Note 7 - Compensation Plans

Performance Share Units Under the Equity Incentive Compensation Plan

The Company grants performance share units (“PSUs”) to eligible employees as a part of its long-term 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 certain performance criteria 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 performance period and the relative performance of the Company’s TSR compared with the annualized TSR of certain peer companies for the performance period. Compensation expense for PSUs is recognized within general and administrative and exploration expense over the vesting periods of the respective awards.

Total compensation expense recorded for PSUs for the three months ended September 30, 2015, and 2014, was $2.4 million and $4.8 million, respectively, and $7.4 million and $11.6 million for the nine months ended September 30, 2015, and 2014, respectively. As of September 30, 2015, there was $21.3 million of total unrecognized compensation expense related to unvested PSU awards, which is being amortized through 2018.

A summary of the status and activity of non-vested PSUs for the nine months ended September 30, 2015, is presented in the following table:



	PSUs⁽¹⁾		Weighted-Average Grant-Date Fair Value
Non-vested at beginning of year	433,660		$	73.63
Granted	320,753		$	45.34
Vested	(75,353	)	$	51.59
Forfeited	(47,787	)	$	74.42
Non-vested at end of quarter	631,273		$	61.83

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

During the first nine months of 2015, the Company granted 320,753 PSUs with a fair value of $14.5 million as part of its regular annual long-term equity compensation program. These PSUs will fully vest on the third anniversary of the date of the grant. Also, during the first nine months of 2015, the Company settled PSUs that were granted in 2012, which earned a 1.0 times multiplier, by issuing 188,279 net shares of the Company’s common stock in accordance with the terms of the respective PSU awards. The Company and the majority of grant recipients mutually agreed to net share settle a portion of the awards to cover income and payroll tax withholdings in accordance with the Company’s Equity Incentive Compensation Plan and individual award agreements. As a result, 100,683 shares were withheld to satisfy income and payroll tax withholding obligations that arose upon delivery of the shares underlying the PSUs.

Restricted Stock Units Under the Equity Incentive Compensation Plan

The Company grants restricted stock units (“RSUs”) as part of its long-term equity compensation program. Each RSU represents a right to receive one share of the Company’s common stock upon settlement of the award at the end of the specified vesting period. Compensation expense for RSUs is recognized within general and administrative expense and exploration expense over the vesting periods of the award.

Total compensation expense recorded for RSUs was $4.1 million and $4.8 million for the three months ended September 30, 2015, and 2014, respectively, and $9.9 million and $10.5 million for the nine months ended September 30, 2015, and 2014, respectively. As of September 30, 2015, there was $22.7 million of total unrecognized compensation expense related to unvested RSU awards, which is being amortized through 2018.

A summary of the status and activity of non-vested RSUs for the nine months ended September 30, 2015, is presented in the following table:



	RSUs		Weighted-Average Grant-Date Fair Value
Non-vested at beginning of year	515,724		$	68.29
Granted	356,246		$	43.72
Vested	(267,244	)	$	63.43
Forfeited	(41,330	)	$	68.63
Non-vested at end of quarter	563,396		$	55.04

During the first nine months of 2015, the Company granted 356,246 RSUs with a fair value of $15.6 million as part of its regular annual long-term equity compensation program. These RSUs will vest one-third of the total grant on each of the next three anniversaries of the date of the grant. Also, during the first nine months of 2015, the Company settled 267,244 RSUs that related to awards granted in previous years. The Company and the majority of grant recipients mutually agreed to net share settle a portion of the awards to cover income and payroll tax withholdings in accordance with the Company’s Equity Incentive Compensation Plan and individual award agreements. As a result, the Company issued 181,187 net shares of common stock. The remaining 86,057 shares were withheld to satisfy income and payroll tax withholding obligations that arose upon delivery of the shares underlying those RSUs.

Director Shares

During the first nine months of 2015 and 2014, the Company issued 37,950 and 27,677 shares, respectively, of its common stock to its non-employee directors, under the Company’s Equity Incentive Compensation Plan. The Company recorded approximately $271,000 and $196,000 of compensation expense related to these awards for the three months ended September 30, 2015 and 2014, respectively. The Company recorded $1.4 million of compensation expense related to these awards for the nine months ended September 30, 2015, and 2014, 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 to the Company by the director, in which case that director’s shares vest upon the earlier of the completion of the one-year service period or the director retiring from the Board of Directors.

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% 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 Internal Revenue Code, as amended (“IRC”). The Company had approximately 1.1 million shares available for issuance under the ESPP as of September 30, 2015. There were 96,285 and 35,249 shares issued under the ESPP during the nine months ended September 30, 2015, and 2014, respectively. The fair value of ESPP grants is measured at the date of grant using the Black-Scholes option-pricing model.

Net Profits Plan

Cash payments made or accrued under the Company’s Net Profits Plan totaled $410,000 and $2.6 million for the three months ended September 30, 2015, and 2014, respectively, and $3.6 million and $8.1 million for the nine months ended September 30, 2015, and 2014, respectively, the majority of which were recorded as general and administrative expense within the accompanying statements of operations.

Additionally, the Company accrued or made cash payments under the Net Profits Plan of $3.8 million and $8.3 million for the nine months ended September 30, 2015, and 2014, respectively, as a result of the divestitures of properties subject to the Net Profits Plan. These cash payments are accounted for as a reduction in the net gain (loss) on divestiture activity line item 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. As time has passed, the amount distributed relating to prospective exploration efforts has become insignificant as more is paid to employees that have terminated employment and do not provide ongoing exploration support to the Company.