITTEES OF THE BOARD 

9

Board Meetings and Attendance 

9

2019 Board and Committee Memberships 

9

Audit Committee 

10

Nominating and Governance Committee 

10

Compensation Committee 

10

Board Leadership Structure 

11

DIRECTOR COMPENSATION 

12

Cash Compensation 

12

Equity Compensation 

13

Deferred Compensation 

13

2019 DIRECTOR COMPENSATION 

13

Director Stock Ownership Requirements and Prohibition on Certain Transactions 

14

Director Qualifications and Selection 

14

Stockholder Recommendations 

14

Stockholder Nominations 

15

CORPORATE GOVERNANCE 

15

Governance Highlights 

15

Corporate Governance Guidelines 

16

Uncontested Elections Policy 

16

Code Of Business Conduct And Ethics 

16

Family Relationships And Other Arrangements 

17

Director Independence 

17

The Board’s Role In Risk Management 

17

Transactions with Related Parties 

17

Policies and Procedures with Respect to Transactions with Related Parties 

18

Other Corporate Governance Documents 

18

Communication with Directors by Stockholders 

18

Additional Information 

18

PROPOSAL NO. 3—ELECT TWO CLASS I DIRECTORS, IF PROPOSAL NO. 1 IS NOT APPROVED 

19

PROPOSAL NO. 4—APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS 

20

EXECUTIVE COMPENSATION 

21

Executive Officers 

21

COMPENSATION COMMITTEE REPORT 

22

COMPENSATION DISCUSSION AND ANALYSIS 

23

Executive Summary 

24

Executive Compensation Philosophy 

30

2019 Compensation Program Design and Decisions 

31

2019 CORPORATE METRICS METHODOLOGY 

34

2019 QUANTITATIVE CORPORATE METRICS 

35

Compensation Policies and Practices 

42

Summary Compensation Table 

48

All Other Compensation 

49

Grants of Plan-Based Awards 

50

Outstanding Equity Awards at Fiscal Year-End 

51

Option Exercises and Stock Vested 

53

 

 

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL 

54

Impact of Termination and Change of Control on Long Term Equity-Based Incentive Plans 

56

Change of Control Excise Tax Provision 

57

Estimated Termination and Change in Control Benefits 

58

CEO PAY RATIO 

61

EQUITY COMPENSATION PLAN INFORMATION 

61

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 

62

Delinquent Section 16(A) Reports 

64

PROPOSAL NO. 5—RATIFY THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

65

Audit Committee Pre Approval Policies and Procedures 

66

REPORT OF THE AUDIT COMMITTEE 

67

PROPOSAL NO. 6—APPROVE AN AMENDMENT TO THE 2018 EQUITY INCENTIVE PLAN 

68

ALL OTHER BUSINESS THAT MAY COME BEFORE THE 2020 ANNUAL MEETING 

77

STOCKHOLDER NOMINATIONS AND PROPOSALS 

77

Stockholder Proposals for 2021 Annual Meeting 

77

Advance Notice Procedures Under the Company’s Bylaws 

77

INFORMATION ABOUT VOTING AND THE MEETING 

78

Who May Vote 

78

How Proxies Work 

78

Voting 401(k) and Profit Sharing Plan Shares 

79

Revoking a Proxy 

79

Quorum 

79

Votes Needed 

79

Attending in Person 

80

Conduct of the Meeting 

80

Solicitation of Proxies 

81

Appraisal Rights 

81

Contact Information 

81

HOUSEHOLDING INFORMATION 

82

APPENDIX A Non‑GAAP Financial Measures 

83

APPENDIX B Proposed Amendment to Certificate of Incorporation 

85

APPENDIX C Company’s Certificate of Incorporation, as Amended 

87

APPENDIX D Proposed Amendment to Company’s 2018 Equity Incentive Plan 

92

APPENDIX E Company’s 2018 Equity Incentive Plan, as Amended 

93

 

 

 

 

 

Table of Contents

PDC ENERGY INC. - PROXY STATEMENT

PROXY STATEMENT SUMMARY

This Proxy Statement Summary highlights information contained elsewhere in this document. Please read the entire Proxy Statement carefully before voting.

Annual Meeting of Stockholders

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TIME AND DATE

PLACE

RECORD DATE

8:00 a.m. Mountain Time

on Tuesday, May 26,  2020

Lincoln Crossing
1775 Sherman Street
Denver, Colorado 80203

March 31,  2020

VOTING

Stockholders as of the record date are entitled to vote. To vote via the Internet, by telephone or mail, please refer to the instructions on your proxy card in the postage paid envelope provided.

Voting Matters

 

 

 

 

BOARD
RECOMMENDATION

1

   

PROPOSAL 1    Amend the Certificate of Incorporation to Declassify the Board and Provide for the Immediate Annual Election of Directors

To approve a proposal to amend the Company’s Certificate of Incorporation to declassify the Board and to provide for the immediate annual election of directors.

   

FOR

 

 

 

 

 

2

 

PROPOSAL 2    Election of Eight Directors, If Proposal No. 1 is Approved

If Proposal No. 1 to declassify the Board is approved, to elect eight directors nominated by the Board, each for a term of one year.

 

FOR

 

 

 

 

 

3

 

PROPOSAL 3    Election of Two Class I Directors, If Proposal No. 1 is Not Approved

If Proposal No. 1 to declassify the Board is not approved, to elect the two directors nominated by the Board as Class I directors (David C. Parke and Lynn A. Peterson), each for a term of three years.

 

FOR

 

 

 

 

 

4

 

PROPOSAL 4    Approve Executive Officer Compensation

To approve, on an advisory basis, the compensation of the Company’s named executive officers.

 

FOR

 

 

 

 

 

5

 

PROPOSAL 5    Ratify the Appointment of PricewaterhouseCoopers LLP

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

 

FOR

 

 

 

 

 

6

 

PROPOSAL 6    Approve an Amendment to the 2018 Equity Incentive Plan

To approve an amendment to the Company’s 2018 Equity Incentive Plan to increase the maximum number of shares of common stock of the Company that may be issued pursuant to awards under the 2018 Equity Incentive Plan.

 

FOR

 

 

 

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PDC ENERGY INC. - PROXY STATEMENT

PROPOSAL NO. 1—AMEND THE CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD AND PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF DIRECTORS

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE PROPOSAL TO AMEND THE COMPANY’S CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD AND TO PROVIDE FOR THE IMMEDIATE ANNUAL ELECTION OF DIRECTORS. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

After careful consideration, on February 20, 2020, the Board unanimously approved and declared advisable, and resolved to recommend to the Company’s stockholders that they approve an amendment to Article Fifth of the Certificate of Incorporation to provide for the elimination of the classified structure of the Board and for the annual election of directors (the “Declassification Amendment”). Declassifying the Board will allow the Company’s stockholders to vote on the election of the entire Board each year, rather than on a three-year staggered basis as with the current classified board structure. The proposed amendment to the Certificate of Incorporation is attached as Appendix B to this Proxy Statement. A copy of the full Certificate of Incorporation, which incorporates the changes made by the amendment and marks those changes specifically, is provided as Appendix C to this Proxy Statement.

If the Declassification Amendment is approved by the Company’s stockholders, the Certificate of Incorporation will be amended immediately following such approval and during the Annual Meeting to provide for the immediate annual election of all directors and all eight nominees for director will be proposed for election (see Proposal No. 2). If the Company’s stockholders approve the Declassification Amendment, the Board will be declassified during the Annual Meeting and all of the directors will be proposed for re-election at the meeting.  As of the date of distribution of this Proxy Statement, the Company’s directors whose terms do not expire at the Annual Meeting have acknowledged and agreed that if the Declassification Amendment is approved, their terms shall end at the 2021 annual meeting of stockholders and they will no longer be Class II or III Directors, as applicable. If the Company’s stockholders do not approve the Declassification Amendment, the Board will remain classified and the Company’s stockholders will instead be asked to elect only those two Class I directors proposed for election (see Proposal No. 3). 

In addition, if the Declassification Amendment is approved, the Board intends to adopt conforming amendments to the Company’s Corporate Governance Guidelines.

Current Classified Board Structure

Under Article Fifth of the Certificate of Incorporation, the Board is currently separated into three classes as nearly equal in number as is reasonably possible. Absent the earlier resignation or removal of a director, each year the stockholders are asked to elect the directors comprising one of the classes for a three-year term. The term of the current Class I directors is set to expire at the Annual Meeting. The term of the Class II directors is set to expire in 2021 and the term of the Class III directors is set to expire in 2022. Under the current classified board structure, stockholders may only elect approximately one-third of the Board each year.

Rationale for Declassification

Although the Board believes that the classified board structure has promoted continuity and stability, encouraged a long-term perspective on the part of directors and was beneficial in the event of an unsolicited takeover attempt, the Board recognizes the sentiment of the Company’s stockholders and institutional

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PDC ENERGY INC. - PROXY STATEMENT

investor groups in favor of the annual election of all directors. In response to input from the Company’s stockholders, the Board considered the various positions for and against a classified board and recognized that an annual election fosters Board accountability, enables the Company’s stockholders to express a view on each director's performance by means of an annual vote and supports the Company's ongoing efforts to maintain “best practices” in corporate governance. Based on the Company's desire to maintain best practices in corporate governance, as well as input received from the Company’s stockholders, the Company is proposing the immediate elimination of its classified board at the Annual Meeting.

Stockholder Approval Required

The approval of this Proposal No. 1 will require the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Company. In determining whether this Proposal No. 1 has received the requisite number of affirmative votes, abstentions and broker non-votes will not be counted and will have the same effect as a vote against the proposal. If a stockholder of the Company returns a validly executed proxy, the shares represented by the proxy will be voted on this Proposal No. 1 in the manner specified by the stockholder. If a stockholder of the Company does not specify the manner in which shares represented by a validly executed proxy are to be voted on this matter, such shares will be voted for this Proposal No. 1.

ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE DECLASSIFICATION AMENDMENT.

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PDC ENERGY INC. - PROXY STATEMENT

PROPOSAL NO. 2—ELECTION OF EIGHT DIRECTORS, IF PROPOSAL NO. 1 IS APPROVED

IF PROPOSAL NO. 1 IS APPROVED, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF THE EIGHT DIRECTORS NOMINATED BY THE BOARD. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

If the Company’s stockholders approve the Declassification Amendment described in Proposal No. 1 at the Annual Meeting, the stockholders will be asked to consider eight nominees for election to the Board. Each nominee would serve for a one-year term until the 2021 annual meeting of the stockholders of the Company. If the Company’s stockholders do not approve Proposal No. 1, the current classified board structure will remain in place and this Proposal No. 2 will not be submitted to a vote of the Company’s stockholders at the Annual Meeting, and instead Proposal No. 3 (Election of two Class I Directors) will be submitted in its place.

ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH AND ALL OF THE BOARD NOMINEES.

The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of all of the Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named. The Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. Abstentions and broker non-votes will have no effect on the election of Directors.

BOARD OF DIRECTORS

As of the Annual Meeting, the composition of the Board and the term of each Director is expected to be as follows:

 

 

 

 

 

 

    

YEAR THE

    

EXPIRATION OF

 

 

DIRECTOR JOINED

 

THE DIRECTOR’S

DIRECTORS

 

THE BOARD

 

CURRENT TERM

CLASS I:

 

  

 

  

David C. Parke

 

2003

 

2020

Lynn A. Peterson

 

2020

 

2020

Jeffrey C. Swoveland*

 

1991

 

2020

CLASS II:

 

  

 

  

Anthony J. Crisafio

 

2006

 

2021

Christina M. Ibrahim

 

2018

 

2021

Randy S. Nickerson

 

2017

 

2021

CLASS III:

 

  

 

  

Barton R. Brookman

 

2015

 

2022

Mark E. Ellis

 

2017

 

2022

Paul J. Korus

 

2020

 

2022

*      On February 24, 2020, Mr. Swoveland informed the Company that he will not stand for re-election at the Annual Meeting. Following the Annual Meeting and at the request of the Board, Mr. Swoveland has agreed to serve for a

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PDC ENERGY INC. - PROXY STATEMENT

limited period of time as a non-voting Director Emeritus of the Company in order to, among other things, assist Mr. Ellis in transitioning the responsibilities of Non-Executive Chairman of the Board.

