Document


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

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Diamondback Energy, Inc.
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http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12858917&doc=6
500 West Texas, Suite 1200
Midland, Texas 79701


NOTICE OF
 
2019
 
ANNUAL STOCKHOLDERS
 
MEETING
 
 
 
and
 
 
 
PROXY STATEMENT
 
 
 
Thursday
 
June 6, 2019
 
 
 
11:30 a.m. local time
 
1200 N Walker Ave
 
Oklahoma City, Oklahoma 73103
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
April 26, 2019
 
Dear Diamondback Energy, Inc. Stockholder:
 
On behalf of your board of directors and management, you are cordially invited to attend the Annual Meeting of Stockholders to be held at 1200 N Walker Ave, Oklahoma City, Oklahoma 73103 on Thursday, June 6, 2019, at 11:30 a.m.
 
It is important that your shares be represented at the meeting. Whether or not you plan to attend the meeting in person, we urge you to grant your proxy to vote your shares by telephone or through the Internet by following the instructions included on the Notice of Internet Availability of Proxy Materials that you received, or if you requested to receive a paper copy of the proxy card, to mark, date, sign and return the proxy card in the envelope provided. Please note that submitting a proxy will not prevent you from attending the meeting and voting in person. Please note, however, if a broker or other nominee holds your shares of record and you wish to vote at the meeting, you must obtain from that registered holder a proxy card issued in your name.
 
You will find information regarding the matters to be voted on at the meeting in the proxy statement.  In addition to the formal items of business to be brought before the meeting, there will be a report on our operations, followed by a question and answer period. Your interest in Diamondback Energy, Inc. is appreciated. We look forward to seeing you on June 6, 2019.

Sincerely,
/s/ Steven E. West
Steven E. West
Chairman of the Board







DIAMONDBACK ENERGY, INC.
500 West Texas, Suite 1200
Midland, Texas 79701


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 2019


To the Stockholders of Diamondback Energy, Inc.:

The Annual Meeting of Stockholders of Diamondback Energy, Inc. will be held on June 6, 2019 at 11:30 a.m., local time, at 1200 N Walker Ave, Oklahoma City, Oklahoma 73103, for the following purposes:

1.
To elect seven directors to serve until the Company’s 2020 Annual Meeting of Stockholders;
2.
To approve the Company’s 2019 Amended and Restated Equity Incentive Plan;
3.
To hold an advisory vote on the Company’s executive compensation;
4.
To ratify the appointment of Grant Thornton LLP as the Company’s independent auditors for the fiscal year ending December 31, 2019; and
5.
To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof.

We are providing access to our proxy materials, including this proxy statement and our 2018 Annual Report to Stockholders, over the Internet. As a result, we are mailing to our stockholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of our proxy materials. The notice contains instructions on how to access those proxy materials over the Internet, as well as instructions on how to request a paper or email copy of our proxy materials. Those stockholders who request a paper copy of our proxy materials as provided in the Notice of Internet Availability will receive such proxy materials by mail. This electronic distribution process reduces the environmental impact and lowers the costs of printing and distributing our proxy materials.

Your vote is important. Please carefully consider the proposals and vote in one of these ways:

Follow the instructions on the Notice of Internet Availability of Proxy Materials or the proxy card to vote through the Internet;
Follow the instructions on the proxy card to vote by phone;
If you request to receive a paper copy of our proxy materials, mark, sign, date and promptly return the proxy card in the postage-paid envelope; or
Submit a ballot at the Annual Meeting.

Only stockholders of record at the close of business on April 12, 2019 or their proxy holders may vote at the meeting.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 6, 2019. This proxy statement and the Company’s 2018 Annual Report to Stockholders are available at www.envisionreports.com/FANG.
 
 
 
By Order of the Board of Directors,
 
 
 
 
 
 
 
 
/s/ Matt Zmigrosky
 
 
 
Matt Zmigrosky
 
 
 
Executive Vice President, General Counsel and
 
 
 
 
Secretary

The Notice of Internet Availability of Proxy Materials is first being mailed to stockholders on April 26, 2019.








TABLE OF CONTENTS
 
Page

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About the Annual Meeting

Who is soliciting my vote?

The board of directors of Diamondback Energy, Inc., which we refer to as “Diamondback,” the “Company” and “we” in this proxy statement, is soliciting your vote at the 2019 Annual Meeting of Stockholders.

What am I voting on?

You are voting on:

The election of directors (see Proposal 1 beginning on page 4);

The approval of our 2019 Amended and Restated Equity Incentive Plan (see Proposal 2 on page 54);

The approval, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy statement (see Proposal 3 on page 59);

The ratification of Grant Thornton LLP as our independent auditors for 2019 (see Proposal 4 beginning on page 60); and

Any other business properly coming before the meeting.

How does the board of directors recommend that I vote my shares?

Unless you give other instructions on your proxy, the persons named as proxy holders on the proxy or proxy card will vote in accordance with the recommendations of our board of directors. The board of directors’ recommendation can be found with the description of each item in this proxy statement. In summary, the board of directors recommends a vote:

“FOR” the proposal to elect nominated directors;

“FOR” the proposal to approve our 2019 Amended and Restated Equity Incentive Plan;

“FOR” the proposal to approve, on an advisory basis, the compensation paid to the Company’s named executive officers as reported in this proxy statement;

“FOR” the proposal to ratify Grant Thornton LLP as the Company’s independent auditors for 2019.

Who is entitled to vote?

You may vote if you were the record owner of our common stock as of the close of business on April 12, 2019. Each share of common stock is entitled to one vote. As of April 12, 2019, we had 164,617,181 shares of common stock outstanding and entitled to vote. There is no cumulative voting.

How many votes must be present to hold the meeting?

Your shares are counted as present at the Annual Meeting if you attend the meeting and vote in person or if you properly grant your proxy by telephone, Internet or mail. In order for us to hold our meeting, holders of a majority of the voting power of our outstanding shares of common stock as of the close of business on April 12, 2019 must be present in person or by proxy at the meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the meeting.

What is a broker non-vote?

If a broker does not have discretion to vote shares held in street name on a particular proposal and does not receive instructions from the beneficial owner on how to vote those shares, the broker may not vote on that proposal. This is known as a broker non-vote. No broker may vote your shares without your specific instructions on any of the proposals to be considered at the Annual Meeting other than the ratification of our independent auditors.


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How many votes are needed to approve each of the proposals?

Assuming the presence of a quorum, directors will be elected by the affirmative vote of a majority of the votes cast, in person or by proxy, which means that the number of shares voted “FOR” a director nominee must exceed the number of votes cast “AGAINST” that nominee. Abstentions and broker non-votes will not be counted for voting purposes with respect to the re-election of directors. Stockholders may not cumulate their votes with respect to the re-election of directors. If any incumbent director is not elected because he or she does not receive a majority of the votes cast, he or she is required to immediately tender his or her resignation for consideration by our board of directors. Our board of directors will evaluate whether to accept or reject such resignation, or whether other action should be taken; provided, however, that the board will act on such resignation and publicly disclose its decision to accept or reject such resignation and the rationale behind such decision within 90 days from the date of the certification of the director election results. Unless you indicate otherwise, the persons named as your proxies will vote your shares “FOR” all the nominees for director named in Proposal 1.

Each of Proposals 2, 3 and 4 requires the affirmative “FOR” vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Only votes for or against Proposals 2 and 3 will be counted as votes cast, and abstentions and broker non-votes will not be counted for voting purposes. Broker non-votes will be counted as votes cast with respect to Proposal 4.

How do I vote?

You can vote either in person at the meeting or by proxy without attending the meeting.

To vote by proxy, you may vote by telephone or through the Internet by following the instructions included on the Notice of Internet Availability of Proxy Materials or proxy card, or, if you request to receive a paper copy of the proxy card, by returning a signed, dated and marked proxy card. If you are a registered holder or hold your shares in street name, votes submitted by Internet or telephone must be received by 1:00 a.m. central time on June 6, 2019.

Even if you plan to attend the meeting, we encourage you to vote your shares by proxy. If you plan to vote in person at the Annual Meeting, and you hold your stock in street name, you must obtain a proxy from your broker and bring that proxy to the meeting.

Can I change my vote?

Yes. You can change or revoke your vote at any time before the polls close at the Annual Meeting. You can do this by:

Submitting another valid proxy bearing a later date and returning it to us prior to the meeting;

Sending our Corporate Secretary a written document revoking your earlier proxy; or

Voting again at the meeting.

However, if your shares are held in street name by a broker or other nominee, you must contact your broker or such other nominee to revoke your proxy.

Who counts the votes?

We have hired Computershare Trust Company, N.A., our transfer agent, to count the votes represented by proxies cast by telephone, Internet, mail or ballot. Employees of Computershare Trust Company, N.A. will act as inspectors of election.

Will my vote be confidential?

Yes. As a matter of Company policy, proxies, ballots and voting tabulations that identify individual stockholders are treated as confidential. Only the tabulation agent and the inspectors of election have access to your vote. Directors and employees of the Company may see your vote only if there is a contested proxy solicitation, as required by law or in certain other special circumstances.

Will my shares be voted if I don’t provide my proxy and don’t attend the Annual Meeting?

If you do not provide a proxy or vote your shares held in your name, your shares will not be voted.

If you hold your shares in street name, your broker may be able to vote your shares for certain “routine” matters even if you do not provide the broker with voting instructions. The ratification of Grant Thornton LLP as our independent auditors for 2019 is considered

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routine. For matters not considered “routine,” if you do not give your broker instructions on how to vote your shares, the broker may not vote on that proposal. This is a broker non-vote.

The proposals to elect directors, to approve our 2019 Amended and Restated Equity Incentive Plan and to approve, on an advisory basis, the Company’s executive compensation are not considered routine. As a result, no broker may vote your shares on these proposals without your specific instructions.

How are votes counted?

In the election of directors contemplated by Proposal 1, you may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to one or more of the nominees. For Proposals 2, 3 and 4, you may vote “FOR,” “AGAINST” or “ABSTAIN.”

What if I submit my proxy but don’t indicate my vote on the proposals?

If you submit a proxy by telephone or Internet, or if you request a paper copy of our proxy materials and return a signed proxy card by mail, in each case without indicating your vote, your shares will be voted “FOR” the director nominees listed on the card, “FOR” approving our 2019 Amended and Restated Equity Incentive Plan, “FOR” approving, on an advisory basis, the Company’s executive compensation as described in this proxy statement and “FOR” the ratification of Grant Thornton LLP as our independent auditors for 2019.

Could other matters be decided at the Annual Meeting?

We have not received any stockholder proposals and are not aware of any other matters that will be considered at the Annual Meeting. If any other matters arise at the Annual Meeting, the persons named in your proxies will vote in accordance with their best judgment.

Who can attend the meeting?

The Annual Meeting is open to all holders of our common stock.

What do I need to bring to attend the Annual Meeting?

You will need proof of ownership of our common stock to enter the meeting. If your shares are in the name of your broker or bank or other nominee, you will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN SHARES OF OUR STOCK, YOU MAY NOT BE ADMITTED INTO THE MEETING.

What are the directions to the Annual Meeting location?

The Annual Meeting will be held at 1200 N Walker Ave, Oklahoma City, Oklahoma 73103. From I-40, take exit 150A - Shields Blvd. Turn left (North) onto Shields. Shields will turn into E.K. Gaylord. Continue on E.K. Gaylord. E.K. Gaylord will then turn into North Broadway. Continue driving on North Broadway to NW 11th Street and turn left (West). Continue on NW 11th Street to N. Walker Avenue and the Ambassador Hotel is on the Northeast corner of NW 11th Street and Walker Avenue. Please note that there may be construction along this route and it is subject to detours.

How can I access the Company’s proxy materials and annual report electronically?

This proxy statement and the Company’s 2018 Annual Report to Stockholders are available at www.envisionreports.com/FANG.

Why did I receive a Notice of Internet Availability of Proxy Materials instead of a paper copy of the proxy materials?

We are providing access to our proxy materials, including this proxy statement and our 2018 Annual Report to Stockholders, over the Internet in accordance with the rules of the Securities and Exchange Commission, or the SEC.  As a result, we are mailing to our stockholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of our proxy materials. Your Notice of Internet Availability of Proxy Materials contains instructions on how to access our proxy materials over the Internet, as well as instructions on how to request a paper copy of our proxy materials by mail.

Our proxy materials are also available at www.envisionreports.com/FANG.


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How can I request a full set of proxy materials?

You may request, without charge, a full set of our proxy materials, including our 2018 Annual Report to Stockholders, for one year following the annual meeting of stockholders.  If a broker or other nominee holds your shares of record, you may request a full set of our proxy materials by following the instructions contained in the Notice of Internet Availability of Proxy Materials that you received.  

Election of Directors

(Proposal 1 on the Proxy Card)

Director Nominations

The board is committed to recruiting and nominating directors for election who will collectively provide the board with the necessary diversity of skills, backgrounds and experiences to meet the Company’s ongoing needs and support oversight of our business strategy and priorities. In recommending candidates for election to the board, the nominating and corporate governance committee evaluates a candidate’s character, judgment, skill set, experience, independence, other time commitments and any other factors that the nominating and corporate governance committee deems relevant. In addition, in determining whether to recommend incumbent directors for re-election to the board, the nominating and corporate governance committee also reviews and considers the director’s board and committee meeting attendance, the level of support that the director’s nomination received at the most recent annual stockholders’ meeting and the well-roundedness of the board as a whole.

In 2019, the nominating and corporate governance committee recommended to the board, and the board approved, the nomination of Steven E. West, Travis D. Stice, Michael L. Hollis, Michael P. Cross, David L. Houston, Mark L. Plaumann and Melanie M. Trent to serve for a one-year term ending at the 2020 Annual Meeting, but in any event, until his or her successor is elected and qualified, unless ended earlier due to his or her death, resignation, disqualification or removal from office. All of these director nominees, except for Mr. Stice, our Chief Executive Officer, and Mr. Hollis, our President and Chief Operating Officer, are independent under the Nasdaq listing standards and SEC rules, comprising a supermajority of independent directors currently serving on our board of directors.

About Director Nominees

Our board of directors currently consists of seven members who are elected annually. All of the director nominees are currently directors of the Company who were elected by stockholders at the 2018 Annual Meeting. In the event any nominee should be unavailable to serve at the time of the meeting, the proxies may be voted for a substitute nominee selected by the board.

Biographical information with respect to each of the director nominees, together with a list of competencies that contributed to the conclusion that such person should serve as a director, are presented below. An overview of the core competencies of each director nominee is featured in a skills matrix on page 7.

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THESE DIRECTORS


STEVEN E. WEST, age 58. Mr. West has served as a director of the Company since December 2011 and Chairman of the Board since October 2012. Mr. West served as our Chief Executive Officer from January 2009 to December 2011. From January 2011 until December 2016, Mr. West was a partner at Wexford Capital LP, or Wexford Capital, focusing on Wexford Capital’s private equity energy investments. From August 2006 until December 2010, Mr. West served as senior portfolio advisor at Wexford Capital. From August 2003 until August 2006, Mr. West was the Chief Financial Officer of Sunterra Corporation, a former Wexford Capital portfolio company. From December 1993 until July 2003, Mr. West held senior financial positions at Coast Asset Management and IndyMac Bank. Prior to that, Mr. West worked at First Nationwide Bank, Lehman Brothers and Peat Marwick Mitchell & Co., the predecessor of KPMG LLP. Since February 2014, Mr. West has also served as a director and Executive Chairman of the general partner of Viper Energy Partners LP, our publicly traded subsidiary, which we refer to as Viper. Mr. West holds a Bachelor of Science degree in Accounting from California State University, Chico. We believe Mr. West’s background in finance, accounting and private equity energy investments, as well as his executive management skills developed as part of his career with Wexford Capital, its portfolio companies and other financial institutions qualify him to serve on our board of directors. In particular, we believe Mr. West’s strengths in the following core competencies provide value to our board of directors: Corporate Governance; Finance/Capital Markets; Financial Reporting/Accounting Experience; Industry Background; Executive Experience; Executive Compensation; and Risk Management.

TRAVIS D. STICE, age 57. Mr. Stice has served as our Chief Executive Officer since January 2012 and as a director of the Company since November 2012. Mr. Stice has also served as the Chief Executive Officer and a director of the general partner of Viper since February 2014. Prior to his current positions with us and Viper, he served as our President and Chief Operating Officer from April

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2011 to January 2012. From November 2010 to April 2011, Mr. Stice served as a Production Manager of Apache Corporation, an oil and gas exploration company. He served as a Vice President of Laredo Petroleum Holdings, Inc., an oil and gas exploration and production company, from September 2008 to September 2010 and as a Development Manager of ConocoPhillips/Burlington Resources Mid Continent Business Unit, an oil and gas exploration company, from April 2006 until August 2008. Prior to that, Mr. Stice held a series of positions of increasing responsibilities at Burlington Resources, most recently as a General Manager, Engineering, Operations and Business Reporting of the Mid Continent Division from January 2001 until Burlington Resources’ acquisition by ConocoPhillips in March 2006. He started his career with Mobil Oil in 1985. Mr. Stice has 33 years of industry experience in production operations, reservoir engineering, production engineering and unconventional oil and gas exploration and over 20 years of management experience. Mr. Stice graduated from Texas A&M University with a Bachelor of Science degree in Petroleum Engineering. Mr. Stice is a registered engineer in the State of Texas, and is a 33-year member of the Society of Petroleum Engineers. We believe that Mr. Stice’s leadership within the Company, his management experience and his knowledge of the critical internal and external challenges facing the Company and the oil and natural gas industry as a whole qualify him for service on our board of directors. In particular, we believe Mr. Stice’s strengths in the following core competencies provide value to our board of directors: Industry Background; Executive Experience; Executive Compensation; and Risk Management.

MICHAEL L. HOLLIS, age 43. Mr. Hollis has served as our President since his appointment effective January 1, 2017, as our Chief Operating Officer since July 2015 and as a director of our Company since April 2018. He joined us in September 2011 and served as our Vice President—Drilling prior to becoming our Chief Operating Officer. Mr. Hollis has also served as a director of the general partner of Viper since June 2014. Prior to joining us, Mr. Hollis served in various roles, most recently as drilling manager at Chesapeake Energy Corporation, an oil and gas exploration company, from June 2006 to September 2011. Mr. Hollis worked for ConocoPhillips Company as a senior drilling engineer from January 2002 to June 2006. Mr. Hollis received his Bachelor of Science degree in Chemical Engineering from Louisiana State University. We believe that Mr. Hollis’ executive management experience and knowledge of the oil and natural gas industry as a whole qualify him for service on our board of directors. In particular, we believe Mr. Hollis’s strengths in the following core competencies provide value to our board of directors: Environmental, Health, Safety & Sustainability, Industry Background; Executive Experience; and Risk Management.

MICHAEL P. CROSS, age 67. Mr. Cross has served as a director of the Company since October 2012. Mr. Cross is owner of Michael P. Cross, Inc., an independent oil and natural gas producer, and serves as its President, a position he has held since January 2007. Mr. Cross also currently serves as a director of Warren Equipment Company, a position he has held since 2002. Mr. Cross served as a member of the executive committee of the Oklahoma Energy Resources Board from February 2005 until March 2014, where he was a member of the executive committee from 2007 until 2014. Mr. Cross served as a member of the Board of Directors of the Oklahoma Independent Petroleum Association for over 18 years, and was inducted into its Wildcatters Hall of Honor. Mr. Cross served on the Board of Directors for OGE Enogex GP LLC from October 2007 to October 2008. Mr. Cross also served as Chief Executive Officer and President of Windsor Energy Resources, Inc. from December 2005 until December 2006. Mr. Cross served as President of Twister Gas Services, L.L.C., an oil and gas exploration, production and marketing company, from its inception in 1996 until June 2003 and served as President of its predecessor, Twister Transmission Company, from 1990 to 1996. Mr. Cross graduated from Oklahoma State University with a Bachelor of Science degree in Business Administration. We believe that Mr. Cross’s strong oil and gas background and executive management experience qualify him for service on our board of directors. In particular, we believe Mr. Cross’s strengths in the following core competencies provide value to our board of directors: Corporate Governance; Financial Reporting/Accounting Experience; Government, Legal & Regulatory; Industry Background; Executive Experience; Executive Compensation; and Risk Management.

