Stock Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock Compensation

Note 11. Stock Compensation

Below is a description of stock compensation relating to both the Predecessor periods (2019 and January 1, 2020 through September 18, 2020), and the Successor periods (September 19, 2020 through December 31, 2020 and 2021). All stock compensation plans and awards in effect during the Predecessor periods were cancelled upon emergence of the Company from its Chapter 11 Restructuring on September 18, 2020. The plans and awards described below which are designated as Successor

plans or awards are the only such plans and awards in effect as of December 31, 2021. Each of the plans and awards described below are designated as either Predecessor or Successor, with the exception of the section labeled “Stock-Based Compensation – Predecessor and Successor” which pertains to both Predecessor and Successor periods.

Stock-based Compensation – Predecessor and Successor

Stock-based compensation expense is included in “General and administrative expenses” in the Consolidated Statements of Operations.  Stock-based compensation associated with our employees involved in exploration and drilling activities is capitalized as part of “Oil and natural gas properties” in the Consolidated Balance Sheets. Our accounting policy is to account for forfeitures as they occur.

The following table sets forth stock-based compensation costs for the periods indicated:

	Successor				Predecessor
	Year Ended Dec. 31, 2021		Period from Sept. 19, 2020 through Dec. 31, 2020		Period from Jan. 1, 2020 through Sept. 18, 2020		Year Ended Dec. 31, 2019
In thousands
Stock-based compensation expense included in G&A	$	25,322	$	8,212	$	4,111	$	12,470
Stock-based compensation capitalized	1,883		695		1,660		4,018
Total cost of stock-based compensation arrangements	$	27,205	$	8,907	$	5,771	$	16,488
Income tax benefit recognized for stock-based compensation arrangements	$	6,331	$	2,053	$	1,028	$	3,118

Management Incentive Plan – Successor

In connection with our emergence from bankruptcy, the Plan provided for the adoption of a management incentive plan, the Denbury Inc. 2020 Omnibus Stock and Incentive Plan (the “LTIP”), effective as of the Emergence Date, through an amendment and restatement of the Denbury Resources Inc. Amended and Restated 2004 Omnibus Stock and Incentive Plan, as amended and restated as of March 26, 2020. The LTIP reserved 6.2 million shares of Denbury’s common stock for awards to officers, other employees, directors and other service providers. The LTIP provides for, among other things, the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents, other stock-based awards, cash awards, or any combination of the foregoing. On December 2, 2020, Denbury’s board of directors approved and ratified the LTIP, with initial awards covering 2.2 million shares of common stock granted on December 4, 2020. As of December 31, 2021, 3.9 million shares were available for future grants under the LTIP, all of which could be issued in the form of restricted stock units or performance stock units. Our incentive compensation program is administered by the Compensation Committee of our Board of Directors. The LTIP will expire September 2030.

Restricted Stock Units – Successor

In December 2020, non-performance-based restricted stock unit (“RSU”) awards were granted to directors and a limited number of employees under the Successor’s LTIP. Holders of non-performance-based RSUs will receive shares of Successor common stock equal to the number of RSUs that have vested upon settlement. Non-performance-based RSUs generally vest ratably over a three-year period with delivery of the shares occurring at the end of the three-year period. Vested non-performance-based RSU awards provide the holders with dividend equivalent rights payable upon settlement of the underlying RSU awards. Shares to be delivered to participants are expected to be made available from authorized but unissued shares reserved under the LTIP. The grant-date fair value of the RSUs is based on the fair market value of our common stock on the date of grant.

As of December 31, 2021, there was $19.9 million of unrecognized compensation expense related to the Successor’s nonvested non-performance-based restricted stock unit grants.  This unrecognized compensation cost is expected to be

recognized over a weighted-average period of 1.9 years. The following is a summary of the total vesting date fair value of non-performance-based restricted stock units:

	Year Ended Dec. 31, 2021
In thousands
Fair value of restricted stock units vested	$	31,073

A summary of the status of our nonvested non-performance-based RSUs issued and the changes during the Successor period is presented below:

	Number of Awards	Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2020	1,219,867	$	24.67
Granted	56,236	31.87
Vested	(405,311)	24.80
Forfeited	(20,885)	24.67
Nonvested at December 31, 2021	849,907	25.08

Performance-Based Stock Units – Successor

In December 2020, the Successor Board of Directors granted performance stock unit (“PSU”) awards to a limited number of employees. The PSU awards had vesting parameters tied to the Company’s common stock trading prices and became fully vested on March 3, 2021. Although the performance measures for vesting of these awards have been achieved, delivery of the shares will not occur until the conclusion of the three-year performance period, December 4, 2023. Vested performance-based PSU awards provide the holders with dividend equivalent rights payable upon settlement of the underlying PSU awards. Shares to be delivered to participants are expected to be made available from authorized but unissued shares reserved under the LTIP.

PSU awards are valued using a Monte Carlo simulation. Expected volatilities utilized in the model were estimated using historical volatility of the Predecessor stock over a look-back term generally equivalent to the expected life of the award from the grant date.

