Stock Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock Compensation

Note 6. Stock Compensation

2020 Compensation Adjustments

In response to the ongoing significant economic and market uncertainty affecting the oil and gas industry, the Company and its Board of Directors (the “Board”) and Compensation Committee (the “Compensation Committee”) conducted a comprehensive review of our compensation programs across the organization. As a result of this review, the Board and Compensation Committee determined that our historic compensation structure and performance metrics would not be effective in motivating and incentivizing our workforce in the current environment. With the advice of our independent compensation consultant and legal advisors, effective June 3, 2020, the Company and the Board implemented a revised compensation structure for all of the Company’s employees (including its named executive officers) and non-employee directors. In connection with the revised compensation structure, the Company’s CEO voluntarily reduced his 2020 base annual salary by 20%, and the Company’s CEO and CFO voluntarily reduced 2020 targeted variable compensation by 35% and 20%, respectively. In addition, the Chairman of the Board reduced his 2020 chairman retainer by 20%.

Under part of the revised compensation structure, which applies to a group of 21 of the Company’s executives (including our named executive officers) and senior managers, all outstanding equity awards and 2020 targeted variable cash-based compensation for those individuals were canceled and replaced with a cash retention incentive. In total, $15.2 million in cash retention incentives were prepaid to those employees in June 2020, with an obligation to repay up to 100% of the compensation (on an after-tax basis) if certain conditions are not satisfied. Our named executive officers’ cash retention incentive will be earned 50% based on their continued employment for a period of up to 12 months, and 50% based on achieving certain specified incentive metrics. I

n accordance with FASC Topic 718, Compensation – Stock Compensation, we accounted for the transaction involving equity compensation as an award modification and reclassified the awards from equity to liability awards. As a result of the modification of the awards, unrecognized compensation at the time of modification was determined to be $18.7 million ($4.1 million of incremental compensation expense, of which $3.4 million was expensed during the second quarter of 2020), which was higher than the $15.2 million cash payment, and was calculated as the greater of (i) grant date fair value of the previously-outstanding awards plus incremental compensation (defined as cash paid related to the cash retention incentive in excess of the modification date fair value of the previously-existing awards) or (ii) cash paid for the cash retention incentive for each award. The value will be recognized as total compensation expense for each award over the service period. We recognized $11.5 million of the $18.7 million as compensation expense in “General and administrative expenses” in our Unaudited Condensed Consolidated Statements of Operations during the second quarter of 2020, with the remaining $7.2 million amortized over the estimated remaining service period. The accounting for remaining share-based compensation awards will continue throughout the period covered by the Chapter 11 Restructuring.