DAVID L. HOUSTON, age 66. Mr. Houston has served as a director of the Company since October 2012. Since 1991, Mr. Houston has been the principal of Houston Financial, a firm providing wealth management services with a focus on the energy sector. Since 2000, Mr. Houston has managed a mineral trust with approximately 9,200 net acres in Oklahoma, Texas, Kansas and New Mexico, which includes responsibility for leasing and production matters. Mr. Houston served on the board of directors and executive committee of Deaconess Hospital, Oklahoma City, Oklahoma, from January 1993 until December 2008. Mr. Houston has served as a director of Gulfport Energy Corporation, or Gulfport, since July 1998, and has been Chairman of its Board since June 2013. Mr. Houston also serves on Gulfport’s nominating and governance, audit and compensation committees. He served as a director of Bronco Drilling Company from May 2005 until December 2010 and was a member of its audit committee. Mr. Houston received a Bachelor of Science degree in business from Oklahoma State University and a graduate degree in banking from Louisiana State University. We believe that Mr. Houston’s financial background and his executive management experience qualify him for service on our board of directors. In particular, we believe Mr. Houston’s strengths in the following core competencies provide value to our board of directors: Corporate Governance; Financial Reporting/Accounting Experience; Industry Background; Executive Experience; Executive Compensation; and Risk Management.

MARK L. PLAUMANN, age 63. Mr. Plaumann has served as a director of the Company since October 2012. He is currently a Managing Member of Greyhawke Capital Advisors LLC, or Greyhawke, which he co-founded in 1998. Prior to founding Greyhawke, Mr. Plaumann was a Senior Vice President of Wexford Capital. Mr. Plaumann was formerly a Managing Director of Alvarez & Marsal, Inc. and the President of American Healthcare Management, Inc. He also was Senior Manager at Ernst & Young LLP. Mr. Plaumann served as a director and audit committee chairman for ICx Technologies, Inc. from 2006 until October 2010, served as a director and a

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member of the audit and compensation committees of Republic Airways Holdings, Inc. from 2002 until April 2017 and currently serves as a director of a private company. Mr. Plaumann served as a director, an audit committee chairman and a member of the conflicts committee of the general partner of Rhino Resource Partners LP, a coal operating company, from September 2010 until March 2016. Mr. Plaumann holds an M.B.A. and a B.A. in Business from the University of Central Florida, where he currently serves on the Dean’s Advisory Board for the College of Business. We believe that Mr. Plaumann’s service on the boards of other public companies and his executive management experience, including previous experience as chairman of audit committees, qualifies him for service on our board of directors. In particular, we believe Mr. Plaumann’s strengths in the following core competencies provide value to our board of directors: Corporate Governance; Finance/Capital Markets; Financial Reporting/Accounting Experience; Executive Experience; Executive Compensation; and Risk Management.

MELANIE M. TRENT, age 54. Ms. Trent has served as a director of the Company since April 2018. Ms. Trent served in various legal, administrative and compliance capacities for Rowan Companies plc, an offshore drilling services company, from 2005 until April 2017, including as an Executive Vice President, General Counsel and Chief Administrative Officer from 2014 until April 2017, as Senior Vice President, Chief Administrative Officer and Company Secretary from 2011 until 2014 and in various other capacities from 2005 to 2011. Ms. Trent has served as a director of Arcosa, Inc., a provider of infrastructure-related products and solutions, with leading positions in construction, energy and transportation markets, since November 2018, and is a member of its audit and corporate governance and directors nominating committees. Ms. Trent has served as a supervisory director of Frank’s International N.V., a global tubular and oil and gas service provider, since January 2019, and is a member of its audit committee. Ms. Trent holds a Bachelor’s degree from Middlebury College and holds a Juris Doctorate degree from Georgetown University Law Center. We believe that Ms. Trent’s strong legal and executive management experience, diverse background and knowledge of oil and gas and energy industries qualify her for service on our board of directors. In particular, we believe Ms. Trent’s strengths in the following core competencies provide value to our board of directors: Corporate Governance; Finance/Capital Markets; Financial Reporting/Accounting Experience; Government, Legal & Regulatory; Industry Background; Executive Experience; Executive Compensation; and Risk Management.




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Summary of Director Nominee Core Competencies

The diversity of experience and wide variety of skills, qualifications and viewpoints of the director nominees embody key competencies that our nominating and corporate governance committee considers valuable to effective oversight of the Company. The following chart illustrates how the current board members individually and collectively represent these core competencies. The lack of an indicator for a particular item does not mean that the director does not possess that qualification, skill or experience, as each director is expected to be knowledgeable in all of these areas. The indicator merely represents a core competency that the director nominee brings to our board. For more information about each director nominee, see the individual biographies set forth beginning on page 4 above.

 
West
Stice
Hollis
Houston
Cross
Plaumann
Trent
Corporate Governance 
Contributes to the board’s understanding of best practices in corporate governance matters.
l
 
 
l
l
l
l
Environmental, Health, Safety & Sustainability 
Contributes to the board’s oversight and understanding of environmental, health, safety and sustainability issues and their relationship to our business and strategy as we strive to provide the energy necessary for economic growth and social well-being, while securing a stable and healthy environment for the future.
 
l
l
 
l
 
 
Finance/Capital Markets 
Valuable in evaluating our financial statements, capital structure and financial strategy.
l
l
 
 
 
l
l
Financial Reporting/Accounting Experience 
Critical to the oversight of our financial statements and financial reports.
l
 
 
l
l
l
l
Government, Legal & Regulatory Contributes to the board’s ability to guide us through government regulations, complex legal matters and public policy issues.
 
 
 
 
l

 
l
Industry Background 
Offers pertinent background and knowledge to the board, providing valuable perspective on issues specific to our business, operations and strategy, including key performance indicators and the competitive environment.
l
l
l
l
l
 
l
Executive Experience 
Demonstrates leadership ability and provides valuable insights into operations and business strategy through a practical understanding of organizations, processes, strategy, risk management and the methods to drive change and growth.
l
l
l
 
l
 
l
Executive Compensation 
Contributes to the board’s ability to attract, motivate and retain executive talent.
l
l
 
l
l
l
l
Risk Management 
Contributes to the identification, assessment and prioritization of significant risks we face.
l
l
l
l
l
l
l


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Corporate Governance Matters

Corporate Governance Highlights

We believe that effective corporate governance should include regular constructive discussions with our stockholders. We have a proactive stockholder engagement process that encourages feedback from our stockholders. This feedback helps shape our governance practices, which include:

ü Increased size of the board of directors from five to seven
ü Supermajority of independent director nominees under the Nasdaq listing standards and SEC rules
ü Independent chair of the board of directors
ü Majority voting to elect directors (for uncontested elections)
ü    Mandatory resignation if a majority vote is not received (for uncontested elections)
ü Advancement of board diversity, with an addition of a female director to our board in 2018 and emphasis on diversity in the nominating and corporate governance committee’s charter
ü Declassified board of directors
ü Active stockholder outreach with respect to corporate governance and executive compensation
ü Active board oversight of risk and risk management
ü Independent director meetings in executive sessions
ü Commitment to social responsibility with respect to our people, community and environment
ü Periodic board and committee self-assessments
ü Independent director meetings in executive sessions
ü 89% attendance at 2018 board and committee meetings
ü All financially literate audit committee members and three of the four members of the audit committee qualify as financial experts

For additional discussion of our stockholder engagement and actions that we have taken in response to stockholder feedback, see “Corporate Governance Matters—Stockholder Engagement” on page 14.

Corporate Governance Guidelines

The board has adopted our Corporate Governance Guidelines as a way to reinforce its commitment to sound governance practices and policies. These Corporate Governance Guidelines include provisions concerning the following:

role and responsibilities of the board and its committees;
size of the board;
selection, qualifications, independence, responsibilities, tenure and compensation of directors
director resignation process;
selection of chairman and chief executive officer;
other public company directorships and committee service;
board meetings and agendas;
director access to management and advisors;
executive sessions of non-employee directors;
director orientation and education;
annual performance evaluations of the board and its committees;
succession planning;
director compensation;
stockholder and third party communications with the board;
board communications with third parties; and
confidentiality.

Our Corporate Governance Guidelines can be found on our website at www.diamondbackenergy.com under the “Investors—Corporate Governance” caption. You may also obtain copies of the Corporate Governance Guidelines, at no charge to you, by writing to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 1200, Midland, TX 79701.


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Director Qualifications and Nomination Process

Skills and Qualifications We Seek in Directors

As provided by the nominating and corporate governance committee’s charter and our Corporate Governance Guidelines, our nominating and corporate governance committee identifies, evaluates and recommends to our board of directors candidates with the goal of creating a balance of knowledge, experience and diversity.

It is our policy that potential directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the interests of our stockholders. We also require that the members of our board of directors be able to dedicate the time and resources sufficient to ensure the diligent performance of their duties on our behalf, including attending all meetings of the board of directors and applicable committee meetings. We also require that at least a majority of our directors meet the standards of independence promulgated by Nasdaq and the SEC. For a discussion of the core competencies that each director brings to our board, see “Summary of Director Nominee Core Competencies” above on page 7.

Board Refreshment and Diversity

Our nominating and corporate governance committee is committed to continuous improvement and employs a rigorous process to ensure that the composition of the board is diverse, balanced and aligned with the evolving needs of the Company. The board ensures refreshment and continued effectiveness by evaluating the composition of the board on a periodic basis to ensure its composition reflects a range of talents, skills and expertise sufficient to provide sound and prudent guidance with respect to our operations and the interests of our stockholders. In particular, the board seeks to maintain a balance of experience in the areas of accounting and finance, management, leadership and oil and gas related industries as well as other core competencies discussed under “Summary of Director Nominee Core Competencies.”

Additionally, it is our policy that our nominating and corporate governance committee considers diversity in its evaluation of candidates for board membership. To this end, our board believes that diversity with respect to viewpoint, including such that is held by candidates of different gender, race, ethnicity, background, age, thought and tenure on our board (in connection with the consideration of the renomination of an existing director), should be an important factor in board composition. To reflect this policy and to ensure a competitive recruitment process, our nominating and corporate governance committee, in accordance with its charter, seeks to include diverse candidates in all director searches, taking into account diversity of gender, race, ethnicity, background, age, thought and tenure on our board (in connection with the consideration of the renomination of an existing director), including by affirmatively instructing any search firm retained to assist the nominating and corporate governance committee in identifying director candidates to seek to include diverse candidates from traditional and nontraditional candidate groups. In accordance with its charter, our nominating and corporate governance committee also ensures that diversity considerations are discussed in connection with each potential nominee, as well as on a periodic basis in connection with its periodic review of the composition of the board and the size of the board as a whole.

As part of our ongoing commitment to board refreshment and board diversity, we increased the size of our board of directors from five to seven in April 2018, adding Michael L. Hollis and Melanie M. Trent. These directors advance the operational and executive management expertise and gender and age diversity of our board of directors.

How We Select our Director Nominees

The board is responsible for nominating directors and filling vacancies that may occur between annual meetings, based upon the recommendation of our nominating and corporate governance committee. The nominating and corporate governance committee considers the Company’s current needs and long-term and strategic plans to determine the skills, experience and characteristics needed by our board. The nominating and corporate governance committee then identifies, considers and recommends director candidates to the board in light of its commitment to board refreshment and diversity discussed above. Generally, the committee identifies candidates through the business and organizational contacts of our advisors, directors and management team and through the use of third-party search firms.

The nominating and corporate governance committee, in accordance with its charter and our Corporate Governance Guidelines, takes into consideration the key qualifications and skills described above when evaluating candidates. The nominating and corporate governance committee also considers whether potential candidates will likely satisfy independence standards for service on the board and its committees and the number of public boards on which the candidate already serves.


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Stockholder Recommendation of Candidates and Nomination of Candidates

Our board of directors will consider stockholder nominations for director candidates upon written submission of such recommendation to our Corporate Secretary along with, among other things, the nominee’s qualifications and certain biographical information regarding the nominee, such nominee’s written consent to serving as a director if elected and being named in the proxy or information statement and certain information regarding the status of the stockholder submitting the recommendation, all in the manner required by our bylaws and the applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by our board of directors at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to our board of directors. See “Submission of Future Stockholder Proposals” below for additional detail regarding submitting director nominees.

Majority Voting

To be elected, a director must receive a majority of the votes cast with respect to that director at the meeting. Our bylaws and Corporate Governance Guidelines provide that if the number of shares voted “FOR” a nominee who is serving as a director (an incumbent) does not exceed 50% of the votes cast “AGAINST” that director, he or she will tender his or her resignation to the board. The board will evaluate whether to accept or reject such resignation, or whether other action should be taken. Within 90 days of the certification of the stockholder vote, the board is required to decide whether to accept the resignation and publicly disclose its rationale for the decision.

In a contested election, where the number of nominees exceeds the number of directors to be elected, the required vote would be a plurality of votes cast, which means that the directors receiving the largest number of “FOR” votes will be elected in such contested election.

Director Independence

Our Corporate Governance Guidelines provide that a majority of the directors of the board must be “independent” in accordance with Nasdaq listing standards. Our board of directors has determined that each of David L. Houston, Michael P. Cross, Mark L. Plaumann, Melanie M. Trent and Steve West meets the standards regarding independence set forth in the Nasdaq listing standards and is free of any relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors of the Company.

Our board of directors has determined that each member of the audit committee is independent for purposes of serving on such committee under the Nasdaq listing standards and SEC rules. In addition, our board of directors has determined that each current member of the audit committee is financially literate under the Nasdaq listing standards and that each of Mr. Plaumann, Mr. Cross and Mr. Houston qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K.

Our board of directors has also determined that each member of the compensation committee and the nominating and corporate governance committee meets the independence requirements applicable to those committees under the Nasdaq rules. In addition, our board of directors determined that each member of our compensation committee is a “non-employee director” in accordance with Rule 16b-3 under the Exchange Act.

Executive Sessions of Independent Directors

Our independent directors have the opportunity to meet in an executive session following each regularly scheduled meeting of the board of directors and its committees. Our independent directors met in an executive session on four (4) occasions in 2018.

Board Leadership Structure

In accordance with our Corporate Governance Guidelines, the positions of Chairman of the Board and Chief Executive Officer are held by two different individuals. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business and operations, while allowing our Chairman of the Board to lead the board in its fundamental role of providing advice to and oversight of management. The Chairman of the Board provides leadership to our board of directors and works with the board of directors to define its structure and activities in the fulfillment of its responsibilities. The Chairman of the Board sets the board agendas, with the input from other members of the board and our management, facilitates communications among and information flow to directors, has the power to call special meetings of our board of directors and stockholders and presides at meetings of our board of directors and stockholders. The Chairman of the Board also advises and counsels our Chief Executive Officer and other officers.


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We believe that our directors bring a broad range of leadership experience to the boardroom and regularly contribute to the thoughtful discussion involved in effectively overseeing the business and affairs of the Company. We believe that the atmosphere of our board is collegial, that all board members are well engaged in their responsibilities, and that all board members express their views and consider the opinions expressed by other directors. Five of the seven directors on our board are independent under the Nasdaq listing standards and SEC rules, and Mr. Houston has been appointed as the lead director among our independent directors. In such capacity, Mr. Houston’s duties include presiding at all meetings of the board at which the Chairman of the Board is not present, including executive sessions of the independent directors, and serving as a liaison between the Chairman of the Board and the independent directors. We believe that all of our independent directors have demonstrated leadership in business enterprises and are familiar with board processes. Our independent directors are involved in the leadership structure of our board by serving on our audit, nominating and compensation committees, each having a separate independent chairperson. Specifically, the chair of our audit committee oversees the accounting and financial reporting processes, as well as compliance with legal and regulatory requirements. The chair of our compensation committee oversees the annual performance evaluation of our Chief Executive Officer and our compensation policies and practices and their impact on risk and risk management. The chair of our nominating and corporate governance committee monitors matters such as the composition of the board and its committees, board performance and best practices in corporate governance. As such, each committee chair provides independent leadership for purposes of many important functions delegated by our board of directors to such committee.

Board Meetings, Committees and Membership

Our board of directors met sixteen (16) times, in person or telephonically, in 2018. In addition to these meetings, the board of directors adopted resolutions by unanimous written consent. Each director attended at least 89% of the meetings of the board of directors and the meetings of the committees on which he or she served.

Recognizing that director attendance at our Annual Meeting can provide our stockholders with an opportunity to communicate with directors about issues affecting the Company, we actively encourage our directors to attend the Annual Meeting of Stockholders. All of our directors attended our 2018 Annual Meeting of Stockholders.

Board Committee Membership

The table below shows the membership of each of the board’s committees, as well as information about each committee’s principal functions.

Committee
 
Members
 
 
Principal Functions
 
Number of Meetings in 2018
Audit
 
Mark L. Plaumann*
 
l
Reviews and discusses with management and the independent auditors the integrity of our accounting policies, internal controls, financial statements, accounting and auditing processes and risk management compliance.
 
Four (4)
 
 
Michael P. Cross
 
 
 
 
 
 
David L. Houston
 
 
 
 
 
 
Melanie M. Trent
 
l
Monitors and oversees our accounting, auditing and financial reporting processes generally, including the qualifications, independence and performance of the independent auditor.
 
 
 
 
 
 
 
 
 
 
 
 
 
l
Monitors our compliance with legal and regulatory requirements.
 
 
 
 
 
 
l
Establishes procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
 
 
 
 
 
 
l
Reviews and approves related party transactions.
 
 
 
 
 
 
l
Appoints, determines compensation, evaluates and terminates our independent auditors.
 
 
 
 
 
 
l
Pre-approves audit and permissible non-audit services to be performed by the independent auditors.
 
 
 
 
 
 
l
Prepares the report required by the SEC for the inclusion in our annual proxy statement.
 
 
 
 
 
 
l
Reviews and reassesses the adequacy of the audit committee charter on a periodic basis.
 
 

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Committee
 
Members
 
 
Principal Functions
 
Number of Meetings in 2018
 
 
 
 
l
Inform our independent auditors of the audit committee’s understanding of significant relationships and transactions with related parties and review and discuss with our independent auditors the auditors’ evaluation of our identification of, accounting for and disclosure of our relationships and transactions with related parties, including any significant matters arising from the audit regarding our relationships and transactions with related parties.
 
 
 
 
 
 
l
Conducts a periodic performance evaluation of the committee.
 
 
 
 
 
 
 
 
 
 
Compensation
 
Michael P. Cross*
 
l
Oversees and administers our executive compensation policies, plans and practices and evaluates their impact on risk and risk management.
 
Six (6)
 
 
David L. Houston
 
 
 
 
 
 
Mark L. Plaumann
 
l
Reviews and makes recommendations to the board of directors with respect to compensation plans and policies for employees generally.
 
 
 
 
Melanie M. Trent
 
 
 
 
 
 
 
 
l
Discharges the board of directors’ responsibilities relating to the compensation of our Chief Executive Officer and other executive officers.
 