As of December 31, 2021, there was no remaining unrecognized compensation expense related to the Successor’s PSU awards. The range of assumptions used in the Monte Carlo simulation valuation approach is as follows:

	Successor
	Period from Sept. 19, 2020 through Dec. 31, 2020
Weighted average fair value of PSU awards granted	$	24.19
Risk-free interest rate	0.21		%
Expected life	0.23 years
Expected volatility	110.0		%
Dividend yield	—		%

A summary of the PSU awards activity during the Successor period is as follows:

	Number of Awards	Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2020	1,021,222	$	24.19
Granted	—	—
Vested	(1,021,222)	24.19
Forfeited	—	—
Nonvested at December 31, 2021	—	—

The following is a summary of the total vesting date fair value of PSU awards:

	Year Ended Dec. 31, 2021
In thousands
Vesting date fair value of PSU awards	$	45,077

June 2020 Compensation Adjustments – Predecessor

In response to the then ongoing significant economic and market uncertainty affecting the oil and gas industry, in June 2020 the Predecessor and its Board of Directors and Compensation Committee implemented a revised compensation structure under which for 21 of the Company’s executives (including our named executive officers) and senior managers, all outstanding equity awards and 2020 targeted variable cash-based compensation were canceled and replaced with a cash retention incentive. In total, $15.2 million in cash retention incentives were prepaid to those employees in June 2020, with an obligation of the executives to repay up to 100% of the compensation (on an after-tax basis) if specified conditions were not satisfied. The Predecessor’s named executive officers’ cash retention incentives were earned 50% based on their continued employment for a period of up to 12 months and 50% based on achieving certain specified incentive metrics.

In accordance with FASC Topic 718, Compensation – Stock Compensation, we accounted for the transaction involving equity compensation as an award modification and reclassified the awards from equity to liability awards. As a result of the modification of the awards, unrecognized compensation at the time of modification was determined to be $18.7 million ($4.1 million of incremental compensation expense), which was higher than the $15.2 million cash payment, and was calculated as the greater of (i) grant date fair value of the previously-outstanding awards plus incremental compensation (defined as cash paid related to the cash retention incentive in excess of the modification date fair value of the previously-existing awards) or (ii) cash paid for the cash retention incentive for each award. The value was recognized as total compensation expense for each award over the service period. The compensation expense was recognized in “General and administrative expenses” in the Consolidated Statements of Operations during the period January 1, 2020 through September 18, 2020 (Predecessor). The accounting for the Predecessor’s remaining share-based compensation awards continued throughout the period covered by the Chapter 11 Restructuring, and upon cancellation of the awards, an additional $4.6 million of compensation expense was recognized during the Predecessor period ended September 18, 2020.

2004 Omnibus Stock and Incentive Plan – Predecessor

The Amended and Restated 2004 Omnibus Stock and Incentive Plan, amended and restated as of March 26, 2020 (the “2004 Plan”), was an incentive plan that provided for the issuance of incentive and non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights settled in stock, and performance-based awards to officers, employees and directors. Since the 2004 Plan’s inception, awards covering a total of 61.4 million shares of common stock were authorized for issuance pursuant to the 2004 Plan.  In connection with our emergence from bankruptcy, all outstanding equity as of September 18, 2020 was cancelled.

Restricted Stock – Predecessor

During the Predecessor period, we granted non-performance-based restricted stock to employees and directors as part of our long-term compensation program. Holders of non-performance-based restricted stock awards had the rights of owning non-restricted stock (including voting rights) except that the holders were not entitled to delivery of a portion thereof until certain

requirements were met.  Beginning in 2014, non-performance-based restricted stock awards provided the holders with forfeitable dividend equivalent rights which vested with the underlying shares. Non-performance-based restricted stock vested over a three-year vesting period, with the specific terms of vesting determined at the time of grant.

The following is a summary of the total vesting date fair value of non-performance-based restricted stock:

	Predecessor
	Period from Jan. 1, 2020 through Sept. 18, 2020		Year Ended Dec. 31, 2019
In thousands
Fair value of restricted stock vested	$	707	$	5,743

In connection with our emergence from bankruptcy, all restricted stock outstanding as of September 18, 2020 was cancelled and there was no remaining compensation cost to be recognized in future periods related to nonvested non-performance-based restricted stock arrangements.

Performance-Based Equity Awards – Predecessor

The Predecessor’s Compensation Committee of the Board of Directors annually granted performance-based equity awards to Denbury’s officers.  Performance-based awards generally vested over 3.25 years for awards granted in 2019 and 2020. The number of performance-based shares earned (and eligible to vest) during the performance period was dependent upon: (1) the level of success in achieving specifically identified performance targets (“Performance-Based Operational Awards”) and (2) performance of the Predecessor’s stock relative to that of a designated peer group (“Performance-Based TSR Awards”).

Performance-Based Operational Awards were valued using the fair market value of the Predecessor’s stock, and Performance-Based TSR Awards were valued using a Monte Carlo simulation. Expected volatilities utilized in the model were estimated using historical volatility of the Predecessor stock over a look-back term generally equivalent to the expected life of the award from the grant date. The range of assumptions used in the Monte Carlo simulation valuation approach for Performance-Based TSR Awards (presented at the target level) is as follows:

	Predecessor
	Period from Jan. 1, 2020 through Sept. 18, 2020			Year Ended Dec. 31, 2019
Weighted average fair value of Performance-Based TSR Awards granted	$	0.15		$	1.95
Risk-free interest rate	0.27		%	2.27		%
Expected life	3.0 years			3.0 years
Expected volatility	89.6		%	77.2		%
Dividend yield	—		%	—		%

The following is a summary of the total vesting date fair value of performance-based equity awards for the Predecessor:

	Predecessor
	Period from Jan. 1, 2020 through Sept. 18, 2020		Year Ended Dec. 31, 2019
In thousands
Vesting date fair value of Performance-Based Operational Awards	$	—	$	—
Vesting date fair value of Performance-Based TSR Awards	79		2,783