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.          )

 

 

 

 

Preliminary Proxy Statement Subject to Completion, Dated April 5, 2019

 

PDC ENERGY, INC.

1775 Sherman Street, Suite 3000

Denver, Colorado 80203

(303) 860‑5800

 ●, 2019

Dear Stockholder of PDC Energy, Inc.:

You are cordially invited to attend the 2019 Annual Meeting of PDC Energy, Inc. to be held on May 29, 2019, at 8:00 a.m. Mountain Time, at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203 (the “Annual Meeting”).

The accompanying Notice of Annual Meeting and Proxy Statement provide information concerning the matters to be considered at the Annual Meeting. The Annual Meeting will cover only the business contained in the Proxy Statement. You should also have received a WHITE proxy card or WHITE voting instruction form and postage-paid return envelope, which are being solicited on behalf of our Board of Directors.

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

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON

Wednesday, May 29, 2019

 ●, 2019

To the stockholders of PDC Energy, Inc.:

The 2019 Annual Meeting of PDC Energy, Inc. (the “Company”) will be held on May 29, 2019, at 8:00 a.m. Mountain Time at the Denver Financial Center at 1775 Sherman Street, Denver, Colorado 80203, for the following purposes:

The Board of Directors (the “Board”) has fixed the close of business on April 1, 2019 as the record date for determining the stockholders having the right to receive notice of, to attend, and to vote at the Annual Meeting or any adjournment or postponement thereof. The presence in person or by proxy of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to constitute a quorum.

Your vote will be especially important at this Annual Meeting. Kimmeridge Energy Management Company, LLC and its affiliates (collectively, “Kimmeridge”) has notified us that it intends to nominate three individuals for election as directors to the Board (the “Kimmeridge Nominees”) at the Annual Meeting in opposition to the nominees recommended by the Board. You may receive proxy solicitation materials from Kimmeridge, including a proxy statement and ● proxy cards. The Board unanimously recommends that you disregard them. We believe that the Board’s nominees are best positioned to serve the Company and our stockholders.  Accordingly, the Board does not endorse the Kimmeridge Nominees and recommends a vote “FOR” the election of each of the director nominees named in the accompanying Proxy Statement and on the enclosed WHITE proxy card, and strongly urges you NOT to sign or return any proxy card(s) or voting instruction form(s) that you may receive from Kimmeridge or any of its representatives.  

We are not responsible for the accuracy of any information provided by or relating to Kimmeridge or the nominees contained in any proxy solicitation materials filed or disseminated by, or on behalf of, Kimmeridge or any other statements that Kimmeridge or its representatives have made or may otherwise make.

We firmly believe that we have the right Board to move forward with our strategic initiatives to enhance stockholder value and that the skills and diverse experience of our directors will be invaluable as we build upon our recent achievements. The Board and management are fully aligned on the Company’s objectives and committed to the continued execution of our strategy to maximize stockholder value and produce strong and sustainable results.

The nominees of the Board for election as directors of the Company are listed in the accompanying proxy statement and WHITE proxy card. It is important that your shares be represented at the Annual Meeting regardless of whether or not you plan to attend. Accordingly, after reading the accompanying proxy statement, please follow the instructions on the enclosed WHITE proxy card and promptly submit your proxy by telephone, the internet or mail as described on the WHITE proxy card. Please note that even if you plan to attend the Annual Meeting, we recommend that you vote using the enclosed WHITE proxy card prior to the Annual Meeting to ensure that your shares will be represented.

If you vote your shares prior to the Annual Meeting or you have previously signed a ● proxy card sent to you by Kimmeridge in respect of the Annual Meeting, you can revoke that ● proxy and submit a proxy to vote for the Board’s nominees by signing, dating and returning the enclosed WHITE proxy card or by following the instructions provided in the WHITE proxy card to submit a proxy to vote your shares over the internet or by telephone or by voting in person at the Annual Meeting. Signing, dating and returning any proxy card that Kimmeridge may send to you, even with instructions to vote “withhold” with respect to the Kimmeridge nominees, will cancel any proxy you may have previously submitted to have your shares voted for the Board’s nominees on a WHITE proxy card as only your latest proxy card or voting instruction form will be counted.

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

MacKenzie Partners, Inc. (“MacKenzie”) is assisting us with our effort to solicit proxies. If you have any questions or require assistance in authorizing a proxy or voting your shares of our common stock, please contact MacKenzie at (800) 322-2885 (toll free for stockholders) or (212) 929-5500 or email to PDCE@mackenziepartners.com.

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

 

PDC ENERGY, INC.

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

To be held on May 29, 2019 at
8:00 a.m.  Mountain Time at
The Denver Financial Center
1775 Sherman Street

Denver, Colorado 80203

The accompanying Proxy Statement and the WHITE proxy card are being solicited by the Board of Directors (“Board”) of PDC Energy, Inc. (“PDC,” the “Company,” “we,” “us” or “our”) to be voted at the annual meeting of the stockholders of the Company (the “Annual Meeting”) to be held on May 29, 2019, at 8:00 a.m.  Mountain Time and at any and all adjournments or postponements of the meeting, for the purposes set forth in this Proxy Statement and the accompanying Notice of Annual Meeting. On or about  ●, 2019, we began mailing proxy materials to stockholders. For information on how to vote your shares, see the instructions included on the WHITE proxy card or instruction form described under “Information About Voting and the Meeting” herein.

IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY

OF PROXY MATERIALS FOR THE ANNUAL MEETING

TO BE HELD ON MAY 29, 2019

The Notice of Annual Meeting, the Proxy Statement for the 2019 Annual Meeting, and the 2018 Annual Report, which includes the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2018, are available at ●.

TABLE OF CONTENTS

 

 

 

 

PROXY STATEMENT SUMMARY

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

Annual Meeting of Stockholders

VOTING

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

Voting Matters

 

PROPOSAL NO. 1—ELECT THREE CLASS III
DIRECTORS

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE ON THE WHITE PROXY CARD AND VOTING INSTRUCTION FORM “FOR” THE ELECTION OF EACH OF BARTON R. BROOKMAN, MARK E. ELLIS AND LARRY F. MAZZA. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

As of the date of this Proxy Statement and as permitted by the Company’s Bylaws, the Board consists of eight members (“Directors”) divided into three classes. Directors are elected for three‑year terms. The terms for members of each class end in successive years.

The Board has nominated three continuing Class III Directors, Barton R. Brookman, Mark E. Ellis and Larry F. Mazza, to stand for re‑election to the Board for three‑year terms expiring in 2022. Mr. Brookman joined the Board in 2015 and currently serves as the Company’s President and Chief Executive Officer. Mr. Ellis joined the Board in 2017 and currently serves as a member of the Compensation Committee and the Midstream Committee. Mr. Mazza joined the Board in 2007 and currently serves as a member of the Compensation Committee. We believe that the nominees recommended by the Board are best positioned to serve our Company and our stockholders. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH AND ALL OF THE BOARD NOMINEES ON THE WHITE PROXY CARD.

The appointed proxies will vote your shares in accordance with your instructions on the WHITE proxy card and for the election of the three Class III Director nominees unless you withhold your authority to vote for one or more of them. The Board does not contemplate that any of the Director nominees will become unavailable for any reason; however, if any Director is unable to stand for election, the Board may reduce the size of the Board or select a substitute. Your proxy cannot otherwise be voted for a person who is not named in this Proxy Statement as a candidate for Director or for a greater number of persons than the number of Director nominees named.

We have received notice pursuant to Section 2.9 of our Bylaws that Kimmeridge intends to nominate its own slate of nominees for election to the Board at the Annual Meeting. Kimmeridge has indicated its intent to furnish a proxy statement to shareholders of the Company, together with a ● proxy card. We believe, based on Kimmeridge’s notice, that the election of directors at the Annual Meeting will be a contested election. Our Bylaws provide that all directors are to be elected under a plurality voting standard. Under the plurality voting standard, the three director nominees who receive the greatest number of “FOR” votes cast are the persons elected to the Board. “Withhold” votes and “broker non-votes” (as described in “Information About Voting and the Meeting—How Proxies Work”) will be counted as present for purposes of establishing a quorum but will have no effect on the results of the vote on this proposal.

 

BACKGROUND OF THE SOLICITATION

The following discussion provides background information regarding our interactions with Kimmeridge since 2016.

On August 23, 2016, the Company entered into acquisition agreements with Kimmeridge and certain of its affiliates and investors pursuant to which the Company agreed to acquire an aggregate of approximately 57,000 net acres in Reeves and Culberson Counties, Texas, located in the Delaware Basin portion of the Permian Basin (the “Delaware Basin Acquisition”).

During September 2016, and in connection with impending closing of the Delaware Basin Acquisition, Kimmeridge and the Company engaged in extended discussions regarding Benjamin Dell, Managing Partner of Kimmeridge, joining the Board as a term of the transaction. Kimmeridge ultimately decided not to pursue Mr. Dell joining the Board, because of, in part, potential conflicts of interest between Kimmeridge and the Company, including conflicts arising from Mr. Dell’s continuing business interests in the Delaware Basin. 

On December 6, 2016, the Delaware Basin Acquisition closed. Kimmeridge subsequently sold all of the PDC stock it received as consideration in the Delaware Basin Acquisition.

On April 20, 2017, the Company held its Analyst Day, which Mr. Dell attended. Mr. Dell emailed Mr. Bookman on the same day requesting to discuss the Analyst Day materials. 

On April 26, 2017, Mr. Dell and Mr. Brookman discussed the Analyst Day materials.

On May 2, 2017, Mr. Dell emailed the Company requesting information regarding the number of horizontal and vertical wells operated by the Company. The Company responded the following day.

On June 6, 2017, Mr. Dell emailed the Company requesting information concerning the Company’s Delaware Basin assets. The Company responded the same day.

On June 26, 2017, Mr. Dell emailed the Company proposing a joint ownership acquisition of assets located in the Delaware Basin.  On July 13, 2017, the Company responded to Mr. Dell and declined the proposal.  On July 27, 2017, Mr. Dell e-mailed the Company again to discuss the proposed acquisition.  The Company responded to Mr. Dell by telephone and declined the proposal.

