Stock-Based Compensation

6 Months Ended

Jun. 30, 2019

STOCK-BASED COMPENSATION

The Company recognized the following amounts in total employee stock-based compensation costs for the three and six months ended June 30, 2019 and 2018:



	For the three months ended June 30,				For the six months ended June 30,
(in millions)	2019		2018		2019		2018
Stock-based compensation cost – expensed	$	4	$	8	$	11	$	13
Stock-based compensation cost – capitalized	2		4		6		7

The Company’s stock-based compensation is classified as either equity awards or liability awards in accordance with GAAP. The fair value of an equity-classified award is determined at the grant date and is amortized to general and administrative expense and capitalized expense on a straight-line basis over the vesting period of the award. The fair value of a liability-classified award is determined on a quarterly basis beginning at the grant date until final vesting. Changes in the fair value of liability-classified awards are recorded to general and administrative expense over the vesting period of the award. A portion of this general and administrative expense is capitalized into natural gas and oil properties, included in property and equipment. Generally, stock options granted to employees and directors vest ratably over three years from the grant date and expire seven years from the date of grant. The Company issues shares of restricted stock or restricted stock units to employees and directors which generally vest over four years. Restricted stock, restricted stock units and stock options granted to participants under the 2013 Incentive Plan, as amended and restated, immediately vest upon death, disability or retirement (subject to a minimum of three years of service). The Company issues performance unit awards to employees which historically have vested at or over three years.

In December 2018, the Company closed the sale of the equity in certain of its subsidiaries that owned and operated its Fayetteville Shale E&P and related midstream gathering assets in Arkansas. As part of this transaction, most employees associated with those assets became employees of the buyer although the employment of some was or will be terminated. All affected employees were offered a severance package, which included a one-time cash payment depending on length of service and, if

applicable, the current value of a portion of equity awards that were forfeited. Stock-based compensation costs recognized prior to the cancellation as either general and administrative expense or capitalized expense were reversed and the severance payments were subsequently recognized as restructuring charges for the year ended December 31, 2018 and the three months ended March 31, 2019 on the consolidated statements of operations.

Equity-Classified Awards

The Company recognized the following amounts in employee equity-classified stock-based compensation costs for the three and six months ended June 30, 2019 and 2018:



	For the three months ended June 30,				For the six months ended June 30,
(in millions)	2019		2018		2019		2018
Equity-classified awards – expensed	$	2	$	5	$	4	$	9
Equity-classified awards – capitalized	1		1		2		4

As of June 30, 2019, there was $11 million of total unrecognized compensation cost related to the Company’s unvested equity-classified stock option grants, equity-classified restricted stock grants and equity-classified performance units. This cost is expected to be recognized over a weighted-average period of 1.3 years.

Equity-Classified Stock Options

The following table summarizes equity-classified stock option activity for the six months ended June 30, 2019 and provides information for options outstanding and options exercisable as of June 30, 2019:



	Number of Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2018	5,178		$	17.06
Granted	—		$	—
Exercised	—		$	—
Forfeited or expired	(72	)	$	18.58
Outstanding at June 30, 2019	5,106		$	17.04
Exercisable at June 30, 2019	4,590		$	18.12

Equity-Classified Restricted Stock

The following table summarizes equity-classified restricted stock activity for the six months ended June 30, 2019 and provides information for unvested shares as of June 30, 2019:



	Number of Shares		Weighted Average Fair Value
	(in thousands)
Unvested shares at December 31, 2018	2,717		$	7.91
Granted	15		$	4.12
Vested	(990	)	$	7.37
Forfeited	(175	)	$	8.37
Unvested shares at June 30, 2019	1,567		$	8.17

Equity-Classified Performance Units

The following table summarizes equity-classified performance unit activity for the six months ended June 30, 2019 and provides information for unvested units as of June 30, 2019. The performance unit awards granted in 2017 include a market condition based exclusively on the fair value of the Total Shareholder Return (“TSR”), as calculated by a Monte Carlo model. 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 grant date fair value is calculated using the closing price of the Company’s common stock at the grant date.



	Number of Shares ⁽¹⁾		Weighted Average Fair Value
	(in thousands)
Unvested units at December 31, 2018	598		$	10.01
Granted	—		$	—
Vested	(371	)	$	9.73
Forfeited	(30	)	$	10.47
Unvested units at June 30, 2019	197		$	10.47


(1)	The actual payout of shares may range from a minimum of zero shares to a maximum of two shares per unit contingent upon TSR. 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 Awards

The Company recognized the following amounts in employee liability-classified stock-based compensation costs for the three and six months ended June 30, 2019:



	For the three months ended June 30,				For the six months ended June 30,
(in millions)	2019		2018		2019		2018
Liability-classified stock-based compensation cost – expensed	$	2	$	3	$	7	$	4
Liability-classified stock-based compensation cost – capitalized	1		3		4		3

Liability-Classified Restricted Stock Units

In the second quarters of 2019 and 2018, the Company granted restricted stock units that vest over a period of four years and are payable in either cash or shares at the option of the Compensation Committee of the Company’s Board of Directors. The Company has accounted for these as liability-classified awards, and accordingly changes in the market value of the instruments will be recorded to general and administrative expense and capitalized expense over the vesting period of the award. As of June 30, 2019, there was $38 million of total unrecognized compensation cost related to liability-classified restricted stock units that is expected to be recognized over a weighted-average period of 3.2 years. The amount of unrecognized compensation cost for liability-classified awards will fluctuate over time as they are marked to market.



	Number of Units		Weighted Average Fair Value
	(in thousands)
Unvested shares at December 31, 2018	8,202		$	3.41
Granted	8,659		$	4.34
Vested	(2,617	)	$	4.09
Forfeited	(739	)	$	3.13
Unvested units at June 30, 2019	13,505		$	3.16

Liability-Classified Performance Units

In the second quarters of 2019 and 2018, the Company granted performance units that vest over a three-year period and are payable in either cash or shares at the option of the Compensation Committee of the Company’s Board of Directors. The Company has accounted for these as liability-classified awards, and accordingly changes in the fair market value of the instruments will be recorded to general and administrative expense and capitalized expense over the vesting period of the awards. The performance unit awards granted in 2018 include a performance condition based on cash flow per debt-adjusted share and two market conditions, one based on absolute TSR and the other on relative TSR as compared to a group of the Company’s peers. The performance unit awards granted in 2019 include a performance condition based on return on average capital employed and two market conditions, one based on absolute TSR and the other on relative TSR. The fair values of the two market conditions are calculated by Monte Carlo models on a quarterly basis. As of June 30, 2019, there was $16 million of total unrecognized compensation cost related to liability-classified performance units. This cost is expected to be recognized over a weighted-average period of 2.4 years. The

amount of unrecognized compensation cost for liability-classified awards will fluctuate over time as they are marked to market. The final value of the performance unit awards is contingent upon the Company’s actual performance against these performance measures.



	Number of Shares		Weighted Average Fair Value
	(in thousands)
Unvested shares at December 31, 2018	2,803		$	3.41
Granted	2,757		$	4.34
Vested	—		$	—
Forfeited	(119	)	$	4.65
Unvested units at June 30, 2019	5,441		$	3.16