On May 1, 2014, the Company’s stockholders approved the Cabot Oil & Gas Corporation 2014 Incentive Plan (the “2014 Plan”). Under the 2014 Plan, incentive and non-statutory stock options, stock appreciation rights (“SARs”), stock awards, cash awards and performance share awards may be granted to key employees, consultants and officers of the Company. Non-employee directors of the Company may be granted discretionary awards under the 2014 Plan consisting of stock options or stock awards. A total of 18.0 million shares of common stock may be issued under the 2014 Plan. Under the 2014 Plan, no more than 10.0 million shares may be issued pursuant to incentive stock options. No additional awards may be granted under the 2014 Plan on or after May 1, 2024. At December 31, 2022, approximately 9.5 million shares are available for issuance under the 2014 Plan.

In connection with the Merger, the Company assumed all rights and obligations under the Cimarex Energy Co. Amended and Restated 2019 Equity Incentive Plan (the “2019 Plan”) and the Company will be entitled to grant equity or equity-based awards with respect to Coterra common stock under the 2019 Plan to current or former employees of Cimarex, to the extent permissible under applicable law and NYSE listing rules. The 2019 Plan provides for grants of stock options, SARs, restricted stock, restricted stock units, performance stock units, cash awards and other stock-based awards. As of December 31, 2022, approximately 35.2 million shares of Coterra common stock are available for issuance under the 2019 Plan, subject to certain limitations.


	Year Ended December 31,
(In millions)	2022		2021		2020

Restricted stock units - employees and non-employee directors	$	31	$	6	$	2
Restricted stock awards	20		6		—
Performance share awards (1)	22		41		40
Deferred performance shares	2		1		(1)
Dividend equivalents	11		3		2
Total stock-based compensation expense	$	86	$	57	$	43
Income tax benefit	$	20	$	24	$	10

(1) In accordance with the Merger Agreement, the Company recognized approximately $18 million of stock-based compensation expense in the fourth quarter of 2021 associated with the acceleration of vesting of certain performance share awards. In the third quarter of 2022, the Company recognized approximately $7 million of stock-based compensation expense associated with the acceleration of vesting of certain employee performance awards.

Restricted stock units are granted from time to time to employees of the Company. The fair value of restricted stock unit grants is based on the closing stock price on the grant date. Restricted stock units generally vest either at the end of a three year service period or on a graded or graduated vesting basis at each anniversary date over a three or four year service period. The restricted stock units are settled in shares of the Company’s common stock on the vesting date.

For awards that vest at the end of the service period, expense is recognized ratably using a straight-line approach over the service period. Under the graded or graduated approach, the Company recognizes compensation cost ratably over the requisite service period, as applicable, for each separately vesting tranche as though the awards are, in substance, multiple awards. For most restricted stock units, vesting is dependent upon the employees’ continued service with the Company, with the exception of employment termination due to death, disability or, if applicable, retirement. If retirement protection is included in the grant award, the Company accelerates the vesting period for retirement-eligible employees for purposes of recognizing compensation expense in accordance with the vesting provisions of the Company’s stock-based compensation programs.

The Company used an annual forfeiture rate assumption ranging from zero to five percent for purposes of recognizing stock-based compensation expense for these restricted stock units. The annual forfeiture rates were based on the Company’s actual forfeiture history or expectations for this type of award to various employee groups.


	Year Ended December 31, 2022

	Shares	Weighted- Average Grant Date Fair Value per Unit
Outstanding at beginning of period	1,286,471	$	21.00
Granted	2,249,405	24.81
Vested	(316,322)	22.75
Forfeited	(31,410)	25.25
Outstanding at end of period	3,188,144	$	23.47

Restricted stock units are granted from time to time to non-employee directors of the Company. The fair value of the restricted stock units is based on the closing stock price on the grant date. Prior to 2022, these units vested on the grant date, compensation was recorded immediately and the shares of the Company’s common stock are issued when the director ceases to be a director of the Company. Beginning in 2022, these units will generally vest the earlier of a one-year service period or termination from the Board of Directors with compensation expense recognized ratably over the vesting period and the units will be settled in shares of the Company’s common stock on the vesting date.

