(12) STOCK-BASED COMPENSATION

The Company recognized the following amounts in employee stock-based compensation costs for the three and nine months ended September 30, 2017 and 2016:


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
	(in millions)
Stock-based compensation cost – expensed (1)	$	7	$	6	$	19	$	43
Stock-based compensation cost – capitalized	$	2	$	2	$	10	$	7

(1)

Includes $16 million and $3 million related to the reduction in workforce and executive management restructuring, respectively, for the nine months ended September 30, 2016.

In January 2016, the Company announced a 40% workforce reduction that was substantially completed by the end of March 2016. In April 2016, the Company also partially restructured executive management, which was substantially completed in the second quarter of 2016. Affected employees were offered a severance package that included, if applicable, amendments to certain outstanding equity awards that modified forfeiture provisions on separation from the Company. As a result, certain unvested stock-based equity awards became fully vested at the time of separation. These shares were revalued and recognized immediately as a component of restructuring charges on the Company’s unaudited condensed consolidated statements of operations. The unvested portion of equity-based performance units was forfeited upon separation from the Company.

As of September 30, 2017, there was $67 million of total unrecognized compensation cost related to the Company’s unvested stock option grants, restricted stock grants and performance units. This cost is expected to be recognized over a weighted-average period of 3 years.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2017 and provides information for options outstanding and options exercisable as of September 30, 2017:


	Number		Weighted Average
	of Options		Exercise Price
	(in thousands)		(per share)
Outstanding at December 31, 2016		5,416	$	23.46
Granted		1,604		8.00
Exercised		–		–
Forfeited or expired		(725)		17.92
Outstanding at September 30, 2017		6,295		20.16
Exercisable at September 30, 2017		3,336	$	29.37

Restricted Stock

The following table summarizes restricted stock activity for the nine months ended September 30, 2017 and provides information for unvested shares as of September 30, 2017:


	Number			Weighted Average
	of Shares			Fair Value
	(in thousands)			(per share)
Unvested shares at December 31, 2016		3,321	$		11.85
Granted		5,036			8.39
Vested		(247)			9.40
Forfeited		(609)			10.16
Unvested shares at September 30, 2017		7,501	$		9.68

Equity-Classified Performance Units

The following table summarizes performance unit activity for the nine months ended September 30, 2017 and provides information for unvested units as of September 30, 2017. The performance units awarded in 2014 included a market condition based on relative Total Shareholder Return (“TSR”) and a performance condition based on the Company's Present Value Index (“PVI”), collectively the “Performance Measures.” The fair value of the TSR market condition is based on a Monte Carlo model and the fair value of the PVI performance condition is based on economic analysis for each investment opportunity based upon the expected present value added for each dollar to be invested. The total fair value of the performance units is amortized to compensation expense on a straight line basis over the vesting period of the award. The performance unit awards granted in 2015, 2016 and during the first nine months of 2017 include a market condition based exclusively on TSR. The grant date fair value is calculated using the applicable Performance Measures and the closing price of the Company’s common stock at the grant date.


	Number		Weighted Average
	of Units (1)		Fair Value
	(in thousands)		(per share)
Unvested units at December 31, 2016		719	$	11.46
Granted		1,197		10.47
Vested		(42)		5.94
Forfeited		(472)		9.74
Unvested units at September 30, 2017		1,402	$	10.78

(1)

These amounts reflect the number of performance units granted in thousands. The actual payout of shares may range from a minimum of zero shares to a maximum of two shares per unit contingent upon the actual performance against the Performance Measures. The performance units have a three-year vesting term and the actual disbursement of shares, if any, is determined during the first quarter following the end of the three-year vesting period.

Liability-Classified Performance Units

Prior to 2013, certain employees were awarded performance units which vested equally over three years and which were settled in cash. The payout of these units was based on certain metrics, such as total shareholder return and reserve replacement efficiency, compared to a predetermined group of peer companies and Company goals. At the end of each performance period, the value of the vested performance units, if any, would be paid in cash. In the first quarter of 2016, the Company completed the final payout with respect to these performance units.