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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EOG Resources, Inc.

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EOG RESOURCES, INC.

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 8, 2008

 

 

TO THE STOCKHOLDERS:

 

NOTICE IS HEREBY GIVEN that the 2008 annual meeting of stockholders (“Annual Meeting”) of EOG Resources, Inc. will be held in the Dezavala meeting room of the Doubletree Hotel at 400 Dallas Street, Houston, Texas, at 3:00 p.m., Houston time, on Thursday, May 8, 2008, for the following purposes:

 

1. To elect six directors to hold office until the 2009 annual meeting of stockholders and until their respective successors are duly elected and qualified;

 

2. To ratify the appointment by the Audit Committee of the Board of Directors of Deloitte & Touche LLP, independent public accountants, as our auditors for the year ending December 31, 2008;

 

3. To approve the EOG Resources, Inc. 2008 Omnibus Equity Compensation Plan; and

 

4. To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

 

Holders of record of our Common Stock at the close of business on March 14, 2008 will be entitled to notice of, and to vote at, the Annual Meeting and any adjournments thereof.

 

Stockholders who do not expect to attend the Annual Meeting are encouraged to vote via the Internet, vote by phone or vote by returning a signed proxy card.

 

By Order of the Board of Directors,

 

MICHAEL P. DONALDSON

Corporate Secretary

 

Houston, Texas

April 4, 2008

 

EOG RESOURCES, INC.

 

 

PROXY STATEMENT

 

 

The enclosed form of proxy is solicited by the Board of Directors (“Board”) of EOG Resources, Inc. (“EOG,” “we,” “us” or “our”) to be used at our 2008 annual meeting of stockholders (“Annual Meeting”) to be held in the Dezavala meeting room of the Doubletree Hotel at 400 Dallas Street, Houston, Texas, at 3:00 p.m., Houston time, on Thursday, May 8, 2008. This proxy statement and the accompanying form of proxy will be first sent or given to our stockholders on or about April 4, 2008.

 

Any stockholder giving a proxy may revoke it at any time provided written notice of the revocation is received by our Corporate Secretary before the proxy is voted; otherwise, if received prior to or at the Annual Meeting, properly completed proxies will be voted at the Annual Meeting in accordance with the instructions specified on the proxy or, if no such instructions are given, in accordance with the recommendations of the Board described herein. Stockholders attending the Annual Meeting may revoke their proxies and vote in person. If you would like to attend the Annual Meeting and vote in person, please contact EOG at (713) 651-7000 (Attention: Corporate Secretary) for directions to the Annual Meeting.

 

Our 2007 annual report to stockholders is being mailed with this proxy statement to all stockholders entitled to vote at the Annual Meeting. However, the annual report to stockholders does not constitute a part of, and shall not be deemed incorporated by reference into, this proxy statement or the accompanying proxy card.

 

In addition to solicitation by use of the mails, certain of our officers and employees may solicit the return of proxies personally or by telephone, electronic mail or facsimile. We have also retained a third-party proxy solicitation firm, Morrow & Co., LLC, to solicit proxies on behalf of the Board, and expect to pay such firm approximately $6,500 for their services. The cost of any solicitation of proxies will be borne by us.

 

Arrangements may also be made with brokerage firms and other custodians, nominees and fiduciaries for the forwarding of material to, and solicitation of proxies from, the beneficial owners of our Common Stock held of record by such persons. We will reimburse such brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection with any such activities.

 

The mailing address of our principal executive offices is 1111 Bagby, Sky Lobby 2, Houston, Texas 77002.

 

Important Notice Regarding the Availability of Proxy Materials
for the 2008 Annual Meeting of Stockholders To Be Held on May 8, 2008

 

Pursuant to the new Securities and Exchange Commission (“SEC”) rules related to the Internet availability of proxy materials, we have chosen to make this proxy statement, the accompanying notice of annual meeting of stockholders and form of proxy and our 2007 annual report to stockholders available via the Internet at www.eogresources.com/investors/annreport.html and at www.proxyvote.com.

VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS

 

Holders of record of our Common Stock at the close of business on March 14, 2008 (“Record Date”) will be entitled to one vote per share on all matters presented at the Annual Meeting. On the Record Date, there were 247,996,094 shares of our Common Stock outstanding. We have no other voting securities currently outstanding.

 

Our stockholders do not have dissenters’ rights or similar rights of appraisal with respect to the proposals described herein and, moreover, do not have cumulative voting rights with respect to the election of directors.

 

Stock Ownership of Certain Beneficial Owners

 

The following table and accompanying footnotes set forth certain information regarding the beneficial ownership of our Common Stock by each person (including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) who we know, based on filings with the SEC, beneficially owned five percent (5%) or more of our Common Stock as of December 31, 2007.

 

 

 

 

Stock Ownership of the Board and Management

 

The following table and accompanying footnotes set forth certain information regarding the ownership of our Common Stock by (i) each current director and director nominee of EOG, (ii) each “named executive officer” of EOG named in the “Summary Compensation Table” below and (iii) all current directors and executive officers of EOG as a group, in each case as of January 31, 2008.

 

 

 

 

 

CORPORATE GOVERNANCE

 

Board of Directors

 

Director Independence

 

The Board has affirmatively determined that six of our seven current directors, namely Messrs. Alcorn, Crisp, Stevens, Steward, Textor and Wisner, have no material relationship with EOG and thus meet the criteria for independence of the NYSE, the SEC and Article III, Section 14 of our bylaws, which are available on our website at www.eogresources.com/about/corpgov.html.