On August 31, 2017, Mr. Dell and Mr. Bookman met and discussed the general state of the oil and gas industry.

On September 5, 2017, Mr. Dell emailed the Company requesting a meeting to discuss a Kimmeridge appointee, likely Mr. Dell, joining the Board.  On September 27, 2017, Mr. Dell and Mr. Brookman discussed a Kimmeridge appointee joining the Board.  On October 18, 2017, the Company emailed Mr. Dell regarding the director nomination process of the Board’s Nominating and Governance Committee.  Mr. Dell did not respond further.

On April 24, 2018, Mr. Dell and Mr. Brookman met and discussed the general state of the oil and gas industry.

On October 16, 2018, Mr. Dell contacted Mr. Brookman by telephone suggesting that the Company submit a bid to acquire a publicly traded oil and gas company in which Kimmeridge was an investor. The Company investigated the potential transaction and conducted initial due diligence but ultimately decided not to pursue the transaction.

On January 11, 2019, Mr. Dell and others associated with Kimmeridge discussed with Mr. Brookman certain strategies that Kimmeridge believed the Company should execute.

On January 15, 2019, Mr. Dell emailed Mr. Brookman requesting a meeting to discuss director nominations.

On January 28, 2019, Kimmeridge notified the Company that it intended to acquire securities in the Company worth in excess of $84.4 million but less than $168.8 million. 

On January 29, 2018, the Company received a notice from the Federal Trade Commission (“FTC”) regarding Kimmeridge’s intended securities acquisition and informing the Company that the Company was required to file a Notification and Report Form for Certain Mergers and Acquisitions by February 12, 2019. 

On February 8, 2019, the Company sent the completed Notification and Report Form for Certain Mergers and Acquisitions to the FTC.  On February 11, 2019, the FTC confirmed receipt of the Notification and Report Form for Certain Mergers and Acquisitions.

Also on February 8, 2019, Mr. Dell sent Mr. Brookman presentation materials detailing strategies Kimmeridge believed the Company should execute, including the institution of a $1.50 per share dividend, a spin-off of the Company’s Colorado assets and pursuit of various potential M&A transactions.  The materials also indicated that Kimmeridge was prepared to invest “meaningful” amounts of additional capital in the Company, apparently to finance one or more of the potential M&A transactions.

On February 13, 2019, representatives of the Company (including Jeffrey Swoveland, the Company’s Non-Executive Chairman of the Board) and Kimmeridge met to discuss strategies Kimmeridge believed the Company should execute, including those described in the February 8 presentation materials.

On February 19, 2019, Mr. Dell emailed Mr. Brookman proposing a joint acquisition of another publicly traded oil and gas company and suggesting that Kimmeridge would be willing to enter into a confidentiality agreement in order to facilitate discussions regarding that potential acquisition. Mr. Dell indicated that he envisioned the Company financing part of the cost of the transaction through the issuance of common stock to Kimmeridge. 

On February 21, 2019, Mr. Dell emailed the Company requesting a questionnaire for Board nominees. On February 25, 2019, the Company sent Mr. Dell the form of questionnaire.

On February 22, 2019, Kimmeridge filed a Schedule 13D disclosing beneficial ownership of 3,382,900 shares of the Company’s common stock by certain of its funds, representing beneficial ownership of 5.1% of the outstanding shares of the Company’s common stock. The Schedule 13D did not disclose an intention to nominate candidates for election to the Board or to propose any specific M&A transactions.

On February 26, 2019, Kimmeridge delivered a demand, pursuant to Section 220 of the Delaware General Corporation Law (the “DGCL”), to the Company requesting access to certain stocklist materials of the Company. The Company subsequently provided the requested information. 

On March 4, 2019, Mr. Dell emailed the Company requesting a meeting with Mr. Swoveland to discuss potential Board nominees.  Mr. Swoveland responded to Mr. Dell on the same day and agreed to a meeting on a date to be determined.

On March 7, 2019, the Company received correspondence from Kimmeridge notifying the Company of Kimmeridge’s intent to nominate Benjamin Dell, James Adelson and Alice Gould to the Board at the Annual Meeting.  Later that day, Kimmeridge filed an amendment to its Schedule 13D disclosing its intent to nominate such persons to the Board at the Annual Meeting.  

Also on March 7, 2019, Mr. Dell and Mr. Swoveland met, with Mr. Brookman and legal counsel present. After noting the substantial costs that both sides would incur in a proxy contest, Mr. Dell again proposed that Kimmeridge and the Company pursue a joint acquisition of the publicly traded oil and gas company, with Kimmeridge providing a portion of the financing of the transaction, and again indicated that Kimmeridge would be willing to enter into a confidentiality agreement in connection with discussions regarding the transaction.

On March 22, 2019, Kimmeridge sent a letter to the Board requesting a meeting with the Company’s independent directors. On March 28, 2019, Mr. Brookman responded by email to Kimmeridge, agreeing to schedule a meeting in early April with some, but not all, of the Company’s independent directors.

