EOG RESOURCES INC
For the period ended May 22, 2024. Filed Mar 28, 2024.
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May 22, 2024 · Filed Mar 28, 2024
Contents
Executive Compensation Program for 2023
The following discussion describes the components of our executive compensation program and explains how we determined the amounts for our NEOs.
Base Salary
The following table presents the base salaries for each of our NEOs as of December 31, 2022 and 2023, respectively. The Compensation Committee increased the base salaries of all NEOs in February 2023 to maintain alignment with the competitive market and recognize their continued growth in their roles; such increases included an increase in Mr. Leitzell’s base salary from $445,000 to $535,000. In connection with his promotion to Chief Operating Officer, Mr. Leitzell’s base salary was increased from $535,000 to $615,000 effective December 18, 2023.
| Name | Base Salary as of 12/31/2022 | Base Salary as of 12/31/2023 |
|---|---|---|
| Ezra Y. Yacob | $1,000,000 | $1,200,000 |
| Lloyd W. Helms, Jr. | $ 765,000 | $ 825,000 |
| Timothy K. Driggers | $ 695,000 | $ 735,000 |
| Michael P. Donaldson | $ 695,000 | $ 735,000 |
| Jeffrey R. Leitzell | $ 445,000 | $ 615,000 |
Annual Bonus
Our CEO and other NEOs are eligible to receive annual bonuses under the Annual Bonus Plan. The Compensation Committee believes that a subjective determination utilizing specific weighted metrics for bonus funding based on a retrospective evaluation of performance against goals yields the most appropriate bonus outcome. The Compensation Committee also believes that setting specific performance goals in advance helps establish important benchmarks and communicates our top priorities to our NEOs and employees. As noted above, in approving our performance goals for the upcoming year, the Compensation Committee also affirms that such performance goals shall also be our CEO’s individual performance goals for the upcoming year. Pursuant to the Annual Bonus Plan, bonus payouts for NEOs are capped at 200% of target.
In addition to, or instead of, the categories of performance goals listed below, the Compensation Committee in the future may establish performance goals based on other financial and strategic measures as well as goals with respect to operational and organizational execution relevant to our annual operating plan. Further, in a commodity business like ours, certain performance goals can lose their relevance with material fluctuations in commodity prices. In addition, strict adherence to established performance goals may also prevent us from modifying our business strategy during the year as appropriate. Accordingly, the Compensation Committee has the discretion to revise or modify the performance goals during the year to address material fluctuations in commodity prices, changes to our operating plan or business strategy and other factors.
The Compensation Committee established the following goals and weightings to evaluate our 2023 performance, including quantitative goals related to financial and strategic performance weighted 70% in total (increased from 62.5% for 2022). These quantitative financial and strategic performance goals represented the heaviest-weighted goals for our 2023 performance and included six (6) goals related to returns, free cash flow*, unit costs, stock price-related performance and safety and environmental-related performance.
As discussed above, effective beginning with annual bonuses for 2024, quantitative goals related to financial and strategic performance will represent 80% of the total performance goals scorecard (increased from 70% in 2023).
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Operational and organizational execution goals, weighted 30% in total for 2023, encompassed our other goals, including goals with respect to furthering our returns-focused drilling strategy, achieving certain operational targets, maintaining peer leadership in our crude oil, natural gas and NGLs price realizations, well inventory and acreage additions, effective risk management and reaffirming EOG’s unique culture.
Annual Bonus Plan Metric Weighting
Annual goals are based on EOG’s annual operating plan and reflect, among other factors, broader macro-environment factors such as commodity prices and market conditions. The Compensation Committee approves targets it believes are rigorous and aligned with EOG’s strategic objectives. As a result, targets for goals for a particular year may be set above or below the prior year’s target and/or actual performance. The 2023 after-tax rate of return*, ROCE* and free cash flow* targets were set lower than 2022 based on lower commodity prices and weaker market conditions entering 2023.
The Compensation Committee evaluated and scored each goal, within a range of 0% to 200% of target, with performance exceeding target scored above 100% and below-target performance scored below 100%.
In determining the overall result for the goals with respect to our operational and organizational execution, the Compensation Committee evaluated the results for each of the goals individually as well as collectively, with a focus on performance that supports our returns-focused strategy. The Compensation Committee then made an assessment of our overall performance in respect of such goals, utilizing the same range of 0% to 200% of target (with collective performance exceeding the targets encompassed in such goals to be scored above 100% and below-target collective performance to be scored below 100%).
