Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

v3.19.1
STOCK-BASED COMPENSATION
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION
The Company’s 2018 Equity Incentive Plan (the “2018 Plan”), which replaced the Company’s prior 2013 Incentive Plan (the “2013 Plan”), authorized 15,000,000 shares for grant under the 2018 Plan, plus the 769,775 shares remaining available for future grants under the 2013 Plan on the date the stockholders approved the 2018 Plan. No future awards will be made under the 2013 Plan. The 2013 Plan continues to govern awards that were made thereunder, which remain in effect pursuant to their terms. As of March 31, 2019, there were 12,509,575 shares available for future awards under the 2018 Plan.

The Company recognizes the fair value of stock-based compensation awards expected to vest over the requisite service period as a charge against earnings, net of amounts capitalized. The Company’s stock-based compensation awards are accounted for as equity instruments and are included in the “General and administrative” line item in the unaudited statements of operations. The Company capitalizes a portion of stock-based compensation for employees who are directly involved in the acquisition of oil and natural gas properties into the full cost pool. Capitalized stock-based compensation is included in the “Oil and natural gas properties” line item on the unaudited balance sheets.

The 2018 Plan and 2013 Plan award types are summarized as follows:

Restricted Stock Awards

The Company issues restricted stock awards (“RSAs”) subject to various vesting conditions as compensation to executive officers, employees and directors of the Company.  RSAs issued to employees and executive officers generally vest over three years, provided that any performance and/or market conditions are also met. RSAs issued to directors generally vest over one year, provided that any performance and/or market conditions are also met. For RSAs subject to service and/or performance vesting conditions, the grant-date fair value is established based on the closing price of the Company’s common stock on such date. Stock-based compensation expense for awards subject to only service conditions is recognized on a straight-line basis over the service period. Stock-based compensation expense for awards with both service and performance conditions is recognized on a graded basis only if it is probable that the performance condition will be achieved. The Company accounts for forfeitures of awards granted under these plans as they occur in determining stock-based compensation expense.

For awards subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model. The Company recognizes stock-based compensation expense for awards subject to market-based vesting conditions regardless of whether it becomes probable that these conditions will be achieved or not, and stock-based compensation expense for any such awards is not reversed if vesting does not actually occur. The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility is calculated based on the historical volatility and implied volatility of the Company’s common stock, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the three-year vesting period. The key assumptions used in valuing these market-based awards were as follows:

2019
Risk-free interest rate 2.57  %
Dividend yield —  %
Expected volatility 85.00  %
Company's closing stock price on grant date $ 2.71 
During 2018, RSAs subject to service and performance-based vesting conditions were granted to employees and executive officers under the 2013 Plan. Vesting of these awards was contingent on the Company’s annualized Adjusted EBITDA as compared to specified targets for the fourth quarter of 2018. The Company assessed the probability of achieving the performance condition throughout the performance period using its internal financial forecasts. The weighted average grant date fair value of these service and performance-based RSAs was $2.70 per share. Also during 2018, RSAs subject to service and market-based vesting conditions were granted to employees, executive officers, and directors under the 2013 Plan. Vesting of these awards was and is contingent on the Company’s stock price performance relative to specified targets. The weighted average grant date fair value of these service and market-based RSAs was $1.67 per share.

During 2019, RSAs subject to service, market, and performance-based vesting conditions were granted to employees, executive officers, and directors under the 2018 Plan. Vesting of these awards is contingent on the Company’s debt-adjusted cash flow per share as compared to specified targets. The weighted average grant date fair value of these service, performance, and market-based RSAs was $0.98 per share. Also during 2019, RSAs subject to service and market-based vesting conditions were granted to employees, executive officers, and directors under the 2018 Plan. Vesting of these awards is contingent on the Company’s stock price performance relative to specified targets. The weighted average grant date fair value of these service and market-based RSAs was $1.82 per share.

The following table reflects the outstanding RSAs and activity related thereto for the three months ended March 31, 2019:

Service-based Awards Service and Performance-based Awards Service and Market-based Awards Service, Performance, and Market-based Awards
Number of Shares Weighted-average Grant Date Fair Value Number of Shares Weighted-average Grant Date Fair Value Number of Shares Weighted-average Grant Date Fair Value Number of Shares Weighted-average Grant Date Fair Value
Outstanding at December 31, 2018 632,759  $ 2.72  1,018,500  $ 2.70  1,176,600  $ 1.67  —  $ — 
Shares granted 847,200  2.71  —  —  1,249,500  1.82  1,063,500  0.98 
Shares forfeited (4,802) 3.07  —  —  —  —  —  — 
Shares vested (270,353) 2.97  (339,500) 2.70  (164,206) 1.67  —  — 
Outstanding at March 31, 2019 1,204,804  $ 2.66  679,000  $ 2.70  2,261,894  $ 1.75  1,063,500  $ 0.98 

At March 31, 2019, there was $8.3 million of total unrecognized compensation expense related to unvested RSAs. That cost is expected to be recognized over a weighted average period of 0.8 years. For the three months ended March 31, 2019 and 2018, the total fair value of the Company’s restricted stock awards vested was $2.0 million and $0.6 million, respectively.

The following has been recorded to stock-based compensation expense for the periods presented:

Three months ended March 31,
(in thousands) 2019 2018
Restricted stock award compensation $ 2,835  $ (832)
Less amounts capitalized in oil and natural gas properties (84) (54)
Total stock-based compensation, net $ 2,751  $ (886)