If Proposal No. 1 is approved at the Annual Meeting, the meeting will recess so that a Certificate of Amendment to amend the Certificate of Incorporation to declassify the Board can be filed with the Secretary of State of the State of Delaware.  When that filing becomes effective, each of Messrs. Brookman, Crisafio,  Ellis, Korus, Nickerson, Parke and Peterson and Ms. Ibrahim will stand for re-election for one-year terms pursuant to Proposal No. 2.

NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND OTHER DIRECTORSHIPS

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BARTON R. BROOKMAN

DIRECTOR,

President and
Chief Executive Officer

Age: 57

Committees:

None

    

Background

Mr. Brookman, the Company’s President and Chief Executive Officer (“CEO”), was appointed to the Board in January 2015, simultaneously with his appointment as the Company’s CEO. Mr. Brookman joined the Company in July 2005 as Senior Vice President—Exploration and Production; he was appointed to the position of Executive Vice President and Chief Operating Officer in June 2013 and then served as President and Chief Operating Officer from June 2014 through December 2014. Prior to joining PDC, Mr. Brookman worked for Patina Oil and Gas and its predecessor Snyder Oil from 1988 until 2005 in a series of operational and technical positions of increasing responsibility, ending his service at Patina as Vice President of Operations.

Education

B.S. in Petroleum Engineering from the Colorado School of Mines and a M.S. in Finance from the University of Colorado.

Experience

The Board has concluded that in addition to his role as CEO of the Company, Mr. Brookman is qualified to serve as a Director due to, among other things, his many years of oil and gas industry executive management experience, his active involvement in industry groups and his knowledge of current developments and best practices in the industry.

 

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ANTHONY J. CRISAFIO

DIRECTOR

Age: 67

Committees:

Audit (Chair)

    

Background

Mr. Crisafio, a CPA and a NACD Board Leadership Fellow,  joined the Board in 2006. Mr. Crisafio has served as an independent business consultant for more than 20 years, providing financial and operational advice to businesses in a variety of industries, including the oil and gas industry.  Through his consulting practice, he has served as the part-time contract Chief Financial Officer for a number of companies in the past five years, including Empire Energy, LLC, MDS Associated Companies such as MDS Energy Development and TruFoodMfg. Mr. Crisafio served as Chief Operating Officer, Treasurer and member of the Board of Directors of Cinema World, Inc. from 1989 until 1993. From 1975 until 1989, he was employed by Ernst & Young LLP, last serving as a partner from 1986 to 1989. He was responsible for several SEC registered client engagements and a number of privately held oil and gas engagements, gaining significant experience with the oil and gas industry and mergers and acquisitions.

Education

B.S. from Duquesne University.

Experience

The Board has concluded that Mr. Crisafio is qualified to serve as a Director because, among other things, he is a CPA and brings to the Board more than 30 years of financial accounting business management expertise in the oil and gas and other industries.

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MARK E. ELLIS

DIRECTOR

(Non-Executive Chairman)

Age: 63

Committees:

None

    

Background

Mr. Ellis was elected to the Board in 2017 and was appointed Non-Executive Chairman of the Board in February 2020. He served as a director and President and Chief Executive Officer of Linn Energy, Inc., the reorganized successor to Linn Energy, LLC (“LINN”), which filed for bankruptcy in the federal bankruptcy court, Southern District of Texas, in May 2016.  From January 2010 until his retirement from LINN in August 2018, Mr. Ellis was the President and Chief Executive Officer and a director of LINN.  From 2012 until August 2018, Mr. Ellis also served as Chairman of LINN’s board of directors. Prior to joining LINN in 2006, Mr. Ellis served in varying roles of increasing responsibility for Burlington Resources and ConocoPhillips.

Education

B.S. in Petroleum Engineering from Texas A&M University.

Experience

The Board has concluded that Mr. Ellis is qualified to serve as a Director because his service as the chief executive officer and director of another public energy company provides extensive oil and gas industry executive management experience, as well as knowledge of current developments and best practices in the industry.

 

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CHRISTINA M. IBRAHIM

DIRECTOR

Age: 52

Committees:

Nominating and

Governance (Chair)

Compensation

    

Background

Ms. Ibrahim joined the Board in January 2018. She currently serves as the Executive Vice President, General Counsel and Chief Compliance Officer of Weatherford International plc (“Weatherford”), a position she has held since May 2015. Weatherford filed for bankruptcy in federal bankruptcy court, Southern District of Texas, in July 2019. Ms. Ibrahim has more than 20 years of experience in the oil and gas services industry. Prior to joining Weatherford in 2015, Ms. Ibrahim held a number of senior leadership positions of increasing responsibility in the legal department of Halliburton Company since January 2010, including, most recently, as Vice President, Chief Commercial Counsel and Corporate Secretary with responsibility for the global procurement, employment and real estate practice groups and oversight of mergers and acquisitions, securities, regulatory and governance practice groups. Ms. Ibrahim also served as General Counsel and Chief Compliance Officer for WellDynamics, a Halliburton joint venture company.

Education

B.S. in Business Management and Finance from Virginia Tech and a J.D. from Texas Southern University.

Experience

The Board has concluded that Ms. Ibrahim is qualified to serve as a Director because, as an attorney, she brings to the Board a strong legal background, executive public company experience and expertise in corporate governance, as well as more than 20 years of leadership experience in the oil and gas services industry.

 

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PAUL J. KORUS

DIRECTOR

Age: 63

Committees:

Audit

Nominating and

Governance

    

Background

Mr. Korus joined the Board in January 2020 in connection with the closing of the merger with SRC Energy Inc. (“SRC”). He was a member of the board of directors of SRC from June 2016 until January 2020.  Mr. Korus was the Senior Vice President and Chief Financial Officer of Cimarex Energy Co. from September 2002 until his retirement in 2015, and held the same positions with its predecessor, Key Production Company, from 1999 through 2002. Mr. Korus has been a director of Antero Resources Corporation since December of 2018, and became chair of its audit committee in January 2019. He is also a member of Antero’s Nominating and Governance Committee. Mr. Korus was a member of the board of directors and audit committee chairman of Antero Midstream Partners LP from January 2019 until its merger with Antero Midstream GP LP in March 2019. His previous experience also includes approximately five years as an oil and gas research analyst at an investment banking firm. He began his oil and gas career in 1982 with Apache Corporation where he held positions in corporate planning, information technology and investor relations. From 2011 to 2019, Mr. Korus served on the UND College of Business and Public Administration Alumni Advisory Council and was its chairperson from 2017 to 2019. Mr. Korus is a former CPA.

Education

B.S. in Economics and M.S. in Accounting from the University of North Dakota.

Experience

The Board has concluded that Mr. Korus is qualified to serve as a Director because of his service as an officer and director of other public energy companies, providing for extensive oil and gas industry executive and board experience.  He also brings strong financial and accounting expertise based on his experience as former Chief Financial Officer of Cimarex Energy Co. Also, as a former Director of SRC, Mr. Korus provides the Company with critical guidance regarding the SRC integration.

 

Picture 63

RANDY S. NICKERSON

DIRECTOR

Age: 58

Committees:
Compensation

Nominating and
Governance

    

Background

Mr. Nickerson joined the Board in March 2017. From December 2015 to March 2017, Mr. Nickerson served as the Executive Vice President, Corporate Strategy of Marathon Petroleum Corporation and as the Executive Vice President and Chief Commercial Officer of the MarkWest assets of MPLX GP LLC. Prior to joining Marathon Petroleum  Corporation, Mr. Nickerson served in various capacities of increasing responsibility for MarkWest Energy Partners, L.P. and its predecessor, including most recently as its Senior Vice President, Corporate Development and Chief Commercial Officer from 2006 until December 2015. Mr. Nickerson has extensive experience in leading the development and operation of midstream infrastructure.

Education

B.S. in Chemical Engineering from Colorado State University.

Experience

The Board has concluded that Mr. Nickerson is qualified to serve as a Director due in part to his over 30 years of experience in oil and gas operations, with a focus on midstream asset development and management, a critical element of the Company’s current strategy.

 

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Picture 9

DAVID C. PARKE

DIRECTOR

Age: 53

Committees:

Audit

Compensation (Chair)

Nominating and
Governance

    

Background

Mr. Parke, who joined the Board in 2003, has over 30 years of investment banking experience. He has served as a Managing Director of Gordian Investments LLC since October 2014. He has also been a member of the Life Science Advisory Group of IP Group plc since July 2018. From June 2011 until October 2014, he was a Managing Director in the investment banking group of Burrill Securities LLC, an investment banking firm. From 2006 until June 2011, he was a Managing Director of Boenning & Scattergood, Inc., a regional investment bank. Prior to joining Boenning & Scattergood, from October 2003 to November 2006, he was a Director with the investment banking firm Mufson Howe Hunter & Company LLC. From 1992 through 2003, Mr. Parke was Director of Corporate Finance of Investec, Inc. and its predecessor, Pennsylvania Merchant Group Ltd., both investment banking companies. Prior to joining Pennsylvania Merchant Group, Mr. Parke served in the corporate finance departments of Wheat First Butcher & Singer, now part of Wells Fargo, and Legg Mason, Inc., now part of Stifel Nicolaus.

Education

B.S. in Finance from Lehigh University and an M.B.A. from the Wharton School at the University of Pennsylvania.

Experience

The Board has concluded that Mr. Parke is qualified to serve as a Director because, among other things, he has extensive investment banking and strategic advisory experience, including experience in the oil and gas area, allowing him to contribute broad financial and investment banking expertise to the Board and to provide guidance on capital markets and acquisition matters.

 

Picture 12

LYNN A. PETERSON

DIRECTOR

Age: 67

Committees:

Compensation

    

Background

Mr. Peterson joined the Board in January 2020 in connection with the closing of the merger with SRC. He was the Chairman of the Board, Chief Executive Officer and President of SRC from May 2015 until January 2020. He was a co-founder of Kodiak Oil & Gas Corporation (“Kodiak”), and served Kodiak as a director (2001-2014) and as its President, Chief Executive Officer (2002-2014) and Chairman of the Board (2011-2014) until its acquisition by Whiting Petroleum Corporation in December 2014. Mr. Peterson served as a director of Whiting Petroleum Corporation from December 2014 to June 2015. Mr. Peterson has been a member of the board of directors of Denbury Resources Inc. since May 2017. Mr. Peterson has over 35 years of industry experience.

Education

B.S. in Accounting from Northern Colorado University.

Experience

The Board has concluded that Mr. Peterson is qualified to serve as a Director because of his extensive oil and gas industry and leadership experience. Mr. Peterson’s prior roles of chief executive officer and service as director of other public energy companies provide valuable understanding of management processes and strategy of oil and gas companies.  Mr. Peterson’s experience as former Chairman of the Board, Chief Executive Officer and President of SRC allows him to provide the Company with critical guidance regarding the SRC integration.

The eight Director nominees or Class I Directors, as applicable, will be elected by an affirmative vote of a plurality of the outstanding common shares. Broker non‑votes will have no effect on the election of Directors.

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STANDING COMMITTEES OF THE BOARD

BOARD MEETINGS AND ATTENDANCE

The Board has a standing Audit Committee, Compensation Committee and Nominating and Governance Committee. The Midstream Committee was dissolved on May 29, 2019. Actions taken by these committees are reported to the Board at its next meeting. During 2019, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors attended the 2019 annual meeting of stockholders held on May 29, 2019.

The non‑employee Directors (“Non-Employee Directors”) generally meet in “executive session” in connection with each regularly scheduled Board meeting—i.e., without Mr. Brookman, the Company’s President and CEO, or other members of management present. The Chairman of the Board chairs these sessions; however, the other Non‑Employee Directors may, in the event of his absence, select another Director to preside over the executive session.

The following table identifies the members of each committee of the Board and the chair of each committee, and the number of meetings held in 2019.