 

In assessing director independence, the Board considered, among other matters, the nature and extent of any business relationships, including transactions conducted, between EOG and each director and between EOG and any organization for which one of our directors is a director or executive officer or with which one of our directors is otherwise affiliated. Except with respect to Mr. Papa, the Board determined that all such relationships and transactions that it considered were not material relationships or transactions with EOG and did not impair the independence of our directors. The Board affirmatively determined that Mr. Papa is not independent because he is our Chairman and Chief Executive Officer.

 

Meetings

 

The Board held seven meetings during the year ended December 31, 2007 (including a joint meeting of the Board and the Compensation, Corporate Governance and Nominating Committees of the Board and a joint meeting of the Board and the Compensation Committee of the Board).

 

Each director attended at least 75% of the total number of meetings of the Board and Board committees on which the director served. We encourage each director to attend our annual meeting of stockholders. Each director attended our 2007 annual meeting of stockholders.

 

Executive Sessions of Non-Management Directors

 

Our non-management directors (Messrs. Alcorn, Crisp, Stevens, Steward, Textor and Wisner) held four executive sessions during the year ended December 31, 2007. Mr. Stevens was appointed by the non-management directors as the presiding director for these sessions, and Mr. Alcorn has been appointed by the non-management directors as the presiding director for executive sessions in 2008.

 

 

 

 

On March 3, 2008, Mr. Stevens notified the Nominating Committee of the Board that he will retire from the Board at the end of his current term, which will expire in conjunction with the Annual Meeting, and will therefore not stand for re-election as a director at the Annual Meeting. Mr. Segner resigned from the Board effective June 30, 2007.

Committees of the Board

 

Each committee of the Board identified below has a charter that is available on our website at www.eogresources.com/about/corpgov.html. Copies of the committee charters are also available upon written request to our Corporate Secretary.

 

Nominating Committee

 

The Nominating Committee, which is composed exclusively of independent directors, is responsible for proposing qualified candidates to fill vacancies on the Board without regard to race, sex, age, religion or physical disability. While there are no specific minimum requirements that the Nominating Committee believes must be met by a prospective director nominee, the Nominating Committee does believe that nominees for director should possess personal and professional integrity, have good business judgment, have relevant experience and skills and be willing and able to commit the necessary time for Board and committee service.

 

Our Corporate Governance Guidelines, which are available at www.eogresources.com/about/corpgov.html, set forth the following minimum requirements for directors:

 

 

The Nominating Committee uses a variety of methods for identifying and evaluating nominees for director. As an alternative to term limits for directors, the Nominating Committee reviews each director’s continuation on the Board every three years. The Nominating Committee also regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In addition, the Nominating Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating Committee through current Board members, professional search firms, stockholders or other persons. These candidates may be evaluated at regular or special meetings of the Nominating Committee and may be considered at any point during the year. In evaluating nominees, the Nominating Committee seeks to achieve a balance of knowledge, experience and capability on the Board.

 

In addition, the Nominating Committee will consider nominees recommended by stockholders in accordance with the procedures outlined under “Stockholder Proposals and Director Nominations — Nominations for 2009 Annual Meeting of Stockholders and for Any Special Meetings of Stockholders” below. The Nominating Committee will evaluate such nominees according to the same criteria, and in the same manner, as any other director nominee.

 

The Nominating Committee met three times during the year ended December 31, 2007 (including a joint meeting of the Board and the Compensation, Corporate Governance and Nominating Committees), and is currently composed of Messrs. Crisp (Chairman), Alcorn, Stevens, Steward, Textor and Wisner.

 

Audit Committee

 

The Audit Committee, which is composed exclusively of independent directors, has been established by the Board to oversee our accounting and financial reporting processes and the audits of our financial statements.

 

The Board has selected the members of the Audit Committee based on the Board’s determination that the members are financially literate (as required by NYSE rules) and qualified to monitor the performance of management and the independent auditors and to monitor our disclosures so that our disclosures fairly present our financial condition and results of operations. The Audit Committee has the sole authority, at its discretion and at our expense, to retain, compensate and terminate our independent auditors and to review, as deemed appropriate, the scope of our annual audits, our accounting policies and reporting practices, our system of internal controls, our compliance with policies regarding business conduct and other matters. In addition, the Audit Committee has the

authority, at its discretion and our expense, to retain special legal, accounting or other advisors to advise the Audit Committee.

 

While the Board has determined that one member of the Audit Committee (Mr. Textor, the Chairman) has accounting or related financial management expertise (as required by NYSE rules), we currently do not have an “audit committee financial expert” (as defined under SEC rules) serving on the Audit Committee. The Board believes that the composition of the Audit Committee is equivalent to having an audit committee financial expert on the Audit Committee. Moreover, the Board believes it is desirable to nominate as a director a person who would qualify as an audit committee financial expert, but only if that person also has the other experience, attributes and qualifications that we are then seeking for new members of the Board. Accordingly, the Nominating Committee has been directed to include in the information that it seeks from potential nominees to the Board whether that person has the knowledge, background and experience to qualify as an audit committee financial expert and to consider such qualifications when proposing nominees for the Board.

 

The Audit Committee met six times during the year ended December 31, 2007, and is currently composed of Messrs. Textor (Chairman), Alcorn, Crisp, Stevens, Steward and Wisner.

