SHARE-BASED COMPENSATION

On the Effective Date, pursuant to the Plan, the 2017 LTIP became effective. As discussed in Note 15 – Employee Benefit Plans, the types of awards that may be granted under the 2017 LTIP include stock options, restricted stock, restricted stock units, dividend equivalents and other forms of awards granted or denominated in shares of New Common Stock, as well as certain cash-based awards.

We record share-based compensation expense for share-based compensation awards based on the fair value on the date of grant. Compensation expense for share-based compensation awards is recognized in our statement of operations on a straight-line basis over the vesting period of the award. Under the full cost method of accounting, we capitalize a portion of employee and general and administrative costs (including share-based compensation). Because of the non-cash nature of share-based compensation, the expensed portion of share-based compensation is added back to net income in arriving at net cash provided by operating activities in our statement of cash flows. The capitalized portion is not included in net cash used in investing activities.

Under U.S. GAAP, if tax deductions exceed book compensation expense, then excess tax benefits are credited to additional paid-in capital to the extent realized. If book compensation expense exceeds tax deductions, the tax deficit results in either a reduction in additional paid-in capital and/or an increase in income tax expense, depending on the pool of available excess tax benefits to offset such deficit. There were no adjustments to additional paid-in capital related to the net tax effect of stock option exercises and restricted stock vesting in 2017, 2016 or 2015. During the period from March 1, 2017 through December 31, 2017 (Successor), the period from January 1, 2017 through February 28, 2017 (Predecessor) and the years ended December 31, 2016 and 2015 (Predecessor), respectively, $2.5 million, $2.7 million, $4.1 million and $1.3 million of tax deficits were charged to income tax expense.

Predecessor Share-Based Compensation

For the period from January 1, 2017 through February 28, 2017 (Predecessor), we incurred $3.5 million of share-based compensation expense, all of which related to stock awards and restricted stock issuances, and of which a total of approximately $0.9 million was capitalized into oil and gas properties. For the year ended December 31, 2016 (Predecessor), we incurred $11.6 million of share-based compensation, all of which related to restricted stock issuances, and of which a total of approximately $3.1 million was capitalized into oil and gas properties. For the year ended December 31, 2015 (Predecessor), we incurred $17.9 million of share-based compensation, all of which related to restricted stock issuances, and of which a total of approximately $5.6 million was capitalized into oil and gas properties.

Stock Options. All outstanding stock options at December 31, 2016 related to executive share-based awards that were cancelled upon emergence from bankruptcy. There were no stock option grants during the period from January 1, 2017 through February 28, 2017. The following tables include Predecessor Company stock option activity during the years ended December 31, 2016 and 2015:



	Year Ended December 31, 2016 (Predecessor)
	Number of Options		Wgtd. Avg. Exercise Price		Wgtd. Avg. Term	Aggregate Intrinsic Value
Options outstanding, beginning of period	14,447		$	269.25
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	(1,500	)	477.45
Options outstanding, end of period	12,947		245.13		1.4 years	$	—
Options exercisable, end of period	12,947		245.13		1.4 years	—
Options unvested, end of period	—		—		—	—



	Year Ended December 31, 2015 (Predecessor)
	Number of Options		Wgtd. Avg. Exercise Price		Wgtd. Avg. Term	Aggregate Intrinsic Value
Options outstanding, beginning of period	20,497		$	339.36
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	(6,050	)	506.76
Options outstanding, end of period	14,447		269.25		2.1 years	$	—
Options exercisable, end of period	14,447		269.25		2.1 years	—
Options unvested, end of period	—		—		—	—

Restricted Stock and Other Stock Awards. Immediately prior to emergence, the vesting of all Predecessor outstanding, unvested share-based awards for non-executive employees was accelerated and, as a result, all unrecognized compensation cost related to such awards was recognized. Upon emergence from bankruptcy, all Predecessor outstanding, unvested restricted shares held by the Company’s executives were cancelled and exchanged for a proportionate share of the 5% of New Common Stock, plus a proportionate share of the warrants for ownership of up to 15% of the Successor Company’s common equity. Vesting continued in accordance with the applicable vesting provisions of the original awards (see Successor Share-Based Compensation below).

