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.  )

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Apache Corporation

(Name of Registrant as Specified In Its Charter)

 

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APACHE CORPORATION
One Post Oak Central
2000 Post Oak Boulevard, Suite 100
Houston, Texas 77056-4400

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

The 2011 annual meeting of shareholders of Apache Corporation, a Delaware corporation, will be held on Thursday, May 5, 2011, at 10:00 a.m. (Houston time), at the Hilton Houston Post Oak, 2001 Post Oak Boulevard, Houston, Texas, for the following purposes:

 

 

Holders of record of the Company’s common stock as of the close of business on March 7, 2011, are entitled to notice of, and to vote at, the annual meeting.

 

It is important that your shares are represented at the meeting. We encourage you to designate the proxies named on the enclosed proxy card to vote your shares on your behalf and per your instructions. This action does not limit your right to vote in person or to attend the meeting.

 

By order of the Board of Directors

 

APACHE CORPORATION

 

C. L. Peper

Corporate Secretary

 

Houston, Texas

March [31], 2011

 

Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders to be held on May 5, 2011:

 

This proxy statement, along with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and the 2010 Summary Annual Report, are available free of charge on the Company’s website at http://www.apachecorp.com

 

Proxy Statement Table of Contents

 

 

APACHE CORPORATION
One Post Oak Central
2000 Post Oak Boulevard, Suite 100
Houston, Texas 77056-4400

March [31], 2011

 

PROXY STATEMENT

 

This proxy statement contains information about the 2011 annual meeting of shareholders of Apache Corporation. In this proxy statement both “Apache” and the “Company” refer to Apache Corporation. This proxy statement and the enclosed proxy card are being mailed to you by the Company’s board of directors starting on or about March [31], 2011.

 

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

 

 

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

 

Only shareholders of record holding shares of Apache common stock at the close of business on the record date, March 7, 2011, are entitled to receive notice of the annual meeting and to vote the shares of Apache common stock they held on that date. The Company’s stock transfer books will not be closed. A complete list of shareholders entitled to vote at the annual meeting will be available for examination by any Apache shareholder at 2000 Post Oak Boulevard, Suite 100, Houston, Texas, for purposes relating to the annual meeting, during normal business hours for a period of ten days before the meeting.

 

As of January 31, 2011, there were 382,752,217 shares of Apache common stock issued and outstanding. Holders of Apache common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. The enclosed proxy card shows the number of shares that you are entitled to vote.

 

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

 

The “routine” matters to be acted upon at the annual meeting are Item 5 – ratification of Ernst & Young LLP as our independent auditors and Item 8 – approval of a proposed amendment to our Restated Certificate of Incorporation to authorize additional common stock. All other matters to be acted upon at the annual meeting are “non-routine” matters, and as such, if you hold all or any portion of your shares in street name and you do not give your broker or bank specific instructions on how to vote your shares, your shares will not be voted on any of the following “non-routine” matters:

 

 

If you hold shares of Apache common stock in your own name (as a “shareholder of record”), you may give the Company instructions on how your shares are to be voted by:

 

 

When using internet or telephone voting, the voting systems will verify that you are a shareholder through the use of a company number for Apache and a unique control number for you. If you vote by internet or telephone, please do not also mail the enclosed proxy card.

 

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

 

 

 

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

 

The trustee will vote the shares in your plan account in accordance with your instructions. If you do not send instructions (in the manner described under “How to Vote” above) or if your proxy card is not received by May 3, 2011, the shares credited to your account will be voted by the trustee in the same proportion as it votes shares for which it did receive timely instructions.

 

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

 

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

 

Election of Directors.  In December 2006, the Company’s bylaws were amended to provide for the election of directors by majority vote. Thus, the affirmative vote of a majority of the votes cast at the annual meeting is required for the election of directors. You may vote FOR or AGAINST any or all director nominees or you may ABSTAIN as to one or more director nominees. As set forth in our bylaws, only votes FOR or AGAINST the election of a director nominee will be counted. Abstentions and broker non-votes count for quorum purposes, but not for purposes of the election of directors. A vote to ABSTAIN is not treated as a vote FOR or AGAINST and thus, will have no effect on the outcome of the vote.

 

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

An Advisory Vote on the Compensation of the Named Executive Officers.  You may vote FOR or AGAINST the advisory vote on the compensation of our named executive officers or you may ABSTAIN. A majority of the shares of Common Stock present in person or represented by proxy at our Annual Meeting and entitled to vote must be voted FOR approval of the advisory proposal in order for it to pass. Votes cast FOR or AGAINST and ABSTENTIONS with respect to the proposal will be counted as shares entitled to vote on the proposal. Broker non-votes will not be counted as shares entitled to vote on the proposal. A vote to ABSTAIN will have the effect of a vote AGAINST the proposal.

 

An Advisory Vote on the Frequency of the Advisory Vote on the Compensation of the Named Executive Officers.  A plurality of the shares of Common Stock present in person or represented by proxy at our Annual Meeting and entitled to vote must be voted FOR approval of holding the advisory vote on the compensation of our named executive officers either every one, two or three years in order for the proposal to pass. You may vote to hold the advisory vote on compensation of named executive officers:

 

 

Broker non-votes will not be counted as shares entitled to vote on the proposal. A vote to ABSTAIN will have the effect of a vote AGAINST the proposal.

 

Approval of an Amendment to our Restated Certificate of Incorporation to Authorize Additional Common Stock.  A majority of the outstanding shares of Common Stock must be voted FOR the proposal in order for it to pass. You may vote FOR or AGAINST the proposal to approve this amendment to our Restated Certificate of Incorporation or you may ABSTAIN. Broker non-votes will be counted as shares entitled to vote on this matter. A vote to ABSTAIN will have the effect of a vote AGAINST the proposal.

 

Approval of an Amendment to our Restated Certificate of Incorporation to Authorize Additional Preferred Stock.  A majority of the outstanding shares of Common Stock must be voted FOR the proposal in order for it to pass. You may vote FOR or AGAINST the proposal to approve this amendment to our Restated Certificate of Incorporation or you may ABSTAIN. A vote to ABSTAIN or a broker non-vote will have the effect of a vote AGAINST the proposal.

 

Approval of the 2011 Omnibus Plan.  A majority of the shares of Common Stock present in person or represented by proxy at our Annual Meeting and entitled to vote must be voted FOR approval of the 2011 Omnibus Plan in order for it to pass. Votes cast FOR or AGAINST and ABSTENTIONS with respect to the proposal will be counted as shares entitled to vote on the proposal. Broker non-votes will not be counted as shares entitled to vote on the proposal. A vote to ABSTAIN will have the effect of a vote AGAINST the proposal.

 

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

 

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

 

The Company’s certificate of incorporation provides that, as near as numerically possible, one-third of the directors shall be elected at each annual meeting of shareholders. Unless directors earlier resign or are removed, their terms are for three years, and continue thereafter until their successors are elected and qualify as directors.

 

The current terms of directors G. Steven Farris, Randolph M. Ferlic, A.D. Frazier, Jr., and John A. Kocur will expire at the 2011 annual meeting. Messrs. Farris, Ferlic, Frazier and Kocur have been recommended by the Company’s Corporate Governance and Nominating (“CG&N”) Committee and nominated by the board of directors for election by the shareholders to an additional three-year term. If elected, Messrs. Farris, Ferlic, Frazier, and Kocur will serve beginning upon election until the annual meeting of shareholders in 2014.

 

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

 

The board of directors recommends that you vote FOR the election of each of the directors.

 

 

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

 

G. STEVEN FARRIS, 62, who joined the Company’s board of directors in 1994, was appointed chairman of the board on January 15, 2009, and has served as chief executive officer since May 2002. Mr. Farris also served the Company as president and chief operating officer from May 1994 until February 12, 2009, as senior vice president from 1991 to 1994, and as vice president – exploration and production from 1988 to 1991. Prior to joining Apache, Mr. Farris was vice president of finance and business development for Terra Resources, Inc., a Tulsa, Oklahoma oil and gas company, from 1983 to 1988. He is a member of the Board of Visitors of M.D. Anderson Cancer Center, Houston, Texas, and is a founding member and serves on the executive committee of America’s Natural Gas Alliance (“ANGA”). At Apache, Mr. Farris is a member of the Executive Committee.

 

RANDOLPH M. FERLIC, 73, a private investor, joined the Company’s board of directors in 1986. Dr. Ferlic retired in December 1993 from his practice as a thoracic and cardiovascular surgeon. Dr. Ferlic is the founder of Surgical Services of the Great Plains, P.C. and served as its president from 1974 to 1993. He has been a Regent of the University of Nebraska since November 2000, and was chairman of its audit committee until March 2008, at which time he became, and continues to serve as, vice chairman. Dr. Ferlic serves as a director of the Nebraska Medical Center and chairman of its audit committee, as well as commissioner for the Midwestern Higher Education Compact. At Apache, he is lead director, chairman of the Audit Committee and a member of the Executive Committee.

A. D. FRAZIER, JR., 66, joined the board of directors of the Company in 1997. He is a partner in Affiance, Inc., a Georgia based bank consulting group, and senior advisor to The Dilenschneider Group, Inc., a New York based public relations consulting company. In July 2010, Mr. Frazier was appointed chairman of the Special Council for Tax Reform and Fairness to Georgians, established by Georgia state legislature to examine the state’s tax code, and is owner and chairman of WolfCreek Broadcasting, Inc., Young Harris, Georgia. He has served as chairman and chief executive officer of Danka Business Systems PLC, St. Petersburg, Florida, from March 2006 until its sale in July 2008, and was of Counsel with the law firm of Balch & Bingham LLP, Atlanta, Georgia, from January 2005 to March 2006. From October 2004 until its sale in January 2007, he was a director and chairman of the board of Gold Kist, Inc., Atlanta, Georgia, an integrated chicken production, processing, and marketing company. At Apache, Mr. Frazier is a member of the Management Development and Compensation Committee and the Stock Option Plan Committee.

 

JOHN A. KOCUR, 82, joined the Company’s board of directors in 1977. Mr. Kocur, who is retired from the private practice of law, served as vice chairman of the Company’s board of directors from 1988 to 1991. At Apache, he currently serves as chairman of the Executive Committee, a member of the Corporate Governance and Nominating Committee, and a member of the Management Development and Compensation Committee.

 

Biographical information, including principal occupation and business experience during the last five years, for each continuing member of the board of directors whose term is not expiring at the 2011 annual meeting, is set forth below. Unless otherwise stated, the principal occupation of each director has been the same for the past five years. In addition, each director’s experience, qualifications, attributes or skills to serve on our board are discussed under the heading “Qualifications of Directors” below.

