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Equity-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Successor equity-based compensation

The Company has granted equity-based compensation awards under the 2020 LTIP. In accordance with the FASB’s authoritative guidance for share-based payments, the Company accounts for awards that settle in shares of common stock as equity classified awards and awards that settle in cash as liability classified awards.

Equity-based compensation expense from continuing operations is recognized in general and administrative expenses on the Company’s Consolidated Statements of Operations, and equity-based compensation expense from discontinued operations is recognized in discontinued operations, net of income tax on the Company’s Consolidated Statements of Operations. The Company recognized $61.2 million and $14.7 million in equity-based compensation expenses related to equity classified awards that were attributable to continued operations during the years ended December 31, 2022 and 2021 (Successor), respectively. Equity-based compensation expenses related to liability classified awards that were attributable to continued operations were $4.9 million and $0.5 million during the years ended December 31, 2022 and 2021 (Successor), respectively. Stock-based compensation expense related to equity classified awards that was attributable to discontinued operations was immaterial during the years ended December 31, 2022 and 2021 (Successor). Stock-based compensation expenses were not material for both continuing operations and discontinued operations during the period from November 20, 2020 through December 31, 2020 (Successor). Unrecognized compensation expense as of December 31, 2022 for all outstanding awards was $46.3 million and will be recognized over a weighted average period of approximately 1.8 years.

Merger impacts. Pursuant to the Merger Agreement, at the effective time of the Merger, the Company assumed the Whiting Equity Incentive Plan and the outstanding restricted stock units (“RSUs”) and performance share units (“PSUs”) granted under the Whiting Equity Incentive Plan. Accordingly, (i) all shares remaining available for issuance under the Whiting Equity Incentive Plan as of the Merger were automatically converted into shares of the Company’s common stock, available for issuance under the Whiting Equity Incentive Plan and (ii) all Whiting RSUs and PSUs were automatically converted into RSUs and PSUs of the Company, respectively, that, to the extent earned, will be settled in shares of the Company’s common stock, subject to appropriate adjustments to the number of shares subject to each award, resulting in the following as of July 1, 2022: (x) 1,611,725 shares of the Company’s common stock remaining available for issuance to eligible participants under the Whiting Equity Incentive Plan, (y) 335,386 shares of the Company’s common stock subject to RSUs assumed under the Whiting Equity Incentive Plan and (z) 275,310 shares of the Company’s common stock subject to PSUs assumed under the Whiting Equity Incentive Plan. The number of PSUs assumed by the Company was determined based upon the change-in-control provisions contained in the original award agreement at the greater of (i) the target number of PSUs subject to such award and (ii) the actual achievement of the performance criteria measured based on the truncated performance period ending immediately prior to the effective time of the Merger. Following completion of the Merger, the Whiting RSUs and PSUs are subject to time-based vesting criteria. The fair value of the RSU and PSU awards assumed by the Company was $73.3 million, including $27.4 million that was attributable to pre-Merger services and recorded as a part of the consideration transferred and $45.9 million that is attributable to post-Merger services that will be recognized as equity-based compensation expense in the post-combination period.

Restricted stock awards. The Company previously granted restricted stock awards (“RSAs”) to non-employee directors. RSAs are legally issued shares which were scheduled to vest over a three-year period subject to a service condition. The Company measured the awards at fair value on the date of grant, which was based on the closing price of the Company’s common stock. Pursuant to the award agreements governing the RSAs, each outstanding RSA became fully vested upon completion of the Merger due to a “change in control” (as defined in the award agreement). As a result, 64,920 outstanding RSAs became fully vested on July 1, 2022 and the Company recognized the remaining unrecognized compensation expense immediately.

The following table summarizes information related to RSAs held by non-employee directors of the Company:


	Shares	Weighted Average Grant Date Fair Value per Share
Non-vested shares outstanding December 31, 2021	64,920	$	41.37
Granted	—	—
Vested	(64,920)	41.37
Forfeited	—	—
Non-vested shares outstanding December 31, 2022	—	$	—

The fair value of awards vested was $7.1 million and $4.0 million for the years ended December 31, 2022 and 2021 (Successor), respectively.