2019 BOARD AND COMMITTEE MEMBERSHIPS

 

 

 

 

 

 

DIRECTORS

Board of
Directors

Audit
Committee

Compensation
Committee

Nominating
and Governance
Committee

Midstream Committee(1)

Barton R. Brookman

Picture 74

 

 

 

 

Anthony J. Crisafio

Picture 1

Picture 108

 

 

 

Mark E. Ellis(2)

Picture 80

 

Picture 87

 

Picture 86

Christina M. Ibrahim

Picture 78

 

Picture 10(3)

Picture 15(4)

Picture 92

Larry F. Mazza(5)

Picture 81

 

Picture 103

 

 

Randy S. Nickerson

Picture 79

 

Picture 14(6)

Picture 109(7)

Picture 110

David C. Parke

Picture 82

Picture 83

Picture 94

Picture 84

 

Jeffrey C. Swoveland(8) 

Picture 99

Picture 89

 

Picture 91

 

Number of Meetings Held

13

14(9)

7

5

3

Picture 100= Chairperson     Picture 101   Member    Picture 102   Chairman of the Board

(1)

The Midstream Committee was dissolved on May 29, 2019 following the completion of the sale of our Delaware Basin midstream assets (the “Delaware midstream divestitures”).

(2)

Mr. Ellis was appointed Non-Executive Chairman of the Board on February 20, 2020.

(3)

Ms. Ibrahim became a member of the Compensation Committee on August 17, 2019.

(4)

Ms. Ibrahim replaced Mr. Nickerson as Chairperson of the Nominating and Governance Committee on May 29, 2019.

(5)

Mr. Mazza resigned from the Board on August 16, 2019.

(6)

Mr. Nickerson became a member of the Compensation Committee on August 17, 2019.

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(7)

Mr. Nickerson served as Chairperson of the Nominating and Governance Committee until May 29, 2019. He continued to serve on the Nominating and Governance Committee after stepping down as Chairperson.

(8)

Mr. Swoveland stepped down as Non-Executive Chairman of the Board on February 20, 2020. On February 24, 2020, Mr. Swoveland informed the Company that he does not intend to stand for re-election at the Annual Meeting. Following the Annual Meeting and at the request of the Board, Mr. Swoveland has agreed to serve for a period of time as a non-voting Director Emeritus of the Company in order to, among other things, assist in transitioning the responsibilities of Non-Executive Chairman of the Board.

(9)

Mr. Crisafio served as the sole member of a sub-committee of the Audit Committee (the “Audit Sub-Committee”), which did not meet in 2019. The Audit Sub-Committee was dissolved in December 2019 in connection with the settlement of certain lawsuits pertaining to partnerships affiliated with the Company.

AUDIT COMMITTEE

The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes‑Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended and restated on February 20, 2020 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by SEC regulations.

NOMINATING AND GOVERNANCE COMMITTEE

The Board has determined that all members of the Nominating and Governance Committee (the “N&G Committee”) are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board has adopted a N&G Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.”

COMPENSATION COMMITTEE

The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on September 20, 2019 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.”

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Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee is or has been an officer of the Company, nor did any of them have any relationships requiring disclosure by the Company under Item 404 of Regulation S‑K in 2019. During 2019, none of our executive officers served as a  director or member of the Compensation Committee (or other committee serving an equivalent function) or any other entity whose executive officers served on our Compensation Committee or the Board.

AUDIT COMMITTEE

 

COMPENSATION COMMITTEE

 

NOMINATING AND GOVERNANCE COMMITTEE

Responsibilities:

  Monitors the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance;

  Monitors the independence of the independent registered public accounting firm; and

  Provides an avenue for communications among the independent registered public accounting firm, management and the Board.

 

Responsibilities:

  Oversees the development of a compensation strategy for the Company’s Named Executive Officers;

  Evaluates the performance of and establishes the compensation of the CEO;

  Reviews and approves the elements of compensation for other senior executive officers of the Company;

  Negotiates and approves the terms of employment and severance agreements with executive officers of the Company and approves all Company severance and change of control plans;

  Reviews the Non-Employee Directors’ compensation and recommends to the Board any changes in such compensation;

  Reviews and approves performance criteria and results for bonus and performance-based equity awards for senior executive officers and approves awards to those officers;

  Recommends to the Board equity-based incentive plans necessary to implement the Company’s compensation strategy, approves equity grants under the plans and administers all equity-based incentive programs of the Company, which may include specific delegation to management to grant awards to non-executive officers; and

  Reviews and approves Company contributions to Company sponsored retirement plans.

 

Responsibilities:

  Assists the Board by identifying and recruiting individuals qualified to become Board members and recommending nominees for election at the next annual meeting of stockholders or to fill any vacancies;

  Recommends to the Board and oversees development of corporate governance and ethics policies applicable to the Company;

  Leads the Board in its annual self-assessment of the Board’s and its committees’ performance and the Directors’ contributions; and

  Assists the Board in creating and maintaining an appropriate committee structure, and recommends to the Board the nominees for membership on, and Chair of, each committee, as well as the Non-Executive Chair position.

BOARD LEADERSHIP STRUCTURE

Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current leadership structure, under which Mr. Brookman serves as President and CEO and Mr. Swoveland through February 2020, and Mr. Ellis thereafter, serves as Non‑Executive Chairman of the Board, is the appropriate structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that it continues to be beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship, which, given the separation of their positions, provides strong Board leadership while positioning our CEO as

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the leader of the Company in front of our employees and stockholders. The Board evaluates this divided structure at least annually.

DIRECTOR COMPENSATION

We compensate Directors with a combination of cash and equity‑based incentives to attract and retain qualified candidates to serve on our Board and to align Directors’ interests with those of our stockholders. In determining how to compensate our Directors, we consider the significant amount of time they spend fulfilling their duties, as well as the competitive market for skilled directors. Cash payments are paid quarterly and are pro-rated for partial years of service in a role. No compensation is paid to our CEO for his service on the Board.

Compensation for our Non‑Employee Directors is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, meeting fees and equity-based awards using the same peer group used to determine executive compensation. See “Compensation Policies and Practices” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement. Based on this review for 2019, the Compensation Committee recommended maintaining the same compensation amounts and structure as 2018 as set forth below.  Furthermore, the Compensation Committee has recommended the same compensation amounts and structure for 2020, with the exception of the Nominating and Governance Chair which it has recommended be increased to $15,000 given the increased focus on corporate governance by investors generally and the resulting increased time commitment by the Nominating and Governance Chair.

CASH COMPENSATION

Annual Board and Committee Retainers

Each Non‑Employee Director receives an annual cash retainer of $100,000 for service on the Board, which covers attendance at all Board and committee meetings. In addition, the following Non-Employee Directors receive an additional cash retainer to compensate them for the extra responsibilities associated with their roles:

 

 

 

 

 

    

Additional

 

 

Retainer

Non-Executive Chairman

 

$

100,000

Audit Committee Member

 

 

10,000

Audit Sub-Committee Member(1)

 

 

5,000

 

(1)   The Audit Sub-Committee was dissolved in December 2019 in connection with the settlement of the partnership lawsuits.

Annual Committee Chair Retainers

The chair of each committee receives an additional annual retainer for his or her services as chair. The following table shows the chair retainers:

 

 

 

 

 

    

Committee

 

 

Chair

COMMITTEE

 

Retainer

Audit

 

$

20,000

Compensation

 

 

15,000

Nominating and Governance

 

 

10,000

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EQUITY COMPENSATION

On February 20, 2019, Mr. Swoveland, the Non‑Executive Chairman at that time, was granted an award with an intended value of $175,000 in restricted stock units (“RSUs”) and the remaining Non‑Employee Directors each received an award with an intended value of $140,000 in RSUs for their service on the Board. The RSUs were granted under our 2018 Equity Incentive Plan. The actual number of RSUs granted was determined based on the five‑day average closing stock price ending the day prior to the date of grant. The RSUs vest on the one-year anniversary of the grant date (subject to continued provision of service on the Board from the grant date through such date).

DEFERRED COMPENSATION

Prior to 2018, each Non-Employee Director had the option to defer all or a portion of his or her annual cash compensation and all or a portion of his or her eligible RSUs pursuant to the Non-Employee Director Deferred Compensation Plan (the “Deferred Comp Plan”). Effective December 31, 2017, the Compensation Committee amended the Deferred Comp Plan to prohibit future deferral elections of cash and/or RSUs into the plan, and no further amounts have been contributed to the Deferred Comp Plan. All compensation that was previously deferred pursuant to the Deferred Comp Plan will continue to be credited with hypothetical earnings and losses as if invested in common stock of the Company until such amounts are distributed. As of December 31, 2019, three Directors have balances resulting from prior deferrals of cash director fees and/or equity compensation.

Compensation paid to the Non‑Employee Directors for 2019 was as follows:

2019 DIRECTOR COMPENSATION

 

 

 

 

 

 

 

 

 

 

 

    

Fees

    

 

 

    

 

 

 

 

Earned

 

 

 

 

 

 

 

 

or Paid

 

Stock

 

 

 

 

 

in Cash(1)

 

Awards(2)(3)

 

Total

DIRECTORS

 

($)

 

($)

 

($)

Anthony J. Crisafio

 

$

135,000

 

$

151,151

 

$

286,151

Mark E. Ellis

 

 

100,000

 

 

151,151

 

 

251,151

Christina M. Ibrahim

 

 

105,879

 

 

151,151

 

 

257,030

Larry F. Mazza(4)

 

 

75,000

 

 

151,151

 

 

226,151

Randy S. Nickerson

 

 

110,000

 

 

151,151

 

 

261,151

David C. Parke

 

 

125,000

 

 

151,151

 

 

276,151

Jeffrey C. Swoveland(5)

 

 

210,000

 

 

188,919

 

 

398,919

(1)

Includes annual Board retainer, committee and committee chair retainers and the retainer for the Non‑Executive Chairman of the Board.

(2)

Represents RSUs issued to our Non-Employee Directors. The RSU amounts reported in this table reflect the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718 based solely on the stock price on the date of grant. Such amounts differ slightly from the intended award amount described above.

(3)

At December 31, 2019, the aggregate number of unvested RSUs outstanding for each Non-Employee Director were as follows: Mr. Crisafio – 6,299; Mr. Ellis – 6,067; Ms. Ibrahim – 5,682; Mr. Nickerson – 6,490; Mr. Parke – 6,299; Mr. Swoveland – 7,873.

(4)

Mr. Mazza resigned from the Board effective August 16, 2019. In connection with his resignation, the Board approved accelerated vesting of Mr. Mazza’s unvested RSUs as of the date of his resignation. 

(5)

Compensation includes cash and stock awards for service as Non‑Executive Chairman during 2019.

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DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS

Each Non‑Employee Director is expected to hold shares of Company stock in an amount equal to at least five times his or her annual cash retainer ($500,000). Compliance with ownership requirements is reviewed annually. Qualifying stock holdings include directly‑owned shares and unvested RSUs, as well as stock equivalents held in the Deferred Comp Plan. Directors are expected to comply with the ownership guidelines within five years of their election to the Board. As of December 31, 2019, all of the Directors met or exceeded the ownership expectations under the guidelines, with the exception of Messrs. Nickerson and Ellis, both of whom were appointed to the Board in 2017 and are still within their compliance grace period, and Ms. Ibrahim, whose Board service commenced on January 1, 2018 and is also within her compliance grace period. The Stock Ownership Guidelines can be reviewed on the Company’s website at www.pdce.com under “Corporate Governance.”

The Company’s Insider Trading Policy expressly prohibits Directors from short‑term trading (purchasing and selling Company securities within a six‑month period), short sales of Company securities, hedging or monetization transactions through financial instruments (such as prepaid variable forwards, equity swaps, collars and/or exchange funds), holding securities in margin accounts or pledging securities as collateral for loans, or engaging in other transactions that are intended to hedge against the economic risk of owning Company stock.

