COMMON STOCK

Sale of Equity Securities

The following offerings were made pursuant to an effective shelf registration statement on Form S-3 filed with the SEC on November 26, 2008, and declared effective on January 30, 2009.

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In November 2010, we sold 4,140,000 shares of our common stock in an underwritten public offering at a price of $32.00 per share. The net proceeds of $125.5 million were used, together with other proceeds, to fund an acquisition of additional assets in the Wolfberry Trend in the Permian Basin of West Texas, which closed in November 2010, our acquisition of the 2004 and 2005 partnerships and other acquisitions and for general corporate purposes. Pending such uses, we applied the net proceeds from this offering and other proceeds to temporarily repay the entire outstanding amount under our credit facility, with the remaining balance being deposited in an interest bearing account and held as cash and cash equivalents until utilized as contemplated above.


•	In August 2009, we sold 4,312,500 shares of our common stock in an underwritten public offering at a price of $12.00 per share. We used the net proceeds of $48.5 million to pay down our credit facility and for general corporate purposes.

Stock-Based Compensation Plans

2010 Long-Term Equity Compensation Plan. In June 2010, our shareholders approved a long-term equity compensation plan for our employees and non-employee directors (the "2010 Plan"). In accordance with the 2010 Plan, up to 1,400,000 new shares of our common stock are authorized for issuance. Shares issued may be either authorized but unissued shares, treasury shares or any combination of these shares. Additionally, the 2010 Plan permits the reuse or reissuance of shares of common stock which were canceled, expired, forfeited or, in the case of stock appreciation rights ("SARs"), paid out in the form of cash. Awards may be issued to our employees in the form of incentive or non-qualified stock options, SARs, restricted stock, restricted stock units ("RSUs"), performance shares and performance units and to our non-employee directors in the form of non-qualified stock options, SARs, restricted stock and RSUs. Awards may vest over periods set at the discretion of the Compensation Committee of our Board of Directors (the "Compensation Committee") with certain minimum vesting periods. With regard to options and SARs, awards have a maximum exercisable period of ten years. In no event may an award be granted under the 2010 Plan on or after April 1, 2020. As of December 31, 2011, 895,663 shares remain available for issuance pursuant to the 2010 Plan.

2004 Long-Term Equity Compensation Plan. As approved by the shareholders in June 2004, we maintain a long-term equity compensation plan for our officers and certain key employees (the "2004 Plan"). Awards pursuant to the plan vest over periods set at the discretion of the Compensation Committee and, with regard to options, have a maximum exercisable period of ten years. As of December 31, 2011, there were no shares remaining available for issuance pursuant to the 2004 Plan. All outstanding and non-vested awards pursuant to the 2004 Plan will continue to be outstanding and vest pursuant to their original terms on or before April 19, 2020.

The following table provides a summary of the impact of our outstanding stock-based compensation plans on the results of operations for the periods presented.



	Year Ended December 31,
	2011			2010			2009
	(in thousands)

Total stock-based compensation	$	8,781		$	5,314		$	5,935
Income tax benefit	(3,344		)	(2,019		)	(2,277		)
Net expense	$	5,437		$	3,295		$	3,658

Stock Option Awards

We have granted stock options pursuant to various stock compensation plans. Outstanding options expire ten years from the date of grant and become exercisable ratably over a four year period. We have not issued any new stock options awards since 2006. As of December 31, 2011, all compensation cost related to stock options has been fully recognized in our statements of operations.

The following table presents the changes in our stock option awards. The aggregate intrinsic value of options outstanding for each period presented was immaterial.



	Year Ended December 31,
	2011					2010			2009
	Number of Shares Underlying Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (years)	Number of Shares Underlying Options	Weighted Average Exercise Price Per Share		Number of Shares Underlying Options		Weighted Average Exercise Price Per Share
Outstanding beginning of year, January 1	10,306		$	41.90	—	10,306	$	41.90	18,351		$	41.68
Forfeited	(3,333	)	43.60		—	—	—		(8,045	)	41.39
Outstanding end of year, December 31	6,973		41.09		3.6	10,306	41.90		10,306		41.90
Exercisable at December 31	6,973		41.09		3.6	10,306	41.60		8,591		41.42

SARs

In March 2011, the Compensation Committee awarded 31,552 SARs to our executive officers. The SARs will vest ratably over a three-year period and may be exercised at any point after vesting through March 2021. Pursuant to the terms of the awards, upon exercise, the executive officers will receive, in shares of common stock, the excess of the market price of the award on the date of exercise over the market price of the award on the date of issuance.

