EXHIBIT 10.1

ANADARKO PETROLEUM CORPORATION

1999 STOCK INCENTIVE PLAN

PERFORMANCE UNIT AGREEMENT

 

THIS PERFORMANCE UNIT AGREEMENT (the "Agreement") dated _______ __, 200_, is by
and between Anadarko Petroleum Corporation (the "Company") and
____________________ ("Employee").

W I T N E S S E T H:

ARTICLE 1
GRANT

1.1 Grant. Pursuant to the Company's 1999 Stock Incentive Plan (the "Plan") and
subject further to the terms and conditions herein set forth, the Company and
Employee enter into this Agreement pursuant to which Employee may earn up to {2
* Target} Performance Units. Each Performance Unit represents the value of one
share of the $0.10 par value common stock of the Company ("Performance Units").
Upon the Company's achievement of pre-determined objectives for a specified
performance period, the Company will pay out to Employee some or all of the
Performance Units as hereinafter described. The Compensation and Benefits
Committee of the Company's Board of Directors (the "Committee") reserves the
right, in its sole discretion, to make such payment in cash, shares of Company
common stock, or a combination of both.

ARTICLE 2
PRE-DETERMINED PROVISIONS

2.1 Performance Period. Pursuant to this Agreement, the three-year period
beginning on January 1, 2005 and ending on December 31, 2007 will be the
performance period (the "Performance Period").

2.2 Performance Awards. Employee may earn a target of (a) {1/2 * Target}
Performance Units, up to a maximum of {Target} Performance Units during the
Performance Period with respect to the First Performance Objective, and (b) {1/2
* Target} Performance Units, up to a maximum of {Target} Performance Units
during the Performance Period with respect to the Second Performance Objective.
In no circumstances may Employee earn more than {2 * Target} Performance Units
during the Performance Period.

2.3.1 First Performance Objective. The number of Performance Units to be earned
by Employee for the Performance Period with respect to the First Performance
Objective will be determined at the end of the Performance Period by comparing
the Company's total shareholder return ("TSR") over the Performance Period to
the TSRs of the Peer Companies' for the same Performance Period. For purposes of
such comparison, TSR will be calculated as follows:

 

Average per share Stock Price for the last 60 Business Days of the Performance
Period

minus

Average per share Stock Price for the 60 Business Days preceding the beginning
of the Performance Period

plus

Dividends (cash or stock) paid per share over the Performance Period

the above total of which is divided by

Average per share Stock Price for the 60 Business Days preceding the beginning
of the Performance Period

"Stock Price" is defined as the average of the high and low prices for one share
of the Company's common stock in one trading day and shall be adjusted for stock
splits, spin-offs, mergers or any other corporate securities transaction
affecting Stock Price, as determined by the Committee.

"Business Days" are defined as any days the New York Stock Exchange is open and
shares of stock are actively traded.

2.3.2 Peer Companies

. For the Performance Period, the following companies are the peer companies
("Peer Companies") to be used in the award determination with respect to the
First Performance Objective. Any Peer Company that ceases to be a publicly
traded entity on a recognized stock exchange during the Performance Period will
be removed from the Peer Company list. The Committee may evaluate for inclusion
or exclusion any Peer Company that merges with or is acquired by another Peer
Company during the Performance Period. No companies may be added to the list
during the Performance Period.

Amerada Hess Corporation
Apache Corporation
Burlington Resources, Inc.
ConocoPhillips
Devon Energy Corporation
EOG Resources, Inc.
Kerr-McGee Corporation
Marathon Oil Corporation
Noble Energy, Inc.
Occidental Petroleum Corporation
Pioneer Natural Resources Company
Unocal Corporation

2.3.3 Award Determination for First Performance Objective. At the end of the
Performance Period, the Peer Companies and the Company shall be ranked together
based on their TSR for the Performance Period from the highest TSR being number
1 to the lowest TSR being the number of Peer Companies, including the Company,
remaining in the group at the end of the Performance Period. Based on the
Company's relative TSR rank amongst the Peer Companies for the Performance
Period, Employee will have earned Performance Units as determined by the
Company's percentile rank as follows:

                      (A)   If the Company's relative TSR rank is equal to or
above the 50th percentile of the Peer Companies, Employee will have earned and
the Company will issue to Employee a number of Performance Units equal to {1/2 *
Target} multiplied by two times the Company's percentile rank as determined
under the matrices of Exhibit I.

                      (B)   If the Company's relative TSR rank is equal to or
greater than the 50th percentile and the Company's TSR is less than the TSR of
the Peer Company immediately above the Company in the relative ranking by not
more than one percentage point, then the payouts for both rankings (the
Company's ranking, as determined under the matrices of Exhibit I, and the
ranking of the Peer Company immediately above the Company in the relative
ranking, as determined under the matrices of Exhibit I) will be averaged to
determine the number of Performance Units which will be earned by Employee.

