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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o		Definitive Proxy Statement
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o		Soliciting Material Pursuant to §240.14a-12

 

Anadarko Petroleum Corporation

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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P.O. Box 1330
Houston, Texas 77251-1330

 

March XX, 2009

 

 

TO OUR STOCKHOLDERS:

 

The 2009 Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Woodlands Waterway Marriott Hotel and Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas, 77380 on Tuesday, May 19, 2009, at 8:00 a.m. (Central Daylight Time).

 

The attached Notice of Annual Meeting of Stockholders 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 and will not include a management presentation.

 

Pursuant to rules promulgated by the U.S. Securities and Exchange Commission, we are also providing access to our proxy materials over the Internet. As a result, we are mailing to many of our stockholders a Notice of Internet Availability of Proxy Materials (Notice) instead of a paper copy of this proxy statement, a proxy card and our 2008 annual report. The Notice contains instructions on how to access those documents over the Internet, as well as instructions on how to request a paper copy of our proxy materials. All stockholders who do not receive a Notice should receive a paper copy of the proxy materials by mail. We believe that the Notice process will allow us to provide you with the information you need in a timelier manner, will save us the cost of printing and mailing documents to you, and will conserve natural resources.

 

We value your opinions and encourage you to participate in this year’s Annual Meeting by voting your proxy. You may vote by Internet or by telephone using the instructions on the Notice, or, if you received a paper copy of the proxy card, by signing and returning it in the envelope provided. You may also attend and vote at the Annual Meeting.

 

Very truly yours,

 

 

JAMES T. HACKETT

Chairman of the Board, President and

Chief Executive Officer

 

P. O. Box 1330

Houston, Texas 77251-1330

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

The Annual Meeting of Stockholders of Anadarko Petroleum Corporation will be held at The Woodlands Waterway Marriott Hotel and Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas, 77380 on Tuesday, May 19, 2009, at 8:00 a.m. (Central Daylight Time) to consider the following proposals:

 

(1) elect four directors;

 

(2) ratify the appointment of KPMG LLP as the Company’s independent auditor for 2009;

 

(3) approve an amendment to the Company’s Restated Certificate of Incorporation, as amended, to provide for the annual election of directors;

 

(4) if presented, vote on one stockholder proposal; and

 

(5) transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

 

If you are a record holder of common stock at the close of business on March 25, 2009, the record date, then you are entitled to receive notice of and to vote at the Annual Meeting.

 

Please take the time to vote by following the Internet or telephone voting instructions provided. If you received a paper copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement.

 

As a stockholder, your vote is very important and the Company’s Board of Directors strongly encourages you to exercise your right to vote.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

 

David L. Siddall

Vice President, Deputy General Counsel, and

Corporate Secretary

 

March XX, 2009

The Woodlands, Texas

 

 

Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to be Held on May 19, 2009:
The Proxy Statement and Annual Report for 2008 are available at
http://bnymellon.mobular.net/bnymellon/apc.

TABLE OF CONTENTS

 

 

P. O. Box 1330

Houston, Texas 77251-1330

 

 

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

 

We are furnishing you this proxy statement in connection with the solicitation of proxies by our Board of Directors to be voted at the Annual Meeting of Stockholders of Anadarko Petroleum Corporation, sometimes referred to as the Company, Anadarko, our, us or we. The Annual Meeting will be held on Tuesday, May 19, 2009. The proxy materials, including this proxy statement, proxy card or voting instructions and our 2008 annual report are being distributed and made available on or about April XX, 2009.

 

In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission (SEC), we have elected to provide our stockholders access to our proxy materials on the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials (Notice) was mailed to most of our stockholders on or about April XX, 2009. Stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of the proxy materials to be sent to them, by following the instructions in the Notice.

 

The Notice also provides instructions on how to inform us to send future proxy materials to you electronically by e-mail or in printed form by mail. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail or printed form will remain in effect until you terminate it.

 

Choosing to receive future proxy materials by e-mail will allow us to provide you with the information you need in a timelier manner, save us the cost of printing and mailing documents to you, and conserve natural resources.

 

Where and when is the Annual Meeting?

 

The Annual Meeting will be at The Woodlands Waterway Marriott Hotel and Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas, 77380, on Tuesday, May 19, 2009, at 8:00 a.m. (Central Daylight Time).

 

Who may vote?

 

You may vote if you were the record holder of Anadarko common stock as of the close of business on March 25, 2009, the record date for the Annual Meeting. Each share of Anadarko common stock is entitled to one vote at the Annual Meeting. On the record date, there were XXX,XXX,XXX shares of common stock outstanding and entitled to vote at the Annual Meeting.

May I attend the Annual Meeting?

 

Yes. Attendance is limited to stockholders of record as of the record date for the Annual Meeting. Admission will be on a first-come, first-served basis. You may be asked to present valid picture identification, such as a driver’s license or passport. If your stock is held in the name of a bank, broker, or other holder of record and you plan to attend the Annual Meeting, you must present proof of your ownership of Company stock, such as a current bank or brokerage account statement reflecting ownership as of the record date for the Annual Meeting, to be admitted. Cameras, recording devices, cell phones and other electronic devices will not be permitted at the Annual Meeting.

 

Why did I receive a Notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

 

In connection with SEC rules that allow companies to furnish their proxy materials over the Internet, we have sent to most of our stockholders a Notice instead of a paper copy of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the Notice. In addition, stockholders may request to receive future proxy materials in printed form by mail or electronically by e-mail. A stockholder’s election to receive proxy materials by mail or e-mail will remain in effect until the stockholder terminates it.

 

Why didn’t I receive a Notice in the mail regarding the Internet availability of proxy materials?

 

Anadarko is providing certain stockholders, including those who have previously requested to receive paper copies of the proxy materials, with paper copies of the proxy materials instead of a Notice. If you would like to reduce the costs incurred by Anadarko in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions provided with your proxy materials and on your proxy card or voting instruction card to vote using the Internet. When prompted, indicate that you agree to receive or access stockholder communications electronically in the future.

 

Can I vote my stock by filling out and returning the Notice?

 

No. The Notice will, however, provide instructions on how to vote by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the Annual Meeting.

 

How can I access the proxy materials over the Internet?

 

Your Notice or proxy card will contain instructions on how to view our proxy materials for the Annual Meeting on the Internet. Our proxy materials are also available at http://bnymellon.mobular.net/bnymellon/apc.

 

What am I voting on?

 

You are voting on:

 

 

How does the Board recommend that I vote?

 

The Board recommends that you vote:

 

 

Why should I vote?

 

Your vote is very important regardless of the amount of stock you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the Company.

 

How do I vote?

 

You may vote by any of the following four methods:

 

 

The Board recommends that you vote using one of the first three methods discussed above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. Using one of the first three methods discussed above to vote will not limit your right to vote at the Annual Meeting if you later decide to attend in person. If your stock is held in street name (e.g., held in the name of a bank, broker, or other holder of record), you must obtain a proxy, executed in your favor from your bank, broker or other holder of record to be able to vote at the Annual Meeting.

 

If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card?

 

No.

 

If I vote by mail, telephone or Internet, may I still attend the Annual Meeting?

 

Yes.

Can I change my vote?

 

If you are a stockholder of record, you may revoke your proxy at any time before the voting polls are closed at the Annual Meeting, by the following methods:

 

 

If you are a street name stockholder and you vote by proxy, you may later revoke your proxy by informing the holder of record in accordance with that entity’s procedures.

 

How many votes must be present to hold the Annual Meeting?

 

Your stock is counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. In order for us to hold our Annual Meeting, holders of a majority of our common stock entitled to vote must be present in person or by proxy at the Annual Meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted as present for purposes of determining a quorum.

 

What is a broker non-vote?

 

The New York Stock Exchange (NYSE) permits brokers to vote their customers’ stock held in street name on routine matters when the brokers have not received voting instructions from their customers. Brokers may not vote their customers’ stock held in street name on non-routine matters unless they have received voting instructions from their customers. Non-voted stock on non-routine matters are called broker non-votes.

 

What routine matters will be voted on at the Annual Meeting?

 

The election of directors and the ratification of the independent auditor are routine matters on which brokers may vote in their discretion on behalf of customers who have not provided voting instructions.

 

What non-routine matters will be voted on at the Annual Meeting?

 

The proposal to amend the Company’s Restated Certificate of Incorporation and the stockholder proposal, if presented, are non-routine matters on which brokers are not allowed to vote unless they have received voting instructions from their customers.

 

How many votes are needed to approve each of the proposals?

