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Share-Based Compensation | 9 Months Ended
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Sep. 30, 2020
Share-based Payment Arrangement [Abstract] |
Share-Based Compensation | Share-Based Compensation Our share-based compensation program consists of restricted stock, stock options, performance share units (PSUs) and cash restricted stock units (CRSUs) granted to employees and restricted stock granted to non-employee directors under our long-term incentive plans. The restricted stock and stock options are equity-classified awards and the PSUs and CRSUs are liability-classified awards. On May 5, 2020, all of the outstanding share-based compensation issued to executive officers and designated vice presidents was canceled and replaced with cash retention incentives. Refer to 2020 Compensation Adjustments below for more information. Equity-Classified Awards Restricted Stock. We grant restricted stock units to employees and non-employee directors. A summary of the changes in unvested restricted stock during the Current Period is presented below:
|  | Shares of Unvested Restricted Stock(a) |  | Weighted Average Grant Date Fair Value Per Share(a)
|  | (in thousands) |  |
Unvested as of January 1, 2020 |  | 52 |  |  | $ | 710 |
Granted |  | 68 |  |  | $ | 60 |
Vested |  | (21 | ) |  | $ | 794 |
Forfeited/canceled |  | (97 | ) |  | $ | 243 |
Unvested as of September 30, 2020 |  | 2 |  |  | $ | 584 |
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(a) | All share information has been retroactively adjusted to reflect a 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 9 for additional information.
The aggregate intrinsic value of restricted stock that vested during the Current Period was approximately $1 million based on the stock price at the time of vesting. As of September 30, 2020, there was approximately $1 million of total unrecognized compensation expense related to unvested restricted stock. The expense is expected to be recognized over a weighted average period of approximately 1.14 years. Stock Options. In the Prior Period, we granted members of management stock options that vest ratably over a three-year period. Each stock option award has an exercise price equal to the closing price of our common stock on the grant date. Outstanding options expire seven years to ten years from the date of grant. We utilize the Black-Scholes option pricing model to measure the fair value of stock options. The expected life of an option is determined using the simplified method. Volatility assumptions are estimated based on the average historical volatility of Chesapeake stock over the expected life of an option. The risk-free interest rate is based on the U.S. Treasury rate in effect at the time of the grant over the expected life of the option. The dividend yield is based on an annual dividend yield, taking into account our dividend policy, over the expected life of the option. The following table provides information related to stock option activity in the Current Period:
|  | Number of Shares Underlying Options(a) |  | Weighted Average Exercise Price Per Share(a) |  | Weighted Average Contract Life in Years |  | Aggregate Intrinsic Value(b)
|  | (in thousands) |  |  |  |  |  | ($ in millions)
Outstanding as of January 1, 2020 |  | 90 |  |  | $ | 1,420 |  |  | 5.70 |  | $ | — |
Granted |  | — |  |  | $ | — |  |  |  |  |
Exercised |  | — |  |  | $ | — |  |  |  |  | $ | — |
Expired |  | (21 | ) |  | $ | 893 |  |  |  |  |
Forfeited/canceled |  | (47 | ) |  | $ | 1,666 |  |  |  |  |
Outstanding as of September 30, 2020 |  | 22 |  |  | $ | 1,390 |  |  | 4.24 |  | $ | — |
Exercisable as of September 30, 2020 |  | 22 |  |  | $ | 1,400 |  |  | 4.31 |  | $ | — |
___________________________________________
(a) | All share information has been retroactively adjusted to reflect a 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 9 for additional information.
(b) | The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option.
As of September 30, 2020, there was no unrecognized compensation expense related to unvested stock options. Restricted Stock and Stock Option Compensation. We recognized the following compensation costs, net of actual forfeitures, related to restricted stock and stock options for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| ($ in millions)
General and administrative expenses | $ | 7 |  |  | $ | 6 |  |  | $ | 15 |  |  | $ | 21 |
Oil and natural gas properties | — |  |  | 1 |  |  | 1 |  |  | 2 |
Oil, natural gas and NGL production expenses | — |  |  | 1 |  |  | 1 |  |  | 3 |
Total restricted stock and stock option compensation | $ | 7 |  |  | $ | 8 |  |  | $ | 17 |  |  | $ | 26 |
Liability-Classified Awards Performance Share Units. In the Prior Period, we granted PSUs to senior management that vest ratably over a three-year performance period and are settled in cash. The ultimate amount earned is based on achievement of performance metrics established by the Compensation Committee of the Board of Directors. Compensation expense associated with PSU awards is recognized over the service period based on the graded-vesting method. The value of the PSU awards at the end of each reporting period is dependent upon our estimates of the underlying performance measures. Cash Restricted Stock Units. In 2018, we granted CRSUs to employees that vest straight-line over a three-year period and are settled in cash on each of the three annual vesting dates. The ultimate amount earned is based on the closing price of our common stock on each of the vesting dates. We used the closing price of our common stock on the grant date to determine the grant date fair value of the CRSUs. The CRSU liability will be adjusted quarterly, based on changes in our stock price, through the end of the vesting period. The following table presents a summary of our liability-classified awards:
|  |  |  | Grant Date Fair Value |  | September 30, 2020
|  | Units(a) |  |  | Fair Value |  | Vested Liability
|  |  |  | ($ in millions) |  | ($ in millions)
2018 CRSU Awards: |  |  |  |  |  |  |  |
Payable 2021 |  | 14,273 |  |  | $ | 9 |  |  | $ | — |  |  | $ | — |
____________________________________________
(a) | All share information has been retroactively adjusted to reflect a 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 9 for additional information.
We recognized the following compensation costs (credits), net of actual forfeitures, related to our liability-classified awards for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period.
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | ($ in millions)
General and administrative expenses |  | $ | — |  |  | $ | (1 | ) |  | $ | (3 | ) |  | $ | 7 |
Oil and natural gas properties |  | — |  |  | 1 |  |  | — |  |  | 2 |
Oil, natural gas and NGL production expenses |  | — |  |  | — |  |  | (1 | ) |  | 3 |
Exploration expenses |  | — |  |  | — |  |  | — |  |  | — |
Total liability-classified awards compensation |  | $ | — |  |  | $ | — |  |  | $ | (4 | ) |  | $ | 12 |
2020 Compensation Adjustments On May 5, 2020, all of the outstanding share-based compensation, including restricted stock, stock options, PSUs and CRSUs, granted to our executive officers and designated vice presidents was canceled and replaced with cash retention incentives. The cash retention incentives granted to executive officers are equally weighted between achievement of certain specified performance metrics and a service period. The cash retention incentives may be clawed back if an executive officer or vice president terminates employment for any reason other than a qualifying termination prior to the earlier of (i) the effective date of a plan of reorganization under Chapter 11 of the Bankruptcy Code or (ii) May 8, 2021. The transactions were considered a modification to the previously issued equity-classified awards. As such, the remaining unrecognized expense related to restricted stock and stock options will result in $18 million of share-based compensation expense to be amortized over the relevant service period of the new cash retention incentives. The $15 million after-tax fair value of the cash retention incentives was capitalized to other current assets in the condensed consolidated balance sheets in the Current Period and will be amortized over the relevant service period. The difference between the cash and after-tax value of the cash retention incentives of approximately $10 million, which is not subject to the claw back provisions contained within the agreements, was expensed to general and administrative expenses in the condensed consolidated statements of operations for the Current Period.

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