2016 Proxy StatementManagement Proposal Item 4
Before casting your vote on Management Proposal Item 4 Advisory Vote to
Approve the Companys Named Executive Officer Compensation
The Compensation and Benefits Committee (Committee) respectfully requests that you consider the information provided on the following pages. This information is intended to emphasize the
long-term rigor and effectiveness of our executive compensation program design, in tandem with our Committees strong and active oversight, in ensuring the Company pays for performance and that the interests of our executives and stockholders
are aligned.
More detailed information is provided in the Compensation Discussion and Analysis section of our
2016 Proxy Statement filed with the Securities and Exchange Commission on March 18, 2016.
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Key Messages
Anadarkos executive
compensation program is well designed for a cyclical, commodity price driven and capital-intense industry that must focus and retain top talent throughout periods of rising and falling commodity prices
Company is a price-taker, not a price-maker it makes long-term capital investments exploring for a commodity with
cyclical and volatile prices that are set by market and not by individual producers
Long-term equity incentive
pay opportunity is nearly 80% of our CEOs compensation and is fully aligned with stockholder value
Compensation tables provided in proxy statement reflect accounting grant values and not actual pay delivery
Realizable values for our CEOs long-term equity incentives over past 3 years equal only one-third of total
corresponding grant values Clear demonstration of long-term alignment with stockholders
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Key Messages (Cont.)
Annual bonuses (Annual
Incentive PlanAIP) based on short-term, fundamental
business drivers that management can control and
significantly impact long-term value
creation
Rewarding year-over-year growth in absolute revenues and profitability does not support our long-term strategy in
the current environment
Within the E&P industry, certain annual bonus metrics may vary each year based on current corporate strategy
In increasing commodity price environments, certain goals may increase year over year driven by growth strategy
In decreasing commodity price environments, certain goals may decrease year over year driven by value preservation
strategy
[W]e are taking a very cautious
view and trying to do what we believe is the right thing in an environment where creating
and adding value is
more important than growth [W]e are in this environment really seeking value
We are not going to
look for
growth, and were going to maintain flexibility so that when the markets do give us that right opportunity to go back
into a growth mode that were ready.
Chairman, President, and CEO Al Walker, First Quarter 2015 Earnings Call, May 5, 2015
For 2015, annual bonuses (AIP) were awarded at 110% of target amounts
Exceptional execution against rigorous goals driven by value preservation
However, Committee deemed it appropriate to exercise significant negative discretion, particularly in a year when
absolute stockholder value declined
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Rigorous & Responsive Compensation Program Design
CEO Key Compensation Elements
Long-Term Incentive
(LTI) Awards (79%)
Almost 80% of target total compensation opportunity directly tied to absolute and relative
share performance and fully aligned with stockholder value
Annual Bonus (AIP) Program (12%)
Motivates and rewards exceptional near-term operational performance and margin optimization driven by short-term commodity
price and service cost volatility
Base Salary (9%)
AIP 12% LTI 79%
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Compensates for level of responsibility, relative expertise and experience
LTI Program Directly Aligns Executive Pay with Stockholder Returns
Most significant, at-risk portion of executive compensation
Drives long-term strategic thinking and value creation
Directly aligns executives interests with stockholders via absolute and relative stock price performance
Strongly reflects Company performance via realizable/realized value that executives ultimately may or may not
Grant values determine target opportunity, performance determines value ultimately
realized
Compensation tables provided in proxy
statement reflect accounting grant values and not actual pay delivery
Significant negative impact from
commodity price challenges despite outstanding operational performance
$11 MM $3.2 MM $11.1 MM $2.5 MM $11.1
MM $5.7 MM
49% decrease
71% decrease 77% decrease
Grant Date Value
12/31/15 Grant Date Value 12/31/15 Grant Date Value 12/31/15
Realizable Realizable Realizable
2013 2014 2015
CEO LONG-TERM INCENTIVE AWARDS Options RSUs PUs
Please refer to page 37 of our 2016 Proxy Statement for more detail
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Annual Incentive Program (AIP)
Annual cash bonus
(AIP) only 12% of CEOs target total compensation opportunity
Individual AIP metric weighting impact
ranged from <1% to 2.4% of CEOs target total compensation
Focuses on fundamental business drivers
that employee population at-large can control
Short-term, day-to-day operational objectives and margin
optimization
Directly reflects current commodity price and service cost environment
May vary annually to ensure goals are aligned with long-term value creation
In increasing commodity price environments, certain goals may increase year over year driven by growth
strategy
In decreasing commodity price environments, certain goals may decrease year over year driven by value
preservation strategy
Although short-term in
nature, annual metrics are intended to position the Company for
exceptional TSR over long-term in alignment
with stockholders
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Reduced YOY Target Metrics
Prudent
Response to Industry Conditions
2015 goal-setting focused on preserving/building value to position Company for
future success
when commodity price environment recovers, rather than emphasizing year-over-year
production, reserves and capital expenditure growth that will not be rewarded by market
2015 goal-setting occurred during time of high level of uncertainty throughout industry
Significant decline in commodity pricing and evolving service cost environments
2015 Capital Expenditure goal only 70% of prior year, while Total Sales Volumes goal set at more
than 90% of prior year actual performance
2015 AIP Total Sales Volume goal, and actual results, excluded known and anticipated asset
sales in order to ensure a clean and direct comparison
Target differed from initial public guidance as guidance reflects only known/announced sales; adjusted over
time as divestitures announced
Neutral impact on
AIP since divestments were excluded from goals and performance
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Rigorous Process Utilized to Develop AIP Performance Goals
Annual performance goals directly tied to Board-approved budget
Rigorous and robust capital budgeting process
Integrated with corporate-wide portfolio evaluation and asset optimization efforts led by corporate strategy &
planning team
Corporate-wide portfolio evaluation and asset optimization is foundation for annual budget
setting
Budget process built up from asset level to a consolidated corporate budget
Rigorous analysis of each assets capital efficiency, activation cost, trend analysis/calibration with actual results
Long-term strategy, prior performance, service cost and commodity price environments all integral parts
of analysis
Multiple reviews conducted with full Board during budget cycle to ensure comprehensive
understanding of assumptions
Committee reviews and approves associated AIP goals after final approval of
budget by full Board
Alignment with short- and long-term strategic objectives
Rigor relative to expectations as well as prior year goals and outcomes
Realistically reflective of market conditions and other external factors
Committee monitors progress continually throughout the year through quarterly updates
Committee reviews and certifies final corporate-wide results in February of the following year
May exercise appropriate discretionary adjustments depending on various internal/external factors including stock
performance
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2015 Compensation Actions Reflected Current Business Conditions
Pay-for-Performance aligned with stockholders long-term interests
CEO target total compensation opportunity, including base pay, held flat since appointment in 2012
Negative discretion applied to AIP payout
Reflects significant decline in commodity price and unpredictable business environment that impacted goal-setting and
results across our E&P industry Reflects strong operational performance that positions Company and stockholders for success as market conditions strengthen
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