Share-Based Compensation

12 Months Ended

Dec. 31, 2019

In 2018, QEP's Board and QEP's shareholders approved the QEP Resources, Inc. 2018 Long-Term Incentive Plan (LTIP), which replaces the 2010 Long-Term Stock Incentive Plan (LTSIP) and provides for the issuance of up to 10.0 million shares such that the Board of Directors may grant long-term incentive compensation. QEP issues restricted share awards and restricted share units under its LTSIP or LTIP and awards performance share units under its CIP to certain officers, employees, and non-employee directors. QEP historically issued stock options. Grants issued prior to May 15, 2018 are under the LTSIP and the grants issued on or after May 15, 2018 are under the LTIP. QEP recognizes the expense over the vesting periods for the stock options, restricted share awards, restricted share units and performance share units. There were 8.3 million shares available for future grants under the LTIP at December 31, 2019.

Share-based compensation expense is generally recognized within "General and administrative" expense on the Consolidated Statements of Operations and is summarized in the table below. During the year ended December 31, 2019 and 2018, the Company recorded an additional $12.6 million and $11.0 million, respectively, of share-based compensation expense related to the acceleration of vesting that occurred as part of the restructuring program. Of this, $1.5 million and $2.2 million for the year ended December 31, 2019 and 2018, respectively, was recorded in "Net gain (loss) from asset sales, inclusive of restructuring costs" on the Consolidated Statements of Operations and the remaining $11.1 million and $8.8 million, respectively, is included in share-based compensation expense below. Refer to Note 9 – Restructuring for additional information.



	Year Ended December 31,
	2019		2018		2017
	(in millions)
Stock options	$	0.4	$	1.2	$	2.3
Restricted share awards	20.4		27.5		24.6
Performance share units	4.3		8.1		(4.5		)
Restricted share units	0.3		0.1		—
Total share-based compensation expense	$	25.4	$	36.9	$	22.4

Stock Options

QEP used the Black-Scholes-Merton mathematical model to estimate the fair value of stock option awards at the date of grant. Fair value calculations rely upon subjective assumptions used in the mathematical model and may not be representative of future results. The Black-Scholes-Merton model is intended for calculating the value of options not traded on an exchange. The Company utilized the "simplified" method to estimate the expected term of the stock options granted as there was limited historical exercise data available in estimating the expected term of the stock options. QEP used a historical volatility method to estimate the fair value of stock options awards and the risk-free interest rate was based on the yield on U.S. Treasury strips with maturities similar to those of the expected term of the stock options. The stock options typically vest in equal installments over three years from the grant date and are exercisable immediately upon vesting through the seventh anniversary of the grant date. To fulfill options exercised, QEP either reissues treasury stock or issues new shares. The Company recognizes forfeitures of stock options as they occur. During the years ended December 31, 2019 and 2018, QEP did not issue stock options.

The calculated fair value of options granted and major assumptions used in the model at the date of grant are listed below:



	Stock Option Assumptions
	Year Ended December 31,
	2017
Weighted-average grant date fair value of awards granted during the period	$	6.44
Risk-free interest rate range	1.66% - 1.81%
Weighted-average risk-free interest rate	1.8		%
Expected price volatility range	43.82% - 46.70%
Weighted-average expected price volatility	43.9		%
Expected dividend yield	—		%
Expected term in years at the date of grant	4.5

Stock option transactions under the terms of the LTSIP are summarized below:



	Options Outstanding		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
			(per share)		(in years)	(in millions)
Outstanding at December 31, 2018	2,098,933		$	22.27
Exercised	—		—
Cancelled	(296,546	)	30.81
Outstanding at December 31, 2019	1,802,387		$	20.87	2.31	$	—
Options Exercisable at December 31, 2019	1,780,124		$	20.93	2.30	$	—
Unvested Options at December 31, 2019	22,263		$	15.68	4.20	$	—

During the years ended December 31, 2019 and December 31, 2017, there were no exercises of stock options. The total intrinsic value (the difference between the market price at the exercise date and the exercise price) of stock options exercised was $0.1 million during the year ended December 31, 2018. There was $2.3 million income tax impact for the year ended December 31, 2019, and no income tax impact for the years ended December 31, 2018 and 2017. As of December 31, 2019, there was no unrecognized compensation cost related to stock options granted under the LTSIP. Refer to Note 9 – Restructuring for more information.

Restricted Share Awards

Restricted share award grants typically vest in equal installments over three years from the grant date. The grant date fair value is determined based on the closing bid price of the Company's common stock on the grant date. The Company recognizes restricted share forfeitures as they occur. The total fair value of restricted share awards that vested during the years ended December 31, 2019, 2018 and 2017, was $32.5 million, $21.5 million and $18.4 million, respectively. There was $5.4 million income tax impact for the year ended December 31, 2019, and no tax impact for the years ended December 31, 2018 and 2017. The weighted-average grant date fair value of restricted share awards granted was $7.72 per share, $9.56 per share and $13.90 per share for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, $9.2 million of unrecognized compensation cost related to restricted share awards granted under the LTSIP is expected to be recognized over a weighted-average vesting period of 1.95 years. The weighted-average vesting period may be reduced due to accelerated vesting of awards under the restructuring program. Refer to Note 9 – Restructuring for more information.

Transactions involving restricted share awards under the terms of the LTSIP and LTIP are summarized below:



	Restricted Share Awards Outstanding		Weighted-Average Grant Date Fair Value
			(per share)
Unvested balance at December 31, 2018	3,822,133		$	10.76
Granted	2,365,262		7.72
Vested	(3,093,883	)	10.49
Forfeited	(248,479	)	9.14
Unvested balance at December 31, 2019	2,845,033		$	8.67

Performance Share Units

The payouts for performance share units are dependent upon the Company's total shareholder return compared to a group of its peers over three years. The awards are denominated in share units and have historically been paid in cash. The Company has the option to settle earned awards in cash or shares of common stock under the Company's LTIP; however, as of December 31, 2019, the Company expects to settle all awards in cash under the CIP. These awards are classified as liabilities and are included within "Other long-term liabilities" on the Consolidated Balance Sheets. As these awards are dependent upon the Company's total shareholder return and stock price, they are measured at fair value at the end of each reporting period. The Company paid $13.0 million, $2.8 million and $5.3 million for vested performance share units during the years ended December 31, 2019, 2018 and 2017, respectively. The weighted-average grant date fair value of the performance share units granted during the years ended December 31, 2019, 2018 and 2017, was $7.93, $9.55, and $16.90 per share, respectively. As of December 31, 2019, $1.0 million of unrecognized compensation cost, which represents the unvested portion of the fair market value of performance shares granted, is expected to be recognized over a weighted-average vesting period of 2.05 years. The weighted-average vesting period may be reduced due to accelerated vesting under the restructuring program. Ref