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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2021
Share-based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation General The Company grants certain stock-based compensation awards, including restricted stock awards, restricted stock units, performance share awards and stock options. Stock-based compensation expense associated with these awards was $10.3 million and $11.4 million in the third quarters of 2021 and 2020, respectively, and $26.3 million and $36.0 million in the first nine months of 2021 and 2020, respectively. Stock-based compensation expense is included in general and administrative expense in the Condensed Consolidated Statement of Operations. Refer to Note 14 of the Notes to the Consolidated Financial Statements in the Form 10-K for further description of the various types of stock-based compensation awards and the applicable award terms. Stock Options Subsequent Event. 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 are replacement awards granted to Cimarex employees and former 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 $14.6 million is expected to be recognized as merger consideration. Fair value was determined using a Black-Scholes option pricing model for in-the-money options and a Monte Carlo simulation model for out-of-the-money options based on the following assumptions:
|  | In-the-money Options |  | Out-of-the-money Options
Assumptions: |  |  |  |
Strike price |  | $8.47 - $20.73 |  | $23.45 - $28.72
Expected life |  | 1.9 - 3.1 years |  | 0.9 - 2.8 years
Expected volatility |  | 41.06% - 45.77% |  | 38.44% - 47.25%
Risk-free rate |  | 0.26% - 0.50% |  | 0.08% - 0.44%
Restricted Stock Awards Subsequent Event. 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 are replacement awards granted to Cimarex employees as provided under the Merger Agreement. The fair value of these awards is measured based on the closing stock price on the closing date of the Merger (grant date). The awards will vest over periods ranging from two months to three years. Approximately $23.5 million of the grant date value is expected to be recognized as merger consideration and the remaining fair value will be recognized as stock-based compensation expense over the respective vesting periods. Restricted Stock Units Subsequent Event. On September 30, 2021, certain executives of the Company entered into letter agreements whereby, in exchange for the cancellation of their rights under their change-in-control agreements and the non-competition and non-solicitation provisions contained in the letter agreements, each such executive would receive a grant of restricted stock units at the effective time of the Merger. On October 1, 2021, the Company granted 258,252 shares of restricted stock units, with a grant date value of $22.25 per unit to each such executive. The fair value of these units is measured based on the closing stock price on the October 1, 2021 grant date and will fully vest over a six-month vesting period. Restricted Stock Units - Non-Employee Directors During the first nine months of 2021, the Company granted 107,156 restricted stock units, with a weighted-average grant date value of $18.50 per unit, to the Company's non-employee directors. The fair value of these units is measured based on the closing stock price on the grant date and stock-based compensation expense is recorded immediately. These units immediately vest and are payable in shares of common stock of the Company when the director ceases to be a director of the Company. Also during the first nine months of 2021, the Company issued 244,433 shares of common stock in connection with the vesting of restricted stock units with a weighted-average grant date value of $14.08 upon the retirement of one of the Company's non-employee directors in the second quarter of 2021. Subsequent Event. In October 2021, the Company issued 321,663 shares of common stock with a weighted-average grant date value of $19.29 upon the resignation of three of the Company's non-employee directors on the closing date of the Merger. Performance Share Awards The performance period for the awards granted by the Company during the first nine months of 2021 commenced on January 1, 2021 and ends on December 31, 2023. The Company used an annual forfeiture rate assumption ranging from zero percent to four percent for purposes of recognizing stock-based compensation expense for its performance share awards. Performance Share Awards Based on Internal Performance Metrics 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. Based on the Company’s probability assessment at September 30, 2021, it is considered probable that the criteria for all performance awards based on internal metrics awards will be met. Employee Performance Share Awards. During the first nine months of 2021, the Company granted 696,280 Employee Performance Share Awards at a grant date value of $18.58 per share. The 2021 awards are scheduled to vest 100 percent on the third anniversary of the grant date, provided that the Company averages $100 million or more of operating cash flow during the three-year performance period, as set by the compensation committee of the Company's Board of Directors. If the Company does not meet the performance metric for the applicable performance period, then the performance shares that would have been issued on the anniversary date will be forfeited. On September 29, 2021, in accordance with the Merger Agreement, the compensation committee of the Board of Directors of the Company certified that the performance conditions of the Employee Performance Share Awards which were granted in 2019 had been met. These awards are expected to be issued and fully vested in the first quarter of 2022. Hybrid Performance Share Awards. During the first nine months of 2021, the Company granted 423,171 Hybrid Performance Share Awards at a grant date value of $18.58 per share. The 2021 awards are scheduled to vest 25 percent on each of the first and second anniversary of the grant date and 50 percent on the third anniversary of the grant date, provided that the Company has $100 million or more of operating cash flow for the year preceding the vesting date, as set by the compensation committee of the Company's Board of Directors. If the Company does not meet the performance metric for the applicable period, then the portion of the performance shares that would have been issued on that anniversary date will be forfeited. Subsequent Event. On October 1, 2021, in accordance with the Merger Agreement, the Company vested 960,497 shares of common stock in connection with the accelerated vesting of all outstanding Hybrid Performance Share Awards with a weighted-average grant date value of $18.45 upon the completion of the Merger. The Company will recognize approximately $7.6 million of stock-based compensation expense in the fourth quarter of 2021 associated with the accelerated vesting of these awards. Performance Share Awards Based on Market Conditions 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. During the first nine months of 2021, the Company granted 723,224 TSR Performance Share Awards which 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 over a three-year performance period. The Company incorporated a new feature in the 2021 TSR awards 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 assumptions were used to determine the grant date fair value of the equity component on February 17, 2021 and the period-end fair value of the liability component of the TSR Performance Share Awards:
|  | Grant Date |  | September 30, 2021
Fair value per performance share award |  | $ | 16.07 |  |  | $0.94 - $7.76
Assumptions: |  |  |  |
Stock price volatility |  | 39.8 | % |  | 38.53% - 44.44%
Risk-free rate of return |  | 0.20 | % |  | 0.04% - 0.34%
Subsequent Even t. On October 1, 2021, in accordance with the Merger Agreement, the Company vested 2,122,077 shares of common stock in connection with the accelerated vesting of all outstanding TSR Performance Share Awards with a weighted-average grant date value of $16.30 upon the completion of the Merger. Under the terms of the Merger Agreement, all TSR Performance Share Awards were vested at target, resulting in a 100 percent payout of equity, with no cash payments earned under the awards. The Company will recognize approximately $10.3 million of stock-based compensation expense in the fourth quarter of 2021 associated with the acceleration of vesting of these awards.

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