Note 8. Stock Compensation

The Amended and Restated 2004 Omnibus Stock and Incentive Plan, amended and restated as of May 24, 2017 (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 48.4 million shares of common stock have been authorized for issuance pursuant to the 2004 Plan. As of December 31, 2017, 13.2 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 2017 and will expire in May 2027.

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, Improvements to Employee Share-Based Payment Accounting, 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, 2017, 2016 and 2015, are as follows:



	Year Ended December 31,
In thousands	2017		2016		2015
Stock-based compensation expensed
General and administrative expenses	$	15,154	$	14,359	$	27,995
Lease operating expenses	—		636		2,609
Total stock-based compensation expensed	15,154		14,995		30,604
Stock-based compensation capitalized	4,567		6,047		8,681
Total cost of stock-based compensation arrangements	$	19,721	$	21,042	$	39,285

Income tax benefit recognized for stock-based compensation arrangements	$	5,759	$	5,698	$	11,630

SARs

Prior to January 1, 2016, we granted SARs settled in stock to our employees. The 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 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. The 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 following is a summary of our 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, 2016	5,940,744		$	13.57
Granted	—		—
Exercised	—		—
Forfeited	(193,874	)	7.35
Expired	(2,080,845	)	15.04
Outstanding at December 31, 2017	3,666,025		13.07		2.6	$	—

Exercisable at end of period	3,053,868		$	14.19	2.3	$	—

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



	Year Ended December 31,
In thousands	2017		2016		2015
Intrinsic value of SARs exercised	$	—	$	—	$	60
Grant-date fair value of SARs vested	1,818		4,787		6,534

As of December 31, 2017, there was $34 thousand 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 0.2 years. There were no tax benefits realized from the exercises of SARs for the years ended December 31, 2017, 2016 or 2015.

Restricted Stock

We grant non-performance-based restricted stock 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, 2017, there was $15.5 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 2.0 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	2017		2016		2015
Fair value of restricted stock vested	$	9,325	$	6,161	$	12,549

A summary of the status of our nonvested non-performance-based restricted stock grants issued, and the changes during the year ended December 31, 2017, is presented below:



	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2016	9,740,785		$	4.34
Granted	5,714,005		1.56
Vested	(4,687,921	)	4.90
Forfeited	(1,018,186	)	3.70
Nonvested at December 31, 2017	9,748,683		2.51

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 and 2017 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, and Performance-Based TSR Awards are valued using a Monte Carlo simulation.

During 2017 and 2016, we granted performance-based equity awards to our officers. As of December 31, 2017, there was $1.8 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 1.7 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,
	2017			2016			2015
Weighted average fair value of Performance-Based TSR Awards granted	$	3.42		$	1.78		$	7.59
Risk-free interest rate	1.49		%	1.31		%	0.96		%
Expected life	3.0 years			3.0 years			3.0 years
Expected volatility	94.7		%	57.2		%	33.6		%
Dividend yield	—		%	—		%	3.42		%

A summary of the status of the nonvested performance-based equity awards (presented at the target level) during the year ended December 31, 2017, 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, 2016	964,435		$	8.00	2,016,423		$	5.25
Granted ⁽¹⁾	299,258		3.80		769,838		3.42
Vested ⁽²⁾	(653,613	)	4.61		(165,753	)	19.81
Forfeited	(55,862	)	5.24		(123,091	)	4.45
Nonvested at December 31, 2017	554,218		10.01		2,497,417		3.76


(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 2017, the service period lapsed on these performance unit awards. The lapsed units earned a weighted average of 64% and 53% of target for each vested Operational and TSR performance-based award, respectively, representing 506,035 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	2017		2016		2015
Vesting date fair value of Performance-Based Operational Awards	$	1,079	$	—	$	2,861
Vesting date fair value of Performance-Based TSR Awards	227		81		300