 

Compensation Committee

 

The Compensation Committee, which is composed exclusively of independent directors, is responsible for the administration of our stock plans and approval of compensation arrangements for our directors and executive officers. Please refer to “Executive Compensation — Compensation Discussion and Analysis — Compensation Committee Process” below for a discussion of the Compensation Committee’s procedures and processes for making executive and director compensation determinations.

 

The Compensation Committee met six times during the year ended December 31, 2007 (including a joint meeting of the Board and the Compensation, Corporate Governance and Nominating Committees and a joint meeting of the Board and the Compensation Committee), and is currently composed of Messrs. Alcorn (Chairman), Crisp, Stevens, Steward, Textor and Wisner.

 

Corporate Governance Committee

 

The Corporate Governance Committee, which is composed exclusively of independent directors, is responsible for developing and recommending appropriate corporate governance principles and for oversight of the self-evaluation of the Board.

 

The Corporate Governance Committee met two times during the year ended December 31, 2007 (including a joint meeting of the Board and the Compensation, Corporate Governance and Nominating Committees), and is currently composed of Messrs. Wisner (Chairman), Alcorn, Crisp, Stevens, Steward and Textor.

 

Stockholder Communications with the Board

 

Pursuant to the process adopted by the Board, our stockholders may communicate with members of the Board by submitting such communications in writing to our Corporate Secretary, who, upon receipt of any communication other than one that is clearly marked “Confidential,” will note the date the communication was received in a log established for that purpose, open the communication, make a copy of it for our files and promptly forward the communication to the director(s) to whom it is addressed. Upon receipt of any communication that is clearly marked “Confidential,” our Corporate Secretary will not open the communication, but will note the date the communication was received in a log established for that purpose and will promptly forward the communication to the director(s) to whom it is addressed. Further information regarding this process can be found on our website at www.eogresources.com/about/corpgov.html.

 

Interested parties can communicate directly with the presiding director for the executive sessions of the non-management directors, or the non-management directors as a group, using the same procedure outlined above for general stockholder communications with the Board, except any such communication should be addressed to the presiding director or to the non-management directors as a group, as appropriate.

Codes of Conduct and Ethics and Corporate Governance Guidelines

 

Pursuant to NYSE and SEC rules, we have adopted a Code of Business Conduct and Ethics (“Code of Conduct”) that applies to all of our directors, officers and employees, including our principal executive officer and principal financial and accounting officer. We have also adopted a Code of Ethics for Senior Financial Officers (“Code of Ethics”) that, along with our Code of Conduct, applies to our principal executive officer, principal financial and accounting officer and controllers.

 

You can access our Code of Conduct and Code of Ethics on our website at www.eogresources.com/about/
corpgov.html, and any stockholder who so requests may obtain a copy of our Code of Conduct or Code of Ethics by submitting a written request to our Corporate Secretary. We intend to disclose any amendments to our Code of Conduct, and any waivers with respect to our Code of Conduct granted to our principal executive officer and principal financial and accounting officer, on our website at www.eogresources.com within four business days of the amendment or waiver. In such case, the disclosure regarding the amendment or waiver will remain available on our website for at least 12 months after the initial disclosure. We also intend to disclose any amendments to our Code of Ethics, and any waivers granted with respect to our Code of Ethics, on our website.

 

Moreover, we have adopted, pursuant to NYSE rules, Corporate Governance Guidelines, which may be accessed on our website at www.eogresources.com/about/corpgov.html. Any stockholder who so requests may obtain a copy of our Corporate Governance Guidelines by submitting a written request to our Corporate Secretary.

 

Compensation Committee Interlocks and Insider Participation

 

During the year ended December 31, 2007, none of our executive officers served as a director or member of the compensation committee of another entity where an executive officer of such entity served as a director of EOG or on our Board’s Compensation Committee.

 

REPORT OF THE AUDIT COMMITTEE

 

In connection with our fiscal year 2007 audited financial statements, the Audit Committee (1) reviewed and discussed the audited financial statements with management; (2) discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 114, as adopted by the Public Company Accounting Oversight Board (“PCAOB”); (3) received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, as adopted by the PCAOB; (4) discussed with the independent auditors the independent auditors’ independence; and (5) considered whether the provision of non-audit services by our principal auditors is compatible with maintaining auditor independence.

 

Based upon these reviews and discussions, the Audit Committee has recommended to the Board of Directors, and the Board of Directors has approved, that our audited financial statements for fiscal year 2007 be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange Commission.

 

AUDIT COMMITTEE

 

Donald F. Textor, Chairman

George A. Alcorn

Charles R. Crisp

William D. Stevens

H. Leighton Steward

Frank G. Wisner

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K promulgated under the Securities Exchange Act of 1934 (as amended). Based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the proxy statement relating to the 2008 Annual Meeting of Stockholders.

 

COMPENSATION COMMITTEE

 

George A. Alcorn, Chairman

Charles R. Crisp

William D. Stevens

H. Leighton Steward

Donald F. Textor

Frank G. Wisner

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Compensation Committee

 

Compensation for our executive officers is administered by the Compensation Committee of the Board (“Committee”). The Committee is an independent committee of the Board currently composed of our six non-employee directors. All of these individuals meet the independence requirements of the NYSE and our bylaws, qualify as “Non-Employee Directors” under Rule 16b-3 of the Exchange Act and qualify as “outside directors” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (“Code”). The Committee is responsible for reviewing and establishing the compensation, including salary, bonus and long-term incentive compensation, of our Chief Executive Officer (“CEO”) and all of our other executive officers and the annual bonus pool and annual long-term incentive compensation pool for all of our employees.

