STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

The Company’s 2018 Equity Incentive Plan (the “2018 Plan”), which replaced the Company’s prior 2013 Incentive Plan (the “2013 Plan”), authorized 15,000,000 shares for grant under the 2018 Plan, plus the 769,775 shares remaining available for future grants under the 2013 Plan on the date the stockholders approved the 2018 Plan. No future awards will be made under the 2013 Plan. The 2013 Plan continues to govern awards that were made thereunder, which remain in effect pursuant to their terms. As of December 31, 2019 there were 12.6 million shares available for future awards under the 2018 Plan.

The Company recognizes the fair value of stock-based compensation awards expected to vest over the requisite service period as a charge against earnings, net of amounts capitalized. The Company’s stock-based compensation awards are accounted for as equity instruments and are included in the “General and administrative” line item in the unaudited statements of operations. The Company capitalizes a portion of stock-based compensation for employees who are directly involved in the acquisition of oil and natural gas properties into the full cost pool. Capitalized stock-based compensation is included in the “Oil and natural gas properties” line item on the unaudited balance sheets.

The 2018 Plan and 2013 Plan award types are summarized as follows:

Restricted Stock Awards

The Company issues restricted stock awards (“RSAs”) subject to various vesting conditions as compensation to executive officers, employees and directors of the Company. RSAs issued to employees and executive officers generally vest over three years, provided that any performance and/or market conditions are also met. RSAs issued to directors generally vest over one year, provided that any performance and/or market conditions are also met. For RSAs subject to service and/or performance vesting conditions, the grant-date fair value is established based on the closing price of the Company’s common stock on such date. Stock-based compensation expense for awards subject to only service conditions is recognized on a straight-line basis over the service period. Stock-based compensation expense for awards with both service and performance conditions is recognized on a graded basis only if it is probable that the performance condition will be achieved. The Company accounts for forfeitures of awards granted under these plans as they occur in determining stock-based compensation expense.

For awards subject to a market condition, the grant-date fair value is estimated using a Monte Carlo valuation model. The Company recognizes stock-based compensation expense for awards subject to market-based vesting conditions regardless of whether it becomes probable that these conditions will be achieved or not, and stock-based compensation expense for any such awards is not reversed if vesting does not actually occur. The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility is calculated based on the historical volatility and implied volatility of the Company’s common stock, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the three-year vesting period. The key assumptions used in valuing these market-based awards were as follows:


	2019		2018
Risk-free interest rate	2.57	%	2.10	%
Dividend yield	—	%	—	%
Expected volatility	85.00	%	100.00	%

During 2019, 2018 and 2017, 1,747,200, 1,050,355 and 911,335 shares, respectively, of service-based RSAs were granted to executive officers, employees and directors under the 2013 and 2018 Equity Plans. The weighted average grant date fair value of service-based RSAs was $2.14 per share, $2.67 per share and $2.10 per share for the years ended December 31, 2019, 2018, and 2017, respectively.

During 2018, RSAs subject to service and performance-based vesting conditions were granted to employees and executive officers under the 2013 Plan. Vesting of these awards was contingent on the Company’s annualized Adjusted EBITDA as compared to specified targets for the fourth quarter of 2018 (“2018 Performance Award I”). The Company assessed the probability of achieving the performance condition throughout the performance period using its internal financial forecasts. The weighted average grant date fair value of these service and performance-based RSAs was $2.70 per share. Also during 2018, RSAs subject to service and market-based vesting conditions were granted to employees, executive officers, and directors under the 2013 Plan. Vesting of these awards was contingent on the Company’s stock price performance relative to specified targets (“2018 Performance Award II”). The weighted average grant date fair value of these service and market-based RSAs was $1.67 per share.

