Stock-Based Compensation and Option Plans

The Company’s Amended and Restated

2005

Employee Long-Term Equity Incentive Plan reserves

12.6

million shares of Abraxas common stock, subject to adjustment following certain events. Awards

may

be in options or shares of restricted stock. Options have a term

not

to exceed

years. Options issued under this plan vest according to a vesting schedule as determined by the compensation committee of the Company’s board of directors. Vesting

may

occur upon (

) the attainment of

one

or more performance goals or targets established by the committee, (

) the optionee’s continued employment or service for a specified period of time, (

) the occurrence of any event or the satisfaction of any other condition specified by the committee, or (

) a combination of any of the foregoing.

Stock Options

The Company utilizes a standard option pricing model (Black-Scholes) to measure the fair value of stock options granted to employees and directors. The fair value for these options was estimated at the date of grant using the following weighted average assumptions for

2016,

2017

and

2018:

	2016			2017			2018
Weighted average value per option granted during the period	$	0.68		$	1.81		$	1.87
Assumptions:
Forfeiture rate (1)		4.2	%		2.0	%		1.7	%
Expected dividend yield (2)		0.0	%		0.0	%		0.0	%
Volatility (3)		71.1	%		67.6	%		66.5	%
Risk free interest rate (4)		1.7	%		2.2	%		2.9	%
Expected life (years) (5)		7.0			6.9			7.3
Fair value of options granted (in thousands)	$	2,307		$	574		$	841

______________________

(

)

The estimated future forfeiture rate is based on the Company’s historical forfeiture rate on similar grants of stock options.

(

)

The dividend yield is based on the fact the Company does

not

pay any dividends.

(

)

The volatility is based on the historical volatility of our stock for a period approximating the expected life.

(

)

The risk-free interest rate is based on the observed U.S. Treasury yield curve in effect at the time the options were granted for a period approximating the expected life of the option.

(

)

The expected life was derived based on a weighting between (a) the Company’s historical exercise and forfeiture activity and (b) the average midpoint between vesting and the contractual term.

The Company grants options to its officers, directors, and other employees under various stock option and incentive plans.

The following table is a summary of the Company’s stock option activity for the

three

years ended

December

31:

	Options			Weighted average		Weighted average		Intrinsic value
	(000s)			exercise price		remaining life		per share
Options outstanding December 31, 2015		6,808		$	2.89
Granted		2,265			1.02
Exercised		(83	)		1.40
Forfeited/Expired		(836	)		2.84
Options outstanding December 31, 2016		8,154		$	2.39
Granted		317			1.81
Exercised		(5	)		0.97
Forfeited/Expired		(149	)		3.58
Options outstanding December 31, 2017		8,317		$	2.35
Granted		300			2.80
Exercised		(379	)		1.71
Forfeited/Expired		(689	)		2.70
Options outstanding December 31, 2018		7,549		$	2.37		4.9	$	1.68
Exercisable at end of year		6,479		$	2.50		4.5	$	1.78

Other information pertaining to the Company’s stock option activity for the

three

years ended

December 31:

	2016		2017		2018
Weighted average grant date fair value of stock options granted (per share)	$	0.68	$	1.81	$	1.87
Total fair value of options vested (000's)	$	2,776	$	2,795	$	2,054
Total intrinsic value of options exercised (000's)	$	39	$	5	$	395

As of

December 31, 2018,

the total compensation cost related to non-vested awards

not

yet recognized was approximately

$0.5

million, which will be recognized in

2019

through

2021.

For the years ended

December 31, 2016,

2017

and

2018,

we recognized

$2.0

million,

$1.8

million and

$1.4

million, respectively, in stock-based compensation expense relating to options.

The following table represents the range of stock option prices and the weighted average remaining life of outstanding options as of

December

31,

2018:

	Outstanding Options						Exercisable
			Weighted		Weighted				Weighted		Weighted
			average		average				average		average
	Number		remaining		exercise		Number		remaining		exercise
Range of stock option prices	Outstanding		life		price		Outstanding		life		price
0.97 - 1.99		3,270,117		4.9	$	1.26		2,490,367		4.2	$	1.32
2.00 - 2.99		1,422,975		4.4	$	2.44		1,319,725		4.0	$	2.43
3.00 - 3.99		2,212,606		5.4	$	3.29		2,025,106		5.3	$	3.30
4.00 - 4.99		544,750		4.2	$	4.54		544,750		4.2	$	4.54
5.00 - 5.99		98,000		5.4	$	5.38		98,000		5.4	$	5.38
6.00 - 6.28		1,000		5.5	$	6.28		1,000		5.5	$	6.28
		7,549,448		4.9	$	2.37		6,478,948		4.5	$	2.50