 

 

In selecting our directors and director nominees, the CG&N Committee has sought to create a board with a broad and balanced set of skills, complimented by diversity of experience and expertise. As is evidenced by the biographical information set forth above, each director contributes his or her own unique background which has led the CG&N Committee to conclude that the Company and our shareholders will benefit from the director’s service on the Company’s board. It is equally important that the particular skill sets of each director complement the experience, qualifications, attributes and skills of our board of directors as a whole. In addition to the qualifications described in the preceding biographical information, the following is a discussion of the particular experience, qualifications, attributes or skills of each director that led our board to conclude that he or she will contribute to the diversity of experience and expertise required for the effective functioning of our board.

 

G. STEVEN FARRIS Mr. Farris’ 28 years experience in the oil and gas industry coupled with his 16 years of direct leadership at Apache provide him with valuable insight not only into the oil and gas industry, but also the unique day-to-day operations of Apache. Throughout his career, Mr. Farris has held positions of increasing responsibility in the oil and gas industry, culminating in his appointment as chief executive officer of Apache in May 2002 and chairman of the board in January 2009. Since being named as chief operating officer in 1994, Mr. Farris has been instrumental in growing the Company’s reserves by almost nine times to 2,359 million barrels of oil equivalent (“MMboe”) and production to 658,000 barrels per day (“b/d”).

 

RANDOLPH M. FERLIC Dr. Ferlic has been involved in research activities throughout his professional life, including in-depth analysis of data, probabilities, and risks. For his work as a cardiovascular and thoracic surgeon, Dr. Ferlic was awarded “Legend” status by the Nebraska Medical Center and, in February 2011, the “Spirit of the Heart” award by the American Heart Association. In addition to founding Surgical Services of the Great Plains, from 1974 until 1994, Dr. Ferlic served as the corporation’s president, was responsible for and managed its finances, and was trustee and manager of the corporation’s employee benefit plans. Dr. Ferlic has twice been publicly elected to the University of Nebraska Board of Regents and has served on the board’s audit committee since 2000. He served as a director and executive committee member on the Nebraska Medical Center Board, a large hospital system, and was chair of the audit committee from January 2004 until retirement in December 2010. Dr. Ferlic was appointed by both Democrat and Republican governors to serve the past 20 years as a commissioner for the Midwestern Higher Education Compact, a 12-state policy and business compact for all educational activities in those states. He served as treasurer of the Compact from 1997-2000 and again starting in 2010. His service to both the Compact and the Nebraska Board of Regents has involved shaping policies that help craft strategic and global views. Over the years, Dr. Ferlic has acquired over 400,000 shares of the Company’s common stock for himself and his family, which further aligns him with shareholder interests.

 

A. D. FRAZIER, JR. In addition to the many executive positions noted in his biographical information above, Mr. Frazier spent a large part of his career as an executive in the investment banking industry. He served as the chief executive officer of INVESCO, Inc., an affiliate of an independent global investment management firm, from 1997 to 2000. Mr. Frazier also served as executive vice president, North American Banking Group, of First Chicago Corporation and First National Bank of Chicago from 1982 to 1991, where, among other numerous industry specialties, he oversaw the Bank’s oil and gas specialty, which provided him with an intimate knowledge of the oil and gas industry. He also served as the chief operating officer of the Atlanta Olympic Games Committee from 1991 to October 1996. During his career, Mr. Frazier has gathered extensive experience as an executive responsible for the development, management, and operation of a diverse group of businesses and organizations. Through these executive and director positions, Mr. Frazier

gathered extensive experience in identifying, analyzing, and managing risk across a wide range of industries.

 

JOHN A. KOCUR Mr. Kocur was employed by Apache in various roles from the time that the Company’s stock was first listed on the New York Stock Exchange in 1969 until his retirement in 1991. During his tenure, Mr. Kocur served Apache in various roles of increasing responsibility, including serving as its general counsel, culminating in his appointment as the Company’s president in 1979. Mr. Kocur, as president and later as vice chairman, was instrumental in overseeing Apache’s growth from a small drilling program company into a leading independent, international oil and gas company. Mr. Kocur’s unparalleled experience with and understanding of the Company’s history and objectives provide invaluable insight into the Company’s past, current, and future operations and management.

 

FREDERICK M. BOHEN Throughout his career, Mr. Bohen has held executive-level leadership roles and been responsible for the finance and operations of large, complex organizations. As senior vice-president of Brown University in the 1980’s, an Ivy League school and a premier university college, he was responsible for all aspects of business operations, including finance, budget, human resources, and facilities. As executive vice-president and chief operating officer of the Rockefeller University during the period 1990-2005, Mr. Bohen was responsible for all aspects of the operations of this world-renowned center for research and graduate training in the biomedical sciences, including human resources, finance, capital projects, facilities, and the management of an annual operating budget exceeding $250 million. In these roles over more than two decades, he was steadily involved in the recruitment and retention of officer-level talent and the development of related compensation policies and programs. With broad leadership responsibility in these institutions for finance over the same period, Mr. Bohen acquired the experience and judgment useful in identifying, assessing and minimizing financial and other risks and uncertainties in the leadership and direction of complex organizations. He has also served as a Director of Oppenheimer and Company; of the Student Loan Marketing Association (“Sallie Mae”), where he chaired the Board’s compensation committee; of the College Construction Loan Insurance Association (“Connie Lee”); and of the Mexico Equity Income Fund, Inc.

 

EUGENE C. FIEDOREK After working as a petroleum reservoir engineer at Shell Oil Company and British American Oil Producing Company for eight years, Mr. Fiedorek spent 37 years in the oil and gas investment banking and commercial banking industries. As co-founder, president, and managing director of EnCap Investments and managing director of the Energy Banking Group of First RepublicBank, he gained extensive experience in advising oil and gas companies on their capital structure and strategic direction. Through these positions, Mr. Fiedorek gained valuable experience in identifying, assessing, and minimizing risk that can affect large oil and gas companies. These positions also provided him with the financial reporting expertise necessary for his role on Apache’s audit committee.

 

PATRICIA ALBJERG GRAHAM Prior to her appointment as dean of Harvard University’s Graduate School of Education in 1982, Dr. Graham served as dean of the Radcliffe Institute, vice president for Institutional Planning for Radcliffe College, and vice president of Radcliffe College. In 1977, Dr. Graham, a leading historian of American education, left her positions at Radcliffe College upon her appointment by then-President Jimmy Carter to serve as the director of the National Institute of Education, then the federal government’s education research agency, a position in which she served until 1979. Throughout her career, Dr. Graham has held a variety of leadership and policy-making roles in the area of education. In her service as dean of Harvard Graduate School of Education and vice president of Radcliffe College, Dr. Graham was responsible for, among other things, the management, structure, and day-to-day operations of these premiere educational institutions. Dr. Graham also served on the board of Northwestern Mutual Life Insurance Company from 1980 – 2005 and, for most of that period, served on the management compensation and public

policy committee of the board. She was a member of the board of Science Research Associates from 1984 – 1989.

 

SCOTT D. JOSEY Mr. Josey has spent his entire career, spanning 30 years, in the oil and gas industry. As the former chief executive officer, president and chairman of the board of Mariner, he gained extensive management, financial and technical expertise in the oil and gas field. Because of his service in the operations of an oil and gas company, as an investment banker advising the oil and gas industry, and as the chief executive officer of an exploration and production company, Mr. Josey gained extensive knowledge of an oil and gas company’s prospects and operations and their impact on its financial condition. As an active participant in various energy-related professional organizations, he has an excellent understanding of the various issues that impact exploration and production companies. Mr. Josey has invaluable experience in identifying, assessing, and managing risks faced by exploration and production companies like Apache.

 

CHANSOO JOUNG Mr. Joung has spent almost his entire career working in the finance industry with energy companies. He currently serves as a senior advisor at Warbus Pincus LLC where he provides advice on new and existing investments in the energy sector for the firm. Previously, as a partner at Warbus Pincus, his duties included sourcing, executing and monitoring energy investments. Prior to joining Warbus Pincus, Mr. Joung spent almost 18 years at Goldman Sachs where he worked in the Natural Resources Group and also founded and led the London-based European Energy Group in investment banking. In addition to our board, he also serves on the boards of a number of private companies in a variety of sectors in the energy industry, and served on the boards of Targa Resources Corp. and Targa Resources Partners, LP. Through his experiences as an investment banker, Mr. Joung gained significant experience with energy companies, the energy industry, and energy-related capital markets activity, which will enhance his contributions to the board. Those experiences have also given Mr. Joung the ability to identify, assess, and manage risk that can affect a large energy company like Apache.

 

GEORGE D. LAWRENCE Mr. Lawrence began his oil and gas career with the predecessor to The Phoenix Resource Companies, Inc. in 1985, holding management positions with increasing responsibility, culminating in his appointment as president, chief executive officer, and a director of Phoenix in 1990 until 1996, when the company merged with Apache. During his tenure as chief executive officer of Phoenix, Mr. Lawrence gained valuable experience in corporate leadership in all aspects of business including finance, securities, operations, strategy and risk. At Phoenix and its predecessor, Mr. Lawrence was extensively involved in international operations that were spread over several continents and he was especially instrumental in leading Phoenix’s operations in Egypt, an area that remains at the core of Apache’s operations today. Prior to entering the oil and gas business, Mr. Lawrence engaged in a diversified private practice of law and also served five years at the United States Department of Justice, his last position there being the Assistant Chief of the Environmental Enforcement Section.

 

F. H. MERELLI Mr. Merelli has spent more than 30 years in key executive and director positions in the oil and gas industry. His extensive experience leading oil and gas companies in the capacities of president, chief executive officer, and chairman of the board has provided a wealth of knowledge and understanding of the intricacies of the oil and gas industry. Through these positions, Mr. Merelli has gained valuable experience in identifying, assessing, and managing risk that can affect large oil and gas companies, including Apache. Although Mr. Merelli served as president and chief operating officer of Apache for just three years, his impact on the Company was considerable. Many of the management and incentive systems that he and Mr. Farris put into place upon his arrival at Apache 20 years ago remain in place today, as do many of the management personnel they brought to the Company.

RODMAN D. PATTON For over 25 years prior to joining Apache’s board of directors, Mr. Patton held various executive positions in the oil and gas investment banking industry. As a managing director at Merrill Lynch, First Boston (later Credit Suisse) and other investment banks, Mr. Patton has extensive experience advising oil and gas companies on capital structure, strategy and direction. He also gained valuable experience in the assessment and management of risk faced by oil and gas companies. As a former investment banker and as chairman of NuStar GP’s audit committee, Mr. Patton has extensive financial reporting expertise, which serves him well in his role as a member of Apache’s audit committee.

