Share-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Our share-based compensation program has consisted 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 Plan. The restricted stock and stock options were equity-classified awards and the PSUs and CRSUs were liability-classified awards.

Chapter 11 Proceedings

As discussed in Note 2, on the Effective Date, our current common stock was canceled and New Common Stock was issued. Accordingly, our then existing share-based compensation awards were also canceled, which resulted in the recognition of any previously unamortized expense related to the canceled awards on the date of cancellation.

Share-Based Compensation Plans

2014 Long Term Incentive Plan. Our 2014 Long Term Incentive Plan (2014 LTIP), which is administered by the Compensation Committee of our Board of Directors, became effective on June 13, 2014 after it was approved by shareholders at our 2014 Annual Meeting. The 2014 LTIP replaced our Amended and Restated Long Term Incentive Plan which was adopted in 2005. The 2014 LTIP provides for up to 358,000 reverse stock split adjusted shares of common stock that may be issued as long-term incentive compensation to our employees and non-employee directors. The 2014 LTIP authorizes the issuance of the following types of awards: (i) nonqualified and incentive stock options; (ii) SARs; (iii) restricted stock; (iv) performance awards, including PSUs; and (v) other stock-based awards. As of December 31, 2020, 474,123 reverse stock split adjusted shares of common stock remained issuable under the 2014 LTIP.

Equity-Classified Awards

Restricted Stock. We grant restricted stock to employees and non-employee directors. A summary of the changes in unvested restricted stock during 2020, 2019 and 2018 is presented below:


	Shares of Unvested Restricted Stock(a)	Weighted Average Grant Date Fair Value(a)
	(in thousands)
Unvested restricted stock as of January 1, 2020	52	$	710
Granted	68	$	60
Vested	(21)	$	792
Forfeited	(98)	$	243
Unvested restricted stock as of December 31, 2020	1	$	617

Unvested restricted stock as of January 1, 2019	59	$	886
Granted	30	$	530
Vested	(30)	$	876
Forfeited	(7)	$	744
Unvested restricted stock as of December 31, 2019	52	$	710

Unvested restricted stock as of January 1, 2018	66	$	1,274
Granted	30	$	746
Vested	(29)	$	1,534
Forfeited	(8)	$	1,204
Unvested restricted stock as of December 31, 2018	59	$	886

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(a)Amount has been retroactively adjusted to reflect a 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 11 for additional information.

The aggregate intrinsic value of restricted stock that vested during 2020 was approximately $1 million based on the stock price at the time of vesting.

Stock Options. In 2020, 2019 and 2018, 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 of 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. We used the following weighted average assumptions to estimate the grant date fair value of the stock options granted in 2019:


Expected option life – years	6.0
Volatility	65.61	%
Risk-free interest rate	2.47	%
Dividend yield	—	%

The following table provides information related to stock option activity for 2020, 2019 and 2018:


	Number of Shares Underlying Options	Weighted Average Exercise Price Per Share		Weighted Average Contract Life in Years	Aggregate Intrinsic Value(a)
	(in thousands)				($ in millions)
Outstanding as of January 1, 2020	90	$	1,420	5.70	$	—
Granted	—	$	—
Exercised	—	$	—		$	—
Expired	(23)	$	915
Forfeited	(47)	$	1,666
Outstanding as of December 31, 2020	20	$	1,429	4.27	$	—
Exercisable as of December 31, 2020	19	$	1,440	4.35	$	—

Outstanding as of January 1, 2019	90	$	1,440	7.15	$	—
Granted	5	$	594
Exercised	—	$	—		$	—
Expired	(2)	$	1,272
Forfeited	(3)	$	794
Outstanding as of December 31, 2019	90	$	1,420	5.70	$	—
Exercisable as of December 31, 2019	65	$	1,656	4.86	$	—

Outstanding as of January 1, 2018	81	$	1,650	7.73	$	1
Granted	18	$	602
Exercised	—	$	—		$	—
Expired	(3)	$	2,766
Forfeited	(6)	$	1,090
Outstanding as of December 31, 2018	90	$	1,440	7.15	$	—
Exercisable as of December 31, 2018	41	$	2,146	5.73	$	—

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(a)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.

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 years ended December 31, 2020, 2019 and 2018:


	Years Ended December 31,
	2020		2019		2018
	($ in millions)
General and administrative expenses	$	20	$	26	$	31
Oil and natural gas properties	1		2		2
Oil, natural gas and NGL production expenses	1		3		5
Exploration expenses	—		1		1
Total restricted stock and stock option compensation	$	22	$	32	$	39

Liability-Classified Awards

Performance Share Units. In 2019, 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		December 31, 2020
	Units(a)			Fair Value		Vested Liability
		($ in millions)		($ in millions)
2018 CRSU Awards:
Payable 2021	13,351	$	8	$	—	$	—

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(a) Amount has been retroactively adjusted to reflect a 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 11 for additional information.

We recognized the following compensation costs (credits), net of actual forfeitures, related to our liability-classified awards for the years ended December 31, 2020, 2019 and 2018:


	Years Ended December 31,
	2020		2019		2018
	($ in millions)
General and administrative expenses	$	(3)	$	5	$	9
Oil and natural gas properties	—		1		1
Oil, natural gas and NGL production expenses	(1)		3		2
Separation and other termination costs	—		1		—
Total liability-classified awards compensation	$	(4)	$	10	$	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 consolidated balance sheets 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 consolidated statements of operations for the year ended December 31, 2020.

Post-Emergence Stock-Based Compensation

As of the Effective Date, the Board adopted the 2021 Long Term Incentive Plan (the 2021 LTIP) with a share reserve equal to 6,800,000 shares of New Common Stock. The 2021 LTIP provides for the grant of restricted stock units, restricted stock awards, stock options, stock appreciation rights, performance awards and other stock awards to the Company’s employees and non-employee directors.