Share-Based Compensation

The Company accounts for share-based compensation in accordance with ASC Topic 718. Share-based compensation cost is recognized over the requisite service period. Compensation cost for awards with graded vesting is recognized using the accelerated attribution method. Share-based compensation cost is reflected as a component of general and administrative expenses. A detail of share-based compensation cost for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):



	Year Ended December 31,
	2014		2013		2012
Stock options:
Incentive Stock Options	$	573	$	310	$	786
Non-Qualified Stock Options	171		222		660
Restricted stock	4,504		3,684		5,464
Restricted stock units	3,094		1,611		277
Share-based compensation	$	8,342	$	5,827	$	7,187

During the years ended December 31, 2014, 2013 and 2012 the Company capitalized $1.5 million, $0.8 million and $0.1 million of the above share-based compensation cost to oil and gas properties. During the years ended December 31, 2014, 2013 and 2012, the Company recorded income tax benefits of approximately $2.3 million, $1.8 million and $2.3 million, respectively, related to share-based compensation expense recognized during those periods. Any excess tax benefits from the vesting of restricted stock and the exercise of stock options will not be recognized in paid-in capital until the Company is in a current tax paying position. Presently, all of the Company’s income taxes are deferred and the Company has net operating losses available to carryover to future periods. Accordingly, no excess tax benefits have been recognized for any periods presented.

At December 31, 2014, the Company had $7.6 million of unrecognized compensation cost related to unvested restricted stock and stock options. This amount will be recognized as compensation expense over a weighted average period of approximately three years.

Stock Options

Stock options generally vest equally over a three-year period, must be exercised within 10 years of the grant date and may be granted only to employees, directors and consultants. The exercise price of each option may not be less than 100% of the fair market value of a share of common stock on the date of grant. Upon a change in control of the Company, all outstanding options become immediately exercisable.

The Company computes the fair value of its stock options using the Black-Scholes option-pricing model assuming a stock option forfeiture rate and expected term based on historical activity and expected volatility computed using historical stock price fluctuations on a weekly basis for a period of time equal to the expected term of the option. Periodically, the Company adjusts compensation expense based on the difference between actual and estimated forfeitures.

The following table outlines the assumptions used in computing the fair value of stock options granted during 2014, 2013 and 2012:



	Years Ended December 31,
	2014	2013	2012
Dividend yield	—%	—%	—%
Expected volatility	79.4% - 80.0%	79.6% - 79.8%	79.2% - 79.6%
Risk-free rate	1.81% - 2.015%	0.9% - 1.815%	0.8% - 1.1%
Expected term	6 years	6 years	6 years
Forfeiture rate	5.0%	5.0%	5.0%
Stock options granted (1)	69,434	395,642	125,487
Wgtd. avg. grant date fair value per share	$2.84	$2.91	$3.71
Fair value of grants (1)	$197,000	$1,150,000	$465,000


(1)	Prior to applying estimated forfeiture rate

The following table details stock option activity during the year ended December 31, 2014:



	Number of Options		Wgtd. Avg. Exercise Price		Wgtd. Avg. Remaining Life	Aggregate Intrinsic Value (000’s)
Outstanding at beginning of year	1,892,493		$	5.67
Granted	69,434		4.13
Expired/cancelled/forfeited	(156,724	)	5.60
Exercised	(287,499	)	3.34
Outstanding at end of year	1,517,704		6.05		6.0 years	$	—

Options exercisable at end of year	1,172,400		$	6.58	5.3 years	$	—
Options expected to vest	328,039		4.27		8.6 years	$	—

The total fair value of stock options that vested during the years ended December 31, 2014, 2013 and 2012 was $1.0 million, $0.8 million and $1.7 million, respectively. The intrinsic value of stock options exercised was immaterial for all periods presented.

