Equity-Based Compensation

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Successor equity-based compensation

The Compensation Committee has approved the grant of certain awards under the Company’s 2020 Long Term Incentive Plan (“2020 LTIP”), which consists of restricted stock units (“RSUs”), performance share units (“PSUs”) and leveraged stock units (“LSUs”).

Restricted stock units. RSUs are contingent shares that are scheduled to vest 25% each year over a four-year period to promote retention of key employees. The fair value is based on the closing price of the Company’s common stock on the date of grant or, if applicable, the date of modification, and compensation expense is recognized ratably over the requisite service period. The Company accounts for RSUs as equity-classified awards pursuant to the FASB’s authoritative guidance for share-based payments. During the three months ended March 31, 2021, the Company granted 399,861 RSUs with a weighted average grant date per share value of $49.84. During the three months ended March 31, 2021, the Company recorded equity-based compensation expense for RSUs of $0.6 million in general and administrative expenses on its Condensed Consolidated Statement of Operations.

Performance share units. PSUs are contingent shares that may be earned over three-year and four-year performance periods. 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 at the end of the applicable performance periods, with 50% of the PSU awards eligible to be earned based on performance relative to a certain group of the Company’s oil and gas peers and 50% of the PSU awards eligible to be earned based on performance relative to the broad-based Russell 2000 index. Depending on the Company’s TSR performance relative to the defined peer group, award recipients may earn between 0% and 150% of target. The Company accounts for PSUs as equity-classified awards pursuant to the FASB’s authoritative guidance for share-based payments.

During the three months ended March 31, 2021, the Company granted 139,935 PSUs with a weighted average grant date per share value of $56.34. During the three months ended March 31, 2021, the Company recorded equity-based compensation expense for PSUs of $0.3 million in general and administrative expenses on its Condensed Consolidated Statement of Operations.

Leveraged stock units. LSUs are contingent shares that may be earned over a three-year or four-year performance period. The number of LSUs to be earned is subject to a market condition, which is based on the TSR performance of the Company’s common stock measured against specific premium return objectives. Depending on the Company’s TSR performance, award recipients may earn between 0% and 300% of target; however, the number of shares delivered in respect to these awards during the grant cycle may not exceed ten times the fair value of the award on the grant date. The Company accounts for LSUs as equity-classified awards pursuant to the FASB’s authoritative guidance for share-based payments.

During the three months ended March 31, 2021, the Company granted 187,822 LSUs with a weighted average grant date per share value of $70.93. During the three months ended March 31, 2021, the Company recorded equity-based compensation expense for LSUs of $0.4 million in general and administrative expenses on its Condensed Consolidated Statement of Operations.

Fair value assumptions. The aggregate grant date fair value of PSUs and LSUs was determined using a Monte Carlo simulation model. 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, risk-free interest rate, implied equity volatility, stock price on the date of grant and, for PSUs, correlation coefficient. The risk-free interest rates are the U.S. Treasury bond rates on the date of grant that correspond to each performance period. Implied equity volatility is derived by solving for an asset volatility and equity volatility based on the leverage of the Company and each of its peers. For the PSUs, the correlation coefficient measures the strength of the linear relationship between and amongst the Company and its peers based on historical stock price data.

The following assumptions were used for the Monte Carlo model to determine the grant date fair value and associated equity-based compensation expenses of the PSUs and LSUs granted on January 18, 2021 and February 11, 2021, respectively:


Grant date	January 18, 2021	February 11, 2021
Forecast period (years)	3 - 4	3 - 4
Risk-free interest rates	0.1% - 1.9%	0.1% - 1.9%
Implied equity volatility	55% - 60%	55% - 60%

Stock price on date of grant	$44.41	$49.66

Restricted stock awards. The Company has granted restricted stock awards to its directors under the 2020 LTIP, which vest one-third annually over a three-year period subject to a service condition. The fair value of restricted stock awards is based on the closing sales price of the Company’s common stock on the date of grant or, if applicable, the date of modification. Compensation expense is recognized ratably over the requisite service period. During the three months ended March 31, 2021, the Company recorded equity-based compensation expense for restricted stock awards of $0.3 million in general and administrative expenses on its Condensed Consolidated Statement of Operations.

Class B Units in OMP GP

OMP GP previously granted restricted Class B Units to certain employees, including OMP’s named executive officers, as consideration for services to the Company. On March 30, 2021, in connection with the Midstream Simplification, certain Class B Units representing membership interests in OMP GP that were previously issued to OMP’s named executive officers were converted into and exchanged for the right to receive restricted common units in OMP, subject to the following vesting schedule: (i) 34% vested on March 30, 2021, (ii) 33% will vest on March 30, 2022 and (iii) 33% will vest on March 30, 2023. As of March 31, 2021, the unamortized grant date fair value related to the unvested OMP restricted common units was $0.5 million and will be recognized over a remaining life of approximately two years.

Predecessor equity-based compensation

The Predecessor previously granted equity-classified restricted stock awards and PSUs under its Amended and Restated 2010 Long Term Incentive Plan (the “Predecessor 2010 LTIP”). The fair value of restricted stock grants was based on the closing sales price of the Predecessor’s common stock on the date of grant and compensation expense is recognized ratably over the requisite service period in accordance with GAAP. For the three months ended March 31, 2020, the Predecessor recorded equity-based compensation expense of $4.4 million related to restricted stock awards and $2.3 million related to PSUs in general and administrative expenses on its Condensed Consolidated Statements of Operations. On the Emergence Date and pursuant to the Company’s restructuring plan, all outstanding unvested restricted stock awards and PSUs granted under the Predecessor 2010 LTIP vested. There were no outstanding Predecessor restricted stock awards and PSUs at March 31, 2021 or December 31, 2020.