DIRECTOR QUALIFICATIONS AND SELECTION

The Board has adopted Director Nomination Procedures that describe the process the N&G Committee will use to evaluate nominees for election to the Board. The Director Nomination Procedures can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” The N&G Committee evaluates each candidate based on his or her level and diversity of experience and knowledge (industry‑specific and general), skills, education, reputation, integrity, professional stature and other factors that may be relevant depending on the particular candidate.

Additional factors considered by the N&G Committee include the size and composition of the Board at the time, and the benefit to the Company of a broad mixture of skills, experience and perspectives on the Board. The Director nomination process also includes consideration of the diversity provided by each candidate, and diversity is considered as part of the overall assessment of the Board’s functioning and needs. The N&G Committee also considers tenure and prioritizes continuous Board refreshment initiatives in the Director nomination process. One or more of these factors may be given more weight in a particular case at a particular time, although no single factor is viewed as determinative. The N&G Committee has not specified any minimum qualifications that it believes must be met by any particular nominee.

The N&G Committee identifies Director candidates primarily through recommendations made by the Non‑Employee Directors. These recommendations are developed based on the Non‑Employee Directors’ knowledge and experience in a variety of fields and on research conducted by the Company at the N&G Committee’s direction. The N&G Committee also considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. The N&G Committee has the authority to engage consultants to help identify or evaluate potential Director nominees, but did not do so in 2019.

STOCKHOLDER RECOMMENDATIONS

The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the

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Company’s headquarters or by email to board@pdce.com. All recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include:

·

Sufficient biographical information to allow the N&G Committee to evaluate the potential nominee in light of the Director Nomination Procedures;

·

An indication as to whether the proposed nominee will meet the requirements for independence under NASDAQ and SEC guidelines;

·

Information concerning any relationships between the potential nominee and the stockholder recommending the potential nominee; and

·

An indication of the willingness of the proposed nominee to serve if nominated and elected.

STOCKHOLDER NOMINATIONS

Stockholders may nominate candidates for election to the Board. The Company’s Bylaws require that stockholders who wish to submit nominations for election to the Board at a meeting of stockholders follow certain procedures. See “Stockholder Nominations and Proposals—Advance Notice Procedures under the Company’s Bylaws” for a description of these procedures.

CORPORATE GOVERNANCE

GOVERNANCE HIGHLIGHTS

We believe that the Board has implemented a sound structure for the governance of the Company, including as a result of the following:

·

Responsiveness to Stockholder Feedback:  In 2019 and early 2020, we conducted a comprehensive engagement with our stockholders in order to better understand their views on compensation and corporate governance. In response to stockholder feedback, the Board made material changes to its executive compensation plan and has proposed additional best-practice changes to its corporate governance structure, including a proposal to declassify its Board at the Annual Meeting. 

·

Independent Board Leadership:  Recently-appointed independent Chairman Mark E. Ellis has decades of executive experience in the oil and gas industry and provides strong leadership and oversight of management.

·

Majority Independent Directors: Eight of our nine Directors are independent, and only independent Directors serve on our Board committees. The Company expects to have eight total Directors following the Annual Meeting, seven of whom are independent.

·

Continuous Board Refreshment: Over half of the Company’s Directors have been added to the Board within the past five years, including two in 2020, demonstrating commitment to continued refreshment.

·

Strong Independent Oversight: The majority of the Company’s Directors have significant operating and other relevant experience in the oil and gas industry.

·

Share Ownership Requirement: Directors are required to hold a minimum number of shares of our common stock with a transition period for new directors.

·

Majority Voting Policy: Except in the case of a contested election, any director who receives more “withhold” votes than votes in favor must tender his or her resignation.

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·

Stockholder-called Special Meetings and Action by Consent:  Stockholders that have ten percent combined voting power have the right to call special stockholders’ meetings and stockholders can act by written consent.

·

No Poison Pill: We do not have a poison pill.

·

One Vote per Share: The Company does not have any super-voting shares.

CORPORATE GOVERNANCE GUIDELINES

The Board has adopted Corporate Governance Guidelines that govern the structure and function of the Board and establish the Board’s policies on a number of corporate governance issues. Among other matters, the Corporate Governance Guidelines address:

·

Director selection, qualification and responsibilities;

·

The holding and frequency of executive sessions of independent directors, Board self‑evaluation and senior executive performance reviews;

·

Board committee structure and function;

·

Succession planning; and

·

Governance matters, standard of business conduct and Board committee responsibilities.

The Corporate Governance Guidelines were most recently amended on September 20, 2019 and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.”

UNCONTESTED ELECTIONS POLICY

The Corporate Governance Guidelines include an Uncontested Elections Policy (the “Policy”). Under the Policy, any nominee for Director in an uncontested election who receives a greater number of “withhold” votes than “for” votes will submit to the Board a letter of resignation for consideration by the N&G Committee. The N&G Committee will promptly consider the tendered resignation and will recommend to the Board whether or not to accept the tendered resignation or to take other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withhold” votes in a different way.

In making this recommendation, the N&G Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons for stockholders’ withholding of votes from such Director nominee (if ascertainable), the length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, whether the Company will remain in compliance with applicable laws, rules, regulations and governing documents if it accepts the resignation and, generally, whether or not accepting the resignation is in the best interests of the Company and its stockholders. In considering the N&G Committee’s recommendation, the Board will take into account the factors considered by the N&G Committee and such additional information and factors as the Board believes to be relevant.

CODE OF BUSINESS CONDUCT AND ETHICS

The Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all Directors, officers, employees, agents, consultants and representatives of the Company and is reviewed at least annually by the N&G Committee. The Company’s principal executive officer, principal financial officer and principal accounting officer are subject to additional specific provisions under the Code of Conduct. The Code of Conduct was most recently updated on September 20, 2019 and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.” In the event the Board approves an amendment to

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or a waiver of any provisions of the Code of Conduct, the Company will disclose the information on its website.

FAMILY RELATIONSHIPS AND OTHER ARRANGEMENTS

There is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person pursuant to which the person was selected as an officer or Director of the Company, except with respect to Paul J. Korus and Lynn A. Peterson who were appointed to the Board following the closing of the merger with SRC in January 2020 pursuant to the related merger agreement.

DIRECTOR INDEPENDENCE

In affirmatively determining whether a Director is “independent,” the Board analyzes and reviews NASDAQ listing standards, which set forth certain circumstances under which a director may not be considered independent. Mr. Brookman, the President and CEO of the Company, is not independent under such standards. Audit Committee and Compensation Committee members are subject to additional, more stringent independence requirements.

The Board has reviewed the business and charitable relationships between the Company and each Non‑Employee Director to determine compliance with the NASDAQ listing standards and to evaluate whether there are any other facts or circumstances that might impair a Non‑Employee Director’s independence. The Board has affirmatively determined that each of the Non‑Employee Directors was independent under NASDAQ Listing Rule 5605, the Exchange Act, and our Board committee charter requirements at all times while serving as a Non‑Employee Director.

THE BOARD’S ROLE IN RISK MANAGEMENT

In the normal course of its business, the Company is exposed to a variety of risks. The Company operates an enterprise risk management program which is designed to strengthen the consistency of risk consideration in making business decisions. The Board understands that it is not possible or desirable to eliminate all risk and that appropriate risk‑taking is essential in order to achieve the Company’s objectives.

The Board is responsible for general oversight of the risks of the Company, including overseeing risks related to the Company’s key strategic goals. While the entire Board is responsible for Company‑wide risk oversight, individual committees also have roles in risk review. The Audit Committee is the primary committee overseeing the risk management process and specifically reviews risks and related controls in areas that it considers fundamental to the integrity and reliability of the Company’s financial statements. The Compensation Committee considers the structure and size of the Company’s compensation plans to ensure the incentives therein are appropriately aligned with the Company’s risk management strategy, as described in this Proxy Statement. The Company believes the Board leadership structure supports its risk oversight function. Among other things, there is open and continuous communication between the Company’s management and the Directors.

TRANSACTIONS WITH RELATED PARTIES

During 2019, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S‑K.

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POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES

The Board has adopted a written policy for the review, approval and ratification of transactions that involve related parties and potential conflicts of interest. The related‑party transaction policy applies to each Director and executive officer of the Company, any nominee for election as a Director, any security holder who is known to own more than five percent of the Company’s voting securities, any immediate family member of any of the foregoing persons and any corporation, firm or association in which one or more of the Company’s Directors or executive officers have a substantial interest.

Under our related‑party transaction policy, a related‑party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related party. The related party must disclose to the Audit Committee any potential related‑party transactions and must disclose all material facts with respect to such transaction and relationship. All related‑party transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company’s business and operations.

OTHER CORPORATE GOVERNANCE DOCUMENTS

The Company’s website includes the following governance documents:

 

 

 

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    Director Nomination Procedures

    Nominating and Governance Committee Charter

    Stock Ownership Guidelines

    Compensation Committee Charter

    Insider Trading Policy

    Code of Business Conduct and Ethics

    Shareholder Communication Policy

    Corporate Governance Guidelines

    Audit Committee Charter

 

 

 

 

 

 

COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS

Stockholders may communicate with the Board or a committee of the Board by writing to the attention of the Board or committee at the Company’s corporate headquarters or by emailing the Board at board@pdce.com with “Board Communication” or the appropriate Board committee indicated in the subject line.

ADDITIONAL INFORMATION

The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Copies of the Company’s SEC filings are available at http://www.sec.gov and through a link from the Company’s website at www.pdce.com.  The Company’s website materials are not incorporated by reference into this Proxy Statement.

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PROPOSAL NO. 3—ELECT TWO CLASS I
DIRECTORS, IF PROPOSAL NO. 1 IS NOT APPROVED

IF PROPOSAL NO. 1 IS NOT APPROVED, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF EACH OF LYNN A. PETERSON AND DAVID C. PARKE AS CLASS I DIRECTORS. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

The Company’s stockholders will be asked to vote on this Proposal No. 3 solely in the event that at the Annual Meeting the Company’s stockholders do not approve the Declassification Amendment described in Proposal No. 1. If the Company’s stockholders approve the Declassification Amendment, then the Company will amend its Certificate of Incorporation to eliminate its classified Board by filing the applicable Certificate of Amendment with the Secretary of State of the State of Delaware during the Annual Meeting as described above, and the stockholders will proceed to vote on Proposal No. 2 and not this Proposal No. 3. If, however, the Company’s stockholders do not approve the Declassification Amendment, a vote will be taken on this Proposal No. 3.

If the stockholders do not approve the Declassification Amendment described in Proposal No. 1, Lynn A. Peterson and David C. Parke are nominated for election to serve a three-year term each as a Class I director subject to re-election at the 2023 annual meeting.

ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE TWO NOMINEES TO SERVE AS CLASS I DIRECTORS.

The appointed proxies will vote your shares in accordance with your instructions on the proxy card and for the election of the two nominees to serve as Class I Directors unless you withhold your authority to vote for one or more of them. The Board does not contemplate that either of the Class I Director nominees will become unavailable for any reason; however, if either of the Class I Director nominees is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate to serve as a Class I Director or for a greater number of persons than the number of Class I Director nominees named if a vote is taken on this Proposal No. 3. The Class I Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. Abstentions and broker non-votes will have no effect on the election of Class I Directors.

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PROPOSAL NO. 4—APPROVE, ON AN ADVISORY BASIS,
THE COMPENSATION OF THE COMPANY’S NAMED
EXECUTIVE OFFICERS

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 4. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

The stockholders of the Company are entitled to cast a non‑binding advisory vote at the Annual Meeting on the compensation of the Company’s Named Executive Officers. While this vote is non‑binding, the Board and the Compensation Committee value the opinions of our stockholders and take into consideration the outcome of the vote in connection with their ongoing evaluation of the Company’s executive compensation program. The Company has determined to hold this advisory, “say‑on‑pay” vote annually, consistent with the stated preferences of our stockholders and with the results of our 2017 Annual Meeting of Stockholders where the majority of the votes cast were in favor of an annual advisory vote. The next non‑binding advisory vote regarding such frequency will be held at the 2022 Annual Meeting of Stockholders, in accordance with SEC rules.