 

CHARLES J. PITMAN Having served in executive and director capacities at numerous oil and gas companies, Mr. Pitman has gained invaluable experience in and knowledge of the oil and gas industry. During his 24-year career at Amoco Corporation and BP Amoco plc, Mr. Pitman served in a variety of leadership positions in the United States and multiple international locations, principally in the Middle East. Notably, Mr. Pitman served as president of Amoco Egypt Oil Company from 1992 to 1996, president of Amoco Eurasia Petroleum Company from 1997 to 1998, regional president BP Amoco plc – Middle East/Caspian/Egypt/India and head of new business development – Middle East/Caspian from December 1998 until his retirement in 1999. Most recently, Mr. Pitman has utilized his considerable experience in international oil and gas by participating in oil and gas ventures in Russia and Algeria. Prior to joining Amoco, Mr. Pitman served in the United States Department of State as a Foreign Service Officer and Attorney-Adviser.

 

During 2010 and the first two months of 2011, the board of directors evaluated all business and charitable relationships between the Company and the Company’s non-employee directors (all directors other than Mr. Farris) and all other relevant facts and circumstances. As a result of the evaluation, the board of directors determined, as required by the Company’s Governance Principles, that each non-employee director is an independent director as defined by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc. (“NYSE”), The NASDAQ National Market (“NASDAQ”), and the Securities and Exchange Commission (“SEC”).

 

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

Lead Director

 

The Company’s Governance Principles require that the independent (non-employee) directors meet in executive session at least twice each year and, in 2010, they met five times in executive session. These executive sessions are chaired by a lead director. In February 2011, the Company amended its Governance Principles to specify that the lead director is an independent director who is elected from time to time, but not less than annually, by the affirmative vote of a majority of the non-management directors. In addition to chairing the executive sessions, the lead director discusses management’s proposed meeting agenda with the other independent directors and reviews the approved meeting agenda with our chairman and chief executive officer, leads the discussion with our chief executive officer following the independent directors’ executive sessions, ensures that the board’s individual, group, and committee self-assessments are done annually, leads periodic discussions with other board members and management concerning the board’s information needs, and is available for discussions with major shareholders. In February 2011, Randolph M. Ferlic was elected lead director. The role and responsibilities of the lead director and the method established for communication of concerns to the independent directors are included in the Company’s Governance Principles, which are available on the Company’s website (www.apachecorp.com).

 

Reporting of Concerns to Independent Directors

 

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

 

Board Leadership Structure and Risk Oversight

 

Board Leadership Structure

 

Throughout much of Apache’s history, the Company has ascribed to the traditional U.S. board leadership structure, under which our chief executive officer has also served as the chairman of our board of directors. From 1969 until 2002, both of these positions were held by our founder, Mr. Raymond Plank. However, upon Mr. Raymond Plank’s retirement as chief executive officer of the Company in 2002, Mr. Farris was appointed as the Company’s chief executive officer and Mr. Raymond Plank remained as the Company’s chairman of the board. Upon Mr. Plank’s retirement as chairman of the board in January 2009, Mr. Farris was appointed the Company’s chairman of the board, once again unifying the roles of chairman and chief executive officer. As Apache’s history demonstrates, we believe it is important to maintain the flexibility to have either a combined or a separated chair and CEO structure as circumstances dictate. Each structure has served us well in the past. Currently, we believe that the efficiencies created by a combined position work best, especially when viewed in conjunction with our lead director elected annually by our independent directors, assuring strong board leadership. In particular, this structure helps to ensure clarity regarding leadership of the Company, allows the Company to speak with one voice and provides for efficient coordination of board action, particularly in times of crisis. The combination of the Chairman’s ability to call board meetings with the CEO’s intimate knowledge of our business, including our risk management framework, provides a strong structure for the efficient operation of our board process and effective leadership of our board overall. This structure avoids potential confusion as to leadership roles and duplication of efforts that can result from the roles being separated. It also assists our CEO in managing our Company and dealing with third parties more effectively on a day-to-day basis. Our board regularly reviews all the aspects of our governance profile, including this one, and will make changes as circumstances warrant. This is the model that the Company has utilized for much of its history and we believe that it is the most effective way to lead the Company going forward.

Risk Oversight

 

The Company’s Governance Principles state that in addition to its general oversight of management, the board of directors is responsible for a number of specific functions, including assessing major risks facing the Company and reviewing options for their mitigation. Our board of directors has four standing independent committees with separate chairs: Audit, Management Development and Compensation, Executive, and Corporate Governance and Nominating. Our Audit Committee is primarily responsible for overseeing the Company’s risk management processes on behalf of the board. The Audit Committee charter provides that the Audit Committee should assess and manage the Company’s exposure to risk, and discuss the Company’s major financial risk exposure and the steps management has taken to monitor, control, and report such exposures. In addition, the Audit Committee reports to the board of directors, which also considers the Company’s risk profile. The Audit Committee and the board of directors focus on the most significant risks facing the Company, and the Company’s risk management strategy and ensure that the risks undertaken are consistent with the board’s tolerance for risk. While the board is responsible for setting, monitoring and maintaining the Company’s risk management policies and practices, the Company’s executive officers and members of our management team are responsible for implementing and overseeing our day-to-day risk management processes. Additionally, the board has created a Risk Management Committee composed of members of our management team. The Risk Management Committee monitors and manages risks related to, among other things, our commodity hedging activities and foreign currency exchange exposure. The Company believes that this division of responsibility is the most effective way to monitor and control risk.

 

In addition to the oversight provided by our full board of directors, Audit Committee, executive officers and the members of our management team, including our Risk Management Committee, our independent (non-employee) directors hold regularly scheduled executive sessions as often as they deem appropriate, but in any event at least twice each year. These executive sessions are chaired by a lead director, and provide an additional avenue through which we monitor the Company’s risk exposure and policies regarding risk management.

 

Risk Considerations in Our Compensation Programs

 

Our Management Discussion and Compensation Committee (the “MD&C Committee”) has discussed the concept of risk as it relates to our compensation programs, and the MD&C Committee does not believe our compensation programs encourage excessive or inappropriate risk taking. The MD&C Committee, with assistance of its independent compensation consultant, arrived at this conclusion for the following reasons:

 

 

The board of directors has an Audit Committee, a Corporate Governance and Nominating (“CG&N”) Committee, a Management Development and Compensation (“MD&C”) Committee and its subcommittee, the Stock Option Plan Committee, and an Executive Committee. Actions taken by these committees are reported to the board of directors at the next board meeting. During 2010, each of the Company’s directors attended at least 75 percent of all meetings of the board of directors and committees of which he or she was a member. Ten of eleven directors attended the Company’s 2010 annual meeting of shareholders held on May 6, 2010. Scott D. Josey and Chansoo Joung are not included in this table, as they joined the board in February 2011.

 

 

 

Audit Committee

 

The Audit Committee reviews, with the independent public accountants and internal auditors of the Company, their respective audit and review programs and procedures and the scope and results of their audits. It also examines professional services provided by the Company’s independent public accountants and evaluates their costs and related fees. Additionally, the Audit Committee reviews the Company’s financial statements and the adequacy of the Company’s system of internal controls over financial reporting. As described more fully in “Board Leadership Structure and Risk Oversight”, the Audit Committee is also tasked with assessing and managing the Company’s exposure to risk. The Audit Committee has the sole authority to appoint, compensate, retain, oversee, and terminate our

independent auditors. It also has the sole authority to pre-approve and all terms of and set fees for audit services, audit related services, tax services, and other services to be performed for the Company by the Company’s independent registered public accountants.

 

During 2010 and the first two months of 2011, the board of directors reviewed the composition of the Audit Committee pursuant to the rules of the NYSE and NASDAQ governing audit committees. Based on this review, the board of directors confirmed that all members of the Audit Committee are “independent” under the NYSE and NASDAQ rules. During 2000, the Audit Committee adopted a charter, which was approved by the board of directors on May 4, 2000, and which reflects the NYSE’s rules and the regulations of the SEC. On February 4, 2004, the Audit Committee adopted an amended and restated charter, which was approved by the board of directors on February 5, 2004. The Audit Committee charter is available on the Company’s website (www.apachecorp.com). The board of directors has determined that all members of the Audit Committee qualify as financial experts, as defined in Item 407 of Regulation S-K under the Securities Act of 1933.

 

MD&C Committee

 

The MD&C Committee reviews the Company’s management resources and structure and administers the Company’s compensation programs and retirement, stock purchase and similar plans. Under the provisions of its charter, the MD&C Committee may, at its discretion and if allowed by applicable laws or regulations, delegate all or a portion of its duties and responsibilities to a subcommittee of the MD&C Committee composed of at least two members. During 2010 and the first two months of 2011, the board of directors reviewed the composition of the MD&C Committee pursuant to the rules of the NYSE and NASDAQ governing compensation committees. Based on this review, the board of directors confirmed that all members of the MD&C Committee are “independent” under the NYSE and NASDAQ rules. The MD&C Committee charter is available on the Company’s website (www.apachecorp.com).

 

Stock Option Plan Committee

 

The MD&C Committee has one standing subcommittee, the Stock Option Plan Committee, the two members of which are “outside directors” as defined by applicable federal tax law or regulations of the Internal Revenue Service. The duties of the Stock Option Plan Committee include the award and administration of grants under the Company’s stock-based compensation plans.

 

CG&N Committee

 

The duties of the CG&N Committee include recommending to the board of directors the slate of director nominees submitted to the shareholders for election at the annual meeting and proposing qualified candidates to fill vacancies on the board of directors. The CG&N Committee is also responsible for developing corporate governance principles for the Company, reviewing related party transactions, and overseeing the evaluation of the board of directors. During 2010 and the first two months of 2011, the board of directors reviewed the composition of the CG&N Committee pursuant to the rules of the NYSE and NASDAQ governing governance committees. Based on this review, the board of directors confirmed that all members of the CG&N Committee are “independent” under the NYSE and NASDAQ rules. The CG&N Committee charter is available on the Company’s website (www.apachecorp.com).

 

The CG&N Committee considers director nominee recommendations from executive officers of the Company, independent members of the board and shareholders of the Company, and from other interested parties. The CG&N Committee may also retain an outside search firm to assist it in finding

appropriate nominee candidates. Shareholder recommendations for director nominees received by Apache’s corporate secretary (at the address for submitting shareholder proposals and nominations set forth under the heading “Future Shareholder Proposals and Director Nominations”) are forwarded to the CG&N Committee for consideration.

 

Executive Committee

 

The Executive Committee is vested with the authority to exercise the full power of the board of directors, within established policies, in the intervals between meetings of the board of directors. In addition to the general authority vested in it, the Executive Committee may be vested with specific powers and authority by resolution of the board of directors.