 

The Committee has the sole authority to retain compensation consultants and any legal, accounting or other advisors it deems appropriate. It has been the Committee’s practice not to use a compensation consultant and none was used in reviewing and determining our executive compensation for 2007. As discussed in further detail below, the Committee reviews data regarding the compensation programs of EOG’s peer companies to ensure that EOG’s compensation program remains competitive in the oil and gas industry. Also as discussed in further detail below, the peer group data is compiled by our Human Resources Department from publicly available information, and the Committee reviews and discusses this data prior to making compensation decisions.

 

In this Compensation Discussion and Analysis section, “Named Officers” means the individuals who served as our principal executive officer or principal financial officer during 2007, as well as the other individuals included in the “Summary Compensation Table” below.

 

Compensation Committee Process

 

Each component of EOG’s compensation program is reviewed by the Committee on an annual basis. Based on its analysis of the peer group compensation data, the Committee determines the compensation of our CEO during an executive session of the Committee, at which our CEO is not present. Our CEO, who also reviews the peer group data, makes recommendations to the Committee regarding the compensation of the other Named Officers, which the Committee may, at its discretion, discuss in executive session. However, the final determination as to the compensation of the other Named Officers is made solely by the Committee. During each fiscal year, the Committee periodically reviews our compensation program and determines whether it continues to promote the compensation

goals of EOG, which goals include remaining competitive in our industry so that we are able to retain and incentivize our executive officers. The Committee did not make any material changes to the components of our compensation program for fiscal year 2007 and does not anticipate the need for any such changes for fiscal year 2008.

 

The Committee typically holds at least one meeting each fiscal quarter. At its meeting held in the first quarter, the Committee reviews and discusses our performance report regarding certain pre-determined, company-wide financial and operational goals with respect to the prior year, evaluates achievement of the individual performance goals set for our CEO and the other Named Officers, approves the aggregate annual bonus pool for all employees and sets performance goals to be considered in determining Named Officer bonuses for the next year. The annual bonus payout approved by the Committee is an overall bonus pool, consisting of cash and restricted stock/restricted stock units, out of which all employee bonuses for the prior fiscal year are paid. The bonuses awarded to EOG’s executive officers, including our CEO and the other Named Officers, are paid from this pool as well. Once the overall bonus pool is determined, the Committee meets with our CEO to evaluate and review the bonus payouts with respect to the other executive officers, including the other Named Officers, as recommended by our CEO. The Committee then commences an executive session, at which our CEO is not present, to determine the bonus payout to our CEO.

 

At its meeting held in the second quarter, the Committee reviews and recommends any changes to non-employee director compensation. At its third quarter meeting, the Committee reviews the peer group compensation data compiled by our Human Resources Department and reviews and approves salary increases and annual stock option/stock appreciation right (“SAR”) and/or restricted stock/restricted stock unit grants for all executive officers, including our CEO and the other Named Officers, and the annual stock option/SAR and restricted stock/restricted stock unit grant pool for all of our other employees. The fourth quarter meeting typically addresses administrative matters unrelated to executive compensation.

 

In addition, throughout the year, as necessary, the Committee reviews and approves amendments to our stock plans and benefit plans; reviews and approves employment, change of control and severance agreements; reviews and revises stock grant vesting and termination provisions; reviews and revises the amount available for grant under our CEO’s discretionary pool of stock options/SARs and discretionary pool of restricted stock/restricted stock units; and takes any other action it deems necessary or appropriate.

 

Objectives of Our Compensation Program

 

Our executive compensation program is designed to attract and retain a highly qualified and motivated management team and appropriately reward individual executive officers for their contributions to the achievement of EOG’s key short-term and long-term goals. The Committee is guided by the following key principles in determining the compensation of our CEO and other Named Officers:

 

 

A more detailed discussion of each element of our compensation program is provided below.

Competition Among Peers

 

In order to attract and retain talented executive officers, we must ensure that our compensation program remains competitive with the types and ranges of compensation paid by our peer companies and other companies that we regard as having analogous lines of business and similar executive compensation opportunities and risks. On an annual basis, the Committee reviews and discusses peer group compensation data setting forth the base salary, annual non-equity incentive payments, long-term incentive awards, perquisites and other compensation and benefits for our CEO and our other Named Officers as compared to our peer companies based on current, publicly available data compiled by our Human Resources Department.

 

The Committee recognizes a peer group composed of (i) companies primarily included in the Standard & Poor’s 500 Oil & Gas Exploration & Production Index (“S&P Peer Group”) that have lines of business and market activities similar to those of EOG and (ii) companies not included in the S&P Peer Group but that are also considered to be our “peers” due to their similar lines of business and market capitalization. EOG’s peer group changes from time to time as a result of fluctuation in company size, developments in the oil and gas industry and other factors. For 2007, the companies in our peer group consisted of:

 

 

 

 

When we refer to “peers,” “peer group” or “peer companies” or similar phrases in this proxy statement, we are referring to this list of companies, as it may be updated from time to time.

 

The Committee supports a practice of paying base salaries that approximate the average of our peer group, taking into consideration our market capitalization relative to our peer companies, and annual non-equity incentive payments and long-term incentives which may deliver above-average compensation if our financial results and/or stockholder returns exceed those of our peer companies.

 

In establishing the compensation of our CEO and other Named Officers, the Committee reviews and considers the allocation of total compensation (among salary, annual bonus and equity compensation components, including the total theoretical compensation value and actual realized stock option gains) of our peer companies. The Committee then makes a subjective determination as to the appropriate allocation of total compensation among the various components in order to remain competitive in our industry with respect to the recruiting and retention of executive officers. Generally, our total compensation package is more heavily weighted toward long-term compensation than our peer companies since the Committee places significant value on the retention of our executive officers over time.