As described more fully under “Compensation Discussion and Analysis” below, the Company’s executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive the Company’s strategic direction and achieve the annual and long‑term performance necessary to create stockholder value. The program also seeks to align executive compensation with stockholder value on an annual and long‑term basis through a combination of base pay, annual incentives and long‑term incentives.

The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s compensation at-risk demonstrates its pay‑for‑performance philosophy. In 2019, 86% of our CEO’s compensation and 79% of our Named Executive Officers’ compensation was made up of “at-risk” components.

Each of the Named Executive Officers has been granted significant equity awards, including awards subject to annual vesting over a three-year period and performance share units subject to a three-year performance period, to provide a stake in the Company’s long‑term success. The Company also has demanding Stock Ownership Guidelines applicable to its Named Executive Officers. The Company believes that this “tone at the top” guides the Company’s other officers and management personnel to obtain and maintain meaningful ownership stakes in the Company.

The Compensation Committee considers the results of the non-binding “say on pay” vote of our stockholders in making prospective compensation decisions. At our 2019 annual meeting of stockholders, approximately 76% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. Based on the 2019 “say-on-pay” results and the discussions we had with approximately 85% of our stockholders as part of the 2019 proxy process and through general discussions with stockholders during the remainder of 2019, the Compensation Committee concluded that we needed to make certain changes to our compensation programs to better align with the expectations of our stockholders. As such, for 2019 we modified our annual incentive program to eliminate the purely discretionary nature of the program in effect for prior years and established an equal-weighting payment structure where 50% of the annual incentive is determined strictly by formula based on quantitative metrics, with the remaining 50% based on qualitative performance metrics. In addition, our 2019 quantitative metrics are designed to more closely align with stockholder values. For 2020, we further modified our compensation programs to (i) increase the portion of our annual incentive program for our NEOs that is determined strictly by formula metrics from 50% to 75%, (ii) adjust our long-term incentive program weighting for our CEO from 50% performance stock units (“PSUs”)

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and 50% time-based RSUs to 60% PSUs and 40% RSUs, and (iii) add an absolute total stockholder return modifier to our 2020 PSU grants for our NEOs. See “2020 Compensation Program Changes.”

In light of the foregoing, the Company believes that the compensation of the Named Executive Officers is appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution:

RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S‑K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2020 Annual Meeting.

This advisory vote will be approved if it receives the affirmative vote of a majority of shares of common stock of the Company present or represented at the Annual Meeting and entitled to vote on this proposal. Abstentions will be counted as votes against this proposal. Broker non‑votes will not affect the outcome of this proposal.

EXECUTIVE COMPENSATION

EXECUTIVE OFFICERS

The current executive officers of the Company, their principal occupations for the past five years and additional information is set forth below.

BARTON R. BROOKMAN, 57, joined the Company in 2005 and currently serves as Director, President and CEO. See biographical information concerning Mr. Brookman on page 5.

LANCE A. LAUCK, 57, joined the Company in August 2009 as Senior Vice President Business Development and was named Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC’s business development, acquisitions and divestitures, strategic planning, corporate risk, reserves and midstream and marketing. Previously, Mr. Lauck served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri‑Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering.

R. SCOTT MEYERS, 45, a CPA, joined the Company in March 2009, and was named Chief Accounting Officer in April 2009 and Chief Financial Officer in January 2018. Prior to joining the Company, Mr. Meyers served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, from 2008 to 2009, and PricewaterhouseCoopers LLP from 2002 to 2008.  Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania.

SCOTT J. REASONER, 59, joined the Company in April 2008 as Vice President of Western Operations and was named Chief Operating Officer in January 2017. Mr. Reasoner has over 30 years of technical and management experience in the energy industry. Before joining PDC, he served as a Business Unit Manager with Noble Energy Inc. from 2005 to 2008, where he was responsible for the Mid‑Continent team. Prior to his work with Noble Energy, Mr. Reasoner worked for

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Patina Oil and Gas Company as Production Manager and later as Vice President Operations. His earlier experience includes positions with Snyder Oil Corporation and Vessel Oil and Gas Company. Mr. Reasoner graduated from of the Colorado School of Mines with a degree in Petroleum Engineering, has earned an MBA from the University of Colorado, and is a Registered Professional Engineer.

NICOLE L. MARTINET, 43, joined the Company in March 2011 as Associate General Counsel and Vice President, serving in that position for eight years. In January 2019, Ms. Martinet was named General Counsel, Senior Vice President and Corporate Secretary. Prior to joining PDC, she served as an associate in the Corporate Finance and Acquisitions group at Davis Graham & Stubbs LLP in Denver from 2006 to 2011.  Ms. Martinet received her Juris Doctor from the University of Denver, Sturm College of Law, where she graduated in 2005 with Order of St. Ives and served on the Denver University Law Review. Ms. Martinet has over 20 years of professional experience and holds a Bachelor of Science in Economics and French and Francophone Studies from Santa Clara University in California.

JOHN A. DELAWDER, 59, joined the Company in April 2006 as Director of Human Resources and was appointed Senior Vice President Corporate Administration in January 2019. Prior to that he served in a variety of vice president level human resources positions with the Company, beginning in July 2009. Mr. DeLawder has over 35 years of professional experience. Mr. DeLawder earned a Bachelor of Science in Business Administration with an emphasis in Personnel Management from West Virginia University, and his career includes human resources, operations, facilities management and communications experience in the energy, government contracting, high-tech and manufacturing sectors.

Messrs. Brookman and Lauck were executive officers of the Company in September 2013, when each of twelve partnerships for which the Company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division. Messrs. Brookman, Lauck and Reasoner were executive officers of the Company in September 2016, when two other partnerships, for which the Company also served as the managing general partner, filed for bankruptcy in the same federal bankruptcy court. With the exception of Ms. Martinet and Mr. DeLawder, each of the above were executive officers of the Company in October 2018, when two additional partnerships, for which the Company also served as managing general partner, filed for bankruptcy in the same federal bankruptcy court. All partnerships for which the Company was the managing general partner have been settled.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on its review and discussions, recommends its inclusion in this Proxy Statement.

 

 

 

David C. Parke, Chair

 

Christina M. Ibrahim

Randy S. Nickerson

 

Lynn A. Peterson

 

COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

 

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COMPENSATION DISCUSSION AND ANALYSIS

In establishing the Company’s compensation program, the Compensation Committee (referred to in this section as the “Committee”) continuously considers feedback from the Company’s stockholders and strives to adhere to compensation best practices. As such, this Compensation Discussion and Analysis (“CD&A”) illustrates the evolution of the Company’s compensation program and provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2019, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 2019 compensation of our President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three other most highly compensated executive officers.  The individuals described above are identified by name and title in the chart below and are collectively referred to throughout this Proxy Statement as our “Named Executive Officers,” or “NEOs”:

 

 

OFFICER

TITLE

Barton R. Brookman

President and Chief Executive Officer

R. Scott Meyers

Senior Vice President—Chief Financial Officer

Lance A. Lauck

Executive Vice President—Corporate Development and Strategy

Scott J. Reasoner

Senior Vice President—Chief Operating Officer

Nicole L. Martinet

Senior Vice President—General Counsel and Secretary

 

 

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EXECUTIVE SUMMARY

Results of 2019 Say-On-Pay Vote and Stockholder Engagement

We held our annual advisory vote on our executive compensation program at the 2019 annual stockholder meeting. PDC has historically received strong stockholder support of its executive compensation programs, averaging 95% approval on its “say-on-pay” votes over the prior three years (2016-2018). In 2019, however, we received only 76% support following a contested director election.  Consequently, we conducted a comprehensive engagement with approximately 85% of our stockholders to understand their views on compensation and to further understand the drivers behind the lower support we received. Outlined in the table below is a summary of what we heard and how we have responded.

 

 

 

 

What We Heard

  

  

How We Responded

Align annual incentive program with financial returns

 

 

25% of our 2020 bonus program includes return on capital and cash flow metrics: Cash Return on Capital Invested (CROCI) and Free Cash Flow Margin

Continue the move towards a  more formulaic bonus program and less discretion

 

 

Increased the weighting of the formulaic quantitative metrics in 2020 to 75% of the program (from 50% in 2019)

Place greater emphasis on performance-based equity in the long-term incentive program

 

 

Increased the weighting of the performance-based equity for the CEO in 2020 from 50% of long-term incentives to 60%

Include additional metric(s) in the long-term incentive program with an increased tie to absolute performance

 

 

Added an absolute stock performance multiplier and cap in 2020

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The Evolution of Our Compensation Program Design is Responsive to Stockholder Concerns as Well as Market and Business Trends

Based on stockholder feedback and our analysis of market and business trends, we have made a number of changes over the years to ensure our compensation program remains responsive to stockholder concerns and market conditions.  New quantitative compensation metrics for 2020 are highlighted in blue.

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Compensation Best Practices

We believe our executive compensation program is aligned with current governance trends, and contains stockholder‑friendly features as outlined below:

 

 

 

Our Practices
(What We Do)

  

Practices We Have Not Implemented
(What We Don’t Do)

    Pay for Performance—Our NEOs’ total compensation is heavily weighted toward performance‑based pay. Our annual incentive program is based on performance against key operational and financial metrics. The value delivered by our equity grants is tied to both absolute and relative stockholder return performance.

    Executive Ownership Guidelines—We have Stock Ownership Guidelines for our executives and directors that are consistent with what we believe to be corporate governance best practices.

    External Benchmarking—We assess competitors’ compensation data based on an appropriate group of peers and other relevant survey data prior to making any compensation decisions.

    Double‑Trigger Change‑of‑Control Severance Benefits—In the event of a change of control, our severance plan and our grandfathered employment contract provide for cash severance benefits only if the executive is actually or constructively terminated without cause following the change of control event.

    Clawback Policy—We have clawback provisions in place in the event of a restatement of all or a portion of our financial statements due to material noncompliance with financial reporting requirements under securities laws.

    Compensation Doesn’t Encourage Excessive Risk—There is an appropriate balance between long‑term and short‑term focus in our compensation programs and the Committee has the ability to apply negative discretion to annual cash incentive payouts to ensure risk mitigation occurs in management decision‑making.

    Independent Compensation Consultant—We have engaged an independent executive compensation advisor who reports directly to the Committee.

    Independent Compensation Committee—Our Committee is comprised solely of independent directors.

 

    No Golden Parachute Excise Tax Gross‑Ups—We do not provide gross‑up payments to reimburse our executives for any tax obligations that would be incurred upon a change of control of the Company.

    No New Employment Contracts and/or Excessive Severance Benefits—We no longer provide employment contracts to new executives (Mr. Lauck is our only remaining executive with a grandfathered contract). Severance benefits under both our severance plan and employment agreements are reasonable as compared to peer companies in our industry, and there are no liberal change of control definitions, excessive severance benefits or similar practices.

    No Excessive Perquisites—We provide only modest perquisites that are consistent with peer companies in our industry.

    No Repricing—We do not permit repricing of underwater stock options/SARs without stockholder approval.

    Prohibited Transactions—Hedging transactions, short selling, short‑term trading, pledging PDC stock, and other transactions that may distract from or conflict with the long‑term business objectives of the Company are strictly prohibited for all officers and directors of the Company under our Insider Trading Policy.

 

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Business Strategy and 2019 Business Highlights

Business Strategy

Our long-term business strategy focuses on being a responsible and respected provider of energy while generating stockholder value through the exploration and development of crude oil and natural gas properties. We leverage technology and innovation to increase operational efficiencies and prioritize health, safety and the environment. We are focused on the growth of our cash flows, production and reserves, primarily through development of our existing leasehold, but also through acquisition and acreage swap opportunities. Our drilling plan is designed to achieve repeatable results and attractive returns on investment in a range of commodity price environments.

