Note 7 - Compensation Plans

Cash Bonus Plan

During the first nine months of 2014 and 2013, the Company paid $41.7 million and $16.0 million, respectively, for cash bonuses earned during the 2013 and 2012 performance years, respectively. The general and administrative (“G&A”) expense and exploration expense line items in the accompanying statements of operations include $6.2 million and $5.8 million of accrued cash bonus plan expense for the three months ended September 30, 2014, and 2013, respectively, and $19.0 million and $16.7 million of accrued cash bonus plan expense for the nine months ended September 30, 2014, and 2013, respectively, related to the respective performance years.

Non-qualified Deferred Compensation Plan

In January 2014, the Company established a non-qualified deferred compensation (“NQDC”) plan intended to provide plan participants with the ability to plan for income tax events and the opportunity to receive a benefit for matching contributions in excess of Internal Revenue Code (“IRC”) limits applicable to the Company’s 401(k) plan. The NQDC plan is designed to allow employee participants to defer a portion of base salary and cash bonuses paid pursuant to the Company’s cash bonus plan and director participants to defer a portion of the cash retainer paid to directors. Each year, participating employees may elect to defer (i) between 0% and 50% of their base salary and (ii) between 0% and 100% of the cash bonus paid pursuant to the cash bonus plan, and participating directors may elect to defer between 0% and 100% of their cash retainer. The NQDC plan requires the Company to make contributions for each eligible employee equal to 100% of the deferred amount for such employee, limited to 6% of such employee’s base salary and cash bonus. Each eligible employee’s interest in contributions made by the Company will vest 40% after the second year of such employee’s service to the Company, and 20% per year thereafter. A participant’s account will be distributed based upon the participant’s payment election made at the time of deferral. A participant may elect to have distributions made in lump sum or in annual installments ranging for a period from 1 to 10 years. Participants in the NQDC plan are currently limited to the Company’s officers and directors.

Restricted Stock Units Under the Equity Incentive Compensation Plan

The Company grants restricted stock units (“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 G&A expense and exploration expense over the vesting period of the award.

Total expense recorded for RSUs for the three months ended September 30, 2014, and 2013, was $4.8 million and $3.7 million, respectively, and $10.5 million and $10.0 million for the nine months ended September 30, 2014, and 2013, respectively. As of September 30, 2014, there was $26.7 million of total unrecognized compensation expense related to unvested RSU awards, which is being amortized through 2017.

A summary of the status and activity of non-vested RSUs for the nine-month period ended September 30, 2014, is presented in the following table:



	RSUs		Weighted-Average Grant-Date Fair Value
Non-vested at beginning of year	580,431		$	57.05
Granted	233,601		$	84.11
Vested	(250,601	)	$	58.09
Forfeited	(32,736	)	$	59.07
Non-vested at end of quarter	530,695		$	68.34

The fair value of the RSUs granted during the first nine months of 2014 was $19.6 million. These RSUs will vest 1/3^rd on each of the next three anniversary dates of the grant. During the first nine months of 2014, the Company settled 250,601 RSUs that related to awards granted in previous years. The Company and the majority of grant participants mutually agreed to net share settle the awards to cover income and payroll tax withholdings as provided for in the plan document and award agreements. As a result, the Company issued 169,835 net shares of common stock. The remaining 80,766 shares were withheld to satisfy income and payroll tax withholding obligations that occurred upon delivery of the shares underlying those RSUs.

Performance Share Units Under the Equity Incentive Compensation Plan

The Company grants performance share units (“PSUs”) as part of its equity compensation program. The number of shares of the Company’s common stock issued to settle PSUs ranges from 0% to 200% of 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 performance 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 G&A expense and exploration expense over the vesting period of the award.

Total expense recorded for PSUs for the three months ended September 30, 2014, and 2013, was $4.8 million and $3.5 million, respectively, and $11.6 million and $13.2 million for the nine months ended September 30, 2014, and 2013, respectively. As of September 30, 2014, there was $24.7 million of total unrecognized compensation expense related to unvested PSU awards, which is being amortized through 2017.

A summary of the status and activity of non-vested PSUs for the nine-month period ended September 30, 2014, is presented in the following table:



	PSUs⁽¹⁾		Weighted-Average Grant-Date Fair Value
Non-vested at beginning of year	572,469		$	66.07
Granted	202,404		$	94.66
Vested	(115,784	)	$	59.30
Forfeited	(129,491	)	$	87.21
Non-vested at end of quarter	529,598		$	73.31

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⁽¹⁾	The number of awards assumes a one multiplier. The final number of shares of common stock issued may vary depending on the three-year performance multiplier, which ranges from zero to two.

The fair value of the PSUs granted during the first nine months of 2014 was $19.2 million. These PSUs will vest on the third anniversary of the date of the grant. During the first nine months of 2014, the Company settled PSUs that were granted in 2011, which earned a 0.55 times multiplier, by issuing a net 85,121 shares of the Company’s common stock in accordance with the terms of the PSU awards. The Company and the majority of grant participants mutually agreed to net share settle the awards to cover income and payroll tax withholdings as provided for in the plan document and award agreements. As a result, the Company withheld 45,042 shares to satisfy income and payroll tax withholding obligations that occurred upon delivery of the shares underlying those PSUs.

Stock Option Grants Under the Equity Incentive Compensation Plan

A summary of activity associated with the Company’s Stock Option Plan for the nine months ended September 30, 2014, is presented in the following table:



	Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding, at beginning of year	39,088		$	20.87	$	2,433
Exercised	(19,544	)	$	20.87	$	1,237
Forfeited	—		$	—	$	—
Outstanding, at end of quarter	19,544		$	20.87	$	1,117
Vested and exercisable, at end of quarter	19,544		$	20.87	$	1,117

As of September 30, 2014, there was no unrecognized compensation expense related to stock option awards.

Director Shares

During the nine months ended September 30, 2014 and 2013, the Company issued 27,677 and 28,169 shares, respectively, of its common stock to its non-employee directors, under the Company’s Equity Incentive Compensation Plan. The Company recorded $196,000 of compensation expense related to these awards for the three months ended September 30, 2014, and no compensation expense related to these awards for the three months ended September 30, 2013. The Company recorded $1.4 million and $1.4 million of compensation expense related to these awards for the nine months ended September 30, 2014, and 2013, respectively.

All shares of common stock issued to the Company’s non-employee directors are earned over the one-year service period following the date of grant, unless five years of service has been provided by the director, in which case that director's shares vest immediately.

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15 percent of eligible compensation, without accruing in excess of $25,000 in value from purchases for each calendar year. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the purchase period, and shares issued under the ESPP have no restriction period. The ESPP is intended to qualify under Section 423 of the IRC. The Company had 1.2 million shares available for issuance under the ESPP as of September 30, 2014. The Company issued 35,249 and 44,437 shares under the ESPP during the first nine months of 2014 and 2013, respectively. The fair value of ESPP grants is measured at the date of grant using the Black-Scholes option-pricing model.

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 G&A expense or exploration expense are presented in the table below:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
General and administrative expense	$	2,487	$	4,302	$	7,451	$	11,531
Exploration expense	162		329		644		1,026
Total	$	2,649	$	4,631	$	8,095	$	12,557

Additionally, the Company accrued or made cash payments under the Net Profits Plan of $8.3 million and $2.6 million for the nine months ended September 30, 2014, and 2013, respectively, as a result of divestiture proceeds. These cash payments are accounted for as a reduction in gain on divestiture activity included within the other operating revenues line in the accompanying statements of operations.