Approved April 29, 1997
SEAGULL ENERGY CORPORATION
1997
EXECUTIVE INCENTIVE PLAN
Background
The 1997 Executive Incentive Plan (the "Incentive Plan") for Seagull Energy
Corporation is designed to motivate key employees of the Company to achieve
tough, but realistic, performance goals and to reward those employees who
perform at or above the expected level. The Incentive Plan defines participants,
award opportunities and performance goals for the 1997 performance year. It is,
of course, based upon the 1997 Operating Plan (the "Operating Plan") and is
designed to maximize performance incentives while allowing for the recognition
of individual efforts through a significant discretionary component.
Participation
Participants in the Incentive Plan are officers or individuals whose positions
have been valued in the salary structure in and above Grade 12. These are the
persons responsible for the annual and longer-term success of the company.
Timing of Payments
Seventy-five percent of any Incentive Plan award is paid to the recipient early
in the year following the performance year, and the remaining 25% plus an
interest factor in the next year. In this case, the performance year is 1997.
The award will be determined and the first 75% increment paid in early 1998, and
the remaining installment (increased by a 10% interest factor, i.e., the
deferred payment will be 110% of such remaining installment) in early 1999. The
recipient must be an employee on the payment dates in order to receive any of
the respective payments.
Award Opportunities
Annual incentive targets are expressed as a percentage of total salary earned
during a given year and can increase to double the targeted amounts or decrease
to zero, relative to the achievement of predetermined performance goals and
subject to senior management and Board of Director discretion at year-end. The
Compensation Committee of the Board reserves the right to modify the performance
measures and award levels specified in the objective components of the Incentive
Plan if presently unforeseen circumstances should occur during the year which
invalidate any of the material assumptions that underlie the Operating Plan, or
if, in the opinion of the Compensation Committee, such modifications are
required to avoid a result that is inequitable to either the company or the
Incentive Plan participants.
Performance Measures
The performance measures for the Incentive Plan are summarized on pages 3 - 7.
Four performance components are included with the following weightings:
Pre-tax cash flow from operations 20% weight
Reserve additions and production replacement costs 20% weight
Company stock performance assessment 20% weight
Discretionary individual performance assessment 40% weight
Pre-tax cash flow from operations (PCFO) - the first component is defined as
earnings before income taxes, plus operating and non-operating depreciation,
depletion and amortization, plus pre-tax incentive compensation expense, and is
based on actual corporate performance for the year as compared to the Company's
Operating Plan projection of PCFO.
Reserve additions and production replacement costs - the second component is
comprised of two subparts, reserve additions and production replacement costs,
weighted at 10% each. Using the Company's Operating Plan projections for the
Incentive Plan year, actual reserves added and actual production replacement
costs are compared to the corresponding projections for each.
Company stock performance assessment - the third component compares the
Company's average stock price for the Plan year to its average stock price for
the preceding year and then compares the resulting percentage change to the
percentage change (calculated in the same manner) for each of the peer group
companies.
Discretionary individual performance assessment - the fourth component will be
determined individually and subjectively, based on each participant's individual
job performance.
The performance components will be measured independently of the other at
year-end. At that time, the Chief Executive Officer will recommend specific
awards, subject to final approval of each element of the total awards by the
Compensation Committee and ultimately by the Board of Directors.
Performance Weightings:
20% on pre-tax cash flow from operations
20% on reserve additions and production replacement cost
20% on Company stock performance assessment
40% on discretionary individual performance assessment
I. Objective Performance Assessments - 60%:
Pre-Tax Cash Flow from Operations (PCFO) - 20%
The performance award will be calculated as follows:
Column 1 Column 2 Column 3 Column 4
-------- -------- -------- --------
Pre-Tax Cash Percentage of Percentage of Percentage of Total
Flow From Operating Plan PCFOTarget Target Award
Operations (1) Projection (2) Award Earned (3) Earned (3)
-------------- -------------- ---------------- ----------
219,575 85 0 0.00
232,491 90 25 5.00
245,407 95 60 12.00
258,323 100.00 100.00 20.00
322,904 125.00 160.00 32.00
387,485 150.00 200.00 40.00
(1) Earnings before income taxes plus operating and
non-operating depreciation, depletion and amortization and also
plus pre-tax incentive compensation expense (dollars in
thousands).
(2) If subsequent events over the course of the performance year
invalidate any of the basic assumptions in the Operating Plan,
then the original Operating Plan projections will be revised to
conform the Operating Plan assumptions to reality. The initial
PCFO performance criteria for the Incentive Plan shown in Column
1 will then be adjusted by applying the percentages shown in
Column 2 to the revised Operating Plan projection of PCFO.
(3) If, after the actual PCFO for the performance year is
determined, it falls within the ranges shown in Column 1, the
exact incentive award percentages from Columns 3 and 4 will be
calculated by interpolation.
Reserve Additions and Production Replacement Cost - 20%
The performance award will be comprised of two subparts as follows:
1. The first element is weighted at 10% and compares actual
reserves added during the Plan year to the Company's Operating
Plan projection for the Plan year.