 

Committee Charters

 

As noted above, you can access electronic copies of the charters of the committees of the board of directors on the Company’s website (www.apachecorp.com). Also available on the Company’s website are our Governance Principles and our Code of Business Conduct which meets the requirements of a code of ethics under applicable SEC regulations and NYSE and NASDAQ standards. In 2010, Apache revised its Code of Business Conduct to add (i) an introduction to clarify that the Code applies to all directors, officers and employees of Apache; and (ii) a new section titled “Receiving or providing gifts and entertainment in furtherance of legitimate company interests,” pursuant to which, Apache employees are prohibited from accepting or providing gifts or entertainment that, under the circumstances, are excessive in value or frequency. The Code of Business Conduct, as amended, also contains some administrative changes. You may request printed copies of any of these documents by writing to Apache’s corporate secretary at 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400.

 

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

 

 

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

 

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

 

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

 

Company policy precludes directors and employees from discriminating against any protected group. Company policy also precludes directors and employees from basing work-related decisions on anything other than work-relevant criteria. The Company’s approach to diversity complements these policies without conflicting with them; our status as a global company makes the need for board diversity in all its aspects essential to our business. Our criteria for board selection, summarized in this section, operates as our diversity policy.

 

The Audit Committee oversees the Company’s financial reporting process on behalf of the board of directors. The Company’s management has the primary responsibility for the financial statements, for maintaining effective internal controls over financial reporting, and for assessing the effectiveness of internal controls over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2010 with Company management, including a discussion of the quality, not just the acceptability, of the accounting principles; the reasonableness of significant judgments; and the clarity of disclosures in the financial statements.

 

The Audit Committee reviewed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited consolidated financial statements with U.S. generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee by Statement on Auditing Standards No. 61, Communication with Audit Committees (as amended), other standards of the Public Company Accounting Oversight Board (United States), rules of the Securities and Exchange Commission, and other applicable regulations. In addition, the Audit Committee has discussed with the independent registered public accounting firm the firm’s independence from Company management and the Company, including the matters in the letter from the firm required by PCAOB Rule 3526, Communication with Audit Committees Covering Independence, and considered the compatibility of non-audit services with the independent registered public accounting firm’s independence.

 

The Audit Committee also reviewed management’s report on its assessment of the effectiveness of the Company’s internal controls over financial reporting as well as the independent registered public accounting firm’s report on the effectiveness of the Company’s internal controls over financial reporting.

 

The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. At each of the four Audit Committee meetings held in person during 2010, the Audit Committee met with the internal auditors and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, including internal controls over financial reporting, and the overall quality of the Company’s financial reporting.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the board of directors, and the board has approved, that the audited consolidated financial statements and management’s assessment of the effectiveness of the Company’s internal controls over financial reporting be included in the Annual Report on Form 10-K for the year ended December 31, 2010, filed by the Company with the Securities and Exchange Commission.

 

The Audit Committee is governed by a charter, which is available on the Company’s website (www.apachecorp.com). The Audit Committee held nine meetings during fiscal year 2010, including the four in-person meetings referenced above. The Audit Committee is comprised solely of independent directors as defined by the New York Stock Exchange and the NASDAQ National Market listing standards and Rule 10A-3 of the Securities Exchange Act of 1934, as amended.

 

 

Non-Employee Directors’ Cash Compensation

 

During 2010, under the terms of the non-employee directors’ compensation plan, non-employee directors received an annual cash retainer of $150,000 (with no separate meeting attendance fees or retainer payable in shares), and the chairman of each committee received an additional annual cash retainer of $15,000 for chairing that committee.

 

During 2010, under the terms of the Company’s non-employee directors’ compensation plan, non-employee directors could defer receipt of all or any portion of their cash retainers. Deferred cash amounts accrue interest equal to the Company’s rate of return on its short-term marketable securities. Once each year, participating directors may elect to transfer all or a portion of their deferred cash amounts into the form of shares of Apache common stock. After such election, amounts deferred in the form of Apache common stock accrue dividends as if the stock were issued and outstanding when such dividends were payable. All deferred amounts, as well as accrued interest and dividends, are maintained in a separate memorandum account for each participating non-employee director. Amounts are paid out in cash and/or shares of Apache common stock, as applicable, upon the non-employee director’s retirement or other termination of his or her directorship, or on a specific date, in a lump sum or in annual installments over a ten-year (or shorter) period. One non-employee director deferred all of his cash retainer fees during 2010.

 

Non-Employee Directors’ Restricted Stock Units Program

 

In August 2008, the Company established the Non-Employee Directors’ Restricted Stock Units Program (the “RSU Program”), pursuant to the Company’s 2007 Omnibus Equity Compensation Plan. Each year, all non-employee directors are eligible to receive grants of restricted stock units comparable in value to the initial 1,500 restricted stock units awarded under the RSU Program in 2008.

 

Each non-employee director was awarded 1,818 restricted stock units on August 14, 2010 under the RSU Program, with a grant date fair value of $165,911. Half of the restricted stock units vest thirty days after the grant and the other half vest on the one-year anniversary date of the grant. Each restricted stock unit is equivalent to one share of common stock. Except as noted below, any unvested restricted stock units are forfeited at the time the non-employee director ceases to be a member of the board. The unvested portion of any award automatically vests upon death or termination without cause (including retirement). Non-employee directors are required to choose, at the time of each award, whether such award will vest as 100 percent common stock or a combination of 40 percent cash and 60 percent common stock. Additionally, non-employee directors are entitled to receive dividend equivalents, equal to dividends on the Company’s common stock, in cash on the unvested portions of the restricted stock unit awards.

 

Equity Compensation Plan for Non-Employee Directors

 

The Company established an equity compensation plan for non-employee directors in February 1994, which is administered by the MD&C Committee. The original expiration date for this plan was July 1, 2009, with a maximum of 50,000 shares of common stock (115,500 shares after adjustment for the stock dividends and stock split) for awards granted during the term of the plan. However, in February 2007, the plan was amended to provide that no new awards would be granted subsequent to January 1, 2007, and no awards have been made since that date. The plan continues in existence solely for the purpose of governing still-outstanding awards made prior to January 1, 2007.

Each non-employee director was awarded 1,000 restricted shares of the Company’s common stock every five years from July 1, 1994 through July 1, 2000, with the shares vesting at a rate of 200 shares annually. On May 3, 2001, the plan was amended to provide that on July 1, 2001 and on July 1 of each third year thereafter, each non-employee director was awarded 1,000 restricted shares of common stock, with one-third of the shares vesting annually. On February 5, 2004, the plan was amended to adjust the awards to 2,310 restricted shares of common stock (1,000 shares adjusted for the stock dividends and stock split) for any awards made on July 1, 2004 and thereafter.

 

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

 

Share Ownership Requirement

 

The Company has a minimum share ownership requirement for non-employee directors. Within three years of joining the board, each non-employee director is required to directly own shares and/or share equivalents totaling at least 7,000 shares of the Company’s common stock. As of the date of this proxy statement, each non-employee director directly owned shares and/or share equivalents totaling more than 7,000 shares of the Company’s common stock. See beneficial ownership information under the heading “Securities Ownership and Principal Holders” below.

 

Outside Directors’ Retirement Plan

 

An unfunded retirement plan for non-employee directors was established in December 1992. The plan is administered by the MD&C Committee and pays retired non-employee directors benefits equal to two thirds (2/3) of the annual retainer for a period based on length of service. Payments are made on a quarterly basis, for a maximum of ten years, and are paid from the general assets of the Company. In the event of the director’s death prior to receipt of all benefits payable under the plan, the remaining benefits are payable to the director’s surviving spouse or designated beneficiary until the earlier of the termination of the payment period or the death of the surviving spouse or designated beneficiary. During 2010, benefits were paid under this plan to one former director who retired from the Company’s board of directors in 2001.

Director Compensation Table

 

The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2010:

 

 

 

The following tables set forth, as of January 31, 2011, the beneficial ownership of (i) each director or nominee for director of the Company, (ii) the principal executive officer, the principal financial officers, and the three other most highly compensated executive officers who served as officers of the Company during 2010, and (iii) all directors and executive officers of the Company as a group. All ownership information is based upon filings made by those persons with the SEC and upon information provided to the Company. (All share numbers in the table and footnotes have been adjusted for the stock dividends and stock split.)

 

 

 

(footnotes continued on following page)

 

 

The following table sets forth the only person known to the Company, as of January 31, 2011, to be the owner of more than five percent of the outstanding shares of the Company’s common stock, according to reports filed with the SEC:

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and officers, as well as beneficial owners of ten percent or more of the Company’s common stock, to report their holdings and transactions in the Company’s securities. Based on information furnished to the Company and contained in reports provided pursuant to Section 16(a), as well as written representations that no other reports were required for 2010, the Company’s directors and officers timely filed all reports required by Section 16(a).

 

The following table summarizes information as of December 31, 2010, relating to the Company’s equity compensation plans, under which grants of stock options, restricted stock units, and other rights to acquire shares of Apache common stock may be granted from time to time.

 

 

 

Biographical information for the executive officers of the Company is set forth below. Biographical information for G. Steven Farris is set forth above under the caption “Continuing Directors.”

 

MICHAEL S. BAHORICH, 54, was appointed executive vice president and chief technology officer in November 2010, having previously served as the Company’s executive vice president and technology officer since February 2009, executive vice president - exploration and production technology since May 2000, vice president - exploration and production technology since January 1999, vice president - exploration technology since December 1997, and chief geophysicist since 1996. From 1981 until joining the Company in 1996, he held positions of increasing responsibility at Amoco Corporation in Denver, Colorado and Tulsa, Oklahoma. Mr. Bahorich is a member of the board of trustees of the Houston Museum of Natural Science and serves on advisory boards at Stanford University and Yale University.

 

JOHN R. BEDINGFIELD, 55, was appointed vice president - worldwide exploration and new ventures in November 2009. He previously served as the Company’s regional vice president and managing director for the Australia region since May 2009, deputy managing director - exploration for the Australia region since August 2005, region exploration manager for the Egypt region from 2003 to 2005, geophysical manager for Egypt from 1999, and senior staff geophysicist since 1998. Prior to joining the Company, Mr. Bedingfield was employed by Exxon Corporation from 1982 to 1998 in a variety of U.S. domestic and international assignments.

 

DAVID A. CARMONY, 50, was appointed vice president - environmental, health and safety in July 2010, having previously served as the Company’s regional vice president - Gulf Coast drilling and production engineering since July 2006. He previously served as the region’s engineering and production manager since October 1995, and senior production engineer since February 1993. Prior to joining the Company, he was a production, drilling, and reservoir engineer for Pacific Enterprises Oil Company and Terra Resources, Inc. and a production engineer for Mitchell Energy.

 

THOMAS P. CHAMBERS, 55, was appointed executive vice president and chief financial officer in November 2010, have previously served as the Company’s vice president - corporate planning and investor relations since March 2009, vice president - corporate planning since September 2001, and director of corporate planning since March 1995. Prior to joining the Company, Mr. Chambers was in the international business development group at Pennzoil Exploration and Production, having held a variety of management positions with the BP plc group of companies from 1981 to 1992. Mr. Chambers is a member of the Society of Petroleum Engineers and serves on the advisory board of Houston Foundation for Life.