Accountability for Our Performance and Accountability for Individual Performance

 

As further described below, all EOG employees, including our CEO and our other Named Officers, are eligible to receive annual bonuses, payable in a combination of cash and restricted stock/restricted stock units. To achieve the goal of tying compensation to accountability for our performance, the Committee considers EOG’s achievement of certain pre-determined financial and operational goals as well as each executive officer’s achievement of individual performance goals in awarding annual bonuses.

 

This analysis is conducted on two levels. First, EOG’s performance is measured on a purely objective basis. In 2001, our stockholders, in connection with their approval of our Executive Officer Annual Bonus Plan, established and approved the performance goal that “Net Income Available to Common,” excluding nonrecurring or extraordinary items and as reported in our year-end earnings release (“Net Income Available to Common Stockholders”), must be positive to permit distribution of bonuses under our Executive Officer Annual Bonus Plan. If the Net Income Available to Common Stockholders goal is not met, no bonuses will be paid to our executive officers.

 

If the Net Income Available to Common Stockholders goal is met, the Committee will then consider EOG’s achievement of certain pre-determined financial and operational goals. These additional performance goals are evaluated in a subjective manner. The Committee and our CEO develop these goals in connection with the formation of a company-wide annual operating plan at the beginning of each fiscal year. For 2007, these performance goals included: (a) our after-tax rate of return with respect to our capital expenditure program¹, (b) our production volume growth, (c) our reserve replacement ratio and reserve replacement costs, (d) our year-end net debt-to-total capitalization ratio², (e) our forward cash flow per share multiple and actual stock price performance relative to our peer companies, (f) certain per-unit cost measures and (g) specific strategic and operational goals for certain of our divisions and departments.

 

Though management strives to accomplish all company performance goals annually, the after-tax rate of return and production volume growth goals are emphasized by the Committee and our CEO as the most important of these goals. The Committee has considered, and may again in the future consider, other factors, such as commodity prices and their effect on the achievement of the performance goals, and any other notable accomplishments by EOG in determining whether EOG adequately met its performance goals for the year. Additionally, the Committee may deem overachievement in some areas to outweigh underachievement in others. However, there is no specific numerical weighting assigned to each performance goal. As noted above, the only performance goal that is outside of the Committee’s subjective discretion is that Net Income Available to Common Stockholders must be positive. This goal was accomplished for 2007.

 

The specific performance goals, in addition to the Net Income Available to Common Stockholders goal, established for 2007 were:

 

 

 

¹ The calculation of our after-tax rate of return with respect to our capital expenditure program for a particular year is based on the estimated proved reserves (“net” to EOG’s interest) for all wells drilled or acquired during such year, the estimated present value of the future net cash flows from such reserves (for which we utilize certain assumptions regarding future commodity prices and operating costs) and our direct and indirect net costs incurred in drilling or acquiring (as the case may be) such wells. As such, our after-tax rate of return with respect to our capital expenditures for a particular year cannot be calculated from our audited financial statements for such year.

² For purposes of computing this ratio, “net debt” is equal to our aggregate long-term debt (including any current portion of long-term debt) less our cash and cash equivalents, and “total capitalization” is equal to our total stockholders’ equity plus net debt.

 

 

At the Committee’s meeting in the first quarter of 2008, our 2008 performance goals were set, which are similar to those established for 2007. If EOG produces a positive Net Income Available to Common Stockholders and EOG’s overall achievement of these additional goals satisfies the Committee’s subjective evaluation, then all employees may receive bonus compensation. As noted above, the evaluation of these performance goals for each fiscal year occurs at the first meeting of the Committee held in the subsequent fiscal year.

 

Also at the Committee’s meeting in the first quarter of 2008, the achievement of our 2007 goals was evaluated. The Committee determined that we surpassed our after-tax rate of return and production volume growth goals, achieving an after-tax rate of return with respect to our capital expenditures in excess of the target of 15% and achieving 10.8% production volume growth versus the target of 10%. The Committee also determined that we slightly missed certain of our per-unit cost targets. Moreover, while the Committee determined that we did not achieve the desired stock price performance relative to our peer group, the Committee recognized that we achieved the goal of maintaining our status as one of the top three companies in our peer group with respect to forward cash flow per share multiple and recognized that the 43.4% increase in our stock price during 2007 was significant. In addition, the Committee determined that although we did not accomplish one of our strategic divisional goals, we did achieve analogous results from the successful conclusion of another project within the same division. The Committee also determined that our other performance goals for 2007 were achieved. These determinations of the Committee were applied to all compensation components subject to the 2007 goals.

 

The Committee further considers individual contributions to our achievement of the goals identified above in allocating the bonus pool among individual executive officers. The Committee believes it is important to recognize and reward significant personal efforts that benefit EOG. As a result, salaries and bonus awards to a particular executive officer may fluctuate relative to the executive officer’s peers from year to year.

 

In addition to extraordinary individual contributions, the Committee annually evaluates the individual performance of the executive officers in their particular roles within EOG. At the beginning of each fiscal year, each executive officer, other than our CEO, meets with our CEO to discuss and identify individual performance goals for the upcoming year. Our CEO will present his evaluation of the level of achievement of these goals to the Committee the following year. In addition, our CEO gives each executive officer mid-year performance feedback and conducts a formal performance review at the end of each year. The Committee places significant emphasis on our CEO’s evaluation of the other executive officers in making compensation decisions regarding the other executive officers, particularly in awarding annual bonuses.

