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STOCK-BASED COMPENSATION | 9 Months Ended
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Sep. 30, 2013
STOCK-BASED COMPENSATION |
STOCK-BASED COMPENSATION | 11. STOCK-BASED COMPENSATION Stock-based compensation expense during the first nine months of 2013 and 2012 was $41.0 million and $23.4 million, respectively, and is included in general and administrative expense in the Condensed Consolidated Statement of Operations. Stock-based compensation expense in the third quarter of 2013 and 2012 was $12.2 million and $10.4 million, respectively. Restricted Stock Awards During the first nine months of 2013, 5,700 restricted stock awards were granted to employees with a weighted-average grant date per share value of $35.56. The fair value of restricted stock grants is based on the average of the high and low stock price on the grant date. The Company used an annual forfeiture rate assumption of 6.0% for purposes of recognizing stock-based compensation expense for restricted stock awards. Restricted Stock Units During the first nine months of 2013, 49,042 restricted stock units were granted to non-employee directors of the Company with a weighted-average grant date per unit value of $27.19. The fair value of these units is measured based on the average of the high and low stock price on grant date and compensation expense is recorded immediately. These units immediately vest and will be issued when the director ceases to be a director of the Company. Performance Share Awards During the first nine months of 2013, three types of performance share awards were granted to employees for a total of 804,500 performance shares, which included 549,520 performance share awards based on performance conditions measured against the Company’s internal performance metrics and 254,980 performance share awards based on market conditions. The Company used an annual forfeiture rate assumption ranging from 0% to 6% for purposes of recognizing stock-based compensation expense for its performance share awards. The performance period for the awards granted in 2013 commenced on January 1, 2013 and ends on December 31, 2015. Refer to Note 12 of the Notes to the Consolidated Financial Statements in the Form 10-K for further description of the various types of performance share awards. Awards Based on Performance Conditions. The performance awards based on internal metrics had a grant date per share value of $26.62, which is based on the average of the high and low stock price on the grant date. These awards represent the right to receive up to 100% of the award in shares of common stock. Of the 549,520 performance awards granted based on internal metrics, 169,980 shares have a three-year graded performance period. For these shares, 25% of the shares vest on each of the first and second anniversary dates following the date of the grant and 50% of the shares vest on the third anniversary date following the date of the grant, provided that the Company has $100 million or more of operating cash flow for the year preceding the vesting date. If the Company does not meet this metric for the applicable period, then the portion of the performance shares that would have been issued on that anniversary date will be forfeited. For the remaining 379,540 performance awards, the actual number of shares issued at the end of the performance period will be determined based on the Company’s performance against three performance criteria set by the Company’s Compensation Committee. An employee will earn one-third of the award granted for each internal performance metric that the Company meets at the end of the performance period. These performance criteria are based on the Company’s average production, average finding costs and average reserve replacement over the three-year performance period. Based on the Company’s probability assessment at September 30, 2013, it is considered probable that the criteria for the performance awards based on performance conditions will be met. Awards Based on Market Conditions. The 254,980 performance shares based on market conditions are earned, or not earned, based on the comparative performance of the Company’s common stock measured against fifteen other companies in the Company’s peer group over a three-year performance period. These performance shares have both an equity and liability component. The equity portion of the 2013 awards was valued on the grant date (February 21, 2013) and is not marked to market. The liability portion of the awards was valued as of September 30, 2013 on a mark-to-market basis. The following assumptions were used to determine the grant date fair value of the equity component and the period-end fair value of the liability component of the Company’s performance share awards based on market conditions using a Monte Carlo model:
|  | Grant Date |  | September 30, 2013 |
Value per Share |  | $ | 23.06 |  | $22.17 - $36.98 |
Assumptions: |  |  |  |  |
Stock Price Volatility |  | 43.8% |  | 26.2% - 42.8% |
Risk Free Rate of Return |  | 0.4% |  | 0.0% - 0.4% |
Expected Dividend Yield |  | 0.2% |  | 0.1% |
Supplemental Employee Incentive Plan On May 1, 2012, the Company’s Board of Directors adopted the Supplemental Employee Incentive Plan III (SEIP III) to replace the previously adopted Supplemental Employee Incentive Plan II that expired on June 30, 2012. For further information regarding the terms of the SEIP III, refer to Note 12 of the Notes to the Consolidated Financial Statements in the Form 10-K. The Company recognized stock-based compensation expense of $4.1 million and $1.6 million for the three months ended September 30, 2013 and 2012 and $9.2 million and a benefit of $0.1 million for the nine months ended September 30, 2013 and 2012, respectively, which is included in general and administrative expense in the Condensed Consolidated Statement of Operations. On February 11, 2013, the Company achieved the price goal of $25 per share prior to the interim trigger date. Accordingly, a total distribution of approximately $6.8 million was made to the Company’s eligible employees under the SEIP III, of which 25% of the total distribution, or $1.7 million, was paid in February 2013 and the remaining 75%, or $5.1 million, was deferred until August 2014 in accordance with the SEIP III. On August 27, 2013, the Company achieved the price goal of $37.50 per share prior to the final trigger date. Accordingly, a total distribution of approximately $11.1 million was made to the Company’s eligible employees under the SEIP III, of which 25% of the total distribution, or $2.8 million, was paid in September 2013 and the remaining 75%, or $8.3 million, was deferred until August 2014 in accordance with the SEIP III. On September 19, 2013, the Company’s Board of Directors adopted the Supplemental Employee Incentive Plan IV (SEIP IV) to replace the SEIP III with an effective date of October 1, 2013. The SEIP IV provides for a payout if, for any 20 trading days out of any 60 consecutive trading days, the closing price per share of the Company’s common stock equals or exceeds the price goal of $55 per share by September 30, 2015 (interim trigger date) or $80 per share by September 30, 2017 (final trigger date). The remaining provisions of the SEIP IV are consistent with the provisions of the SEIP III as disclosed in Note 12 of the Notes to the Consolidated Financial Statements in the Form 10-K.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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