BOARD OF DIRECTORS

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

NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND OTHER DIRECTORSHIPS

Nominees for the Term Expiring in 2019—Class III

 

 

Continuing Directors with Term Expiring In 2020—Class I

 

 

Continuing Directors with Term Expiring In 2021—Class II

 

 

 

The Class III Directors will be elected by an affirmative vote of a plurality of the outstanding common shares. Broker non‑votes will have no effect on the election of Directors.

STANDING COMMITTEES OF THE BOARD

BOARD MEETINGS AND ATTENDANCE

The Board has a standing Audit Committee, Compensation Committee, Midstream Committee and Nominating and Governance Committee. Actions taken by these committees are reported to the Board at its next meeting. During 2018, each Director attended at least 75% of all meetings of the Board and committees of which he or she was a member. As specified in the Corporate Governance Guidelines, Directors are strongly encouraged, but not required, to attend the Annual Meeting. All of the Directors attended the 2018 annual meeting of stockholders held on May 30, 2018.

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

The following table identifies the members of each committee of the Board and the chair of each committee, and the number of meetings held in 2018.

2018 BOARD AND COMMITTEE MEMBERSHIPS

= Chairperson        Member       Chairman of the Board

 

AUDIT COMMITTEE

The Audit Committee is composed entirely of persons whom the Board has determined to be independent under NASDAQ Listing Rule 5605(a)(2), Section 301 of the Sarbanes‑Oxley Act of 2002, Section 10A(m)(3) of the Exchange Act and the relevant provisions of the Audit Committee Charter. The Board has adopted the Audit Committee Charter, which was most recently amended and restated on May 30, 2017 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.” The Board has determined that all members of the Audit Committee qualify as “financial experts” as defined by SEC regulations.

NOMINATING AND GOVERNANCE COMMITTEE

The Board has determined that all members of the Nominating and Governance Committee (the “N&G Committee”) are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board has adopted a N&G Committee Charter, which was most recently amended and restated on May 30, 2018 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.”

MIDSTREAM COMMITTEE

The Board has determined that all members of the Midstream Committee are independent of the Company under NASDAQ Listing Rule 5605(a)(2). The Board adopted a Midstream Committee Charter on September 30, 2017, which is posted on the Company’s website at www.pdce.com under “Corporate Governance.”

COMPENSATION COMMITTEE

The Board has determined that all members of the Compensation Committee are independent of the Company under NASDAQ Listing Rules 5605(a)(2) and 5605(d)(2). The Board has adopted a Compensation Committee Charter, which was most recently amended and restated on September 19, 2013 and is posted on the Company’s website at www.pdce.com under “Corporate Governance.”

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee is or has been an officer of the Company, nor did any of them have any relationships requiring disclosure by the Company under Item 404 of Regulation S‑K. During 2018, none of our executive officers served as director or member of the compensation committee (or other committee serving an equivalent function) or any other entity whose executive officers served on our Compensation Committee or the Board.

BOARD LEADERSHIP STRUCTURE

Although the Board has no specific policy with respect to the separation of the offices of Chairman and CEO, the Board believes that our current leadership structure, under which Mr. Brookman serves as President and CEO and Mr. Swoveland serves as Non‑Executive Chairman of the Board, is the appropriate structure for our Board at this time. Since June 2011, the roles of Chairman and CEO have been held by separate individuals. We currently believe that as Directors continue to have increasing oversight responsibilities, it is beneficial to have an independent, separate Chairman who has the responsibility of leading the Board, allowing the CEO to focus on leading the Company. We believe our CEO and Chairman have an excellent working relationship, which, given the separation of their positions, provides strong Board leadership while positioning our CEO as the leader of the Company in front of our employees and stockholders. The Board reconsiders this structure at least annually.

DIRECTOR COMPENSATION

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

Compensation for our Non‑Employee Directors is reviewed annually by the Compensation Committee and is approved by the Board. The Compensation Committee uses its independent compensation consultant to conduct this annual review, which includes board and committee retainers, potential meeting fees and equity-based awards using the same peer group used to determine executive compensation (see “Compensation Policies and Process” and “Role of Independent Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement). Based on this review for 2018, the Compensation Committee recommended eliminating most committee retainers and increasing the Board retainer to cover membership on most committees.

CASH COMPENSATION 

Annual Board and Committee Retainers

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

Annual Committee Chair Retainers

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

EQUITY COMPENSATION

On February 21, 2018, the Non‑Executive Chairman was granted $175,000 in restricted stock units (RSUs) and the remaining Non‑Employee Directors each received $140,000 in RSUs for their service on the Board.  The RSUs were granted under our Amended and Restated 2010 Long-Term Equity Compensation Plan (“2010 Equity Plan”).  The actual number of RSUs granted was determined based on the 5‑day average closing stock price ending the day prior to the date of grant.  The RSUs vest equally over three years, assuming continued board service.