 
 
 
 
 
l
Where appropriate or required, makes recommendations to our stockholders with respect to incentive compensation and equity-based plans.
 
 
 
 
 
 
l
Reviews, approves and administers our Executive Annual Incentive Compensation Plan, including the establishment of performance criteria and targets and awards under such plan.
 
 
 
 
 
l
Reviews, approves and administers our equity-based compensation plans, including the grants of stock options, restricted stock units and other equity awards under such plans.
 
 
 
 
 
 
l
Makes recommendations to the board with respect to director compensation.
 
 
 
 
 
 
l
Determines any stock ownership guidelines for our chief executive officer and other executive officers and directors.
 
 
 
 
 
 
l
Conducts a periodic performance evaluation of the committee.
 
 
 
 
 
 
l
Reviews disclosure related to executive compensation in our proxy statement.
 
 
 
 
 
 
l
Reviews and reassesses the adequacy of the compensation committee charter.
 
 
 
 
 
 
l
Advise the board of directors regarding the stockholder advisory vote on executive compensation and golden parachutes, including the frequency of such votes.
 
 
 
 
 
 
l
Reviews and considers the stockholder advisory vote on executive compensation when determining policies and making decisions on executive compensation.
 
 
 
 
 
 
l
Has the sole authority to appoint, compensate and oversee work of any compensation consultant and other advisors with respect to executive compensation and assistance with other charter responsibilities and determines any conflict of interest with such compensation consultant.
 
 
 
 
 
 
 
 
 
 
Nominating and Corporate Governance
 
David L. Houston*
 
l
Assists the board of directors in developing criteria for, identifying and evaluating individuals qualified to serve as members of our board of directors.
 
Two (2)
 
Michael P. Cross
 
 
 
 
 
 
Mark L. Plaumann
 
l
Identifies and recommends director candidates to the board of directors to be submitted for election at the Annual Meeting and to fill any vacancies on the board of directors.
 
 
 
 
Melanie M. Trent
 
 
 
 
 
 
 
l
Evaluates candidates for board of directors membership, including those recommended by stockholders of the Company.
 
 

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Committee
 
Members
 
 
Principal Functions
 
Number of Meetings in 2018
 
 
 
 
l
Periodically reviews and makes recommendations regarding the composition and size of the board of directors and each of its committees.
 
 
 
 
 
 
l
Conducts a periodic performance evaluation of the committee.
 
 
 
 
 
 
l
Reviews and reassesses the adequacy of the nominating and corporate governance committee charter and recommends any proposed changes to the board of directors for approval.
 
 
*Committee Chairperson.

Committee Charters

The charters for our audit committee, compensation committee and nominating and corporate governance committee can be found on our website at www.diamondbackenergy.com under the “Investors—Corporate Governance” caption. You may also obtain copies of these charters at no charge to you, by writing to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 1200, Midland, TX 79701.

Board Evaluation Process

The board is committed to continuous improvement with respect its ability to carry out its responsibilities. In accordance with our Corporate Governance Guidelines, the board and its committees conduct self-evaluations relating to their performance. These self-evaluations are a critical tool in assessing the composition and effectiveness of the board, its committees and its directors and presents an opportunity to identify areas of strength and areas capable of improvement. Our nominating and corporate governance committee supervises these evaluations, which are conducted by outside counsel and include an assessment of, among other things:

the effectiveness of the board and committee structure;
board and committee composition, including assessment of skills, experience and occupational and personal backgrounds;
board culture and dynamics, including the effectiveness of discussion and debate at board and committee meetings;
the quality of board and committee agendas and the appropriateness of board and committee priorities; and
the quality of communication between management and board members.

The board considers the results of the evaluations to assess whether the board and its committees have the necessary diversity of skills, backgrounds and experiences to meet the Company’s needs and to further enhance the effectiveness of the board and its committees over time.

Board’s Role in Risk Oversight

As an exploration and production company, we face a number of risks, including risks associated with supply of and demand for oil and natural gas, volatility of oil and natural gas prices, exploring for, developing, producing and delivering oil and natural gas, declining production, environmental and other government regulations and taxes, weather conditions, including hurricanes, that can affect oil and natural gas operations over a wide area, adequacy of our insurance coverage, political instability or armed conflict in oil and natural gas producing regions and overall economic environment. Management is responsible for the day-to-day management of risks we face as a company, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

Our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight. Our Chairman of the Board meets regularly with our Chief Executive Officer and our Chief Financial Officer to discuss strategy and risks facing the Company. Our executive officers regularly attend the board meetings and are available to address any questions or concerns raised by the board on risk management-related and any other matters. Other members of our management team periodically attend the board meetings or are otherwise available to confer with the board to the extent their expertise is required to address risk management matters. Periodically, our board of directors receives presentations from senior management on strategic matters involving our operations. During such meetings, our board of directors also discusses strategies, key challenges, and risks and opportunities for the Company with senior management.


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Committee Risk Oversight Responsibilities

While our board of directors is ultimately responsible for risk oversight at the Company, the board’s three committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. The audit committee assists the board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and discusses policies with respect to risk assessment and risk management. The compensation committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The nominating and corporate governance committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure and executive officers, and corporate governance.

Stockholder Engagement

We value the views of our stockholders and embrace active stockholder engagement as an important tenet of good governance. Because positive and ongoing dialogue builds informed relationships that promote transparency and accountability, members of senior management employ a year-round approach, including proactive engagement as well as responsiveness to specific areas of focus. Information and feedback received through our engagement activities is shared with our board, which helps inform its decisions. In response to feedback obtained during our stockholder outreach efforts, the following past actions, some of which had already been independently considered for implementation by our board of directors or committees, were undertaken:

our board of directors amended our bylaws to provide for the majority vote requirement to elect directors to our board of directors, which replaced the prior plurality voting standard applicable to our director election;
our board of directors and the nominating and corporate governance committee approved enhancements to the nominating committee charter and director nomination process that focused on increasing the size of the board and number of independent directors, with a supermajority of the board currently being independent, and increasing the board’s diversity, which resulted in a female director being added to our board in April 2018;
the compensation committee fully transitioned to three-year performance-based equity awards, with no two-year performance-based equity awards granted during 2018 and no two-year performance-based awards contemplated in the future, and implemented double-trigger change of control provisions in equity awards granted since the beginning of 2018;
the compensation committee enhanced the disclosure of targets and goals for performance-based awards, the discussion of equity award process for our named executive officers and the underlying rationale for such awards;
the addition of return on average capital employed as a metric for determining cash performance awards;
the implementation of stock ownership guidelines for our non-employee directors and all executive officers; and
the release of our inaugural 2018 Corporate Responsibility Report.

During 2018, we continued our stockholder outreach efforts and solicited feedback on our executive compensation programs, corporate governance, corporate responsibility and other important issues. We also had discussions of certain of these matters with other investors during investor presentation events and earnings and other investor calls throughout the year.

Already in 2019, we have spoken to 11 of our largest stockholders, who represent over 50% of our outstanding common stock. These discussions have provided us an opportunity to further explore issues important to us and our stockholders, including corporate governance policies, executive compensation and corporate sustainability and environmental policies. In particular, we received constructive feedback that will help us further refine our corporate responsibility reports in the future. We look forward to continued engagement with stockholders throughout the year so that we can incorporate their ideas to further strengthen our compensation programs, improve our disclosure practices and enhance our governance practices.

Corporate Responsibility and Sustainability

As an oil and gas company, we understand that we have the potential to make a uniquely positive impact in the world. We provide affordable, domestically produced energy that helps run our homes, businesses, transportation networks and other key components of our economy. As we continue to provide a critical product that contributes to economic growth and society, we view the connection between responsible operations and business success a fundamental necessity. We are committed to the safe and responsible development of our resources in the Permian Basin. We operate in the same areas in which a majority of our employees and their families live, and are dedicated to preserving and protecting the environment for the benefit of our stockholders, employees and our community. We have identified key areas of focus, including energy, emissions, waste and spills, water use, compliance, health and safety, training and education, and community, and have described below certain of our efforts relating to these areas.

Commitment to Protecting People—The well-being of our employees and contractors matters to us. Whether it is minimizing workplace incidents or preparing for the unexpected, we continue to make protecting our people a fundamental component of our corporate

14



responsibility efforts. We maintain a formal health and safety program that includes employee training and new hire orientation on a variety of environmental and safety topics, including proper reporting. We also ensure our employees have all necessary equipment to operate safely. Employees undergo significant training and education each year to become knowledgeable on regulatory compliance, industry standards and innovative opportunities to effectively manage the challenges of developing our resources. In light of the nature of our work and the locations of some sites in and near communities, we also proactively prepare for the unexpected by developing emergency response plans to cover potentially hazardous situations.

Commitment to Environmental Responsibility—We are committed to exploration, exploitation, acquisition and production of oil, natural gas and natural gas liquids in an environmentally responsible manner and in compliance with applicable federal, state and local laws, including laws regulating emissions of greenhouse gases, such as methane. We take actions beyond those required by law to reduce methane emissions, recycle an increasing percentage of water and make significant investment in infrastructure to reduce environmental impact. In keeping with that commitment, our overall approach includes these key activities:

Investing in and implementing the best available technology;
Focusing on the hydrocarbon gathering infrastructure, as well as freshwater disposal and produced-water recycling;
Safely transporting oil and gas and minimizing impacts from air emissions, flared gas and spills; and
Maximizing fluid transportation via pipelines rather than diesel powered trucks.

Commitment to Community—Giving back to society and the community in which we operate is part of who we are and we strongly believe these investments of time, money and compassion allow our employees to both experience and demonstrate the core values of our company. In particular, we sponsor improvements in public education, participate in and support many community and national organizations and actively promote local groups.

Moving Forward—We are proud of what we have been able to accomplish as a company and believe our achievements to date demonstrate a serious and growing commitment to corporate responsibility. We are firmly resolved to live our core values of leadership, integrity, excellence, people and teamwork and we will continue to strive for continuous improvement in the years ahead. As we enhance our corporate responsibility efforts and increase stockholder value, we look forward to providing periodic updates in future reports that detail both our challenges and successes.

Our inaugural 2018 Corporate Responsibility Report can be found on our website under the “About—Sustainability” caption.

Code of Business Ethics and Conduct

We have adopted a Code of Business Conduct and Ethics designed to help directors and employees resolve ethical issues. Our Code of Business Conduct and Ethics embodies our commitment to conduct our businesses in accordance with all applicable laws, rules and regulations and the highest ethical standards. Our Code of Business Conduct and Ethics applies to all directors and employees, including the Chief Executive Officer, the Chief Financial Officer, principal accounting officer and controller and persons performing similar functions. Our Code of Business Conduct and Ethics covers various topics including, but not limited to, conflicts of interest, fair dealing, discrimination and harassment, confidentiality, compliance procedures and employee complaint procedures. Our Code of Business Conduct and Ethics is posted on our website under the “Investors-Corporate Governance” caption. You may also obtain copies of our Code of Business Conduct and Ethics at no charge to you, by writing to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 1200, Midland, TX 79701.

Communications with the Board

Individuals may communicate with our board of directors or individual directors by writing to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 1200, Midland, TX 79701. Our Corporate Secretary will review all such correspondence and forward to our board of directors a summary of all such correspondence and copies of all correspondence that, in the opinion of our Corporate Secretary, relates to the functions of our board of directors or any committee thereof or that he otherwise determines requires their attention. Directors may review a log of all such correspondence received by us and request copies. Concerns relating to accounting, internal control over financial reporting or auditing matters will be immediately brought to the attention of the chairman of the audit committee and handled in accordance with the audit committee procedures established with respect to such matters.

Director Compensation

Members of our board of directors who are also officers or employees of the Company do not receive compensation for their services as directors.


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Cash Compensation

During 2018, non-employee directors of the Company received a base annual retainer of $65,000 in cash plus additional annual payments of $135,000 for the Chairman of the Board, $20,000 for the chairperson of the audit committee, $10,000 for each other member of the audit committee, $15,000 for the chairperson of all other committees and $5,000 for each other member of each other committee, with such amounts paid in quarterly installments.

Equity Compensation

We provide our non-employee directors with equity compensation under our equity incentive plan. The value of such annual equity compensation granted to non-employee directors in restricted stock units is $180,000 based on the average closing price per share of our common stock on the Nasdaq Global Select Market for the five trading days immediately preceding the date of grant. The annual grant of restricted stock will be made to non-employee directors at the close of business on the date of each annual meeting of our stockholder. On June 7, 2018, each non-employee director was granted 1,574 restricted stock units which will vest on the earlier of the first anniversary of the date of grant and the next annual meeting of our stockholders following the date of grant.

No equity awards have been granted to our non-employee directors during 2019 to date. Further details regarding our director compensation in 2018 are set forth under the heading “Compensation— 2018 Director Compensation” below.

Audit Committee Report

The audit committee is responsible for providing independent, objective oversight for the integrity of the Company’s financial reporting process and internal control system. Other primary responsibilities of the audit committee include the review, oversight and appraisal of the qualifications, independence and audit performance of the Company’s independent registered public accounting firm and providing an open venue for communication among the independent registered public accounting firm, financial and senior management, our internal auditors and the board of directors of the Company. A more detailed description of the responsibilities of the audit committee is set forth in its written charter, which is posted on our website at www.diamondbackenergy.com. The following report summarizes certain of the audit committee’s activities with respect to its responsibilities during 2018.

Review with Management and Independent Registered Public Accounting Firm. The audit committee has reviewed and discussed with management and Grant Thornton LLP, an independent registered public accounting firm, the audited consolidated financial statements of the Company for the year ended December 31, 2018.

Controls and Procedures. The audit committee discussed with management and Grant Thornton LLP the quality and adequacy of the Company’s disclosure controls and procedures. The audit committee also reviewed and discussed with management and Grant Thornton LLP the Company’s system of internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Discussions with Independent Auditing Firm. The audit committee has discussed with Grant Thornton LLP, independent auditors for the Company, the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 1301, Communications with Audit Committees. The audit committee has received the written disclosures and the letter from Grant Thornton LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence and has discussed with that firm its independence from the Company.

Recommendation to the board of directors. Based on its review and discussions noted above, the audit committee recommended to the board of directors that the audited financial statements and management’s report on internal control over financial reporting be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

THE AUDIT COMMITTEE

Mark L. Plaumann, Chairman
Michael P. Cross
David L. Houston
Melanie M. Trent



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Executive Officers

The following table sets forth the name, age and positions of each of our executive officers as of the record date:
Name
 
Age
 
Position
Travis D. Stice
 
57
 
Chief Executive Officer and Director
Michael L. Hollis
 
43
 
President and Chief Operating Officer; Director
Kaes Van’t Hof
 
32
 
Chief Financial Officer and Executive Vice President—Business Development
Teresa L. Dick
 
49
 
Chief Accounting Officer, Executive Vice President and Assistant Secretary
Russell D. Pantermuehl
 
59
 
Executive Vice President and Chief Engineer
Matt Zmigrosky
 
40
 
Executive Vice President, General Counsel and Secretary
Thomas F. Hawkins
 
65
 
Executive Vice President—Land
Jennifer Soliman
 
48
 
Executive Vice President and Chief Human Resources Officer

Biographical information for each of Messrs. Stice and Hollis is set forth in this proxy statement under the heading “Election of Directors and Director Biographies.”

KAES VAN’T HOF. Mr. Van’t Hof has served as Chief Financial Officer and Executive Vice President of Business Development since February 2019. Prior to his current position with us, he served as our Senior Vice President of Strategy and Corporate Development from January 2017 to February 2019 and as our Vice President of Strategy and Corporate Development since joining us in July 2016. Before joining Diamondback, Mr. Van’t Hof served as Chief Executive Officer for Bison Drilling and Field Services from September 2012 to June 2016. From August 2011 to August 2012, Mr. Van’t Hof was an analyst for Wexford Capital responsible for developing operating models and business plans, including for our initial public offering, and before that worked for the Investment Banking - Financial Institutions Group of Citigroup Global Markets, Inc. from February 2010 to July 2011. Mr. Van’t Hof was a professional tennis player from May 2008 to January 2010. Mr. Van’t Hof received a Bachelor of Science in Accounting and Business Administration from the University of Southern California.

TERESA L. DICK. Ms. Dick has served as our Executive Vice President since February 2017 and as our Chief Accounting Officer since March 2019. Ms. Dick served as our Chief Financial Officer from November 2009 to March 2019, as our Senior Vice President from November 2009 to February 2017, as our Corporate Controller from November 2007 to November 2009 and as our Assistant Secretary since November 2009. Ms. Dick has served as Chief Financial Officer and Executive Vice President of the general partner of Viper since February 2017 and served as its Chief Financial Officer and Senior Vice President from February 2014 to February 2017. From June 2006 to November 2007, Ms. Dick held a key management position as the Controller/Tax Director at Hiland Partners, a publicly-traded midstream energy master limited partnership. Ms. Dick has over 20 years of accounting experience, including over eight years of public company experience in both audit and tax areas. Ms. Dick received her Bachelor of Business Administration degree in Accounting from the University of Northern Colorado. Ms. Dick is a certified public accountant and a member of the American Institute of CPAs and the Council of Petroleum Accountants Societies.

RUSSELL D. PANTERMUEHL. Mr. Pantermuehl has served as our Executive Vice President and Chief Engineer since March 2019. Prior to his current position with us, Mr. Pantermuehl served as our Executive Vice President—Reservoir Engineering from February 2017 until March 2019, and served as our Vice President—Reservoir Engineering from August 2011 to February 2017. Mr. Pantermuehl has also served as Executive Vice President—Reservoir Engineering of the general partner of Viper since February 2017 and served as its Vice President—Reservoir Engineering from February 2014 to February 2017. Prior to his positions with us and Viper, Mr. Pantermuehl served as a reservoir engineering supervisor for Concho Resources Inc., an oil and gas exploration company, from March 2010 to August 2011 where he was responsible for reserve reporting and estimates of the Midland Basin Wolfberry assets. Mr. Pantermuehl worked for ConocoPhillips Company as a reservoir engineering advisor from January 2005 to March 2010 where he provided advice with respect to ConocoPhillips’ Bakken assets, reserve reporting and capital allocation. Mr. Pantermuehl received a Bachelor of Science degree in Petroleum Engineering from Texas A&M University.

MATT ZMIGROSKY. Mr. Zmigrosky has served as Executive Vice President, General Counsel and Secretary since joining us in February 2019. Before joining us, Mr. Zmigrosky was in private practice of law, most recently as a partner in the corporate section of Akin Gump Strauss Hauer & Feld LLP from October 2012 to February 2019, where he worked extensively with the Company and its subsidiaries. Mr. Zmigrosky holds a Bachelor of Science in Management degree in Finance from Tulane University and a Juris Doctorate degree from Southern Methodist University Dedman School of Law.

THOMAS F. HAWKINS. Mr. Hawkins has served as our Executive Vice President of Land since March 2019. Prior to his current position with us, Mr. Hawkins served as our Senior Vice President—Land from March 2017 until March 2019. Mr. Hawkins has

17



also served as Senior Vice President—Land of the general partner of Viper since March 2017. Prior to his employment with us, Mr. Hawkins was an independent Consultant for Land Activities from July 2016 to February 2017. Mr. Hawkins has over 38 years of experience in the oil and gas industry. Mr. Hawkins spent seven years with Oasis Petroleum, Inc., an active oil and gas company in the Williston Basin, as its Senior Vice President of Land (or in similar capacities) from March 2009 until June 2016, retiring from that position. Prior to his tenure at Oasis Petroleum, Inc., Mr. Hawkins spent 31 years at ConocoPhillips and Burlington Resources (which ConocoPhillips acquired in 2006) in various operations and managerial positions in Land, Marketing, Planning and the Corporate Acquisitions and Divestitures group, retiring in February 2009. While at ConocoPhillips (Burlington Resources), Mr. Hawkins has worked in several major regions in the continental United States, including the San Juan Basin, the Williston Basin and the Austin Chalk/Wilcox Trends in South Texas. Mr. Hawkins holds a Bachelor of Business Administration degree in Finance from the University of Texas at El Paso.