Restricted stock units. The Company has granted RSUs to employees and non-employee directors. RSUs are contingent shares with a service-based vesting condition. The RSUs granted to employees vest follow a graded vesting schedule and vest ratably each year over a three-year or four-year period. The RSUs granted to non-employee directors vest over a one-year period. 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. The Company recognizes compensation expense under the straight-line method over the requisite service period.

The following table summarizes information related to RSUs held by employees and non-employee directors of the Company:


	Shares	Weighted Average Grant Date Fair Value per Share
Non-vested shares outstanding December 31, 2021	512,806	$	62.66
Granted	76,472	144.16
Merger impacts(1)	335,386	109.30
Vested	(475,409)	85.29
Forfeited	(27,672)	74.66
Non-vested shares outstanding December 31, 2022	421,583	$	88.26

__________________

(1) Represents awards assumed on July 1, 2022 in connection with the Merger.

The fair value of awards vested was $62.3 million for the year ended December 31, 2022 (Successor). The fair value of awards vested was immaterial for the year ended December 31, 2021 (Successor). The weighted average grant date fair value of RSUs was $144.16 per share and $62.61 per share for the years ended December 31, 2022 and 2021 (Successor), respectively.

Performance share units. The Company has granted PSUs to certain employees. PSUs are contingent shares that may be earned over three-year and four-year performance periods subject to market-based and service-based vesting conditions. The number of PSUs to be earned was initially subject to a market condition that was based on a comparison of the total stockholder 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 could earn between 0% and 150% of target. Pursuant to the PSU award agreements, the number of PSUs earned was certified at the greater of (i) target performance and (ii) actual achievement of the performance criteria measured based on the truncated performance period ending immediately prior to the effective time of a “change in control.” The completion of the Merger on July 1, 2022 represented a “change in control” such that 250,016 PSUs were earned by legacy Oasis award recipients subject to a service-based vesting condition, including 183,915 PSUs that were outstanding at December 31, 2021 and an incremental 66,101 PSUs that were earned based upon the achievement of the performance criteria described above.

The following table summarizes information related to PSUs held by employees of the Company:


	Shares	Weighted Average Grant Date Fair Value per Share
Non-vested shares outstanding December 31, 2021	183,915	$	63.95
Granted	—	—
Merger impacts(1)	341,411	100.52
Vested	(152,185)	76.42
Forfeited	—	—
Non-vested shares outstanding December 31, 2022	373,141	$	92.53

___________________

(1)Includes 275,310 awards assumed on July 1, 2022 in connection with the Merger and an incremental 66,101 legacy Oasis PSU awards that were earned based upon the achievement of the performance criteria described above.

The fair value of awards vested was $16.6 million for the year ended December 31, 2022 (Successor). No awards vested for the year ended December 31, 2021 (Successor). No PSUs were granted during the year ended December 31, 2022 (Successor). The weighted average grant date fair value was $63.95 per share for the year ended December 31, 2021 (Successor).

Leveraged stock units. The Company has granted leveraged stock units (“LSUs”) to certain employees. LSUs are contingent shares that may be earned over a three-year or four-year performance period subject to market-based and service-based vesting conditions. The number of LSUs to be earned was initially subject to a market condition that was 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 could earn between 0% and 300% of target; however, the number of shares delivered in respect to these awards during the grant cycle could not exceed ten times the fair value of the award on the grant date. Pursuant to LSU award agreements, the number of LSUs earned was certified at the greater of (i) target performance and (ii) actual achievement of the performance criteria measured based on the truncated performance period ending immediately prior to the effective time of a “change in control.” The completion of the Merger on July 1, 2022 represented a “change in control” such that 787,218 LSUs were earned by award recipients subject to a service-based vesting condition.

The following table summarizes information related to LSUs held by employees of the Company:


	Shares	Weighted Average Grant Date Fair Value per Share
Non-vested shares outstanding December 31, 2021	262,406	$	78.79
Granted	—	—
Merger impacts(1)	524,812	78.79
Vested	(290,181)	68.86
Forfeited	—	—
Non-vested shares outstanding December 31, 2022	497,037	$	84.59

__________________

(1)Represents legacy Oasis awards that were earned as result of the Merger. Upon completion of the Merger, there were 787,218 LSUs outstanding.