Column 1 Column 2 Column 3 Column 4
-------- -------- ------- --------
Reserves Percentage of Percentage of Percentage of Total
Added Operating Plan Target Award Target Award
(BCFE) (1) Projection (2) Earned (3) Earned (3)
---------- -------------- ---------- ----------
248.0 80.00 0.00 0.00
279.0 90.00 25.00 2.50
294.5 95.00 60.00 6.00
310.0 100.00 100.00 10.00
341.0 110.00 160.00 16.00
372.0 120.00 200.00 20.00
(1) To the extent that reserves added by acquisition exceed the
Operating Plan projection of 44.1 BCFE, such excess shall be
reduced by 50 percent for purposes of this calculation.
(2) If subsequent events over the course of the performance year
invalidate any of the basic assumptions in the Operating Plan,
then the original Operating Plan projections will be revised to
conform the Operating Plan assumptions to reality. The initial
reserve addition performance criteria for the Incentive Plan
shown in Column 1 will then be adjusted by applying the
percentages shown in Column 2 to the revised Operating Plan
projection of reserve additions.
(3) If after the actual reserve additions for the performance
year are determined, the aggregate total falls between the ranges
shown in Column 1, the exact incentive award percentages from
Columns 3 and 4 will be calculated by interpolation.
2. The second element is weighted at 10% and compares actual
production replacement costs for the Plan year to the Company's
Operating Plan projection for the Plan year, calculated in both
cases in the manner reflected in the Operating Plan.
Column 1 Column 2 Column3 Column 4
-------- -------- ------- --------
Production Percentage of Percentage of Percentage of Total
Replacement Operating Plan Target Award Target Award
Cost (1) Projection (2) Earned (3) Earned (3)
-------- -------------- ---------- ----------
1.056 120.00 0.00 0.00
0.968 110.00 40.00 4.00
0.880 100.00 100.00 10.00
0.792 90.00 140.00 14.00
0.704 80.00 200.00 20.00
(1) Considers cost of all reserve additions, including
acquisitions.
(2) If subsequent events over the course of the performance year
invalidate any of the basic assumptions in the Operating Plan,
then the original Operating Plan projections will be revised to
conform the Operating Plan assumptions to reality. The initial
production replacement cost performance criteria for the
Incentive Plan shown in Column 1 will then be adjusted by
applying the percentages shown in Column 2 to the revised
Operating Plan projection of production replacement cost.
(3) If after the actual production replacement cost for the
performance year are determined, it falls within the ranges shown
in Column 1, the exact incentive award percentages from Columns 3
and 4 will be calculated by interpolation.
Company Stock Performance Assessment - 20%
The performance award will be based upon the difference between
the Company's average stock price ("Average Price") for the
calendar year preceding performance year and the Average Price
for the performance year. The Average Price for each respective
year will be determined by dividing the number of trading days in
the year into the sum of the respective closing prices of the
Company's stock for each such trading day. The percentage change
in the Average Price from the previous year to the performance
year is calculated. Then the same comparison is made for each of
the peer group companies (1), which are listed in the Company's
Total Shareholder Return Graphs in the proxy statement, and the
Company is ranked accordingly. The performance award for this
component will then be calculated as follows:
Column 1 Column 2 Column 3
-------- -------- --------
Change In Percentage of Percentage of Total
Average Price Target Award Target Award
Relative to Peers Earned (2) Earned (2)
25th percentile 0.00 0.00
40th percentile 40.00 8.00
50th percentile 80.00 16.00
55th percentile 100.00 20.00
60th percentile 120.00 24.00
70th percentile 160.00 32.00
80th percentile 200.00 40.00
(1) The peer group companies are: Anadarko Petroleum Corporation,
Apache Corporation, Burlington Resources Inc., Enron Oil & Gas
Company, Enserch Exploration, Inc., Equitable Resources, Inc.,
The Louisiana Land & Exploration Company, Mesa, Inc., Noble
Affiliates, Inc., Nuevo Energy Company, Oryx Energy Company,
Parker & Parsley Petroleum Company, Pogo Producing Company, Sante
Fe Energy Resources, Inc., Union Pacific Resources Group Inc.,
United Meridian Corporation and Vastar Resources Inc.
(2) If after the actual percentile is determined it falls within
the ranges shown in Column 1, the exact incentive award
percentages for Columns 2 and 3 will be calculated by
interpolation.
II. Discretionary Individual Performance Assessment - 40%
The discretionary individual performance assessment will be determined
informally and subjectively on the participant's individual job
performance, based primarily on the extent to which individual and
collective goals and objectives established at the beginning of the
year are achieved.
At year-end, the Chief Executive Officer will counsel with his direct
reports in completing discretionary performance assessments for each
participant and recommend specific awards, which will be subject to
final approval by the Compensation Committee and ultimately by the
Board of Directors.
Total Plan Payout Potential:
Maximum potential is 200%
Target goal is 100%
Minimum potential is 0%