                      (C)   If the Company's relative TSR rank falls directly
below the relative TSR rank of a Peer Company whose rank represents the first
payout level for the Performance Period in which the number of shares earned is
greater than zero (as depicted in the matrices of Exhibit I, based on the number
of Peer Companies included under Section 2.3 of this Agreement), and the
Company's TSR is less than the TSR of such Peer Company by not more than five
percentage points, then the Company will issue to Employee a number of
Performance Units equal to {1/2 * Target} multiplied by two times the percentile
rank of the first payout level. The Committee may reduce such award in its
discretion, but in no event may it increase the award above the first payout
level.

2.4.1 Second Performance Objective. The number of Performance Units Employee may
earn for the Performance Period with respect to the Second Performance Objective
will be determined at the end of the Performance Period by calculating the
Company's Reserve Replacement Efficiency ("RRE") ratio for the three-year period
beginning on January 1, 2005 and ending on December 31, 2007, calculated as
follows:

"Margin" per Barrels of Oil Equivalent ("BOE") where Margin equals Revenues
minus Cash Costs, Interest Expenses and Cash Income Taxes

divided by

"Finding and Development Cost" ("F&D") per BOE where F&D equals Oil & Gas
Segment Capital Expenditures (adjusted for changes in future development costs
discounted at 10%) divided by Total Reserve Adds (which includes Discoveries,
Extensions, Revisions and Acquisitions)

2.4.2 Award Determination for Second Performance Objective. At the end of the
Performance Period, the Company will determine the RRE ratio during the
Performance Period. Employee will have earned and the Company will issue to
Employee a number of Performance Units equal to {1/2 * Target} multiplied by the
applicable payout percentage, as determined under Exhibit II. For purposes of
this Section 2.4.2, the RRE ratio, as determined by the Company, will be rounded
to two decimal places.

2.5 Payout of Award. Performance Units earned for the Performance Period shall
only be issued to Employee as soon as practicable following the Committee's
formal review and certification of the actual TSR and RRE performance results
for the Performance Period.

2.6 Retirement. If Employee's employment is terminated prior to the end of the
Performance Period by reason of Retirement, the Company will issue to Employee,
at the end of the Performance Period and subject to Section 2.5 of this
Agreement, the number of Performance Units as determined under Sections 2.3.3
and 2.4.2 of this Agreement multiplied by a fraction, the numerator of which is
the total number of completed and partial calendar months of employment (rounded
to the next whole month) with the Company during the Performance Period and the
denominator of which is 36. For purposes of this Section 2.6, "Retirement" shall
have the meaning ascribed to it in the Anadarko Retirement Plan.

2.7 Involuntary Termination. If Employee's employment is terminated by the
Company prior to the end of the Performance Period, and Employee is eligible for
and receives severance benefits under the Anadarko Petroleum Corporation Officer
Severance Plan, the Company shall issue to Employee {Target} Performance Units
as soon as practicable following the Employee's termination of employment.

2.8 Change of Control. If a Change of Control, as defined in the Plan, occurs
prior to the end of the Performance Period, the Company shall issue to Employee
{Target} Performance Units as soon as practicable following the effective date
of the Change of Control.

2.9 Death or Disability. If Employee's employment terminates due to death or
Disability (as defined herein) prior to the end of the Performance Period, the
Company shall issue to Employee {Target} Performance Units as soon as
practicable following the Employee's termination of employment as a result of
such death or Disability.

For purposes of this Agreement, "Disability" shall mean any termination as a
result of the Employee's disability under circumstances entitling him to
benefits under the Company's long-term disability plan.

Notwithstanding the foregoing, the Committee may, in its sole discretion,
increase the number of Performance Units to be transferred to Employee pursuant
to this Section 2.9 up to a total of {2 * Target} Performance Units.

2.10 Other Termination. Upon a termination of employment prior to the end of the
Performance Period other than as contemplated by Sections 2.6 ("Retirement"),
2.7 ("Involuntary Termination") or 2.9 ("Death or Disability"), this Agreement
shall immediately terminate and all Performance Units shall be forfeited upon
termination of employment.

ARTICLE 3
MISCELLANEOUS

3.1 Tax Withholding. Employee may be required to pay to the Company, and the
Company shall have the right and is hereby authorized to withhold from any
payment made under this Agreement or from any other compensation or other amount
owing to Employee, the amount (in cash, Performance Units, other securities,
other Awards or other property) of any applicable withholding taxes due in
connection to any Performance Units granted hereunder and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. In the case of payments made
hereunder in the form of Performance Units, at the Committee's discretion,
Employee may be required to pay to the Company the amount of any taxes required
to be withheld with respect to such Performance Units or, in lieu thereof, the
Company shall have the right to retain (or Employee may be offered the
opportunity to elect to tender in accordance with rules established by the
Committee) the number of Performance Units whose aggregate Fair Market Value
equals the amount required to be withheld.

3.2 No Assignment. The right of Employee or any other person claiming under
Employee to payments, issuance of Performance Units or other benefits under this
Agreement may not be assigned, transferred, pledged, anticipated, commuted or
encumbered nor shall said payments, Performance Unit issuance rights or other
benefits be subject to seizure for payments of any debts or judgments of
Employee or any person claiming under Employee or be transferable by operation
of law in advance of any payment or issuance of Performance Units hereunder.
Notwithstanding the foregoing there are no restrictions on the assignment,
alienation, pledge, attachment, sale, transfer or encumbrance of any Performance
Units that have been issued to Employee.

3.3 Ownership and Possession. Employee shall not have any rights as a
stockholder with respect to any Performance Units granted hereunder.

3.4 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of any successor to the Company and all persons lawfully claiming under
Employee.

3.5 No Rights to Continued Employment. Neither this Agreement nor the Plan shall
be construed as giving Employee any right to continue in the employ of the
Company or any of its Affiliates.

3.6 Governing Law. This Agreement and the legal relations between the parties
shall be governed by and construed in accordance with the laws of the State of
Texas and applicable Federal law without regard to conflicts of laws principles.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
an officer thereunder duly authorized, and Employee has executed this Agreement,
as of the day and year first above written.

ANADARKO PETROLEUM CORPORATION

By:
                                                                             
Name:                                                    Date
Title:

 

EMPLOYEE

                                                    

                               
Name                                                     Date

 

 

 

 

Performance Unit Agreement - EXHIBIT I

Example TSR Performance Matrix for the Performance Period

January 1, 2005 - December 31, 2007

For 13 companies:

1

2

3

4

5

6

7

8

9

10

11

12

13

Anadarko Relative TSR Rank

1

2

3

4

5

6

7*

8*

9

10

11

12

13

Percentile Rank

100%

92%

83%

75%

67%

58%

50%

42%

33%

25%

17%

8%

0%

Payout as % of Target

200%

184%

166%

150%

134%

116%

100%

0%

0%

0%

0%

0%

0%

Payout No. Shares

20,000

18,400

16,600

15,000

13,400

11,600

10,000

0

0

0

0

0

0

* If Anadarko's Relative TSR rank is 8 and Anadarko's actual TSR is within 5% of
the TSR of the company whose Relative TSR rank is 7, the Employee will receive a
number of Performance Shares equal to 10,000 multiplied by 100%, provided,
however, that the Committee may reduce such payout to Employee, in its
discretion.

For 12 companies:

1

2

3

4

5

6

7

8

9

10

11

12

Anadarko Relative TSR Rank

1

2

3

4

5

6*

7*

8

9

10

11

12

Percentile Rank

100%

91%

82%

73%

64%

55%

46%

36%

27%

18%

9%

0%

Payout as % of Target

200%

182%

164%

146%

128%

110%

0%

0%

0%

0%

0%

0%

Payout No. Shares

20,000

18,200

16,400

14,600

12,800

11,000

0

0

0

0

0

0

* If Anadarko's Relative TSR rank is 7 and Anadarko's actual TSR is within 5% of
the TSR of the company whose Relative TSR rank is 6, the Employee will receive a
number of Performance Shares equal to 10,000 multiplied by 110%, provided,
however, that the Committee may reduce such payout to Employee, in its
discretion.

For 11 companies:

1

2

3

4

5

6

7

8

9

10

11

Anadarko Relative TSR Rank

1

2

3

4

5

6*

7*

8

9

10

11

Percentile Rank

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Payout as % of Target

200%

180%

160%

140%

120%

100%

0%

0%

0%

0%

0%

Payout No. Shares

20,000

18,000

16,000

14,000

12,000

10,000

0

0

0

0

0

* If Anadarko's Relative TSR rank is 7 and Anadarko's actual TSR is within 5% of
the TSR of the company whose Relative TSR rank is 6, the Employee will receive a
number of Performance Shares equal to 10,000 multiplied by 100%, provided,
however, that the Committee may reduce such payout to Employee, in its
discretion.

In the event there are less than eleven companies remaining at the end of the
performance period, a matrix will be developed in the same format as above to
determine relative payout, if any, under the plan. Based on the number of
companies remaining, inclusive of Anadarko, the "Percentile Rank" will be
calculated (using recognized mathematical formulas) for each eligible company
position. The "Payout as % of Target" will be based on the "Percentile Rank" and
determined as follows: 1) if the "Percentile Rank" is equal to or greater than
50%, the "Payout as % of Target" will be equal to the "Percentile Rank" times 2;
and 2) if the "Percentile Rank" is less than 50%, the "Payout as % of Target"
will be equal to 0%. The "Payout No. Shares" will be calculated by multiplying
the "Payout as % of Target" times 10,000 shares.

 

 

 

 

Performance Unit Agreement - EXHIBIT II

RRE Performance Schedule for the Performance Period

January 1, 2005 - December 31, 2007

Determination of Performance Units Earned for the Second Performance Objective

RRE During the Performance Period

Percent of Target Award Earned

Performance Units Earned

Below Threshold

< 1.2

0%

0

Threshold

1.2

50%

{1/4 * Target)

Target

1.4

100%

{1/2 * Target)

Maximum

> 2.2

200%

{Target}

The number of Performance Units earned under the Second Performance Objective
will be determined in accordance with the above schedule. The Percent of Target
Award Earned will be interpolated from the above chart based on the RRE during
the Performance Period in relation to the Target RRE. The RRE ratio, as
determined by the Company, will be rounded to two decimal places.