The fair value of awards vested was $31.5 million for the year ended December 31, 2022 (Successor). No awards vested for the year ended December 31, 2021 (Successor). No LSUs were granted during the year ended December 31, 2022 (Successor). The weighted average grant date fair value was $78.79 per share for the year ended December 31, 2021 (Successor).

Fair value assumptions. The aggregate grant date fair value of PSUs and LSUs was determined by a third-party valuation specialist using a Monte Carlo simulation model. The key valuation inputs were: (i) the forecast period, (ii) risk-free interest rate, (iii) implied equity volatility, (iv) stock price on the date of grant and, for PSUs, (v) 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 table summarizes the assumptions used in the Monte Carlo simulation model to determine the grant date fair value and associated equity-based compensation expenses by grant date:


Grant date	January 18, 2021	February 11, 2021	April 13, 2021
Forecast period (years)	3 - 4	3 - 4	3 - 4
Risk-free interest rates	0.2% - 0.3%	0.2% - 0.3%	0.3% - 0.6%
Implied equity volatility	55% - 60%	55% - 60%	45% - 50%

Stock price on date of grant	$44.41	$49.66	$68.07

Phantom unit awards. The Company has granted phantom unit awards to certain employees. Phantom unit awards represent the right to receive, upon vesting of the award, a cash payment equal to the fair market value of one share of common stock. The phantom unit awards are subject to a service-based vesting condition and generally vest in equal installments each year over a three-year period from the date of grant. Compensation expense is recognized over the requisite service period.

The following table summarizes information related to phantom unit awards held by employees of the Company:


	Phantom Unit Awards	Weighted Average Grant Date Fair Value per Share
Non-vested phantom unit awards outstanding December 31, 2021	15,780	$	127.91
Granted	7,504	144.74
Vested	(13,551)	132.43
Forfeited	(1,865)	129.00
Non-vested phantom unit awards outstanding December 31, 2022	7,868	$	135.91

The fair value of vested phantom unit awards was $2.0 million and immaterial for the years ended December 31, 2022 and 2021 (Successor), respectively.

Predecessor equity-based compensation

The Predecessor granted equity awards to its officers, employees and directors under the Amended and Restated 2010 Long Term Incentive Plan (the “2010 LTIP”).

During the period from January 1, 2020 through November 19, 2020 (Predecessor) for continuing operations, the Company recognized $29.8 million in stock-based compensation expense related to equity classified awards and $1.2 million related to liability classified awards. During the period from January 1, 2020 through November 19, 2020 (Predecessor) for discontinued operations, the Company recognized $1.5 million in stock-based compensation expense related to equity classified awards and $0.2 million related to liability classified awards.

Restricted stock awards. The Company granted restricted stock awards to its employees and directors under the 2010 LTIP, the majority of which vested over a three-year period. The fair value of restricted stock grants was 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 was recognized ratably over the requisite service period.

The fair value of awards vested was $47.3 million for the period from January 1, 2020 through November 19, 2020 (Predecessor). The weighted average grant date fair value of restricted stock awards granted was $3.06 per share for the period from January 1, 2020 through November 19, 2020 (Predecessor).

Performance share units. The Company granted PSUs to its officers under the 2010 LTIP. The PSUs are awards of restricted stock units that were earned based on the level of achievement with respect to the applicable performance metric, and each PSU that was earned represented the right to receive one share of the Company’s common stock.

The Company accounted for the PSUs as equity awards pursuant to the FASB’s authoritative guidance for share-based payments. The number of PSUs to be earned was subject to a market condition, which is based on a comparison of the 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 performance periods. Depending on the Company’s TSR performance relative to the defined peer group, award recipients could have earned between 0% and 240% of the initial PSUs granted. All compensation expense related to the PSUs was recognized if the requisite performance period was fulfilled, even if the market condition was not achieved.

