Stock-Based Compensation

As more fully discussed in Note 7 to the Consolidated Financial Statements included in EOG's 2016 Annual Report, EOG maintains various stock-based compensation plans. Stock-based compensation expense is included on the Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) based upon the job function of the employees receiving the grants as follows (in millions):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Lease and Well	$	9.5	$	8.9	$	30.0	$	28.2
Gathering and Processing Costs	0.1		0.4		0.5		1.0
Exploration Costs	4.7		4.1		16.1		15.6
General and Administrative	29.2		24.2		54.9		52.3
Total	$	43.5	$	37.6	$	101.5	$	97.1

The Amended and Restated EOG Resources, Inc. 2008 Omnibus Equity Compensation Plan (2008 Plan) provides for grants of stock options, stock-settled stock appreciation rights (SARs), restricted stock and restricted stock units, performance units and performance stock and other stock-based awards.

Beginning with the grants made effective September 25, 2017, the Compensation Committee of the Board of Directors of EOG (Committee) approved revised vesting schedules for grants of stock options, SARs, restricted stock and restricted stock units, and performance units. These revised vesting schedules will apply to all future grants as well, until revised, amended or otherwise determined by the Committee.



Grant Type	Previous Vesting Schedule	Revised Vesting Schedule
Stock Options/SARs	Vesting in 25% increments on each of the first four anniversaries of the date of grant	Vesting in increments of 33%, 33% and 34% on each of the first three anniversaries, respectively, of the date of grant

Restricted Stock/Restricted Stock Units	"Cliff" vesting five years from the date of grant	"Cliff" vesting three years from the date of grant

Performance Units	"Cliff" vesting five years from the date of grant (except for the December 2016 grant, which will "cliff" vest approximately three years from the date of grant)	"Cliff" vesting approximately 41 months from the date of grant - specifically, on the February 28^th immediately following the Committee’s certifications contemplated by the form of award agreement governing grants of performance units

At September 30, 2017, approximately 17.1 million common shares remained available for grant under the 2008 Plan. EOG's policy is to issue shares related to the 2008 Plan from previously authorized unissued shares or treasury shares to the extent treasury shares are available.

Stock Options and Stock-Settled Stock Appreciation Rights and Employee Stock Purchase Plan. The fair value of stock option grants and SAR grants is estimated using the Hull-White II binomial option pricing model. The fair value of Employee Stock Purchase Plan (ESPP) grants is estimated using the Black-Scholes-Merton model. Stock-based compensation expense related to stock option, SAR and ESPP grants totaled $20.9 million and $18.8 million during the three months ended September 30, 2017 and 2016, respectively, and $42.9 million and $45.0 million during the nine months ended September 30, 2017 and 2016, respectively.

Weighted average fair values and valuation assumptions used to value stock option, SAR and ESPP grants during the nine-month periods ended September 30, 2017 and 2016 are as follows:



	Stock Options/SARs						ESPP
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Weighted Average Fair Value of Grants	$	23.94		$	25.77		$	22.10		$	19.28
Expected Volatility	28.28		%	31.52		%	26.96		%	36.54		%
Risk-Free Interest Rate	1.52		%	0.78		%	0.89		%	0.43		%
Dividend Yield	0.75		%	0.76		%	0.71		%	0.82		%
Expected Life	5.1 years			5.4 years			0.5 years			0.5 years

Expected volatility is based on an equal weighting of historical volatility and implied volatility from traded options in EOG's common stock. The risk-free interest rate is based upon United States Treasury yields in effect at the time of grant. The expected life is based upon historical experience and contractual terms of stock option, SAR and ESPP grants.

The following table sets forth stock option and SAR transactions for the nine-month periods ended September 30, 2017 and 2016 (stock options and SARs in thousands):



	Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
	Number of Stock Options/SARs		Weighted Average Grant Price		Number of Stock Options/SARs		Weighted Average Grant Price
Outstanding at January 1	9,850		$	75.53	10,744		$	67.98
Granted	2,260		96.24		1,821		94.87
Exercised ⁽¹⁾	(1,674	)	55.63		(1,673	)	49.85
Forfeited	(269	)	90.22		(241	)	85.77
Outstanding at September 30 ⁽²⁾	10,167		$	83.02	10,651		$	75.02
Vested or Expected to Vest ⁽³⁾	9,799		$	82.69	10,300		$	74.60
Exercisable at September 30 ⁽⁴⁾	5,517		$	75.59	6,302		$	66.46


(1)	The total intrinsic value of stock options/SARs exercised for the nine months ended September 30, 2017 and 2016 was $66.6 million and $58.7 million, respectively. The intrinsic value is based upon the difference between the market price of EOG's common stock on the date of exercise and the grant price of the stock options/SARs.


