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Stockholders' equity and stock-based compensation
 6 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Stockholders' equity and stock-based compensation
Stockholders' equity and stock-based compensation
a.   Share repurchase program
In February 2018, the Company's board of directors authorized a $200 million share repurchase program commencing in February 2018. The repurchase program expires in February 2020. Share repurchases under the share repurchase program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions and block trades. The timing and actual number of shares repurchased, if any, will depend upon several factors, including market conditions, business conditions, the trading price of the Company's common stock and the nature of other investment opportunities available to the Company. During the three months ended June 30, 2018, the Company repurchased 3,150,651 shares of common stock at a weighted-average price of $9.12 per common share for a total of $28.7 million under this program. During the six months ended June 30, 2018, the Company repurchased 9,878,552 shares of common stock at a weighted-average price of $8.83 per common share for a total of $87.2 million under this program. All shares were retired upon repurchase.
b.   Treasury stock
Treasury stock is recorded at cost, which includes incremental direct transaction costs, and is retired upon acquisition as a result from share repurchases under the share repurchase program or from the withholding of shares of stock to satisfy employee tax withholding obligations that arise upon the lapse of restrictions on their stock awards at the employees' election.
c.   Stock-based compensation
The Company's Long-Term Incentive Plan (the "LTIP") provides for the granting of incentive awards in the form of restricted stock awards, stock option awards, performance share awards, performance unit awards and other awards. The LTIP provides for the issuance of up to 24,350,000 shares of Laredo's common stock.
The Company recognizes the fair value of stock-based compensation awards expected to vest over the requisite service period as a charge against earnings, net of amounts capitalized. The Company's stock-based compensation awards are accounted for as equity instruments and are included in the "General and administrative" line item in the unaudited consolidated statements of operations. The Company capitalizes a portion of stock-based compensation for employees who are directly involved in the acquisition, exploration or development of oil and natural gas properties into the full cost pool. Capitalized stock-based compensation is included as an addition to "Oil and natural gas properties" on the unaudited consolidated balance sheets.
Restricted stock awards
All service vesting restricted stock awards are treated as issued and outstanding in the accompanying unaudited consolidated financial statements. Per the award agreement terms, if an employee terminates employment prior to the restriction lapse date for reasons other than death or disability, the awarded shares are forfeited and canceled and are no longer considered issued and outstanding. If the employee's termination of employment is by reason of death or disability, all of the holder's restricted stock will automatically vest. Restricted stock awards granted to officers and employees vest in a variety of vesting schedules including (i) 33%, 33% and 34% per year beginning on the first anniversary of the grant date and (ii) fully on the first anniversary of the grant date. Beginning August 2017, stock awards granted to non-employee directors vest immediately on the grant date. Restricted stock awards granted to non-employee directors prior to August 2017 vest on the first anniversary of the grant date.
The following table reflects the restricted stock award activity for the six months ended June 30, 2018:
(in thousands, except for weighted-average grant-date fair value)
 
Restricted
stock
awards
 
Weighted-average
grant-date fair value
(per award)
Outstanding as of December 31, 2017
 
3,169

 
$
12.81

Granted
 
3,193

 
$
8.43

Forfeited
 
(126
)
 
$
10.55

Vested(1)
 
(1,791
)
 
$
12.34

Outstanding as of June 30, 2018
 
4,445

 
$
9.91

_____________________________________________________________________________
(1)
The total intrinsic value of vested restricted stock awards for the six months ended June 30, 2018 was $15.6 million.
The Company utilizes the closing stock price on the grant date to determine the fair value of service vesting restricted stock awards. As of June 30, 2018, unrecognized stock-based compensation related to the restricted stock awards expected to vest was $33.0 million. Such cost is expected to be recognized over a weighted-average period of 2.00 years.
Stock option awards
Stock option awards granted under the LTIP vest and become exercisable in four equal installments on each of the four anniversaries of the grant date. As of June 30, 2018, the 2,646,996 outstanding stock option awards have a weighted-average exercise price of $12.70 and a weighted-average remaining contractual term of 6.56 years. There were no grants, exercises, forfeitures or cancellations of stock option awards during the six months ended June 30, 2018.
The Company utilizes the Black-Scholes option pricing model to determine the fair value of stock option awards and recognizes the associated expense on a straight-line basis over the four-year requisite service period of the awards. Determining the fair value of equity-based awards requires judgment, including estimating the expected term that stock option awards will be outstanding prior to exercise and the associated expected volatility. As of June 30, 2018, unrecognized stock-based compensation related to stock option awards expected to vest was $6.0 million. Such cost is expected to be recognized over a weighted-average period of 1.87 years.
Performance share awards
Performance share awards, which the Company has determined are 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 the RTSR Performance Percentage (as defined below), the ATSR Appreciation (as defined below) and the Company's total shareholder return ("TSR"), a Monte Carlo simulation prepared by an independent third party is utilized to determine the grant-date fair value and the associated expense is recognized on a straight-line basis over the three-year requisite service period of the awards. For portions of awards with performance criteria, which is the ROACE Percentage (as defined below), the grant-date fair value is equal to the Company's stock price on the grant date, and for each reporting period, the associated expense fluctuates and is trued-up based on an estimated probability of how many shares will be earned at the end of the three-year performance period. Any shares earned under performance share awards are expected to be issued in the first quarter following the completion of the requisite service period based on the achievement of certain market and performance criteria.    
The following table reflects the performance share award activity for the six months ended June 30, 2018:
(in thousands, except for weighted-average grant-date fair value)
 
