Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v3.10.0.1
Stock-Based Compensation
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation

Long-Term Incentive Plan

On May 22, 2018 at the Company’s annual meeting of stockholders, the stockholders of the Company approved an amendment and restatement of the Rosehill Resources Inc. Long-Term Incentive Plan (as amended and restated, the “LTIP”). The purpose of the amendment and restatement was to revise the definition of “Change in Control” included in the LTIP and to remove certain tax provisions that are no longer applicable following the repeal of the “qualified performance-based compensation” exception to the Section 162(m) deduction limitation by the Tax Act. The LTIP permits the grant of a number of different types of equity, equity-based, and cash awards to employees, directors and consultants, as determined by the Compensation Committee of the Board (the “Compensation Committee”), in its sole discretion. At the plan’s inception, 7,500,000 shares of Class A Common Stock were reserved for issuance under the LTIP.

As of September 30, 2018, the Company has granted restricted stock, restricted stock units and performance share units under the LTIP. Stock-based compensation expense for restricted stock and restricted stock units is recognized on a straight-line basis over the requisite service period for each separately vesting tranche of the award as if the award was, in substance, multiple awards. Stock-based compensation is included in general and administrative expense on the Company’s Condensed Consolidated Statement of Operations. The stock-based compensation expense recognized for the three months ended September 30, 2018 and 2017 was $2.1 million and $0.2 million, respectively, and $5.4 million and $0.2 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, 5,784,873 shares of Class A Common Stock remained available for issuance under the LTIP, subject to adjustment pursuant to the plan.

Restricted Stock

Restricted stock granted under the LTIP is issued on the grant date, but is restricted as to transferability until vesting. These restricted shares generally vest on the first anniversary of the date of grant. The following table sets forth the restricted stock transactions for the nine months ended September 30, 2018:

 
Restricted Stock
Weighted-Average Grant Date Fair Value
Outstanding - December 31, 2017
105,666

$
7.95

Granted
156,653

7.57

Vested
(105,666
)
7.95

Forfeited


Outstanding - September 30, 2018
156,653

$
7.57



As of September 30, 2018, there was $0.9 million of unrecognized compensation cost related to nonvested restricted stock which is expected to be recognized over a weighted-average period of 0.8 years.

Stock-Settled Time-Based Restricted Stock Units

Stock-settled time-based restricted stock units entitle the holder to receive one share of Class A Common Stock for each restricted stock unit when such restricted stock unit vests. These stock-settled time-based restricted stock units generally vest in three substantially equal installments on the first three anniversaries of the date of grant. The following table sets forth stock-settled time-based restricted stock unit transactions for the nine months ended September 30, 2018:

 
Restricted Stock Units
Weighted-Average Grant Date Fair Value
Nonvested - December 31, 2017
713,939

$
9.88

Granted
523,350

6.67

Vested
(347,512
)
9.44

Forfeited
(187,218
)
7.98

Nonvested - September 30, 2018
702,559

$
8.21



As of September 30, 2018, there was $4.6 million of unrecognized compensation cost related to nonvested stock-settled time-based restricted stock units which is expected to be recognized over a weighted-average period of 1.9 years.

Market Based Performance Share Units

On March 26, 2018, the Company granted a target number of 432,973 market based performance share units at a fair value of $8.99 per share to certain employees. The market based performance share units cliff vest on December 31, 2020 and will be settled in stock, provided that certain performance criteria are met. The performance criteria applicable to such awards is relative total shareholder return, which measures the Company’s total shareholder return as compared to the total shareholder return of the peer group identified by the Compensation Committee. The Company recognizes compensation expense for the performance share units subject to market conditions regardless of whether it becomes probable that these conditions will be achieved or not and compensation expense is not reversed if vesting does not actually occur. The following table sets forth market based performance share unit transactions for the nine months ended September 30, 2018:
 
Performance Restricted Stock Units
Weighted-Average Grant Date Fair Value
Nonvested - December 31, 2017

$

Granted
432,973

8.99

Vested
(46,649
)
8.99

Forfeited
(98,318
)
8.99

Nonvested - September 30, 2018
288,006

$
8.99



The grant-date fair value was estimated using a Monte Carlo valuation model. The Monte Carlo valuation model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Class A Common Stock, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the three-year vesting period. The following assumptions were used to value the market based performance awards:

Expected volatility
89.5
%
Risk-free interest rate
2.4
%
Dividend yield
%
Expected life (years)
2.77



As of September 30, 2018, there was $2.1 million of unrecognized compensation cost related to shares of market based performance restricted stock units which is expected to be recognized over a weighted average period of 2.3 years.

Cash-Settled Restricted Stock Units

During the nine months ended September 30, 2018, the Company granted 98,743 cash-settled restricted stock units to certain employees. Cash-settled restricted stock units entitle the holder to receive the cash equivalent of one share of Class A Common Stock for each restricted stock unit when such restricted stock unit vests. These cash-settled restricted stock units generally vest in three substantially equal installments on the first three anniversaries of the date of grant. Cash-settled restricted stock units are classified as liabilities and are remeasured at each reporting date until settled. The stock-based compensation expense for cash-settled restricted stock units is recognized on a straight-line basis over the requisite service period for each separately vesting tranche of the award as if the award was, in substance, multiple awards. The following table sets forth cash-settled restricted stock unit transactions for the nine months ended September 30, 2018:

 
Cash-Settled Restricted Stock Units
Weighted-Average Grant Date Fair Value
Nonvested - December 31, 2017

$

Granted
98,743

6.62

Vested


Forfeited
(12,190
)
6.60

Nonvested - September 30, 2018
86,553

$
6.63



As of September 30, 2018, the Company had a liability for cash-settled restricted stock units of $0.1 million based on a closing price of $6.10 on September 28, 2018. As of September 30, 2018, there was $0.4 million of unrecognized compensation cost related to shares of cash-settled restricted stock units which is expected to be recognized over a weighted average period of 2.5 years.

Retirement Benefits

The Company has not maintained, and does not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan. The Company currently maintains a retirement plan pursuant to which employees are permitted to contribute portions of their base compensation to a tax-qualified retirement account. The Company provides matching contributions equal to 100% of elective deferrals up to 3% of eligible compensation and 50% of elective deferrals from 3% to a maximum of 5% of eligible compensation, subject to the applicable contributions limits. Matching contributions are immediately fully vested. The Company’s matching contributions under the plan totaled $0.1 million and less than $0.1 million for the three months ended September 30, 2018 and 2017, respectively, and $0.2 million and $0.1 million for the nine months ended September 30, 2018 and 2017, respectively.