Share-Based Compensation

As discussed in “Note 2-Voluntary Reorganization under Chapter 11 of the Bankruptcy Code”, on the Effective Date and pursuant to the terms of the Plan and the Confirmation Order, all of the Predecessor’s common stock (and any share-based compensation based on such common stock) was canceled with the former holders thereof not receiving any consideration in respect thereof. The Predecessor's share-based compensation plan was also terminated on the Effective Date. Accordingly, the following discussion relates solely to the Predecessor’s share-based compensation plan and share-based compensation issued and outstanding prior to such cancellation.

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, 2018, 2017 and 2016 is as follows (in thousands):



	Year Ended December 31,
	2018			2017		2016
Stock options:
Incentive Stock Options (share settled)	$	407		$	820	$	206
Non-Qualified Stock Options (share settled)	94			387		164
Restricted stock (share settled)	465			197		1,073
Cash settled stock units	(241		)	245		244
Share-based compensation	$	725		$	1,649	$	1,687

During the years ended December 31, 2017 and 2016, the Company capitalized $103,000 and $106,000, respectively, of compensation cost related to cash settled restricted stock units to oil and gas properties. No such amounts were capitalized during the year ended December 31, 2018. During the years ended December 31, 2018, 2017 and 2016, the Company recorded income tax benefits of approximately $101,000, $270,000 and $512,000, respectively, related to share-based compensation expense recognized during those periods. As a result of the adoption of ASU 2016-09 during the year ended December 31, 2017, the Company recognized an additional deferred tax asset of $4.7 million related to net operating loss carryforwards for excess tax benefits on share-based compensation that did not meet the criteria for recognition under previous guidance.

Share-Based compensation settled in shares

At December 31, 2018, the Company had $0.4 million of unrecognized compensation cost related to unvested restricted stock and stock options.

Stock Options

Stock options may be granted to employees and consultants and generally vest ratably over a three-year period. Stock options may also be granted to directors and generally vest one year or less from the date of grant to align with their term on the board. Stock options must be exercised within 10 years of the grant date. The exercise price of each option may not be less than 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 an 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 2017 and 2016. No such grants were made during 2018.




	2017	2016
Dividend yield	—%	—%
Expected volatility	80.44%	62.0%-79.99%
Risk-free rate	1.925%	1.255%-2.09%
Expected term	6 years	6 years
Stock options granted	219,130	1,168,754
Wgtd. avg. grant date fair value per share	$1.28	$1.96
Fair value of grants	$280,000	$2,293,000

The following table details stock option activity during the year ended December 31, 2018:



	Number of Options		Wgtd. Avg. Exercise Price		Wgtd. Avg. Remaining Life	Aggregate Intrinsic Value (000’s)
Outstanding at beginning of year	1,608,646		$	6.20
Granted	—		—
Expired/cancelled/forfeited	(121,823	)	4.98
Exercised	—		—
Outstanding at end of year	1,486,823		6.34		7.03	$	—

Options exercisable at end of year	1,047,590		$	7.78	6.64	$	—

The total fair value of stock options that vested during the years ended December 31, 2018, 2017 and 2016 was $1.2 million, $1.6 million and $0.4 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, 2018:




Range of	Options	Wgtd. Avg.	Wgtd. Avg.	Options	Wgtd. Avg.
Exercise	Outstanding	Remaining	Exercise	Exercisable	Exercise
Price	12/31/2018	Contractual Life	Price	12/31/2018	Price
$0.00-$2.37	250,477	8.43	$1.99	105,780	$2.07
$3.17-$4.36	1,013,663	7.68	$3.37	719,127	$3.36
$16.72-$19.52	68,190	4.42	$17.11	68,190	$17.11
$20.40-$30.32	154,493	1.73	$28.15	154,493	$28.15
	1,486,823			1,047,590	$7.78

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. Restricted stock granted to employees generally vests ratably over a three-year period. Restricted stock granted to directors vests one year or less from the date of grant to align with their term on the board. 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, 2018:



	Number of Shares		Wgtd. Avg. Fair Value per Share
Outstanding at beginning of year	487,502		$1.87
Cancelled/forfeited	(34,946	)	$1.85
Lapse of restrictions	(37,500	)	$2.15
Outstanding at December 31, 2018	415,056		$1.85

The weighted average grant date fair value of restricted stock granted during the year ended December 31, 2017 was $1.87 per share. No restricted stock was granted in 2018 and 2016. The total fair value of restricted stock that vested during the years ended December 31, 2018, 2017 and 2016 was $0.1 million, $1.3 million and $2.4 million, respectively.

Share-Based compensation settled in cash

Restricted Stock Units

The Company may grant restricted stock units ("RSUs") to employees that vest ratably 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 2018 and 2017, the Company paid $24,000 and $59,000, respectively, to settle 323,374 and 31,703 RSUs, respectively, that vested during the period.

Market Based Restricted Stock Units

The Company granted 60,767 market based restricted stock units ("MRSUs") to executive officers during November 2014. The executive officers can earn between 0-200% of the MRSUs granted based on the Company's performance versus a defined peer group. The 2014 MRSUs vested 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 performance period ended on December 31, 2015 and executive officers earned 50% of the MRSUs. 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. In November 2017, the Company granted an additional 270,269 MRSUs. The performance period ended on December 31, 2018 for these grants and executive officers earned none of the MRSUs. 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 stock prices of the Company and its peer group, a risk-free interest rate, and an estimated volatility for the Company and its peer group. As of December 31, 2018, the Company had no liability for RSUs outstanding and as of December 31, 2017, the Company had a liability for RSUs and MRSUs outstanding in the amount of $0.3 million, based upon the closing stock price at December 31, 2018 and December 31, 2017, respectively.

The following table details MRSU and RSU activity during the year ended December 31, 2018:



	MRSU		RSU		Total
Outstanding at beginning of year	277,733		889,587		1,167,320
Granted	—		—		—
Expired/Cancelled/Forfeited	(270,269	)	(78,808	)	(349,077	)
Vested/Paid	(7,464	)	(323,374	)	(330,838	)
Outstanding at December 31, 2018	—		487,405		487,405