2019 Business Highlights

In 2019, the Company focused on the continued development of its two premier U.S. onshore assets in the core Wattenberg Field and Delaware Basin. In addition to an ongoing focus on improving our capital efficiencies through long-lateral drilling and reduced drilling and completion times, the Company’s strategy centered itself around generating free cash flow to improve its balance sheet and returning capital to stockholders through its share repurchase program. The Company believes its strategic combination with SRC, which was announced in August 2019 and consummated in January 2020, further strengthens its ability to successfully achieve and improve upon these strategic initiatives for years to come. Key highlights and achievements in 2019 are illustrated and further described below:

graphic

(1)

FCF = free cash flow, a non-GAAP financial measure, defined as net cash from operating activities, before changes to working capital, less oil and gas capital investments. See Appendix A for reconciliation.

Additional highlights include:

Financial Highlights:

·

Successfully reduced year-over-year LOE and G&A per Boe through an intense focus on cost metrics, including reductions in force; 

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·

Maintained a strong financial position with $1.3 billion in liquidity at year-end 2019;

·

Increased the borrowing base under our revolving credit facility to $1.6 billion;

·

Generated approximately $860 million in net cash from operating activities despite a decrease in the weighted-average realized sales price of nearly 25% year-over-year;

o

Increased adjusted cash flow from operating activities, a non-GAAP financial measure, to approximately $825 million. See Appendix A for reconciliation.

·

Upon the closing of the merger between the Company and SRC (the “SRC Merger”) in January 2020, the Company received an increase in its borrowing base under its revolving credit facility to $2.1 billion.

Operational Highlights:

·

Recorded outstanding safety performance while exceeding each of the Company’s 2019 Key Performance Indicators (Total Reportable Incident Rate, Preventable Vehicle Accident Rate and Spill Rate);

·

Successfully met or exceeded the Company’s planned operating budget, including total production of 49.4 MMBoe, nearly 1 MMBoe above the Company’s initial expectations in spite of very elevated Wattenberg line pressures through the third quarter of 2019;

·

Reduced per-well costs in each of the Delaware Basin and Wattenberg Field by 5-10% compared to 2018 levels;  

·

Improved average drilling times, as measured from spud to rig-release, in the Delaware Basin by approximately 20% compared to 2018.

Strategic Highlights:

·

Entered into a low premium merger agreement with SRC resulting in post-closing increases to the Company’s credit ratings from both Moody’s and S&P;

o

Evaluation, due diligence, negotiation, successful market roll-out and integration planning throughout the second half of 2019;

·

Successfully executed divestitures of the Company’s Delaware Basin midstream assets for $350 million of cash proceeds;

o

Additionally, entered into favorable long-term oil, natural gas and water commercial service agreements;

·

Authorized and implemented a $525 million share repurchase program with an initial target completion date of December 31, 2021, which is anticipated to be slowed given current market conditions;  

·

Successfully settled remaining partnership lawsuits. 

2019 Key Changes to Executive Compensation and Corporate Governance:

·

Instituted a formulaic approach to the annual cash incentive program based on 50/50 equal-weighting of quantitative and qualitative performance metrics;

o

Added adjusted cash flow per debt-adjusted share and free cash flow margin as quantitative metrics;

o

Removed adjusted cash flow per share and leverage ratio as quantitative metrics;

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·

Changed long-term incentive program from a single-trigger to double-trigger vesting upon a change in control;

·

Continued board refreshment initiatives;

o

Following the Annual Meeting, five out of seven of the Company’s independent directors will have joined the Company within the last three years;

o

Legacy Board member, Larry Mazza, voluntarily resigned from the Board in August 2019;

o

Added two former SRC board members, Lynn A. Peterson and Paul J. Korus, in conjunction with the SRC Merger closing.

2019 Key Compensation Outcomes

In February 2020, our Compensation Committee evaluated the Company’s 2019 financial, operational and strategic accomplishments in determining the following pay outcomes.  These actions were taken prior to severe crude oil market downturn caused by COVID-19 and the Saudi-Russian oil price war. The Committee is continuing to evaluate these developments and the Company’s 2020 Board and executive compensation outcomes (which will be described in next year’s proxy statement) may be further modified given the current environment.

·

2019 annual cash incentive payout was awarded at 104% of target. 

·

2017 long-term performance award ranked at the 58th percentile of peers, which would ordinarily correlate to a 120% payout based on PDC’s relative three year TSR performance.  This award, however, was reduced to 100% of target due to the negative stock price returns over the three year period.  The value realized, based on a 2019 year-end stock price of $26.17, represented 35% of the targeted grant date value.

Pay for Performance

Our executive compensation program is designed to align Company performance with the interests of our stockholders. The majority of our executives’ pay is tied to the short- and long-term performance of the Company and our absolute and relative stock price performance.  The following table illustrates the alignment of pay and performance by comparing our CEO’s targeted compensation opportunity awarded in each of the last three years against the realizable value of those opportunities as of December 31, 2019.

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Methodology

Target Pay

  

Realizable Pay

       Base salary rate as of year-end

       Target annual cash incentive based on salary rate

       Intended equity award grant values for grants made in each year

 

       Base salary rate for the year

       Actual annual cash incentive paid for 2017, 2018 and 2019 performance

       Long-term incentive value of grants made in each year as of Dec 31, 2019 and March 31, 2020 stock price ($26.17 and $6.21, respectively)

     SARs: In-the-money value

     Restricted Stock:  number of shares granted x Dec 31, 2019 stock price (assumes all shares, vested/unvested, are held through Dec 31, 2019)

     Performance Award:  target number of shares x relative TSR ranking factor x Dec 31, 2019 stock price (note:  all performance awards have been reduced to target level based on negative stock price returns)

 

EXECUTIVE COMPENSATION PHILOSOPHY

The principal tenets of our compensation philosophy are as follows:

·

Our executive compensation programs should be designed to align our executives’ interests with those of our stockholders.    We continue to evolve our executive compensation programs to address stockholder feedback and adopt best practices.  A substantial portion of our NEOs’ compensation is provided in the form of long‑term equity incentives that tie executive pay to stock price performance. In addition, we require each of our NEOs to remain compliant with our Stock Ownership Guidelines.

·

Our executive compensation programs should be competitive with our peers to attract, retain and reward effective leaders.  We evaluate the range of current industry compensation practices to provide external benchmarks that help to guide our executive compensation structure. We determine individual total compensation targets within this framework to provide compensation that correlates with the compensation of the Company’s peers. Generally, we target total compensation around the median level for similar positions at comparable companies, unless specific circumstances warrant otherwise.

·

Our executive compensation programs should be designed to support a performance‑based culture.  The majority of each NEO’s compensation is at-risk and is based on a combination of attainment of short‑term goals in support of our long‑term strategy, long‑term stock performance relative to our peers, and actual total shareholder return. Our programs require a commitment to performance because total compensation is not guaranteed. Therefore, our programs provide above‑target compensation when performance is warranted and below‑target compensation when performance does not meet expectations.

·

Our executive compensation programs should encourage appropriate risk management.  We believe that effective leadership in the oil and gas business requires taking prudent, but not excessive, business risks. To encourage this balance, we have structured our compensation programs to include three‑year vesting schedules on all equity awards, and structured annual cash incentive awards using a payout that is comprised 50% of a formulaic determination based on quantitative short‑term financial and operational objectives and 50% based on a review of qualitative strategic objectives, including those related to health, safety and the environment. We regularly review our compensation programs to ensure that our NEOs are not encouraged to take inappropriate or excessive risks.

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2019 COMPENSATION PROGRAM DESIGN AND DECISIONS

Components and Purpose of Executive Compensation Program

Our executive compensation program is comprised of the following primary compensation elements:

 

 

2019 COMPENSATION ELEMENTS

2019 ROLE IN TOTAL COMPENSATION

Base Salary

     Compensates executives for their level of responsibility, skills, capabilities, experience and leadership.

Annual Cash Incentives

Cash Bonus

     Rewards annual performance and aligns participants’ compensation with short‑term financial, operational and strategic objectives specific to each calendar year;

 

     Motivates participants to meet or exceed internal and external performance expectations; and

 

     Recognizes individual contributions to the organization’s overall results.

Long‑Term Equity-Based Incentives

50% Performance Share Units (PSUs)

50% Restricted Stock Units (RSUs)

     Rewards long‑term performance directly aligned with stockholders’ interests;

     Provides a strong performance‑based equity component;

     Recognizes and rewards share performance relative to industry peers;

     Aligns compensation with sustained long‑term value creation;

     Helps executives to acquire a meaningful and sustained ownership stake; and

     Fosters executive retention by vesting awards over multiple years.

 

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2019 Compensation Mix

By design, a significant portion of our executive officers’ compensation is performance-based. The following graphic shows the targeted fixed and variable or “at-risk” components of compensation awarded to our NEOs as a percentage of their total direct compensation for 2019.  Eighty-six percent of our CEO’s compensation and 79% of our NEOs’ (excluding our CEO’s) compensation was made up of variable or “at-risk” components.

 

 

Picture 4

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The charts above are based on 2019 base salaries, target bonus amounts with respect to 2019 annual cash incentive awards and the target values of the 2019 grants of performance-based PSUs and time-based RSUs. The amounts actually realized by our NEOs with respect to these awards will depend on a variety of factors including the level of attainment of the relevant performance goals and the extent of vesting of PSUs and RSUs and the value of our stock when the PSUs and RSUs vest. These charts are not a substitute for the “Summary Compensation Table” below, which includes amounts supplemental to target total direct compensation.

Base Salaries

In determining base salary adjustments for 2019, the Committee considered the market data provided by its independent compensation consultant (see “Role of Independent Compensation Consultant” below), the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, in February 2019, we approved adjustments in base salary for each of the NEOs, other than Mr. Brookman. The adjustment for Mr. Meyers reflects his recent promotion and the Compensation Committee’s determination to bring his base salary closer to the market median over time, as the number of years in his new role increase. End of year base salaries for our NEOs are as follows:

 

 

 

 

 

 

 

NAMED EXECUTIVE OFFICER

   

2018

    

2019

Barton R. Brookman

 

$

850,000

 

$

850,000

R. Scott Meyers(1)

 

 

370,000

 

 

425,000

Lance A. Lauck

 

 

435,000

 

 

455,000

Scott J. Reasoner

 

 

425,000

 

 

455,000

Nicole L. Martinet(2)

 

 

N/A

 

 

325,000

 

(1)  Mr. Meyers was promoted to Senior Vice President – CFO effective January 3, 2018.

(2)  Ms. Martinet was promoted to Senior Vice President – General Counsel and Secretary effective January 1, 2019.

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Annual Incentive Awards

Bonuses under the Company’s 2019 annual incentive program were based 50% on a strict formulaic determination of the level of achievement of quantitative operational and financial metrics established by the Compensation Committee in the first quarter of the year and 50% based on the Compensation Committee’s assessment of the Company’s achievement of qualitative corporate goals. See “2019 Performance Metrics – Quantitative and Qualitative.”

Throughout the year, the Committee reviews the Company’s progress toward meeting the quantitative metrics and qualitative goals for the year. Following the end of the fiscal year, the Committee determines an overall Company performance rating based on the metrics and goals. Individual awards may be adjusted upward or downward at the Committee’s discretion based on individual performance. Such individual adjustments are anticipated to have a maximum range of +/−20%.

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Target Bonus Amounts

The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary. Actual awards can range from 0% ‑ 200% of the targets depending on the payout percentage achieved and any individual performance adjustment. In February 2019, based upon its review of peer compensation data, the Committee decided to increase Mr. Brookman’s target annual cash incentive while keeping his annual base salary flat, to increase the portion of his total direct compensation opportunity that is variable and subject to performance. The 2019 target annual cash incentive award levels for each NEO are as follows:

 

 

 

 

 

 

 

 

Target Annual 

 

 

 

Cash Incentive as 

 

 

 

% of Base Salary

 

NAMED EXECUTIVE OFFICER

    

2018

    

2019

 

Barton R. Brookman

 

100

%  

115

%

R. Scott Meyers(1)

 

80

%  

80

%

Lance A. Lauck

 

90

%  

90

%

Scott J. Reasoner

 

90

%  

90

%

Nicole L. Martinet(2)

 

 —

 

70

%

 

(1)   Mr. Meyers was promoted to Senior Vice President – CFO effective January 3, 2018.

