9. Stock-Based Compensation

Equity-Based Incentive Awards Plans

The Company grants equity-based incentive awards under the 2017 Incentive Plan of Carrizo Oil & Gas, Inc. (the “2017 Incentive Plan”) and the Carrizo Oil & Gas, Inc. Cash-Settled Stock Appreciation Rights Plan (“Cash SAR Plan”). The 2017 Incentive Plan replaced the Incentive Plan of Carrizo Oil & Gas, Inc., as amended and restated effective May 15, 2014 (the “Prior Incentive Plan”) and, from the effective date of the 2017 Incentive Plan, no further awards may be granted under the Prior Incentive Plan. However, awards previously granted under the Prior Incentive Plan will remain outstanding in accordance with their terms. Under the 2017 Incentive Plan, the Company can grant restricted stock awards and units, stock appreciation rights that can be settled in shares of common stock or cash at the option of the Company, performance shares, stock options, and cash awards to employees, independent contractors, and non-employee directors. Under the Cash SAR Plan, the Company can grant stock appreciation rights that may only be settled in cash (“Cash SARs”) to employees and independent contractors.

The 2017 Incentive Plan provides that up to 2,675,000 shares of the Company’s common stock, plus the shares remaining available for awards under the Prior Incentive Plan at the effective date of the 2017 Incentive Plan, may be issued (the “Maximum Share Limit”). Each restricted stock award, restricted stock unit, or performance share granted under the 2017 Incentive Plan counts as 1.35 shares against the Maximum Share Limit. Each stock option and stock appreciation right to be settled in shares of common stock (“Stock SAR”) granted under the 2017 Incentive Plan counts as 1.00 share against the Maximum Share Limit. Each stock appreciation right to be settled in shares of common stock or cash (“Incentive SAR”) granted under the 2017 Incentive Plan counts as 1.00 share against the Maximum Share Limit up to the date the Company, if it so chooses, affirmatively elects to settle the stock appreciation right in cash. Each stock appreciation right to be settled in cash (“Incentive Cash SAR”) granted under the 2017 Incentive Plan or Cash SAR does not count against the Maximum Share Limit. As of June 30, 2018, there were 326,774 common shares remaining available for grant under the 2017 Incentive Plan.

Restricted Stock Awards and Units

As of June 30, 2018, unrecognized compensation costs related to unvested restricted stock awards and units was $30.5 million and will be recognized over a weighted average period of 2.2 years.

The table below summarizes restricted stock award and unit activity for the six months ended June 30, 2018:



	Restricted Stock Awards and Units		Weighted Average Grant Date Fair Value
Unvested restricted stock awards and units, beginning of period	1,482,655			$28.07
Granted	1,348,415			$14.68
Vested	(608,904	)		$31.43
Forfeited	(10,993	)		$19.17
Unvested restricted stock awards and units, end of period	2,211,173			$19.02

During the six months ended June 30, 2018, the Company granted 1,348,415 restricted stock awards and units primarily consisting of 1,343,412 restricted stock units to employees and independent contractors as part of its annual grant of long-term equity incentive awards during the first quarter of 2018. These restricted stock units had a grant date fair value of $19.7 million and will vest ratably over a three-year period.

Stock Appreciation Rights (“SARs”)

As of June 30, 2018, all outstanding SARs are either Cash SARs or Incentive Cash SARs and will be settled in cash. The liability for SARs as of June 30, 2018 was $8.7 million, all of which was classified as “Other current liabilities,” in the consolidated balance sheets. As of December 31, 2017, the liability for SARs was $4.4 million, all of which was classified as “Other liabilities” in the consolidated balance sheets. Unrecognized compensation costs related to unvested SARs was $11.3 million as of June 30, 2018, and will be recognized over a weighted average period of 2.6 years.