The Company did not use an annual forfeiture rate for purposes of recognizing stock-based compensation expense for these restricted stock units. The annual forfeiture rate assumption was based on the Company’s actual forfeiture history or expectations for this type of award.

The following table is a summary of restricted stock unit award activity:


	Year Ended December 31, 2022

	Shares	Weighted- Average Grant Date Fair Value per Unit
Outstanding at beginning of period	245,898	$	20.41

Granted	45,472	35.19
Vested	—	—
Forfeited	—	—
Outstanding at end of period	291,370	$	22.72

Restricted stock awards are granted from time to time to employees of the Company. The fair value of restricted stock grants is based on the closing stock price on the grant date. Restricted stock awards generally vest either at the end of a three year service period or on a graded or graduated vesting basis at each anniversary date over a three year service period.

For awards that vest at the end of the service period, expense is recognized ratably using a straight-line approach over the service period. Under the graded or graduated approach, the Company recognizes compensation cost ratably over the requisite service period, as applicable, for each separately vesting tranche as though the awards are, in substance, multiple awards. For most restricted stock awards, vesting is dependent upon the employees’ continued service with the Company, with the exception of employment termination due to death, disability or, if applicable, retirement. If retirement protection is included in the grant award, the Company accelerates the vesting period for retirement-eligible employees for purposes of recognizing compensation expense in accordance with the vesting provisions of the Company’s stock-based compensation programs.

The Company used an annual forfeiture rate assumption of ranging from zero to 15 percent for purposes of recognizing stock-based compensation expense for restricted stock awards. The annual forfeiture rates were based on the Company’s actual forfeiture history for this type of award to various employee groups.

The following table is a summary of restricted stock award activity:


	Year Ended December 31, 2022

	Shares	Weighted- Average Grant Date Fair Value per Share
Outstanding at beginning of period	3,019,183	$	22.25
Granted	—	—
Vested	(813,812)	22.25
Forfeited	(136,397)	22.25
Outstanding at end of period	2,068,974	$	22.25

On October 1, 2021, the Company granted 3,364,354 shares of restricted stock, with a grant date value of $22.25 per share. These awards were replacement awards granted to Cimarex employees as provided under the Merger Agreement. The

fair value of these awards was measured based on the closing stock price on the closing date of the Merger (grant date). The remaining outstanding awards will vest over the next two years. Approximately $22 million of the grant date value was recognized as merger consideration and the remaining fair value will be recognized as stock-based compensation expense over the respective vesting periods. There were no restricted stock awards granted in 2022.

From time to time, the Company grants performance share awards that are based on performance conditions measured against the Company’s internal performance metrics or based on the Company’s performance relative to a predetermined peer group and/or industry-related indices (“TSR Performance Share Awards”). The performance period for these awards generally commences on February 1 of the respective year in which the award was granted and extends over a three-year performance period. For most performance share awards, vesting is dependent upon the employees’ continued service with the Company, with the exception of employment termination due to death, disability or, if applicable, retirement. For all outstanding performance share awards, the Company did not use an annual forfeiture rate for purposes of recognizing stock-based compensation expense for its performance share awards. The annual forfeiture rate assumption was based on the Company’s actual forfeiture history or expectations for this type of award.

The fair value of performance share award grants based on internal performance metrics is based on the closing stock price on the grant date. Each performance share award represents the right to receive up to 100 percent of the award in shares of common stock.

Employee Performance Share Awards. The Employee Performance Share Awards vest at the end of the three-year performance period and the performance metric are set by the Company’s Compensation Committee. An employee will earn 100 percent of the award on the third anniversary, provided that the Company averages $100 million or more of operating cash flow during the three-year performance period. Based on the Company’s probability assessment at December 31, 2022, it is considered probable that all of the criteria for these awards will be met.

The following table is a summary of activity for Employee Performance Share Awards:


	Year Ended December 31, 2022

	Shares	Weighted- Average Grant Date Fair Value per Share
Outstanding at beginning of period	1,858,104	$	18.93
Granted	—	—
Vested	(1,775,790)	18.88
Forfeited	(9,000)	17.20
Outstanding at end of period	73,314	$	20.46

During 2022, the compensation committee of the Board of Directors of the Company certified that the performance conditions for certain of the Employee Performance Share Awards that were granted in 2020 and 2021 had been met. In July 2022, 1,775,790 shares with a grant date fair value of $22 million were issued and fully vested.

