Stock-based compensation

Phantom Stock Plan and Restricted Stock Unit Plan

Effective January 1, 2004, we implemented a Phantom Unit Plan, which was revised on December 31, 2008 as the Second Amended and Restated Phantom Stock Plan (the “Plan”), to provide deferred compensation to certain key employees (the “Participants”). Phantom stock may be awarded to Participants in total up to 2% of the fair market value of the Company. No Participant may be granted, in the aggregate, more than 5% of the maximum number of phantom shares available for award. Under the Plan, awards vest at the end of five years, but may also vest on a pro-rata basis following a Participant’s termination of employment with us due to death, disability, retirement or termination by us without cause. Also, phantom stock will vest if a change of control event occurs. Phantom shares are cash-settled within 120 days of the vesting date.

Effective March 1, 2012, we implemented a Non-Officer Restricted Stock Unit Plan (the “RSU Plan”) to create incentives to motivate Participants to put forth maximum effort toward the success and growth of the Company and to enable us to attract and retain experienced individuals who by their position, ability and diligence are able to make important contributions to the Company’s success. The RSU Plan is intended to replace the Phantom Plan. Although the Phantom Plan remains in effect, we do not expect to make any further awards under the Phantom Plan.

Restricted stock units may be awarded to Participants in total up to 2% of the fair market value of the Company. Under the RSU Plan, awards generally vest in equal annual increments over a three-year period. RSU awards may also vest following a Participant’s termination of employment in combination with the occurrence of a change of control event, as specified in the RSU Plan. RSU awards are cash-settled, generally within 120 days of the vesting date.

A summary of our phantom stock and RSU activity during the three years ended December 31, 2014 is presented in the following table:



	Phantom Plan						RSU Plan
	Weighted average grant date fair value		Phantom shares		Vest date fair value		Weighted average grant date fair value		Restricted Stock Units		Vest date fair value
	(per share)						(per share)
Unvested and outstanding at January 1, 2012	$	16.37	125,768				$	—	—
Granted	$	—	—				$	17.07	177,026
Vested	$	14.38	(26,908	)	$	431	$	—	—		$	—
Forfeited	$	17.18	(14,096	)			$	16.80	(25,117	)
Unvested and outstanding at December 31, 2012	$	16.87	84,764				$	17.12	151,909
Granted	$	—	—				$	12.45	291,253
Vested	$	16.20	(21,260	)	$	273	$	17.12	(50,246	)	$	626
Forfeited	$	17.57	(10,342	)			$	14.27	(67,619	)
Unvested and outstanding at December 31, 2013	$	17.01	53,162				$	13.53	325,297
Granted	$	—	—				$	8.52	504,752
Vested	$	12.61	(22,041	)	$	212	$	13.96	(118,400	)	$	1,094
Forfeited	$	19.95	(7,942	)			$	9.85	(142,489	)
Unvested and outstanding at December 31, 2014	$	20.18	23,179				$	9.91	569,160

Based on an estimated fair value of $3.83 per phantom share and RSU as of December 31, 2014, the aggregate intrinsic value of the unvested phantom shares and RSUs outstanding was $2,269.

2010 Equity Incentive Plan

We adopted the Chaparral Energy, Inc. 2010 Equity Incentive Plan (the “2010 Plan”) on April 12, 2010. The 2010 Plan reserves a total of 86,301 shares of our class A common stock for awards issued under the 2010 Plan. All of our or our Affiliated Entities’ employees, officers, directors, and consultants, as defined in the 2010 Plan, are eligible to participate in the 2010 Plan.

The awards granted under the 2010 Plan consist of shares that are subject to service vesting conditions (the “Time Vested” awards) and shares that are subject to market and performance vested conditions (the “Performance Vested” awards). The Time Vested awards vest in equal annual installments over the five-year vesting period, but may also vest on an accelerated basis in the event of a transaction whereby CCMP Capital Investors II (AV-2), L.P., CCMP Energy I LTD., and CCMP Capital Investors (Cayman) II, L.P. (collectively “CCMP”) receive cash upon the sale of its class E common stock (a “Transaction” as defined in the restricted stock agreements). The Performance Vested awards vest in the event of a Transaction that achieves certain market targets as defined in the 2010 Plan. Any shares of Performance Vested awards not vested on a Separation Date (as defined in the 2010 Plan) will be forfeited as of the Separation Date.