The table below summarizes the activity for SARs for the six months ended June 30, 2018:



	SARs	Weighted Average Exercise Prices		Weighted Average Remaining Life (In years)	Aggregate Intrinsic Value (In millions)		Aggregate Intrinsic Value of Exercises (In millions)
Outstanding, beginning of period	714,238		$27.12
Granted	616,686		$14.67
Exercised	—		$—					$—
Forfeited	—		$—
Expired	—		$—
Outstanding, end of period	1,330,924		$21.35	4.8		$9.1
Vested, end of period	543,018		$27.18
Vested and exercisable, end of period	543,018		$27.18	3.04		$0.5

During the six months ended June 30, 2018, the Company granted 616,686 Incentive Cash SARs to certain employees and independent contractors, all of which occurred in the first quarter of 2018 as part of the Company’s annual grant of long-term equity incentive awards. These Incentive Cash SARs will vest ratably over a three-year period and expire approximately seven years from the grant date.

The grant date fair value of the Incentive Cash SARs, calculated using the Black-Scholes-Merton option pricing model, was $4.9 million. The following table summarizes the assumptions used to calculate the grant date fair value of the Incentive Cash SARs granted during the six months ended June 30, 2018:



	Grant Date Fair Value Assumptions
Expected term (in years)	6.0
Expected volatility	54.3	%
Risk-free interest rate	2.8	%
Dividend yield	—	%

Performance Shares

As of June 30, 2018, unrecognized compensation costs related to unvested performance shares was $2.9 million and will be recognized over a weighted average period of 2.2 years.

The table below summarizes performance share activity for the six months ended June 30, 2018:



	Target Performance Shares ⁽¹⁾		Weighted Average Grant Date Fair Value
Unvested performance shares, beginning of period	144,955			$47.14
Granted	93,771			$19.09
Vested at end of performance period	(49,458	)		$65.51
Did not vest at end of performance period	(7,059	)		$65.51
Forfeited	—			$—
Unvested performance shares, end of period	182,209			$27.01


(1)	The number of performance shares that vest may vary from the number of target performance shares granted depending on the Company’s final TSR ranking for the approximate three-year performance period.

During the six months ended June 30, 2018, the Company granted 93,771 target performance shares to certain employees and independent contractors, all of which occurred in the first quarter of 2018 as part of the Company’s annual grant of long-term equity incentive awards. Each performance share represents the right to receive one share of common stock, however, the number of performance shares that will vest ranges from zero to 200% of the target performance shares granted based on the total shareholder return (“TSR”) of the Company’s common stock relative to the TSR achieved by a specified industry peer group over an approximate three-year performance period, the last day of which is also the vesting date.

Also during the six months ended June 30, 2018, the Company vested 49,458 performance shares that were granted in 2015. As a result of the Company’s final TSR ranking during the performance period, a multiplier of 88% was applied to the 56,517 target performance shares that were granted in 2015, resulting in 7,059 performance shares that did not vest.

The grant date fair value of the performance shares, calculated using a Monte Carlo simulation, was $1.8 million. The following table summarizes the assumptions used to calculate the grant date fair value of the performance shares granted during the six months ended June 30, 2018:



	Grant Date Fair Value Assumptions
Number of simulations	500,000
Expected term (in years)	3.0
Expected volatility	61.5	%
Risk-free interest rate	2.4	%
Dividend yield	—	%

Stock-Based Compensation Expense, Net

Stock-based compensation expense associated with restricted stock awards and units, SARs and performance shares is reflected as “General and administrative expense, net” in the consolidated statements of income.

The Company recognized the following stock-based compensation expense, net for the three and six months ended June 30, 2018 and 2017:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(In thousands)
Restricted stock awards and units		$4,720			$5,024			$9,804			$10,873
SARs	5,788			(3,783		)	4,373			(7,469		)
Performance shares	406			574			963			1,280
	10,914			1,815			15,140			4,684
Less: amounts capitalized to oil and gas properties	(3,708		)	(233		)	(4,416		)	(1,088		)
Total stock-based compensation expense, net		$7,206			$1,582			$10,724			$3,596