Share-Based Compensation

6 Months Ended

Jun. 30, 2012

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

Share-Based Compensation

(3)           Share-Based Compensation

We have various types of share-based compensation plans. Refer to Note 6 of our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, for additional information related to these share-based compensation plans.

We follow guidance contained in FASB ASC 718 to account for share-based compensation.

We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the market value on the exercise date over the exercise price of the options. We receive an additional tax deduction when restricted stock vests at a higher value than the value used to recognize compensation expense at the date of grant. In accordance with guidance contained in FASB ASC 718, we are required to report excess tax benefits from the award of equity instruments as financing cash flows. For the six months ended June 30, 2012 and 2011, we did not recognize any excess tax benefit or shortfall.

Net cash proceeds from the exercise of stock options were $0.4 million and $1.0 million for the six months ended June 30, 2012 and 2011, respectively. The actual income tax benefit from stock option exercises was $0.2 million and $1.1 million for the six months ended June 30, 2012 and 2011, respectively.

Share-based compensation expense for both stock options and restricted stock issued to both employees and non-employees, which was recorded in “General and administrative, net” in the accompanying condensed consolidated statements of operations, was $3.3 million and $3.1 million for the three months ended June 30, 2012 and 2011, respectively and was $6.7 million and $5.6 million for the six months ended June 30, 2012 and 2011, respectively. Share-based compensation recorded in lease operating cost was $0.1 million for the three months ended June 30, 2012 and 2011 and was $0.2 million for the six months ended June 30, 2012 and 2011. We also capitalized $1.5 million and $1.0 million of share-based compensation for the three months ended June 30, 2012 and 2011, respectively and capitalized $2.9 million and $2.0 million of share-based compensation for the six months ended June 30, 2012 and 2011, respectively. We view all awards of stock compensation as a single award with an expected life equal to the average expected life of component awards and amortize the award on a straight-line basis over the life of the award.

Stock Options

We use the Black-Scholes-Merton option pricing model to estimate the fair value of stock option awards with the following weighted-average assumptions for options issued during the indicated periods:

	Six Months Ended June 30,
	2012	2011
Dividend yield	0%	0%
Expected volatility	61.2%	58.8%
Risk-free interest rate	0.8%	1.9%
Expected life of options (in years)	4.3	3.8
Weighted-average grant-date fair value	$15.71	$19.17

The expected term for grants issued considers all relevant factors including historical and expected future employee exercise behavior. We have analyzed historical volatility, and based on an analysis of all relevant factors, we have used a 5.5 year look-back period to estimate expected volatility of our 2012 and 2011 stock option grants.

At June 30, 2012, we had $5.2 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 1.3 years. The following table represents stock option activity for the six months ended June 30, 2012:

	Shares	Wtd. Avg. Exercise Price
Options outstanding, beginning of period	1,375,281	$	32.46
Options granted	336,092	$	32.39
Options canceled	(23,733)	$	47.15
Options exercised	(57,107)	$	17.02
Options outstanding, end of period	1,630,533	$	32.78
Options exercisable, end of period	1,035,896	$	31.87

The aggregate intrinsic value and weighted average remaining contract life of options outstanding and exercisable at June 30, 2012 was $1.2 million and 6.3 years and $1.2 million and 4.9 years, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2012 was $0.7 million.

Restricted Stock

The plans, as described in Note 6 of our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The unrecognized compensation cost related to these awards is expected to be expensed over the period the restrictions lapse (generally one to three years).

The compensation expense for these awards was determined based on the closing market price of our stock at the date of grant applied to the total number of shares that were anticipated to fully vest. As of June 30, 2012, we had unrecognized compensation expense of $23.6 million related to restricted stock awards which is expected to be recognized over a weighted-average period of 1.4 years. The grant date fair value of shares vested during the six months ended June 30, 2012 was $9.2 million.

The following table represents restricted stock activity for the six months ended June 30, 2012:

	Shares		Wtd. Avg. Grant Price
Restricted shares outstanding, beginning of period	834,703		$	31.89
Restricted shares granted	514,850		$	31.78
Restricted shares canceled	(35,256	)	$	32.45
Restricted shares vested	(349,766	)	$	26.23
Restricted shares outstanding, end of period	964,531		$	33.86