During 2019, RSAs subject to service, market, and performance-based vesting conditions were granted to employees and executive officers under the 2018 Plan. Vesting of these awards is contingent on the Company’s debt-adjusted cash flow per share as compared to specified targets (“2019 Performance Award I”). The weighted average grant date fair value of these service, performance, and market-based RSAs was $0.98 per share. Also during 2019, RSAs subject to service and market-based vesting conditions were granted to employees, executive officers, and directors under the 2018 Plan. Vesting of these awards is contingent on the Company’s stock price performance relative to specified targets (“2019 Performance Award II”). The weighted average grant date fair value of these service and market-based RSAs was $1.82 per share.

The following table reflects the outstanding RSAs and activity related thereto for the year ended December 31, 2019:


	Service-based Awards				Service and Performance-based Awards					Service and Market-based Awards			Service, Performance, and Market-based Awards
	Number of Shares	Weighted-average Grant Date Fair Value		Number of Shares	Weighted-average Grant Date Fair Value		Number of Shares	Weighted-average Grant Date Fair Value		Number of Shares	Weighted-average Grant Date Fair Value
Outstanding at December 31, 2018	632,759	$	2.72	1,018,500	$	2.70	1,176,600	$	1.67	—	$	—
Shares granted	1,747,200	2.14		—	—		1,254,000	1.82		1,068,000	0.98
Shares forfeited	(32,402)	2.76		(4,000)	2.70		(976,733)	1.70		—	—
Shares vested	(1,933,553)	2.27		(639,500)	2.70		(264,206)	1.67		(360,000)	0.98
Outstanding at December 31, 2019	414,004	$	2.41	375,000	$	2.70	1,189,661	$	1.80	708,000	$	0.98

At December 31, 2019, there was $3.5 million of total unrecognized compensation expense related to unvested RSAs. That cost is expected to be recognized over a weighted average period of 0.68 years. For the year ended December 31, 2019, 2018 and 2017, the total fair value of the Company’s restricted stock awards vested was $6.6 million, $3.5 million and $2.0 million, respectively.

In December 2019, the compensation committee of the board of directors modified both the 2019 Performance Award I and the 2019 Performance Award II. The 2019 Performance Award I was modified to deem the debt-adjusted cash flow per share targets as having been achieved, the effect of which was to essentially convert these awards into RSAs having only service-based vesting conditions. The fair value of the modified 2019 Performance Award I was $1.88 per share, resulting in incremental compensation expense of $2.0 million as a result of the modification, which will be expensed over the requisite service periods. The 2019 Performance Award II was modified (solely for executive officers and employees, not for directors) such that the shares subject thereto now vest contingent on the Company’s average closing stock price meeting specified targets for any consecutive twenty trading day period ending on or before December 31, 2020. The fair value of the modified 2019

Performance Award II was $1.04 per share and was estimated using a Monte Carlo simulation. This resulted in incremental compensation expense of $1.1 million as a result of the modification, which will be expensed over the requisite service periods.

The assumptions used to estimate the fair value of the 2019 Performance Award II granted as of the date presented are as follows:


			Pre-Modification		At Modification
	January 4, 2019		December 13, 2019		December 13, 2019
Risk-free interest rate	2.57	%	1.53	%	1.53	%
Dividend yield	—	%	—	%	—	%
Expected volatility	85.00	%	65.00	%	65.00	%

In December 2018, the compensation committee of the board of directors modified the 2018 Performance Award II such that the shares subject thereto now vest contingent on the Company’s average closing stock price meeting specified targets for any consecutive twenty trading day period ending on or before December 31, 2019. The grant date fair value of the modified 2018 Performance Award II shares was estimated using Monte Carlo simulations. This resulted in incremental compensation expense of $1.8 million as a result of the modification to both employees’ and directors’ 2018 Performance Award II shares, which will be expensed over the requisite service periods.

The assumptions used to estimate the fair value of the 2018 Performance Award II granted as of the date presented are as follows:


			Pre-Modification		At Modification
	June 1, 2018		December 19, 2018		December 19, 2018
Risk-free interest rate	2.10	%	2.35	%	2.62	%
Dividend yield	—	%	—	%	—	%
Expected volatility	100.00	%	80.00	%	85.00	%