(2)	The total intrinsic value of stock options/SARs outstanding at September 30, 2017 and 2016 was $147.8 million and $240.8 million, respectively. At September 30, 2017 and 2016, the weighted average remaining contractual life was 4.3 years and 4.1 years, respectively.


(3)	The total intrinsic value of stock options/SARs vested or expected to vest at September 30, 2017 and 2016 was $145.9 million and $237.2 million, respectively. At September 30, 2017 and 2016, the weighted average remaining contractual life was 4.3 years and 4.0 years, respectively.


(4)	The total intrinsic value of stock options/SARs exercisable at September 30, 2017 and 2016 was $123.2 million and $196.3 million, respectively. At September 30, 2017 and 2016, the weighted average remaining contractual life was 2.8 years and 2.8 years, respectively.

At September 30, 2017, unrecognized compensation expense related to non-vested stock option, SAR and ESPP grants totaled $110.3 million. Such unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.7 years.

Restricted Stock and Restricted Stock Units. Employees may be granted restricted (non-vested) stock and/or restricted stock units without cost to them. Stock-based compensation expense related to restricted stock and restricted stock units totaled $15.8 million and $13.1 million for the three months ended September 30, 2017 and 2016, respectively, and $50.0 million and $45.5 million for the nine months ended September 30, 2017 and 2016, respectively.

The following table sets forth restricted stock and restricted stock unit transactions for the nine-month periods ended September 30, 2017 and 2016 (shares and units in thousands):



	Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
	Number of Shares and Units		Weighted Average Grant Date Fair Value		Number of Shares and Units		Weighted Average Grant Date Fair Value
Outstanding at January 1	3,962		$	79.63	4,908		$	70.35
Granted	1,061		97.26		833		87.76
Released ⁽¹⁾	(837	)	59.67		(1,392	)	53.15
Forfeited	(190	)	84.66		(269	)	76.40
Outstanding at September 30 ⁽²⁾	3,996		$	88.25	4,080		$	79.37


(1)	The total intrinsic value of restricted stock and restricted stock units released for the nine months ended September 30, 2017 and 2016 was $81.6 million and $116.3 million, respectively. The intrinsic value is based upon the closing price of EOG's common stock on the date the restricted stock and restricted stock units are released.


(2)	The total intrinsic value of restricted stock and restricted stock units outstanding at September 30, 2017 and 2016 was $386.6 million and $394.6 million, respectively.

At September 30, 2017, unrecognized compensation expense related to restricted stock and restricted stock units totaled $191.2 million. Such unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.6 years.

Performance Units and Performance Stock. EOG has granted performance units and/or performance stock (collectively, Performance Awards) to its executive officers annually since 2012. As more fully discussed in the grant agreements, the performance metric applicable to the Performance Awards is EOG's total shareholder return over a three-year performance period relative to the total shareholder return of a designated group of peer companies (Performance Period). Upon the application of the performance multiple at the completion of the Performance Period, a minimum of 0% and a maximum of 200% of the Performance Awards granted could be outstanding. The fair value of the Performance Awards is estimated using a Monte Carlo simulation.

At December 31, 2016, 545,290 Performance Awards were outstanding. Upon completion of the Performance Period for the Performance Awards granted in 2013, a performance multiple of 200% was applied to the 2013 grants resulting in an additional grant of 118,834 Performance Awards in February 2017. During the nine-month period ended September 30, 2017, a total of 78,527 Performance Awards were granted. A total of 240,320 Performance Awards were released during the nine months ended September 30, 2017, with a total intrinsic value of $23.6 million, based upon the closing price of EOG's common stock on the release date. Upon the application of the performance multiple at the completion of the remaining Performance Periods, a minimum of 148,444 and a maximum of 856,218 Performance Awards could be outstanding. There were 502,331 Performance Awards outstanding as of September 30, 2017. The total intrinsic value of Performance Awards outstanding at September 30, 2017 was $48.6 million.

Weighted average fair values and valuation assumptions used to value Performance Award grants during the nine-month periods ended September 30, 2017 and 2016 are as follows:



	Nine Months Ended September 30,
	2017			2016
Weighted Average Fair Value of Grants	$	113.81		$	112.09
Expected Volatility	32.19		%	32.01		%
Risk-Free Interest Rate	1.60		%	0.89		%

Expected volatility is based on the term-matched historical volatility over the simulated term, which is calculated as the time between the grant date and the end of the performance period. The risk-free interest rate is based on a 3.27 years term-matched zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date.

Stock-based compensation expense related to the Performance Award grants totaled $6.8 million and $5.7 million for the three month periods ended September 30, 2017 and 2016, respectively, and $8.6 million and $6.6 million for the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017, unrecognized compensation expense related to Performance Awards totaled $9.4 million. Such unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.3 years.