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Stock-Based Compensation
 9 Months Ended
Sep. 30, 2012
Stock-Based Compensation

9. Stock-Based Compensation

Performance share units. On July 30, 2012, the Company’s Board of Directors approved grants of performance share units (“PSUs”) to officers of the Company pursuant to the Company’s 2010 Long Term Incentive Plan. The PSUs are awards of restricted stock units, and each PSU that is earned represents the right to receive one share of the Company’s common stock.

The PSUs are subject to a designated three-year initial performance period beginning on August 1, 2012 and ending on July 31, 2015. The number of PSUs to be earned is subject to a market condition, which is based on a comparison of the total shareholder return (“TSR”) achieved with respect to shares of the Company’s common stock against the TSR achieved by a defined peer group. Depending on the Company’s performance relative to the defined peer group, an award recipient will earn between 0% and 200% of the initial PSUs granted. If less than 200% of the initial PSUs granted are earned at the end of the initial performance period, then the performance period will be extended to July 16, 2016 to give the recipient the opportunity to earn up to an aggregate of 200% of the initial PSUs granted.

The following table summarizes information related to PSUs held by the Company’s officers at September 30, 2012:

 

     Initial Unit Awards  

Non-vested PSUs at December 31, 2011

      —     

Granted

      155,220   

Vested

      —     

Forfeited

      —     
  

 

 

  

Non-vested PSUs at September 30, 2012

      155,220   
  

 

 

  

The Company accounted for these PSUs as equity awards pursuant to the FASB’s authoritative guidance for share-based payments. The aggregate grant date fair value of the market-based awards was determined using a Monte Carlo simulation model. The fair value of these PSUs is recognized on a straight-line basis over the performance period. As it is probable that a portion of the awards will be earned during the extended performance period, the grant date fair value will be amortized over four years. However, if 200% of the initial PSUs granted are earned at the end of the initial performance period, then the remaining compensation expense will be accelerated in order to be fully recognized over three years. All compensation expense related to the PSUs will be recognized if the requisite performance period is fulfilled, even if the market condition is not achieved.

 

The Monte Carlo simulation model uses assumptions regarding random projections and must be repeated numerous times to achieve a probabilistic assessment. The key valuation assumptions for the Monte Carlo model are the forecast period, initial value, risk-free rate, volatility and correlation coefficients. The risk-free rate is the U.S. treasury rate on the date of grant. The initial value is the average of the volume weighted average prices for the 30 trading days prior to the start of the performance cycle for the Company and each of its peers. Volatility is the standard deviation of the average percentage in stock price over a historical two-year period for the Company and each of its peers. The correlation coefficients are measures of the strength of the linear relationship between and amongst the Company and its peers estimated based on historical stock price data. No forfeiture rate is assumed for these types of awards.

The following assumptions were used as of September 30, 2012 for the Monte Carlo model to value the stock-based compensation expense of the PSUs granted:

 

     2012 PSUs  

Forecast period (years)

      4.01   

Risk-free rate

      0.46 % 

Oasis volatility

      51.00 % 

The fair value per PSU at September 30, 2012 was $26.22. Stock-based compensation expense recorded for these PSUs for both the three and nine months ended September 30, 2012 was $0.2 million and is included in general and administrative expenses on the Condensed Consolidated Statement of Operations. Unrecognized expense as of September 30, 2012 for all outstanding PSUs was $3.9 million and will be recognized over a four-year requisite service period. No stock-based compensation expense was recorded for the three or nine months ended September 30, 2011 as the Company had not issued PSUs prior to July 2012.