DEFERRED COMPENSATION

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

Compensation paid to the Non‑Employee Directors for 2018 was as follows:

2018 DIRECTOR COMPENSATION

DIRECTOR STOCK OWNERSHIP REQUIREMENTS AND PROHIBITION ON CERTAIN TRANSACTIONS

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

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

DIRECTOR QUALIFICATIONS AND SELECTION

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

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

The N&G Committee identifies Director candidates primarily through recommendations made by the Non‑Employee Directors. These recommendations are developed based on the Non‑Employee Directors’ knowledge and experience in a variety of fields and on research conducted by the Company at the N&G Committee’s direction. The N&G Committee also considers recommendations made by Directors, employees, stockholders and others, including search firms. All recommendations, regardless of the source, are evaluated on the same basis against the criteria contained in the Director Nomination Procedures. The N&G Committee has the authority to engage consultants to help identify or evaluate potential Director nominees, but did not do so in 2018.

STOCKHOLDER RECOMMENDATIONS

The N&G Committee will consider Director candidates recommended by stockholders of the Company on the same basis as those recommended by other sources. Any stockholder who wishes to recommend a prospective Director nominee should notify the N&G Committee by writing to the N&G Committee at the Company’s headquarters or by email to board@pdce.com. All recommendations will be reviewed by the N&G Committee. A submission recommending a nominee should include:

STOCKHOLDER NOMINATIONS

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

CORPORATE GOVERNANCE

GOVERNANCE HIGHLIGHTS

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

CORPORATE GOVERNANCE GUIDELINES

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

The Corporate Governance Guidelines were most recently amended on September 30, 2017 and can be viewed on the Company’s website at www.pdce.com under “Corporate Governance.”

UNCONTESTED ELECTIONS POLICY

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

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

CODE OF BUSINESS CONDUCT AND ETHICS

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

BOARD STRUCTURE

The Company’s Certificate of Incorporation (“Charter”) provides that the number of Directors shall be designated from time to time by a resolution of the Board, provided that the number of Directors shall in no event be fewer than three or more than nine. As of the date of this Proxy Statement, the designated number of Directors is eight. Under the Charter, the Board is divided into three separate classes of Directors which are required to be as nearly equal in number as practicable. At each annual meeting of stockholders, one class of Directors whose term is expiring may be elected for a new term of three years. The classes are staggered so that the term of one class expires each year.

There is no family relationship among any Directors or executive officers of the Company. There are no arrangements or understandings among any Directors or officers and any other person pursuant to which the person was selected as an officer or Director of the Company.

DIRECTOR INDEPENDENCE

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

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

THE BOARD’S ROLE IN RISK MANAGEMENT

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

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

TRANSACTIONS WITH RELATED PARTIES

During 2018, there was no transaction or series of transactions, nor is there any currently proposed transaction, involving an amount exceeding $120,000 in which the Company is or was a participant and in which any Director, executive officer, known holder of more than five percent of the Company’s voting securities, or any member of the immediate family of any of the foregoing persons, had or has a direct or indirect material interest for which disclosure is required under Item 404 of Regulation S‑K.

POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED PARTIES

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

Under our related‑party transaction policy, a related‑party transaction is a transaction or arrangement involving a related party in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a related party. The related party must disclose to the Audit Committee any potential related‑party transactions and must disclose all material facts with respect to

such transaction and relationship. All related‑party transactions so disclosed will be reviewed by the Audit Committee. In determining whether to approve or ratify a transaction, the Audit Committee will consider the relevant facts and circumstances of the transaction, which may include factors such as the relationship of the related party to the Company, the materiality or significance of the transaction to the Company and the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company from an unrelated party and the impact of the transaction on the Company’s business and operations.

OTHER CORPORATE GOVERNANCE DOCUMENTS

The Company’s website includes the following governance documents:

 

COMMUNICATION WITH DIRECTORS BY STOCKHOLDERS

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

ADDITIONAL INFORMATION

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

PROPOSAL NO. 2—APPROVE, ON AN ADVISORY BASIS,
THE COMPENSATION OF THE COMPANY’S NAMED
EXECUTIVE OFFICERS

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RESOLUTION SET FORTH IN THIS PROPOSAL NO. 2. PROPERLY SUBMITTED PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

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

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

The Company’s practice of targeting the median in compensation and placing a significant portion of each Named Executive Officer’s compensation at risk demonstrates its pay‑for‑performance philosophy. In 2018 nearly 80% of the target compensation for our Named Executive Officers, other than the CEO, was in the form of variable compensation which was “at risk” (i.e., annual cash incentive compensation, performance-based equity and restricted stock units). For the Company’s CEO, this amount was 86% in 2018.

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

The Compensation Committee considers the results of the non‑binding “say‑on‑pay” vote of our stockholders in making prospective compensation decisions. At our 2018 annual meeting of stockholders, over 90% of the votes cast approved, on an advisory basis, the compensation of our Named Executive Officers. Accordingly, the Compensation Committee concluded that our executive compensation programs generally meet the expectations of our stockholders. We did not make any material changes to our executive compensation programs in 2018, although we did make certain incremental changes such as eliminating stock appreciation rights.

In light of the foregoing, the Company believes that the compensation of the Named Executive Officers for 2018 was appropriate and reasonable, and that its compensation programs and practices are sound and in the best interests of the Company and its stockholders. Stockholders are being asked to vote on the following resolution:

RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S‑K, including the “Compensation Discussion and Analysis,” compensation tables and narrative disclosure in this Proxy Statement for the Company’s 2019 Annual Meeting.

