Share-Based Compensation

9 Months Ended

Sep. 30, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

9. Share-based compensation

Description of Plan

As of September 30, 2011 and December 31, 2010, there were 1,692,940 and 2,068,375 shares, respectively, available for grant under our 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan. Effective October 6, 2011, our shareholders voted to increase the total shares authorized for issuance under the 2005 Incentive Plan from 23,000,000 to 28,500,000 shares, increasing the number of shares available for grant by 5,500,000, and also voted to increase the amount that each restricted share counts against the total number of shares we have available for grant from 1.17 shares to 2.1 shares.

We have historically only granted options under the 2005 Incentive Plan. However, on August 15, 2011 we granted 689,100 shares of restricted stock to certain employees. The restricted shares vest evenly on each of the next three anniversaries of the date of grant. The holders of these shares have voting rights and upon vesting the right to receive all accrued and unpaid dividends.

Compensation Costs

We account for our stock-based options and awards in accordance with FASB ASC Topic 718 for Compensation – Stock Compensation Topic, or ASC 718. As required by ASC 718, the granting of options and awards to our employees under the 2005 Incentive Plan are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital.

Total share-based compensation to be recognized on unvested options and restricted stock awards as of September 30, 2011 is $26.1 million. Of this amount, $17.6 million is related to unvested options and will be recognized over a weighted average period of 1.4 years and $8.5 million is related to unvested restricted stock awards and will be recognized over a weighted average period of 2.9 years.

The following is a reconciliation of our share-based compensation expense for the three and nine months ended September 30, 2011 and 2010:

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2011		2010		2011		2010
General and administrative expense	$	2,450	$	2,166	$	7,397	$	10,028
Lease operating expense		0		239		140		840
Total share-based compensation expense		2,450		2,405		7,537		10,868
Share-based compensation capitalized		1,509		1,362		4,309		3,537
Total share-based compensation	$	3,959	$	3,767	$	11,846	$	14,405

Stock Options

During the nine months ended September 30, 2011, options to purchase 101,800 shares of common stock were granted under the 2005 Incentive Plan at prices ranging from $14.55 to $20.78 per share with fair values ranging from $7.77 to $11.62 per share. As part of our fair value calculation, volatility is determined based on the combination of the weighted average volatility of our common stock price and the weighted average volatility from five comparable public companies during the period when we were privately held. During the nine months ended September 30, 2010, options to purchase 489,600 shares of common stock were granted under the 2005 Incentive Plan at prices ranging from $13.97 to $22.22 per share with fair values ranging from $7.43 to $12.77 per share. The options expire 10 years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant.

In connection with certain divestitures, in the first quarter of 2010 we accelerated the vesting of a number of employee stock options on the date of the employee's termination and extended their exercise terms to one year from date of termination. For the nine months ended September 30, 2010, we recognized $0.9 million in additional compensation expense related to the modification of option terms of which $0.7 million would have been recognized over the remaining life of the options had they not been accelerated. The underlying stock price on the dates of modification ranged from $14.70 to $21.23 and the exercise prices of the options accelerated ranged from $7.50 to $24.66.

Restricted Stock

During the nine months ended September 30, 2011, 689,100 restricted shares of common stock were granted under the 2005 Incentive Plan at a price of $14.83, which is equal to the closing price of our stock on the date of grant.

A summary of our restricted stock activity for the period ended September 30, 2011 is as follows:

	Shares			Weighted average grant date fair value per share
Non-vested shares outstanding at December 31, 2010		—			—
Granted		689,100		$	14.83
Vested		0			0
Forfeited		(22,000	)		14.83
Non-vested shares outstanding at September 30, 2011		667,100		$	14.83