Our 2010 Plan allows participants to elect, upon vesting of their Time Vested awards, to have us withhold shares having a fair market value greater than the minimum statutory withholding amounts for income and payroll taxes that would be due with respect to such vested shares. As a result of this provision, the Time Vested awards are classified as liability awards under accounting guidance and remeasured to fair value at the end of each reporting period. The Performance Vested awards are classified as equity awards and are not remeasured to fair value at the end of each reporting period subsequent to grant date.

Effective January 1, 2013, we amended and restated the Performance Vested awards to reflect that: (i) those shares which would vest if CCMP receives net cash proceeds from a Transaction that yields a return of at least 400% per share, or 20% of the Performance Vested awards then outstanding, were removed from the initial Performance Vested awards and an equal number of Time Vested shares were granted effective as of January 1, 2013; and (ii) the remaining number of Performance Vested shares outstanding were reallocated among five targets for vesting. Effective October 1, 2014, we terminated all outstanding grants of Performance Vested awards and issued new grants of Performance Vested awards to reflect that (i) a certain number of shares which would vest if CCMP receives net proceeds from a Transaction that yields a return of at least 350% per share were removed from the initial Performance Vested awards and an equal amount were granted effective as of October 1, 2014, as Time Vested awards; and (ii) the remaining number of shares subject to the previous Performance Vested awards were reallocated among three targets for vesting. These vesting targets will apply for any new grants of Performance Vested awards. As a result of these modifications, vesting requirements for all remaining Performance Vested awards are set at the following levels:



Return on investment target			Shares vested
175	%	per share	33	%	of shares multiplied by the Vesting Fraction
200	%	per share	33	%	of shares multiplied by the Vesting Fraction
250	%	per share	34	%	of shares multiplied by the Vesting Fraction

The modifications above changed the classification of the canceled and reissued awards from equity to liability instruments. The modifications in 2014 and 2013 both resulted in estimated incremental compensation cost of $8,536 and $4,322, which will be recognized over the remaining requisite service period using the accelerated method. Incremental compensation cost is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before the modification, and is adjusted for changes in the fair value of the modified awards in each period until the awards are vested or forfeited.

A combined income and market valuation methodology was used to estimate the fair value of our common equity per share. The fair value of the Time Vested awards granted during 2014, 2013, and 2012 was considered to be equal to the estimated fair value of our common equity per share, net of a discount for lack of control of 0% , 0%, and 23% and a discount for lack of marketability of 20%, 17%, and 22%, respectively. A control discount was not applied in 2014 or 2013 pursuant to guidance released by the AICPA in 2013 that discourages incorporating a control premium in the enterprise value used in valuing minority interest securities within an enterprise, except to the extent that such a premium reflects improvements to the business that a market participant would expect under current ownership.

The Monte Carlo simulation method was used to value the Performance Vested awards. A Monte Carlo simulation allows for the analysis of a complex security through statistical measures applied to a model that is simulated thousands of times to build distributions of potential outcomes. The variables and assumptions used in this calculation were as follows:



	2014						2013						2012
Risk free interest rate	0.25	%	to	1.48		%	0.16	%	to	2.46		%	0.25	%	to	1.21		%
Expected volatility	52	%	to	56		%	38	%	to	39		%	42	%	to	50		%
Expected life				4 years						5 years						6 years
Expected dividends				$	—					$	—					$	—

