Incentive Compensation Arrangements

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Overview

We and certain of our subsidiaries have entered into incentive compensation award agreements to grant profits interest, restricted stock, performance stock units (PSUs) and other incentive awards to our employees, our Manager, and non-employee directors. The following table summarizes compensation expense we recognized in connection with our incentive compensation awards for the years indicated:


	Year Ended December 31,
	2021		2020		2019
	(in thousands)
ASC 710 profits interest awards	$	—	$	—	$	—
ASC 718 liability-classified profits interest awards	(2,043)		(797)		(2,721)
ASC 718 equity-classified profits interest awards	1,563		—		—
ASC 718 equity-classified PSU awards	1,120		—		—
ASC 718 equity-classified Contango PSU awards	39,279		—		—
Total expense (income)	$	39,919	$	(797)	$	(2,721)

Our incentive compensation awards may contain certain service-based, performance-based, and market-based vesting conditions, which are further discussed below.

ASC 710 compensation awards

Incentive unit awards

Certain of our subsidiaries have issued incentive awards that require continuous service in order to receive distributions, and do not represent an equity interest. As these incentive awards are similar to a cash bonus plan, compensation cost is measured

based on the present value of expected benefits that are probable of being paid and recognized over the period services are provided. Compensation cost is remeasured at each reporting period based on expected future benefits. We did not recognize any compensation cost for this type of incentive award during the years ended December 31, 2021, 2020 and 2019.

ASC 718 stock-based compensation awards

Liability-classified profits interest awards

Certain of our subsidiaries issue profits interests that are liability-classified stock-based compensation awards. These awards contain different vesting conditions ranging from performance-based conditions that vest upon the achievement of certain return thresholds to time-based service requirements ranging from one year to four years. Each of these profits interests is liability-classified because of certain features within these awards that predominantly contain characteristics of liability instruments. Compensation cost for these awards is presented within general and administrative expense on the combined and consolidated statements of operations with a corresponding credit to other long-term liabilities on the consolidated balance sheets.

The fair value of liability-classified stock-based compensation profits interest awards that vested during the years ended December 31, 2021 and 2020 was $2.9 million and $7.7 million, using the fair value measurements as of December 31, 2021 and 2020, respectively. Unrecognized compensation cost related to time-based unvested awards was $23.6 million as of December 31, 2021, and is expected to be recognized over a weighted average period of 3.9 years. Unrecognized compensation cost related to performance-based unvested awards was $2.8 million as of December 31, 2021 and is expected to be recognized as the result of a realization event. No realization events occurred during the years ended December 31, 2021 and 2020. We paid cash of $0.9 million to settle liability-classified stock-based compensation profits interest awards during the year ended December 31, 2021. There were no cash settlements of liability-classified stock based compensation profits interest awards during the year ended December 31, 2020. We carried $7.1 million and $8.0 million liabilities related to these awards as of December 31, 2021 and 2020, respectively in other long term liabilities on the consolidated balance sheets. Transactions involving all of our unvested liability-classified stock-based compensation profits interest awards is summarized below:


	Year Ended December 31,
	2021	2020	2019
	(units in thousands)
Beginning Balance	888	1,215	1,163
Granted	708	—	285
Vested	(110)	(203)	(233)
Forfeited	(778)	(125)	—
Ending Balance	708	888	1,215

We capitalized $1.8 million into Proved and Unproved Oil and natural gas properties on the consolidated balance sheets associated with services provided in exchange for liability-classified stock-based compensation profits interest during the year ended December 31, 2021.

Equity-classified profits interest awards

Certain of our subsidiaries issue equity-classified profits interests awards. These awards contain different vesting conditions ranging from performance-based conditions that vest upon the achievement of certain return thresholds to time-based service requirements ranging from one year to four years. Each of these profits interests is equity-classified because of certain features within these awards that predominantly contain characteristics of equity instruments. Compensation cost for these awards is presented within General and administrative expense on the combined and consolidated statements of operations with a corresponding credit to Additional paid-in capital on the consolidated balance sheets.

The fair value of equity-classified profits interest awards that vested during the year ended December 31, 2021 was $1.8 million. We did not have any equity-classified profits interest awards that vested during the year ended December 31, 2020. We did not have any unrecognized compensation cost related to unvested equity-classified profits interest awards as of December 31, 2021. We paid cash of $0.2 million to settle equity-classified profits interest awards during the year ended December 31, 2021. There were no cash settlements of equity-classified profits interest awards during the year ended December 31, 2020. Transactions involving all of our unvested equity-classified profits interest awards, including weighted average grant date fair values, are summarized below:


	Units	Weighted average grant date fair value
	(in thousands)
Unvested at December 31, 2020	—	$	—
Granted	477	10.98
Vested	(25)	10.61
Forfeited	(253)	11.02
Unvested at December 31, 2021	200	—

We capitalized $1.6 million into Proved and Unproved Oil and natural gas properties on the consolidated balance sheets associated with services provided in exchange for equity-classified profits interest awards during the year ended December 31, 2021.

Equity-classified PSU Awards

In conjunction with the Merger Transactions, we granted equity-classified Manager Incentive Plan PSUs in accordance with the Manager Incentive Plan. The PSU performance periods are generally three years with the performance period end dates ranging from 2024 through December 2028. Each of these units represent the right to receive a target 2% of our issued and outstanding Class A Common Stock on each unit's performance period end date, modified by an amount ranging from 0% to 240% based on certain absolute and relative shareholder return components. Compensation cost for these awards is presented within General and administrative expense on the combined and consolidated statements of operations with a corresponding credit to Additional paid-in capital on the consolidated balance sheets.

Unrecognized compensation cost related to unvested awards was $71.6 million as of December 31, 2021 and is expected to be recognized over a weighted-average period of 5.0 years. Transactions involving all of our unvested units, including weighted average grant date fair values, are summarized below:


	Target Class A Shares	Weighted average grant date fair value
	(in thousands)
Unvested at December 31, 2020	—	$	—
Granted	4,195	17.33
Vested	—	—
Forfeited	—	—
Unvested at December 31, 2021	4,195	17.33

Equity-classified Contango PSU Awards

Prior to the Merger Transaction, Contango issued equity-classified PSU awards to its employees in exchange for their services to Contango over each award's respective performance period. As part of the Merger Transactions, Contango's equity-classified PSUs were modified to pay out 300% of the target PSU award amount at the close of the Merger Transactions. Because the PSU awards were modified as part of the Merger Transactions, we recorded compensation cost in the amount of the increase in the fair value of the Contango equity-classified PSUs as a result of the modification immediately after the close of the Merger Transactions within General and administrative expense on the combined and consolidated statements of operations with corresponding credits to Additional paid-in capital and Redeemable noncontrolling interests on the consolidated balance sheets.