 

The election of each director requires the affirmative vote of a majority of the votes cast for such director. Under our By-Laws, a majority of votes are cast for the election of a director if the number of votes cast “for” the director exceeds the number of votes cast “against” the director. For this purpose, abstentions are not counted as a vote cast either “for” or “against” the director.

 

The ratification of the independent auditor requires the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting. Abstentions will have the same effect as votes cast “against” the proposal.

 

The approval of the amendment to the Company’s Restated Certificate of Incorporation, as amended, to provide for the annual election of directors requires the affirmative vote of not less than 80% of the votes entitled to be cast by the holders of all of the then outstanding shares as of the record date. For this purpose, abstentions and broker non-votes will have the same effect as votes cast “against” the amendment.

The approval of the stockholder proposal, if presented, requires the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting. For this purpose, abstentions and broker non-votes will have the same effect as votes cast “against” the proposal.

 

Could other matters be decided at the Annual Meeting?

 

We are not aware of any matters that will be considered at the Annual Meeting other than those set forth in this proxy statement. However, if any other matters arise at the Annual Meeting, the person named in your proxy will vote in accordance with their best judgment.

 

Where can I find the voting results of the Annual Meeting?

 

We will announce preliminary voting results at the Annual Meeting, and we will publish the final results in our quarterly report on Form 10-Q for the second quarter of 2009. You may access or obtain a copy of this and other reports free of charge on the Company’s website at www.anadarko.com, or by contacting our investor relations department at investor@anadarko.com.

 

How can I view the stockholder list?

 

A complete list of stockholders entitled to vote at the Annual Meeting will be available for viewing during ordinary business hours for a period of ten days before the Annual Meeting at our offices at 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046.

 

Who pays for the proxy solicitation related to the Annual Meeting?

 

We do. In addition to sending you these materials or otherwise providing you access to these materials, some of our directors and officers as well as management and non-management employees may contact you by telephone, mail, e-mail or in person. You may also be solicited by means of press releases issued by Anadarko, postings on our web site (www.anadarko.com), advertisements in periodicals, or other media forms. None of our officers or employees will receive any extra compensation for soliciting you. We have retained Morrow & Co., LLC, 470 West Ave., Stamford, CT 06902, to assist us in soliciting your proxy for an estimated fee of $7,500, plus reasonable out-of-pocket expenses. Morrow will ask brokers and other custodians and nominees whether other persons are beneficial owners of Anadarko common stock. If so, we will supply them with additional copies of the proxy materials for distribution to the beneficial owners. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the proxy materials to the beneficial owners of Anadarko common stock.

 

If I want to submit a stockholder proposal or nominate a director for the 2010 Annual Meeting, when is that proposal or nomination due?

 

If you are an eligible stockholder and want to submit a proposal for possible inclusion in the proxy statement relating to the 2010 Annual Meeting, your proposal must be delivered to the attention of our Corporate Secretary and must be received at our 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 offices no later than December XX, 2009. We will only consider proposals that meet the requirements of the applicable rules of the SEC and our By-Laws. Similarly, if you wish to nominate an individual for election to our Board of Directors, our By-Laws provide that you must provide your nomination in writing to our Corporate Secretary no later than the close of business on February 18, 2010 and no earlier than the close of business on January 19, 2010.

 

How can I obtain a copy of the Annual Report on Form 10-K?

 

Stockholders may request a free copy of our Annual Report on Form 10-K by submitting such request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046. Alternatively, stockholders can access our Annual Report on Form 10-K on Anadarko’s website at www.anadarko.com.

Will I get more than one copy of the proxy statement, annual report or Notice if there are multiple stockholders at my address?

 

In some cases, only one copy of this proxy statement, annual report or Notice is being delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. We will deliver promptly, upon a written or oral request, a separate copy of this proxy statement, annual report or Notice to a stockholder at a shared address to which a single copy of the document was delivered. Stockholders sharing an address may also submit requests for delivery of a single copy of the proxy statement, annual report or Notice. To request separate or single delivery of these materials now or in the future, a stockholder may submit a written request to the Corporate Secretary, Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380-1046 or a stockholder may make a request by calling the Corporate Secretary at (832) 636-1000, or by contacting our transfer agent, BNY Mellon Shareowner Services, at BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA 15252-8015.

 

The Board of Directors of Anadarko is divided into three classes of directors for purposes of election. One class of directors is elected at each Annual Meeting of stockholders to serve for a three-year term. All of the director nominees listed below are current directors of the Company.

 

At the Annual Meeting, the terms of four directors will expire. All four of the directors have been nominated and, if elected at this Annual Meeting, will hold office until the expiration of each of their terms in 2012. Those current directors not up for election this year will continue in office for the remainder of their terms. If the proposal to amend the Company’s Restated Certificate of Incorporation, as amended, to provide for the annual election of directors is approved, all directors will be elected annually beginning at the 2012 annual meeting.

 

If a nominee is unavailable for election, then the proxies will be voted for the election of another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.

 

Our By-Laws provide for the election of directors by the majority vote of stockholders in uncontested elections. This means the number of votes cast “for” a nominee’s election must exceed the number of votes cast “against” such nominee’s election in order for him or her to be elected to the Board of Directors. In addition, each nominee is required to provide an irrevocable letter of resignation that states that he or she will resign if that director does not receive the required majority vote. In the event a director fails to receive a majority of votes cast and the Board of Directors accepts the resignation tendered, then that director would cease to be a director of Anadarko. Each of the nominees named below has submitted an irrevocable letter of resignation that becomes effective in the event he or she does not receive a majority of the votes cast for his or her election and the Board of Directors decides to accept such resignation.

 

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW.

 

Directors Nominated this Year by the Board of Directors for Terms Expiring in 2012

 

Robert J. Allison, Jr. (70) — Mr. Allison has been Chairman Emeritus of the Board of the Company since January 2006 and a director since 1985. He was Chairman of the Board from 1986 until December 2005, and served as Chief Executive Officer of the Company from 1986 until January 2002, and from March 2003 until December 2003. Mr. Allison is also a director of Freeport-McMoRan Copper & Gold Inc.

 

Peter J. Fluor (61) — Mr. Fluor has been Chairman and CEO of Texas Crude Energy, Inc., a private, independent oil and gas exploration company located in Houston, Texas, since 1990. He has been employed by Texas Crude Energy, Inc. since 1972 and took over the responsibilities of President in 1980. Mr. Fluor serves as lead director of Fluor Corporation, is a director of Cameron International Corporation and a director of The Welch Foundation. Mr. Fluor has been a director of the Company since August 2007.

 

John W. Poduska, Sr. (71) — Mr. Poduska is a retired business executive. He was Chairman of Advanced Visual Systems, Inc., a provider of visualization software, from 1992 until 2002. Mr. Poduska is a director of Novell, Inc. and Safeguard Scientific, Inc. He was a director of Union Pacific Resources Group, Inc. from 1995 until 2000. Mr. Poduska has been a director of the Company since 2000.

 

Paula Rosput Reynolds (52) — Ms. Reynolds is Vice Chairman and Chief Restructuring Officer of American International Group Inc., an insurance and financial services company located in New York, New York. Prior to her appointment to this position in October 2008, she served as President and CEO of Safeco Corporation (Safeco), a property and casualty insurance company located in Seattle, Washington, until its acquisition by Liberty Mutual Group in September 2008. Prior to joining Safeco in January 2006, she served as Chairman, President and CEO of AGL Resources Inc., a regional energy services holding company from August 2002 to December 2005. Ms. Reynolds also previously served as President and CEO of Houston-based

Duke Energy North America, a subsidiary of Duke Energy, which operated power-generating facilities across the United States, and as Senior Vice President of Pacific Gas Transmission Company, which owned and operated a major natural gas pipeline in the Pacific Northwest. She is also a director of Delta Air Lines, Inc. Ms. Reynolds has been a director of the Company since August 2007.

 

Continuing Directors with Terms Expiring in 2010

 

Larry Barcus (71) — Since January 2008, Mr. Barcus has served as Vice Chairman of L.G. Barcus and Sons, Inc., a general contractor, located in Kansas City, Kansas with operations nationwide. He had previously served as Chairman from 1990 to January 2008. He also served as Chairman of First Community Bancshares and Chairman of First Community Bank, both banking institutions, from 1995 to January 2007. Mr. Barcus has been a director of the Company since 1986.

