Employee Benefits Plans and Share-Based Compensation

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

Employee Benefits Plans and Share-Based Compensation

Note 6 — Employee Benefits Plans and Share-Based Compensation

Long Term Incentive Plans

Restricted Stock Units (“RSUs”) — The following table summarizes RSU activity under the Talos Energy Inc. 2021 Long Term Incentive Plan (the “2021 LTIP”) for the three months ended March 31, 2022:

	RSUs			Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2021		1,983,199		$	13.02
Granted		2,206,473		$	12.96
Vested		(921,729	)	$	14.08
Forfeited		(13,372	)	$	12.59
Unvested RSUs at March 31, 2022(1)		3,254,571		$	12.68

(1)As of March 31, 2022, 27,814 of the unvested RSUs were accounted for as liability awards in “Accrued liabilities” on the Condensed Consolidated Balance Sheet.

Performance Share Units (“PSUs”) — The following table summarizes PSU activity under the 2021 LTIP for the three months ended March 31, 2022:

	PSUs			Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2021		1,015,459		$	16.41
Granted(1)		591,062		$	23.59
Forfeited		(16,486	)	$	17.48
Cancelled		(975,564	)	$	16.42
Unvested PSUs at March 31, 2022		614,471		$	23.27

(1)There were 295,531 PSUs granted that are eligible to vest based on continued employment and the Company’s annualized absolute total shareholder return (“TSR”) over a three-year performance period. An additional 295,531 PSUs were granted and are eligible to vest based on continued employment and the Company’s return (“PVI”) on the wells included in the 2022 drill program over a three-year performance period. The actual number of PSUs earned ranges between 0% and 200% depending on actual performance over the performance period. For the PVI PSUs, the Company recognizes compensation cost if and when the Company concludes that it is probable that the performance condition will be achieved. The Company reassesses the probability of achieving the performance conditions at each reporting date.

The following table summarizes the assumptions used in the Monte Carlo simulations to calculate the fair value of the absolute TSR PSUs granted at the date indicated:

	Grant Date
	March 5, 2022
Expected term (in years)		2.8
Expected volatility		82.2	%
Risk-free interest rate		1.6	%
Dividend yield		—	%
Fair value (in thousands)	$	8,668

Modification — During March 2022, the outstanding PSUs held by certain executive officers that were awarded in 2020 and 2021 were cancelled and, in connection with this cancellation, 1,147,352 of RSUs were granted (the “Retention RSUs”). The Retention RSUs will vest ratably each year over two years, generally contingent upon continued employment through each such date. The cancellation of the PSUs along with the concurrent grant of the Retention RSUs are accounted for as a modification. The incremental cost of $9.7 million will be recognized prospectively over the modified requisite service period. Additionally, the remaining unrecognized grant or modification date fair value of the original PSUs will be recognized over the original remaining requisite service period.

Share-based Compensation Costs

Share-based compensation costs associated with RSUs, PSUs and other awards are reflected as “General and administrative expense,” on the Condensed Consolidated Statements of Operations, net amounts capitalized to “Proved Properties,” on the Condensed Consolidated Balance Sheets. Because of the non-cash nature of share-based compensation, the expensed portion of share-based compensation is added back to net income in arriving at “Net cash provided by operating activities” on the Condensed Consolidated Statements of Cash Flows.

The following table presents the amount of costs expensed and capitalized (in thousands):

	Three Months Ended March 31,
	2022		2021
Share-based compensation costs	$	5,652	$	4,915
Less: Amounts capitalized to oil and gas properties		2,334		2,251
Total share-based compensation expense	$	3,318	$	2,664