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

EXECUTIVE COMPENSATION

EXECUTIVE OFFICERS

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

BARTON R. BROOKMAN, 56, joined the Company in 2005 and currently serves as Director, President and CEO. See “Continuing Directors with Term Expiring in 2019—Class III” for biographical information concerning Mr. Brookman.

LANCE A. LAUCK, 56, joined the Company in August 2009 as Senior Vice President Business Development and was named Executive Vice President Corporate Development and Strategy in January 2015. Mr. Lauck has overall responsibility for PDC’s business development, acquisitions and divestitures, strategic planning, corporate risk, reserves and midstream and marketing. Previously, Mr. Lauck served as Vice President—Acquisitions and Business Development for Quantum Resources Management LLC from 2006 to 2009. From 1988 until 2006, Mr. Lauck worked for Anadarko Petroleum Corporation, where he initially held production, reservoir and acquisition engineering positions before being promoted to various management level positions in the areas of acquisitions and business development, ending his service as General Manager, Corporate Development. From 1984 to 1988, Mr. Lauck worked as a production engineer for Tenneco Oil Company. Mr. Lauck graduated from the University of Missouri‑Rolla in 1984 with a Bachelor of Science degree in Petroleum Engineering.

R. SCOTT MEYERS, 44, a CPA, joined the Company in March 2009, and was named Chief Accounting Officer in April 2009 and Chief Financial Officer in January 2018. Prior to joining the Company, Mr. Meyers served as a Senior Manager with Schneider Downs Co., Inc., an accounting firm based in Pittsburgh, Pennsylvania, from 2008 to 2009, and PricewaterhouseCoopers LLP from 2002 to 2008.  Mr. Meyers holds a Bachelor of Science degree in Accounting from Grove City College, Pennsylvania.

SCOTT J. REASONER, 58, joined the Company in April 2008 as Vice President of Western Operations and was named Chief Operating Officer in January 2017. Mr. Reasoner has over 30 years of technical and management experience in the energy industry. Before joining PDC, he served as a Business Unit Manager with Noble Energy Inc. from 2005 to 2008, where he was responsible for the Mid‑Continent team. Prior to his work with Noble Energy, Mr. Reasoner worked for Patina Oil and Gas Company as Production Manager and later as Vice President Operations. His earlier experience includes positions with Snyder Oil Corporation and Vessel Oil and Gas Company. Mr. Reasoner graduated from of the Colorado School of Mines with a degree in Petroleum Engineering, has earned an MBA from the University of Colorado, and is a Registered Professional Engineer.

NICOLE L. MARTINET, 42, joined the Company in March 2011 as Associate General Counsel and Vice President, serving in that position for eight years. In January 2019, Ms. Martinet was named General Counsel, Senior Vice President and Corporate Secretary. Prior to joining PDC, she served as an associate in the Corporate Finance and Acquisitions group at Davis Graham & Stubbs LLP in Denver from 2006 to 2011.  Ms. Martinet received her Juris Doctor from the University of Denver, Sturm College of Law, where she graduated Order of St. Ives and served on the Denver University Law Review. Ms. Martinet has over 20 years of professional experience and holds a Bachelor of Science in Economics and French and Francophone Studies from Santa Clara University in California.

JOHN A. DELAWDER, 58, joined the Company in April 2006 as Director of Human Resources and was appointed Senior Vice President Corporate Administration in January 2019. Prior to that he served in a variety of vice president level human resources positions with the Company, beginning in July 2009. Mr. DeLawder has over 35 years of professional experience. Mr. DeLawder earned a Bachelor of Science in Business Administration with an emphasis in Personnel Management from West Virginia University, and his career includes human resources, operations, facilities management and communications experience in the energy, government contracting, high-tech and manufacturing sectors.

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

COMPENSATION COMMITTEE REPORT

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

 

 

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Committee (referred to in this section as the “Committee”) believes that executives should earn the majority of their compensation based on the performance of the Company. This Compensation Discussion and Analysis (“CD&A”) provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2018, as well as the factors considered by the Committee in making compensation decisions. This CD&A focuses on the 2018 compensation of our President and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three other most highly compensated officers.  This CD&A touches only briefly on the compensation of our former CFO as he was employed solely for the first three days of the fiscal year.  The individuals described above, including our former CFO, are identified by name and title in the chart below and are collectively referred to throughout this Proxy Statement as our “Named Executive Officers,” or “NEOs”):

EXECUTIVE SUMMARY

We provide a competitive executive compensation program that ties most of our executives’ pay to the short-term and long-term performance of the Company and to our shareholder returns.  Our executive compensation program is also designed to encourage appropriate risk management.

Following is an executive summary of the most important aspects of our executive compensation program:

Most of Our Executives’ Pay is Made Up of Annual and Long-Term Incentives

Strong Link Between Compensation and Stockholder Interests

In 2018, over 70% of our CEO’s pay and more than 60% of the pay of our other NEOs consisted of long-term equity incentives.  This weighting toward long-term equity incentives has remained relatively consistent over the past several years.  For 2018, half of the long-term incentive awards issued to our NEOs consisted of PSUs, which are earned based on our TSR on a relative basis, as compared to our peer companies, and on an absolute basis.  We also maintain stock ownership guidelines applicable to all of our NEOs.  These features of our executive compensation program make the amount of pay realizable by our executive team highly correlated to the performance of our stock.  We believe this correlation between realizable pay and stock performance motivates our executive team to focus on stockholder returns and to think and act like owners.