 

JOHN A. CRUM, 58, was appointed co-chief operating officer and president - North America in February 2009. He previously served as the Company’s executive vice president and president of Apache Canada Ltd. since June 2007, executive vice president and managing director - Apache North Sea since April 2003, executive vice president - Eurasia and new ventures since May 2000, and regional vice president in Australia since 1995. Prior to joining the Company, Mr. Crum served in executive and management roles with Aquila Energy Resources Corporation, Pacific Enterprises Oil Company, and Southland Royalty Company. In February 2011, Mr. Crum tendered his resignation to the Company effective March 7, 2011.

 

MATTHEW W. DUNDREA, 56, was appointed senior vice president - treasury and admininstration in November 2010, having previously served as the Company’s vice president and treasurer since July 1997, treasurer since March 1996, and assistant treasurer since 1994. Prior to joining the Company,

Mr. Dundrea held positions of increasing responsibility at Union Texas Petroleum Holding, Inc. from 1982 to 1994.

 

ROBERT J. DYE, 55, was appointed senior vice president - global communications and corporate affairs in November 2010. He previously served as the Company’s vice president - corporate services since March 2009, vice president - investor relations since May 1997, director of investor relations since 1995, and held positions of increasing responsibility in the corporate planning area since 1992. Prior to joining the Company, Mr. Dye was planning manager for the offshore division of BP Exploration, Houston, Texas, from 1988 to 1992.

 

RODNEY J. EICHLER, 61, was appointed co-chief operating officer and president - International in February 2009. He previously served as the Company’s executive vice president - Egypt since February 2003, regional vice president in Egypt since 1999, and vice president of exploration and production in Egypt since 1997. Prior to that, Mr. Eichler served as regional vice president for the Western region in Houston since 1996, and regional exploration and development manager for the Rocky Mountain region in Denver since 1993. Prior to joining the Company, he was vice president - exploration for Axem Resources, LLC in Denver, Colorado, from 1989 to 1993. In February 2011, Mr. Eichler was appointed president and chief operating officer.

 

DAVID L. FRENCH, 41, was appointed vice president - business development in January 2010, having previously served as region production manager - west for Apache Canada in Calgary since 2007. Mr. French held positions of production engineering manager and director of purchasing, EH&S and general services since joining Apache in 2005. Prior to joining the Company, he served as an associate principle for McKinsey & Company, a global management consulting firm, and held engineering and planning management roles in the Permian Basin for Amoco and Altura Energy Ltd.

 

RODNEY J. GRYDER, 62, was appointed vice president, audit in November 2010. He previously served as the Company’s director, internal audit and business analysis since December 2001, and director, internal audit since 1998. Prior to joining Apache, Mr. Gryder was the director of corporate audit services at Western Atlas, Inc., manager of internal audit at TransTexas Gas Corporation, finance manager at Occidental International Exploration & Production, and held various audit positions at Tenneco Oil Exploration & Production.

 

MARGERY M. HARRIS, 50, was appointed senior vice president - human resources in February 2011, having been vice president - human resources since September 2007. Prior to joining the Company, she was consultant/principal of MMH Consulting Services, a privately-held human resources consulting firm, from 2006 to September 2007, executive vice president and senior vice president - human resources with Texas Genco LLC, a wholesale power generator, from 2005 to 2006, and senior vice president - human resources and administration of Integrated Electrical Services, Inc., from 2000 to 2005. Ms. Harris worked for Santa Fe Snyder (successor company to Santa Fe Energy Resources) from 1995 to 2000, in a variety of human resources capacities including vice president - human resources.

 

REBECCA A. HOYT, 46, was appointed vice president, chief accounting officer, and controller in November 2010. She previously served as the Company’s vice president and controller since November 2006, assistant controller since 2003, and held positions of increasing responsibility within the accounting area since joining the Company in 1993. Previously, Ms. Hoyt was an audit manager with Arthur Andersen LLP, an independent public accounting firm, from 1992 to 1993.

JON A. JEPPESEN, 63, was appointed executive vice president in August 2009, having been senior vice president since February 2003, regional vice president for the Gulf Coast region since 2002, and regional vice president for the Offshore region since 1996. He served as the Company’s vice president of exploration and development for North America from 1994 to 1996, and exploration and development manager of the Offshore region from 1993 to 1994. Prior to joining the Company, Mr. Jeppesen was vice president of exploration and development for Pacific Enterprises Oil Company, Dallas, Texas, from 1989 to 1992.

 

P. ANTHONY LANNIE, 56, was appointed executive vice president and general counsel in August 2009, having been senior vice president and general counsel since May 2004, and vice president and general counsel since March 2003. Prior to joining the Company, he was president of Kinder Morgan Power Company, Houston, Texas, from 2000 through February 2003, and president of Coral Energy Canada in 1999. Mr. Lannie was senior vice president and general counsel of Coral Energy, an affiliate of Shell Oil Company and Tejas Gas Corporation, from 1995 through 1999, and of Tejas Gas Corporation from 1994 until its combination with Coral Energy in 1998.

 

ALFONSO LEON, 34, was appointed vice president - planning, strategy, and investor relations in November 2010, having served as the Company’s director of strategic planning since March 2009. Prior to joining Apache, Mr. Leon was a director and head of energy investment banking at Perella Weinberg Partners from 2006 until 2009. Prior to that, he served in various corporate strategy, planning, and business development roles at Royal Dutch Shell.

 

JANINE J. MCARDLE, 50, was appointed senior vice president - gas monetization in September 2010, have been vice president - oil and gas marketing since November 2002. Prior to joining the Company, she served as managing director for Aquila Europe Ltd from November 2001 to October 2002, and held executive and management positions with Aquila Energy Marketing from 1993 to November 2001, including vice president - trading and vice president - mergers and acquisitions. Previously, she was a partner in Hesse Gas from 1991 to 1993, and was a member of the board of directors of Intercontinental Exchange, the electronic trading platform, from 2000 to October 2002.

 

AARON S. G. MERRICK, 48, was appointed vice president - information technology in August 2009, having served as director of information technology since March 2006. Prior to joining the Company, he was president of Merrick Applied Consulting, Inc. from July 2005 to March 2006, and owner of Aaron Merrick Computer Consulting from 2002, consulting with Apache on the development of its data warehouse. After prior service with the Company from 1991 to 1994 as assistant director of gas flow management, he was with T-NETIX, Inc., a specialized telecommunications company, from 1995 to 2000, where he served as vice president. From 1984 to 1990, Mr. Merrick was with KPMG Peat Marwick, an independent public accounting firm.

 

URBAN F. O’BRIEN, 57, was appointed vice president - governmental affairs in August 2009, having previously served as director of governmental, regulatory and community affairs since 1992. Prior to joining the Company, Mr. O’Brien served as governmental affairs manager for Mitchell Energy, special projects director for U.S. Representative Lloyd Bentsen, and projects coordinator for U.S. Representative Michael A. Andrews.

W. KREGG OLSON, 57, was appointed executive vice president - corporate reservoir engineering in August 2009, having been senior vice president - corporate reservoir engineering since September 2007, and vice president - corporate reservoir engineering since January 2004. Prior to that, Mr. Olson served as director of technical services from 1995 through 2003, and held positions of increasing responsibility within corporate reservoir engineering since joining the Company in 1992. Previously, he was associated with Grace Petroleum Corporation.

 

CHERI L. PEPER, 57, was appointed corporate secretary of the Company in May 1995, having previously served as assistant secretary since 1992. Prior to joining the Company, she was assistant secretary for Panhandle Eastern Corporation (subsequently PanEnergy Corp.) since 1988. Ms. Peper is a certified public accountant and a director of MemberSource Credit Union, formerly known as PT&T Federal Credit Union.

 

ROGER B. PLANK, 54, was appointed president in February 2009, and served as the Company’s principal financial officer until November 2010. He previously served as the Company’s executive vice president and chief financial officer since May 2000, and vice president and chief financial officer since July 1997. Since joining the Company in 1981, Mr. Plank has also served as vice president - planning and corporate development, vice president - corporate planning, and vice president - corporate communications. He is a past president of Texas Independent Producers and Royalty Owners Association (TIPRO), a large independent trade association. Mr. Plank is a director of Parker Drilling Company, Houston, Texas, and chairman of its audit committee. In February 2011, Mr. Plank was appointed president and chief corporate officer.

 

JON W. SAUER, 50, was appointed vice president - tax in May 2001, having previously served as director of tax since March 1997, and manager of tax since August 1992. Prior to joining the Company, Mr. Sauer was tax manager with Swift Energy Company, Houston, Texas, from 1989 to 1992, and a manager in the tax practice of Arthur Andersen & Co., an independent public accounting firm, from 1983 to 1989. Mr. Sauer is a certified public accountant and past chairman of the American Exploration & Production Council (formerly Domestic Petroleum Council) tax committee.

 

SARAH B. TESLIK, 57, was appointed senior vice president - policy and governance in October 2006. Prior to joining the Company, she was chief executive officer of the Certified Financial Planner Board of Standards, Inc. from November 2004 to October 2006, and executive director of the Council of Institutional Investors from July 1988 to October 2004.

 

OVERVIEW

 

Year 2010

 

The year 2010 was one of the most successful in Apache’s 57 year history driven in large measure by the acquisition of over $11 billion of oil and gas assets including a $6.4 billion acquisition of BP assets in Canada, West Texas and Western Desert of Egypt and the $4.4 billion merger with Mariner Energy, Inc., completed in November 2010.

 

These acquisitions, added to outstanding operating results, fueled some of the strongest financial and operational performance in our history including:

 

 

Compensation Philosophy and Practices

 

Apache’s board of directors designs the Company’s compensation programs to align the interests of executives and shareholders. Over 70 percent of our named executive officers’ compensation is equity based, and because we avoid pay practices such as options back dating and repricing, the alignment of interests is not distorted. Our compensation programs and practices are truly variable as well: Just as our compensation suffers when performance does, when performance is outstanding, as it was in 2010, we reward our executives with cash bonuses that reflect that performance.

 

Apache’s board of directors also designs the Company’s compensation programs to avoid a short-term focus in an industry heavily affected by cyclical commodity prices. Our competitive salaries provide a stable base. Our total shareholder return program uses rolling three and five-year time frames for compensation measurement and vesting. Our substantial and long-term stock ownership requirements for directors and officers reinforce our focus on long-term performance. And our enviable track record of retaining executives provides continuity on which our board believes sustainable performance depends.

 

Apache’s board of directors also designs the Company’s compensation programs to make clear that it believes that all employees matter. In 2010, we continued to award equity-based pay to substantially all employees, a practice we started before most other companies.