JENNIFER SOLIMAN. Ms. Soliman has served as our Executive Vice President and Chief Human Resources Officer since March 2019. Prior to her current position with us, Ms. Soliman served as our Senior Vice President and Chief Human Resources Officer from January 2018 until March 2019. Prior to joining us, Ms. Soliman served as Senior Vice President and Chief Human Resources Officer at Sunnova Energy Corporation from December 2015 to January 2018, and prior to that, served in various human resources leadership roles at Freedom Oil & Gas Ltd. (formerly, Maverick Drilling & Exploration Ltd.), Woodside USA and BP America, each an oil and gas company, and Koch Industries, Inc., a diversified industrial, including chemicals and refining. Ms. Soliman serves on the board of Jones Partners at the Rice Business School and previously served as a member of the United States Air Force Reserves. Ms. Soliman holds a Bachelor of Arts degree in Organizational Behavior from Rollins College and a Master of Business Administration degree from Rice University. 

Compensation Discussion and Analysis

Overview

The compensation discussion and analysis set forth below provides an overview of our compensation program, including the objectives and rationale of each element of compensation, for each of our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers, which we refer to in this proxy statement as our named executive officers. This compensation discussion and analysis describes the actions and decisions of the compensation committee of our board of directors, and of our board of directors, to the extent applicable, as they relate to our executive compensation decisions. The compensation committee, which is composed entirely of independent directors, is primarily responsible for establishing, implementing and monitoring our compensation programs, including those applicable to our named executive officers. In particular, the compensation committee’s current role is to oversee, on behalf of our board of directors, our compensation and benefit plans and policies, review and approve incentive compensation and equity based plans (including establishing, reviewing and approving performance-based cash incentive bonuses and equity grants to our executive officers and directors, as may be applicable) and establish, review and approve annually all compensation decisions relating to our named executive officers, including those with respect to employment agreements, performance targets, severance arrangements, change in control provisions and any special supplemental benefits applicable to our Chief Executive Officer and other named executive officers. The compensation committee meets at least annually to review executive compensation programs, approve compensation levels, consider performance targets, review management performance and administer our equity-based and cash incentive compensation plans. The compensation committee may delegate any or all of its responsibilities to a subcommittee, although no such delegation was made in 2018 or to date in 2019. The compensation committee operates in accordance with its charter, which sets forth the committee’s powers and responsibilities described in more detail under the heading “Election of Directors—Board Meetings, Committees and Memberships.”

Certain of our executive officers and directors are also executive officers and/or directors of the general partner of Viper, our publicly traded subsidiary, and allocate their time between managing our business and managing the business of Viper. We own the general partner of Viper and approximately 54% of the limited partner interest in Viper. Viper’s general partner has the sole responsibility for conducting its business and for managing its operations, and its board of directors and executive officers make decisions on Viper’s behalf.

Except with respect to any awards that may be granted under the Viper Energy Partners LP Long-Term Incentive Plan, which we refer to as the Viper LTIP, the executive officers of Viper’s general partner do not receive separate amounts of compensation in relation to the services they provide to Viper. In accordance with the terms of Viper’s amended and restated limited partnership agreement, Viper reimburses Diamondback for compensation related expenses attributable to the portion of the executive’s time allocated to providing services to Viper. The responsibility and authority for compensation-related decisions for these executive officers resides with our compensation committee. However, all determinations with respect to awards that are made to Viper’s executive officers, key employees and non-employee directors under the Viper LTIP are made by the board of directors of Viper’s general partner. For a description of the Viper LTIP and awards granted to our named executive officers thereunder, please see “Viper’s Long-Term Incentive Plan,” and “Compensation Tables—Outstanding Equity Awards under the Viper LTIP at Fiscal 2018 Year-End” below.


18



Executive Compensation Highlights
What we do:
 
What we don’t do:
ü
We provide pay for performance - The majority of our executive officers’ compensation is “at risk” and is paid only if the Company achieves certain performance objectives, which are designed to increase the value of our stock.
 
û
We do not permit hedging of Company securities, including our publicly traded options, puts, calls and short sales, by executive officers or directors.
ü
We measure our long-term equity awards by total stockholder return, or TSR, as compared to the TSR of peer group companies.
 
û
We prohibit our directors and executive officers from holding our common stock in a margin account.
ü
Since 2018, all of our new performance-based equity awards vest over a three-year performance period, subject to achieving a specified total stockholder return measured against our peer group and satisfaction of continuous services requirements.
 
û
We do not provide for tax gross-ups for executive officers.
ü
Since 2018, all of our new equity awards contain double-trigger change of control provisions.
 
û
We do not allow repricing of underwater stock options or stock appreciation rights.
ü
We provide short-term incentive compensation based on pre-established performance metrics (with payout caps) and provide robust disclosure of our performance metrics and targets.
 
û
We do not allow our executive officers to compete with us for a specified period of time after the end of employment (except in the event of a “no cause” termination following a change in control).
ü
We require substantial stock ownership for our non-employee directors and executive officers and their applicable stock ownership levels are required to be maintained for as long as they serve on our board or are employed by us.
 
û
We do not set performance metrics that would encourage excessive risk taking by our executive officers.
ü
We maintain a competitive compensation package designed to attract, motivate and reward experienced and talented executive officers.
 
û
We do not award discretionary bonuses to our executive officers.
ü
We hold annual advisory “say-on-pay” vote.
 
û
We do not allow our executive officers or directors to pledge Company securities as collateral for a loan.
ü
We engage in active stockholder outreach with respect to executive compensation and corporate governance.
 
û
We do not provide significant perquisites to our executive officers.
ü
Each member of our compensation committee meets the independence requirements under SEC rules and Nasdaq listing standards.
 
û
We do not provide pension or supplemental retirement benefits to our executive officers (other than under our broad-based 401(k) plan).
ü
We use an independent compensation consultant.
 
 
 
ü
Our 2016 Amended and Restated Equity Incentive Plan contains a “clawback” policy that allows us to recover incentive compensation based on misconduct or, in certain instances, if our financial results are restated.
 
 
 
ü
We utilize a balanced approach to compensation, which combines performance and time-based, short-term and long-term, and cash and equity compensation components.
 
 
 


19



Executive Compensation Policy and Objectives

Our general compensation policy is guided by several key principles:

designing competitive total compensation programs to enhance our ability to attract and retain knowledgeable and experienced senior management level employees;

motivating employees to deliver outstanding financial performance and meet or exceed general and specific business, operational and individual objectives;

setting compensation and incentive levels relevant to the market in which the employee provides service;

providing a meaningful performance-based compensation incentive, based on the performance of the individual and the financial performance of the Company to assure an alignment of interests between our senior management-level employees and our stockholders; and

providing a meaningful portion of the total compensation to our named executive officers in equity, thus assuring an alignment of interests between our senior management level employees and our stockholders.

Our compensation committee determines, subject to the terms of the employment agreements with our named executive officers, the mix of compensation, both among short-term and long-term compensation and cash and equity compensation, to establish structures that it believes are appropriate for each of our named executive officers. In making compensation decisions with respect to each element of compensation, the compensation committee considers numerous factors, including:

aligning the compensation of our executives with the performance of the Company on both a short-term and long-term basis;

achievement of individual and company performance goals and other expectations relating to the position;

comparison to other executives within the Company having similar levels of expertise and experience and the uniqueness of the individual’s industry skills;

the individual’s particular background and circumstances, including training and prior relevant work experience;

the individual’s role with us and the compensation paid to similar persons at comparable companies; and

the demand for individuals with the individual’s specific expertise and experience.

The compensation committee seeks to provide a total compensation package to our named executive officers designed to drive performance and reward contributions in support of our business strategies and to attract, motivate and retain high quality talent with the skills and competencies required by us. The compensation committee also seeks to balance these goals by designing our compensation policies and programs to encourage and reward prudent business judgment over the long term by structuring long-term awards as both time-vesting and performance-based and setting meaningful performance criteria and targets, while also offering a competitive base salary component of executive compensation. The compensation committee believes that this combination should avoid encouraging management-level employees to engage in excessive risk-taking, while at the same time promoting performance and retention. In structuring our compensation policies and programs, the compensation committee also takes into consideration the compensation practices of our peer companies and may also review compensation data from the oil and natural gas industry in general. The compensation committee also may review any relevant compensation surveys and consult with compensation consultants with respect to determining any changes in the compensation for our named executive officers, subject to their respective employment agreements. The compensation committee also takes into consideration recommendations from our Chief Executive Officer with respect to our other named executive officers’ compensation.

Highlights of Company Performance in 2018

In 2018, we achieved key operational and financial objectives, completed strategic transactions, including most notably our acquisition of Energen, and continued to create value for our stockholders as evidenced by our total stockholder return. We elaborate on each of these accomplishments below.


20



Operational and Financial Performance

During 2018, we achieved the following financial and operational metrics, in each case, as compared to 2017:

our production volumes increased 65%;

our total proved reserves increased 196%;

our proved developed reserves increased 210%;

net income increased 75%;

Consolidated Adjusted EBITDA increased 71%, and Adjusted EBITDA attributable to Diamondback increased 66%;

continuous improvement in our expense structure, with lease operating expense, or LOE, averaging $4.31 per barrel of oil equivalent, or BOE, in 2018, down 2% from $4.38 per BOE in 2017; and

peer leading cash margins, with cash operating costs per BOE up by only 3%.

Additionally, during 2018, we achieved average well costs of $791 and $1,232 per lateral foot in the Midland Basin and Delaware Basin, respectively, and average total proved developed finding and development, or PD F&D, costs of $11.36 per BOE. During 2018, we also reduced general and administrative costs per BOE, achieving average general and administrative costs of $1.13 per BOE, and realized a return on average capital employed, or ROACE, of 11.4%, which is calculated by dividing our consolidated earnings before income taxes, or Consolidated Adjusted EBIT, for 2018 by the average total assets less the average current liabilities for 2017 and 2018.For a reconciliation of Consolidated Adjusted EBIT to net income, see Schedule A.

At year-end 2018, we had $192 million in standalone cash and approximately $1.5 billion outstanding under our revolving credit facility with $0.5 billion of available borrowing capacity.

We also initiated an annual cash dividend of $0.50 per common share in 2018, which we increased to $0.75 per common share in 2019. The annual cash dividend, which is payable quarterly, is designed to return capital to our stockholders and reward them for their support of our growth since becoming a public company, as well as evidence of our continued commitment to capital discipline.

2018 Transactions

In 2018, we completed our acquisition of Energen Corporation, or Energen, in an all-stock transaction. The addition of Energen’s assets increased our assets to: (i) over 273,000 net Tier One acres in the Permian Basin, an increase of 57% from third quarter 2018 Tier One acreage of approximately 174,000 net acres; (ii) over 7,200 estimated total net horizontal Permian locations, an increase of over 120% from third quarter 2018 estimated net locations; and (iii) approximately 394,000 net acres across the Midland and Delaware Basins.

On October 31, 2018, we acquired certain leasehold interests and related assets of Ajax Resources, LLC, which acquisition included approximately 25,493 net leasehold acres in the Northern Midland Basin, for $900.0 million in cash, subject to certain adjustments, and approximately 2.6 million shares of our common stock, which we refer to as the Ajax acquisition. This acquisition was effective as of July 1, 2018.

On October 31, 2018, we acquired certain leasehold interests and related assets of ExL Petroleum Management, LLC, ExL Petroleum Operating, Inc. and EnergyQuest II LLC, which included an aggregate of approximately 3,646 net leasehold acres in the Northern Midland Basin, for a total of $312.5 million in cash, subject to certain adjustments. These acquisitions were effective as of August 1, 2018.

On August 15, 2018, we sold to Viper mineral interests underlying 32,424 gross (1,696 net royalty) acres primarily in Pecos County, Texas, in the Permian Basin, approximately 80% of which are operated by us, for $175.0 million.

Stockholder Value Creation and Total Stockholder Return

Since our initial public offering in October of 2012, our executive management has been focused not only on achieving peer-leading operational performance in the Permian Basin, but also on creating superior stockholder value.


21



Further, our cumulative total stockholder return was not only consistently and substantially above our 2017 and 2018 proxy peer groups, but also consistently and substantially above the applicable industry index and S&P 500 index in each year following our initial public offering. The following performance graph compares our cumulative total stockholder return from the first trading date following our IPO through December 31, 2018, with the average performance of our four proxy peer groups identified below under “Compensation Decisions for 2018 and Changes in Compensation for 2019,” the Standard & Poor’s 500 Stock Index, a broad market index, or the S&P 500 Index, and the SPDR S&P Oil & Gas Exploration and Production ETF, or XOP Index. The graph assumes an investment of $100 on such date, and that all dividends were reinvested and are weighted on a market capitalization basis.
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12858917&doc=5

22



Date
 
S&P 500
 
XOP
 
Diamondback Energy Inc.
 
2017 Proxy Peer Group
 
2018 Proxy Peer Group
10/12/2012
 
$100.00
 
$100.00
 
$100.00
 
$100.00
 
$100.00
12/31/2012
 
$99.83
 
$97.32
 
$109.26
 
$93.60
 
$95.67
3/28/2013
 
$109.84
 
$108.85
 
$153.37
 
$103.83
 
$109.83
6/28/2013
 
$112.44
 
$104.70
 
$190.40
 
$103.12
 
$109.01
9/30/2013
 
$117.71
 
$118.50
 
$243.66
 
$126.08
 
$127.63
12/31/2013
 
$129.38
 
$123.32
 
$302.06
 
$128.26
 
$130.50
3/31/2014
 
$131.06
 
$129.26
 
$384.63
 
$134.56
 
$134.89
6/30/2014
 
$137.21
 
$148.07
 
$507.43
 
$155.76
 
$158.07
9/30/2014
 
$138.06
 
$123.86
 
$427.31
 
$135.86
 
$142.34
12/31/2014
 
$144.12
 
$86.13
 
$341.60
 
$94.60
 
$101.72
3/31/2015
 
$144.75
 
$92.96
 
$439.09
 
$100.16
 
$105.20
6/30/2015
 
$144.42
 
$83.97
 
$430.74
 
$97.97
 
$100.99
9/30/2015
 
$134.40
 
$59.10
 
$369.14
 
$72.92
 
$76.06
12/31/2015
 
$143.07
 
$54.38
 
$382.29
 
$68.28
 
$70.14
3/31/2016
 
$144.18
 
$54.62
 
$441.03
 
$73.95
 
$75.75
6/30/2016
 
$146.92
 
$62.64
 
$521.20
 
$91.98
 
$92.07
9/30/2016
 
$151.78
 
$69.21
 
$551.66
 
$105.59
 
$106.85
12/31/2016
 
$156.72
 
$74.54
 
$577.49
 
$108.26
 
$109.86
3/31/2017
 
$165.39
 
$67.37
 
$592.66
 
$99.34
 
$99.12
6/30/2017
 
$169.64
 
$57.44
 
$507.49
 
$80.13
 
$80.82
9/29/2017
 
$176.35
 
$61.35
 
$559.77
 
$86.42
 
$87.19
12/29/2017
 
$187.15
 
$66.91
 
$721.43
 
$98.02
 
$98.86
3/29/2018
 
$184.86
 
$63.38
 
$722.97
 
$95.45
 
$95.03
6/29/2018
 
$190.28
 
$77.49
 
$751.83
 
$105.28
 
$108.24
9/29/2018
 
$203.98
 
$77.90
 
$772.51
 
$99.68
 
$108.78
12/31/2018
 
$175.48
 
$47.74
 
$529.71
 
$57.33
 
$66.40

Compensation Decisions for 2018 and Changes in Compensation for 2019

During 2018, our named executive officers’ target annual compensation was set in their employment agreements, subject to any salary adjustments by the compensation committee.

During 2018, the principal elements of compensation for our named executive officers contemplated by their respective employment agreements were:

base salary;

performance-based annual incentive bonus award under our Annual Incentive Plan (defined below), subject to attainment of certain performance goals established by our compensation committee and continuous service requirements;

performance-based equity awards granted to our named executive officers in February 2018, subject to attainment of certain performance goals established by our compensation committee, based on our total stockholder return relative to our proxy peer group during the applicable performance periods, and continuous service requirements;

time vesting equity awards granted to our named executive officers in February 2018, vesting in three approximately equal annual installments, with the first installment vesting on the date of grant and the remaining installments vesting in February of each subsequent year; and

health insurance, life and disability insurance and 401(k) plan benefits available to all of our other employees.

23




Stockholder Outreach and 2018 “Say On Pay” Advisory Vote

The compensation committee carefully reviews our executive pay programs and focuses on emphasizing pay for performance in making annual compensation decisions. The compensation committee values the insight we glean from our stockholder outreach and from our annual say-on pay advisory vote on executive compensation. In 2018, approximately 98% of votes cast by our stockholders were in favor of our say-on-pay proposal. Although this vote demonstrates substantial support of our executive compensation programs, our management undertakes stockholder engagement efforts to solicit stockholder input on our executive compensation structure and ensure on-going stockholder support of our executive compensation programs. For example, during 2018, we continued our stockholder outreach efforts and solicited feedback on our executive compensation programs and other important issues. For a discussion of our stockholder engagement and actions that we have taken in response to stockholder feedback, see “Corporate Governance Matters—Stockholder Engagement” on page 14.

2018 Executive Compensation Analysis

In the fall of 2017, the compensation committee retained Aon Hewitt to conduct a competitive review of compensation practices for certain executive officers, including our named executive officers, and to establish marketplace compensation levels for such executives for 2018. The compensation committee considered any potential conflicts of interest with the compensation consultant and determined that there were no such conflicts of interest. The compensation committee considered changes to the companies to be included in the peer group that would serve as reference for making compensation decisions for 2018, primarily based on industry segment, annual revenue and market capitalization considerations provided by management to the compensation consultant and discussed such considerations with management. Aon Hewitt prepared its executive compensation analysis, dated January 8, 2018, which we refer to as the January 2018 Aon Hewitt study, based on the information available to it from its Oil & Gas Industry compensation surveys of oil and gas companies of similar size (measured by annual revenue) and market capitalization, which we refer to herein as the survey peer group companies, and the review of compensation practices in our peer group companies determined in consultation with the compensation committee and management, based on such companies’ proxy statements filed in 2017, which we refer to herein as our proxy peer group companies. Our proxy peer group used in the January 2018 Aon Hewitt study consisted of the following 17 companies:
Cimarex Energy Company
Noble Energy, Inc.
Concho Resources Inc.
Parsley Energy, Inc.
Continental Resources, Inc.
Pioneer Natural Resources Company
Encana Corporation
QEP Resources, Inc.
Energen Corporation
RSP Permian, Inc.
Laredo Petroleum, Inc.
SM Energy Company
Marathon Oil Corporation
Whiting Petroleum Corporation
Murphy Oil Corporation
WPX Energy, Inc.
Newfield Exploration Company
 

In the January 2018 Aon Hewitt study, the compensation consultant provided competitive data for similarly situated executives at both the survey peer group and the proxy peer group companies, focusing on the following elements of compensation: (i) the annual base salary; (ii) the target annual cash incentive bonus, assuming target performance is achieved; (iii) the total target annual cash compensation consisting of the two elements referenced above; (iv) the value of long-term incentive awards as of the date of grant; and (v) the total direct compensation, consisting of the total target annual cash compensation and the value of long-term incentive awards as of the date of grant. The compensation consultant also analyzed how these elements of compensation compare to elements of compensation afforded to our executive officers, including the named executive officers.

