Equity Incentive Compensation Plans

Stock-based compensation is measured at the grant date based on the value of the awards, and the fair value is recognized on a straight-line basis over the requisite service period (generally the vesting period).

Total compensation cost recognized in the Condensed Statements of Operations for the grants under the Company's equity incentive compensation plans was $3.0 million and $2.9 million during the three months ended March 31, 2012 and 2011, respectively.

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2012:



	Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)(1)		Number of Shares Exercisable
Outstanding at January 1, 2012	1,520,689		$	30.32	$	17,798	1,434,020
Granted	82,262		53.02		—		—
Exercised	(197,209	)	17.73		6,779		—
Cancelled/expired	—		—		—		—
Outstanding at March 31, 2012	1,405,742		$	33.41	$	20,317	1,257,883

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(1)	The intrinsic value of a stock option is the amount by which the market value of the underlying stock at the end of the related period exceeds the exercise price of the option.

In March 2012, 82,262 stock options were granted under the 2010 Equity Incentive Plan to certain executive officers and other officers of the Company with exercise prices equal to the closing market price of the Company's common stock on the grant date. These stock options generally vest ratably over a four-year service period from the grant date and are exercisable immediately upon vesting through the tenth anniversary of the grant date.

The grant date fair value of each option granted was estimated using the Black-Scholes option pricing model. Expected volatility was calculated based on the historical volatility of the Company's common stock, and the risk-free interest rate was based on U.S. Treasury yield curve rates with maturities consistent with the expected life of each option. The key assumptions used in computing the weighted average fair market value of stock options granted were as follows:



	2012
Expected volatility	50.00	%
Risk-free interest rate	0.95	%
Dividend yield	0.57	%
Expected term (in years)	5.2

As of March 31, 2012, there was $3.2 million of total unrecognized compensation cost related to outstanding stock options. This cost is expected to be recognized over 4.0 years.

Restricted Stock Units

The following table summarizes restricted stock unit (RSU) activity for the three months ended March 31, 2012:



	RSUs		Weighted Average Grant Date Fair Value		Vest Date Fair Value (in thousands)
Outstanding at January 1, 2012	915,022		$	23.88
Granted	143,601		52.08
Issued	(49,706	)	43.23		$	2,406
Canceled/expired	(4,490	)	25.13
Outstanding at March 31, 2012(1)(2)	1,004,427		$	26.74

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(1)	The balance outstanding includes 43,554 RSUs granted to the non-employee Directors that are 100% vested at date of grant, but are subject to deferral elections delaying the date on which the corresponding shares are issued.


(2)	The balance outstanding includes 469,165 RSUs granted to executive officers and other officers that have vested in accordance with the RSU agreement, but are subject to deferral elections delaying the date on which the corresponding shares are issued.

As of March 31, 2012, there was $15.5 million of total unrecognized compensation cost related to RSUs granted. This cost is expected to be recognized over 4.0 years.

Performance Share Program

The following table summarizes performance share award activity for the three months ended March 31, 2012:



	Performance Share Awards (1)	Weighted Average Grant Date Fair Value		Vest Date Fair Value (in thousands)
Outstanding at January 1, 2012	162,849	$	39.00
Granted	59,738	63.69
Issued	—	—		$	—
Canceled/expired	—	—
Outstanding at March 31, 2012	222,587	$	45.79

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(1)	Reflects the maximum number of performance shares that can be issued.

In March 2012, 59,738 RSUs that are subject to performance metrics and a three-year service condition (performance shares) were granted to executive officers and certain other officers. The vesting of the performance share awards is contingent upon satisfying certain performance criteria. No performance shares will vest unless, from January 1, 2012 to December 31, 2014, the Company maintains an interest coverage ratio of at least 2.5 to 1.0, achieves a defined total shareholder return as compared to the Company's defined peer group and achieves a defined level of compounded annual production growth as measured by average annual barrels of oil equivalent per day (excluding acquisitions and divestitures). If such thresholds are met, the number of performance shares that vest is based on the excess total shareholder return and compounded annual production growth over the thresholds.

For the portion of the performance shares subject to a performance-based vesting condition based on the Company's annual production growth, the grant date fair value was determined by reference to the closing price of the Company's common stock on the date of grant. The Company recognizes compensation expense when it becomes probable that these conditions will be achieved. However, any such compensation expense recognized is reversed if vesting does not actually occur.

For the portion of the performance shares subject to a market performance-based vesting condition based on the Company's total shareholder return, the grant date fair value was estimated using a Monte Carlo simulation method. The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Company's common stock, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the three-year vesting period. The key assumptions used in valuing the market-based restricted shares were as follows:



	2012
Number of simulations	100,000
Expected volatility	50	%
Risk-free interest rate	0.42	%

All compensation expense related to the market performance-based awards will be recognized if the requisite service period is fulfilled, even if the market condition is not achieved.

As of March 31, 2012, there was $3.5 million of total unrecognized compensation cost related to performance share awards granted. This cost is expected to be recognized over 2.8 years.