 

H. Paulett Eberhart (55) — Ms. Eberhart is an independent business consultant. She served as President and Chief Executive Officer of Invensys Process Systems, a process automation company, from January 2007 to January 2009. From 2003 until March 2004, Ms. Eberhart was President of Americas of Electronic Data Systems Corporation (EDS), an information technology and business process outsourcing company. From 2002 to 2003, she was Senior Vice President of EDS and President of Solutions Consulting. She was also a member of the Executive Operations Team and Investment Committee of EDS. Ms. Eberhart was an employee of EDS from 1978 to 2004. Ms. Eberhart is a Certified Public Accountant. Ms. Eberhart also serves as a director of Advanced Micro Devices, Inc. Ms. Eberhart has been a director of the Company since August 2004.

 

James T. Hackett (55) — Mr. Hackett was named President and Chief Executive Officer and a director of the Company in December 2003 and Chairman of the Board of the Company in January 2006. Prior to joining the Company, Mr. Hackett was the Chief Operating Officer of Devon Energy Corporation (Devon) from April 2003 to December 2003, following Devon’s merger with Ocean Energy, Inc. Mr. Hackett was President and Chief Executive Officer of Ocean Energy, Inc. from March 1999 to April 2003 and was Chairman of the Board from January 2000 to April 2003. He currently serves as a director of Fluor Corporation and Halliburton Company and serves as Chairman of the Board of the Federal Reserve Bank of Dallas.

 

Continuing Directors with Terms Expiring in 2011

 

John R. Butler, Jr. (70) — Since 1976, Mr. Butler has been Chairman of J. R. Butler and Company, a reservoir engineering company located in Houston, Texas. Since August 2006, Mr. Butler has served as a director of BreitBurn Energy Partners L.P., a publicly-traded upstream master limited partnership, and also serves as a director of the Houston chapter of the National Association of Corporate Directors. He is currently a member of the Society of Petroleum Evaluation Engineers. Mr. Butler has been a director of the Company since 1996.

 

Luke R. Corbett (62) — Mr. Corbett has been a retired business executive since Kerr-McGee Corporation’s (Kerr-McGee) merger with Anadarko in August 2006. He served as Chairman and Chief Executive Officer of Kerr-McGee from 1999 until August 2006. Mr. Corbett had been with Kerr-McGee since 1985 when he joined the company’s Exploration and Production Division as vice president of geophysics. In subsequent years, he held a wide array of senior executive positions with Kerr-McGee. Mr. Corbett also serves on the boards of OGE Energy Corporation and Noble Corporation. Mr. Corbett has been a director of the Company since August 2006.

 

John R. Gordon (60) — Mr. Gordon is Senior Managing Director of Deltec Asset Management LLC, an investment firm located in New York, New York. He was President of Deltec Securities Corporation from 1988 until it was converted into Deltec Asset Management LLC. Mr. Gordon has been a director of the Company since 1988.

 

Our Board of Directors recognizes that excellence in corporate governance is essential in carrying out its responsibilities to our stakeholders, including our stockholders, employees, customers, communities, creditors, and the environment. Our Corporate Governance Guidelines, Corporate By-Laws, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, and written charters for the Audit Committee, the Compensation and Benefits Committee (Compensation Committee), the Nominating and Corporate Governance Committee, all as amended from time to time, can be found on the Company’s web site at http://www.anadarko.com/About/Pages/Governance.aspx. These documents provide the framework for our corporate governance. Any of these documents will be furnished in print free of charge to any stockholder who requests one or more of them. You can submit such a request to the Corporate Secretary. Furthermore, we have implemented the director majority voting standard in uncontested director elections, including the election of our directors at the Annual Meeting.

 

Each director that has served on our Board during 2008 has attended at least 75 percent of the meetings of the Board and of each committee on which he or she served, except for Mr. Corbett who attended 71% of the Board meetings due in part to an emergency surgery. There were seven Board meetings and 22 Board committee meetings in 2008. In addition, all of the directors attended the 2008 Annual Meeting of Stockholders. Under the Company’s Corporate Governance Guidelines, directors are expected to attend regularly scheduled Board of Director meetings and meetings of committees on which they serve, as well as the Annual Meeting of Stockholders.

 

Committees of the Board

 

The Board of Directors has four standing committees:  (i) the Audit Committee, (ii) the Compensation and Benefits Committee, (iii) the Nominating and Corporate Governance Committee, and (iv) the Executive Committee. In addition, the Board of Directors designates special committees from time to time to address certain significant matters on behalf of the Board of Directors. In August 2007, the Board designated a Master Limited Partnership, or MLP, Special Committee to handle certain Board matters related to the creation and initial public offering of our midstream MLP, which occurred in May 2008. The MLP Special Committee had a term of one year, which expired in August 2008.

 

James L. Bryan, who served as one of our independent directors during 2008, also served on the Compensation and Benefits Committee and the Nominating and Corporate Governance Committee until his retirement from the Board of Directors on December 31, 2008.

For each of the current committees of the Board, the table below shows the current membership, the principal functions and the number of meetings held in 2008:

 

 

 

 

Board of Directors

 

Director Independence

 

In accordance with NYSE rules, the Sarbanes-Oxley Act, the Exchange Act and the rules of the SEC adopted thereunder, and the Company’s Corporate Governance Guidelines, the Board must affirmatively determine the independence of each director and director nominee in accordance with the Company’s director independence standards, which are contained in the Company’s Corporate Governance Guidelines found on the Company’s web site at http://www.anadarko.com/About/Pages/Governance.aspx.

 

Based on the standards contained in our Corporate Governance Guidelines, and the recommendation by the Nominating and Corporate Governance Committee, the Board of Directors has determined that each of the following non-employee directors are independent and have no material relationship with the Company that could impair such director’s independence:

 

•   Larry Barcus		•   H. Paulett Eberhart
•   John R. Butler, Jr.		•   John W. Poduska, Sr.
•   Peter J. Fluor		•   Paula Rosput Reynolds
•   John R. Gordon

 

In addition, the Board has affirmatively determined that: (a) Mr. Hackett is not independent because he is the President and Chief Executive Officer of the Company; (b) Mr. Corbett is not independent because of his change of control agreement with Kerr-McGee Corporation, under which he receives continuation of medical benefits through August 2009; and (c) Mr. Allison is not independent because he had been an executive officer of Anadarko for many years and, as part of his retirement package, the Company will continue to provide him use of the Company’s aircraft, office space, secretarial assistance and a monitored residential security system during his lifetime.

 

With respect to Mr. Butler, the Board specifically considered that Mr. Butler’s son-in-law is a non-executive employee of the Company. The Board determined that this does not impact Mr. Butler’s independence. With respect to Mr. Fluor, the Board specifically considered that Mr. Fluor’s daughter is a non-executive employee of the Company. The Board determined that this does not impact Mr. Fluor’s independence. Ms. Eberhart, a director of the Company, was President and CEO of Invensys Process Systems, Inc. (Invensys) from January 2007 to January 2009. In 2008, Anadarko paid Invensys approximately $151,000 in connection with these services. This amount is less than 1% of Invensys’s consolidated gross revenues for its fiscal year ended March 31, 2008. The Board specifically considered that Invensys and its affiliates provide the Company with process automation services and determined that those services do not impact Ms. Eberhart’s independence. The Board also considered that Ms. Reynolds is currently Vice Chairman and Chief Restructuring Officer at American International Group Inc. (AIG), with which the Company maintains certain insurance policies. In 2008, the Company paid AIG an estimated $1.7 million in premiums for various insurance policies with an estimated aggregate limit of $185 million. Ms. Reynolds received no salary or bonus from AIG in 2008, and her current compensation is not tied in any respect to business with the Company or its affiliates. Finally, the Board specifically considered that Puget Sound Energy, Inc. (Puget) and its affiliates engage in gas purchases with the Company and its affiliates. Ms. Reynolds is married to Mr. Stephen P. Reynolds, who currently serves as Chairman, President and CEO of Puget. In 2008, Anadarko paid Puget approximately $448,000 in connection with such gas purchases. This amount is less than 1% of Puget’s consolidated gross revenues for its fiscal year ended December 31, 2008. The Board determined that these relationships do not impact Ms. Reynolds’ independence.

 

For information regarding our policy on Transactions with Related Persons, please see page 56 of this proxy statement.