Performance
share
awards
 
Weighted-average
grant-date fair value
(per award)
Outstanding as of December 31, 2017
 
2,745

 
$
17.77

Granted(1)
 
1,389

 
$
9.22

Forfeited
 
(28
)
 
$
15.71

Vested(2)
 
(454
)
 
$
16.23

Outstanding as of June 30, 2018
 
3,652

 
$
14.55

______________________________________________________________________________
(1)
The amount of stock potentially payable at the end of the performance period for the performance share awards granted on February 16, 2018 will be determined based on three criteria: (i) relative three-year total shareholder return comparing the Company's shareholder return to the shareholder return of the peer group specified in the award agreement ("RTSR Performance Percentage"), (ii) absolute three-year total shareholder return ("ATSR Appreciation") and (iii) three-year return on average capital employed ("ROACE Percentage"). The RTSR Performance Percentage, ATSR Appreciation and ROACE Percentage will be used to identify the "RTSR Factor," the "ATSR Factor" and the "ROACE Factor," respectively, which are used to compute the "Performance Multiple" and ultimately to determine the final number of shares associated with each performance share unit granted at the maturity date (with all partial shares rounded, as appropriate). In computing the Performance Multiple, the RTSR Factor is given a 25% weight, the ATSR Factor a 25% weight and the ROACE Factor a 50% weight. The $9.22 per unit grant-date fair value consists of a (i) $10.08 per unit grant-date fair value, determined utilizing a Monte Carlo simulation, for the combined (.25) RTSR Factor and (.25) ATSR Factor and (ii) $8.36 per unit grant-date fair value for the (.50) ROACE Factor determined based on the closing price of the Company's common stock on the New York Stock Exchange on February 16, 2018. These awards have a performance period of January 1, 2018 to December 31, 2020.
(2)
The performance share awards granted on February 27, 2015 had a performance period of January 1, 2015 to December 31, 2017 and, as their performance criteria were not satisfied, resulted in a TSR modifier of 0% based on the Company finishing in the 36th percentile of its peer group for relative TSR. As such, the units were not converted into the Company's common stock during the first quarter of 2018.
As of June 30, 2018, unrecognized stock-based compensation related to the performance share awards expected to vest was $23.7 million. Such cost is expected to be recognized over a weighted-average period of 1.84 years.
The assumptions used to estimate the combined fair value for the (.25) RTSR Factor and the (.25) ATSR Factor for the market criteria portion of the performance share awards granted on the date presented are as follows:
 
 
February 16, 2018
Risk-free interest rate(1)
 
2.34
%
Dividend yield
 
—
%
Expected volatility(2)
 
65.49
%
Laredo stock closing price on grant date
 
$
8.36

Combined fair value per performance share award for the (.25) RTSR Factor and the (.25) ATSR Factor(3)
 
$
10.08

______________________________________________________________________________
(1)
The risk-free interest rate was derived using a term-matched zero-coupon yield derived from the U.S. Treasury constant maturities yield curve on the grant date.
(2)
The Company utilized its own historical volatility in order to develop the expected volatility.
(3)
The market criteria portion of the performance share award represents 50% of each of the amount of stock potentially payable, if any, and the grant-date fair value of the award.
Stock-based compensation expense
The following has been recorded to stock-based compensation expense for the periods presented:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
 
2018
 
2017
 
2018
 
2017
Restricted stock award compensation
 
$
7,286

 
$
5,267

 
$
13,331

 
$
11,434

Stock option award compensation
 
971

 
1,144

 
2,040

 
2,441

Performance share award compensation
 
4,415

 
4,068

 
8,742

 
7,808

Total stock-based compensation, gross
 
12,672

 
10,479

 
24,113

 
21,683

Less amounts capitalized in oil and natural gas properties
 
(1,996
)
 
(1,792
)
 
(4,098
)
 
(3,772
)
Total stock-based compensation, net
 
$
10,676

 
$
8,687

 
$
20,015

 
$
17,911