Note 7 - Compensation Plans

Cash Bonus Plan

During the first quarters of 2012 and 2011, the Company paid $24.0 million and $21.6 million for cash bonuses earned in the 2011 and 2010 performance years, respectively. Within the general and administrative expense and exploration expense line items in the accompanying condensed consolidated statements of operations (“accompanying statements of operations”), was $4.7 million and $3.8 million of accrued cash bonus plan expense attributable to the three-month periods ended March 31, 2012, and 2011, in each respective specific performance year.

Restricted Stock Units Under the Equity Incentive Compensation Plan

The Company grants Restricted Stock Units (“RSUs”) as part of its long-term equity incentive compensation program. Each RSU represents a right to one share of the Company’s common stock to be delivered upon settlement of the award at the end of the specified vesting period. RSUs are recognized as general and administrative expense and exploration expense over the vesting period of the award.

Total expense recorded for RSUs for the three-month periods ended March 31, 2012, and 2011, was $1.2 million and $1.1 million, respectively. As of March 31, 2012, there was $6.5 million of total unrecognized compensation expense related to unvested RSU awards, which is being amortized through 2014. There have been no material changes to the outstanding and non-vested RSUs during the three months ended March 31, 2012.

Performance Stock Units Under the Equity Incentive Compensation Plan

The Company also grants Performance Share Units as part of its long-term equity incentive compensation program. Performance Stock Units are structurally the same as the previously granted Performance Share Awards (collectively known as “Performance Share Units” or “PSUs”). The number of shares of the Company’s common stock issued to settle PSUs ranges from zero to two times the number of PSUs awarded, and is determined based on the Company’s performance after completion of a three-year performance period. The performance criteria for the PSUs are based on a combination of the Company’s annualized total shareholder return (“TSR”) for the performance period and the relative measure of the Company’s TSR compared with the annualized TSR of an index comprised of certain peer companies for the performance period. PSUs are recognized as general and administrative expense and exploration expense over the vesting period of the award.

Total expense recorded for PSUs for the three-month periods ended March 31, 2012, and 2011, was $2.9 million and $4.3 million, respectively. As of March 31, 2012, there was $23.3 million of total unrecognized compensation expense related to unvested PSUs that is being amortized through 2014. There have been no material changes to outstanding and non-vested PSUs during the three months ended March 31, 2012.

Stock Option Grants Under the Equity Incentive Compensation Plan

A summary of activity associated with the Company’s Stock Option Plan for the three months ended March 31, 2012, is presented in the following table:



	Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)

Outstanding, at beginning of quarter	508,214		$	13.86	$	30,109
Exercised	(85,303	)	$	12.33	$	5,634
Forfeited	—		$	—
Outstanding, at end of quarter	422,911		$	14.16	$	23,940
Vested and exercisable, at end of quarter	422,911		$	14.16	$	23,940

As of March 31, 2012, there was no unrecognized compensation expense related to stock option awards.

Net Profits Interest Bonus Plan

Cash payments made or accrued under the Net Profits Interest Bonus Plan (“Net Profits Plan”) that have been recorded as either general and administrative expense or exploration expense are detailed in the table below:



	For the Three Months Ended March 31,
	2012		2011
	(in thousands)
General and administrative expense	$	4,412	$	5,330
Exploration expense	525		477
Total	$	4,937	$	5,807

Additionally, the Company accrued or made cash payments under the Net Profits Plan of $286,000 and $4.3 million for the three months ended March 31, 2012, and 2011, respectively, as a result of divestiture proceeds. The cash payments are accounted for as a reduction in the gain on divestiture activity in the accompanying statements of operations.

The Company records changes in the present value of estimated future payments under the Net Profits Plan as a separate line item in the accompanying statements of operations. The change in the estimated liability is recorded as a non-cash expense or benefit in the current period. The amount recorded as an expense or benefit associated with the change in the estimated liability is not allocated to general and administrative expense or exploration expense because it is associated with the future net cash flows from oil and gas properties in the respective pools rather than results being realized through current period production. If the Company allocated the change in liability to these specific functional line items, based on the current allocation of actual distributions made by the Company, such expenses or benefits would predominately be allocated to general and administrative expense. The amount that would be allocated to exploration expense is minimal in comparison. Over time, less of the amount distributed relates to prospective exploration efforts as more of the amount distributed is to employees that have terminated employment and do not provide ongoing exploration support to the Company.