 

The individual goals for executive officers are generally specific to their functional areas within EOG. As executive officers become more senior, however, some of their individual goals tend to reflect the overall company performance goals to a greater degree. The 2007 individual performance goals for Mr. Thomas, our Senior Executive Vice President, Operations, included achievement of the 10% production volume growth, 15% after-tax rate of return on capital expenditures, DD&A expense and LOE targets included in our performance goals described above, managing and maintaining our 2007 capital expenditures within our 2007 capital expenditure budget and the pursuit and procurement of progressive technology to assist in our business activities. For 2007, the individual performance goals for Mr. Leiker, our Senior Executive Vice President, Exploration, included achievement of the 15% after-tax rate of return on capital expenditures target included in our performance goals described above, managing and maintaining our 2007 capital expenditures within our 2007 capital expenditure budget and the accomplishment of various managerial and operational tasks. The individual performance goals for 2007 for Mr. Garrison, our Executive Vice President, Exploration, included maintaining division prospect inventory and production
volumes, providing mentoring to division general managers, resolving division-specific operational

 

 

³ Million cubic feet equivalent of natural gas, crude oil, natural gas liquids and condensate.

issues and providing assistance to Mr. Leiker in evaluating exploration opportunities. The 2007 individual performance goals for Mr. Driggers, our Vice President and Chief Financial Officer, included striving for efficient control processes, implementing new financial technology and systems, continuing to provide necessary information and support to our Audit Committee and the accomplishment of various managerial tasks. The 2008 individual goals for the Named Officers have been established and are similar to the 2007 goals for our Named Officers.

 

At the Committee’s meeting in the first quarter of 2008, Mr. Papa, our CEO, noted the specific contributions of Messrs. Thomas, Leiker, Garrison and Driggers to the achievement of EOG’s overall company performance goals for 2007. Mr. Papa also discussed the individual performance goals of Messrs. Thomas, Leiker, Garrison and Driggers for 2007, and provided the Committee with his assessment of the achievement of such goals. The Committee and Mr. Papa determined that Messrs. Thomas, Leiker, Garrison and Driggers had met or exceeded their individual performance goals for 2007.

 

The Committee considers the achievement of EOG’s overall company performance goals for a given year to be the individual performance goals of our CEO for such year. For 2007, the Committee determined that Mr. Papa’s individual contribution to the achievement of EOG’s 2007 overall company performance goals was significant, and that Mr. Papa therefore substantially satisfied his individual performance goals. At Mr. Papa’s request, the Committee has not raised Mr. Papa’s base salary since 2004 in order to prevent his base salary from becoming further disproportionate in comparison to the rest of our employees. To reward Mr. Papa for his individual contributions to EOG’s performance, in lieu of salary raises and to further incentivize and retain Mr. Papa, the Committee may provide for greater bonus awards and equity-based compensation grants to Mr. Papa.

 

Alignment with Stockholder Interests

 

The Committee also believes that it is in the best interests of our stockholders for all of our executive officers to maintain a certain level of ownership in EOG. Therefore, stock ownership guidelines have been established ranging from one times base salary for Vice Presidents to up to five times base salary for our CEO. Each currently employed Named Officer currently satisfies the guidelines. We have no policies in place for hedging the economic risks of stock ownership under these guidelines.

 

Compensation Program Design

 

The Committee believes that appropriately balanced compensation components contribute to our success and that the best compensation philosophy is to put a substantial portion of the total compensation package at risk, tying it to both our financial and operational results and the performance of our Common Stock. The mix of stock options/SARs and restricted stock/restricted stock units in each executive officer’s compensation package is evaluated annually and will vary from time to time, as the Committee deems necessary to achieve a balance between incentive compensation, through stock options/SARs, and retention-directed compensation, through restricted stock/restricted stock units.

 

Restricted stock/restricted stock unit grants generally vest five years after the grant date, requiring the individual receiving the grant to remain with EOG for five years in order to receive any value from this component of their compensation. If the Committee determines that an executive officer does not have an unvested value in restricted stock/restricted stock units sufficient to provide an incentive to remain at EOG, and if the Committee has determined that the individual should receive additional equity-based compensation, then the Committee will typically grant more compensation in restricted stock/restricted stock units than in stock options/SARs.

 

Additionally, the Committee uses post-termination compensation and benefits as a major component of the compensation packages for our Named Officers to reward each executive officer for his service to EOG on a long- term basis, to be competitive among peer companies from a recruiting and retention standpoint and to shift the focus of each executive officer to day-to-day operations of EOG rather than job security concerns.

 

Consistent with the objectives described above, the compensation package of our CEO and the other Named Officers consists of the following elements:

 

 

 

A more detailed discussion of each element of our compensation program is provided below. The Committee does not use any formulas to determine the amount of each element to be paid. Rather, each element of our compensation program is reviewed individually relative to the objectives of that element. In addition, the Committee reviews the aggregate of base salary and non-equity incentives and compares such amounts to that of our peer companies.