Restricted Stock Awards

Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the awardee terminates employment with the Company prior to the lapse of the restrictions. The value of such stock is determined using the market price on the grant date. Compensation expense is recorded over the applicable restricted stock vesting periods. As of

December 31, 2018,

the total compensation cost related to non-vested awards

not

yet recognized was approximately

$1.3

million, which will be recognized from

2019

through

2021.

For the years ended

December 31, 2016,

2017

and

2018,

we recognized

$1.2

million,

$1.4

million and

$0.7

million, respectively, in stock-based compensation expense related to restricted stock awards.

The following table is a summary of the Company’s restricted stock activity for the

three

years ended

December

31,

2018:

	Number of Shares			Weighted average grant date fair value
Unvested December 31, 2015		1,643,284		$	3.44
Granted		-			-
Vested/Released		(52,017	)		2.40
Forfeited		(98,802	)		3.63
Unvested December 31, 2016		1,492,465		$	3.47
Granted		44,000			1.75
Vested/Released		(56,340	)		3.14
Forfeited		(750	)		2.63
Unvested December 31, 2017		1,479,375		$	3.43
Granted		861,113			2.17
Vested/Released		(1,326,250	)		3.43
Forfeited		(187,557	)		3.22
Unvested December 31, 2018		826,681		$	2.15

Performance Based Restricted Stock Awards

Effective on

April 1, 2018,

the Company issued performance-based shares of restricted stock to certain officers and employees under the Abraxas Petroleum Corporation Amended and Restated

2005

Employee Long-Term Equity Incentive Plan. The shares will vest in

2021

upon the achievement of performance goals based on the Company’s Total Shareholder Return (“TSR”) as compared to a peer group of companies. The number of shares which would vest depends upon the rank of the Company’s TSR as compared to the peer group at the end of the

three

-year vesting period, and can range from

zero

percent of the initial grant up to

200%

of the initial grant.

The table below provides a summary of Performance Based Restricted Stock as of the date indicated (shares in thousands):

	Number of Shares			Weighted average grant date fair value
Unvested December 31, 2017		-		$	-
Granted		464			2.37
Vested/Released		-			-
Forfeited		(59	)		2.37
Unvested December 31, 2018		405		$	2.37

Compensation expense associated with the performance based restricted stock is based on the grant date fair value of a single share as determined using a Monte Carlo Simulation model which utilizes a stochastic process to create a range of potential future outcomes given a variety of inputs. As the Compensation Committee intends to settle the performance based restricted stock awards with shares of the Company's common stock, the awards are accounted for as equity awards and the expense is calculated on the grant date assuming a

100%

target payout and amortized over the life of the awards.

As of

December 31, 2018,

the total compensation cost related to non-vested awards

not

yet recognized was approximately

$0.7

million, which will be recognized from

2019

through

2021.

For the year ended

December 31, 2018,

we recognized

$0.2

million, in stock-based compensation expense related to performance based restricted stock awards.

Director Stock Awards

The

2005

Directors Plan (as amended and restated) reserves

2.9

million shares of Abraxas common stock, subject to adjustment following certain events. The

2005

Directors Plan provides that each year, at the

first

regular meeting of the board of directors immediately following Abraxas’ annual stockholder’s meeting, each non-employee director shall be granted or issued awards of

25,000

shares of Abraxas common stock, for participation in board and committee meetings during the previous calendar year. The maximum annual award for any

one

person is

100,000

shares of Abraxas common stock or options for common stock. If options, as opposed to shares, are awarded, the exercise price shall be

less than

100%

of the fair market value on the date of the award while the option terms and vesting schedules are at the discretion of the committee.

December

31,

2018,

the Company had approximately

10.3

million shares reserved for future issuance for conversion of its stock options, and incentive plans for the Company’s directors, employees and consultants.

Common Stock Issuance

May 2016,

we completed a stock offering of

28.8

million shares of common stock for net proceeds of approximately

$27.1

million and in

January 2017,

we completed an offering of

28.8

million shares of common stock for net proceeds of approximately

$65.2

million.