Callon Petroleum Company Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Share-Based Compensation

Share-Based Compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

RSU Equity Awards

The following table summarizes activity for restricted stock units that may be settled in common stock (“RSU Equity Awards”) for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,
	2021		2020
	RSU Equity Awards (in thousands)	Weighted Average Grant Date Fair Value	RSU Equity Awards (in thousands)	Weighted Average Grant Date Fair Value
Unvested, beginning of the period	1,035	$35.88	719	$39.99
Granted (1)	—	$—	6	$9.35
Vested (2)	(2)	$61.84	(14)	$99.88
Forfeited	(10)	$30.98	(12)	$46.51
Unvested, end of the period	1,023	$35.86	699	$38.46

	Nine Months Ended September 30,
	2021		2020
	RSU Equity Awards (in thousands)	Weighted Average Grant Date Fair Value	RSU Equity Awards (in thousands)	Weighted Average Grant Date Fair Value
Unvested, beginning of the period	677	$34.57	269	$102.48
Granted (1)	636	$38.46	562	$21.07
Vested (2)	(207)	$39.51	(120)	$100.19
Forfeited	(83)	$36.18	(12)	$46.51
Unvested, end of the period	1,023	$35.86	699	$38.46

(1)Includes zero target performance-based RSU Equity Awards granted during both the three and nine months ended September 30, 2021 and zero and 111.2 thousand during the three and nine months ended September 30, 2020, respectively.

(2)The fair value of shares vested was $0.1 million during both the three months ended September 30, 2021 and 2020, and $7.9 million and $1.4 million for the nine months ended September 30, 2021 and 2020, respectively.

Grant activity for the nine months ended September 30, 2021 and 2020 primarily consisted of RSU Equity Awards granted to executives and employees as part of the annual grant of long-term equity incentive awards.

No performance-based RSU Equity Awards were granted during the nine months ended September 30, 2021. For the performance-based RSU Equity Awards granted in the first half of 2020, the number of outstanding performance-based RSU Equity Awards that can vest is based on a calculation that compares the Company’s total shareholder return (“TSR”) to the same calculated return of a group of peer companies selected by the Company and can range between 0% and 300% of the target units for the awards granted. These awards include an absolute TSR modifier, which was added as a second factor in the calculation, which could increase the number of awards that vest or reduce the number of awards that vest if the absolute TSR is less than 5% over the performance period.

The Company recognizes expense for performance-based RSU Equity Awards based on the fair value of the awards at the grant date. Awards with a performance-based provision do not allow for the reversal of previously recognized expense, even if the market metric is not achieved and no shares ultimately vest. The grant date fair value of performance-based RSU Equity Awards, calculated using a Monte Carlo simulation, was zero and $3.4 million for the three and nine months ended September 30, 2020, respectively. The following table summarizes the assumptions used to calculate the grant date fair value of the performance-based RSU Equity Awards granted during the nine months ended September 30, 2020:


Performance-Based Awards	June 29, 2020		January 31, 2020
Expected term (in years)	2.5		2.9
Expected volatility	113.2	%	54.8	%
Risk-free interest rate	0.2	%	1.3	%
Dividend yield	—	%	—	%

As of September 30, 2021, unrecognized compensation costs related to unvested RSU Equity Awards were $25.4 million and will be recognized over a weighted average period of 2.2 years.

Cash-Settled RSU Awards

The table below summarizes the activity for restricted stock units that may be settled in cash (“Cash-Settled RSU Awards”) for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,
	2021		2020
	Cash-Settled RSU Awards (in thousands)	Weighted Average Grant Date Fair Value	Cash-Settled RSU Awards (in thousands)	Weighted Average Grant Date Fair Value
Unvested, beginning of the period	174	$45.93	208	$67.20
Granted	—	$—	—	$—
Vested	—	$—	(1)	$131.54
Did not vest at end of performance period	—	$—	(2)	$133.95
Forfeited	—	$—	—	$—
Unvested, end of the period	174	$45.93	205	$66.28

	Nine Months Ended September 30,
	2021		2020
	Cash-Settled RSU Awards (in thousands)	Weighted Average Grant Date Fair Value	Cash-Settled RSU Awards (in thousands)	Weighted Average Grant Date Fair Value
Unvested, beginning of the period	196	$47.56	86	$124.22
Granted (1)	3	$36.71	125	$29.76
Vested	(1)	$110.48	(3)	$130.12
Did not vest at end of performance period	(1)	$110.48	(3)	$148.81
Forfeited	(23)	$54.57	—	$—
Unvested, end of the period	174	$45.93	205	$66.28

(1)Includes 3.2 thousand and 13.7 thousand units for the nine months ended September 30, 2021 and 2020, respectively, associated with deferrals of certain non-employee director compensation pursuant to the terms of the Amended and Restated Deferred Compensation Plan for Outside Directors.

No Cash-Settled RSU Awards were granted to employees during the nine months ended September 30, 2021. Grant activity in the first half of 2020 primarily consisted of Cash-Settled RSU Awards to executives as part of the annual grant of long-term equity incentive awards. These awards cliff vest after an approximate three-year performance period.

The Company’s outstanding Cash-Settled RSU Awards include the same performance-based vesting conditions as the performance-based RSU Equity Awards, which are described above. Additionally, the assumptions used to calculate the grant date fair value per

Cash-Settled RSU Award granted during the nine months ended September 30, 2020 are the same as the performance-based RSU Equity Awards presented above.

The following table summarizes the Company’s liability for Cash-Settled RSU Awards and the classification in the consolidated balance sheets for the periods indicated:


	September 30, 2021	December 31, 2020
	(In thousands)
Other current liabilities	$661	$182
Other long-term liabilities	6,780	1,336
Total Cash-Settled RSU Awards	$7,441	$1,518

As of September 30, 2021, unrecognized compensation costs related to unvested Cash-Settled RSU Awards were $3.7 million and will be recognized over a weighted average period of 1.2 years.

Cash SARs

As a result of the Carrizo Acquisition, cash-settled stock appreciation rights (“Cash SARs”) previously granted by Carrizo that were outstanding at closing were canceled and converted into a Cash SAR covering shares of the Company’s common stock, with the conversion calculated as prescribed in the agreement governing the Carrizo Acquisition. The liabilities for Cash SARs as of September 30, 2021 and December 31, 2020 were $8.2 million and $1.7 million, respectively, all of which were classified as “Other current liabilities” in the consolidated balance sheets in the respective periods. Changes in the fair value of the Cash SARs are included in “General and administrative” in the consolidated statements of operations.

Share-Based Compensation Expense (Benefit), Net

Share-based compensation expense associated with the RSU Equity Awards, Cash-Settled RSU Awards, Cash SARs, net of amounts capitalized, is included in “General and administrative” in the consolidated statements of operations. The following table presents share-based compensation expense (benefit), net for each respective period:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
	(In thousands)
RSU Equity Awards	$3,839	$3,009	$9,689	$10,169
Cash-Settled RSU Awards	(1,344)	(566)	6,105	(1,966)
Cash SARs	(2,006)	(1,005)	6,536	(4,646)
	489	1,438	22,330	3,557
Less: amounts capitalized to oil and gas properties	(1,392)	(1,532)	(10,346)	(3,862)
Total share-based compensation expense (benefit), net	($903)	($94)	$11,984	($305)

See “Note 10 - Share-Based Compensation” of the Notes to Consolidated Financial Statements in the 2020 Annual Report for details of the Company’s equity-based incentive plans.