4. SHARE BASED COMPENSATION:

Valuation and Expense Information

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2017		2016		2017		2016
Total cost of share-based payment plans	$	10,276	$	1,706	$	46,166	$	5,756
Amounts capitalized in oil and gas properties and equipment	$	2,358	$	442	$	11,984	$	1,789
Amounts charged against income, before income tax benefit	$	7,918	$	1,264	$	34,182	$	3,967
Amount of related income tax benefit recognized in income before valuation allowance	$	3,151	$	503	$	13,604	$	1,579

Changes in Stock Options and Stock Options Outstanding

As provided in the Plan, all plans or programs calling for stock grants, stock issuances, stock reserves or stock options were cancelled as of the Effective Date and all outstanding awards established prior to the Effective Date were cancelled and extinguished as of the Effective Date.

Performance Share Plans:

2017 Stock Incentive Plan. On the Effective Date, the Ultra Petroleum Corp. 2017 Stock Incentive Plan (“2017 Stock Incentive Plan”) was established pursuant to which 7.5% of the equity in the reorganized Company (on a fully-diluted/fully-distributed basis) is reserved for grants to be made from time to time to the directors, officers, and other employees of the reorganized Company (the “Reserve”). Also on the Effective Date, 40% of the Reserve (“Initial MIP Grants”) was granted to members of the board of directors, officers, and other employees of the reorganized Company subject to the conditions and performance requirements provided in the grants, including the limitations that one-third of the Initial MIP Grants will vest, if at all, at such time when the total enterprise value of the Company equals or exceeds $6.0 billion based upon the volume weighted average price of the common stock during a consecutive 30-day period, that one-third of the Initial MIP Grants will vest, if at all, at such time when the total enterprise value of the Company equals or exceeds 110% of $6.0 billion based upon the volume weighted average price of the common stock during a consecutive 30-day period, and, that if any Initial MIP Grants do not vest before the fifth anniversary of the Effective Date, such Initial MIP Grants shall automatically expire. The balance of the Reserve is available to be granted by the Board from time to time.

Stock-Based Compensation Cost:

Modification. On the Effective Date, as provided in the Plan, all outstanding awards established prior to the Effective Date were cancelled and extinguished, and participants received no payment or other distribution on account of the outstanding awards. Under FASB ASC Topic 718, Compensation Cost – Stock Compensation (“FASB ASC 718”), the cancellation of an outstanding award of stock based compensation followed by the issuance of a replacement award is treated as a modification of the original award. The equity award cancellations and subsequent new grants by the Company were considered Type I, probable to probable modification. This type represents modifications where the award was likely to vest prior to modification and is still likely to vest after modification. For these types of modifications, the fair value of the award is assessed both prior to modification and after modification. If the fair value after modification exceeds the fair value prior to modification, incremental expense is generated and recognized over the remaining vesting period.

During the quarter ended September 30, 2017, the Board approved a modification to the Initial MIP Grants made under the 2017 Stock Incentive Plan. Certain grants made during the second quarter to members of the Board of Directors of the Company for the portion of the Initial MIP Grants related to the $6.0 billion total enterprise value and the portion of the Initial MIP Grants related to the $6.6 total enterprise value were forfeited and cancelled by the Board. In addition, an Initial MIP Grant was made to two of the members of the Board of Directors as previously reported on Forms 4 filed with the SEC. The related non-cash stock compensation expenses are reflected in general and administrative expenses in the Consolidated Statement of Operations.

Market-Based Condition Awards. When vesting of an award of stock-based compensation is dependent, at least in part, on the value of a company’s total equity, for purposes of FASB ASC 718, the award is considered to be subject to a “market condition”. Because the Company’s total equity value is a component of its enterprise value, the awards based on enterprise value are considered to be subject to a market condition. Unlike the valuation of an award that is subject to a service condition (i.e., time vested awards) or a performance condition that is not related to stock price, FASB ASC 718 requires the impact of the market condition to be considered when estimating the fair value of the award. As a result, we have used a Monte Carlo simulation model to estimate the fair value of the awards that include a market condition.

FASB ASC 718 requires the expense for an award of stock based compensation that is subject to a market condition that can be attained at any point during the performance period to be recognized over the shorter of (a) the period between the date of grant and the date the market condition is attained, and (b) the award’s derived service period. For purposes of FASB ASC 718, the derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. That median is the middle share price path (the midpoint of the distribution of paths) on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of market condition satisfaction. Compensation expense is recognized regardless of whether the market condition is actually satisfied.

Expense. For the nine months ended September 30, 2017, the Company recognized $34.2 million in pre-tax compensation expense, of which $32.9 million related to the Initial MIP Grants. During the nine months ended September 30, 2016, the Company recognized $4.0 million in pre-tax compensation expense, of which $3.3 million related to the 2014 and 2015 LTIP awards of restricted stock units. The Company expects the total expense associated with the portion of the Initial MIP Grant that vests if the $6.0 billion total enterprise value performance requirement is satisfied to be $22.1 million and the portion of the Initial MIP Grant that vests if the $6.6 billion total enterprise value performance requirement is satisfied to be $20.9 million, respectively. One-third of the Initial MIP Grants were paid in shares of the Company’s stock to members of its board of directors as well as its officers and other employees during the nine months ended September 30, 2017 and totaled $26.1 million (1,238,665 shares), of which a portion was capitalized in oil and gas properties and equipment as noted in the valuation and expense information above.