 

The Committee also compares each Named Officer’s total realized compensation annually, including stock option/SAR gains relative to three-year stockholder returns, to that of similarly positioned executive officers at our peer companies to confirm that the size of the annual stock option/SAR and restricted stock/restricted stock unit grants is appropriate. Moreover, depending upon availability of up-to-date publications, the Committee also considers published market analyses and rankings, such as Forbes’ 2007 rankings of CEO performance-versus-pay, in connection with its analysis of our CEO’s compensation package to aid in determining if his compensation package is delivering rewards commensurate with our stock performance. In 2007, the only published market analysis considered by the Committee in addition to the peer group data compiled by our Human Resources Department was Forbes’ 2007 rankings of CEO performance-versus-pay.

 

We currently do not have any policies in place regarding the adjustment or recovery of compensation payments or awards in the event that we are required to restate our financial statements. We believe that our accounting practices are conservative and, moreover, we have not been required to restate our financial statements at any time since becoming an independent company in 1999. Thus, the Committee has not deemed any adjustment or recovery policies to be necessary.

 

Further, we currently do not have any policies in place regarding the adjustment of compensation payments or awards due to amounts potentially realizable from such awards. The Committee follows the philosophy that stock options/SARs, for example, are granted with an incentive purpose, as compared to the retention purpose of restricted stock/restricted stock units. The Committee will, however, consider the amount and value of unvested restricted stock/restricted stock units, as further detailed below, in deciding whether to award restricted stock/restricted stock units instead of stock options/SARs as the equity portion of an employee’s compensation package.

 

The Committee emphasizes the retention incentives provided by restricted stock/restricted stock unit awards when evaluating our compensation program, and our compensation program is weighted in favor of long-term compensation over currently paid compensation for this reason.

 

In general, the compensation program used with respect to the Named Officers corresponds to that used with respect to other employees of EOG. The majority of EOG’s employees are eligible for annual bonuses and annual equity grants as well as most of the benefits available to the Named Officers described under “Other Compensation and Benefits” below. Our CEO’s compensation package, however, is more substantial than that of most employees, including the other Named Officers. The Committee determined that this difference was acceptable based on its comparison of the compensation packages awarded to the CEOs of EOG’s peer companies. At his request, the Committee has not raised Mr. Papa’s base salary in four years. Instead, the Committee has adjusted Mr. Papa’s compensation by allocating a significant portion of his compensation to equity awards that vest over time, which provide additional retention incentives. As a result, Mr. Papa has received more restricted stock units than the other Named Officers.

 

Elements of Our Compensation Program

 

The following discussion describes the elements of our compensation program and explains why we choose to pay each element and how we determine the amount to be paid. Except as described above with respect to grants of stock options/SARs and restricted stock/restricted stock units, decisions regarding an increase or other adjustment

of a particular element will not affect decisions regarding the other elements. The Committee views each element of our compensation program as independent, since each element was selected for a specific purpose.

 

Base Salary

 

 

 

The following table presents the adjustments to the base salary of each of our currently employed Named Officers, other than Mr. Segner who is transitioning into retirement, granted by the Committee at its third quarter 2007 meeting.

 

2007 Salary Adjustments

 

 

 

 

Bonus — Cash (Non-Equity Incentive)

 

 

 

 

2007 Performance Bonus Awards and Opportunities

 

 

 

 

Bonus — Restricted Stock/Restricted Stock Units (Equity Incentive)

 

 

 

 

 

 

Stock Options/SARs

 

 

 

 

 

 

Restricted Stock/Restricted Stock Units

 

 

 

 

 

 

Post-Termination Compensation and Benefits

 

The elements of our post-termination compensation and benefits, and the events that trigger those benefits, are discussed under “Potential Payments Upon Termination of Employment or Change of Control” below. Each Named Officer, other than Mr. Garrison, has a change of control agreement that provides benefits, in addition to our Change of Control Severance Plan that applies to all employees, because the Committee believes that the risk of job loss in connection with a change of control is higher for executive officers and the time necessary to secure appropriate new employment may be longer.

 

The Committee believes that these change of control benefits are a retention device in a competitive market and believes that our Named Officers should be compensated if they (1) are involuntarily terminated after a change of control of EOG, (2) voluntarily terminate their employment with EOG under circumstances that constitute good reason or (3) terminate their employment with EOG for any reason after six months following a change of control, which the Committee believes is sufficient time to determine if there is potential for a long-term employment relationship with the acquiring company.

 

Mr. Garrison has not entered into a change of control agreement with EOG. In the event of a change of control, Mr. Garrison would be subject to the terms and conditions of our Change of Control Severance Plan.

Other Compensation and Benefits

 

 

 

 

Tax and Accounting Considerations

 

In setting the elements of our compensation program, the Committee considers the impact of the following tax and accounting provisions:

 

 

SUMMARY COMPENSATION TABLE

 

The following table summarizes certain information regarding compensation paid or accrued during fiscal years 2007 and 2006 to the Named Officers:

 

 

GRANTS OF PLAN-BASED AWARDS TABLE

 

The following table summarizes certain information regarding grants made to each of the Named Officers during fiscal year 2007 under any plan:

 

 

 

 

EMPLOYMENT AGREEMENTS

 

Each of our Named Officers, other than Mr. Garrison and Mr. Driggers, has entered into an employment agreement with us. The material terms are described below, other than the provisions regarding termination and compensation upon termination, which are described under “Potential Payments Upon Termination of Employment or Change of Control” below.

 

Mr. Papa, under his employment agreement effective as of June 15, 2005, currently serves as our Chairman and Chief Executive Officer at a minimum annual salary of $940,000 and a target annual bonus of 100% of his annual base salary. At the discretion of the Committee, the bonus may be paid in a combination of cash, stock options/SARs and/or restricted stock/restricted stock units. The employment agreement expires on May 31, 2009, but will automatically be renewed annually for successive one-year terms unless we or Mr. Papa provides a 120-day notice of intent not to renew. As a long-term incentive, Mr. Papa is also eligible to receive grants under our 1992 Stock Plan or such other equity compensation plans established from time to time by us, consistent with similarly situated executive officers.