 

Selection of Directors

 

The Company’s Corporate Governance Guidelines require that, with respect to Board vacancies, the Nominating and Corporate Governance Committee: (a) identify the personal characteristics needed in a

director nominee so that the Board will possess the qualifications of the Board as a whole as these qualifications are set forth in the Corporate Governance Guidelines; (b) compile, through such means as the Committee considers appropriate, a list of potential director nominees thought to possess the individual qualifications identified in the Corporate Governance Guidelines; (c) may engage an outside consultant to assist in the search for nominees and to conduct background investigations on all nominees regardless of how nominated; (d) review the resume of each nominee; (e) conduct interviews with the nominees meeting the desired set of qualifications; (f) following interviews, compile a short list of nominees (which, at the discretion of the Committee, may consist of a single individual) who may meet, at a minimum, with the Chairman of the Board, the Chief Executive Officer and the Chairperson of the Nominating and Corporate Governance Committee and/or the Lead Director; and (g) evaluate the nominee(s) in relation to the culture of the Company and the Board and its needs.

 

Annual Evaluations

 

The Board and each of the independent committees have conducted self-evaluations related to their performance in 2008. The performance evaluations were supervised by the Nominating and Corporate Governance Committee and discussed by the applicable committee and the Board. The Board and each committee have implemented any necessary changes as a result of these evaluations.

 

Communication with the Directors of the Company

 

The Board of Directors welcomes questions or comments about the Company and its operations. Interested parties may contact the Board of Directors, including the Lead Director or any individual director, at nominating_governance@apcdirector.com or at Anadarko Petroleum Corporation, Attn: Corporate Secretary, 1201 Lake Robbins Drive, The Woodlands, Texas, 77380-1046. Any questions or comments will be kept confidential to the extent reasonably possible, if requested. These procedures may change from time to time, and you are encouraged to visit our website for the most current means of contacting our directors. If you wish to request copies of any of our governance documents, please see page 9 of this proxy statement for instructions on how to obtain them.

 

Stockholder Participation in the Selection of Director Nominees

 

The Nominating and Corporate Governance Committee did not receive any names of individuals suggested for nomination to the Company’s Board of Directors by its stockholders during the past year. However, the Board will consider individuals identified by stockholders on the same basis as nominees identified from other sources. To nominate a director, a stockholder must follow the procedures described in the Company’s By-Laws, which require that the stockholder give written notice to the Company’s Corporate Secretary at the Company’s principal executive offices. The notice to the Corporate Secretary must include the following:

 

 

 

 

 

Nominations must be received no earlier than the close of business on the 120th day prior to, and no later than the close of business on the 90th day prior to, the first anniversary of our last Annual Meeting, or, if the nomination is with respect to a special meeting, not earlier than the close of business on the 120th day prior to, and no later than the close of business on the 90th day prior to, such special meeting. For more information on stockholder participation in the selection of director nominees, please refer to that section in our Corporate Governance Guidelines and our By-Laws, which are posted on the Company’s web site at http://www.anadarko.com/About/Pages/Governance.aspx.

 

Directors’ Continuing Education

 

The Company’s Director Education Policy encourages all members of the Board of Directors to attend director education programs appropriate to their individual backgrounds to stay abreast of developments in corporate governance and “best practices” relevant to their contribution to the Board of Directors as well as their responsibilities in their specific committee assignments. The Director Education Policy provides that the Company will reimburse the Board of Directors for all costs associated with attending any director education program.

Lead Director at the Non-Employee Directors’ Executive Sessions

 

The Board of Directors has elected Mr. Gordon as its Lead Director. As Lead Director, Mr. Gordon’s role is to aid and assist the Chairman and the remainder of the Board of Directors in assuring effective corporate governance in managing the affairs of the Board of Directors and the Company.

 

Additionally, Mr. Gordon presides at executive sessions of the non-employee directors. Executive sessions are held after each regularly scheduled quarterly meeting of the Board of Directors and at any other board meetings as requested by the directors. Mr. Gordon is also a member of the Executive Committee of the Board, providing additional representation for the independent directors in any actions taken by the Executive Committee between Board meetings.

 

Compensation and Benefits Committee Interlocks and Insider Participation

 

The Compensation Committee is made up of three independent, non-employee directors, Messrs. Fluor, Gordon and Poduska. Mr. Bryan, then an independent, non-employee director, also served on this committee until his retirement on December 31, 2008. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors or our Compensation Committee.

 

Director Compensation

 

Non-employee directors receive a combination of cash and stock-based compensation designed to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Board considers the significant amount of time that directors spend in fulfilling their duties to the Company and its stockholders as well as the skill level required by the Company’s Board members. The Compensation Committee is responsible for determining the type and amount of compensation for non-employee directors. The Compensation Committee directly retained Hewitt Associates LLC in 2008 as its independent consultant to assist in the annual review of director compensation by providing benchmark compensation data and recommendations for program design.

 

Retainer and Meeting Fees.  Non-employee directors receive the following compensation related to retainers and meeting fees:

 

(1) an annual retainer of $50,000;

 

(2) an annual committee membership retainer of $6,000 for each director who serves on the Audit Committee;

 

(3) an annual committee membership retainer of $3,000 for each committee on which the director serves (except for members of the Audit Committee and the MLP Special Committee);

 

(4) an annual retainer of $15,000 for serving as the chairperson of the Compensation Committee or the Nominating and Corporate Governance Committee, an annual retainer of $25,000 for serving as Audit Committee chairperson, an annual retainer of $25,000 for serving as Lead Director;

 

(5) a fee of $2,000 for each Board meeting attended, plus expenses related to attendance; and

 

(6) a fee of $2,000 for each Board committee meeting attended, plus expenses related to attendance.

 

Members of the MLP Special Committee received only meeting fees and no other special retainer fees for their service on that committee.

 

Stock Plan for Non-employee Directors.  At the 2008 Annual Meeting, the stockholders approved the Anadarko Petroleum Corporation 2008 Director Compensation Plan, which replaced the 1998 Director Stock Plan. The 1998 Director Stock Plan has been terminated and no further awards will be made under that plan. Stock-based awards made to non-employee directors are made pursuant to the 2008 Director Compensation Plan. In addition to the retainer and meeting fee compensation, non-employee directors receive annual equity grants. Equity grants to non-employee directors are automatically awarded each year on the date of the

Company’s annual stockholder meeting. For 2008, each non-employee director received an annual equity grant with a value targeted at approximately $200,000, with 65% of the value delivered in deferred shares and 35% delivered in stock options. The deferred shares will be distributed to the director only when he or she ceases to serve as a director. The stock options vest one year from the date of grant and expire ten years from the date of grant.

 

Non-employee directors may elect to receive their retainer and meeting fees in cash, common stock, deferred common stock, or deferred cash under the Deferred Compensation Program described below, or any combination of the foregoing. Receipt of compensation in the form of common stock or deferred common stock provides non-employee directors the opportunity to increase their personal ownership in the Company and comply with the established director stock ownership guidelines that require directors to hold stock equivalent to three times the annual Board retainer. Directors have three years from the date of their initial election to the Board to comply with the guidelines. All non-employee directors currently exceed the Company’s stock ownership guidelines. This option also provides the directors a method to invest in the Company as a stockholder and aligns their interests with the stockholders of the Company. The amount of stock issued to directors for payment in lieu of their cash fees is determined at the end of the quarter for which compensation is earned, and is calculated by dividing the closing stock price of the Company’s common stock on the date of grant into the applicable fee for that period.

 

Deferred Compensation Program for Non-employee Directors.  Non-employee directors are eligible to participate in the Company’s Deferred Compensation Plan, which allows directors to defer receipt of up to 100% of their Board and committee retainers and/or Board and committee meeting fees. The Deferred Compensation Plan permits participants to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds. The interest rate earned on the deferred amounts is not above-market or preferential. In general, deferred amounts are distributed to the participant upon termination or at a specific date as elected by the participant. Mr. Fluor and Ms. Reynolds are the only directors who elected to defer compensation during 2008.

 

Other Compensation.  Non-employee directors are covered under the Company’s Accidental Death & Dismemberment Plan and the Company pays the annual premium for such coverage on behalf of each director. The Company also provides each director with Personal Excess Liability coverage and pays the annual premium on their behalf.

 

In November 2008, in consideration of Mr. Bryan’s 22 years of service to the Company’s Board of Directors, the Compensation Committee approved the accelerated vesting of all of Mr. Bryan’s outstanding unvested stock options effective with his retirement from the Board of Directors on December 31, 2008, and determined that Mr. Bryan would have 24 months from his retirement date to exercise such vested stock options unless such stock options expire earlier by their own terms. With this approval, the vesting restrictions on 2,250 non-qualified stock options awarded to Mr. Bryan on May 20, 2008 were accelerated to December 31, 2008. These awards were originally subject to a one-year vesting term and, under the provisions of his award agreement, would have otherwise been forfeited by Mr. Bryan upon his retirement from the Board.