 

Governance

 

In 2010, Apache’s board of directors strengthened the Company’s already substantial governance and compliance programs. The board unanimously recommended an annual advisory vote on the named executive officers’ compensation, expanded its governance principles by expanding the responsibilities of our lead director, began a practice of external governance education for directors, revised the Company’s Code of Business Conduct, instituted a new shareholder outreach program that

regularly makes senior executives available for direct discussions with our shareholders, published a Greenhouse Gas Public Statement, and updated and posted its Sustainability Report as a living forum on the Company’s website.

 

EXECUTIVE COMPENSATION DECISION MAKING PROCESSES

 

Board of Directors

 

Apache’s board of directors, at the recommendation of the Management Development and Compensation (“MD&C”) Committee, oversees and authorizes the compensation of the chairman and chief executive officer (our principal executive officer), the president (our principal financial officer until November 17, 2010), the co-chief operating officer and president — North America, the co-chief operating officer and president — international, the executive vice president and chief financial officer (Apache’s principal financial officer from November 17, 2010), and other executive officers.

 

Management Development and Compensation Committee

 

The specific responsibilities delegated to the MD&C Committee, by written charter adopted by the board, are posted on the Company’s website at www.apachecorp.com. The MD&C Committee is responsible for the review, and recommendation to the board, of matters pertaining to executive officer compensation. Each of the four members of the MD&C Committee meet the independence requirements contained in the New York Stock Exchange and NASDAQ listing standards described under “Standing Committees and Meetings of the Board of Directors.” The MD&C Committee met in person or by telephone nine times during 2010.

 

The MD&C Committee is responsible for the oversight and administration of the Company’s base, annual cash incentive, and long-term compensation, and benefit programs for executive officers. The MD&C Committee’s key compensation responsibilities are:

 

 

Use of Independent Consultant

 

The MD&C Committee has board authorization to engage an independent compensation consultant to assist it in its work. In 2010, the MD&C Committee used the services of Pearl Meyer & Partners (the “Consultant”). The Consultant did not provide any services to the Company other than executive compensation-related services. Except with respect to limited work described below, all services provided by the Consultant are at the request and under the direction of the MD&C Committee. The

Consultant has provided limited work for management in connection with the Consultant’s database for the industry and published industry specific compensation surveys, for which the Consultant receives a de minimis amount of compensation.

 

Chairman and Chief Executive Officer Compensation

 

The MD&C Committee reviews the chairman and chief executive officer’s performance for the year and the blended market data provided by the Consultant. Blended market data is based on external market data and internal equity. The MD&C Committee’s deliberations for salary, bonus, and equity grant actions are handled in independent session and recommendations are formalized for approval by the independent directors.

 

Senior Executives Compensation Administration

 

The chairman and chief executive officer provides compensation recommendations and evaluations for executives to the MD&C Committee. The MD&C Committee, along with all of the Company’s independent directors, is authorized by the board to obtain information from and work directly with any member of the senior executive team in fulfilling its responsibilities. The Company’s senior vice president of human resources prepares information and materials for the chairman and chief executive officer and the MD&C Committee for the exercise of their distinct, but interrelated, compensation responsibilities. The MD&C Committee also utilizes the data provided by the Consultant including recommendations for the associated values or salary levels derived from their reports. The committee carefully considers the chairman and the chief executive officer’s recommendations on these matters, reaches final determination, and reports these outcomes to the Board of Directors.

 

EXECUTIVE COMPENSATION

 

Compensation Philosophy

 

The Company’s continued success depends on attracting, directing, motivating, and retaining top talent, including a top-tier senior management team. The MD&C Committee believes that executive compensation programs play an important role in achieving these goals. Its programs are therefore designed:

 

 

Use of Data

 

The board of directors believes that both data and judgment play important roles in the design and implementation of optimal compensation programs. The MD&C Committee, the Consultant, and senior executives consider a number of types of internal and external data in making individual and plan-level compensation decisions. In each section of this report dealing with an individual element of compensation, data relevant to that element is discussed.

Peer group data plays an important role in our compensation decision making. For its 2010 compensation analysis, the MD&C Committee considered a peer group comprised of the main companies we compete with for executive talent. The companies in this group, for the large part, have North American and/or natural gas businesses and have been identified based on relevant comparable financial factors such as revenue, market capital, net income, and total assets. Our peer list for 2010 (the “2010 Compensation Peer Group”) was:

 

 

The MD&C Committee uses a broader peer group for the Company’s total shareholder return program (“TSR Program”) for the comparison of the Company’s total shareholder return to that of its peers. For additional information on the Company’s TSR Program, please see “— Long Term Compensation — Performance Shares — Total Shareholder Return Program” below.

 

In addition to the 2010 Compensation Peer Group data, the MD&C Committee uses the latest available data provided by the Consultant from published energy-sector surveys and from published, general industry size-based surveys. The MD&C Committee reviews the Consultant’s benchmarking data and its process for assimilating the data used in this competitive benchmarking process which is a blend of data from our 2010 Compensation Peer Group and the applicable survey data.

 

Use of Judgment

 

The board of directors and the MD&C Committee believe that the application of their collective experiences and related business judgment is as important to the compensation decision process as is the application of data and formulae. The Company’s compensation policies and practices reflect this belief.

 

While blended market data provide an important tool for analysis and decision-making, the MD&C Committee and the board realize that over-reliance on data can give a false illusion of precision. Consequently, the MD&C Committee and the board also give consideration to an individual’s personal contributions to the organization, as well as his or her skill sets, qualifications, experience, and demonstrated performance. We also value and seek to reward performance that develops talent within the Company, embraces the sense of urgency that distinguishes the Company, and demonstrates the qualities of imagination and drive that enable an Apache officer to resolve longer-term challenges or important new issues. These and similar qualities and competencies are not easily correlated to typical compensation data, but also deserve, and are given, consideration in reaching compensation decisions. The blended market data provides the MD&C Committee and senior management with the foundation for application of the above principles and the ensuing decisions.

Four Key Compensation Elements

 

The Company’s executive compensation program has four parts:

 

 

We generally target base salaries to fall between the 50th and 75th percentile of the blended market data. Annual and long term incentive plans are initially targeted as a function of base salaries and are designed to produce total compensation between the 50th and 75th percentile of the blended market data.

 

We do not have a specific formula that dictates the overall weighting of each element as a part of total compensation. For 2010, our named executive officers were Messrs. G. Steven Farris, Roger B. Plank, John A. Crum, Rodney J. Eichler, P. Anthony Lannie, and Thomas P. Chambers. See “Compensation Decisions in 2010” below. The charts below set forth each element as a proportion of the named executive officers’ total direct compensation and reflect the following: base salary that became effective in 2010, bonus for 2010, and the grant date fair value for the 2010 annual equity awards:

 

 

The charts above illustrate that 90 percent of our chief executive officer’s compensation and 86 percent of our other named executive officers’ compensation is variable, and that 72 percent of our named executive officers’ total compensation is equity-based long-term compensation that rewards them when our shareholders are rewarded.

 

Compensation Elements

 

Base Salary

 

The board of directors believes that a competitive base salary is essential to our ability to compete. To establish base salary ranges, the MD&C Committee analyzes the compensation for each executive officer position by:

 

 

 

The MD&C Committee reviews base salaries periodically (typically every 12 to 18 months). Base salary reviews may occur more or less frequently depending on Company and market conditions and individual performance.

 

Annual Cash Incentive Bonus

 

The Company’s executive officers are eligible to earn an annual cash incentive bonus tied to a combination of each officer’s achievement of job-specific goals and the Company’s achievement of a variety of financial, operational, and strategic objectives.

 

Corporate Performance and Related Bonus Compensation

 

The MD&C Committee weighs equally the achievement of our corporate performance goals and our corporate management objectives in its evaluation of the annual incentive award for the named executive officers.

 

Apache’s 2010 corporate performance goals were: Production growth of over five percent, add and/or acquire sufficient reserves to replace 2009 production, annual earnings of at least $2.5 billion, annual cash flow of at least $6.2 billion, and maintain direct lifting costs per barrel of oil equivalent (“Boe”) produced at the 2009 levels of $7.81. The results measured against the 2010 corporate performance goals were:

 

 

 

 

¹  Adjusted earnings and cash flow are non-GAAP financial measures, as defined in Regulation G promulgated by the SEC. Adjusted earnings is net income (loss) attributable to common stock adjusted for certain items that management believes affect the comparability of operating results, such as foreign currency fluctuation impact on deferred tax expense, merger, acquisitions and transitions costs, net of tax and additional depletion, net of tax. A reconciliation of adjusted earnings to net income for the year ended December 31, 2010 is contained in item 7 of our Annual Report on Form 10-K for the year ended December 31, 2010. Cash flow is cash from operations before changes in operating assets and liabilities. A reconciliation of cash flow to net cash provided by operating activities for the year ended December 31, 2010 was previously furnished in our Current Report on Form 8-K filed with the SEC on February 17, 2011.

 

 

Other Performance Measures for Annual Cash Incentive Bonus

 

The foundation for annual cash incentive bonus determination process begins with our corporate performance goals and our corporate management objectives and the achievement of those targets. In addition, the MD&C Committee believes that annual cash incentive bonuses are most effective when they are carefully tailored to job responsibilities of individual executives. The MD&C Committee receives input from the chairman and chief executive officer who evaluates officers with regional responsibilities on their region’s production, revenue, costs, and other results, while corporate-level officers are evaluated on Company-wide results.

 

Long-Term Compensation

 

The board of directors and the MD&C Committee believe that long-term, equity-based incentives align the interests of executive officers and employees with those of the Company’s shareholders. The board and MD&C Committee also believe that long-term incentives play an important role in overall Company compensation.

 

Company-Wide Long-Term Compensation

 

The actions of the Board and MD&C Committee in 2010 reflect these values. Long-term, equity-based incentives are regularly made available to substantially all Company employees to ensure a company-wide ethic of ownership and entrepreneurialism.

 

Stock Ownership Requirements

 

In addition to the stock ownership requirements for our board of directors adopted in February 2007, in November 2009, the MD&C Committee adopted a two-part stock ownership policy for the Company’s officers. These stock ownership requirements more closely align the interests of officers with the Company’s stockholders. Officers are expected to be in compliance with these requirements within three years of the later of (i) the date the requirements became effective or (ii) the date each officer is appointed to his or her current office.

 

The first part of the stock ownership policy sets a common stock ownership amount equal to a multiple of the officer’s base salary, measured against the value of the officer’s discretionary holdings, based on the average per share closing price of the Company’s stock for the previous year. The ownership requirements are:

 

 

In determining stock ownership levels, the Company includes: shares purchased in the open market; vested shares in qualified and non-qualified plans; shares obtained through stock option exercises that the officer continues to hold; the vested portion of restricted stock units (“RSUs”) and restricted

stock; shares beneficially owned in a trust or partnership, by a spouse and/or minor child; and shares held in the Company’s deferred delivery plan. Unearned performance shares, unvested RSUs, and unvested shares of restricted stock are not counted toward meeting the requirements.