Our expected volatility was calculated based on the average of the historical stock price volatility and the volatility implicit in the prices of the options or other traded financial instruments of our peer group. Our peer group consisted of the following oil and natural gas exploration and production companies in 2014: Cimarex Energy Co., Denbury Resources, Inc., Jones Energy, Inc., Laredo Petroleum Holdings, Inc., Midstates Petroleum Company, Inc., Pioneer Natural Resources Co., Resolute Energy Corporation, Sandridge Energy, Inc., Whiting Petroleum Corp. and Newfield Exploration Co. Our peer group in 2013 consisted of Cimarex Energy Co., Denbury Resources, Inc., Jones Energy, Inc., Laredo Petroleum Holdings, Inc., Midstates Petroleum Company, Inc., Pioneer Natural Resources Co., Resolute Energy Corporation, Sandridge Energy, Inc., and Whiting Petroleum Corp. Our peer group in 2012 consisted of Berry Petroleum Co., Concho Resources, Inc., Continental Resources, Inc., Denbury Resources, Inc., Laredo Petroleum Holdings, Inc., Pioneer Natural Resources Co., Sandridge Energy, Inc., and Whiting Petroleum Corp.

A summary of our Time and Performance award activity during the three years ended December 31, 2014 is presented in the following table:



	Time Vested						Performance Vested
	Weighted average grant date fair value		Restricted shares		Vest date fair value		Weighted average grant date fair value		Restricted shares
	($ per share)						($ per share)
Unvested and outstanding at January 1, 2012	$	680.74	11,585				$	298.15	53,098
Granted	$	572.70	2,444				$	394.00	15,050
Vested	$	681.41	(2,673	)	$	1,980	$	—	—
Forfeited	$	684.43	(1,875	)			$	295.96	(12,324	)
Unvested and outstanding at December 31, 2012	$	651.97	9,481				$	298.15	55,824
Granted	$	626.02	2,839				$	181.59	5,217
Vested	$	662.55	(2,509	)	$	1,556	$	—	—
Forfeited	$	618.87	(1,734	)			$	340.23	(3,171	)
Modified	$	626.00	11,169				$	324.47	(11,169	)
Unvested and outstanding at December 31, 2013	$	634.67	19,246				$	307.45	46,701
Granted	$	818.50	5,245				$	204.90	10,033
Vested	$	643.55	(4,951	)	$	4,118	$	—	—
Forfeited	$	631.54	(3,045	)			$	264.54	(8,452	)
Modified	$	969.00	9,339				$	296.69	(9,339	)
Unvested and outstanding at December 31, 2014	$	791.52	25,834				$	292.92	38,943

During 2014, 2013, and 2012, respectively, we repurchased and canceled 2,025, 1,025, and 1,469 vested shares, primarily for tax withholding, and we expect to repurchase approximately 3,000 restricted shares vesting during the next twelve months. Based on an estimated fair value of $533.80 per Time Vested restricted share, the aggregate intrinsic value of the unvested Time Vested restricted shares outstanding was $13,790 as of December 31, 2014.

Stock-based compensation cost

A portion of stock-based compensation cost associated with employees involved in our acquisition, exploration, and development activities has been capitalized as part of our oil and natural gas properties. The remaining cost is reflected in lease operating and general and administrative expenses in the consolidated statements of operations. We recognized stock-based compensation expense as follows for the years ended December 31:



	2014			2013			2012
Stock-based compensation cost	$	6,235		$	7,819		$	4,982
Less: stock-based compensation cost capitalized	(2,346		)	(2,345		)	(1,917		)
Stock-based compensation expense	$	3,889		$	5,474		$	3,065
Recognized tax benefit associated with stock-based compensation	$	1,452		$	2,031		$	1,230

Payments for stock-based compensation were $2,995, $1,533, and $1,386 during 2014, 2013, and 2012, respectively. As of December 31, 2014 and 2013, accrued payroll and benefits payable included $4,830 and $5,081, respectively, for stock-based compensation costs expected to be settled within the next twelve months. Unrecognized stock-based compensation cost of approximately $15,227 as of December 31, 2014 is expected to be recognized over a weighted-average period of 2.5 years.