(2)   Ms. Martinet was promoted to Senior Vice President – General Counsel and Secretary effective January 1, 2019.

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2019 Performance Metrics – Quantitative and Qualitative

In early 2019, we established specific quantitative targets and weightings for the operational and financial metrics used for the formulaic portion of the annual incentive program based on our 2019 budget and operating plans. These metrics are used to ensure we balance operational objectives with capital discipline. During 2019, we also developed the qualitative corporate goals that we used for the qualitative portion of the annual incentive plan. The quantitative performance metrics and qualitative performance goals used in 2019 were as follows:

2019 CORPORATE METRICS METHODOLOGY

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The Committee generally reserves the right to adjust the quantitative metrics for certain adjustments pre-approved by the Committee at the time the 2019 quantitative metrics were established, including but not limited to, unexpected business events such as acquisitions/dispositions, capital markets transactions, legal settlements or similar events, as further described in “2019 Results on Quantitative Metrics” below. We believe that the NEOs are compensated for stock price performance through the Company’s long‑term equity incentive program and not through their annual bonus; however, the Committee may also consider absolute stock price performance in determining the qualitative portion of the annual incentive program for the year.

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2019 Results on Quantitative Metrics

In early 2020, the Committee reviewed the Company’s 2019 performance relative to the quantitative operational and financial metrics described above, and determined that the metrics were achieved at 104% of target, as follows:

2019 QUANTITATIVE CORPORATE METRICS

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*      Actual performance was modified for certain adjustments approved by the Committee at the time the 2019 quantitative metrics were established, as follows:

·

Adjusted Cash Flow per Debt-Adjusted Share was adjusted to exclude net cash received from our Delaware midstream divestitures, thus increasing debt balance/share count.

·

Free Cash Flow Margin was adjusted by decreasing oil price and revenue to $55/Bbl to promote capital discipline for increased commodity price, offset by positive adjustments for derivative and production taxes impact.

·

Production Volumes were adjusted for the Company’s Delaware Fortuna divestiture in June 2019, as production was included in the Company’s original budget for the full year.

·

LOE and G&A per Boe was adjusted for non-recurring expenses, including SRC Merger costs incurred during 2019, certain non-recurring legal expenses and settlement costs greater than budget, costs associated with our Delaware midstream divestitures and severance costs related to our 2019 reduction in force, offset by insurance proceeds related to the Company’s partnership lawsuit settlements.

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2019 Assessment on Qualitative Metrics

Based on its review and measurement of the following 2019 qualitative goals, the Committee determined that the Company achieved 13 of 14 of the strategic priorities as set forth below, demonstrating significant accomplishments during the year. 

Picture 6

(1)

“KPI” means key performance indicators.

(2)

The Cornerstone project is a Company-wide personnel reorganization project.

(3)

The Keystone project is an overhaul of the Company’s internal accounting and land systems to create more automated processes.

Based on the Company’s quantitative and qualitative achievements, the Committee awarded an overall  Payout Percentage under the annual incentive plan of 104% of target. 

2019 Bonus Awards

In determining the individual cash incentive awards, the Committee generally felt that management achieved the results as a team and each was instrumental in the overall accomplishments of the Company. Therefore, no individual performance adjustments were made to the awards. Actual cash bonus amounts paid for 2019 performance were as follows:

 

 

 

 

 

 

    

2019 ANNUAL

 

NAMED EXECUTIVE OFFICER

 

BONUS

 

Barton R. Brookman

 

$

1,017,000

 

R. Scott Meyers

 

$

354,000

 

Lance A. Lauck

 

$

426,000

 

Scott J. Reasoner

 

$

426,000

 

Nicole L. Martinet

 

$

237,000

 

Long‑Term Incentive Awards

To align our long‑term incentives with the interests of our stockholders over the long term and with our pay‑for‑performance philosophy, we award equity-based incentives to our NEOs on an annual basis. These

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awards ensure that a meaningful portion of our NEOs’ compensation is at risk based on stock price performance and provides NEOs with significant equity ownership in the Company. In 2019, equity grants were allocated 50% to PSUs and 50% to time-based RSUs.

2019 Award Types and Terms

VEHICLE / PURPOSE

  

DESIGN FEATURES / TERMS

PSUs

Align compensation with the Company’s TSR relative to a group of peers in the industry.

The value of PSUs is dependent on both absolute stock price performance and relative TSR performance over a three‑year period.

 

PSUs are denominated in units of Company stock with payout in shares of stock (or cash) based on the Company’s relative TSR over the specified performance period, as ranked among the comparably‑measured TSR of the Company’s peer companies.

For 2019, the peer group selected for measuring relative TSR was the same as the compensation benchmarking peer group. See “Compensation Peer Group.”

The 2019 PSUs measure TSR over the performance period from January 1, 2019 through December 31, 2021, with payouts as follows:

 

 

 

 

 

 

 

 

   

 

COMPANY TSR RANKING
AMONG PEERS

 

PAYOUT LEVELS
AS % OF AWARD

 

 

 

 

90th Percentile

 

200%

 

 

 

 

75th Percentile

 

150%

 

 

 

 

Median

 

100%

 

 

 

 

25th Percentile

 

  50%

 

 

 

 

Below 25th Percentile

 

  0%

 

 

 

 

 

 

 

 

 

 

     If performance falls between the percentiles, payout levels are interpolated between the next highest and next lowest payout levels;

     If the Company has a negative TSR for the performance period, the maximum award is 100%, regardless of relative TSR performance; and

     If the Company has an average annualized TSR of 15% or greater for the 3‑year performance period, the minimum award is 50%, regardless of relative TSR performance.

 

 

 

 

 

To provide for a consistent number of peers throughout the performance period, the award agreement defines how a peer that is either acquired, merged, delisted, enters bankruptcy, etc. is treated in determining its TSR performance ranking.

 

 

PSUs are forfeited if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. Payout under other termination scenarios is described under “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long‑Term Equity-Based Incentive Plans.”

RSUs

Align compensation directly with the Company’s stock price, encourages retention and increases stock ownership in the Company

 

Notional units that entitle the holder to receive an equal number of shares of stock upon vesting. Awards vest annually over three years; and unvested awards are forfeited by the NEO if the NEO voluntarily terminates or is terminated for cause prior to the vesting date. For a description of what happens under other termination scenarios, see “Potential Payments upon Termination or Change of Control—Impact of Termination and Change of Control on Long‑Term Equity-Based Incentive Plans.”

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2019 Long-Term Incentive Awards

We typically determine the dollar value of the long‑term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long‑term incentives to be primarily forward‑looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. For 2019, the Committee adjusted long‑term incentive values to further align the value of the long‑term incentives with the market competitive range. The table below shows the grants and corresponding value awarded to each NEO in February 2019.  

 

 

 

 

 

 

 

 

 

    

Target Value

    

RSUs

    

PSUs

NAMED EXECUTIVE OFFICERS

 

($)

 

(#)

 

(#)

Barton R. Brookman

 

$

4,400,000

 

60,490

 

60,490

R. Scott Meyers

 

 

1,450,000

 

19,935

 

19,935

Lance A. Lauck

 

 

1,700,000

 

23,371

 

23,371

Scott J. Reasoner

 

 

1,700,000

 

23,371

 

23,371

Nicole L. Martinet

 

 

600,000

 

8,249

 

8,249

The award values shown above differ from the accounting values reported in the Summary Compensation Table. In determining the number of RSUs and PSUs awarded, we used the five‑day average closing stock price ending the day prior to the date of grant. The accounting value reflected in the Summary Compensation Table and 2019 Grants of Plan‑Based Awards table is based on the grant date fair value of the awards on the date of grant.

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2017-2019 Performance Share Unit (PSU) Payout

In 2017, we granted PSUs covering the three-year period from January 1, 2017 through December 31, 2019. The Company’s relative TSR for the performance period ranked at the 58th percentile of its peers, which would generally correlate to a payout of 120% of target; however the payout was reduced by the terms of the PSU grant agreement to 100% of target due to the negative absolute stock price performance over the three-year measurement period. See the “Option Exercise and Stock Vested” table below for the actual amounts received by each NEO. Due to the decline in stock price over the three-year period, the value earned at vesting was 35% of the original target value (based on a 2019 year-end stock price of $26.17). The chart below shows the members of the peer group used for the 2017 grant, each company’s TSR performance and their relative rankings at the end of the period. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

  

 

  

  

 

  

  

Preliminary 

 

  

 

Company

 

TSR

 

 

Rank

 

 

% Rank

 

 

Payout % 

 

 

Adjusted Payout(1)

Diamondback Energy, Inc.

 

(16%)

 

 

1

 

 

100%

 

 

  

 

 

  

Energen Corp. (2)

 

(17%)

 

 

2

 

 

93%

 

 

  

 

 

  

WPX Energy, Inc.

 

(19%)

 

 

3

 

 

86%

 

 

  

 

 

  

Matador Resources Company

 

(37%)

 

 

4

 

 

79%

 

 

  

 

 

  

RSP Permian (3)

 

(43%)

 

 

5

 

 

72%

 

 

  

 

 

  

Parsley Energy, Inc.

 

(52%)

 

 

6

 

 

65%

 

 

  

 

 

  

PDC Energy

 

(68%)

 

 

7

 

 

58%

 

 

120%

 

 

100%

SM Energy Company

 

(71%)

 

 

8

 

 

50%

 

 

  

 

 

  

NewField Exploration Co. (4)

 

(71%)

 

 

9

 

 

43%

 

 

  

 

 

  

Callon Petroleum

 

(73%)

 

 

10

 

 

36%

 

 

  

 

 

  

QEP Resources, Inc.

 

(79%)

 

 

11

 

 

29%

 

 

  

 

 

  

Carrizo Oil and Gas, Inc. (5)

 

(81%)

 

 

12

 

 

22%

 

 

  

 

 

  

Laredo Petroleum, Inc.

 

(81%)

 

 

13

 

 

15%

 

 

  

 

 

  

Oasis Petroleum, Inc.

 

(82%)

 

 

14

 

 

8%

 

 

  

 

 

  

Gulfport Energy Corp.

 

(88%)

 

 

15

 

 

0%

 

 

  

 

 

  

(1)

If TSR is less than 0%, the maximum payout that can be earned is 100%.

(2)

Energen Corp. was acquired by Diamondback Energy on November 20, 2018. Per the terms of the PSU grant agreement, the Committee used the S&P Oil & Gas Exploration & Production Select Industry Index (“SPSIOP Index”) for purposes of determining Energen’s TSR from and after the date of the transaction through the end of the performance period.

(3)

RSP Permian was acquired by Concho Resources Inc. on July 19, 2018. Per the terms of the PSU grant agreement, the Committee used the SPSIOP Index for purposes of determining RSP Permian’s TSR from and after the date of the transaction through the end of the performance period.

(4)

NewField Exploration Co. was acquired by Encana Corporation on February 13, 2019. Per the terms of the PSU grant agreement, the Committee used the SPSIOP Index for purposes of determining NewField’s TSR from and after the date of the transaction through the end of the performance period.

(5)

Carrizo Oil and Gas, Inc. was acquired by Callon Petroleum Company on December 20, 2019. Per the terms of the PSU grant agreement, the Committee used the SPSIOP Index for purposes of determining Carrizo’s TSR from and after the date of the transaction through the end of the performance period.

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Other Elements of Compensation

In addition to the elements of total target direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract and retain executives critical to our long-term success and to provide an overall compensation and benefits program that is competitive with other companies in our industry.

 

 

 

Element

  

Description and Purpose

Health and Welfare Benefits

 

We provide competitive health and welfare benefits that are intended to be comparable to those provided to employees at other companies in our industry. Our NEOs participate in our health and welfare programs on the same basis as all other employees.

Retirement Benefits (401(k) and Profit Sharing)

 

We provide retirement benefits that are intended to be comparable to those provided to employees at other companies in our industry. These benefits are intended to provide financial security by allowing employees to save for retirement through the Company’s 401(k) and Profit Sharing Plan. The Company provides a 10% dollar-for-dollar match up to the IRS limit plus a Profit Sharing contribution that can range from 0% - 5% on an annual basis (up to the IRS limit). Our NEOs participate in our 401(k) and Profit Sharing Plan on the same basis as all other employees up to the IRS allowable limit.

