Note 7. Stock Compensation

The Amended and Restated 2004 Omnibus Stock and Incentive Plan, amended and restated as of May 24, 2016 (the “2004 Plan”), is an incentive plan that provides for the issuance of incentive and non-qualified stock options, restricted stock awards, restricted stock units, SARs settled in stock, and performance-based awards to officers, employees and directors. Since the 2004 Plan’s inception, awards covering a total of 44.5 million shares of common stock have been authorized for issuance pursuant to the 2004 Plan. As of December 31, 2016, 9.7 million shares were available under the 2004 Plan for future issuance of awards, all of which could be issued in the form of restricted stock or performance-based awards. Our incentive compensation program is administered by the Compensation Committee of our Board of Directors. The 2004 Plan was last approved by our stockholders in May 2016 and will expire in May 2026.

Stock-based compensation expense associated with our field employees is included in “Lease operating expenses,” while such expense associated with non-field employees is included in “General and administrative expenses” in the Consolidated Statements of Operations. Stock-based compensation associated with our employees involved in exploration and drilling activities is capitalized as part of “Oil and natural gas properties” in the Consolidated Balance Sheets. Effective January 1, 2016, with the adoption of ASU 2016-09, we made an accounting policy election to account for forfeitures as they occur, versus the previously-estimated forfeiture rate.

Stock-based compensation costs for the years ended December 31, 2016, 2015 and 2014, are as follows:



	Year Ended December 31,
In thousands	2016		2015		2014
Stock-based compensation expensed
General and administrative expenses	$	14,359	$	27,995	$	27,789
Lease operating expenses	636		2,609		2,724
Total stock-based compensation expensed	14,995		30,604		30,513
Stock-based compensation capitalized	6,047		8,681		9,019
Total cost of stock-based compensation arrangements	$	21,042	$	39,285	$	39,532

Income tax benefit recognized for stock-based compensation arrangements	$	5,698	$	11,630	$	11,595

Stock Options and SARs

Prior to January 1, 2006, we granted incentive and non-qualified stock options to our employees. Effective January 1, 2006, we replaced the use of stock options for employees with SARs settled in stock, as SARs are less dilutive to our stockholders while providing an employee with essentially the same economic benefits as stock options. As of December 31, 2015, we also discontinued the issuance of SARs.

The stock options and SARs generally become exercisable over a three-year vesting period, with the specific terms of vesting determined at the time of grant based on guidelines established by the Compensation Committee of the Board of Directors. The stock options and SARs expire over terms not to exceed 10 years from the date of grant, 90 days after termination of employment, 90 days or one year after permanent disability, depending on the award, or one year after the death of the optionee. As of December 31, 2015, all outstanding options had expired. The stock options and SARs were granted with a strike price equal to the fair market value at the time of grant, which is generally defined as the closing price on the NYSE on the date of grant.

The fair value of each SAR award is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions noted in the following table. The risk-free rate for periods within the contractual life of the SAR is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of SARs granted was derived from examination of our historical SAR grants and subsequent exercises. The contractual terms (cliff vesting and graded vesting) are evaluated separately for the expected life, as the exercise behavior for each is different. Expected volatilities are based on the historical volatility of our common stock. There were no SAR awards granted in 2016.



	Year Ended December 31,
	2015			2014
Weighted average fair value of SARs granted	$	1.77		$	3.55
Risk-free interest rate	1.29		%	1.31		%
Expected life	4.0 years			3.8 to 4.0 years
Expected volatility	39.4		%	38.0		%
Dividend yield	3.42		%	3.10		%

The following is a summary of our stock option and SAR activity:



	Number of Awards		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015	8,903,514		$	13.76
Granted	—		—
Exercised	—		—
Forfeited	(365,410	)	8.21
Expired	(2,597,360	)	14.98
Outstanding at December 31, 2016	5,940,744		13.57		3.0	$	—

Exercisable at end of period	4,198,913		$	15.99	2.1	$	—

The following is a summary of the total intrinsic value of stock options and SARs exercised and grant-date fair value of stock options and SARs vested:



	Year Ended December 31,
In thousands	2016		2015		2014
Intrinsic value of stock options and SARs exercised	$	—	$	60	$	7,985
Grant-date fair value of stock options and SARs vested	4,787		6,534		9,998

As of December 31, 2016, there was $1.5 million of total compensation cost to be recognized in future periods related to nonvested share-based SAR compensation arrangements. The cost is expected to be recognized over a weighted-average period of 1.0 year. The following is a summary of cash received from stock option exercises under share-based payment arrangements and tax benefits realized from the exercises of stock options and SARs:



	Year Ended December 31,
In thousands	2016		2015		2014
Cash received from stock option exercises	$	—	$	562	$	7,022
Tax benefit realized for the exercises of stock options and SARs	—		—		212

Restricted Stock

We grant non-performance-based restricted stock to new employees during the year as part of their new hire compensation packages, and annually we grant restricted stock awards to employees and directors as part of our long-term compensation program. Holders of non-performance-based restricted stock awards have the rights of owning non-restricted stock (including voting rights) except that the holders are not entitled to delivery of a portion thereof until certain requirements are met. Beginning in 2014, non-performance-based restricted stock awards provide the holders with forfeitable dividend equivalent rights which vests with the underlying shares. Non-performance-based restricted stock vests over a three-year vesting period, with the specific terms of vesting determined at the time of grant.

As of December 31, 2016, there was $26.1 million of unrecognized compensation expense related to nonvested non-performance-based restricted stock grants. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.1 years. The following is a summary of the total vesting date fair value of non-performance-based restricted stock:



	Year Ended December 31,
In thousands	2016		2015		2014
Fair value of restricted stock vested	$	6,161	$	12,549	$	24,780

A summary of the status of our nonvested non-performance-based restricted stock grants issued, and the changes during the year ended December 31, 2016, is presented below:



	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2015	5,589,687		$	9.27
Granted	7,569,553		3.23
Vested	(2,906,465	)	10.44
Forfeited	(511,990	)	7.09
Nonvested at December 31, 2016	9,740,785		4.34

Performance-Based Equity Awards

Annually, the Compensation Committee of the Board of Directors grants performance-based equity awards to Denbury’s officers. Performance-based awards generally vest over 1.25 to 3.25 years, and the number of performance-based shares earned (and eligible to vest) during the performance period will depend upon: (1) our level of success in achieving specifically identified performance targets (“Performance-Based Operational Awards”) and (2) performance of our stock relative to that of a designated peer group (“Performance-Based TSR Awards”). Generally, one-half of the maximum number of shares that could be earned under the performance-based awards will be earned for performance at the designated target levels (100% target vesting levels) or upon any earlier change of control, and twice the target number of shares will be earned if the maximum target levels are met (200% of target vesting levels). With respect to the 2016 performance-based equity awards, any amounts earned above the 100% target levels will be payable in cash, rather than in shares of Denbury stock, in order to conserve available shares under the Plan. If performance is below the designated minimum levels, no performance-based shares will be earned. Performance-Based Operational Awards are valued using the fair market value of Denbury stock on the grant date, and Performance-Based TSR Awards are valued using a Monte Carlo simulation.

During 2016 and 2015, we granted performance-based equity awards to our officers. As of December 31, 2016, there was $2.2 million of unrecognized compensation expense related to nonvested performance-based equity awards. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.6 years. The range of assumptions used in the Monte Carlo simulation valuation approach for Performance-Based TSR Awards (presented at the target level) are as follows:



	Year Ended December 31,
	2016			2015			2014
Weighted average fair value of Performance-Based TSR Awards granted	$	1.78		$	7.59		$	19.81
Risk-free interest rate	1.31		%	0.96		%	0.80		%
Expected life	3.0 years			3.0 years			3.0 years
Expected volatility	57.2		%	33.6		%	39.4		%
Dividend yield	—		%	3.42		%	2.50		%

A summary of the status of the nonvested performance-based equity awards (presented at the target level) during the year ended December 31, 2016, is as follows:



	Performance-Based Operational Awards				Performance-Based TSR Awards
	Number of Awards		Weighted Average Grant-Date Fair Value		Number of Awards		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2015	559,260		$	13.82	768,555		$	14.75
Granted ⁽¹⁾	596,445		2.17		1,491,112		1.78
Vested ⁽²⁾	(139,049	)	7.31		(145,731	)	20.08
Forfeited	(52,221	)	5.58		(97,513	)	4.94
Nonvested at December 31, 2016	964,435		8.00		2,016,423		5.25


(1)	Amounts granted reflect the number of performance units granted. The actual payout of the shares may be between 0% and 200%, with any amounts earned above the 100% target levels payable in cash, rather than in shares of Denbury stock, in order to conserve available shares under the Plan.


(2)	During 2016, the service period lapsed on these performance unit awards. The lapsed units earned a weighted average of 0% and 25% of target for each vested Operational and TSR performance-based award, respectively, representing 36,434 aggregate shares of common stock issued.

The following is a summary of the total vesting date fair value of performance-based equity awards:



	Year Ended December 31,
In thousands	2016		2015		2014
Vesting date fair value of Performance-Based Operational Awards	$	—	$	2,861	$	—
Vesting date fair value of Performance-Based TSR Awards	81		300		—