 

Hold Until Retirement Requirements

 

The second part of the stock ownership policy provides that each officer hold at least 15 percent of all restricted and performance shares he or she receives, net of tax withholding, until such officer retires or otherwise terminates employment with the Company.

 

Components of Our Equity-Based Long-Term Compensation Programs

 

The Company grants a combination of RSUs, stock options, and periodic conditional grants of performance shares targeted to fall at the 50th percentile of the blended market data for long-term incentive amounts.

 

Restricted Stock Units

 

The RSUs awarded to our named executive officers typically are proportionate to each named executive officer’s base salary, vest ratably over four years, upon vesting allow each grantee to receive one share of common stock for each RSU, and are forfeited by the executive if they are unvested and the executive voluntarily terminates or is terminated for cause prior to the vesting date. These RSUs are typically granted each May to our named executive officers and to substantially our entire employee population (the “May RSUs”). The Company also periodically grants conditional grants of RSUs as performance shares, see “— Long Term Compensation — Performance Shares” below.

 

Stock Options

 

In 2010, the Company’s executive officers also received stock option grants under the 2007 Omnibus Plan. Generally, our stock options:

 

 

The grants of stock options made in 2010 to the named executive officers are reflected in the “Grants of Plan Based Awards Table.”

 

Performance Shares

 

The Company periodically awards conditional performance shares. Currently, the Company grants performance shares under the TSR Program, and previous grants were made under the 2008 Share Appreciation Program. The MD&C Committee believes that the periodic grant of performance shares,

otherwise known as conditional grants, provides an effective retentive element of performance-based compensation. The periodic grant of performance shares complements and reinforces the overall compensation program. Both performance programs are described below.

 

Total Shareholder Return Program

 

In 2009, the Board concluded that a realignment of our long-term compensation program was necessary to remain competitive with our 2010 Compensation Peer Group. Therefore, in November 2009, under the existing 2007 Omnibus Plan, the board of directors approved and authorized the Stock Option Plan Committee to implement the TSR Program. The TSR Program is part of an annual performance-based incentive compensation program whereby each year the Stock Option Plan Committee will authorize a conditional grant of performance shares in the form of RSUs to substantially all management and senior level professional employees, including each named executive officer, based on a target percentage of the grantee’s annual base salary determined immediately prior to the beginning of a three-year performance period. The number of RSUs actually received will depend on a peer company comparison of total shareholder return at the end of the performance period. The peer companies will be determined at the commencement of each performance period.

 

The peer companies selected for each performance period (the “Performance Peer Group”) will be comprised of a larger group of our peer companies than the companies in our compensation peer group for a given performance period. We use an expanded list of peer companies for each year’s TSR Program for the following reasons:

 

 

The TSR for the Company and each member of the Performance Peer Group is determined by dividing (i) the sum of the cumulative amount of each company’s dividends for the performance period (assuming same-day reinvestment into the company’s common stock on the ex-dividend date) and the average per share closing price of each company’s stock for the 60 trading days at the end of the performance period minus the average per share closing price of the company’s stock for the 60 trading days preceding the beginning of the performance period; by (ii) the average per share closing price of each company’s stock for the 60 trading days preceding the beginning of the performance period.

2010 Performance Program

 

Pursuant to the 2010 Performance Program, on January 15, 2010, essentially all management and senior level professional employees, including the named executive officers, were granted the right to receive RSUs, the number of which will be determined based on the Company’s TSR as compared to the peer group listed below. The peer companies for the 2010 Performance Program (the “2010 Performance Peer Group”) are:

 

 

 

At the conclusion of the initial three-year performance period, which began on January 1, 2010 and ends on December 31, 2012, a calculation of TSR performance will be made and the Company’s performance will be directly ranked within the 2010 Performance Peer Group, resulting in the application of a factor to the target RSUs to derive the adjusted number of RSUs awarded.

 

The following table reflects the factor that will be applied to the target RSUs depending on the Company’s TSR rank for the 2010 Performance Program:

 

 

If the Company’s TSR ranks from 1 to 13, vesting will begin on December 31, 2012, with 50 percent of the adjusted number of RSUs vesting immediately, 25 percent vesting as of December 31, 2013, and 25 percent vesting as of December 31, 2014. If the Company ranks from 14 to 19, none of the target RSUs will vest. Employees must be employed during the entire performance period and on the date of vesting. Newly eligible employees will enter at the beginning of the next available performance period.

 

2010 Bridge Awards

 

Because the TSR Program performance awards granted in January 2010 will not begin to vest, if at all, until the end of the three-year performance period on December 31, 2012, the Stock Option Plan Committee, based on its review of a report prepared by the Consultant, granted one-time bridge awards of RSUs to certain employees on January 15, 2010, including the named executive officers (except Mr. Farris), that will vest over 24 months. The MD&C Committee determined and Mr. Farris agreed that, in light of the RSU grant to Mr. Farris in May 2008, it was appropriate for him to forego the bridge award. The bridge award amounts were based on a number of factors including a comparison of compensation levels at peer companies and the responsibilities of the grantee’s

position. The RSUs granted pursuant to the bridge award vest as follows: one-third immediately, one-third as of January 15, 2011, and one-third as of January 15, 2012.

 

2011 Performance Program

 

In November 2010, the Board established the 2011 Performance Program. Pursuant to the 2011 Performance Program, on January 7, 2011, essentially all professional and management employees, including the named executive officers, were granted the right to receive RSUs, the number of which will be determined based on the Company’s TSR as compared to the peer group listed below. The peer companies for the 2011 Performance Program (the “2011 Performance Peer Group”) are:

 

 

At the conclusion of the three-year performance period, which began on January 1, 2011 and ends on December 31, 2013, a calculation of TSR performance will be made and the Company’s performance will be directly ranked within the 2011 Performance Peer Group, resulting in the application of a factor to the target RSUs to derive the adjusted number of RSUs awarded.

 

The table below reflects the factor that will be applied to the target RSUs depending on the Company’s TSR rank for the 2011 Performance Program:

 

 

If the Company’s TSR ranks from 1 to 13, vesting will begin on December 31, 2013, with 50 percent of the adjusted number of RSUs vesting immediately, 25 percent vesting as of December 31, 2014, and 25 percent vesting as of December 31, 2015. If the Company ranks from 14 to 19, none of the conditional RSUs will vest. Employees must be employed during the entire performance period and on the date of vesting. Newly eligible employees will enter at the beginning of the next available performance period.

 

2008 Share Appreciation Program

 

On May 7, 2008, pursuant to the 2007 Omnibus Plan, the Company established the 2008 Share Appreciation Program. In 2008, estimated one-time conditional grants totaling approximately 2,773,000 shares of Company common stock were made to substantially all full-time employees and certain part-time employees of the Company under the 2008 Share Appreciation Program.

 

The primary purpose of the 2008 Share Appreciation Program, like the Company’s prior share appreciation plans, is to provide incentives to our employees to work toward significant increases in shareholder value. The conditional grants vest only upon attainment of an initial price threshold of

$162 per share of Company common stock prior to year-end 2010 and a final price threshold of $216 per share prior to year-end 2012. Effective December 31, 2010, the conditional grants for the $162 per share threshold expired because the price threshold was not attained, and the shares reserved for those grants were returned to the 2007 Omnibus Plan. Achievement of the $216 price threshold would represent approximately $37 billion of growth in market value for the currently outstanding shares of the Company’s common stock, since attainment of the prior stock appreciation plan price threshold in February 2008, under the 2005 Share Appreciation Plan discussed below. If achieved, the conditional grants to our employees would have an estimated total value of less than one percent of such projected growth in market capitalization. Consistent with prior share appreciation plans, more than 95 percent of the incentives under the 2008 Share Appreciation Program would be paid to non-executive employees if the remaining $216 threshold is achieved. In November 2009, the 2008 Share Appreciation Program was amended to provide that employees hired after December 31, 2009, would not be eligible for grants under the 2008 Share Appreciation Program.

 

2005 Share Appreciation Plan

 

Also in 2010, the Company continued to issue vested installments under the 2005 Share Appreciation Plan. In February 2005, the Company established the 2005 Share Appreciation Plan, which was approved by the Company’s shareholders in May 2005. The 2005 Share Appreciation Plan served the same purpose as the 2008 Share Appreciation Program and operated in a similar manner.

 

Benefits

 

General Executive Policies

 

As part of their total compensation, the Company’s executive officers are eligible for a limited number of benefits, which are intended to maintain market competitiveness. This includes an annual physical examination, 50 percent of health/fitness club membership dues, cash-value-based variable universal insurance, enhanced long-term disability coverage, and continued contributions to a non-qualified deferred compensation plan once limits are reached in qualified retirement plans. In 2010, Mr. Chambers received taxable reimbursement for 50 percent of his country club membership dues because of his former role as vice president of investor relations. After his promotion to executive vice president and chief financial officer, Mr. Chambers will no longer be reimbursed for his country club membership. No other named executive officer receives reimbursement for country club memberships.

 

Use of Company Property

 

The Company’s operations are spread around the globe in locations that include ones with a variety of physical and geo-political risks. Therefore, for both business efficiency and security reasons, the board of directors requires the chairman and chief executive officer to use the Company’s aircraft for all business air travel.

 

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

 

COMPENSATION DECISIONS IN 2010

 

Management Group in This Report — The Named Executive Officers

 

The following discussion sets forth decisions regarding 2010 compensation for our named executive officers: Messrs. G. Steven Farris, Roger B. Plank, John A. Crum, Rodney J. Eichler, P. Anthony Lannie, and Thomas P. Chambers.

On November 17, 2010, Apache’s Board promoted Thomas P. Chambers, formerly vice president-corporate planning and investor relations, to the position of executive vice president and chief financial officer. Mr. Chambers succeeded Mr. Plank, who continues to serve as our president, as the Company’s principal financial officer. In addition, the board announced various other officer promotions in recognition of such officers’ contributions for 2010 and to ensure continuity going forward.

 

Chairman and Chief Executive Officer

 

Experience and Responsibilities

 

Mr. Farris, who began working for the Company in 1988, became chief executive officer in May 2002 and chairman of the board in January 2009. His leadership responsibilities include developing sustainable global strategies, recommending and implementing the Company’s capital-expenditure programs, developing and maintaining sound business relationships with many of the world’s major energy companies, developing and maintaining good relationships with the shareholder, investment, and policy-making communities, guiding and developing senior management, and overseeing the Company’s major business and staff units.

 

Mr. Farris’ direct reports include each of the other named executive officers, except for Mr. Chambers who reports to Mr. Plank. Also reporting directly to Mr. Farris are our executive vice president and chief technology officer, executive vice president of corporate reservoir engineering, senior vice president of human resources, vice president of worldwide exploration and new ventures, and vice president of environmental health and safety.