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The Compensation Committee’s assessment of our performance against the goals is provided below.
| Performance Goal · Weight · Result · Assessment | ||||||||
|---|---|---|---|---|---|---|---|---|
| Achieve 20% all-in after-tax rate of return* on total capital expenditures based on our internal “premium” price deck of flat $40/Bbl WTI oil and $2.50/Mcf HH natural gas prices | 15% | Achieved a 23% all-in after-tax rate of return* | Achieved | |||||
| Achieve 20% ROCE* | 15% | Achieved 28% ROCE* (calculated based on non-GAAP adjusted net income) | Significantly exceeded | |||||
| Generate free cash flow* of $4.5 billion before dividends | 15% | Generated $5.1 billion of free cash flow* before dividends | Exceeded | |||||
| Achieve median in peer group in TSR performance and forward-year cash flow multiple | 5% | Finished fifth out of nine peers in TSR performance and fourth out of nine peers in forward-year cash flow multiple | Achieved median in TSR performance and exceeded median in forward-year cash flow multiple | |||||
| Achieve unit cost targets: • ≤$19.0 MM/MBoed Capital Efficiency • ≤$10.50/Boe DD&A • ≤$10.50/Boe Controllable Cash Operating Costs (LOE, G&A, Transportation, G&P Expenses) • Specified All-in Finding Cost per Boe | 5% | Realized actual unit costs: • Capital Efficiency > $19.0 MM/MBoed (did not achieve) • DD&A – $9.72/Boe (significantly exceeded) • Controllable Cash Operating Costs – $10.33/Boe (exceeded) • All-in Finding Cost per Boe exceeded target (did not achieve) | Overall, achieved | |||||
| Realize total recordable incident rate below 0.5 | 7.5% | Achieved total recordable incident rate below 0.5 (based on preliminary estimate of 2023 metric) | Exceeded | |||||
| Continued commitment to strong environmental record: • Oil spill rate below 0.01 per Mboe gross volumes • Oil recovery rate > 50% • Methane emissions intensity below 0.6 metric tons of CO2e per Mboe gross volumes • GHG emissions intensity below 13.5 metric tons of CO2e per Mboe gross volumes • Flaring intensity below 1.4 metric tons of CO2e per Mboe gross volumes • Wellhead gas capture rate of 99.8% or higher | 7.5% | Attained or surpassed specified environmental metric targets (based on preliminary estimates of 2023 metrics) | Exceeded | |||||
| Total Weight | 70% | |||||||
| Executing on our 2023 plan through goals related to well economics, acreage additions, well inventory, effective risk management and reaffirming EOG’s unique culture, including by seeking to: · Executed on our 2023 plan as follows: · Overall, exceeded | ||||||||
| • Drill 80% “premium” wells · • Drilled 80% “premium” wells | ||||||||
| • Capture > 50,000 net acres with “premium” resource potential · • Captured > 50,000 net acres with “premium” resource potential | ||||||||
| • Achieve the following production targets · • Attained the following: | ||||||||
| – 473 MBbld crude oil and condensate production · – 475.8 MBbld crude oil and condensate production | ||||||||
| – 1,000 MBoed total production · – 984.8 MBoed total production | ||||||||
| • Maintain peer leadership in product marketing · • Led peers in product marketing, as measured by price realizations for crude oil, natural gas and NGLs | ||||||||
| • Minimize total well cost increase at or below 10% · • Achieved total well cost increase < 10% | ||||||||
| • Continually improve EOG’s safety culture · • Advanced EOG’s established safety culture, including increased safety leadership program attendance | ||||||||
| Total Weight | 30% | |||||||
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Consistent with its determination of bonuses in prior years, the Compensation Committee applied the results above to the NEOs’ 2023 bonus target percentages. The Compensation Committee did not make changes to the NEO bonus target percentages for 2023. In connection with his promotion to Chief Operating Officer, the Compensation Committee increased the bonus target percentage for Mr. Leitzell from 90% to 100% of base salary, effective beginning with compensation to be paid in respect of fiscal year 2024 performance.
The performance factors reflect each NEO’s contribution to the company’s achievement of 2023 performance goals and the officer’s achievement of his individual performance goals. Based on the results of the Compensation Committee’s assessment set forth above, the Compensation Committee awarded a bonus, paid entirely in cash, to each of the NEOs for 2023 performance as follows:
| Name | Base Salary as of 12/31/2023 | Bonus Target (as a % of Base Salary) | Performance Factor | Actual Bonus Paid |
|---|---|---|---|---|
| Ezra Y. Yacob | $1,200,000 | 150% | 140% | $2,520,000 |
| Lloyd W. Helms, Jr. | $ 825,000 | 100% | 140% | $1,155,000 |
| Timothy K. Driggers | $ 735,000 | 90% | 140% | $ 926,100 |
| Michael P. Donaldson | $ 735,000 | 90% | 140% | $ 926,100 |
| Jeffrey R. Leitzell | $ 615,000 | 90% | 140% | $ 775,000 |
Long-Term Incentives
The long-term incentive component of our executive compensation program comprises a substantial majority of our NEOs’ compensation, tying a significant portion of NEOs’ compensation to our stock price performance, both on an absolute and relative basis. The long-term incentive awards are granted under the terms of the 2021 Stock Plan. In 2023, our NEOs’ long-term incentives consisted of two vehicles:
| • | Performance Units (60% weighting) |
| • | Restricted Stock/RSUs (40% weighting) |
The Compensation Committee discontinued the granting of Stock Appreciation Rights (SARs) to our NEOs in 2022 in favor of granting performance units and restricted stock/RSUs to align NEO compensation with EOG’s focus on disciplined growth and free cash flow* and dividend priorities.