Director Compensation Table for 2008

 

The following table sets forth information concerning total director compensation earned during the 2008 fiscal year by each non-employee director:

 

 

 

 

The following table contains the grant date fair value of stock option and deferred stock awards made to each non-employee director, as indicated, during 2008.

 

 

 

 

The information provided below summarizes the beneficial ownership of executive officers and directors of the Company and owners of more than 5% of outstanding common stock. “Beneficial ownership” generally includes those shares of common stock held by someone who has investment and/or voting authority of such shares or has the right to acquire such common stock within 60 days. The ownership includes common stock that is held directly and also stock held indirectly through a relationship, a position as a trustee or under a contract or understanding.

 

Directors and Executive Officers

 

The following table sets forth, as of March 3, 2009, the number and percentage of Anadarko common stock beneficially owned by the directors and executive officers of the Company.

 

 

 

 

Certain Beneficial Owners

 

The following table shows the beneficial owner of more than five percent of the Company’s common stock as of December 31, 2008 based on information available as of February 13, 2009.

 

 

 

 

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC and any exchange or other system on which such securities are traded or quoted, initial reports of ownership and reports of changes in ownership of the Company’s common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by the SEC’s regulations to furnish the Company and any exchange or other system on which such securities are traded or quoted with copies of all Section 16(a) forms they filed with the SEC.

 

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that all reporting obligations of the Company’s officers, directors and greater than ten percent stockholders under Section 16(a) were satisfied during the year ended December 31, 2008, except that (i) in February 2008, a late Form 4 was filed for Robert P. Daniels relating to a gift of 100 shares of Company common stock in August 2006, and (ii) in December 2008, Mr. Corbett had six transactions that were reported on one late Form 4 because the securities transactions were conducted by a money manager without Mr. Corbett’s knowledge.

 

The following report of the Audit Committee of the Company shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

The Audit Committee of the Board is responsible for independent, objective oversight of the Company’s accounting functions and internal controls over financial reporting. The Audit Committee is composed of four directors, each of whom is independent as defined by the NYSE listing standards. The Audit Committee operates under a written charter approved by the Board of Directors.

 

Management is responsible for the Company’s internal controls over financial reporting. The independent auditor is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards in the United States of America and issuing a report thereon. The independent auditor is also responsible for performing independent audits of the Company’s internal controls over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes.

 

KPMG LLP served as the Company’s independent auditor during 2008 and was appointed by the Audit Committee to serve in that capacity for 2009 (and we are seeking ratification by the Company’s stockholders at this Annual meeting of such appointment). KPMG LLP has served as the Company’s independent auditor since its initial public offering in 1986.

 

In connection with these responsibilities, the Audit Committee met with management and the independent auditor to review and discuss the December 31, 2008 financial statements and matters related to Section 404 of the Sarbanes-Oxley Act of 2002. The Audit Committee also discussed with the independent auditor the matters required by Statement on Auditing Standards No. 61 (Communication with Audit Committees).

 

The Audit Committee also received written disclosures from the independent auditor required by Public Company Accounting Oversight Board Rule 3526 regarding the independent auditor’s communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent auditor that firm’s independence.

 

Based upon the Audit Committee’s review and discussions with management and the independent auditor, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC.

 

THE AUDIT COMMITTEE
H. Paulett Eberhart, Chairperson
Larry Barcus
John R. Butler, Jr.
Paula Rosput Reynolds

 

The Compensation Committee, the members of which are listed below, is responsible for establishing and administering the executive compensation programs of the Company. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE COMPENSATION AND BENEFITS COMMITTEE

 

John W. Poduska, Sr., Chairman
Peter J. Fluor
John R. Gordon

 

This Compensation Discussion and Analysis focuses on the following:

 

 

Executive Summary

 

The Company delivered very strong operational and financial performance for 2008, despite significant weather events (such as hurricanes), third-party-related export pipeline issues, unforeseen declines in commodity prices and the collapse of the global capital markets. The first half of 2008 consisted of record high commodity prices and a highly competitive market for executive talent in the energy industry. During the last part of the year and continuing into 2009, we have been faced with commodity prices that are less than one-third of the highs found in early 2008. However, the competition remains tight for executives who possess the knowledge and leadership skills necessary to guide us through these unprecedented times and maximize value to our stockholders.

 

During this period, the Compensation Committee has continued to review its executive compensation philosophy to ensure that it provides appropriate incentive and reward in this environment based upon its pay-for-performance objectives. As more fully described below, the executive compensation programs that were in place during 2008 operated as intended when initially designed and implemented. For example, based on the relative share price performance against peers, no payout was earned on the performance units that vested at the end of 2008. In addition, an annual incentive plan performance score of 174% of target was achieved due to very strong operating performance, including substantial reserve growth (before price revisions and divestitures), good management of capital allocation, successful cost inflation management, our aggressive response to production challenges in the Gulf of Mexico, and an outstanding commitment to the safety of our employees. Due to a disciplined debt reduction effort and our operational successes, management has strengthened the Company’s position for the current uncertain volatile industry concerns and enabled a focus on future growth. We attribute a meaningful portion of this success to the incentive programs that were designed to pay for performance and to more closely align our executives’ interests with those of our stockholders.

 

As the Company moves forward into 2009, the Compensation Committee understands the uncertain environment and the potential challenges that it creates with respect to executive compensation. The Committee will continue to monitor trends and developments to ensure that the Company provides the appropriate executive compensation incentives and remains competitively positioned for executive talent. The Committee believes that the total compensation program does not encourage management to take excessive risks and serves the stockholders’ best interests: it features an appropriate balance of operating and financial performance measures, short- and long-term performance periods, significant stock ownership and extended vesting schedules. In combination, we believe that these elements tie our executives’ compensation to Anadarko’s sustained long-term performance.

 

How We Make Compensation Decisions

 

Philosophy

 

The Compensation Committee believes that:

 

 

 

  Design Principles

 

In support of this philosophy, Anadarko’s executive compensation programs are designed to adhere to the following principles:

 

 

Resources and Other Considerations Used in the Compensation Decision-Making Process

 

The Compensation Committee utilizes several different tools and resources in reviewing elements of executive compensation and making compensation decisions. These decisions, however, are not purely formulaic and the Compensation Committee exercises judgment and discretion in making them.

 

Compensation Consultant.  The Compensation Committee utilizes an independent executive compensation consultant to review executive compensation and benefit programs. In 2008, the Compensation Committee directly retained Hewitt Associates LLC, or Hewitt, as its outside compensation consultant. In this engagement, Hewitt reports directly and exclusively to the Compensation Committee; however, at the Compensation Committee’s direction, the consultant works directly with management to review or prepare materials for the Compensation Committee’s consideration. Hewitt attended all six Compensation Committee meetings in 2008. The Compensation Committee did not engage any consultant other than Hewitt during 2008 to provide executive compensation consulting services. The Compensation Committee’s engagement of Hewitt included the following services:

 

 

In 2008, Hewitt provided limited services to the Company not related to executive or director compensation, including employee communications and actuarial services. In early 2008, we retained a firm other than Hewitt to provide actuarial services in the United States on a go-forward basis and, in January 2009, we retained a firm other than Hewitt to provide the employee communications services on a go-forward basis.

Accordingly, Hewitt no longer performs any material services for us in the United States outside the scope of its engagement with the Compensation Committee; however, it provides actuarial services for our United Kingdom pension program. As part of Hewitt’s engagement agreement with the Compensation Committee, any significant new engagement between us and Hewitt is contingent upon notification to the Compensation Committee. The Compensation Committee reviews the engagement of its independent compensation consultant on an annual basis, and as part of that process reviews a summary of all services provided by Hewitt and related costs.

 

Benchmarking.  During 2008, the Compensation Committee conducted its annual benchmarking review of an industry peer group to use as a reference point for assessing competitive executive compensation data. This industry peer group consists of select oil and gas industry peer companies similar to us in size, scope and nature of business operations. The Compensation Committee also reviewed data from a broader group of companies, which consists of select companies from diverse industries that are similar to us in size (based primarily on annual revenues) but are not directly comparable to us. This data is used for gaining a general understanding of broader trends outside our industry, but is not used to benchmark our total executive compensation.

 

Our current industry peer group consists of the following companies:

 

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

 

Within the oil and gas industry, there are a very limited number of companies that closely resemble us in size, scope and nature of business operations. Our industry peer group contains companies in our industry that are both larger and smaller in scope and that may operate in related business segments in the industry in which we have no operations, such as refining. We compete with these companies for talent and believe the selected companies are currently the most appropriate with respect to executive compensation benchmarking. The differences and similarities between us and the companies in our industry peer group are taken into consideration when referencing benchmarks for executive compensation decisions. In 2008, Plains Exploration & Production Company was added to the industry peer group to replace EnCana Corporation, which had announced earlier in the year that it intended to split into two separate entities.