 

 

For 2019, the 401(k) Match and Profit Sharing Contribution for each NEO is shown in the Summary Compensation Table.

Perquisites

 

We provide modest perquisites for the convenience of our executives in meeting the demands of their positions, the value of which is generally consistent with those offered by other companies in our industry. These perquisites include a car allowance for business and personal use, athletic/non‑golf club dues, and annual physicals.

 

 

For 2019, the value of the perquisites provided to each NEO is outlined in the Summary Compensation Table.

Severance and Change of Control Arrangements

 

We believe that severance protection plays a valuable role in attracting, motivating and retaining highly talented executives and that having an existing agreement in place is preferable to negotiating an exit package at the time of an NEO’s departure. Severance provisions give us the flexibility to make decisions regarding organizational issues with pre‑established severance terms in place. In the event the Company faces an actual or potential change of control, severance benefits encourage executive officers to remain with the Company even though prospects for continued employment may be uncertain. We believe that the severance amounts that may be paid upon a change of control of the Company help to align the interests of the executive officers with the interests of the Company’s stockholders and strike a proper balance between the hiring, motivating and retention effects described above, and the need to avoid excessive benefits to executives. We consider these protections to be an important part of an executive’s compensation and believe that they are consistent with competitive practices in the oil and gas industry.

 

 

For a description of the severance programs and other individual arrangements, see “Potential Payments Upon Termination or Change of Control.”

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2020 Compensation Program Changes

In a continued effort to adhere to compensation best practices, and based on stockholder feedback, the Company made numerous changes to its 2020 compensation program, as summarized below. However, in light of evolving market conditions particularly resulting from commodity price deterioration and the COVID-19 pandemic, the Committee will continue to evaluate the Company’s 2020 compensation program and may make adjustments as deemed necessary.

Base Salary

For 2020, the Committee held NEO salaries flat except for Ms. Martinet whose base salary was increased to reflect her recent promotion and the Committee’s determination to bring her base salary closer to the market median over time, as the number of years in her new role increase. 

 

 

 

 

 

 

 

NAMED EXECUTIVE OFFICER

   

2019

    

2020

Barton R. Brookman

 

$

850,000

 

$

850,000

R. Scott Meyers

 

 

425,000

 

 

425,000

Lance A. Lauck

 

 

455,000

 

 

455,000

Scott J. Reasoner

 

 

455,000

 

 

455,000

Nicole Martinet

 

 

325,000

 

 

400,000

Annual Cash Incentive Program

As shown in the graphic below, for 2020, we have increased the formulaic quantitative portion of our annual cash incentive program from 50% of the annual incentive award to 75%. The remaining 25% will be based on achievement of specified qualitative goals and the Committee’s assessment of performance relative to such goals. In addition, to further align the Company’s quantitative metrics with leading industry practices and to continue our focus on incentivizing value creation, for 2020, the Committee added environmental, health and safety and cash return on capital invested metrics, as illustrated below. 

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Long Term Equity-Based Incentive Program

For 2020, the Committee increased the weighting of PSUs for the CEO from 50% to 60%, with long-term equity awards granted in the form of RSUs comprising the remaining 40%. We continued the practice of delivering our long-term equity incentives 50% in PSUs and 50% in RSUs for the other NEOs. In addition, in 2020 the Company adopted an absolute stock price modifier to its PSUs to better align with absolute stockholder performance. In designing the plan, the Committee considered the number of potential outcomes and determined that the formula payout should be adjusted in two cases, as summarized below.

graphic

*Absolute Performance Modifier – After reviewing the various potential scenarios possible under this plan, the Committee recommended adjustments in two specific circumstances. Should the Company finish in the top quartile of relative TSR and exceed the 15% annualized TSR threshold, warranting a >250% payout, the actual payment will be capped at 250%. Should the Company finish in the bottom quartile of relative TSR, warranting a 0% payout, but also exceed the 15% annualized TSR threshold, a 50% payout will be made in lieu of the otherwise calculated 0% payout. No changes will be made in any other scenario.

COMPENSATION POLICIES AND PRACTICES

Process for Determining Executive Compensation

Annually, we review and approve our compensation program design, determine target total direct compensation, establish performance metrics under our annual and long-term incentive programs and determine award payouts based on achievement of Company and individual results. These discussions usually span numerous meetings and involve significant deliberation among the Committee, management

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and the Consultant before approval. With respect to equity programs, we also consider the tax and accounting effect of the awards, dilution and stock burn rates (based on total outstanding shares).

In determining target total direct compensation for our NEOs, we consider the following:

·

Our compensation objectives and philosophy;

·

Each NEO’s scope of responsibility, expertise and tenure;

·

The CEO’s assessment of the individual’s performance and recommendation regarding the compensation of the other NEOs; and

·

Market data for target total direct compensation (base salary, bonus targets and long‑term incentives) from the peer group.

Our view is that an executive’s target compensation should reflect the current market value for that position provided the executive has performed well in the prior year. We may adjust the mix of cash and long‑term incentives, but we generally target around the median of the market in total direct compensation taking into account the factors listed above.

Assessing the Effectiveness of Our Compensation Programs

Annually, we review summaries of each NEO’s compensation history, as well as all compensation payable upon each NEO’s termination of employment, including upon a change of control of the Company. We also do a “look‑back” of realized pay relative to our peers and our share price performance to assess whether our programs as designed are truly paying for performance. The Committee uses these tools in addition to feedback from our stockholders, to determine whether changes to our program are needed.

Compensation Peer Group

In September 2018, the Committee approved the composition of the peer group of companies used for determining 2019 compensation. In selecting the peer group, the Committee considered whether changes to the previous year’s peer group are warranted based upon changes in the size, operations and/or capital structure of either the Company and/or the current or potential peer companies, including the following:

·

Size, scope and nature of business operations, ownership structure, prior financial performance and current financial information, including market capitalization, enterprise value, assets, production (amount and commodity mix), revenues, capital expenditures and reserves for each current peer company;

·

Assessment of this same information on potential new peers; and

·

Other factors that may render a current peer company no longer appropriate for inclusion in the peer group (e.g., financial status).

Once identified, the Committee typically utilizes this peer group for the following:

·

Compensation Benchmarking—to determine competitive total target direct compensation including base salaries, bonus targets and equity-based grants;

·

Total Shareholder Return—to measure absolute and relative total shareholder return under the Company’s PSU awards; and

·

Director Compensation—to determine outside directors’ compensation.

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Peer group compensation practices are determined using a combination of compensation data disclosed in the peers’ proxy statements and survey data for the peer group from Meridian Compensation Partners LLC’s “North America Oil and Gas Exploration and Production Survey.” The Company also uses this same survey as well as other industry surveys for determining compensation practices for the broader industry. The table below shows the peer groups for 2018 and 2019.

 

 

 

 

 

2018 Peers

 

 

 

2019 Peers(1)

 

 

 

 

 

Callon Petroleum Company

 

Added

 

Callon Petroleum Company

Carrizo Oil & Gas Inc.

 

Centennial Resource Dev

 

Carrizo Oil & Gas Inc.

Diamondback Energy, Inc. 

 

Cimarex Energy Co.

 

Centennial Resource Dev

Energen Corporation

Laredo Petroleum Holdings, Inc.

Matador Resources Company

 

Extraction Oil & Gas, Inc.

Jagged Peak Energy, Inc.

 

Cimarex Energy Co.

Extraction Oil & Gas, Inc.

Jagged Peak Energy, Inc.

Newfield Exploration Company

 

 

 

Laredo Petroleum Holdings, Inc.

Oasis Petroleum Inc.

 

 

 

Matador Resources Company

Parsley Energy, Inc.

 

 

 

Newfield Exploration Company

QEP Resources, Inc.

 

 

 

Oasis Petroleum Inc.

RSP Permian, Inc. 

 

Removed

 

Parsley Energy, Inc.

SM Energy Company

 

Diamondback Energy, Inc.  (Large size)

 

QEP Resources, Inc.

SRC Energy Inc.

 

Energen Corporation (Acquired)

 

SM Energy Company

WPX Energy, Inc.

 

RSP Permian, Inc. (Acquired)

 

SRC Energy Inc.

 

 

 

 

WPX Energy, Inc.

 

 

 

 

 

(1)

In 2020, the Committee made the following changes to the 2020 peer group in conjunction with its acquisition of SRC:

·

Added: Devon Energy Corporation, Whiting Petroleum Corporation, and Magnolia Oil & Gas Corp.

·

Removed: Carrizo Oil & Gas Inc., Laredo Petroleum Holdings, Inc. and SRC.

Role of Independent Compensation Consultant

The Committee has engaged Meridian Compensation Partners as an independent compensation consultant (the “Consultant”) to help ensure that executive compensation programs are competitive and consistent with the Company’s compensation philosophy and policies. In retaining the Consultant, the Committee considers the following:

·

The Consultant’s reputation supporting compensation committees and familiarity with our executive compensation program design;

·

Experience of the Consultant in the energy exploration and production industry;

·

Range of compensation services offered by the Consultant; and

·

Independence of the Consultant, considering the independence factors outlined by the SEC.

The Committee determines the scope of the Consultant’s engagement, which includes:

·

Providing input into peer group identification and assessment;

·

Providing benchmarking on executive and outside director compensation for the Committee to use in its decision‑making process;

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·

Providing input into plan design discussions, payout alternatives and performance measures for annual and long‑term incentives, individual compensation actions, and other aspects of compensation (e.g., employment agreements and perquisites);

·

Reviewing and providing feedback on the compensation‑related disclosures in our proxy statement; and

·

Informing us about recent trends, best practices, and other developments affecting executive compensation.

The Consultant’s interactions with the Committee and management include the following:

·

The Consultant does not make recommendations on or approve the amount of compensation of any NEO;

·

The Committee may request information or advice directly from the Consultant and may direct the Company to provide information to, or solicit information from, the Consultant;

·

The Consultant regularly interacts with representatives of the Company and periodically with the CEO; and

·

The Consultant attends Committee meetings as requested.

The Committee annually reviews the engagement of the Consultant, and as a part of that process, reviews a summary of all services provided by the Consultant and related costs. Except as set forth above, the Consultant did not perform any material services for the Company. The Consultant did not have any business or personal relationships with Committee members or executive officers of the Company, and did not own any stock of the Company. The Consultant maintains policies and procedures designed to avoid such conflicts of interest. Accordingly, the Committee determined that the Consultant was not subject to any significant conflicts of interest.

Role of Management

Our CEO plays a significant role in determining the compensation levels of our NEOs, which includes:

·

Recommending quantitative and qualitative performance measures under our annual cash incentive program;

·

Assessing the performance of the other NEOs; and

·

Recommending base salaries, annual incentive targets and long‑term incentive awards for the forthcoming year, and annual incentive awards for the prior year.

At the Committee’s request, the CEO and other NEOs may also play a role in determining the following:

·

Quantitative and qualitative performance measures under our annual incentive program;

·

Proposed peer group companies;

·

Design changes to our compensation and benefits programs; and

·

Assessment of the Company’s performance for the year with respect to achievement of performance measures under the annual incentive program.

The Committee determines each element of the CEO’s compensation with input from the Consultant. The Committee also determines each element of compensation for the other NEOs with input from the Consultant and the CEO. The CEO is not present during voting or deliberations concerning his own compensation.

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For part of 2019, management also retained an individual as a consultant in our compensation process who assisted in the coordination and preparation of certain materials for Committee meetings. This individual was retained by and reported to management, whereas the Consultant reports to the Committee.

Other Policies and Considerations

Tax and Accounting Considerations

With respect to compensation paid under the Company’s plans, arrangements and agreements, we consider the impact of the applicable tax laws and accounting rules, including but not limited to Section 409A, Section 280G and Section 4999 of the Code. Currently, none of our severance arrangements or agreements provide for a gross‑up for exc