Note 7 - Compensation Plans

Cash Bonus Plan

During the first quarter of 2013 and 2012, the Company paid $16.0 million and $24.0 million, respectively, for cash bonuses earned during the 2012 and 2011 performance years, respectively. The general and administrative expense and exploration expense line items in the accompanying condensed consolidated statements of operations (“accompanying statements of operations”) include $5.6 million and $4.7 million of accrued cash bonus plan expense for the three-month periods ended March 31, 2013, and 2012, respectively, related to the respective performance year.

Restricted Stock Units Under the Equity Incentive Compensation Plan

The Company grants RSUs as part of its equity 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. Expense associated with RSUs is 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, 2013, and 2012, was $3.0 million and $1.2 million, respectively. As of March 31, 2013, there was $11.0 million of total unrecognized compensation expense related to unvested RSU awards, which is being amortized through 2015. There have been no material changes to the outstanding and non-vested RSUs during the three month period ended March 31, 2013.

Performance Stock Units Under the Equity Incentive Compensation Plan

The Company grants PSUs as part of its equity compensation program. PSUs are structurally the same as the previously granted performance share awards. 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 over a three-year measurement period. The performance criteria for the PSUs are based on a combination of the Company’s annualized total shareholder return (“TSR”) for the measurement period and the relative measure of the Company’s TSR compared with the annualized TSRs of a group of peer companies for the measurement period. Expense associated with PSUs is 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, 2013, and 2012, was $4.7 million and $2.9 million, respectively. As of March 31, 2013, there was $14.7 million of total unrecognized compensation expense related to unvested PSUs to be amortized through 2015. There have been no material changes to the outstanding and non-vested PSUs during the three-month period ended March 31, 2013.

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, 2013, is presented in the following table:



	Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding, at beginning of year	267,846		$	14.95	$	9,983
Exercised	(54,187	)	$	14.24	$	2,393
Forfeited	—		$	—
Outstanding, at end of quarter	213,659		$	15.11	$	9,424
Vested and exercisable, at end of quarter	213,659		$	15.11	$	9,424

As of March 31, 2013, there was no unrecognized compensation expense related to stock option awards.

Net Profits Interest Bonus Plan

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



	For the Three Months Ended March 31,
	2013		2012
	(in thousands)
General and administrative expense	$	3,786	$	4,412
Exploration expense	374		525
Total	$	4,160	$	4,937

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 paid to employees that have terminated employment and do not provide ongoing exploration support to the Company.