The fair value of each SAR award was estimated on the date of grant using a Black-Scholes pricing model using the assumptions presented in the table below. The expected life of the award was estimated using historical stock option exercise behavior data. The risk-free interest rate was based on the U.S. Treasury yields approximating the expected life of the award in effect at the time of grant. Expected volatilities were based on our historical volatility. We do not expect to pay dividends, nor do we expect to declare dividends in the foreseeable future. There were no SARs awards in 2009.



	Year Ended December 31,
	2011			2010

Expected term of the award	6 years			5 years
Risk-free interest rate	2.5		%	2.5		%
Volatility	60.2		%	62.0		%
Weighted average grant date fair value per share	$	25.22		$	13.26

The following table presents the changes in our SARs.



	Year Ended December 31,
	2011							2010
	Number of SARs		Weighted Average Exercise Price		Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)		Number of SARs	Weighted Average Exercise Price		Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding beginning of year, January 1	57,282		$	24.44	—	$	1,020	—	$	—	$	—	$	—
Awarded	31,552		43.95		—	—		57,282	24.44		—		—
Exercised	(25,371	)	24.44		—	77		—	—		—		—
Forfeited	(12,992	)	43.95		—	—		—	—		—		—
Outstanding end of year, December 31	50,471		31.61		8.6	341		57,282	24.44		9.3		1,020
Exercisable at December 31	10,636		24.44		8.3	114		—	—		—		—

Pursuant to a separation agreement with our former chief executive officer and the original terms of the award, during the year ended December 31, 2011, the vesting of 29,906 SARs was accelerated, resulting in the acceleration of $0.6 million in stock-based compensation expense. This former executive officer subsequently exercised 25,371 SARs. The fair market price on the exercise date was $27.49 per share, resulting in the issuance of 2,814 shares of common stock. The total compensation cost related to SARs granted and not yet recognized in our statement of operations as of December 31, 2011, was $0.5 million. The cost is expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock Awards

Time-Based Awards. For the year ended December 31, 2011, the Compensation Committee awarded a total of 113,243 time-based restricted shares to our executive officers that primarily vest ratably over three years from date of grant and 23,360 time-based restricted shares to our non-employee directors also vesting ratably over three years from date of grant.

Pursuant to a separation agreement with our former chief executive officer and the original terms of the award, during the year ended December 31, 2011, the vesting of 64,442 time-based restricted shares was accelerated, resulting in the acceleration of $1.9 million in stock-based compensation expense. The total compensation cost related to non-vested time-based awards expected to vest and not yet recognized in our statements of operations as of December 31, 2011, was $10.9 million. This cost is expected to be recognized over a weighted average period of 2.4 years.

The following table presents the changes in non-vested time-based awards during 2011.



	Shares		Weighted Average Grant-Date Fair Value

Non-vested at December 31, 2010	525,715		$	25.53
Granted	295,239		33.71
Vested	(256,311	)	26.97
Forfeited	(36,842	)	27.22
Non-vested at December 31, 2011	527,801		29.29



	As of/Year Ended December 31,
	2011		2010		2009
	(in thousands, except per share data)

Total intrinsic value of time-based awards vested	$	9,030	$	3,219	$	1,731
Total intrinsic value of time-based awards non-vested	18,531		22,211		5,560
Market price per common share as of December 31	35.11		42.25		18.21
Weighted average grant date fair value per share	33.71		25.04		14.02

Market-Based Awards. The fair value of the market-based restricted shares is amortized ratably over the requisite service period, primarily three years. Generally, the market-based shares vest if the participant is continuously employed throughout the performance period and the market-based performance measure is achieved, with a maximum vesting period of five years. All compensation cost related to the market-based awards will be recognized if the requisite service period is fulfilled, even if the market condition is not achieved.