 

Mr. Leiker, under his employment agreement effective as of June 15, 2005, currently serves as Senior Executive Vice President, Exploration at a minimum annual salary of $445,000 and a target annual bonus of 90% of his annual base salary. At the discretion of the Committee, the bonus may be paid in a combination of cash, stock options/SARs and/or restricted stock/restricted stock units. The employment agreement expires on May 31, 2009, but will automatically be renewed annually for successive one-year terms unless we or Mr. Leiker provides a 120-day notice of intent not to renew. As a long-term incentive, Mr. Leiker is also eligible to receive grants under our 1992 Stock Plan or such other equity compensation plans established from time to time by us, consistent with similarly situated executive officers.

Mr. Thomas, under his employment agreement effective as of June 15, 2005, currently serves as Senior Executive Vice President, Operations at a minimum annual salary of $445,000 and a target annual bonus of 90% of his annual base salary. At the discretion of the Committee, the bonus may be paid in a combination of cash, stock options/SARs and/or restricted stock/restricted stock units. The employment agreement expires on May 31, 2009, but will automatically be renewed annually for successive one-year terms unless we or Mr. Thomas provides a 120-day notice of intent not to renew. As a long-term incentive, Mr. Thomas is also eligible to receive grants under our 1992 Stock Plan or such other equity compensation plans established from time to time by us, consistent with similarly situated executive officers.

 

Mr. Segner, under his employment agreement effective as of June 15, 2005, currently serves as a Vice President of EOG at a minimum annual salary of $485,000. Mr. Segner is currently transitioning into retirement, which will become effective November 30, 2008. For further information, see “Potential Payments Upon Termination of Employment or Change of Control” below.

 

Mr. Hunsaker retired from EOG effective April 30, 2007. For further information, see “Potential Payments Upon Termination of Employment or Change of Control” below.

 

The employment agreements of each of the above-named Named Officers contain confidentiality obligations that specify that all information, ideas, discoveries and inventions developed or acquired by the Named Officer during his employment at EOG are our sole and exclusive property. In addition, as part of the consideration for the compensation and benefits payable under the employment agreements, the employment agreements each provide that the Named Officer shall not compete with EOG for a period that extends until the earlier of (a) the expiration of the term of the employment agreement or b) one year after the Named Officer’s employment is terminated, other than as a result of a voluntary termination by the Named Officer. If the Named Officer voluntarily terminates his employment during the term of his employment agreement, then his non-competition obligations extend for one year following the termination.

 

MATERIAL TERMS OF PLAN-BASED AWARDS

 

The vesting schedule of all stock options/SARs and restricted stock/restricted stock units awarded to the Named Officers is described under footnotes (c) and (d) to the “Grants of Plan-Based Awards Table” above. In accordance with the terms of our 1992 Stock Plan, no dividends or other distributions will be paid on unvested shares of restricted stock/restricted stock units, but the value of any dividends or distributions declared on our Common Stock will be credited by us to the account of the Named Officer (with no interest) with respect to those unvested shares or units. When a portion of the restricted stock/restricted stock units vests, we will deliver the accumulated credits to the respective officer in cash. Credits for the value of dividends and distributions are forfeited under the same circumstances that the restricted stock/restricted stock units are forfeited (please refer to “Compensation Discussion and Analysis — Elements of Our Compensation Program - Restricted Stock/Restricted Stock Units” above for a discussion of such forfeiture). At no time during 2007 were any outstanding awards repriced or otherwise materially modified. Moreover, there are no performance-based or market-based conditions applicable to any of the awards described above, except to the extent that restricted stock/restricted stock units are granted as a portion of the annual bonus awards.

 

SALARY AND BONUS IN PROPORTION TO TOTAL COMPENSATION

 

The Committee reviews the aggregate of the base salary and annual bonus for each of our Named Officers and compares such totals to the corresponding amounts paid to the executive officers of our peer companies (taking into consideration their market capitalization compared to EOG’s market capitalization). Under our compensation program, the value of the combined base salary and annual bonus for each of our Named Officers is approximately 26% to 49% of their total compensation, which is generally less than the corresponding percentages of base salary and annual bonus compensation paid to the executive officers of a majority of our peer companies. The Committee has determined that this weighted proportion is in the best interest of EOG because it is consistent with the Committee’s belief that our compensation program should be tied in part to our stock price performance so as to align our Named Officers’ interests with those of our stockholders.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

 

The following table summarizes certain information regarding unexercised stock options and SARs and unvested shares of restricted stock and restricted stock units outstanding as of December 31, 2007 for each of the Named Officers:

 

 

 

 

 

STOCK OPTION/SAR EXERCISES AND RESTRICTED STOCK/
RESTRICTED STOCK UNITS VESTED TABLE

 

The following table summarizes certain information regarding exercises of stock options/SARs and vesting of restricted stock/restricted stock units during fiscal year 2007 for each of the Named Officers:

 

 

PENSION BENEFITS

 

We currently have no defined benefit pension plans covering any of the Named Officers.

NONQUALIFIED DEFERRED COMPENSATION TABLE

 

The following table provides certain information regarding our Named Officers with respect to each defined contribution plan that provides for the deferral of compensation on a basis that is not tax-qualified.