In the January 2018 Aon Hewitt study, the compensation consultant determined that (i) the 2017 target total direct compensation for our named executive officers was generally competitive with the 75th percentile of both our survey peer group and our proxy peer group, (ii) the 2017 annual base salary was generally competitive with the median of the survey peer group and the 75th percentile of the proxy peer group and (iii) the 2017 target total annual compensation was generally competitive with the median of the survey peer group and the 75th percentile of the proxy peer group. The compensation consultant also determined that the 2017 long-term incentive awards granted to each of our named executive officers were generally above the 75th percentile of both our survey peer group and our proxy peer group.

In considering changes to the 2018 executive compensation packages, the compensation committee evaluated, among other things, aspects of executive compensation in general, market data and competitive analysis provided by the compensation consultant in the January 2018 Aon Hewitt study, the Company’s 2017 and multi-year performance, our executives’ individual contributions to such

24



performance, compensation alignment with future performance and stockholder value creation, our focus on performance-qualified equity awards, retention considerations in light of recruitment efforts by peer and private equity companies, input obtained from our stockholder outreach efforts and, with respect to our named executive officers other than our Chief Executive Officer, our Chief Executive Officer’s recommendations. Our Chief Executive Officer’s recommendations to the compensation committee related to such other executive officers’ annual base salaries for 2018, annual incentive compensation plan target award percentages and long-term incentive awards under the 2016 Amended and Restated Equity Incentive Plan, which we refer to as the Equity Incentive Plan. The compensation committee and our Chief Executive Officer discussed compensation alignment with future performance and stockholder value creation, individual performance of our named executive officers (other than our Chief Executive Officer), retention considerations in light of recruitment efforts by peer and private equity companies, our focus on performance-qualified equity awards, and market data and competitive analysis provided by the compensation consultant in the January 2018 Aon Hewitt study. The compensation committee also discussed, in his absence, our Chief Executive Officer’s individual performance and compensation. The compensation committee took this information under advisement and did not make any changes to the executive compensation at that time.

In mid-February 2018, following the issuance of our earnings release reporting our financial and operational results for the fourth quarter and full-year ended December 31, 2017, the compensation committee set the compensation of our named executive officers for 2018.

The following charts reflect key financial metrics and our performance relative to such metrics considered by the compensation committee when analyzing our Company performance for 2017 (as compared to 2016) and making compensation decisions for 2018.

84%
Increase
in
Production Volumes

 
63% 
Increase
in Total
Proved Reserves and 75% Increase in Proved Developed Reserves
 
392% Increase in Net Income and 152% Increase in Consolidated Adjusted EBITDA
 
16%
Decrease
in
LOE per BOE

 
11%
Decrease
in Cash Operating Costs per
BOE

 
$3.2 billion
in
Accretive Acquisitions
Closed

In setting compensation for 2018, the compensation committee was guided by the goal that, consistent with our prior practices, a material amount of executive compensation in 2018 should be tied to performance, and a significant portion of the total prospective compensation of each named executive officer should be tied to measurable financial and operational objectives, including performance criteria relative to our peer group. Based on the recommendations from our Chief Executive Officer with respect to the compensation of other named executive officers for 2018 and the compensation committee’s assessment of the 2018 compensation package for our Chief Executive Officer, peer group data and considerations discussed above, the compensation committee set our named executive officers’ base salary and total compensation (consisting of the value of their long-term equity awards, annual cash incentive bonus and base salary) for 2018, as discussed below.

Based on the foregoing considerations, during the February 2018 meeting, the compensation committee increased annual base salaries for Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar, effective January 1, 2018, as set forth below.
 
2018 Base Salary
 
2017 Base Salary
Travis D. Stice
$
990,000

 
$
850,000

Teresa L. Dick
$
430,000

 
$
410,000

Michael L. Hollis
$
625,000

 
$
590,000

Russell Pantermuehl
$
590,000

 
$
560,000

Paul Molnar
$
500,000

 
$
475,000


During the meeting, the compensation committee also set the annual incentive bonus targets for 2018 for Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar at 125%, 80%, 90%, 80% and 80% of their annual base salary, respectively, increasing the annual incentive bonus target for our Chief Executive Officer to 125% from 100% and leaving such targets for the other named executive officers at prior levels. Further, the compensation committee determined to grant both performance-based and time-vesting restricted stock unit awards to our named executive officers, giving more weight to performance-based awards. In setting 2018 performance-based and time-vesting restricted stock unit awards, the compensation committee determined to grant such awards at lower levels than the awards granted to such named executive officers in 2017. Consistent with the compensation committee’s focus on giving more weight

25



to the performance component of our executive compensation, the 2018 performance-based equity award granted to each named executive officer represented approximately two thirds of the total 2018 equity award, with the time-vesting component of such award representing only approximately one third of the total 2018 equity award. The 2018 performance-based awards represented our complete transition to the three-year performance-based awards, vesting of which will depend on achieving a specified total stockholder return measured against our peer group during the three-year performance period beginning with the year of grant and satisfaction of continuous service requirements. No two-year performance-based awards were granted in 2018 or contemplated in the future.

Looking Ahead: Compensation Changes for 2019

In the fall of 2018, the compensation committee again retained Aon Hewitt, its independent compensation consultant, to conduct a competitive review of compensation practices for certain executive officers, including our named executive officers, and to establish marketplace compensation levels for such executives for 2019. The compensation committee considered and made changes to the companies to be included in the peer group that would serve as reference for making compensation decisions for 2019, primarily based on industry segment, annual revenue and market capitalization, following its discussion of such considerations with management and the compensation consultant. Aon Hewitt prepared its executive compensation analysis, dated February 2019, which we refer to as the February 2019 Aon Hewitt study, based on information available to it from compensation surveys of oil and gas companies of similar size (measured by annual revenue and assets) and market capitalization, which we refer to herein as the survey peer group companies, and the review of compensation practices in our peer group companies determined in consultation with the compensation committee and management, based on such companies’ market capitalization and revenue, which we refer to herein as our proxy peer group companies. Our proxy peer group used in the February 2019 Aon Hewitt study consisted of the following 14 companies:
Anadarko Petroleum Corporation
Hess Corporation
Apache Corporation
Marathon Oil Corporation
Cimarex Energy Co.
Noble Energy, Inc.
Concho Resources Inc.
Parsley Energy, Inc.
Continental Resources, Inc.
Pioneer Natural Resources Company
Devon Energy Corporation
SM Energy Company
Encana Corporation
WPX Energy, Inc.

In the February 2019 Aon Hewitt study, the compensation consultant provided competitive data for similarly situated executives at both the survey peer group and the proxy peer group companies, focusing on the same compensation elements as those considered for purposes of evaluating the 2018 executive compensation packages, and analyzing how these elements of compensation correlate to the elements of compensation afforded to our executive officers, including the named executive officers.

In the February 2019 Aon Hewitt study, the compensation consultant determined that, on average, our 2018 target total direct compensation fell between the median and 75th percentile of both our survey peer group and our proxy peer group, with the 2018 target total annual compensation being generally competitive with the median of both our survey peer group and our proxy peer group and our 2018 long-term incentive awards being generally competitive with the 75th percentile of both our survey peer group and our proxy peer group. In general, the compensation committee uses competitive compensation data, such as that contained in the February 2019 Aon Hewitt study, to inform its decisions about overall compensation opportunities and specific compensation elements. Additionally, the compensation committee uses multiple reference points when establishing targeted compensation levels. The compensation committee does not benchmark specific compensation elements or total compensation to any specific percentile relative to the peer companies or the broader U.S. market. Instead, the compensation committee applies judgment and discretion in establishing targeted pay levels, taking into account not only competitive market data, but also factors such as Company, business and individual performance, scope of responsibility, critical needs and skill sets, leadership potential and succession planning. In particular, in considering changes to the 2019 executive compensation packages, the compensation committee evaluated, among other things, aspects of executive compensation in general, market data and competitive analysis provided by the compensation consultant in the February 2019 Aon Hewitt study, the Company’s 2018 and multi-year performance, our executives’ individual contributions to such performance, compensation alignment with future performance and stockholder value creation, our focus on performance-qualified equity awards, retention considerations in light of recruitment efforts by peer and private equity companies, input obtained from our stockholder outreach efforts and, with respect to our named executive officers other than our Chief Executive Officer, our Chief Executive Officer’s recommendations. Our Chief Executive Officer’s recommendations to the compensation committee related to such other executive officers’ annual base salaries for 2019, annual incentive compensation plan target award percentages and long-term incentive awards under the Equity Incentive Plan. The compensation committee also evaluated, in his absence, our Chief Executive Officer’s individual performance and compensation.


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In mid-February 2019, following the issuance of our earnings release reporting our financial and operational results for the fourth quarter and full-year ended December 31, 2018, the compensation committee set the compensation of our named executive officers for 2019.

The following charts reflect key financial metrics and our performance relative to such metrics considered by the compensation committee when analyzing our Company performance for 2018 (as compared to 2017) and making compensation decisions for 2019.

65%
Increase
in
Production Volumes

 
196% 
Increase
in Total
Proved Reserves and 210% Increase in Proved Developed Reserves
 
75%
Increase in Net Income and 71% Increase in Consolidated Adjusted EBITDA

 
2%
Decrease
in
LOE per BOE

 
3%
Increase
in Cash Operating Costs per
BOE

 
Closing of multiple transactions, including the acquisition of Energen

The compensation committee also considered results of 2018 performance metrics, including average well costs of $791 and $1,232 per lateral foot in the Midland Basin and Delaware Basin, average total PD F&D costs of $11.36 per BOE, average general and administrative costs of $1.13 per BOE and a ROACE of 11.4%.

In setting compensation for 2019, the compensation committee was guided by the goal that, consistent with our prior practices, a material amount of executive compensation in 2019 should be tied to performance, and a significant portion of the total prospective compensation of each named executive officer should be tied to measurable financial and operational objectives, including performance criteria relative to our peer group. Based on the recommendations from our Chief Executive Officer with respect to the compensation of other named executive officers for 2019 and the compensation committee’s assessment of the 2019 compensation package for our Chief Executive Officer, peer group data and considerations discussed above, the compensation committee set our named executive officers’ base salary and total compensation (consisting of the value of their long-term equity awards, annual cash incentive bonus and base salary) for 2019, as discussed below.

Based on the foregoing considerations, during February 2019, the compensation committee set the annual base salaries for Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar, effective March 1, 2019, as set forth below.
 
2019 Base Salary
 
2018 Base Salary
Travis D. Stice
$
1,250,000

 
$
990,000

Teresa L. Dick
$
447,000

 
$
430,000

Michael L. Hollis
$
650,000

 
$
625,000

Russell Pantermuehl
$
615,000

 
$
590,000

Paul Molnar (1)
$
500,000

 
$
500,000

(1)
Mr. Molnar retired from the Company effective April 1, 2019.

During February 2019, the compensation committee also set the annual incentive bonus targets for 2019 for Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar at 125%, 80%, 90%, 80% and 80% of their annual base salary, respectively, leaving such targets for these named executive officers at prior levels. Further, the compensation committee determined to grant both performance-based and time-vesting restricted stock unit awards to our named executive officers, giving more weight to performance-based awards. Consistent with the compensation committee’s focus on giving more weight to the performance component of our executive compensation, the 2019 performance-based equity award granted to each named executive officer represented approximately 60% of the total 2019 equity award, with the time-vesting component of such award representing only approximately 40% of the total 2019 equity award. Vesting of the 2019 performance-based equity awards will depend on achieving a specified total stockholder return measured against our peer group during the three-year performance period beginning with the year of grant and satisfaction of continuous services requirements.

Executive Compensation Program Elements

Subject to the terms of the employment agreements with our named executive officers, our compensation committee determines the mix of compensation, both among short-term and long-term compensation and cash and non-cash compensation, to establish structures

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that it believes are appropriate for each of our named executive officers. While emphasizing pay for performance, the compensation committee believes that the mix of base salary, annual incentive bonus awards based on pre-established financial and operational performance targets, performance-weighted equity awards, existing equity awards under their employment agreements, and the other benefits that are or will be available to our named executive officers will accomplish our overall compensation objectives. We believe that these elements of compensation create competitive compensation opportunities to align and drive executive performance in support of our business strategies and to attract, motivate and retain high quality talent with the skills and competencies required by us.
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12858917&doc=4

Pay for Performance Driven Compensation Structure

As illustrated below, the total direct compensation of our named executive officers is heavily weighted towards variable, at-risk compensation that is tied to performance. Our Chief Executive Officer pay mix in 2018 was 91% aligned with our stockholders and our other named executive officers’ average pay mix was 89% aligned with our stockholders. The performance component of our Chief Executive Officer’s and our other named executive officers’ pay mix represented 69% and 66%, respectively, of such executive officers total direct compensation.

The following describes each element of our executive compensation program, which we use to meet our compensation objectives discussed above.

Base Salary

Our named executive officers’ base salaries are established in their respective employment agreements. Subject to the terms of the applicable employment agreements, as they may be amended or amended and restated from time to time, the compensation committee may increase base salaries to align such salaries with market levels for comparable positions in other companies in our industry if we identify significant market changes. Additionally, the compensation committee may increase base salaries as warranted throughout the year for promotions or other changes in the scope or breadth of an executive’s role or responsibilities. The compensation committee may also evaluate our named executive officers’ salaries together with other components of their compensation to ensure that the executive’s total compensation is in line with our overall compensation philosophy and market practices in our peer group or our industry in general. Pursuant to the employment agreements with the named executive officers, the base salaries of such named executive officers can be increased from time to time by the compensation committee, but cannot be decreased. See “Compensation Decisions for 2018 and Changes in Compensation for 2019for a discussion of considerations involved in the determination of our named executive’s base salaries.


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Performance-Based Annual Incentive Bonus

2018 Performance Bonus. Performance bonuses to our named executive officers are granted under our 2014 Annual Incentive Plan, referred to herein as the Annual Incentive Plan. The Annual Incentive Plan was approved by our board of directors on April 2, 2014, which was then approved by our stockholders at the 2014 Annual Meeting. The Annual Incentive Plan is designed to provide an incentive to executive officers and other selected employees of the Company to contribute to the growth, profitability and increased value of the Company by providing cash incentive or “performance-based” compensation. The Annual Incentive Plan focuses on achievement of certain annual objectives and goals, as determined by the compensation committee at the beginning of each calendar year, and provides that the participants may earn a pre-determined percentage of their respective base salaries for the achievement of such specified goals. Under the Annual Incentive Plan, the payout opportunity may be contingent upon meeting the threshold performance levels (with no award payable unless the threshold is reached), and thereafter varies for performance above and below the pre-established target performance levels, subject to a maximum award level, which is generally capped at 300% of the base salary of the participant at the time the award is established. With respect to each of our named executive officers, the target award opportunity was initially established for each such named executive officer in his or her employment agreement, and adjusted subsequently by the compensation committee for each year in connection with setting the annual performance goals and targets for such year, which cannot exceed a maximum payment limit specified by the compensation committee.

The Annual Incentive Plan also provides that the awards granted to executive officers and covered employees under the Annual Incentive Plan will be forfeited if their respective employment does not continue through the date that the compensation committee certifies attainment of the applicable performance targets. In the event of a change in control, each named executive officer will be paid the target award amount (mid-point of any specified range of potential award payment amount) based on the assumption that the performance target was attained at the target level (generally a mid-point of any specified range of performance targets) for the entire performance period. The target award amount will be paid within ten days following the consummation of the change in control transaction. For a more detailed description of the Annual Incentive Plan, see “2014 Executive Annual Incentive Compensation Plan” on page 39.

For 2018, the performance goals and targets listed in the table below were established by the compensation committee in March 2018, based on, among other things, a review of our prior year’s performance, benchmarking considerations relative to our peers’ performance, execution challenges ahead, acquisition integration considerations, service and commodity markets and capital requirements. We identify goals that align with how management views our success and how stockholders evaluate our performance, both on a standalone basis and relative to our peers and the broader energy industry. For example, the goals given the highest weight on our pre-established 2018 performance metrics measure our capital discipline and efficiency, which directly impact our corporate ROACE and return on stockholder equity. We set goals that we believe are rigorous based on our capital budget and business plan and are competitive with the metrics of the best operators in our peer group in each respective category.


29



In February 2019, the compensation committee certified to the attainment of the pre-established performance goals and targets for 2018. Of the target performances set by the compensation committee for 2018, the compensation committee certified that the performance measures were attained at the following levels against the pre-established goals and targets for 2018:
Pre-Established
 Performance Goals
Performance
Levels(1)
Annual Results as of December 31, 2018 Achieved
Percentage of Performance Target Achieved
Weighted % of Bonus Target
Weighted % of Bonus Target Earned
Capital Efficiency ($/Lateral Foot) - Midland Basin
Threshold $825
Target $800
Maximum $775
$791
136%
20%
27%
Capital Efficiency ($/Lateral Foot) - Delaware Basin
Threshold $1,300
Target $1,200
Maximum $1,150
$1,232
84%
10%
8%
Capital Efficiency - ( Total PDP F&D) (per BOE)
Threshold $13.00
Target $11.50
Maximum $10.50
$11.36
114%
20%
23%
Lease Operating Expense (per BOE)
Threshold $5.50
Target $5.00
Maximum $4.50
$4.31
200%
15%
30%
General and Administrative Cost - Cash (per BOE)
Threshold $2.00
Target $1.75
Maximum $1.50
$1.13
200%
15%
30%
ROACE (%)
Threshold 7.5%
Target 9.0%
Maximum 10.5%
11.4%
200%
20%
40%
Total
 
 
 
100%
158%
(1)
No payouts are made under the Annual Incentive Plan unless the threshold performance levels are achieved.

In 2018, we (i) exceeded our target performance level for capital efficiency in the Midland Basin by 136%, achieving an average cost of $791 per lateral foot, (ii) exceeded the threshold level and came close to achieving our target performance level for capital efficiency in the Delaware Basin, achieving an average cost of drilling of $1,232 per lateral foot, (iii) exceeded our target performance level for capital efficiency levels for PD F&D costs per BOE, by 114%, achieving an average PD F&D cost of $11.36 per BOE, (iv) exceeded both our target and maximum performance levels for reducing lease operating expense per BOE, achieving a peer-leading average lease operating expense of $4.31 per BOE, (v) exceeded both our target and maximum performance levels for reducing general and administrative cost per BOE, achieving an average general and administrative cost of $1.13 per BOE, and (vi) exceeded both the target and maximum performance levels for our ROACE, by achieving a ROACE of 11.4%. After applying the weighting established by the compensation committee to each category, the achievement of these performances resulted in an award of approximately 158% of the applicable targeted bonus to each named executive officer. In connection with reaching these goals, the compensation committee approved awards to Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar in the amounts of $1,955,250, $543,520, $888,750, $745,760 and $632,000, respectively.

In March 2019, the compensation committee established the performance criteria and targets for 2019 for the named executive officers and other covered employees under the Annual Incentive Plan and specified the weighting attributable to such performance metrics. For 2019, the performance levels require achieving certain financial and operational metrics (with no award payable unless the threshold performance levels are achieved) with respect to the same metrics used in 2018, except that well costs per lateral foot in the Midland Basin will be weighted at 15% instead of 20% and the ROACE performance metric will be weighted at 25% instead of 20%. The other performance metrics will be weighted the same in 2019 as they were for 2018.

