Share-Based Compensation

The Company issues share-based compensation awards including restricted common stock awards, restricted stock units, performance units and performance share units under the SandRidge Energy, Inc. 2009 Incentive Plan (the “Plan”). Total share-based compensation expense is measured using the grant date fair value for equity-classified awards and using the fair value at period end for liability-classified awards.

Restricted Common Stock Awards

The Company’s restricted common stock awards generally vest over a four-year period, subject to certain conditions, and are valued based upon the market value of the Company’s common stock on the date of grant. The following table presents a summary of the Company’s unvested restricted stock awards.



	Number of Shares		Weighted- Average Grant Date Fair Value
	(In thousands)
Unvested restricted shares outstanding at December 31, 2014	8,556		$	6.39
Granted	662		$	1.78
Vested	(3,030	)	$	6.34
Forfeited / Canceled	(575	)	$	6.39
Unvested restricted shares outstanding at June 30, 2015	5,613		$	5.88

As of June 30, 2015, the Company’s unrecognized compensation cost related to unvested restricted stock awards was $25.0 million. Such cost is expected to be recognized over a weighted-average period of 2.0 years. The Company’s restricted stock awards are equity-classified awards.

Restricted Stock Units

During the six-month period ended June 30, 2015, the Company granted restricted stock units that vest over two or four-year periods and will be settled in cash, shares of Company common stock or a combination of common stock and cash.

Four-Year Restricted Stock Units. The following table presents a summary of the Company’s unvested restricted stock units which vest ratably over a four-year period from the date of grant. These restricted stock units may be settled in shares of the Company’s common stock, cash or some combination of common stock and cash at the Company’s election and were valued at June 30, 2015 based upon the Company’s period end common stock price.



	Number of Units		Fair Value per Unit at June 30, 2015
	(In thousands)
Unvested units outstanding at December 31, 2014	—
Granted	8,945
Vested	(827	)
Forfeited / Canceled	(543	)
Unvested units outstanding at June 30, 2015	7,575		$	0.88

All four-year restricted stock units that vested during the six-month period ended June 30, 2015 were settled by the issuance of common stock. As of June 30, 2015, the Company’s unrecognized compensation cost related to unvested four-year restricted stock units was $5.4 million. Such cost is expected to be recognized over a weighted-average period of 2.1 years. The four-year restricted stock units are liability-classified awards.

Two-Year Restricted Stock Units. The following table presents a summary of the Company’s unvested restricted stock units which vest over a two-year period (40% at the end of the first year and 60% at the end of the second year). These restricted stock units will be settled in cash at the end of each vesting period for an amount based on the Company’s common stock price as of the vesting date. The restricted stock units were valued based upon the Company’s period end common stock price, discounted using a credit spread (3.6% at June 30, 2015) that was determined based upon an analysis of the historical option adjusted spread for the Company’s outstanding senior notes and the outstanding long-term debt of comparable companies.



	Number of Units		Fair Value per Unit at June 30, 2015
	(In thousands)
Unvested units outstanding at December 31, 2014	—
Granted	2,398
Vested	—
Forfeited / Canceled	(122	)
Unvested units outstanding at June 30, 2015	2,276		$	0.51	–	$	0.73

As of June 30, 2015, the Company’s unrecognized compensation cost related to unvested two-year restricted stock units was $1.0 million. Such cost is expected to be recognized over a weighted-average period of 1.1 years. The two-year restricted stock units are liability-classified awards.

Performance Units and Performance Share Units

The Company periodically grants performance units and performance share units to certain members of senior management which vest ratably over a performance period of approximately three years with cash settlements, if any, occurring at the end of the performance period. The value, and ultimate cash settlement, of the performance units is determined based upon the Company’s total shareholder return relative to that of a predetermined peer group over a specific performance period. The Company’s performance units and performance share units are liability-classified awards.

The performance units and performance share units are valued for accounting purposes using a Monte Carlo simulation based on certain assumptions including (i) volatility assumption based on the historical realized price volatility of the Company’s common stock and the common stock of the predetermined peer group and (ii) a risk-free interest rate based on the U.S. Treasury bond yield for a term commensurate with the approximate remaining vesting period for each grant.

Performance Units. The following table presents a summary of the fair values of the performance units granted during the years ended December 31, 2014 and 2013 and the related assumptions for all outstanding performance units at June 30, 2015 and December 31, 2014.



	June 30, 2015						December 31, 2014
Expected price volatility range	25.7	%	-	89.7		%	26.6	%	-	86.6		%
Weighted-average risk-free interest rate				0.3		%				0.5		%
Weighted-average fair value per unit				$	1.41					$	13.85

Performance unit activity for the six-month period ended June 30, 2015 was as follows:



	Number of Performance Units
	(In thousands)
Outstanding at December 31, 2014	66
Granted	—
Forfeited /canceled	—
Outstanding at June 30, 2015	66

Performance period ending December 31, 2015
Vested	22
Unvested	6
Performance period ending December 31, 2016
Vested	15
Unvested	23

Performance Share Units. During the six-month period ended June 30, 2015, the Company granted performance share units to certain members of senior management. The following table presents a summary of the fair values of the performance share units granted and the related assumptions for all outstanding performance share units at June 30, 2015.



	June 30, 2015
Expected price volatility range	29.0	%	-	77.2		%
Weighted-average risk-free interest rate				0.9		%
Weighted-average fair value per unit				$	0.52

Performance share unit activity for the six-month period ended June 30, 2015 was as follows:



	Number of Performance Share Units
	(In thousands)
Outstanding at December 31, 2014	—
Granted	2,044
Forfeited /canceled	(151	)
Outstanding at June 30, 2015	1,893

Performance period ending December 31, 2017
Vested	—
Unvested	1,893

Allocation of Share-Based Compensation

Equity compensation provided to employees directly involved in exploration and development activities is capitalized to the Company’s oil and natural gas properties. Equity compensation not capitalized is recognized in general and administrative expenses, production expenses, cost of sales and midstream and marketing expenses in the unaudited condensed consolidated statements of operations. For the three and six-month periods ended June 30, 2015, the Company recognized share-based compensation expense of $8.2 million and $13.9 million, net of $1.3 million and $2.6 million capitalized, respectively. For the three and six-month periods ended June 30, 2014, the Company recognized share-based compensation expense of $7.3 million and $15.5 million, net of $1.9 million and $3.1 million capitalized, respectively.