Share-Based Compensation

9 Months Ended

Sep. 30, 2012

Share-based Compensation [Abstract]

Share-Based Compensation

Share-Based Compensation

QEP issues stock options and restricted shares under its Long-Term Stock Incentive Plan (LTSIP) and awards performance-based share units under its Cash Incentive Plan (CIP) to certain officers, employees, and non-employee directors. QEP recognizes expense over time as the stock options, restricted shares, and performance-based share units vest. Deferred share-based compensation is included in additional paid-in capital in the Condensed Consolidated Balance Sheets. There were 13.1 million shares available for future grants under the LTSIP at September 30, 2012. Share-based compensation expense is recognized in “General and administrative” on the Condensed Consolidated Statements of Operations. During the three and nine months endedSeptember 30, 2012, QEP recognized $7.2 million and $19.5 million, respectively, in total compensation expense related to share-based compensation compared to $5.7 million and $16.5 million during the three and nine months endedSeptember 30, 2011. The increase in share-based compensation recognized in 2012 compared to 2011 was due to increased restricted shares and options granted in late 2011 and throughout 2012.

Stock Options

QEP uses the Black-Scholes-Merton mathematical model to estimate the fair value of stock options for accounting purposes. Fair-value calculations rely upon subjective assumptions used in the mathematical model and may not be representative of future results. The Black-Scholes-Merton model is intended for measuring the value of options traded on an exchange.

The calculated fair value of options granted and major assumptions used in the model at the date of grant are listed below:

	Stock Option Variables
	Nine Months Ended
	September 30, 2012
Fair value of options at grant date	$	14.29
Risk-free interest rate	0.81		%
Expected price volatility	55.9		%
Expected dividend yield	0.26		%
Expected life in years	5.0

Stock option transactions under the terms of the LTSIP are summarized below:

	Options Outstanding		Weighted- Average Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
			(per share)		(in years)	(in millions)
Outstanding at December 31, 2011	2,003,694		$	21.23
Granted	301,035		30.76
Exercised	(336,675	)	9.21
Forfeited	—		—		—
Outstanding at September 30, 2012	1,968,054		$	24.74	3.4	$	15.1
Options Exercisable at September 30, 2012	1,505,051		$	22.38	2.6	$	14.6
Unvested Options at September 30, 2012	463,003		$	32.43	5.9	$	0.2

The total intrinsic value (the difference between the market price at the exercise date and the exercise price) of options exercised was $7.1 million and $2.7 million during the nine months endedSeptember 30, 2012 and 2011, respectively. As of September 30, 2012, $3.6 million of unrecognized compensation cost related to stock options granted under the LTSIP is expected to be recognized over a weighted-average period of 2.2 years.

Restricted Shares

Restricted share grants typically vest in equal installments over a three or four-year period from the grant date. The total fair value of restricted stock that vested during the nine months endedSeptember 30, 2012 and 2011, was $16.6 million and $11.5 million, respectively. The weighted average grant-date fair value of restricted stock was $30.59 per share and $39.26 per share for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, $21.1 million of unrecognized compensation cost related to restricted shares granted under the LTSIP is expected to be recognized over a weighted-average vesting period of 2.2 years.

Transactions involving restricted shares under the terms of the LTSIP are summarized below:

	Restricted Shares Outstanding		Weighted- Average Price
			(per share)
Unvested balance at December 31, 2011	1,099,752		$	32.80
Granted	778,780		30.59
Vested	(538,668	)	31.88
Forfeited	(61,502	)	32.70
Unvested balance at September 30, 2012	1,278,362		$	31.85

Performance Share Units

Cash payouts are dependent upon the Company’s total shareholder return compared to a group of its peers over a three-year period. The awards are denominated in share units but delivered in cash at the end of the performance period. The weighted average grant-date fair value of the performance share units was $30.90 per share and $39.07 per share for the nine months endedSeptember 30, 2012 and 2011, respectively. As of September 30, 2012, $6.2 million of unrecognized compensation cost, or the fair market value, related to performance shares granted under the CIP is expected to be recognized over a weighted-average vesting period of 2.1 years.

Transactions involving performance share units under the terms of the CIP are summarized below:

	Performance Share Units Outstanding		Weighted- Average Price
Unvested balance at December 31, 2011	115,274		$	39.07
Granted	179,304		30.90
Vested	—		—
Forfeited	(12,713	)	35.69
Unvested balance at September 30, 2012	281,865		$	34.03