Note 7 - Compensation Plans

Equity Incentive Compensation Plan

As of September 30, 2018, 5.7 million shares of common stock were available for grant under the Company’s Equity Incentive Compensation Plan.

Performance Share Units

The Company grants performance share units (“PSUs”) to eligible employees as part of its long-term equity incentive compensation program. 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 certain performance criteria over a three-year performance period. PSUs generally vest on the third anniversary of the date of the grant.

PSUs, which the Company has determined to be equity awards, are subject to a combination of market, performance, and service vesting criteria. For awards with market criteria or portions of awards with market criteria, which include annualized Total Shareholder Return (“TSR”) for the performance period and the relative performance of the Company’s TSR compared with the annualized TSR of the Company’s peer group for the performance period, the fair value is measured at the grant date using a stochastic Monte Carlo simulation using geometric Brownian motion. Compensation expense for market-based PSUs is recognized on a straight-line basis within general and administrative expense and exploration expense over the vesting periods of the respective awards.

For awards that include performance criteria, the grant-date fair value is equal to the Company's stock price on the grant date. Compensation expense for performance-based PSUs will be evaluated on a quarterly basis and may be adjusted as the number of units expected to vest increases or decreases. Currently, the Company uses debt adjusted per share cash flow growth (“DACFG”) compared with the DACFG, as calculated by the Company, of its peer group as the performance criteria that is evaluated over the three-year performance period for PSUs.

Total compensation expense recorded for PSUs was $3.0 million and $2.6 million for the three months ended September 30, 2018, and 2017, respectively, and was $7.7 million and $6.8 million for the nine months ended September 30, 2018, and 2017, respectively. As of September 30, 2018, there was $22.9 million of total unrecognized compensation expense related to non-vested PSU awards, which is being amortized through 2021.

A summary of the status and activity of non-vested PSUs for the nine months ended September 30, 2018, is presented in the following table:



	PSUs ⁽¹⁾	Weighted-Average Grant-Date Fair Value
Non-vested at beginning of year	1,533,491	$	22.97
Granted	572,924	$	24.45
Vested	(233,102)	$	44.25
Forfeited	(97,122)	$	22.89
Non-vested at end of quarter	1,776,191	$	20.66

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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 nine months ended September 30, 2018, the Company granted 572,924 PSUs to eligible employees with a fair value of $14.0 million (“2018 PSU Grant”). As outlined in the award agreement for the 2018 PSU Grant, performance measurements affecting vesting are based on a combination of relative performance of the Company’s annualized TSR compared with the annualized TSR of the Company’s peer group over the three-year performance period, and relative performance of the Company’s DACFG compared with its peer group DACFG over the three-year performance period. In addition to these performance measures, the award agreement for the 2018 PSU Grant also stipulates that if the Company’s absolute TSR is negative over the three-year performance period, the maximum number of shares of common stock that can be issued to settle outstanding PSUs is capped at one times the number of PSUs granted on the award date, regardless of the Company’s TSR and DACFG performance relative to its peer group.

During the nine months ended September 30, 2018, PSUs that were granted in 2015 did not satisfy the minimum performance requirements. This resulted in a multiplier of zero times and therefore no shares were issued upon settlement.

Restricted Stock Units

The Company grants restricted stock units (“RSUs”) to eligible persons as part of its long-term equity incentive 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 respective awards. RSUs granted to employees generally vest one-third on each anniversary date of the grant over a three-year vesting period.

Total compensation expense recorded for employee RSUs was $3.0 million and $2.9 million for the three months ended September 30, 2018, and 2017, respectively, and was $8.0 million and $7.5 million for the nine months ended September 30, 2018, and 2017, respectively. As of September 30, 2018, there was $24.1 million of total unrecognized compensation expense related to non-vested RSU awards, which is being amortized through 2021.

A summary of the status and activity of non-vested RSUs granted to employees for the nine months ended September 30, 2018, is presented in the following table:



	RSUs	Weighted-Average Grant-Date Fair Value
Non-vested at beginning of year	1,244,262	$	20.25
Granted	583,552	$	25.77
Vested	(407,529)	$	24.30
Forfeited	(112,141)	$	17.93
Non-vested at end of quarter	1,308,144	$	21.46

During the nine months ended September 30, 2018, the Company granted 583,552 RSUs to eligible employees with a fair value of $15.0 million. During the nine months ended September 30, 2018, the Company settled 407,529 RSUs that related to awards granted in previous years. The Company and the majority of grant participants mutually agreed to net share settle a portion of 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 291,745 net shares of common stock upon settlement of the awards.

Director Shares

During the second quarter of 2018, the Company issued 58,572 shares of its common stock to its non-employee directors under the Company’s Equity Incentive Compensation Plan, which fully vest on December 31, 2018. During the second quarter of 2017, the Company issued 71,573 shares of its common stock to its non-employee directors and 8,794 RSUs to a non-employee director. The Company did not issue any director shares during the third quarters of 2018, or 2017.

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 either the first or last day of the purchase period. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code. The Company issued 100,249 and 123,678 shares under the ESPP during the nine months ended September 30, 2018, and 2017, respectively. Total proceeds to the Company for the issuance of these shares was $1.9 million and $1.7 million for the nine months ended September 30, 2018, and 2017, respectively. The fair value of ESPP grants is measured at the date of grant using the Black-Scholes option-pricing model.