During the period from January 1, 2017 through February 28, 2017, 10,404 shares (valued at $69 thousand) of Predecessor Company stock were issued, representing grants of stock to the board of directors of the Predecessor Company. During the years ended December 31, 2016 and 2015, we issued 31,313 shares (valued at $0.3 million) and 141,872 shares (valued at $23.7 million), respectively, of Predecessor Company restricted stock or stock awards.

The following table includes Predecessor Company restricted stock and stock award activity during the period from January 1, 2017 through February 28, 2017 and the years ended December 31, 2016 and 2015:



	Predecessor
	Period from January 1, 2017 through February 28, 2017				Year Ended December 31,
	Period from January 1, 2017 through February 28, 2017				2016				2015
	Number of Restricted Shares		Wgtd. Avg. Fair Value Per Share		Number of Restricted Shares		Wgtd. Avg. Fair Value Per Share		Number of Restricted Shares		Wgtd. Avg. Fair Value Per Share
Restricted stock outstanding, beginning of period	81,090		$	205.34	180,239		$	208.17	129,848		$	299.45
Issuances	10,404		6.67		31,313		8.93		141,872		167.21
Lapse of restrictions or granting of stock awards	(73,276	)	186.37		(117,406	)	158.79		(63,745	)	296.00
Forfeitures	(194	)	169.40		(13,056	)	200.06		(27,736	)	223.80
Restricted stock outstanding, end of period	18,024		$	169.42	81,090		$	205.34	180,239		$	208.17

Successor Share-Based Compensation

Restricted Stock and Other Stock Awards. As discussed above, upon emergence from bankruptcy, all Predecessor outstanding, unvested restricted shares held by the Company’s executives were cancelled and exchanged for proportionate shares of New Common Stock. Vesting continued in accordance with the applicable vesting provisions of the original awards, with remaining compensation expense based on the fresh start fair value of $26.95 per share (see Note 3 – Fresh Start Accounting). For the period from March 1, 2017 through December 31, 2017 (Successor), we incurred approximately $0.1 million of share-based compensation expense related to these restricted shares. The restricted stock outstanding on December 31, 2017 became fully vested on January 15, 2018. The following table includes Successor Company restricted stock and stock award activity during the period from March 1, 2017 through December 31, 2017:



	Period from March 1, 2017 through December 31, 2017
	Number of Restricted Shares		Wgtd. Avg. Fair Value Per Share
Restricted stock outstanding at February 28, 2017 (Predecessor)	18,024		$	169.42
Restricted stock outstanding at March 1, 2017 (Successor)	3,176		$	26.95
Issuances	—		—
Lapse of restrictions	(2,083	)	21.78
Forfeitures	—		—
Restricted stock outstanding at December 31, 2017 (Successor)	1,093		$	26.95

Restricted Stock Units. On March 1, 2017, the Board received grants of restricted stock units under the 2017 LTIP. The restricted stock units are scheduled to vest in full on the day prior to the annual meeting of the Company’s stockholders in May 2018, subject to: (i) the director’s continued service on the board through the vesting date, and (ii) earlier vesting upon the occurrence of a change of control event or the termination of the director’s service due to death or removal from the board without cause. A total of 62,137 restricted stock units were granted with an aggregate grant date fair value of $1.7 million, based on a per share grant date fair value of $26.95. During the period from March 1, 2017 through December 31, 2017 (Successor), we incurred approximately $1.2 million of share-based compensation expense related to these restricted stock units. As of December 31, 2017, there was $0.5 million of unrecognized compensation cost related to such restricted stock units, with a current weighted average remaining vesting period of approximately four months.