The chart below shows a comparison of intended target compensation and realizable compensation for our CEO over the past three years as compared to stock price performance.

Annual Incentive Metrics are Correlated to Value Creation

Our 2018 annual cash incentive program used a mix of pre-established quantitative metrics along with a qualitative review of corporate and individual performance to determine annual payouts.  With respect to quantitative metrics, we used a combination of operational and financial metrics to ensure our executives are focused on a balanced approach that correlates strongly to value creation.  Production is used as a single quantitative metric (as it has been for several prior years), with our remaining metrics focused on cost control (production, exploration and G&A costs per Boe), capital efficiency, a measure of profitability (adjusted cash flow from operations per share), and balance sheet strength (debt to adjusted EBITDAX).

We do not over-emphasize production because we believe that production fits only within a broader range of quantitative and qualitative considerations that collectively reflect our overall performance as a company.

Our Compensation Program Design is Responsive to Shareholder Concerns as well as Market and Business Trends

At our 2018 annual meeting of stockholders, the overwhelming majority of our stockholders voted to approve our executive compensation program, with over 90% of votes cast for approval. This strong level of stockholder support for our executive compensation programs has remained consistent (or higher) over the past several years.  Although the vast majority of stockholders have consistently voted in support of our program, we continually monitor and engage with our stockholder base to garner their feedback on our program.  Based on that feedback and our analysis of market and business trends, we have made a number of changes over the years to ensure our program remains responsive to stockholder concerns and market conditions. For example, in 2015, given industry conditions and commodity pricing at the time, we added a balance sheet strength metric to our annual cash incentive program.  Similarly, in 2016, we removed reserve replacement ratio as an operational metric under that program.

Consistent with our longstanding history of appropriately making adjustments to our compensation programs, in 2018:

Looking ahead to changes in 2019:

This history of stockholder engagement and responsiveness to both stockholder concerns and market conditions keeps our compensation program design in line with best practices, consistent with the interests of our stockholders, and well-positioned to incentivize our executive team to focus on the things that drive company and stock price performance.

Business Strategy and 2018 Business Highlights

Business Strategy

Our long-term business strategy focuses on being a responsible and respected provider of energy while generating stockholder value through the exploration and development of crude oil and natural gas properties. We leverage technology and innovation to increase operational efficiencies and prioritize health, safety and the environment.  We are focused on the growth of our cash flows, production and reserves, primarily through development of our existing leasehold, but also through acquisition and acreage swap

opportunities. Our drilling plan is designed to achieve repeatable results and the potential for attractive returns on investment in a range of commodity price environments.

2018 Business Highlights

In 2018, the Company focused on the continued development of its two premier U.S. onshore assets in the core Wattenberg Field and Delaware Basin.  Long-lateral drilling, faster drilling times and modified completion designs all contributed to increasing our capital efficiency.  Additionally, a strategic acreage trade in the Wattenberg further consolidated our position to ensure we can maximize these efficiencies in the coming years. Through the continued success of our drilling program, we were able to increase our proved reserves 20% to over 545 million Boe, increase oil production as a percent of total production and efficiently grow our total production by 26% to 40.2 million Boe. Key highlights of our achievements in 2018 include:

Organizational Highlights:

Financial Highlights:

Business Development Highlights:

Delaware Basin Highlights:

Wattenberg Field Highlights:

For additional discussion of our 2018 results, see "Annual Cash Incentives—2018 Performance Results."

*Adjusted EBITDAX and adjusted cash flow are non-GAAP financial measures. See "Non-GAAP Financial Measures" on Appendix A for a reconciliation to their most directly comparable GAAP measures.

EXECUTIVE COMPENSATION PHILOSOPHY AND BEST PRACTICE

Compensation Philosophy

The principal tenets of our compensation philosophy are as follows:

Compensation Best Practices

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

 

COMPENSATION PROGRAM DESIGN AND DECISIONS

2018 Compensation Mix

Our pay‑for‑performance philosophy is demonstrated by the proportion of our NEOs’ compensation that is variable or “at risk” in relation to the overall compensation package awarded to our NEOs. The charts below show the targeted fixed and variable or “at‑risk” components awarded to our NEOs as a percentage of their total direct compensation for 2018.

2018 TARGET COMPENSATION

The charts above are based on 2018 base salaries, target bonus amounts with respect to 2018 annual cash incentive awards, and the target values for the 2018 grants of performance-based PSUs and time-based RSUs.  The amounts actually realized by our NEOs with respect to these awards depend on a variety of factors including the level of attainment of the relevant performance goals and the extent of vesting of PSUs and RSUs and the value of our stock when the PSUs and RSUs vest.  These charts are not a substitute for the “Summary Compensation Table,” which includes amounts supplemental to target total direct compensation.