In March 2011, the Compensation Committee awarded a total of 13,531 market-based restricted shares to our executive officers. In addition to continuous employment, the vesting of these shares is contingent on the Company's total shareholder return ("TSR"), which is essentially the Company’s stock price change including any dividends, as compared to the TSR of a set group of 11 peer companies. The shares are measured over a three-year period ending on December 31, 2013, and can result in a payout between zero and 200% of the total shares awarded. The weighted average grant date fair value per market-based share for these awards granted was computed using the Monte Carlo pricing model using the weighted average assumptions presented in the table below. There were no market-based awards in 2010.



	Year Ended December 31,
	2011			2009

Expected term of award	3 years			3 years
Risk-free interest rate	1.1		%	2.0		%
Volatility	74.2		%	59.0		%
Weighted average grant date fair value per share	$	58.53		$	6.47

For our 2011 awards, the expected volatility was based on our historical volatility and, for our 2009 awards, the expected volatility was based on a blend of our historical and implied volatilities. The expected lives of the awards were based on the requisite service period. The risk-free interest rate was based on the U.S. Treasury yields in effect at the time of grant or modification and extrapolated to approximate the life of the award. We do not expect to pay dividends, nor do we expect to declare dividends in the foreseeable future.

The following table presents the change in non-vested market-based awards during 2011.



	Shares		Weighted Average Grant-Date Fair Value per Share

Non-vested at December 31, 2010	79,550		$	32.52
Granted	13,531		58.53
Vested	(10,690	)	6.47
Forfeited	(39,310	)	38.11
Non-vested at December 31, 2011	43,081		42.05



	As of/Year Ended December 31,
	2011		2010		2009
	(in thousands, except per share data)

Total intrinsic value of market-based awards vested	$	366	$	—	$	—
Total intrinsic value of market-based awards non-vested	1,513		3,361		1,449
Market price per common share as of December 31	35.11		42.25		18.21
Weighted average grant date fair value per share	58.53		—		6.47

Pursuant to a separation agreement with our former chief executive officer and the original terms of the award, during 2011, the vesting of 4,109 market-based restricted shares was accelerated and 21,927 market-based restricted shares were forfeited. The impact on stock-based compensation for the vesting and forfeiture of these market-based restricted shares was immaterial. The total compensation cost related to non-vested market-based awards expected to vest and not yet recognized in our statement of operations as of December 31, 2011, was immaterial. This cost is expected to be recognized over a weighted average period of 2 years.

Treasury Share Purchases

In accordance with our stock-based compensation plans, employees and directors may surrender shares of the Company's common stock to cover tax withholding obligations upon the vesting and exercise of share-based awards. The shares acquired may be retired or reissued to service awards under our 2010 Plan. For shares that are retired, we first charge any excess of cost over the par value to additional paid-in-capital ("APIC") to the extent we have amounts in APIC, with any remaining excess cost charged to retained earnings. For shares reissued to service awards under the 2010 Plan, shares are recorded at cost and upon reissuance, we reduce the carrying value of shares acquired and held pursuant to the 2010 Plan by the weighted average cost per share with an offsetting charge to APIC. During the year ended December 31, 2011, we acquired 87,588 shares pursuant to our stock-based compensation plans for payment of tax liabilities, of which 15,072 shares were reissued pursuant to our 2010 Plan and the remaining 72,516 shares retired.

Shareholders’ Rights Agreement

In 2007, we entered into a rights agreement. The rights agreement is designed to improve the ability of our Board to protect the interest of our shareholders in the event of an unsolicited takeover attempt. Our Board declared a dividend of one right for each outstanding share of our common stock. The right dividend was paid to shareholders of record on September 14, 2007. A "distribution date," as defined in the rights agreement, can occur after any individual shareholder exceeds 15% ownership of our outstanding common stock. After the occurrence of a "distribution date," the right entitles each registered holder (other than the acquiring shareholder who triggered the "distribution date"), to purchase shares of our common stock (or, in certain circumstances, cash, property or other securities) having a then-current value equal to two times the exercise price of the right (i.e., for the $240 exercise price, the rights holder receives $480 worth of common stock). The exercise price is subject to adjustment for various corporate actions which affect all shareholders, such as a stock split. The rights agreement and all rights will expire on September 11, 2017.

Preferred stock

We are authorized, pursuant to shareholder approval in 2008, to issue 50,000,000 shares of Company preferred stock, par value $0.01, which may be issued in one or more series, with such rights, preferences, privileges and restrictions as shall be fixed by our Board from time to time. As of December 31, 2011, no preferred shares had been issued.