 

Tally Sheets.  To provide the Compensation Committee a single source for viewing the aggregate value of all material elements of executive compensation, “tally sheets” are created for each of our named executive officers on an annual basis. The tally sheets provide a snapshot of:

 

 

The Compensation Committee does not assign a weighting to the tally sheets in their overall decision-making process.

 

Role of CEO and/or Other Executive Officers in Determining Executive Compensation.  Our Chief Executive Officer, Mr. Hackett, provides recommendations to the Compensation Committee for each element of compensation for each of the executive officers other than himself. In forming his recommendations, he may seek input from other senior officers about their direct reports. The Compensation Committee, with input from Hewitt, determines each element of compensation for Mr. Hackett and, with input from Hewitt and Mr. Hackett, determines each element of compensation for the other executive officers. At the Compensation Committee’s request, our executive officers assess the design of, and make recommendations related to, our compensation and benefit programs, including recommendations related to the appropriate financial and non-

financial performance measures used in our incentive programs. Executive officers may also attend meetings at the invitation of the Compensation Committee.

 

Other Considerations.  In addition to the above resources, the Compensation Committee considers other factors when making compensation decisions, such as individual experience, individual performance, internal equity, development and/or succession status, and other individual or organizational circumstances. With respect to equity-based awards, the Compensation Committee also considers the cost of such awards, the impact on dilution, and the relative value of each element comprising total target executive compensation.

 

Stock Ownership Guidelines.  We have maintained stock ownership guidelines for executive officers since 1993 with the goal of promoting equity ownership and aligning our executive officers’ interests with our stockholders. Generally, these guidelines must be met within three years after becoming subject to them. The ownership guidelines are currently established at the following minimum levels:

 

 

 

 

The Compensation Committee reviews the stock ownership levels annually. In determining stock ownership levels, we include: shares of common stock held directly by the executive; shares of common stock held indirectly through our Employee Savings Plan; unvested restricted stock; unvested restricted stock units; and the target number of outstanding performance units that are structured to pay in shares of common stock. Outstanding unexercised stock options are not included. In addition, the Company has a policy that prohibits directors, officers or employees from engaging in short sales, transactions involving stock options or restricted stock, or other derivative-type transactions relating to our stock.

 

Regulatory Requirements.  Together with the Compensation Committee, we carefully review and take into account current tax, accounting and securities regulations as they relate to the design of our compensation programs and related decisions.

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, or the IRC, limits a company’s ability to deduct compensation paid in excess of $1 million during any fiscal year to each of certain named executive officers, unless the compensation is “performance-based” as defined under federal tax laws. Stock options, performance units and cash awards granted under our 2008 Omnibus Incentive Compensation Plan (Omnibus Plan) and our 1999 Stock Incentive Plan satisfy the performance-based requirements and, as such, are fully deductible. Because Mr. Hackett’s base salary is above $1 million, the portion of base salary in excess of $1 million is not deductible. Grants of restricted stock unit awards made in 2008 are not considered performance-based and the value of those awards is generally subject to the deductibility limitations under Section 162(m). In March 2008, the Compensation Committee approved a plan to qualify 2009 restricted stock and restricted stock unit grants as “performance-based” compensation under Section 162(m). The Compensation Committee is committed to providing compensation that qualifies as performance-based and is fully deductible. However, the Compensation Committee believes it is important to provide compensation that is not fully deductible when necessary to retain and motivate certain executive officers and when it is in our best interest and the best interest of our stockholders.

 

Section 409A of the IRC provides that all amounts deferred under a non-qualified deferred compensation plan are currently included in gross income, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. We have designed or amended our plans and programs to either be exempt from Section 409A or, if subject to Section 409A, to be in compliance with applicable regulations to properly allow deferral.

SFAS No. 123(R) requires the recognition of expense for the fair value of share-based payments. The statement became effective for us beginning January 1, 2006. We had previously adopted the fair value method of accounting for share-based payments effective January 1, 2003, using the “modified prospective method” described in SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123. Awards of stock options, performance units, restricted shares and restricted stock units under our Omnibus Plan and 1999 Stock Incentive Plan are accounted for under SFAS No. 123(R). The adoption of SFAS No. 123(R) did not have a material impact on our results of operations or financial position.

 

Clawback Provision.  Under the Omnibus Plan, which covers our annual incentive program awards and our equity-based awards, if the Company is required to prepare an accounting restatement as a result of material noncompliance, the Plan Administrator may determine that a Participant (as defined in the plan) who is deemed to have knowingly engaged in or failed to prevent misconduct giving rise to such a restatement will be required to reimburse the Company an amount equal to any Award (as defined in the plan) earned or accrued during the 12-month period following the first public issuance or filing with the SEC.

 

Elements of Total Executive Compensation

 

Our total executive compensation program includes both direct and indirect compensation, the elements of which are described in the tables below. We believe that a majority of executive compensation should be performance-based; however, we do not have a specific formula that dictates the overall weighting of each element as a part of total compensation. The Compensation Committee determines total compensation based on a review of competitive compensation data, consistency with our overall compensation philosophy and its judgment as a committee.

The table below identifies each element of direct compensation and the primary purpose for using each element. The level of each element of direct compensation (both “fixed” and “variable”) is generally targeted between the 50th and 75th percentiles of our industry peer group, unless otherwise specified. When making decisions on each of these elements, the Compensation Committee takes into consideration the multiple factors discussed above in the “How We Make Compensation Decisions” section beginning on page 24.

 

 

The charts below illustrate each of the fixed and variable elements as a proportion of the total amount of the named executive officers’ total direct compensation. Base salary information is based on salaries that became effective in November 2008, as discussed on page 30, target bonus opportunities effective for 2009, as discussed on page 31, and the estimated grant date value for the 2008 annual equity awards, as discussed on page 33.

 

The previous charts indicate that over 85% of total direct compensation is variable and at least 75% is in the form of equity-based grant values, with the CEO having approximately 82% of his compensation in the form of equity-based compensation.

 

The table below identifies each element of indirect compensation and the primary purpose for using each element. The value of each element of indirect compensation is generally structured to be competitive within our industry.

 

 

The following is a discussion of each compensation element and the specific actions taken by the Compensation Committee in 2008 related to each element. Each of these elements is reviewed on an annual basis, and may be reviewed at the time of a promotion, other change in responsibilities, other significant corporate events or a material change in market conditions. The same design principles and factors are applied in a consistent manner to all named executive officers. Material differences in the amount of compensation awarded to each of the named executive officers generally reflect the differences in the individual responsibility and experience of each officer and the differences in the amounts of compensation paid to officers in comparable positions in our industry peer group. For example, our CEO’s compensation is significantly higher than the compensation of the other named executive officers. This difference in compensation reflects that our industry peer group benchmark data is substantially higher for the CEO role than for the other named executive officer positions, reflecting the higher degree of responsibility and scrutiny the CEO position entails for the image, strategic direction, financial condition, and operating results of the Company.

 

Base Salary

 

The table below reflects the base salaries that were approved by the Compensation Committee in 2008:

 

The base salaries for the named executive officers fall within the targeted range (between 50th and 75th percentiles of our industry peer group).

 

Annual Cash Incentives (Bonuses)

 

Our executive officers participate in the annual incentive program, or AIP, which is part of our Omnibus Plan that was approved by our stockholders in 2008. In February 2008, the Compensation Committee established a baseline AIP performance hurdle for the named executive officers of $2.5 billion of cash flow from continuing operations for the fiscal year. If this performance hurdle is not achieved, the named executive officers earn no AIP bonuses. If the performance hurdle is met, the bonus pool is funded at the maximum bonus opportunity level for each named executive officer. The Compensation Committee may apply negative discretion in determining actual awards, taking into consideration our actual performance against corporate annual performance goals (as discussed below), each individual officer’s performance and contributions, and other factors as deemed appropriate by the Compensation Committee. The AIP bonus pool was fully funded for the 2008 performance year based on our exceeding the established performance hurdle.

 

If the initial performance hurdle is met, the Compensation Committee uses the following formula as a guideline for determining individual bonus payments:

 

 

Individual Target Bonus Opportunities.  Individual target bonus opportunities, set as a percentage of base salary, are generally established to provide bonus opportunities between the 50th and 75th percentile levels of our industry peer group. Executive officers may earn from 0% up to 200% of their individual bonus target. The bonus targets for 2008 are shown in the table below. As part of its annual review of executive compensation in 2008, the Compensation Committee made no changes to the named executive officers’ bonus targets for 2009.