The fair value of PSUs vested was $7.6 million for the period from January 1, 2020 through November 19, 2020 (Predecessor). The weighted average grant date fair value of PSUs granted was $2.56 per share for the period from January 1, 2020 through November 19, 2020 (Predecessor).

The aggregate grant date fair value of the market-based awards 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 rates, stock price volatility, initial value, stock price on the date of grant and correlation coefficients. The risk-free interest rates are the U.S. Treasury bond rates on the date of grant that corresponds to each performance period. 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 change in stock price over a historical 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.

The following assumptions were used for the Monte Carlo model to determine the grant date fair value and associated equity-based compensation expense of the PSUs granted during the periods presented (Predecessor):


			2020
Forecast period (years)			2 - 4
Risk-free interest rates			1.53% - 1.55%
Oasis stock price volatility			68.56%
Oasis initial value			$3.19
Oasis stock price on date of grant			$2.77

Associated tax benefit. The Company did not have any associated tax benefits related to equity-based compensation during the period from January 1, 2020 through November 19, 2020 (Predecessor) as a result of recording a valuation allowance on its deferred tax assets or during the period from November 20, 2020 through December 31, 2020 (Successor) as a result of the vesting of equity-based awards on the Emergence Date.

Class B units in OMP GP. OMP GP previously granted restricted Class B units, representing membership interests in OMP GP, to certain employees, including OMP’s named executive officers, under the 2010 LTIP. The Class B units granted to employees other than the named executive officers vested on the Emergence Date. In connection with the Midstream Simplification, the Class B units granted to OMP’s named executive officers were converted into and exchanged for restricted common units in OMP. On March 30, 2021, 34% of these awards vested, and the remaining awards vested on February 1, 2022.

2020 Incentive Compensation Program. In order to effectively incentivize employees in the then-current environment, the Board of Directors approved a revised 2020 incentive compensation program applicable to all employees effective June 12, 2020 (the “2020 Incentive Compensation Program”).

Under the 2020 Incentive Compensation Program, all 2020 equity-based awards of the Predecessor previously granted under the 2010 LTIP, were forfeited and concurrently replaced with cash retention incentives, which were accounted for as modifications of such 2020 awards. In addition, all employees waived participation in the Company’s 2020 annual cash incentive plan and instead became eligible to earn cash performance incentives based on the achievement of certain specified incentive metrics measured on a quarterly basis from July 1, 2020 to June 30, 2021. The 2020 Incentive Compensation Program resulted in $15.6 million being paid in June 2020 with the remainder of the target amount under such program payable over the following 12 months.

For the Company’s officers and certain other senior employees, the prepaid cash incentives paid in June 2020 could be clawed back if (i) certain specified incentive metrics measured on a quarterly basis were not achieved from July 1, 2020 to December 31, 2020, and (ii) such individuals did not remain employed for a period of up to 12 months, unless such individuals were terminated without cause or resigned for good reason. The after-tax value of the cash incentives paid to the Company’s officers and certain other senior employees of $8.8 million was capitalized to prepaid expenses and amortized over the relevant service periods. The Company immediately expensed the difference between the cash and after-tax value of the prepaid cash incentives of $4.1 million, which was not subject to the clawback provisions of the 2020 Incentive Compensation Program, and recognized additional compensation expense of $0.4 million to adjust for the grant date fair value of certain original 2020 equity-based awards that exceeded the replacement cash retention incentives less amounts previously recognized for the original 2020 equity-based awards. On the Emergence Date and pursuant to the Plan, the remaining unamortized amount of prepaid cash incentives of $4.3 million was vested and included in general and administrative expenses on the Company’s Consolidated Statement of Operations for the period from January 1, 2020 through November 19, 2020 (Predecessor).

For all other employees, the June 2020 incentive payment of $2.7 million was not subject to any clawback provisions, and $2.1 million, which represented the excess of the cash retention payment over amounts previously recognized for the original 2020 equity-based awards in which these cash incentives replaced, was immediately expensed.

The expenses related to the 2020 Incentive Compensation Program are included in general and administrative expenses on the Company’s Consolidated Statements of Operations.