The compensation committee determined that these metrics are principal drivers of profitability and growth for the Company for 2019. The compensation committee determined that these performance levels, as well as bonus targets set forth in our named executive officers’ employment agreements, as amended and restated to date, would further motivate our named executive officers to contribute to the Company’s performance and growth, align our named executive officers’ interests with those of our stockholders and put a larger portion of our named executives’ compensation at risk.

Long Term Equity Incentive Compensation

We seek to promote an ownership culture among our executive officers in an effort to enhance our long-term performance. We believe the use of stock and stock-based awards offers the best approach to achieving our compensation goals and to align the interests of our executive officers with those of our stockholders. To achieve this purpose, our board of directors adopted and our stockholders approved the Equity Incentive Plan. The purpose of the Equity Incentive Plan is to enable us, and our affiliates, to attract and retain the

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services of the types of employees, consultants and directors who will contribute to our long term success and to provide incentives that will be linked directly to increases in share value that will inure to the benefit of our stockholders. The Equity Incentive Plan provides a means by which eligible recipients of awards may be given an opportunity to benefit from increases in value of our common stock through the granting of equity awards. The terms of the Equity Incentive Plan are described in more detail below. Under the employment agreements with each of our named executive officers, each such executive is eligible to participate in the Equity Incentive Plan or such other equity incentive plan or plans then in existence for the benefit of employees, and may in the discretion of the compensation committee receive an equity award in accordance with the terms of such plan or plans. The timing and amount of such equity awards, any target performance goals and the vesting terms of such awards will be determined by the compensation committee in its sole discretion. If any of such executive’s employment terminates prior to any scheduled vesting date then, except as expressly provided in any existing or future equity award, the applicable executive shall forfeit all rights and interests in and to such unvested equity awards.

2018 Performance-Based and Time-Vesting Awards

In February 2018, the compensation committee granted Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar time vesting restricted stock units and three-year performance based restricted stock units in each case under the Equity Incentive Plan.
 
Time-Vested Restricted Stock Units(1)
Performance-Based Restricted Stock Units(2)
Travis D. Stice
20,391
30,585
Teresa L. Dick
5,598
8,396
Michael L. Hollis
11,835
17,751
Russell Pantermuehl
10,236
15,353
Paul Molnar
9,597
14,393
(1)
Time-vested restricted stock units of which one-third of the award vested in each of February 2018 and February 2019, with the remaining one-third of the award vesting in February 2020.
(2)
The three-year performance-based restricted stock units are for the performance period from January 1, 2018 through December 31, 2020.

The performance-based restricted stock units are subject to the satisfaction of the total stockholder return performance conditions relative for our peer group set forth in a table below for the applicable performance period, and continuous service requirements, with no awards vesting if the relative total stockholder return falls below the threshold percentile.
Total Stockholder Return Percentile
 
Grant Vesting Percentage
<25th Percentile of Peer Group
 
0% of Target
25th Percentile of Peer Group
 
50% of Target (Threshold)
50th Percentile of Peer Group
 
100% of Target (Target)
75th Percentile of Peer Group
 
Up to a maximum of 200% of Target (Maximum)

These awards were designed to incentivize our named executive officers to continue to contribute to the Company’s performance at the top of its peer group, similar to the Company’s performance in prior periods, as well as to promote retention of our named executive officers who have been pursued not only by industry competitors but also by private equity groups.


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2019 Performance-Based and Time-Vesting Awards

In February 2019, the compensation committee approved the grant to Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar of time vesting restricted stock units and three-year performance based restricted stock units in each case under the Equity Incentive Plan.
 
Time-Vested Restricted Stock Units(1)
Performance-Based Restricted Stock Units(2)
Travis D. Stice
32,958
49,436
Teresa L. Dick
8,790
13,183
Michael L. Hollis
17,577
26,366
Russell Pantermuehl
15,381
23,070
Paul Molnar(3)
13,184
19,775
(1)
Time-vested restricted stock units of which one-third of the award vested in March 2019, with the remaining restricted stock units vesting in two substantially equal annual installments beginning in March 2020.
(2)
These three-year performance-based restricted stock units are for the performance period from January 1, 2019 through December 31, 2021.
(3)
Mr. Molnar retired effective April 1, 2019.

The performance-based restricted stock units are subject to the satisfaction of the total stockholder return performance conditions relative for our peer group for the applicable performance period, and continuous service requirements. These awards were designed to incentivize our named executive officers to continue to contribute to the Company’s performance at the top of its peer group, similar to the Company’s performance in prior periods. In addition, the time vesting awards were designed to promote retention of our named executive officers who have been pursued not only by industry competitors but also by private equity groups. Consistent with our compensation committee’s commitment to emphasize performance-based compensation to motivate our executive officers, while maintaining a balanced approach to executive compensation, the 2019 performance-based awards were granted at higher levels than the 2019 time-vesting awards.

In the event of a change in control, the time-vesting restricted stock units granted to each of our named executive officers in 2018 and 2019 will vest immediately upon the occurrence of such event and will be settled upon the consummation of such event. In the event of the executive’s death or disability during a period of continuous service, the deceased or disabled executive’s restricted stock units will vest immediately and will be settled in full on the payment date coincident with or next following the date of vesting. In the event of our change in control, the performance period for performance-based restricted stock units granted to each named executive officer in 2018 and 2019 will be accelerated to the last trading day of the month preceding the date of the consummation of our change in control, and the number of shares subject to performance-based restricted stock units will be determined based on meeting the total stockholder return percentile for such accelerated performance period, which shares will vest immediately following such determination and will be settled upon the consummation of the change in control. In the event of the named executive’s death or disability during a period of continuous service, the deceased or disabled executive’s vesting percentage will be determined at the end of the performance period and settled at the same payment date as if the participant remained in continuous service through the end of the performance period.

Satisfaction of Performance Targets for 2016 and 2017 Performance-Based Awards for Performance Periods ended December 31, 2018

In February 2019, the compensation committee certified to the attainment of the pre-established performance goals with respect to performance-based restricted stock units granted to our named executive officers in January 2016, which awards were subject to the satisfaction of certain total stockholder return performance conditions relative to our peer group for the performance period commencing on January 1, 2016 and ending on December 31, 2018, and continuous service requirements. The compensation committee certified that, based on publicly available information, (i) our total stockholder return for the above-referenced performance period is in the 77th percentile of the peer group total stockholder return, which is above the 75th percentile of the total stockholder return for the peer group, (ii) the total stockholder return percentile equates to a total target grant vesting percent of 200% of the target number of restricted stock units granted to the named executive officers and (iii) the applicable performance target and other material terms of such performance-based restricted stock unit awards were achieved at such levels for the above-referenced performance period. In connection with reaching these performance goals, the 2016 performance-based restricted stock unit awards received by Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar have vested at 200% of the target, resulting in the issuance of 90,168, 6,012, 30,056, 24,044 and 12,022 shares underlying these performance-based restricted stock units to these named executive officers, respectively, in February 2019.


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In February 2019, the compensation committee also certified to the attainment of the pre-established performance goals with respect to performance-based restricted stock units granted to our named executive officers in February 2017, which awards were subject to the satisfaction of certain total stockholder return performance conditions relative to our peer group for the performance period commencing on January 1, 2017 and ending on December 31, 2018, and continuous service requirements. The compensation committee certified that, based on publicly available information, (i) our total stockholder return for the above-referenced performance period is in the 78th percentile of the peer group total stockholder return, which is above the 75th percentile of the total stockholder return for the peer group, (ii) the total stockholder return percentile equates to a total target grant vesting percent of 200% of the target number of restricted stock units granted to the named executive officers and (iii) the applicable performance target and other material terms of such performance-based restricted stock unit awards were achieved at such levels for the above-referenced performance period. In connection with reaching these performance goals, the 2017 performance-based restricted stock unit awards received by Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar have vested at 200% of the target, resulting in the issuance of 22,230, 5,850, 13,650, 11,700 and 11,700 shares underlying these performance-based restricted stock units to these named executive officers, respectively, in February 2019.

The compensation committee believes that the awards made to our named executive officers under the Equity Incentive Plan will provide incentive to these executive officers to enhance our long-term success and encourage performance, and will continue to align the interests of our named executive officers with those of our stockholders.

Other Compensation and Perquisites

Consistent with our compensation philosophy, our compensation committee provides benefits to our executives that are substantially the same as those currently being offered to our other employees, including health insurance, life and disability insurance and a 401(k) plan. A description of the 401(k) plan is below.

Clawback Provisions

Under the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer may be subject to clawbacks in the event of a restatement. Under our Equity Incentive Plan, each award pursuant to that plan is conditioned on repayment or forfeiture in accordance with applicable laws, our Company policies and any relevant provisions in the related award agreements.

Anti-Hedging Policy

We have a policy prohibiting directors, executive officers and certain other designated employees from speculative trading in our securities, including hedging transactions, short selling, and trading in put options, call options, swaps or collars. In addition, we prohibit our directors and executive officers from holding our common stock in a margin account. To our knowledge, all such individuals are in compliance with the policy. Our policy is to also strongly encourage all other employees from engaging in hedging activities in our stock and any such transaction requires notice and pre-approval, and will only be considered with a valid justification. Since the adoption of the policy in 2012, we are not aware of any hedging activities by our employees.

Stock Ownership and Retention Guidelines for Non-Employee Directors and Executive Officers
The compensation committee has adopted stock ownership and retention guidelines for our non-employee directors and executive officers who are classified as Vice President and above, which we refer to as the guidelines. The guidelines were adopted to encourage our non-employee directors and executives to have a meaningful stake in the Company, which encourages a focus on our long-term success, aligns directors’ and executives’ interests with the interests of our stockholders and further promotes our commitment to sound corporate governance.
Under the stock ownership and retention guidelines, each of our non-employee directors must own an amount of our common stock equal in value to a multiple of the base annual retainer for non-employee directors and our executive officers must own an amount of our common stock equal in value to a multiple of his or her annual base salary, as set forth in the table below.
Position
Multiple of Base Annual Retainer/Annual Base Salary Required
Non-Employee Directors
5x
Chief Executive Officer
5x
Executive Vice Presidents
3x
Vice Presidents
2x

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The table below provides the minimum value of stock that each of our named executive officers must retain under our stock ownership and retention guidelines.
 
2019 Base Salary
Multiple of Annual Base Salary Required
Minimum Value of Stock Required to Retain
Travis D. Stice
$
1,250,000

5x
$
6,250,000

Teresa L. Dick
$
447,000

3x
$
1,341,000

Michael L. Hollis
$
650,000

3x
$
1,950,000

Russell Pantermuehl
$
615,000

3x
$
1,845,000

Paul Molnar(1)
$
500,000

3x
$
1,500,000

(1)
Mr. Molnar retired from the Company effective April 1, 2019.
Until the earliest of: (i) 24 months following the applicable exercise date or vesting date of equity awards; (ii) the date such executive officer is determined to be in full compliance with the guidelines; and (iii) the date such executive officer ceases to be a participant subject to the guidelines, for awards granted after the effective date of the guidelines he or she is required to hold at least 50% of the net shares received upon the exercise of stock options and 50% of the net shares received upon vesting of restricted stock or performance shares. Once the ownership requirement is met, the executive officer must continue to hold that number of shares until leaving his or her position with us.
Any participant subject to the guidelines who is not in compliance with the applicable guideline (subject to any compliance transition period) may be required to retain up to 100% of the net shares of our common stock acquired via the exercise of options or the vesting of restricted awards granted under our equity incentive programs until the applicable guideline has been met.
Participants generally are given a five-year transition period to come into full compliance with the guidelines. Participants are expected to make steady progress towards meeting the ownership levels specified in the guidelines with any stock awards or stock purchases made on or after the effective date of the guidelines. There is an exception to the holding requirements for financial hardship and other unusual situations, subject to approval by the Chief Executive Officer and the compensation committee.
For stock options, “net” shares means the number of shares delivered upon exercise of the option, net of shares used to pay the exercise price and applicable taxes. For performance shares and restricted stock, “net” shares means the number of shares held upon vesting, net of shares used to pay applicable taxes.
In addition to shares held outright, shares held directly or indirectly in trust, shares held by immediate family members residing in the same household, shares held in qualified plans (e.g., in a 401(k) plan), vested shares held in non-qualified plans, vested stock options (other than options that are underwater at the time of measurement) and unvested restricted stock subject to time based (but not performance based) vesting are all counted toward satisfaction of the ownership requirement.
All of our named executive officers were in compliance with the guidelines as of the adoption of the guidelines.

Employment Agreements

The following summarizes the material terms of the employment agreements we have with our named executive officers.

Travis D. Stice. We are party to an employment agreement with Mr. Stice, our Chief Executive Officer, which employment agreement was originally entered into on April 18, 2011. The employment agreement, as amended and restated, provided for an initial three-year term commencing on April 18, 2014, and now continues for successive one-year periods unless we or Mr. Stice elects to not extend the term. Mr. Stice’s base salary can be increased from time to time by the compensation committee, but not decreased. Mr. Stice’s annual base salary during 2018 was $990,000, and was increased by the compensation committee to $1,250,000 effective March 1, 2019. Mr. Stice is also entitled to receive a target annual bonus upon achievement of performance goals established by the compensation committee, up to a maximum of 200% of his target bonus in the event performance exceeds the target level established by the compensation committee. His target bonus for 2019 has been set at 125% of his annual base salary. Mr. Stice is entitled to participate in such life and medical insurance plans and other similar plans that we establish from time to time for our executive employees.

Mr. Stice has agreed to certain restrictive covenants in his employment agreement, including, without limitation, his agreement not to compete with us, not to interfere with any of our employees, suppliers or regulators and not to solicit our customers or employees, in each case during Mr. Stice’s affiliation with us and for a period of six months thereafter. Mr. Stice’s continued employment with us is

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terminable by either party. We may terminate Mr. Stice’s employment at any time, with or without advance notice. Mr. Stice may terminate the employment relationship at any time and for any reason, and is required to give us 30 days’ notice if he voluntarily resigns without good reason. However, if (i) we terminate Mr. Stice’s employment without “cause” or due to non-renewal of the term of his employment agreement (together, a “no cause termination”), (ii) Mr. Stice resigns for good reason, meaning such resignation follows a material uncured breach by us of the employment agreement or a material diminution in Mr. Stice’s position, duties or authority or relocation of principal office more than 25 miles outside of Midland, Texas, or (iii) Mr. Stice’s employment is terminated due to death or disability, then (x) we will be obligated to pay, on a monthly basis, 200% of Mr. Stice’s base annual salary until the later of 24 months or the expiration of the term of his employment agreement, provided, however, that if a no cause termination or a good reason resignation occurs within 24 months after the occurrence of a change in control (as defined in the 2012 Plan or any successor plan) and such change in control is a “change in control event” within the meaning of Internal Revenue Service’s rules and regulations, Mr. Stice will be entitled to receive such severance in a lump sum payment, and (y) 100% of the premiums to continue Mr. Stice’s or his surviving spouse’s and eligible dependents’ group health plan continuation coverage under COBRA (provided that such individuals are qualified beneficiaries who are eligible and timely elect COBRA continuation coverage), in addition to any obligations under the terms of any outstanding equity awards; provided, in each case, that Mr. Stice continues to comply with the restrictive covenants described above and Mr. Stice (or his estate or beneficiaries in the case of clause (iii) above) executes a full general release in our favor. Under the employment agreement with Mr. Stice, the terms of each equity award granted to Mr. Stice will provide that such equity award will become 100% vested upon (i) our termination of Mr. Stice without cause or non-renewal of his employment agreement, (ii) Mr. Stice’s resignation for good reason, (iii) his death or disability or (iv) our change in control (as defined in the 2012 plan or any successor plan). In the event Mr. Stice’s employment is terminated for “cause,” our obligations will terminate with respect to the payment of any base salary or bonuses. For purposes of Mr. Stice’s employment agreement, “cause” is generally defined as Mr. Stice’s (a) willful and knowing refusal or failure to perform his duties in any material respect, (b) willful misconduct or gross negligence in performing his duties, (c) material breach of his employment agreement or any other agreement with us or Company policy of Code of Conduct, (d) conviction of, or a plea of guilty or nolo contendere to, a criminal act that constitutes a felony or involves fraud, dishonesty or moral turpitude, (e) indictment for a felony involving embezzlement, theft or fraud, (f) filing of a voluntary, or consent to an involuntary, bankruptcy petition, (g) dishonesty in connection with his responsibilities as an employee or (h) failure to comply with directives of our board of directors. The benefits Mr. Stice is entitled to receive upon certain terminations, resignations and changes of control are summarized below in “Potential Payments Upon Termination, Resignation or Change of Control for Fiscal Year 2018” included elsewhere in this proxy statement.

Teresa L. Dick. Effective September 2011, we entered into an employment agreement with Ms. Dick, who prior to assuming the role of our Executive Vice President and Chief Accounting Officer, effective as of March 1, 2019, was our Chief Financial Officer. The employment agreement, as amended and restated, provided for an initial two-year term commencing on January 1, 2014, and now continues for successive one-year periods unless we or the executive elects to not extend the term. Ms. Dick’s annual base salary during 2018 was $430,000. Her base salary can be increased from time to time by the compensation committee, but not decreased. The compensation committee increased Ms. Dick’s base salary to $447,000 effective March 1, 2019. Subject to Ms. Dick’s achievement of certain performance goals as determined by our board of directors or the compensation committee, Ms. Dick is eligible to receive a target annual bonus which, for 2019, has been set at 80% of her annual base salary, provided she remains employed by us on the payment date. Ms. Dick is also entitled to participate in any life and medical insurance plans and other similar plans that we establish from time to time for our executive employees.

Under her employment agreement, Ms. Dick is eligible to participate in the Equity Incentive Plan or such other equity incentive plan or plans then in existence for the benefit of employees, and may in the discretion of the compensation committee receive an equity award in accordance with the terms of such plan or plans. The timing and amount of such equity awards, any target performance goals and the vesting terms of such awards will be determined by the compensation committee in its sole discretion. If Ms. Dick’s employment terminates prior to any scheduled vesting date, except as expressly provided in any existing or future equity award, then she will forfeit all rights and interests in and to such unvested equity awards.

Ms. Dick has agreed to certain restrictive covenants in her employment agreement, including, without limitation, her agreement not to compete with us, not to interfere with any of our employees, suppliers or regulators and not to solicit our customers or employees, in each case during Ms. Dick’s affiliation with us and for a period of six months thereafter. Ms. Dick’s continued employment with us is terminable by either party. We may terminate Ms. Dick’s employment agreement at any time, with or without advance notice. Ms. Dick may terminate the employment relationship at any time and for any reason, and is required to give us 30 days’ notice if she voluntarily resigns without good reason. However, if (i) we terminate Ms. Dick’s employment without “cause” or due to non-renewal of the term of her employment agreement, (ii) Ms. Dick resigns for good reason, meaning such resignation follows a material uncured breach by us of the employment agreement, relocation of her principal office 25 miles outside of Oklahoma City, Oklahoma or a material diminution in Ms. Dick’s position, duties or authority, or (iii) Ms. Dick’s employment is terminated due to death or disability, then Ms. Dick will be entitled to severance pay in an amount equal to 12 months’ base salary, provided, in each case, that the executive continues to comply with the restrictive covenants described above and the executive (or her estate or beneficiaries in the case of clause (iii) above) executes a full general release in our favor, except that the restriction on competition will not apply in the event the executive resigns for good reason within 12 months following our change of control. In the event Ms. Dick’s employment is terminated for “cause,” our obligations

35



will terminate with respect to the payment of any base salary or bonuses as of the termination date. For purposes of Ms. Dick’s employment agreement, “cause” is generally defined as Ms. Dick’s (a) willful and knowing refusal or failure to perform her duties in any material respect, (b) willful misconduct or gross negligence in performing her duties, (c) material breach of her employment agreement or any other agreement with us or Company policy or Code of Conduct, (d) conviction of, or a plea of guilty or nolo contendere to, a criminal act that constitutes a felony or involves fraud, dishonesty or moral turpitude, (e) indictment for a felony involving embezzlement, theft or fraud, (f) filing of a voluntary, or consent to an involuntary, bankruptcy petition, (g) dishonesty in connection with her responsibilities as an employee or (h) failure to comply with directives of our board of directors. The benefits Ms. Dick is entitled to receive upon certain terminations, resignations and changes of control are summarized below in “Potential Payments Upon Termination, Resignation or Change of Control for Fiscal Year 2018” included elsewhere in this proxy statement.