 

 

AIP Performance Score.  In determining the performance score under the Company’s AIP for 2008, the Compensation Committee approved the following internal operational, financial and safety measures and weightings:

 

 

 

In both approving performance goals and measuring the Company’s performance against those goals, the Compensation Committee may use its discretion in determining the extent to which such goals or results properly reflect the Company’s achievement of overall business objectives, including any material changes in the Company’s operations or business objectives during the course of a given year. The table below reflects both the target and performance results against the target for each measure under the AIP:

 

 

 

 

Individual Performance Adjustments.  In determining a named executive officer’s bonus payment, the Compensation Committee may make an adjustment based on individual performance. This adjustment allows the Compensation Committee to recognize an individual’s significant contributions that may not be reflected in the overall AIP performance score. The Compensation Committee did not make any individual performance adjustments for the named executive officers’ 2008 bonus payments in recognition of the team effort exhibited by our senior management in driving the Company’s success.

 

The AIP awards earned for 2008 and paid to each of the named executive officers are shown in the table below and are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

 

 

 

 

Equity Compensation

 

The Compensation Committee makes equity-based awards under our Omnibus Plan, which was approved by our stockholders in May 2008. Equity-based awards for named executive officers are typically made at the regularly scheduled meeting of the Compensation Committee each November. Equity awards for newly-hired executive officers are made on the executive officer’s first day of employment with us. Equity awards made in connection with promotions or in recognition of achievements are approved by the Compensation Committee and the grant date is generally the date of approval.

 

Our annual awards consist of a combination of stock options, time-based restricted stock units and performance unit awards. The 2008 awards allocated 50% of grant-date value to non-qualified stock options, 20% to restricted stock units and 30% to performance units. This was a change from the 2007 awards, which allocated value equally across all three components. The Compensation Committee approved this change in allocation to emphasize a focus on share price appreciation, and to motivate senior management with increased upside potential and greater downside risk. In addition, the use of performance unit awards and restricted stock units enables us to better manage our potential stock dilution. Annual equity award values are generally positioned between the 50th and 75th percentile levels of similarly-awarded opportunities among the members of our industry peer group.

 

Below is a summary of the provisions of each of the equity award types:

 

The following table reflects the payout scale for the current annual performance unit program:

 

 

The TSR measure provides an external comparison of our performance against an industry peer group. The industry peer group is listed in the table below.

 

• Apache Corporation		• EOG Resources, Inc.		• Occidental Petroleum Corporation
• Chevron Corporation		• Hess Corporation		• Pioneer Natural Resources Company
• ConocoPhillips		• Marathon Oil Corporation		• Plains Exploration & Production Company
• Devon Energy Corporation		• Noble Energy, Inc.

 

If any of these peer companies ceases to exist during the performance period, the Compensation Committee has approved Chesapeake Energy Corporation and XTO Energy, Inc. as replacement companies (in that order).

 

Below is an example of how the performance unit payout scale works, assuming an executive officer received a target award of 20,000 performance units.

 

 

Equity Awards Made During 2008

 

On November 4, 2008, the Compensation Committee approved the following annual long-term incentive awards. These awards are included in the Grants of Plan-Based Awards Table on page 43.

 

 

Performance Units — Results for Performance Periods Ending in 2008

 

In February 2009, the Compensation Committee certified the performance results for the 2008 transitional performance unit awards for specified executives with a one-year performance period that ended December 31, 2008. Under the provisions of this award, the targeted performance units were subject to our relative TSR performance against a defined TSR peer group. The following table lists the target number of performance

units awarded and actual performance units earned by the named executive officers under the provisions of the 2008 transitional performance unit awards for the one-year performance period that ended December 31, 2008:

 

 

Retirement Benefits

 

Our executive officers participate in the following retirement and related plans.

 

Employee Savings Plans.  The Anadarko Employee Savings Plan, or 401(k) Plan, is a tax-qualified retirement savings plan that allows participating U.S. employees to contribute up to 30% of eligible compensation, on a before-tax basis or on an after-tax basis (via a Roth or supplementally), into their 401(k) Plan accounts. Eligible compensation for named executive officers includes base salary and certain annual incentive payments. Under the 401(k) Plan, we match an amount equal to one dollar for each dollar contributed by participants up to six percent of their total eligible compensation. This plan is subject to applicable Internal Revenue Service, or IRS, limitations regarding contributions under this plan. Due to IRS limitations that restrict the amount of benefits payable under tax-qualified plans, we also sponsor a non-qualified Savings Restoration Plan. The Savings Restoration Plan accrues a benefit substantially equal to the amount that, in the absence of any IRS limitations, would have been allocated to an employee’s account as a matching contribution under the 401(k) Plan. The Savings Restoration Plan permits participants to allocate the matching contributions among a group of notional accounts that mirror the gains and/or losses of various investment funds provided in the 401(k) Plan. Notional earnings are credited to their account based on the market rate of return provided by the investment funds.

 

Amounts deferred, if any, under the 401(k) Plan and the Savings Restoration Plan by the named executive officers are included, respectively, in the “Salary” and “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table. Our matching contributions allocated to the named executive officers under the 401(k) Plan and the Savings Restoration Plan are included in the “All Other Compensation” column of the Summary Compensation Table.

 

Pension Plans.  Anadarko provides funded, tax-qualified retirement benefits for all U.S. employees. Due to IRS limitations that restrict the amount of benefits payable under tax-qualified plans, we also sponsor non-qualified restoration plans that cover the named executive officers and certain other employees. The pension plans do not require contributions by employees and an employee becomes vested in his or her benefit at the completion of three years of service as defined in the pension plans. Compensation covered by the pension plans for the participants includes base salary and certain annual incentive payments. The amount of compensation that may be considered in calculating benefits under the pension plans is limited by IRS regulations.

 

Messrs. Hackett, Walker and Reeves have certain supplemental retirement benefits under our non-qualified Retirement Restoration Plan. The Retirement Restoration Plan provides that Mr. Hackett will receive a special service credit to be applied towards his eligibility for our retiree medical and dental benefit programs. This benefit will accrue in a manner similar to the special pension crediting in Mr. Hackett’s employment agreement. The plan also provides for a one-time service credit of eight years and five years to Messrs. Walker and Reeves, respectively, if they each remain employed by us until the age of 55. This service credit will be considered applicable service towards our retirement benefit programs, including pension and retiree medical and dental benefits. These supplemental retirement benefits were provided to Messrs. Walker and Reeves in 2007 to recognize that they were both mid-career hires that we would like to retain for the remainder of their careers. Providing them additional service credits recognizes a portion of their prior industry experience and service years which directly benefits us and our stockholders. The accrued benefits related to these special

pension credits are discussed in the Pension Benefits Table on page 48. The Compensation Committee does not intend to grant any additional pension credits to our executive officers at this time.

 

Messrs. Hackett and Meloy are both eligible to receive supplemental pension benefits upon meeting certain employment conditions under the terms, respectively, of Mr. Hackett’s employment agreement, which was originally entered into when he joined the Company in December 2003, and Mr. Meloy’s retention agreement, which was entered into in August 2006 in connection with the closing of the Kerr-McGee acquisition. Details of these arrangements, including the accrued benefits for each of the named executive officers, are discussed further in the “Employment Agreements” section beginning on page 39 and in the Pension Benefits Table on page 48.

 

Other Benefits

 

In addition to the retirement benefits discussed above, we also provide other benefits such as medical, dental, vision, flexible spending accounts, paid time off, payments for certain relocation costs, disability coverage and life insurance to each named executive officer. These benefits are also provided to all other eligible U.S. based employees.

 

We also maintain a Deferred Compensation Plan for directors and certain employees, including the named executive officers. The Deferred Compensation Plan allows employees to voluntarily defer receipt of up to 75% of their salary and/or up to 100% of their AIP bonus payments. The Deferred Compensation Plan permits participants to allocate the deferred amounts among a group of notional accounts that mirror the gains and/or losses of various investment funds provided in the 401(k) Plan (except not for a Company stock fund). In general, deferred amounts are distributed to the participant upon termination or at a specific date as elected by the participant. We do not subsidize or match these deferred amounts. Details regarding participation in the plan by the named executive officers can be found in the Non-qualified Deferred Compensation Table on page 50.