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The table below summarizes the key features of each vehicle.
| Vehicle | Purpose | Key Terms |
|---|---|---|
| Performance Units (60% weighting) | • Reward our NEOs based on our performance over the three-year performance period for: – relative TSR performance versus a specified group of peer companies, including the S&P 500 index; – absolute ROCE*; and – absolute TSR performance • Align the interests of our NEOs with those of our stockholders • Emphasize our long-term strategy | • Our TSR is measured relative to the TSR of our performance peer companies (as specified in the respective grant agreements) and the S&P 500 index (the “Performance Peer Group”), over the three full calendar years following the grant date • Above-median relative TSR rank is required to earn target (100%) on the relative TSR performance objective • The performance multiple determined based on relative TSR performance will be adjusted by a specified modifier based on EOG’s average ROCE* (calculated based on non-GAAP adjusted net income (loss)) over the three-year performance period • The overall performance multiple shall be capped at target (100%) if EOG’s absolute TSR over the three-year performance period is negative • 0-200% of award may be earned based on performance objectives outlined above; performance multiple scale and modifiers provided below • Awards denominated and paid (upon vesting) in shares of our Common Stock creating a further tie to our stock price performance during the vesting period • Stockholder return calculated using December average closing stock prices at beginning and end of performance period • “Cliff” vest the February 28th immediately following the completion of the three-year performance period and the certification of the applicable performance multiple by the Compensation Committee • Dividends are subject to the applicable performance multiple and are credited to the holder and paid at the expiration of the vesting period or forfeited to the extent the performance units are forfeited |
| Restricted Stock/ RSUs (40% weighting) | • Align the interests of our NEOs with those of our stockholders • Enhance the retention of our NEOs • Emphasize our long-term strategy • May be issued in special situations to recognize achievements (for example, the discovery of significant oil and gas reserves) | • “Cliff” vest three years from grant date • Dividends are credited to the holder and paid at the expiration of the vesting period or forfeited if the restricted stock/RSUs are forfeited • RSUs are granted instead of restricted stock if the NEO will reach age 62 prior to the grant’s vesting date, in order to avoid adverse tax consequences to the NEO under the Code |
28 EOG RESOURCES, INC.
The long-term incentive awards granted to each NEO are generally determined at the Compensation Committee’s third quarter meeting each year (with grant dates established generally within one week of the date of Compensation Committee approval to allow time to administer the grants), based on the following factors:
| • | Compensation data from our peer group and general industry for executives in similar positions |
| • | An evaluation of our progress to-date towards achieving our pre-determined company performance goals |
| • | Individual NEO contributions toward achievement of our performance goals and the officer’s achievement towards his performance goals |
| • | General market and industry conditions |
In September 2023, based on a review of benchmark data, the Compensation Committee determined to hold September 2023 target long-term incentive award opportunities flat to 2022 for our NEOs, other than Mr. Yacob. In recognition of his continued growth in the role of Chief Executive Officer, the Compensation Committee approved an increase for Mr. Yacob’s September 2023 annual award.
Additionally, in connection with Mr. Leitzell’s promotion to Chief Operating Officer in December 2023, the Compensation Committee approved a promotional long-term incentive award for Mr. Leitzell, effective December 18, 2023. Such award had an aggregate target grant date value of $1,200,000, comprised of (i) 60% performance units subject to the same vesting and TSR/performance multiple provisions as the September 2023 award and (ii) 40% restricted stock subject to a three-year “cliff” vesting period.
Awards provided to our NEOs in 2023 are summarized in the table below.