Michael Hollis. Effective September 2011, we entered into an employment agreement with Mr. Hollis, currently our President and Chief Operating Officer. The employment agreement, as amended and restated, provided for an initial two-year term commencing on January 1, 2014, and now continues for successive one-year periods unless we or the executive elects to not extend the term. Mr. Hollis’ annual base salary for 2018 was $625,000. His base salary can be increased from time to time by the compensation committee, but not decreased. The compensation committee increased Mr. Hollis’ base salary to $650,000 effective March 1, 2019. Subject to Mr. Hollis’ achievement of certain performance goals as determined by our board of directors, Mr. Hollis is entitled to a target annual bonus which, for 2019, has been set at 90% of his annual base salary, provided he remains employed by us on the payment date. Mr. Hollis is also entitled to participate in any life and medical insurance plans and other similar plans that we establish from time to time for our executive employees.

Under his employment agreement, Mr. Hollis is eligible to participate in the Equity Incentive Plan or such other equity incentive plan or plans then in existence for the benefit of employees, and may in the discretion of the compensation committee receive an equity award in accordance with the terms of such plan or plans. The timing and amount of such equity awards, any target performance goals and the vesting terms of such awards will be determined by the compensation committee in its sole discretion. If Mr. Hollis’ employment terminates prior to any scheduled vesting date then, except as expressly provided in any existing or future equity award, then he will forfeit all rights and interests in and to such unvested equity awards.

Mr. Hollis has agreed to certain restrictive covenants in his employment agreement, including, without limitation, his agreement not to compete with us, not to interfere with any of our employees, suppliers or regulators and not to solicit our customers or employees, in each case during Mr. Hollis’ affiliation with us and for a period of six months thereafter. Mr. Hollis’ continued employment with us is terminable by either party. We may terminate Mr. Hollis’ employment at any time, with or without advance notice. Mr. Hollis may terminate the employment relationship at any time and for any reason, and is required to give us 30 days’ notice if he voluntarily resigns without good reason. However, if (i) we terminate Mr. Hollis’ employment without “cause” or due to non-renewal of the term of his employment agreement (ii) Mr. Hollis resigns for good reason, meaning such resignation follows a material uncured breach by us of the employment agreement, relocation of his principal office more than 25 miles outside of Midland, Texas, or a material diminution in Mr. Hollis’ position, duties or authority, or (iii) Mr. Hollis’ employment is terminated due to death or disability, then Mr. Hollis will be entitled to severance pay in an amount equal to 12 months’ base salary; provided, in each case, that Mr. Hollis continues to comply with the restrictive covenants described above and the executive (or his estate or beneficiaries in the case of clause (iii) above) executes a full general release in our favor, except that the restriction on competition will not apply in the event the executive resigns for good reason within 12 months following our change of control. In the event Mr. Hollis’ employment is terminated for “cause,” our obligations will terminate with respect to the payment of any base salary or bonuses effective as of the termination date. For purposes of Mr. Hollis’ employment agreement, “cause” is generally defined as Mr. Hollis’ (a) willful and knowing refusal or failure to perform his duties in any material respect, (b) willful misconduct or gross negligence in performing his duties, (c) material breach of his employment agreement or any other agreement with us or Company policy or Code of Conduct, (d) conviction of, or a plea of guilty or nolo contendere to, a criminal act that constitutes a felony or involves fraud, dishonesty or moral turpitude, (e) indictment for a felony involving embezzlement, theft or fraud, (f) filing of a voluntary, or consent to an involuntary, bankruptcy petition, (g) dishonesty in connection with his responsibilities as an employee or (h) failure to comply with directives of our board of directors. The benefits Mr. Hollis is entitled to receive upon certain terminations, resignations and changes of control are summarized below in “Potential Payments Upon Termination, Resignation or Change of Control for Fiscal Year 2018” included elsewhere in this proxy statement.

Russell Pantermuehl. Effective July 2011, we entered into an employment agreement with Mr. Pantermuehl, who prior to assuming the role of our Executive Vice President—Chief Reservoir Engineer, effective as of March 1, 2019, was our Executive Vice President—Reservoir Engineering. The employment agreement, as amended and restated, provided for an initial two-year term commencing on January 1, 2014, and now continues for successive one-year periods unless we or the executive elects to not extend the term. Mr. Pantermuehl’s annual base salary for 2018 was $590,000. His base salary can be increased from time to time by the compensation committee, but not decreased. The compensation committee increased Mr. Pantermuehl’s base salary to $615,000 effective March 1, 2019. Subject to Mr. Pantermuehl’s achievement of certain performance goals as determined by our board of directors or the compensation committee for each fiscal year, Mr. Pantermuehl is eligible to receive a target annual bonus which, for 2019, has been set at 80% of his

36



annual base salary, provided he remains employed by us on the payment date. Mr. Pantermuehl is also entitled to participate in any life and medical insurance plans and other similar plans that we establish from time to time for our executive employees.

Under his employment agreement, Mr. Pantermuehl is eligible to participate in the Equity Incentive Plan or such other equity incentive plan or plans then in existence for the benefit of employees, and may in the discretion of the compensation committee receive an equity award in accordance with the terms of such plan or plans. The timing and amount of such equity awards, any target performance goals and the vesting terms of such awards will be determined by the compensation committee in its sole discretion. If Mr. Pantermuehl’s employment terminates prior to any scheduled vesting date then, except as expressly provided in any existing or future equity award, then he will forfeit all rights and interests in and to such unvested equity awards.

Mr. Pantermuehl has agreed to certain restrictive covenants in his employment agreement, including, without limitation, his agreement not to compete with us, not to interfere with any of our employees, suppliers or regulators and not to solicit our customers or employees, in each case during Mr. Pantermuehl’s affiliation with us and for a period of six months thereafter. Mr. Pantermuehl’s continued employment with us is terminable by either party. We may terminate Mr. Pantermuehl’s employment at any time, with or without advance notice. Mr. Pantermuehl may terminate the employment relationship at any time and for any reason, and is required to give us 30 days’ notice if he voluntarily resigns without good reason. However, if (i) we terminate Mr. Pantermuehl’s employment without “cause” or due to non-renewal of the term of his employment agreement, (ii) Mr. Pantermuehl resigns for good reason, meaning such resignation follows a material uncured breach by us of the employment agreement, relocation of his principal office 25 miles outside of Midland, Texas or a material diminution in Mr. Pantermuehl’s position, duties or authority, or (iii) Mr. Pantermuehl’s employment is terminated due to death or disability, then Mr. Pantermuehl will be entitled to severance pay in an amount equal to 12 months’ base salary; provided, in each case, that the executive continues to comply with the restrictive covenants described above and the executive (or his estate or beneficiaries in the case of clause (iii) above) executes a full general release in our favor, except that the restriction on competition will not apply in the event the executive resigns for good reason within 12 months following our change of control. In the event Mr. Pantermuehl’s employment is terminated for “cause,” our obligations will terminate with respect to the payment of any base salary or bonuses effective as of the termination date. For purposes of Mr. Pantermuehl’s employment agreement, “cause” is generally defined as Mr. Pantermuehl’s (a) willful and knowing refusal or failure to perform his duties in any material respect, (b) willful misconduct or gross negligence in performing his duties, (c) material breach of his employment agreement or any other agreement with us or Company policy or Code of Conduct, (d) conviction of, or a plea of guilty or nolo contendere to, a criminal act that constitutes a felony or involves fraud, dishonesty or moral turpitude, (e) indictment for a felony involving embezzlement, theft or fraud, (f) filing of a voluntary, or consent to an involuntary, bankruptcy petition, (g) dishonesty in connection with his responsibilities as an employee or (h) failure to comply with directives of our board of directors. The benefits Mr. Pantermuehl is entitled to receive upon certain terminations, resignations and changes of control are summarized below in “Potential Payments Upon Termination, Resignation or Change of Control for Fiscal Year 2018” included elsewhere in this proxy statement.

Paul Molnar. Effective January 1, 2014, we entered into an employment agreement with Mr. Molnar, our former Executive Vice President—Exploration and Business Development. The employment agreement provided for an initial two-year term commencing on January 1, 2014, and continued for successive one-year periods unless we or the executive elected to not extend the term. Mr. Molnar retired from all positions with us effective April 1, 2019. Mr. Molnar’s annual base salary for 2018 was $500,000. Mr. Molnar’s base salary could be increased from time to time by the compensation committee, but not decreased. Mr. Molnar’s annual base salary remained at $500,000 through the date of his retirement. Subject to Mr. Molnar’s achievement of certain performance goals as determined by our board of directors or the compensation committee for each fiscal year, Mr. Molnar was eligible to receive a target annual bonus provided he remained employed by us on the payment date. Mr. Molnar was also entitled to participate in any life and medical insurance plans and other similar plans that we establish from time to time for our executive employees.

Under his employment agreement, Mr. Molnar was eligible to participate in the 2012 Plan or such other equity incentive plan or plans then in existence for the benefit of employees and, in the discretion of the compensation committee, receive an equity award in accordance with the terms of such plan or plans. The timing and amount of such equity awards, any target performance goals and the vesting terms of such awards were determined by the compensation committee in its sole discretion.

Mr. Molnar agreed to certain restrictive covenants in his employment agreement, including, without limitation, his agreement not to compete with us, not to interfere with any of our employees, suppliers or regulators and not to solicit our customers or employees, in each case during Mr. Molnar’s affiliation with us and for a period of six months thereafter. Mr. Molnar’s employment with us was terminable by either party. Mr. Molnar’s employment was terminable by us at any time, with or without advance notice. Mr. Molnar was permitted to terminate the employment relationship at any time and for any reason, and was required to give us 30 days’ notice if he voluntarily resigned without good reason. However, if (i) we terminated Mr. Molnar’s employment without “cause” or due to non-renewal of the term of his employment agreement, (ii) Mr. Molnar resigned for good reason, meaning such resignation followed a material uncured breach by us of the employment agreement, relocation of his principal office 25 miles outside of Midland, Texas or a material diminution in Mr. Molnar’s position, duties or authority, or (iii) Mr. Molnar’s employment was terminated due to death or disability, then Mr. Molnar was entitled to severance pay in an amount equal to 12 months’ base salary; provided, in each case, that the executive continued to comply

37



with the restrictive covenants described above and the executive (or his estate or beneficiaries in the case of clause (iii) above) executed a full general release in our favor, except that the restriction on competition did not apply in the event the executive resigned for good reason within 12 months following our change of control. In the event Mr. Molnar’s employment was terminated for “cause,” our obligations would have terminated with respect to the payment of any base salary or bonuses. For purposes of Mr. Molnar’s employment agreement, “cause” was generally defined as Mr. Molnar’s (a) willful and knowing refusal or failure to perform his duties in any material respect, (b) willful misconduct or gross negligence in performing his duties, (c) material breach of his employment agreement or any other agreement with us or Company policy or Code of Conduct, (d) conviction of, or a plea of guilty or nolo contendere to, a criminal act that constitutes a felony or involves fraud, dishonesty or moral turpitude, (e) indictment for a felony involving embezzlement, theft or fraud, (f) filing of a voluntary, or consent to an involuntary, bankruptcy petition, (g) dishonesty in connection with his responsibilities as an employee or (h) failure to comply with directives of our board of directors. The benefits Mr. Molnar was entitled to receive upon certain terminations, resignations and changes of control are summarized below in “Potential Payments Upon Termination, Resignation or Change of Control for Fiscal Year 2018” included elsewhere in this proxy statement.

Equity Incentive Plan

On April 25, 2016, the compensation committee of our board of directors, acting upon authority delegated to it by our board of directors, unanimously adopted, subject to stockholder approval, our 2016 Amended and Restated Equity Incentive Plan, amending and restating our 2012 Equity Incentive Plan. On June 8, 2016, our stockholders approved the 2016 Amended and Restated Equity Incentive Plan at our 2016 Annual Meeting of Stockholders. The compensation committee has again unanimously adopted, subject to stockholder approval at the 2019 Annual Meeting, our 2019 Amended and Restated Equity Incentive Plan, amending and restating our 2016 Amended and Restated Equity Incentive Plan, which, as so amended and restated, is referred to as the Equity Incentive Plan. A summary of the material terms of the Equity Incentive Plan is set forth under Proposal 2, beginning on page 54.

Viper’s Long-Term Incentive Plan

To incentivize Viper’s management and directors to continue to grow Viper’s business, the board of directors of Viper’s general partner adopted the Viper LTIP for employees, officers, consultants and directors of Viper’s general partner and any of its affiliates, including Diamondback, who perform services for Viper.

The purpose of the Viper LTIP is to provide a means to attract and retain individuals who are essential to Viper’s growth and profitability and to encourage them to devote their best efforts to advancing Viper’s business by affording such individuals a means to acquire and maintain ownership of awards, the value of which is tied to the performance of Viper’s common units. The Viper LTIP provides for the grant of unit options, unit appreciation rights, restricted units, unit awards, phantom units, distribution equivalent rights, cash awards, performance awards, other unit-based awards and substitute awards (collectively, “awards”). These awards are intended to align the interests of employees, officers, consultants and directors with those of Viper’s unitholders and to give such individuals the opportunity to share in Viper’s long-term performance. Any awards that are made under the Viper LTIP will be approved by the board of directors of Viper’s general partner or a committee thereof that may be established for such purpose. Viper will be responsible for the cost of awards granted under the LTIP.

Viper’s general partner has made grants under the Viper LTIP of (a) phantom units to the non-employee directors of Viper’s general partner (see “Director Compensation” included in Viper’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 15, 2019, for information regarding those awards).

Administration

The Viper LTIP is administered by the board of directors of Viper’s general partner pursuant to its terms and all applicable state, federal, or other rules or laws. The board of directors of Viper’s general partner has the power to determine to whom and when awards will be granted, determine the amount of awards (measured in cash or in shares of our common units), proscribe and interpret the terms and provisions of each award agreement (the terms of which may vary), accelerate the vesting provisions associated with an award, delegate duties under the Viper LTIP and execute all other responsibilities permitted or required under the Viper LTIP.

Change in Control

Upon a “change in control” (as defined in the Viper LTIP), the board may, in its discretion, (i) remove any forfeiture restrictions applicable to an award, (ii) accelerate the time of exercisability or vesting of an award, (iii) require awards to be surrendered in exchange for a cash payment, (iv) cancel unvested awards without payment or (v) make adjustments to awards as the committee deems appropriate to reflect the change in control.


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Termination of Employment or Service

The consequences of the termination of a participant’s employment, consulting arrangement or membership on the board of directors of Viper’s general partner will be determined by the board in the terms of the relevant award agreement.

2014 Executive Annual Incentive Compensation Plan

Our executive officers and selected employees and those of our subsidiaries are eligible to receive awards under the Annual Incentive Plan, which was previously adopted by our board of directors and approved by our stockholders effective April 1, 2014. The Annual Incentive Plan provides for awards of incentive compensation that are contingent on the attainment of specific performance targets. Performance targets for each award under the Annual Incentive Plan are based on certain pre-established operational, financial, reserve, capital efficiency, market share, stock price and other performance factors that were previously approved by our stockholders. The compensation committee serves as the plan administrator and establishes the performance targets for each award and the performance period during which the performance is to be measured. These performance factors may relate to the performance of the Company or the performance of a business unit, product line, territory or any combination of these. Performance targets for employees who are not executive officers may also be based on other additional objective or subjective performance criteria established by the compensation committee. Performance targets may include a minimum level of performance below which no payment will be made, levels of performance at which specified percentages of the award will be paid, and a maximum level of performance above which no additional award will be paid. Award amounts that may be paid under the Annual Incentive Plan to our Chief Executive Officer and any other Covered Employee (as such term is defined in Section 162(m) of the Code) for any one year may not exceed the lesser of: (i) 300% of base salary at the time the award is established, or (ii) $6.0 million. Individual awards may be subject to lesser limits in the discretion of the compensation committee.

All payments in respect of awards granted under the Annual Incentive Plan will be made in cash, and will be paid within a reasonable period after the end of the performance period. Before payment of any award to a Covered Employee, the compensation committee must certify in writing that the performance target requirement for such award was met.

401(k) Plan

We participate in a 401(k) Plan. Employees may elect to defer a portion of their compensation up to the statutorily prescribed limit. Each pay period we make a matching contribution to each employee’s deferral, not to exceed 10 percent of compensation. An employee’s interests in his or her deferrals and our matching contributions are, in each case, 100% vested when contributed. The 401(k) Plan is intended to qualify under Section 401(a) of the Internal Revenue Code. As such, contributions to the 401(k) Plan and earnings on those contributions are not taxable to the employee until distributed from the 401(k) Plan, and all timely made contributions are deductible by us for the year in which they are allocable.

Effect of Our Compensation Policies and Practices on Risk and Risk Management

The compensation committee reviews the risks and rewards associated with our compensation policies and programs. We believe that such policies and programs encourage and reward prudent business judgment and avoid encouraging excessive risk-taking over the long term. With respect to specific elements of compensation:

We believe that our programs balance short- and long-term incentives for our executive officers providing for an appropriate mix of fixed, discretionary and equity compensation that overall encourages long-term performance.

We believe that annual base salaries for our named executive officers do not encourage excessive risk-taking as they are fixed amounts that are subject to discretionary increases by our compensation committee, based, among other factors, on annual performance evaluations. We also believe that such annual base salaries are set at reasonable levels, as compared to the base salaries of similarly situated individuals at our peer group companies. The base salary represents a portion of our named executive officers’ overall compensation potential and is balanced by the other elements of their overall compensation potential, which are tied to both performance and long-term service.

Our annual incentive bonuses are designed to award achievement of short-term performance-driven results. The payment and amounts of the 2018 annual incentive bonuses were based upon meeting of certain performance criteria and targets established by the compensation committee for 2018, as disclosed in more detail above, which we believe were set at meaningful levels and do not encourage excessive risk taking. We also believe that performance criteria and targets established by the compensation committee for 2019 were similarly designed to encourage performance, but not excessive risk taking.


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Restricted stock units granted to our named executive officers are subject to performance-based and time-vesting provisions. We award restricted stock units to promote performance and ensure that our executives have a continuing stake in the long-term success of the Company as the value of the award will depend on the stock price at and after the time of vesting. We believe that a mixture of performance-based and time-vesting equity awards represent a balanced approach to long-term equity compensation and do not encourage excessive risk taking that may be associated with the compensation approach focused solely on equity awards that vest strictly based on achieving certain targets. We also believe that the weight given by our compensation committee to performance-based equity awards, as compared to time-vesting equity awards, provide incentive to our named executive officers to take appropriate amount of risk to drive the Company’s performance and enhance stockholder value.

