Compensation Plans

Stock-Based Compensation

Initially, we reserved 86,300 shares of Common Stock for issuance under the Outside Directors Stock Option Plan (“Directors Plan”). Since the inception of the Directors Plan, CWEI has issued options covering 52,000 shares of Common Stock at option prices ranging from $3.25 to $41.74 per share. All outstanding options expire ten years from the grant date and are fully exercisable upon issuance. No options were granted under the Directors Plan in 2012 or 2011. At December 31, 2012, 5,000 options were outstanding under this plan. In December 2009, the Board reduced the number of shares available for issuance under the Directors Plan to a level sufficient to cover only the remaining outstanding shares.

The following table sets forth certain information regarding our stock option plans as of and for the year ended December 31, 2012:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value^(a)
Outstanding at January 1, 2012	6,000		$	28.86
Exercised ^(b)	(1,000	)	$	12.14
Outstanding at December 31, 2012	5,000		$	32.21	3.0	$	40,700
Vested at December 31, 2012	5,000		$	32.21	3.0	$	40,700
Exercisable at December 31, 2012	5,000		$	32.21	3.0	$	40,700


(a)	Based on closing price at December 31, 2012 of $40.00 per share.


(b)	Cash received for options exercised totaled $12,140.

The following table summarizes information with respect to options outstanding at December 31, 2012, all of which were granted under the Directors Plan and are currently exercisable.



	Outstanding and Exercisable Options
				Weighted
	Shares	Weighted Average Exercise Price		Average Remaining Life in Years
Range of exercise prices:
$22.90 - $41.74	5,000	$	32.21	3.0

The following table presents certain information regarding stock-based compensation amounts for the years ended December 31, 2012, 2011 and 2010.



	2012		2011		2010
	(In thousands, except per share)
Weighted average grant date fair value of options granted per share	$	—	$	—	$	—
Intrinsic value of options exercised	$	28	$	594	$	261

Non-Equity Award Plans

The Compensation Committee of the Board has adopted an after-payout (“APO”) incentive plan (the “APO Incentive Plan”) for officers, key employees and consultants who promote our drilling and acquisition programs. The Compensation Committee’s objective in adopting this plan is to further align the interests of the participants with ours by granting the participants an APO interest in the production developed, directly or indirectly, by the participants. The plan generally provides for the creation of a series of partnerships or participation arrangements, which are treated as partnerships for tax purposes (“APO Partnerships”), between us and the participants, to which we contribute a portion of our economic interest in wells drilled or acquired within certain areas. Generally, we pay all costs to acquire, drill and produce applicable wells and receive all revenues until we have recovered all of our costs, plus interest (“payout”). At payout, the participants receive 99% to 100% of all subsequent revenues and pay 99% to 100% of all subsequent expenses attributable to the economic interests that are subject to the APO Partnerships. Between 5% and 7.5% of our economic interests in specified wells drilled or acquired by us subsequent to October 2002 are subject to the APO Incentive Plan. We record our allocable share of the assets, liabilities, revenues, expenses and oil and gas reserves of these APO Partnerships in our consolidated financial statements. Participants in the APO Incentive Plan are immediately vested in all future amounts payable under the plan.

The Compensation Committee has also adopted an APO reward plan (the “APO Reward Plan”) which offers eligible officers, key employees and consultants the opportunity to receive bonus payments that are based on certain profits derived from a portion of our working interest in specified areas where we are conducting drilling and production enhancement operations. The wells subject to an APO Reward Plan are not included in the APO Incentive Plan. Likewise, wells included in the APO Incentive Plan are not included in the APO Reward Plan. Although conceptually similar to the APO Incentive Plan, the APO Reward Plan is a compensatory bonus plan through which we pay participants a bonus equal to a portion of the APO cash flows received by us from our working interest in wells in a specified area. Unlike the APO Incentive Plan, however, participants in the APO Reward Plan are not immediately vested in all future amounts payable under the plan. To date, we have granted awards under the APO Reward Plan in 13 specified areas, each of which established a quarterly bonus amount equal to 7% or 10% of the APO cash flow from wells drilled or recompleted in the respective areas after the effective date set forth in each plan, which dates range from January 1, 2007 to April 1, 2011. Of these 13 awards, one award fully vested November 4, 2011, three awards fully vested August 9, 2012, three awards will fully vest on May 5, 2013 and six awards will fully vest on June 1, 2013.

In January 2007, we granted awards under the Southwest Royalties Reward Plan (the “SWR Reward Plan”), a one-time incentive plan which established a quarterly bonus amount for participants equal to the after-payout cash flow from a 22.5% working interest in one well. As of October 25, 2011, the plan was fully vested and 100% of subsequent quarterly bonus amounts are payable to participants.

To continue as a participant in the APO Reward Plan or the SWR Reward Plan, participants must remain in the employment or service of the Company through the full vesting date established for each award. The full vesting date may be accelerated in the event of a change of control or sale transaction, as defined in the plan documents.

We recognize compensation expense related to the APO Partnerships based on the estimated value of economic interests conveyed to the participants. Estimated compensation expense applicable to the APO Reward Plan and SWR Reward Plan is recognized over the applicable vesting periods, which range from two years to five years. We recorded a credit to compensation expense of $404,000 in 2012, $12.9 million expense in 2011, and $13.9 million expense in 2010 in connection with all non-equity award plans. Aggregate compensation under non-equity award plans is reflected on the balance sheet as detailed in the following schedule:



	December 31, 2012		December 31, 2011
	(In thousands)
Current liabilities:
Accrued liabilities and other	$	2,220	$	1,994
Non-current liabilities:
Accrued compensation under non-equity award plans	20,058		20,757
Total accrued compensation under non-equity award plans	$	22,278	$	22,751