8. Shareholders’ Equity and Stock-Based Compensation Plans

As of March 31, 2017, there were 26,275 common shares remaining available for grant under the Incentive Plan of Carrizo Oil & Gas, Inc., as amended (the “Incentive Plan”). The issuance of a restricted stock award, restricted stock unit, or performance share counts as 1.35 shares against the number of common shares available for grant under the Incentive Plan.

Stock-based compensation expense associated with restricted stock awards and units, stock appreciation rights to be settled in cash (“SARs”) and performance shares is reflected as general and administrative expense in the consolidated statements of operations, net of amounts capitalized to oil and gas properties.

Restricted Stock Awards and Units. Under the Incentive Plan, restricted stock awards can be granted to employees and independent contractors and restricted stock units can be granted to employees, independent contractors, and non-employee directors. As of March 31, 2017, unrecognized compensation costs related to unvested restricted stock awards and units was $31.4 million and will be recognized over a weighted average period of 2.4 years.

The table below summarizes restricted stock award and unit activity for the first quarter of 2017:



	Restricted Stock Awards and Units		Weighted Average Grant Date Fair Value
For the Three Months Ended March 31, 2017
Unvested restricted stock awards and units, beginning of period	1,111,710			$36.93
Granted	749,396			$27.07
Vested	(569,145	)		$39.48
Forfeited	(3,933	)		$29.42
Unvested restricted stock awards and units, end of period	1,288,028			$30.09

During the first quarter of 2017, the Company granted 695,658 restricted stock units to employees and independent contractors with a grant date fair value of $18.8 million as part of its annual grant of long-term equity incentive awards. These restricted stock units will vest ratably over a three-year period. All of these restricted stock units contain a service condition, and certain of these restricted stock units also contain a performance condition. The performance condition has not yet been met. In addition, the Company granted 44,465 restricted stock units to certain employees and independent contractors with a grant date fair value of $1.2 million in lieu of a portion of their annual incentive bonus otherwise payable to them in cash under the Company’s performance-based annual incentive bonus program. These restricted stock units vested substantially concurrent with the time of grant.

Stock Appreciation Rights. SARs can be granted to employees and independent contractors under the Incentive Plan or the Carrizo Oil & Gas, Inc. Cash-Settled Stock Appreciation Rights Plan (“Cash SAR Plan”). SARs granted under the Incentive Plan can be settled in shares of common stock or cash, at the option of the Company, while SARs granted under the Cash SAR Plan may only be settled in cash. As of March 31, 2017, all outstanding SARs will be settled solely in cash. The liability for SARs as of March 31, 2017 was $6.4 million, of which $6.3 million was classified as “Other current liabilities,” with the remaining $0.1 million classified as “Other liabilities” in the consolidated balance sheets. As of December 31, 2016, the liability for SARs was $11.5 million, of which $10.0 million was classified as “Other current liabilities,” with the remaining $1.5 million classified as “Other liabilities” in the consolidated balance sheets. Unrecognized compensation costs related to unvested SARs was $5.9 million as of March 31, 2017, and will be recognized over a weighted average period of 1.8 years.

The table below summarizes the activity for SARs for the first quarter of 2017:



	Stock Appreciation Rights		Weighted Average Exercise Prices		Weighted Average Remaining Life (In years)	Aggregate Intrinsic Value (In millions)		Aggregate Intrinsic Value of Exercises (In millions)
For the Three Months Ended March 31, 2017
Outstanding, beginning of period	722,638			$23.69
Granted	342,440			$26.94
Exercised	(100,000	)		$17.28					$1.3
Forfeited	—		—
Outstanding, end of period	965,078			$25.51	3.4		$2.5
Exercisable, end of period	436,739			$23.62	1.8		$2.0

During the first quarter of 2017, the Company granted 342,440 SARs under the Cash SAR Plan with a grant date fair value of $4.1 million to certain employees and independent contractors as part of its annual grant of long-term equity incentive awards. The grant date fair value of the SARs was calculated using the Black-Scholes-Merton option pricing model. These SARs will vest ratably over a two-year period and expire five years from the grant date. All of these SARs contain a service condition and performance condition. The performance condition has not yet been met.

The following table summarizes the assumptions used to calculate the grant date fair value of SARs granted during the first quarter of 2017:



	Grant Date Fair Value Assumptions
Expected term (in years)	4.24
Expected volatility	54.3	%
Risk-free interest rate	1.8	%
Dividend yield	—	%
Grant date fair value	$12.00

Performance Shares. Under the Incentive Plan, the Company can grant performance shares to employees and independent contractors, where each performance share represents the right to receive one share of common stock. The number of performance shares that will vest is based on the ranges from zero to 200% of the target performance shares granted based on the total shareholder return (“TSR”) of the Company’s common stock relative to the TSR achieved by a specified industry peer group over an approximate three year performance period, the last day of which is also the vesting date. As of March 31, 2017, unrecognized compensation costs related to unvested performance shares was $3.8 million and will be recognized over a weighted average period of 2.1 years.

The table below summarizes performance share activity for the first quarter of 2017:



	Performance Shares		Weighted Average Grant Date Fair Value
For the Three Months Ended March 31, 2017
Unvested performance shares, beginning of period	154,510			$58.44
Granted	46,787			$35.14
Vested ⁽¹⁾	(56,342	)		$68.15
Forfeited	—		—
Unvested performance shares, end of period	144,955			$47.14


(1)	The vested performance shares presented in the table above are the target performance shares that were granted in 2014. The Company’s final TSR ranking relative to the specified industry peer group resulted in the vesting of 164% of the target performance shares granted, or an additional 35,858 shares.

During the first quarter of 2017, the Company granted 46,787 target performance shares to certain employees and independent contractors with a grant date fair value of $1.6 million as part of its annual grant of long-term equity incentive awards. The grant date fair value of the performance awards was calculated using a Monte Carlo simulation. In addition to the market condition described above, the performance shares also contain a service condition and performance condition. The performance condition has not yet been met.

The following table summarizes the assumptions used to calculate the grant date fair value of the performance shares granted during the first quarter of 2017:



	Grant Date Fair Value Assumptions
Number of simulations	500,000
Expected term (in years)	2.98
Expected volatility	59.2	%
Risk-free interest rate	1.5	%
Dividend yield	—	%
Grant date fair value	$35.14

Stock-Based Compensation Expense, Net

The Company recognized the following stock-based compensation expense, net for the periods indicated:



	Three Months Ended March 31,
	2017			2016
	(In thousands)
Restricted stock awards and units		$5,849			$11,594
Stock appreciation rights	(3,686		)	1,232
Performance shares	706			616
	2,869			13,442
Less: amounts capitalized to oil and gas properties	(855		)	(1,920		)
Total stock-based compensation expense, net		$2,014			$11,522