As described above in the discussion of the employment agreements of the named executive officers, our named executive officers are entitled to certain benefits that are payable upon the occurrence of their termination without “cause,” resignation for “good reason,” or certain change in control transactions.

Based on the foregoing, the compensation committee believes that the Company does not utilize compensation policies and programs creating risks that are reasonably likely to have a material adverse impact on the Company.

Compensation Committee Report

The compensation committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on its review and discussion with management, the compensation committee recommended that the summary of Compensation Discussion and Analysis be included in this proxy statement.

Respectfully submitted by the compensation committee:

Michael P. Cross, Chairman
David L. Houston
Mark L. Plaumann
Melanie M. Trent

Compensation Committee Interlocks and Insider Participation

The compensation committee of our board of directors consists of David L. Houston, Michael P. Cross, Mark L. Plaumann and Melanie M. Trent. No current member of our compensation committee has ever been an officer or employee of ours. None of our executive officers serves, or has served during the past fiscal year, as a member of the board of directors or compensation committee of any other company that has or had one or more executive officers serving as member of our board of directors or compensation committee.


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SUMMARY COMPENSATION TABLE

The following table provides information concerning compensation of our principal executive officer, principal financial officer and our three other highest paid executive officers, each our named executive officer, for the fiscal years ended December 31, 2018, 2017 and 2016.
Name and Principal Position
Year
Salary ($)
Stock Awards ($)(1)
Non-Equity Incentive Plan Compensation ($)(2)
All Other Compensation ($)(3)
Total
($)(4)
Performance-based
Time Vested
Travis D. Stice
2018
$
990,000

$
5,213,213

$
2,345,577

$
1,955,250

$
45,123

$
10,549,163

Chief Executive Officer
2017
$
850,000

$
5,552,940

$
2,423,292

$
1,428,000

$
28,056

$
10,282,288


2016
$
830,000

$
13,938,723

$
5,707,698

$
1,643,400

$
27,940

$
22,147,761

Teresa L. Dick
2018
$
430,000

$
1,431,098

$
643,938

$
543,520

$
33,104

$
3,081,660

Chief Accounting Officer
2017
$
410,000

$
1,461,300

$
637,709

$
551,040

$
28,056

$
3,088,105

(Former Chief Financial Officer)
2016
$
380,000

$
929,262

$
380,496

$
601,920

$
27,940

$
2,319,618

Michael L. Hollis
2018
$
625,000

$
3,025,658

$
1,361,380

$
888,750

$
38,171

$
5,938,959

Chief Operating Officer
2017
$
590,000

$
3,409,700

$
1,487,987

$
892,080

$
28,056

$
6,407,823

and President
2016
$
510,000

$
4,646,207

$
1,902,545

$
908,820

$
27,940

$
7,995,512

Russell Pantermuehl
2018
$
590,000

$
2,616,919

$
1,177,447

$
745,760

$
36,872

$
5,166,998

Executive Vice President - Chief Engineer
2017
$
560,000

$
2,922,600

$
1,275,417

$
752,640

$
28,056

$
5,538,713

(Former Executive Vice President - Reservoir Engineering)
2016
$
500,000

$
3,716,945

$
1,522,049

$
792,000

$
27,940

$
6,558,934

Paul Molnar(5)
2018
$
500,000

$
2,453,287

$
1,103,943

$
632,000

$
35,186

$
4,724,416

Former Executive Vice President -
2017
$
475,000

$
2,922,600

$
1,275,417

$
638,400

$
28,056

$
5,339,473

Exploration and Business Development
2016
$
425,000

$
1,858,421

$
760,993

$
673,200

$
27,940

$
3,745,554

(1)
The amounts shown in the above table reflect the grant date fair value of restricted stock units and stock options granted respectively, determined in accordance with FASB ASC Topic 718. See Note 11 to our consolidated financial statements for the fiscal year ended December 31, 2018, included in our Annual Report on Form 10-K, filed with the SEC on February 25, 2019, regarding assumptions underlying valuations of equity awards for 2018, 2017 and 2016. Details regarding equity awards that are still outstanding can be found in the “Outstanding Equity Awards at Fiscal 2018 Year-End” table. If the 2018 performance-based awards were valued at a grant date price of $115.03, the maximum value of these awards for Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar would be $7,036,385, $1,931,584, $4,083,795, $3,532,111 and $3,311,254, respectively.
(2)
The amounts shown reflect performance-based annual incentive bonuses granted under the Executive Annual Incentive Compensation Plan.
(3)
Amounts for 2018 include (i) our 401(k) plan contributions of $27,500, life insurance premium payments of $1,056 and dividend equivalent rights paid on restricted stock units that vested in 2018 of $16,567 for Mr. Stice, (ii) our 401(k) plan contributions of $27,500, life insurance premium payments of $1,056 and dividend equivalent rights paid on restricted stock units that were granted in 2018 of $4,548 for Ms. Dick, (iii) our 401(k) plan contributions of $27,500, life insurance premium payments of $1,056 and dividend equivalent rights paid on restricted stock units that were granted in 2018 of $9,615 for Mr. Hollis, (iv) our 401(k) plan contributions of $27,500, life insurance premium payments of $1,056 and dividend equivalent rights paid on restricted stock units that were granted in 2018 of $8,316 for Mr. Pantermuehl and (v) our 401(k) plan contributions of $26,333, life insurance premium payments of $1,056 and dividend equivalent rights paid on restricted stock units that were granted in 2018 of $7,797 for Mr. Molnar. Amounts for 2017 include (i) our 401(k) plan contributions of $27,000 and life insurance premium payments of $1,056 for Mr. Stice, (ii) our 401(k) plan contributions of $27,000 and life insurance premium payments of $1,056 for Ms. Dick, (iii) our 401(k) plan contributions of $27,000 and life insurance premium payments of $1,056 for Mr. Hollis, (iv) our 401(k) plan contributions of $27,000 and life insurance premium payments of $1,056 for Mr. Pantermuehl and (v) our 401(k) plan contributions of $27,000 and life insurance premium payments of $1,056 for Mr. Molnar. Amounts in 2016 include (i) our 401(k) plan contributions of $26,500 and life insurance premium payments of $1,440 for Mr. Stice; (ii) our 401(k) plan contributions of $26,500 and life insurance premium payments of $1,440 for Ms. Dick, (iii) our 401(k) plan contributions of $26,500 and life insurance premium payments of $1,440 for Mr. Hollis, (iv) our 401(k) plan contributions of $26,500 and life insurance premium payments of $1,440 for Mr. Pantermuehl and (v) our 401(k) plan contributions of $26,500 and life insurance premium payments of $1,440 for Mr. Molnar.
(4)
During 2018, 2017 and 2016, Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar also performed services as executive officers and/or directors of the general partner of Viper, our publicly traded subsidiary, as set forth in more detail in their respective biographies above, and their time was allocated between managing our business and managing the business of Viper. In accordance with the terms of Viper’s amended and restated limited partnership agreement, in 2018, 2017 and 2016, we

41



were reimbursed for compensation related expenses attributable to the portion of the executive’s time allocated to providing services to Viper. During 2018, Viper reimbursed us approximately $421,650, $141,487, $0, $129,126 and $0 attributable to time allocated to providing services to Viper by Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar, respectively. During 2017, Viper reimbursed us approximately $305,930, $130,353, $0, $118,695 and $0 attributable to time allocated to providing services to Viper by Mr. Stice, Ms. Dick, Mr. Hollis, Mr. Pantermuehl and Mr. Molnar, respectively. During 2016, we did not allocate any time of our named executive officers to Viper for reimbursement.
(5)
Mr. Molnar retired from the Company effective April 1, 2019.

2018 GRANTS OF PLAN-BASED AWARDS
Name
Grant Date
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)
Estimated Future Payouts Under Equity Incentive Plan Awards(2)
All Other Stock Awards: Number of Shares of Stock or Units
Grant Date Fair Value of Stock and Option Awards(4)
Threshold ($)
Target ($)
Maximum ($)
Threshold (#)
Target (#)
Maximum (#)
Travis D. Stice
2/13/2018
$
618,750

$
1,237,500

$
2,475,000



 




 

 
2/13/2018






15,293

30,585

61,170

20,391

(3)
$
7,558,790

Teresa L. Dick
2/13/2018
$
172,000

$
344,000

$
688,000



 




 

 
2/13/2018






4,198

8,396

16,792

5,598

(3)
$
2,075,036

Michael L. Hollis
2/13/2018
$
281,250

$
562,500

$
1,125,000

 
 
 
 
 
 
 
2/13/2018
 
 
 
8,876

17,751

35,502

11,835

(3)
$
4,387,038

Russell Pantermuehl
2/13/2018
$
236,000

$
472,000

$
944,000



 




 

 
2/13/2018






7,677

15,353

30,706

10,236

(3)
$
3,794,366

Paul Molnar
2/13/2018
$
200,000

$
400,000

$
800,000



 




 

 
2/13/2018





7,197

14,393

28,786

9,597

(3)
$
3,557,230

(1)
Reflects performance-based annual incentive bonuses granted under the Annual Incentive Plan for 2018. No non-equity incentive plan awards are paid under the Annual Incentive Plan for performance below the pre-determined thresholds.
(2)
Represents performance-based restricted stock units granted under the 2012 Plan, which awards are subject to the satisfaction of certain total stockholder return performance conditions relative to our peer group for the three-year performance period commencing on January 1, 2018 and ending on December 31, 2020 and continuous service requirements. The restricted stock units will vest once the compensation committee has made a certification as to whether the performance goals have been reached. The compensation committee will make this determination following the date of publication of our quarterly earnings statement for the fourth quarter of 2020 and before March 15, 2021. The number of restricted stock units that will vest is based on the Company’s Total Stockholder Return compared to its peers. The Total Stockholder Return is calculated over the performance period by dividing (1) the sum of (a) the cumulative value of dividends received during the performance period, assuming reinvestment, plus (b) the difference between the stock price at the end and at the beginning of the performance period; by (2) the stock price at the beginning of the performance period. No equity incentive plan awards vest if the relative Total Stockholder Return for the applicable performance period is below the threshold percentile.
(3)
Represents restricted stock units granted under the 2012 Plan, of which one-third vested on each of February 13, 2018 and February 13, 2019, and the remaining units will vest on February 13, 2020. These awards are subject to continuous service requirements.
(4)
The amounts shown reflect the grant date fair value of restricted stock units granted, determined in accordance with FASB ASC Topic 718. See Note 11 to our consolidated financial statements for the fiscal year ended December 31, 2018, included in our Annual Report on Form 10-K, filed with the SEC on February 25, 2019, regarding assumptions underlying valuations of equity awards for 2018.


42



OUTSTANDING EQUITY AWARDS AT FISCAL 2018 YEAR-END

The following table provides information concerning equity awards outstanding for our named executive officers at December 31, 2018.

Name
Number of Shares or Units of Stock That Have Not Vested (#)
Market Value of Shares or Units of Stock That Have Not Vested ($)(1)
Equity Incentive Plan Awards: Number of Unearned Shares or Units of Stock That Have Not Vested
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or Units of Stock That Have Not Vested(1)
Travis D. Stice
 
 
 
90,168

(3)
$
8,358,574

 
 
 
 
22,230

(4)
$
2,060,721

 
7,410

(2)
$
686,907

44,460

(5)
$
4,121,442

 
13,594

(2)
$
1,260,164

61,170

(6)
$
5,670,459

Teresa L. Dick
 
 
 
6,012

(3)
$
557,312

 
 
 
 
5,850

(4)
$
542,295

 
1,950

(7)
$
180,765

11,700

(5)
$
1,084,590

 
3,732

(7)
$
345,956

16,792

(6)
$
1,556,618

Michael L. Hollis
 
 
 
30,056

(3)
$
2,786,191

 
 
 
 
13,650

(4)
$
1,265,355

 
4,550

(8)
$
421,785

27,300

(5)
$
2,530,710

 
7,890

(8)
$
731,403

35,502

(6)
$
3,291,035

Russell Pantermuehl
 
 
 
24,044

(3)
$
2,228,879

 
 
 
 
11,700

(4)
$
1,084,590

 
3,900

(9)
$
361,530

23,400

(5)
$
2,169,180

 
6,824

(9)
$
632,585

30,706

(6)
$
2,846,446

Paul Molnar
 
 
 
12,022

(3)
$
1,114,439

 
 
 
 
11,700

(4)
$
1,084,590

 
3,900

(10)
$
361,530

23,400

(5)
$
2,169,180

 
6,398

(10)
$
593,095

28,786

(6)
$
2,668,462

(1)
Market value of shares or units that have not vested is based on the closing price of $92.70 per share of our common stock on the Nasdaq Global Select Market on December 31, 2018, the last trading day of 2018.
(2)
The 7,410 restricted stock units vested on February 16, 2019 and, of the 13,594 restricted stock units, 6,797 vested on February 21, 2019 and the remaining 6,797 will vest on February 21, 2020.
(3)
Reflects the maximum number of performance-based restricted stock units granted. These performance-based restricted stock units were granted under the Equity Incentive Plan subject to the satisfaction of certain total stockholder return performance conditions relative to our peer group for the performance period commencing on January 1, 2016 and ending on December 31, 2018. All of these performance-based restricted stock units vested as of December 31, 2018 upon certification by the compensation committee of attainment of the applicable performance conditions and settlement of these units on February 21, 2019.
(4)
Reflects the maximum number of performance-based restricted stock units granted. These performance-based restricted stock units were granted under the Equity Incentive Plan subject to the satisfaction of certain total stockholder return performance conditions relative to our peer group for the performance period commencing on January 1, 2017 and ending on December 31, 2018. All of these performance-based restricted stock units vested as of December 31, 2018 upon certification by the compensation committee of attainment of the applicable performance conditions and settlement of these units on February 21, 2019.
(5)
Reflects the maximum number of performance-based restricted stock units granted. These performance-based restricted stock units were granted under the Equity Incentive Plan subject to the satisfaction of certain total stockholder return performance conditions relative to our peer group for the performance period commencing on January 1, 2017 and ending on December 31, 2019, as certified by the compensation committee by not later than March 15, 2020, and continuous service requirements.
(6)
Reflects the maximum number of performance-based restricted stock units granted. These performance-based restricted stock units were granted under the Equity Incentive Plan subject to the satisfaction of certain total stockholder return performance conditions relative to our peer group for the performance period commencing on January 1, 2018 and ending on December 31, 2020, as certified by the compensation committee by not later than March 15, 2021, and continuous service requirements.
(7)
The 1,950 restricted stock units vested on February 16, 2019 and, of the 3,732 restricted stock units, 1,866 vested on February 21, 2019 and the remaining 1,866 will vest on February 21, 2020.

43



(8)
The 4,550 restricted stock units vested on February 16, 2019 and, of the 7,890 restricted stock units, 3,945 vested on February 21, 2019 and the remaining 3,945 will vest on February 21, 2020.
(9)
The 3,900 restricted stock units vested on February 16, 2019 and, of the 6,824 restricted stock units, 3,412 vested on February 21, 2019 and the remaining 3,412 will vest on February 21, 2020.
(10)
The 3,900 restricted stock units vested on February 16, 2019 and, of the 6,398 restricted stock units, 3,199 vested on February 21, 2019 and the remaining 3,199 will vest on February 21, 2020.

STOCK VESTED DURING FISCAL YEAR 2018

The following table provides certain information for the named executive officers with respect to the number of shares acquired upon the vesting of restricted stock awards during 2018.
Name
Stock Awards
Number of Shares Acquired on Vesting (#)
 
Value Realized on Vesting ($)(1)
Travis D. Stice
194,545

 
$
23,891,169

Teresa L. Dick
15,838

 
$
1,943,977

Michael L. Hollis
68,607

 
$
8,424,477

Russell Pantermuehl
55,402

 
$
6,802,811

Paul Molnar
31,143

 
$
3,823,472

(1)
Value realized on vesting is based on the vesting date closing price per share of our common stock on the Nasdaq Global Select Market. If the Nasdaq Global Select Market was closed on the vesting date, the calculation was made using the opening price on the next day on which the market was open.

PHANTOM UNITS VESTED UNDER THE VIPER LTIP DURING FISCAL YEAR 2018

During 2018, Mr. Stice had 16,011 phantom units which vested on February 16, 2018 with a value realized on vesting of $374,657 based on the vesting date closing price per unit of Viper’s common units on the Nasdaq Global Select Market. No phantom units or other equity awards were held by any other named executive officers during 2018 under the Viper LTIP.

Pay Ratio Disclosure

Pursuant to Item 402(u) of Regulation S-K, we are disclosing the pay ratio and supporting information comparing the median of the annual total compensation of our employees (including full-time, part-time, seasonal and temporary employees) other than Mr. Stice, our Chief Executive Officer, and the annual total compensation of our Chief Executive Officer. The pay ratio is calculated in a manner consistent with Item 402(u) of Regulation S-K.

For the year ended December 31, 2018, our last completed fiscal year:

The median of the annual total compensation of all of our employees, other than our Chief Executive Officer, is $122,919.

The annual total compensation of our Chief Executive Officer is $10,549,163.

Based on this information, the ratio of the annual total compensation of out Chief Executive Officer to the median of the annual total compensation of all other employees is 86:1.

To identify the median employee, we selected December 31, 2018 as the date upon which we identified the “median employee”. On that date, our employee population consisted of 358 employees excluding the Chief Executive Officer and 352 Energen employees who joined the Company in November 2018 as a result of the Energen acquisition. To identify the median compensated employee, we (a) used annual base pay at December 31, 2018, (b) estimated short-term incentive at target for the 2018 performance year and (c) estimated long-term incentive at target based on 2018 annual base salary.

Once we identified our median employee, we calculated that employee’s annual total compensation for 2018 in the same manner that we determined the total compensation of our named executive officers for purposes of the Summary Compensation Table set forth above. This resulted in an annual compensation of $122,919 for the identified employee for the year ended December 31, 2018. The calculation of the total compensation for our Chief Executive Officer is included in the Summary Compensation Table set forth above.


44



POTENTIAL PAYMENTS UPON TERMINATION, RESIGNATION OR CHANGE OF CONTROL FOR FISCAL YEAR 2018

The following tables provide information regarding potential payments to each of our named executive officers in connection with certain termination events, including a termination related to a change of control of the Company, as of December 31, 2018.
 
Termination Without Cause or Resignation for Good Reason(1)
Name
Base Salary
Annual Incentive Bonus
$92.70
RSUs
(3)
Total
Travis D. Stice
$
3,991,580

(2)
$
0

$
13,799,693

$
17,791,273

Teresa L. Dick
$
430,000

(6)
$
0

$
0

$
430,000

Michael L. Hollis
$
625,000

(7)
$
0

$
0

$
625,000

Russell Pantermuehl
$
590,000

(8)
$
0

$
0

$
590,000

Paul Molnar
$
500,000

(9)
$
0

$
0

$
500,000

 
Change of Control
Name
Base Salary
Annual Incentive Bonus (10)
$92.70
RSUs
(3)
Total
Travis D. Stice
$
0

$
1,237,500

$
13,799,693

(4)(5)
$
15,037,193

Teresa L. Dick
$
0

$
344,000

$
3,710,225

(4)(5)
$
4,054,225

Michael L. Hollis
$
0

$
562,500

$
8,240,288

(4)(5)
$
8,802,788

Russell Pantermuehl
$
0

$
472,000

$
7,094,331

(4)(5)
$
7,566,331