Direct Compensation Components

In support of our compensation philosophy and objectives, total target direct compensation  received by our NEOs is comprised of the key elements included in the chart below:

Base Salaries

In determining base salary adjustments for 2018, the Committee considered the market data provided by the Consultant, the role of each individual NEO, inflation and the recommendations of the CEO based on individual and Company performance. Based on the foregoing, in February 2018, we approved adjustments in base salary for each of the NEOs as follows:

Annual Incentive Awards

Bonuses under the Company’s annual incentive program are based on achievement of a combination of specific operational and financial metrics (performance metrics) established in the first quarter of the year and the Committee’s assessment of the Company’s strategic accomplishments for the year. However, to provide us the flexibility to adjust for and react to events that occur throughout the year, we prefer not to rely solely on a formulaic approach based on pre‑established thresholds that result in automatic payouts. Rather, the Committee retains discretion to adjust actual awards given circumstances at the time of the determination.

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

Target Bonus Amounts

The Committee sets a target annual cash incentive award for each NEO expressed as a percentage of base salary.  Actual awards can range from 0% ‑ 200% of these targets depending on the Company performance rating achieved and any individual performance adjustment. In February 2018, based upon the review of peer compensation data, we established the 2018 target award for each NEO as follows:

2018 Performance Metrics – Quantitative and Qualitative

In early 2018, we established specific targets for each operational and financial metric based on our 2018 operating plans. These metrics are used to ensure we are balancing operational objectives with capital discipline. The performance metrics used in 2018 were the same as those used in 2017.

2018 CORPORATE METRICS METHODOLOGY

*Adjusted Cash Flow Per Diluted Share and adjusted EBITDAX are each non-GAAP financial measures. See "Non-GAAP Financial Measures" on Appendix A for a reconciliation to their most directly comparable GAAP measures.

The Committee expressly reserves the right to exercise its discretion to adjust the NEOs’ annual incentive awards for unexpected business events such as acquisitions/dispositions, capital markets transactions, legal settlements, or other performance factors the Committee deems important at year‑end. We believe that the NEOs are compensated for stock price performance through the Company’s long‑term equity incentive program and not through their annual bonus; however, the Committee may also consider relative stock price performance in determining the annual corporate performance rating.

2018 Results on Quantitative Metrics

In early 2019, the Committee reviewed the Company’s 2018 performance relative to the quantitative operational and financial metrics described above. Results for 2018 were as follows:

2018 QUANTITIVE CORPORATE METRICS

Committee’s Qualitative Assessment

In assessing the Company’s performance for 2018, the Committee considered the following factors that impacted results:

Based on the above, the Committee awarded a corporate performance rating under the annual bonus plan of 115% of target, which was lower than the payout for 2017.

2018 Bonus Awards

In determining individual cash incentive awards, the Committee generally felt that management achieved the results as a team and each was instrumental in the overall accomplishments of the Company.  Therefore, no individual performance adjustments were made to the awards.   Actual cash bonus amounts paid for 2018 performance were as follows:

(1)Mr. Amidon separated service on December 31, 2018 and received a negotiated target bonus for 2018 upon separation (see “Potential Payments Upon Termination or Change of Control—Amidon Separation Agreement”).

Long‑Term Incentive Awards

Mix of Incentives

To ensure that long‑term incentives are aligned with the interests of our stockholders and our pay‑for‑performance philosophy, we generally grant annual equity awards to our NEOs. In 2018, the Committee elected to change the mix of our long-term incentives to be 50% PSUs and 50% RSUs and to eliminate the use of SARs. We believe this more closely aligns with market practices. In addition, the Committee incorporated a balanced absolute TSR modifier into the PSUs to replace the absolute TSR tie that was inherent in the SARs grants.

2018 Award Types and Terms

2018 Long-Term Incentive Awards

We typically determine the dollar value of the long‑term incentive awards we want to deliver to the NEO to place total target compensation at the appropriate level for that position, based on market data, individual performance, and other relevant factors. While we consider long‑term incentives as primarily forward‑looking, we may consider the Company’s and the NEOs’ performance in the prior year in determining the size of the awards. For 2018, the Committee adjusted long‑term incentive values to further align the value of the long‑term incentives with the market competitive range. The table below shows the grants and corresponding value awarded to each NEO in February 2018.

The award value shown above differs from the accounting value reported in the Summary Compensation Table. In determining the number of shares awarded, we used the 5‑day average closing stock price ending the day prior to the date of grant. The accounting value reflected in the Summary Compensation Table and 2018 Grants of Plan‑Based Awards table is based solely on the grant date fair value on the date of grant.

2016-2018 Performance Share Unit (PSU) Payout

In 2016, we granted PSUs covering the three‑year period from January 1, 2016 through December 31, 2018. Based on the Company’s ranking over this three‑year period, we paid 78% of the target award to the NEOs holding such PSUs as shown in the “Options Exercised and Stock Vested” table.  Due to the decline in stock price over the three-year period, the value earned at vesting was 41% of the original target value (based on a 2018 year-end stock price of $29.76).  The chart below shows the members of the peer group used for the grant, their TSR performance and their relative rankings at the end of the period.