These awards have both an equity and liability component, with the right to receive up to the first 100 percent of the award in shares of common stock and the right to receive up to an additional 100 percent of the value of the award in excess of the equity component in cash. The equity portion of these awards is valued on the grant date and is not marked to market, while the liability portion of the awards is valued as of the end of each reporting period on a mark-to-market basis. The Company calculates the fair value of the equity and liability portions of the awards using a Monte Carlo simulation model.

TSR Performance Share Awards. The TSR Performance Share Awards granted are earned, or not earned, based on the comparative performance of the Company’s common stock measured against a predetermined group of companies in the Company’s peer group and certain industry-related indices over a three-year performance period. The Company’s TSR Performance Share Awards also include a feature that will reduce the potential cash component of the award if the actual performance is negative over the three-year period and the base calculation indicates an above-target payout.

The following table is a summary of activity for the TSR Performance Share Awards:


	Year Ended December 31, 2022

	Shares	Weighted- Average Grant Date Fair Value per Unit (1)
Outstanding at beginning of period	—	$	—
Granted	1,161,599	17.89
Vested	—	—
Forfeited	—	—
Outstanding at end of period	1,161,599	$	17.89

_______________________________________________________________________________

The following assumptions were used to determine the grant date fair value of the equity component of the TSR Performance Share Awards for the respective periods:


	Year Ended December 31,
	2022			2021			2020
Fair value per performance share award granted during the period	$	9.01		$	16.07		$	13.79
Assumptions
Stock price volatility	42.6		%	39.8		%	29.5		%
Risk free rate of return	4.4		%	0.2		%	1.4		%

The following assumptions were used to determine the fair value of the liability component of the TSR Performance Share Awards for the respective periods:


	December 31,
	2022		2021				2020
Fair value per performance share award at the end of the period	$14.92		$	—			$10.37 - $10.81
Assumptions
Stock price volatility	42.6	%	—			%	42.4% - 52.4%
Risk free rate of return	4.4	%	—		%		0.1%

The stock price volatility was calculated using historical closing stock price data for the Company for the period associated with the expected term through the grant date of each award. The risk free rate of return percentages are based on the continuously compounded equivalent of the U.S. Treasury within the expected term as measured on the grant date.


	Unrecognized Stock-Based Compensation (In Millions)		Weighted-Average Period For Recognition (Years)
Restricted stock units - employees and non-employee directors	$	48	2.2
Restricted stock awards	21		1.4
Performance share awards	15		1.9
	$	84

On October 1, 2021, the Company granted stock option awards to purchase 1,577,554 shares of the Company’s common stock with exercise prices ranging from $8.47 to $28.72 per share. These awards were replacement awards granted to Cimarex employees as provided under the Merger Agreement and were fully vested on the closing date of the Merger. The grant date fair value of approximately $14 million was recognized as merger consideration and, accordingly, no compensation expense will be recognized by the Company related to these awards, as there is no future service requirement for the holders of these awards.


	Year Ended December 31, 2022
	Shares	Weighted- Average Strike Price
Outstanding at beginning of period	1,355,352	$	17.35
Granted	—	—
Exercised	(780,606)	16.29
Forfeited or Expired	(38,137)	28.67
Outstanding at end of period(1)	536,609	$	18.08
Exercisable at end of period(1)	536,609	$	18.08

_______________________________________________________________________________

(1)The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock option. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2022 was $4 million and $4 million, respectively. The weighted-average remaining contractual term is 2.6 years.

As of December 31, 2022, 495,774 shares of the Company’s common stock representing vested performance share awards were deferred into the deferred compensation plan. During 2022, no shares were sold out of the plan. During 2022, an increase to the deferred compensation liability of $2 million was recognized, which represents the increase in the closing price of the Company’s shares held in the trust during the period. The increase in compensation expense was included in general and administrative expense in the Consolidated Statement of Operations.