Note 7 - Compensation Plans

Cash Bonus Plan

During the first quarters of 2014 and 2013, the Company paid $41.7 million and $16.0 million, respectively, for cash bonuses earned during the 2013 and 2012 performance years, respectively. The general and administrative (“G&A”) expense and exploration expense line items in the accompanying statements of operations include $6.6 million and $5.6 million of accrued cash bonus plan expense for the three months ended March 31, 2014, and 2013, respectively, related to the respective performance years.

Non-qualified Deferred Compensation Plan

In January 2014, the Company established a non-qualified deferred compensation (“NQDC”) plan intended to provide plan participants with the ability to plan for income tax events and the opportunity to receive a benefit for matching contributions in excess of Internal Revenue Code (“IRC”) limits applicable to the Company’s 401(k) plan. The NQDC plan is designed to allow participants to defer a portion of base salary and cash bonuses paid pursuant to the Company’s cash bonus plan. Each year, participating employees may elect to defer (i) between 0% and 50% of their base salary, and (ii) between 0% and 100% of the cash bonus paid pursuant to the cash bonus plan. The NQDC plan requires the Company to make contributions for each eligible employee equal to 100% of the deferred amount for such employee, limited to 6% of such employee’s base salary and cash bonus. Each eligible employee’s interest in the contributions the Company makes will vest 40% after the second year of such employee’s service to the Company, and 20% per year thereafter. A participant’s account will be distributed based upon the participant’s payment election made at the time of deferral. A participant may elect to have distributions made in lump sum or in annual installments ranging for a period from 1 to 10 years. Participants in the NQDC plan are currently limited to the Company’s officers and directors.

Restricted Stock Units Under the Equity Incentive Compensation Plan

The Company grants restricted stock units (“RSUs”) as part of its equity compensation program. Each RSU represents a right to one share of the Company’s common stock to be delivered upon settlement of the award at the end of the specified vesting period. Expense associated with RSUs is recognized as G&A expense and exploration expense over the vesting period of the award.

Total expense recorded for RSUs for the three months ended March 31, 2014, and 2013, was $2.8 million and $3.0 million, respectively. As of March 31, 2014, there was $15.9 million of total unrecognized compensation expense related to unvested RSU awards, which is being amortized through 2016. There have been no material changes to the outstanding and non-vested RSUs during the three months ended March 31, 2014.

Performance Stock Units Under the Equity Incentive Compensation Plan

The Company grants performance share units (“PSUs”) as part of its equity compensation program. The number of shares of the Company’s common stock issued to settle PSUs ranges from 0% to 200% of the number of PSUs awarded and is determined based on the Company’s performance over a three-year measurement period. The performance criteria for the PSUs are based on a combination of the Company’s annualized total shareholder return (“TSR”) for the measurement period and the relative measure of the Company’s TSR compared with the annualized TSRs of a group of peer companies for the measurement period. Expense associated with PSUs is recognized as G&A expense and exploration expense over the vesting period of the award.

Total expense recorded for PSUs for the three months ended March 31, 2014, and 2013, was $3.2 million and $4.7 million, respectively. As of March 31, 2014, there was $14.9 million of total unrecognized compensation expense related to unvested PSU awards, which is being amortized through 2016. There have been no material changes to the outstanding and non-vested PSUs during the three months ended March 31, 2014.

Stock Option Grants Under the Equity Incentive Compensation Plan

As of March 31, 2014, there were 39,088 stock option awards outstanding at a weighted average exercise price of $20.87 with an aggregate intrinsic value of $2.0 million. There was no unrecognized compensation expense as of March 31, 2014, and no changes in these awards occurred during the quarter.

Net Profits Interest Bonus Plan

Cash payments made or accrued under the Company’s Net Profits Interest Bonus Plan (“Net Profits Plan”) that have been recorded as either G&A expense or exploration expense are presented in the table below:



	For the Three Months Ended March 31,
	2014		2013
	(in thousands)
General and administrative expense	$	2,978	$	3,786
Exploration expense	288		374
Total	$	3,266	$	4,160

The Company records changes in the present value of estimated future payments under the Net Profits Plan as a separate line item in the accompanying statements of operations. The change in the estimated liability is recorded as a non-cash expense or benefit in the current period and is not allocated to G&A expense or exploration expense because it is associated with the future net cash flows from oil and gas properties in the respective pools rather than results being realized through current period production. If the Company allocated the change in liability to these specific functional line items, based on the current allocation of actual distributions made by the Company, such expenses or benefits would predominately be allocated to G&A expense. Over time, less of the amount distributed relates to prospective exploration efforts as more of the amount distributed is paid to employees that have terminated employment and do not provide ongoing exploration support to the Company.