| Name | Target Grant Value | Target Performance Unit Value (60% Weighting) | Performance Units | Target Restricted Stock/RSU Value (40% Weighting) | Restricted Stock/ RSUs |
|---|---|---|---|---|---|
| September 2023 Annual Award | |||||
| Ezra Y. Yacob | $10,000,000 | $6,000,000 | 45,392 | $4,000,000 | 30,261 |
| Lloyd W. Helms, Jr. | $4,550,000 | $2,730,000 | 20,653 | $1,820,000 | 13,769 |
| Timothy K. Driggers | $3,225,000 | $1,935,000 | 14,639 | $1,290,000 | 9,759 |
| Michael P. Donaldson | $3,000,000 | $1,800,000 | 13,617 | $1,200,000 | 9,078 |
| Jeffrey R. Leitzell | $1,600,000 | $960,000 | 7,262 | $640,000 | 4,841 |
| December 2023 Promotional Award | |||||
| Jeffrey R. Leitzell | $1,200,000 | $720,000 | 5,920 | $480,000 | 3,946 |
The number of performance units and shares of restricted stock/RSUs granted on September 15, 2023 was based on the closing price of our Common Stock on the NYSE on September 15, 2023 of $132.18 per share (with the resulting number of shares/units rounded down to a whole share/unit). The number of performance units and shares of restricted stock granted on December 18, 2023 was based on the closing price of our Common Stock on the NYSE on December 18, 2023 of $121.62 per share (with the resulting number of shares/units rounded down to a whole share/unit). As noted in footnote (d) to the “Grants of Plan-Based Awards Table for 2023” below, the grant value per performance unit used for accounting purposes for the September 15, 2023 grant, based on the Monte Carlo simulation, was $143.12 per unit. The grant value per performance unit used for accounting purposes for the December 18, 2023 grant, based on the Monte Carlo simulation, was $125.305 per unit.
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2023 Performance Unit Awards
Relative TSR Performance (Primary Performance Metric)
The performance unit awards granted in September 2023 (and Mr. Leitzell’s December 2023 promotion award) are subject to the performance multiple specified below based on our TSR relative to the TSR of the Performance Peer Group over the first three full calendar years following the grant date, according to the following scale (as specified in the grant agreement):
| EOG Rank | PerformanceMultiple |
|---|---|
| 1 | 200% |
| 2 | 175% |
| 3 | 150% |
| 4 | 125% |
| 5 | 100% |
| 6 | 75% |
| 7 | 50% |
| 8 | 25% |
| 9 | 0% |
| 10 | 0% |
This payout scale requires EOG’s TSR to be above the median (i.e., the 50 th percentile) of the Performance Peer Group in order to earn target (100% of the award).
Performance Peer Group
EOG’s TSR is measured relative to our Performance Peer Group which consists of the S&P 500 index and a specified group of E&P companies. The Performance Peer Group for the 2023 performance unit awards was initially defined as the same eight core peers used for compensation benchmarking and the S&P 500 index. Following the September 2023 grant, and prior to the beginning of the performance period on January 1, 2024, two peer companies announced acquisitions: ExxonMobil’s acquisition of Pioneer Natural Resources Company (“Pioneer”) and Chevron’s acquisition of Hess Corporation (“Hess”). As a result, in December 2023 the Compensation Committee approved the replacement of Pioneer and Hess with two other E&P companies: Coterra Energy Inc. and Ovintiv Inc.
Therefore, the Performance Peer Group for the 2023 performance unit awards is:
| • | APA Corporation |
| • | Coterra Energy Inc. |
| • | ConocoPhillips |
| • | Devon Energy Corporation |
| • | Diamondback Energy, Inc. |
| • | Marathon Oil Corporation |
| • | Occidental Petroleum Corporation |
| • | Ovintiv Inc. |
| • | S&P 500 Index |
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Return on Capital Employed (Modifier to Performance Multiple)
The 2023 performance unit awards include an absolute ROCE* modifier. The absolute modifier diversifies the metrics for performance award vesting and aligns with our long-term commitment to deliver industry-leading returns, at a level above our cost of capital. The ROCE* modifier can adjust the relative TSR payout by a factor of minus 70%(-70%) to plus 70% (+70%) based on EOG’s average ROCE* over the three-year performance period. In no event will the performance multiple, after applying the absolute ROCE* modifier, exceed 200%. The goal ranges for the modifier are outlined below, with interpolation used between 15% and 25% average ROCE* and between 0% and 10% average ROCE*, as further specified in the grant agreement.
| Average ROCE* Achieved | Performance Multiple Modifier |
|---|---|
| ≥25% | +70% |
| 15% to 24% | +20% to +65% |
| 11% to 14% | 0% |
| 1% to 10% | -20% to -65% |
| 0% or lower | -70% |
Negative TSR Cap (Modifier to Final Performance Multiple)
The overall 2023 performance award payout (after considering both relative TSR performance and the impact of the ROCE* modifier) is capped at target (100%) if EOG’s absolute TSR is negative over the three-year performance period.
Summary of 2023 Performance Unit Award Design
September 2020 and January 2021 Performance Unit Awards Payout
Effective February 8, 2024, the Compensation Committee certified a performance multiple of 25% for the performance units award granted to the NEOs in September 2020 and the promotional performance units award granted to Mr. Yacob in January 2021 (which each “cliff” vested on February 28, 2024) based on (1) our TSR over the applicable three-year performance period relative to the TSR of each of the applicable peer companies and (2) our resulting “TSR Rank” (as defined in the grant agreements) of “8”.
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