The following table summarizes information regarding stock options outstanding at December 31, 2014:




Range of	Options	Wgtd. Avg.	Wgtd. Avg.	Options	Wgtd. Avg.
Exercise	Outstanding	Remaining	Exercise	Exercisable	Exercise
Price	12/31/2014	Contractual Life	Price	12/31/2014	Price
$2.24—$4.48	407,255	8.9 years	$4.14	115,945	$4.18
$4.48—$6.72	355,820	4.0 years	$5.63	301,826	$5.73
$6.72—$8.96	744,629	5.5 years	$7.25	744,629	$7.25
$8.96—$11.20	10,000	1.1 years	$9.99	10,000	$9.99
	1,517,704	6.0 years	$6.05	1,172,400	$6.58

Restricted Stock

The Company computes the fair value of its service based restricted stock using the closing price of the Company’s stock at the date of grant, and compensation expense is recognized assuming a 5% estimated forfeiture rate. Restricted stock granted to employees prior to 2011 generally vests over a five-year period with one-fourth vesting on each of the first, second, third and fifth anniversaries of the date of the grant. No portion of the restricted stock vests on the fourth anniversary of the date of the grant. Prior to 2013, restricted stock granted to directors generally vested evenly over a three year period. In 2013, restricted stock granted to directors vests one year from the date of grant, to align with their term on the board. Beginning January 1, 2011, restricted stock granted to employees generally vests evenly over a three year period. Upon a change in control of the Company, all outstanding shares of restricted stock will become immediately vested.

The following table details restricted stock activity during the year ended December 31, 2014:



	Number of Shares		Wgtd. Avg. Fair Value per Share
Outstanding at beginning of year	1,926,451		$	4.88
Granted	1,599,750		4.32
Expired/cancelled/forfeited	(135,861	)	5.01
Lapse of restrictions	(962,138	)	5.22
Outstanding at December 31, 2014	2,428,202		$	4.37

The weighted average grant date fair value of restricted stock granted during the years ended December 31, 2014, 2013 and 2012 was $4.32, $4.18 and $5.24, respectively, per share. The total fair value of restricted stock that vested during the years ended December 31, 2014, 2013 and 2012 was $5.0 million, $5.4 million and $4.7 million, respectively. At December 31, 2014, the weighted average remaining life of restricted stock outstanding was approximately two years and the intrinsic value of restricted stock outstanding, using the closing stock price on December 31, 2014, was $9.4 million.

Restricted Stock Units

The Company grants restricted stock units ("RSUs") to employees that vest evenly over a three year period. Cash payment will be made to employees on each vesting date based upon the Company's closing stock price on that date. Upon change in control of the Company, all of the RSUs will immediately vest. The Company computes the fair value of the RSUs using the closing price of the Company's stock at the end of each period and records a liability based on the percentage of requisite service rendered at the reporting date. During 2014, the Company paid $2.0 million for units that vested during the period. As of December 31, 2014, the Company had a liability for RSUs outstanding and expected to vest in the amount of $1.4 million.

The following table details RSU activity during the year ended December 31, 2014:



	Number of Shares
Outstanding at beginning of year	1,273,417
Granted	669,469
Expired/Cancelled/Forfeited	(66,849	)
Vested/Paid	(496,776	)
Outstanding at December 31, 2014	1,379,261

Market Based Restricted Stock Units

The Company granted 243,067 market based restricted stock units ("MRSUs") to executive officers during November 2014. The executive officers could earn between 0-200% of the MRSUs granted based on the Company's performance versus a defined peer group. The MRSUs vest in one-third increments on each of the first, second and third annual anniversaries starting January 1, 2016. Upon change in control of the Company, all of the MRSUs will immediately vest. The number of MRSUs that ultimately vest is based on the Company's total shareholder return in the last 20 days of the fiscal year in relation to the last 20 days of the previous fiscal year in comparison to a group of 12 selected peer stocks of similar sized companies which operate within the same sector. The MRSUs are cash settled on each vesting date based on the number of MRSUs that vest multiplied by the Company's closing stock price. The Company estimates the fair value of the outstanding MRSUs using a Monte Carlo valuation model and records a liability based on the percentage of requisite service rendered at the reporting date. The Monte Carlo valuation model considers such inputs as the Company's and its peer group's stock prices, a risk-free interest rate, and an estimated volatility for the Company and its peer group. The liability for MSRUs was immaterial as of December 31, 2014.