 

Perquisites

 

We provide a limited number of perquisites to the named executive officers. These perquisites are assessed annually as part of the total competitive review and include:

 

 

As required by the Board, we provide security services for Mr. Hackett at his home. Pursuant to our security policy, we also require Mr. Hackett to use our aircraft for personal use as well as business travel. Any time Mr. Hackett uses our aircraft for personal use, although it is understood that he engages in business activities while in flight, compensation is imputed to Mr. Hackett for that use and for any passengers that accompany Mr. Hackett. Personal use includes his participation on outside boards, which directly and indirectly benefits Anadarko.

 

Our incremental cost of the various perquisites provided is included in the “All Other Compensation” column of the Summary Compensation Table on page 41. Individual perquisite values are disclosed in the All Other Compensation Table and supporting footnotes following the Summary Compensation Table on page 42. We do not provide any tax gross-ups on these perquisites.

 

Severance Benefits

 

The Company currently provides the below severance benefits to its named executive officers. On a periodic basis, the Committee, in consultation with its independent executive compensation advisor, will review, consider and adjust, as the Committee deems necessary and appropriate, the provisions of severance and change-of-control benefits provided to executives. In connection with any such review, the Committee will determine whether and to what extent severance benefits should be promised, the appropriateness of tax gross-ups in a severance or change-of-control context, and the appropriate level of compensation payable in a severance or change-of-control context. The Committee will take into consideration other arrangements that may exist for an executive so as to ensure that the entire compensation package is consistent with the Committee’s executive compensation philosophy.

 

Officer Severance Plan.  Our named executive officers are eligible for benefits under the Officer Severance Plan. Benefits provided under this plan may vary depending upon the executive officer’s level within the organization and years of service with us and are made at the discretion of the Compensation Committee. Executive officers receiving benefits under the Officer Severance Plan are required to execute an agreement releasing us from any and all claims from any and all kinds of actions arising from the executive officer’s employment with us or the termination of such employment. In practice, we have typically provided the following involuntary termination (as defined on page 51) severance benefits for our executive officers:

 

 

Key Employee Change of Control Contracts.  We have also entered into key employee change of control contracts with all of our executive officers, including the named executive officers, with the exception of

Mr. Hackett whose change of control benefits are included in his employment agreement, which was originally effective as of December 2003 and is described on page 39. These key employee change of control contracts have an initial three-year term that is automatically extended for one year upon each anniversary, unless we provide notice not to extend. If we experience a change of control (as defined on page 51 during the term of the executive officer’s contract, then the contract becomes operative for a fixed three-year period. These contracts generally provide that the executive officer’s terms of employment (including position, work location, compensation and benefits) will not be adversely changed during the three-year period after a change of control. If we (or any successor in interest) terminate the executive officer’s employment (other than for cause (as defined on page 51, death or disability), the executive officer terminates for good reason (as defined on page 52 during such three-year period, or upon certain terminations prior to a change of control or in connection with or in anticipation of a change of control, the named executive officer is generally entitled to receive the following payment and benefits:

 

 

In addition, the change of control contracts provide for a continuation of various medical, dental, disability and life insurance benefits and financial counseling for a period of up to three years. The contracts also provide for outplacement services and the payment of all legal fees and expenses incurred by the executive officer in enforcing any right or benefit provided by the change of control contract. The executive will also be entitled to receive a payment in an amount sufficient to make the executive whole for any excise tax on excess parachute payments imposed under Section 4999 of the IRC. These provisions, in addition to attracting and retaining executive officers, also allow these officers to realize the full value of the intended benefit awarded under these contracts. If an executive officer loses his or her job following a change of control event that meets certain IRS criteria, the executive officer must pay an additional 20% excise tax simply for collecting the pay that is due. The gross-up makes the executive officer whole by the Company paying the 20% excise tax amount and the additional income taxes generated by such payment. The Company does not pay the executive’s normal income taxes.

 

As a condition to receipt of change of control benefits, the executive officer must remain employed by us and provide services commensurate with his or her position until the executive is terminated pursuant to the provisions of the contract. The executive officer must also agree to retain in confidence any and all confidential information known to him or her concerning us and our business so long as the information is not otherwise publicly disclosed. In 2008, no amounts were paid under the change of control contracts.

 

Change of Control — Equity Plans.  In addition to the change of control benefits discussed above, our equity plans provide that upon a change of control of Anadarko:

 

 

We believe this “single-trigger” treatment in our stock plans is appropriate because it ensures that continuing employees are treated the same as terminated employees, and is particularly appropriate for

performance-based equity given the potential difficulty of replicating or meeting the performance goals after the change of control.

 

Director and Officer Indemnification Agreements

 

We have entered into indemnification agreements with our directors and certain executive officers, in part to enable us to attract and retain qualified directors and executive officers. These agreements require us, among other things, to indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses for proceedings for which they may be indemnified and to cover such person under any directors’ and officers’ liability insurance policy that we may maintain from time to time. These agreements are intended to provide indemnification rights to the fullest extent permitted under applicable Delaware law and are in addition to any other rights our directors and executive officers may have under our Restated Certificate of Incorporation, By-Laws and applicable law.

 

Employment Agreements

 

We have entered into an employment agreement with Mr. Hackett and a retention agreement with Mr. Meloy. Both agreements are discussed below.

 

Mr. Hackett — Employment Agreement

 

Under the terms of Mr. Hackett’s employment agreement, which was originally effective as of December 2003, he receives a minimum annual base salary (currently $1,567,500), and is eligible for an annual incentive cash bonus at a target of not less than 130% of annual base salary with a maximum annual incentive cash bonus of 260% of base salary. This agreement also outlines certain payments and benefits to be paid to Mr. Hackett under various termination scenarios, including:

 

 

The above scenarios are discussed in more detail beginning on page 51 of this proxy statement. We will provide a gross-up payment to Mr. Hackett to the extent any of the above payments become subject to the federal excise tax relating to excess parachute payments. Pre-change of control severance benefits are conditioned upon the execution of a mutual release between us and Mr. Hackett.

 

Mr. Hackett is also subject to covenants regarding confidentiality, non-competition and non-solicitation. The non-competition obligation applies for one year following Mr. Hackett’s termination of employment with us if Mr. Hackett voluntarily terminates his employment with us (other than for good reason) on or before December 3, 2010. The agreement also provides that if Mr. Hackett remains employed by us until at least December 3, 2008, he will receive a special pension benefit, computed so that his total pension benefits from us will equal those to which he would have been entitled if his actual years of employment with us were doubled. This service crediting provision was implemented when Mr. Hackett was hired in order to compensate for projected retirement benefits being forgone in leaving his former employer. On December 3, 2008, Mr. Hackett became vested in this special pension benefit.

 

Mr. Meloy — Retention Agreement

 

Mr. Meloy was an officer for Kerr-McGee at the time of its acquisition by us in August 2006. As a result of our desire to retain him as an executive officer, we entered into a retention agreement with him at that time. The retention benefits were intended to compensate him for certain severance benefits he was otherwise

entitled to receive under the change of control agreement he had with Kerr-McGee. Under the terms of his retention agreement, Mr. Meloy receives the following benefits:

 

 

If Mr. Meloy were to voluntarily terminate or be terminated for cause prior to the designated vesting dates, he would forfeit any unvested or unpaid retention benefits.

 

The above descriptions of Mr. Hackett’s employment agreement and Mr. Meloy’s retention agreement are not a full summary of all of the terms and conditions of these agreements and are qualified in their entirety by the full text of the agreements, which are on file with the SEC.

 

Conclusion

 

We believe the design of our total executive compensation program aligns the interests of our executive officers with those of our stockholders and provides executive officers with the necessary motivation to maximize the long-term operational and financial performance of the Company, while using sound financial controls and high standards of integrity. The programs currently offered have been critical elements in the successful hiring of several executives and have been equally effective in retaining executive officers during a period of strong competitive demand and a shortage of talented executives within the oil and gas exploration and production industry. We believe that the quality of our executive compensation program will continue to be reflected in positive operational, financial and stock price performance. We also believe that total compensation for each executive officer should be, and is, commensurate with the execution of specified short-term and long-term operational, financial and strategic objectives.

 

 

The following table summarizes the compensation of our Chief Executive Officer, Chief Financial Officer and our three highest paid executive officers other than our CEO and CFO for the fiscal year ended December 31, 2008.

 

 

 

 

The following table describes each component of the “All Other Compensation” column in the Summary Compensation Table:

 

 

 

 

 

The following table sets forth information concerning annual incentive awards, stock options, restricted stock units and performance units granted during 2008 to each of the named executive officers: