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, 2006 and ending on December 31, 2008 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

 

       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, 2006 and ending on December 31, 2008,
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. Notwithstanding Section 2.6 of this
Agreement, 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, then Section 2.6 of this Agreement shall not apply and 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

TSR Performance Matrix for the Performance Period

January 1, 2006 - December 31, 2008

For 12 companies:

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. Units

x,xxx

x,xxx

x,xxx

x,xxx

x,xxx

x,xxx

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 Units equal to xxxx multiplied by 110%, provided, however,
that the Committee may reduce such payout to Employee, in its discretion.

For 11 companies:

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. Units

x,xxx

x,xxx

x,xxx

x,xxx

x,xxx

x,xxx

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 Units equal to xxxx multiplied by 100%, provided, however,
that the Committee may reduce such payout to Employee, in its discretion.

For 10 companies:

Anadarko Relative TSR Rank

1

2

3

4

5*

6*

7

8

9

10

 

Percentile Rank

100%

89%

78%

67%

56%

45%

33%

22%

11%

0%

 

Payout as % of Target

200%

178%

156%

134%

112%

0%

0%

0%

0%

0%

 

Payout No. Units

x,xxx

x,xxx

x,xxx

x,xxx

x,xxx

0

0

0

0

0

 

* If Anadarko's Relative TSR rank is 6 and Anadarko's actual TSR is within 5% of
the TSR of the company whose Relative TSR rank is 5, the Employee will receive a
number of Performance Units equal to xxxx multiplied by 112%, provided, however,
that the Committee may reduce such payout to Employee, in its discretion.

 

In the event there are less than ten 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. Units' will be calculated by multiplying
the 'Payout as % of Target' times x,xxx units.

 

 

 

 

Performance Unit Agreement - EXHIBIT II

RRE Performance Schedule for the Performance Period

January 1, 2006 - December 31, 2008

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

1.35

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.