(3) Share-Based Compensation

We have various types of share-based compensation plans. Refer to our definitive proxy statement for our annual meeting of shareholders filed with the SEC on April 2, 2015, as well as Note 6 of our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, 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 stock options are exercised, generally for the excess of the market value on the exercise date over the exercise price of the stock option awards. We receive an additional tax deduction when restricted stock awards vest at a higher value than the value used to recognize compensation expense at the date of grant. We are required to report excess tax benefits from the award of equity instruments as financing cash flows. For the three months ended June 30, 2015 and 2014, we recognized an income tax shortfall in earnings of $0.2 million, and for the six months ended June 30, 2015 and 2014, we recognized an income tax shortfall in earnings of $1.4 million and $1.9 million, respectively, primarily related to restricted stock awards that vested at a price lower than the grant date fair value.

Share-based compensation expense for awards issued to both employees and non-employees, which was recorded in “General and administrative, net” in the accompanying condensed consolidated statements of operations, was $1.2 million and $1.7 million for the three months ended June 30, 2015 and 2014, respectively, and $2.0 million and $3.3 million for the six months ended June 30, 2015 and 2014, respectively. Share-based compensation recorded in lease operating cost was less than $0.1 million for the three months ended June 30, 2015 and 2014 and $0.1 million for the six months ended June 30, 2015 and 2014. We also capitalized $0.4 million and $0.9 million of share-based compensation for the three months ended June 30, 2015 and 2014, respectively, and capitalized $0.7 million and $2.0 million for the six months ended June 30, 2015 and 2014, respectively. We view stock option awards and restricted stock awards with graded vesting as single awards with an expected life equal to the average expected life of component awards and amortize the awards on a straight-line basis over the life of the awards.

Stock Option Awards

We use the Black-Scholes-Merton option pricing model to estimate the fair value of stock option awards. During the six months ended June 30, 2015, there were 1,800 stock option awards that expired leaving 1,330,390 stock option awards outstanding at June 30, 2015. There was no other activity relating to our stock option awards during the six months ended June 30, 2015.

As of June 30, 2015 our stock option awards outstanding and exercisable had no aggregate intrinsic value since all outstanding stock option awards were out of the money, and we did not have any remaining unrecognized compensation cost related to stock option awards. At June 30, 2015, the weighted average contract life of stock option awards outstanding and exercisable was 4.3 years.

Restricted Stock Awards

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, 2014, allow for the issuance of restricted stock awards that generally 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, 2015, we had unrecognized compensation expense of $6.4 million related to restricted stock awards which is expected to be recognized over a weighted-average period of 1.7 years. The grant date fair value of shares vested during the six months ended June 30, 2015 was $5.2 million.

The following table represents restricted stock award activity for the six months ended June 30, 2015:



	Shares		Wtd. Avg. Grant Price
Restricted shares outstanding, beginning of period	1,414,012		$	14.81
Restricted shares granted	609,238		$	2.64
Restricted shares canceled	(189,723	)	$	14.42
Restricted shares vested	(237,484	)	$	21.77
Restricted shares outstanding, end of period	1,596,043		$	9.17

Performance-Based Restricted Stock Units

For the six months ended June 30, 2015, the Company granted 216,450 units of performance-based restricted stock units containing market conditions that require the price of our common stock to increase to $5.22 per share by December 31, 2017, the end of the performance period, before any payout is achieved. These units were granted at 100% of the target payout level with conditions of the grants allowing for a payout ranging between no payout and 200% of target. The compensation expense for these awards is based on the per unit grant date valuation using a Monte-Carlo simulation multiplied by the target payout level. The payout level is calculated based on actual stock price performance achieved during the performance period. The awards have a cliff vesting period of 3.0 years.

As of June 30, 2015, we had unrecognized compensation expense of $1.4 million related to our restricted stock units, which is expected to be recognized over a weighted-average period of 1.8 years. No shares vested during the six months ended June 30, 2015 and 2014. The weighted average grant date fair value for the restricted stock units granted during six months ended June 30, 2015 was $1.98 per unit.

The following table represents restricted stock unit activity for the six months ended June 30, 2015:



	Shares	Wtd. Avg. Grant Price
Restricted stock units outstanding, beginning of period	374,950	$	13.36
Restricted stock units granted	216,450	$	1.98
Restricted stock units canceled	—	$	—
Restricted stock units vested	—	$	—
Restricted stock units outstanding, end of period	591,400	$	9.20

Cash-Settled Restricted Stock Units (Liability Awards)

During the six months ended June 30, 2015, the Company granted 147,812 units of cash-settled restricted stock units. These grants require a cash payout based on the fair value of the stock price on the date of the next Annual Shareholder Meeting in May of 2016. The grants have a cliff vesting period of approximately 1.0 year while the compensation expense and corresponding liability are remeasured quarterly over the corresponding service period. The Company recorded a liability of less than $0.1 million in "Accounts Payable and accrued liabilities” on the accompanying condensed consolidated balance sheet as of June 30, 2015.