 

Other Named Executive Officers

 

Experience and Responsibilities

 

Messrs. Plank, Crum, Eichler, Lannie, and Chambers have served Apache for a combined 86 years. During this period, each of them has made significant contributions to the Company.

 

 

 

Named Executive Officer Base Salary Actions

 

Chairman and Chief Executive Officer

 

Mr. Farris’ base salary for 2010 was $1,750,000. Mr. Farris’ 2010 base salary earnings were slightly above the 75th percentile of blended market data. Mr. Farris did not receive an increase in his base salary during 2010.

 

Other Named Executive Officers

 

To make base-salary adjustment recommendations for the named executive officers other than the chairman and chief executive officer, the MD&C Committee begins with input from the chairman and chief executive officer concerning the individual performance of each executive and his input concerning the optimal application of the data and policies used (and summarized above) to establish salary ranges more generally. The MD&C Committee reviews this information and analyzes how the base salary and contemplated adjustments for each named executive officer fit with blended market data, Company performance, market conditions, and internal pay parity considerations.

 

On November 17, 2010, in connection with the MD&C Committee’s evaluation of their performance during 2010, the base salary of each of Messrs. Plank, Crum, and Eichler was increased to $700,000 from $625,000, which is between the 25th and 50th percentile of the blended market data. Also, Mr. Lannie earned a salary of $500,000 in 2010, which is between the 50th and 75th percentile of the blended market data. On May 5, 2010, in connection with his scheduled salary review and his increased investor relations duties, Mr. Chambers’ base salary was increased from $295,000 to $315,000. Then on November 17, 2010, in connection with his appointment as executive vice president and chief financial officer, Mr. Chambers’ salary was increased to $415,000, which is slightly below the 25th percentile of the blended market data.

 

The table below reflects the base salaries that were approved by the MD&C Committee in 2010:

 

2010 Annual Cash Incentive Bonus Awards

 

Chairman and Chief Executive Officer

 

The MD&C Committee used an analysis specific to the position of chairman and chief executive to establish the 2010 annual incentive cash bonus for Mr. Farris. Because of the responsibilities of this office, when setting Mr. Farris’ annual cash incentive bonus, the MD&C Committee placed somewhat greater weight, compared to the bonus-setting for other named executive officers, on: The scope of Mr. Farris’s responsibilities, his leadership in the Company’s record acquisitions of approximately $11 billion in assets in 2010, the long-term realization of the Company’s corporate management objectives, the Company’s multi-year comprehensive performance, the position and strength of the Company relative to peers, and the level of annual earnings, cash flow and direct lifting costs. The MD&C Committee did not assign specific weights to these factors when setting Mr. Farris’ annual cash incentive bonus. The annual incentive bonus for our chairman and chief executive officer was targeted at 125 percent of Mr. Farris’ 2010 earnings.

 

On February 10, 2011, the Board, pursuant to the recommendation of the MD&C Committee, awarded Mr. Farris an annual cash incentive bonus for 2010 of $3,250,000, which was 149 percent of his target. Mr. Farris’ 2010 annual cash incentive bonus falls between the 50th and 75th percentile of the blended market data.

 

Other Named Executive Officers

 

To establish annual cash incentive bonuses for the named executive officers other than the chairman and chief executive officer, the MD&C Committee considered the Company’s achievement of financial, operational, and corporate management objectives and each executive’s individual performance. The 2010 annual cash incentive bonus for each named executive officer was comprised of a corporate performance element and an individual performance element.

 

For Messrs. Plank, Crum, and Eichler, the MD&C Committee targeted eligible bonuses under this plan for 2010 at 100 percent of their earnings. The MD&C Committee targeted eligible bonus for Mr. Lannie under this plan for 2010 at 75 percent of 2010 earnings. The target eligible bonus for Mr. Chambers was (i) 50 percent of his earnings from January 1, 2010, through November 16, 2010 (the period prior to his appointment to executive vice president and chief financial officer), and (ii) 75 percent of his earnings from November 17, 2010 through December 31, 2010. The annual cash incentive program requires that participants must be employed on the date of payout in order to receive such award.

 

For the corporate performance element, each corporate goal represented between approximately zero and 10 percent of an officer’s annual incentive bonus. For each corporate goal, the executive officers could be awarded full credit if the Company achieved the goal, partial credit if the Company exceeded results from the prior year but failed to meet the goal, and extra credit if the Company over-achieved the goal due to the extraordinary nature of these achievements. Each basic corporate management objective represented between approximately zero and 3.9 percent of the officer’s annual incentive bonus. If the Company overachieved one or more of the basic objectives, or if it achieved one or more of the important objectives, the executive officers could be awarded additional credit due to the importance of these achievements. The MD&C Committee has discretion in determining the relative success of the corporate management objectives.

 

After its evaluation, the MD&C Committee determined that the Company achieved 94 percent of our corporate performance goals in 2010. The MD&C Committee also determined that the Company achieved 127 percent of our corporate management objectives. As a result, the Company’s total

aggregate achievement of our corporate performance goals and corporate management objectives was 110.7 percent, comprised of 47.1 percent for our corporate performance goals and 63.6 percent for our corporate management objectives.

 

For Messrs. Plank, Crum, and Eichler, the chairman and chief executive officer qualitatively assessed the performance of their respective groups, considering 2010 results for various categories, including exploration, production, and drilling. The chairman and chief executive officer made recommendations to the MD&C Committee as to the appropriate credit that should be given for regional achievements. In the case of Mr. Lannie, the chairman and chief executive officer evaluated his performance in the Company’s $11 billion in acquisition transactions in 2010 and the Company’s two LNG projects. In the case of Mr. Chambers, Mr. Plank evaluated his performance during the year and made recommendations to the chairman and chief executive officer.

 

The individual performance component was based on the individual achievement of each executive, as determined by the chairman and chief executive officer and recommended by him to the MD&C Committee. The leadership and management skills of the executive were evaluated. A variety of qualitative and quantitative goals and performance results were taken into account, such as job responsibility, job complexity, and successful performance of an executive officer’s business units. There was no attempt to quantify, rank, or otherwise assign relative weights to the factors considered. The chairman and chief executive officer conducted an overall analysis of these factors and considered the totality of the information available to him.

 

Based on the foregoing, including the Company’s 2010 corporate performance and in light of the compensation decision-making processes and policies described above, including recommendations by our chairman and chief executive officer and consideration of the performance of the applicable Company regions, Messrs. Plank, Crum and Eichler were each awarded an annual cash incentive bonus for 2010 of approximately 118 percent of their respective 2010 earnings (118 percent of their targets). Mr. Lannie was awarded an annual cash incentive bonus for 2010 of approximately 110 percent of his 2010 earnings (147 percent of his target). Mr. Chambers was awarded an annual cash incentive bonus for 2010 of approximately 78 percent of his 2010 earnings (147 percent of his target).

 

The named executive officers’ annual cash incentive bonus awards are set forth below and reflected in the “Summary Compensation Table.”

 

 

Long-Term Compensation Awards in 2010

 

In 2010, the Company granted a total of 191,182 stock options and 167,825 RSUs to the named executive officers as a group (including the Company’s chairman and chief executive officer) under the Company’s 2007 Omnibus Plan. In 2010, Mr. Farris did not accept a bridge award (as described above under “2010 Bridge Awards”) or grants of May RSUs. Additionally, Messrs. Plank, Crum and Eichler did not receive grants of May RSUs. All of the named executive officers received conditional grants of RSUs under the 2010 Performance Program. These conditional grants will vest only upon achievement of certain total shareholder return thresholds over a three year performance period. See “Long-Term Compensation — Performance Shares-Total Shareholder Return Program-2010 Performance Program” above.

 

In 2010, the MD&C Committee approved the following equity-based long-term incentive awards. Additional detail on these awards is provided in the “Grants of Plan Based Awards Table.”

 

			Jan. Bridge					Jan. TSR					May
Name			RSU Grants*					RSU Grants*					RSU Grants					Total RSUs					Stock Options
Mr. Farris				0					68,900					0					68,900					102,539
Mr. Plank				9,900					16,400					0					26,300					24,414
Mr. Chambers				2,300					2,100					1,996					6,396					4,938
Mr. Crum				9,900					16,400					0					26,300					24,414
Mr. Eichler				9,900					16,400					0					26,300					24,414
Mr. Lannie				5,000					4,400					4,229					13,629					10,463
Total				37,000					124,600					6,225					167,825					191,182

 

TAX LEGISLATION RELATED TO COMPENSATION

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a limit, with certain exceptions, on the amount that a publicly held corporation may deduct in any tax year commencing on or after January 1, 1994, for the compensation paid or accrued with respect to its chief executive officer and its three highest compensated officers for the year (other than the principal executive officer or the principal financial officer). The MD&C Committee continues to review the Company’s compensation plans based upon these regulations and, from time to time, determines what further actions or changes to the Company’s compensation plans, if any, would be appropriate. It is the intention of the MD&C Committee for the Company to receive shareholder approval for all future stock-based compensation plans so that they may qualify for the performance-based compensation exemption.

 

The Company’s 1998 Stock Option Plan, 2005 Stock Option Plan, 2005 Share Appreciation Plan, and 2007 Omnibus Equity Compensation Plan (including the 2008 Share Appreciation Program and the TSR Program) were approved by the Company’s shareholders and grants made under such plans qualify as “performance-based” under the regulations. The Company’s existing incentive compensation plans, special achievement bonuses, Executive Restricted Stock Plan, and 2000 Stock Option Plan do not meet the requirements of the regulations, as the shareholder approvals necessary for exemption were not sought. However, these plans operate similarly to prior or other existing plans and are designed to reward the contribution and performance of employees and to provide a meaningful incentive for achieving the Company’s goals, which in turn enhances shareholder value. No further grants can be made under the Company’s 1998, 2000 and 2005 Stock Option Plans,

Executive Restricted Stock Plan, and the 2008 Share Appreciation Program. While the MD&C Committee cannot predict with certainty how the Company’s compensation policies may be further affected by this limitation, it is anticipated that executive compensation paid or accrued pursuant to the Company’s compensation plans that have not met the requirements of the regulations will not result in any material loss of tax deductions in the foreseeable future.

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

 

The Management Development and Compensation Committee of the board of directors of Apache Corporation reviewed and discussed with Company management the Compensation Discussion and Analysis set forth above, and based upon such review and discussion, recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

 

The table below summarizes the compensation for the individuals listed below for all services rendered to the Company and its subsidiaries during fiscal years 2010, 2009 and 2008. The persons included in this table are the Company’s principal executive officer, principal financial officer(s), and the three other most highly compensated executive officers (the “Named Executive Officers”) who served as executive officers of the Company during 2010.