Equity Incentive Compensation Plans

6 Months Ended

Jun. 30, 2011

Equity Incentive Compensation Plans

Equity Incentive Compensation Plans

7. 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 (usually the vesting period).

        Total compensation cost recognized in the Statements of Operations for the grants under the Company's equity incentive compensation plans was $2.2 million and $1.8 million during the three months ended June 30, 2011 and 2010, respectively, and $5.1 million and $4.1 million during the six months ended June 30, 2011 and 2010, respectively.

Stock Options

        The following table summarizes stock option activity for the six months ended June 30, 2011:

		Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)(1)		Number of Shares Exercisable
Outstanding at January 1, 2011			2,017,225		$	25.87	$	35,974		1,884,937
	Granted		89,865			48.50
	Exercised		(229,685	)		14.93
	Cancelled/expired		—			—
Outstanding at June 30, 2011			1,877,405		$	28.29	$	46,637		1,656,002

(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 2011, 89,865 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 Class A 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 fair value of each option granted was estimated using the Black-Scholes option pricing model. The following assumptions were used to compute the weighted average fair market value of options granted:

	2011
Expected volatility		45.00	%
Risk-free interest rate		2.54	%
Dividend yield		0.62	%
Expected term (in years)		6.0

        As of June 30, 2011, there was $1.7 million of total unrecognized compensation cost related to outstanding stock options. This cost is expected to be recognized over 3.8 years.

Restricted Stock Units

        The following table summarizes restricted stock unit (RSU) activity for the six months ended June 30, 2011:

		RSUs			Weighted Average Grant Date Fair Value		Vest Date Fair Value (in thousands)
Outstanding at January 1, 2011			857,360		$	19.67
	Granted		153,240			47.78
	Issued		(14,515	)		38.69	$	678
	Canceled/expired		(3,388	)		25.47
Outstanding at June 30, 2011(1)(2)			992,697		$	23.70

(1)

The balance outstanding includes 30,544 RSUs granted to the non-employee Directors that are 100% vested at date of grant but are subject to a deferral election before the corresponding shares are issued.

(2)

The balance outstanding includes 294,767 RSUs granted to executive officers and other officers that have vested in accordance with the RSU agreement, but are subject to a deferral election before the corresponding shares are issued.

        As of June 30, 2011, there was $10.5 million of total unrecognized compensation cost related to RSUs granted. This cost is expected to be recognized over 3.8 years.

Performance Share Program

        The following table summarizes performance share award activity for the six months ended June 30, 2011:

		Performance Share Awards		Weighted Average Grant Date Fair Value		Vest Date Fair Value (in Thousands)
Outstanding at January 1, 2011			103,794	$	31.20
	Granted		65,620		51.86
	Issued		—		—	$	—
	Canceled/expired		—		—
Outstanding at June 30, 2011			169,414	$	39.20

        In March 2011, 65,620 RSUs that are subject to internal performance metrics and market based vesting criteria in addition to a three-year service condition (performance shares), were granted to executive officers and other officers. The ultimate vesting of awards is contingent upon meeting the established criteria. From January 1, 2011 to December 31, 2013, the Company must maintain an interest coverage ratio of at least 2.5 to 1.0. The number of performance share awards that ultimately vest is based on two equally weighted performance factors: (i) compounded annual production growth as measured by average annual barrels of oil equivalent per day (BOE/D) and (ii) total shareholder return as compared to the Company's defined peer group for years 2011-2013.

        For the portion of performance share awards subject to internal performance metrics, the grant date fair value was determined by reference to the closing price of a share of Class A 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 performance share awards subject to market based vesting criteria, the grant date fair value was estimated using a Monte Carlo valuation model. 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:

	2011
Number of simulations		100,000
Expected volatility		44	%
Risk-free rate		1.15	%

        As of June 30, 2011, there was $2.3 million of total unrecognized compensation cost related to performance share awards granted. This cost is expected to be recognized over 2.5 years.