Equity Based Compensation

3 Months Ended

Mar. 31, 2017

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

Equity Based Compensation

Note 6—Equity Based Compensation

The Company has recognized stock-based compensation cost as shown below. Historical amounts may not be representative of future amounts as the value of future awards may vary from historical amounts.

(in thousands)	Three Months Ended March 31, 2017
Restricted stock awards	$	856
Stock option awards	1,754
Total equity based compensation expense	$	2,610

Equity Incentive Plan

On October 7, 2016, the stockholders of the Company approved the Centennial Resource Development, Inc. 2016 Long Term Incentive Plan (the “LTIP”). An aggregate of 16,500,000 shares of Class A Common Stock were authorized for issuance under the LTIP and, as of March 31, 2017, the Company had 11,844,936 shares of Class A Common Stock available for future grant. The LTIP provides for grant of stock options, including incentive stock options ("ISOs") and nonqualified stock options ("NSOs"), stock appreciation rights ("SARs"), restricted stock, dividend equivalents, restricted stock units ("RSUs") and other stock or cash based awards.

Restricted Stock

The following table provides information about restricted stock awards granted in the three months ended March 31, 2017:

	Awards	Weighted Average Grant-Date Fair Value
Service-based stock awards:
Outstanding as of December 31, 2016	256,597	$	20.03
Vested	—	$	—
Granted	268,467	$	18.82
Canceled	—	$	—
Outstanding as of March 31, 2017	525,064	$	19.41

Compensation cost for the service-based vesting restricted shares is based upon the grant-date market value of the award. Such costs are recognized ratably over the applicable vesting period. Unrecognized compensation cost related to unvested restricted shares at March 31, 2017 was $8.9 million. The Company expects to recognize that cost over a weighted average period of 2.6 years.

Stock Options

Options that have been granted under the LTIP expire ten years from the grant date and have service-based vesting schedules of three years. The exercise price for an option under the LTIP is the closing price of the Company’s common stock as reported by NASDAQ on the date of grant.

Compensation cost related to stock options is based on the grant-date fair value of the award, recognized ratably over the applicable vesting period. The Company estimates the fair value using the Black-Scholes option-pricing model. Expected volatilities are based on the re-levered asset volatility implied by a set of comparable companies. Expected term is based on the simplified method, and is estimated as the average of the weighted average vesting term and the time to expiration as of the grant date. The Company uses U.S. Treasury bond rates in effect at the grant date for its risk-free interest rates.

The following summarizes the options granted and related information, and the assumptions used to determine the fair value of those options:

	Three Months Ended March 31, 2017
Options granted	1,429,500
Weighted average grant-date fair value	$	7.21
Weighted average exercise price	$	18.08
Total fair value (in thousands)	$	10,307
Expected term (in years)	6
Expected stock volatility	38.2		%
Dividend yield	—		%
Risk-free interest rate	2.0		%

Information about outstanding stock options is summarized in the table below:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2016	2,735,500		$	14.67	5.8	$	13,804
Exercised	—		$	—	—	$	—
Granted	1,429,500		$	18.08	5.9	$	361
Forfeited	(35,000	)	$	14.52	5.6	$	130
Outstanding as of March 31, 2017	4,130,000		$	15.85	5.7	$	9,999
Exercisable as of March 31, 2017	—		$	—	—	$	—

The following summary reflects the status of non-vested stock options as of March 31, 2017:

	Options		Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Non-vested as of December 31, 2016	2,735,500		$	5.93	$	14.67
Vested	—		$	—	$	—
Granted	1,429,500		$	7.21	$	18.08
Forfeited	(35,000	)	$	5.86	$	14.52
Non-vested as of March 31, 2017	4,130,000		$	6.38	$	15.85

As of March 31, 2017, there was $23.6 million of unrecognized compensation cost related to non-vested stock options. The Company expects to recognize that cost on a pro rata basis over a weighted average period of 2.7 years.