Stock Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Note 9. Stock Compensation

The Amended and Restated 2004 Omnibus Stock and Incentive Plan, amended and restated as of March 28, 2019 (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, stock appreciation rights (“SARs”) settled in stock, and performance-based awards to officers, employees and directors. Since the 2004 Plan’s inception, awards covering a total of 61.4 million shares of common stock have been authorized for issuance pursuant to the 2004 Plan. As of December 31, 2019, 13.6 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 2019 and will expire in May 2029.

Stock-based compensation expense 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. Our accounting policy is to account for forfeitures as they occur.

Stock-based compensation costs for the years ended December 31, 2019, 2018 and 2017, are as follows:



	Year Ended December 31,
In thousands	2019		2018		2017
Stock-based compensation expense included in G&A	$	12,470	$	11,951	$	15,154
Stock-based compensation capitalized	4,018		3,487		4,567
Total cost of stock-based compensation arrangements	$	16,488	$	15,438	$	19,721

Income tax benefit recognized for stock-based compensation arrangements	$	3,118	$	2,988	$	5,759

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 7 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, 2018	2,500,885		$	10.41
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	(519,729	)	15.29
Outstanding at December 31, 2019	1,981,156		9.12		1.5	$	—

Exercisable at end of period	1,981,156		$	9.12	1.5	$	—

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	2019		2018		2017
Intrinsic value of SARs exercised	$	—	$	—	$	—
Grant-date fair value of SARs vested	—		1,095		1,818

As of December 31, 2018, all SARs vested and there was no remaining compensation cost to be recognized in future periods related to nonvested share-based SAR compensation arrangements. There were no exercises of SARs for the years ended December 31, 2019, 2018 or 2017.

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, 2019, there was $17.4 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	2019		2018		2017
Fair value of restricted stock vested	$	5,743	$	23,060	$	9,325

A summary of the status of our nonvested non-performance-based restricted stock grants issued, and the changes during the year ended December 31, 2019, is presented below:



	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2018	8,990,578		$	3.40
Granted	9,630,155		1.15
Vested	(4,612,265	)	3.20
Forfeited	(1,601,032	)	2.05
Nonvested at December 31, 2019	12,407,436		1.91

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 for awards granted in 2017 and over 3.25 years for awards granted in 2018 and 2019. 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 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.

As of December 31, 2019, there was $5.7 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 1.9 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,
	2019			2018			2017
Weighted average fair value of Performance-Based TSR Awards granted	$	1.95		$	2.29		$	3.42
Risk-free interest rate	2.27		%	2.37		%	1.49		%
Expected life	3.0 years			3.0 years			3.0 years
Expected volatility	77.2		%	102.9		%	94.7		%
Dividend yield	—		%	—		%	—		%

A summary of the status of the nonvested performance-based equity awards (presented at the target level) during the year ended December 31, 2019, 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, 2018	857,812	$	2.43	3,806,116		$	2.71
Granted⁽¹⁾	980,772	2.13		2,027,660		1.95
Vested⁽²⁾	—	—		(1,357,778	)	1.78
Forfeited	—	—		—		—
Nonvested at December 31, 2019	1,838,584	2.27		4,475,998		2.65


(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 2019, the service period lapsed on these TSR performance unit awards. The lapsed units earned a weighted average of 100% of target for each vested TSR performance-based award, representing 1,357,778 aggregate shares of common stock issued. There were no vestings related to Operational performance-based awards during 2019.

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



	Year Ended December 31,
In thousands	2019		2018		2017
Vesting date fair value of Performance-Based Operational Awards	$	—	$	595	$	1,079
Vesting date fair value of Performance-Based TSR Awards	2,783		542		227