Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

In connection with the Company’s initial public offering (the “IPO”), the Company adopted the Parsley Energy, Inc. 2014 Long-Term Incentive Plan (“LTIP”) for employees, consultants and directors of the Company who perform services for the Company. The shares to be delivered under the LTIP shall be made available from (i) authorized but unissued shares, (ii) shares held as treasury stock or (iii) previously issued shares reacquired by the Company including shares purchased on the open market. A total of 12.7 million shares of Class A common stock have been authorized for issuance under the LTIP. At December 31, 2019, the Company had 7.9 million shares of Class A common stock available for future grant.

On February 12, 2018, the PSUs granted in 2016 and 2017 were converted into PSAs at 200% of the target payout for such awards. Similarly, certain of the time-based restricted stock units (“RSUs”) granted in 2016 were also converted to RSAs on February 12, 2018. Upon conversion, the PSAs and RSAs became economically identical to the pre-conversion awards with the same material terms and conditions, including vesting schedules and performance criteria.

Stock-based compensation expense recorded for each type of stock-based compensation award for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):



	Year ended December 31,
	2019		2018		2017
Time-based restricted stock⁽¹⁾	$	4,256	$	7,200	$	5,492
Time-based restricted stock units⁽¹⁾	9,395		5,690		7,778
Performance-based restricted stock⁽²⁾	4,332		6,987		6,349
Performance-based restricted stock units	2,699		—		—
Total stock-based compensation	$	20,682	$	19,877	$	19,619




(1)	Stock-based compensation expense relating to RSAs and RSUs with ratable vesting is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.
(2)	Includes stock-based compensation expense related to historical PSUs prior to the conversion of such awards to PSAs.

Stock-based compensation is included in General and administrative expenses on the Company’s consolidated statements of operations.

Time-Based Restricted Stock

RSAs are awards of Class A common stock that are legally issued and outstanding. RSAs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases providing services to the Company prior to the lapse of the restrictions. The stock-based compensation expense for these awards was determined using the closing price on the date of grant applied to the total number of shares that were anticipated to fully vest. The following table summarizes the RSA activity for the year ended December 31, 2019:



	Time-Based Restricted Stock		Grant Date Fair Value
Outstanding at January 1, 2019	715,852		$	23.44
Forfeited	(19,763	)	$	25.55
Vested	(309,699	)	$	19.32
Outstanding at December 31, 2019	386,390		$	26.64

Time-Based Restricted Stock Units

RSUs represent the right to receive shares of Class A common stock at the end of the vesting period in an amount equal to the number of RSUs that vest. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases providing services to the Company prior to the lapse of the restriction. The stock-based compensation expense of such RSUs was determined using the closing price on the date of grant applied to the total number of shares that were anticipated to fully vest. The following table summarizes the RSU activity for the year ended December 31, 2019:



	Time-Based Restricted Stock Units		Grant Date Fair Value
Outstanding at January 1, 2019	723,354		$	23.78
Awards granted	992,825		$	17.83
Forfeited	(174,643	)	$	20.82
Vested	(301,078	)	$	19.43
Outstanding at December 31, 2019	1,240,458		$	20.48

Performance-Based Restricted Stock Units and Performance-Based Restricted Stock Awards

During 2019, 2018 and 2017, PSUs and PSAs were granted with a three-year performance period. The terms and conditions of the PSAs and PSUs allow for vesting of the awards ranging between forfeiture and 200% of target. The vesting level is calculated based on the actual total stockholder return achieved during the performance period compared to the total stockholder return of a predetermined peer group. The fair value of such PSUs or PSAs was determined using a Monte Carlo simulation and will be recognized over the applicable three-year performance period. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award to calculate the fair value of the award. Expected volatilities in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The Company used the following assumptions to estimate the fair value of PSUs and PSAs granted during the periods indicated:



	Year Ended December 31,
	2019		2018		2017
Risk-free interest rate	2.46	%	2.25	%	1.45	%
Range of volatilities	32.4% - 61.8%		34.4% - 82.2%		37.7% - 79.5%

During 2018, outstanding PSUs were converted into PSAs with the same terms and conditions, including vesting provisions, as the historical PSUs. Upon conversion, the PSAs became economically identical to the pre-conversion PSUs originally granted. Due to the nature of restricted stock awards, the number of as-converted PSAs is equal to the maximum number of PSAs (i.e., 200% of the target number of PSUs) that may vest. However, the PSAs will only vest based on actual performance achievement during the applicable performance period to the same extent as the pre-conversion PSUs would have vested, and any such PSAs that do not vest will be forfeited. No accounting charge was taken in connection with this conversion.

The following table summarizes the PSU activity for the year ended December 31, 2019:



	Performance-Based Restricted Stock Units		Grant Date Fair Value
Outstanding at January 1, 2019	—		$	—
Awards granted	376,166		$	24.05
Vested	(2,455	)	$	24.05
Forfeited	(15,471	)	$	24.05
Outstanding at December 31, 2019	358,240		$	24.05

The following table summarizes the PSA activity for the year ended December 31, 2019:



	Performance-Based Restricted Stock		Grant Date Fair Value
Outstanding at January 1, 2019	1,338,439		$	15.07
Vested	(481,820	)	$	13.07
Forfeited	(66,112	)	$	15.74
Outstanding at December 31, 2019	790,507		$	16.24

The following table reflects the future stock-based compensation expense to be recorded for the stock-based compensation awards that were outstanding at December 31, 2019 (in thousands):



	Time-Based Restricted Stock		Time-Based Restricted Stock Units		Performance-Based Restricted Stock		Performance-Based Restricted Stock Units		Total
2020	$	1,933	$	7,324	$	2,111	$	2,992	$	14,360
2021	193		4,455		—		2,984		7,632
2022	—		458		—		—		458
Total	$	2,126	$	12,237	$	2,111	$	5,976	$	22,450