NOTE 12 — SHARE-BASED COMPENSATION

On June 16, 2023, the 2023 Incentive Compensation Plan (the “2023 Plan”) was approved by the Company’s shareholders. The Company will no longer grant awards pursuant to the W&T Offshore, Inc. Amended and Restated Compensation Plan, as amended from time to time, (the “Prior Incentive Plan”) or the 2004 Directors Compensation Plan of W&T Offshore, Inc., as amended from time to time (the “Prior Director Plan”). The 2023 Plan covers the Company’s eligible employees, non-employee directors and consultants and includes both cash and share-based compensation awards. The 2023 Plan grants the Compensation Committee of the board of directors administrative authority over all participants and grants the CEO with authority over the administration of awards granted to participants that are not subject to section 16 of the Exchange Act (as applicable, the “Compensation Committee”). Any awards granted prior to the effective date of the 2023 Plan are considered to have been granted under the applicable Prior Plan.

Pursuant to the terms of the 2023 Plan, the Compensation Committee establishes the vesting or performance criteria applicable to the award and may use a single measure or combination of business measures as described in the 2023 Plan. Also, individual goals may be established by the Compensation Committee. Performance awards may be granted in the form of stock options, stock appreciation rights, restricted stock (“RSAs”), restricted stock units (“RSUs”), bonus stock, dividend equivalents, or other awards related to stock, and awards may be paid in cash, stock, or any combination of cash and stock, as determined by the Compensation Committee. The performance awards granted under the 2023 Plan can be measured over a performance period of up to 10 years and annual incentive awards (a type of performance award) will generally be paid within 90 days following the applicable year end.

The Company has the option following vesting to settle RSUs and PSUs by either the issuance of common stock, cash or a combination thereof based on the fair market value of the common stock on the date of vesting. During 2023, 2022 and 2021, only shares of common stock were used to settle all vested RSUs and PSUs. The Company expects to settle RSUs and PSUs that vest in the future using shares of common stock.

As of December 31, 2023, the maximum number of shares of common stock available for issuance under the 2023 Plan is 10.0 million shares and 9.5 million shares remain available for grant. Shares subject to awards granted under the 2023 Plan that are subsequently canceled, forfeited or otherwise terminated without delivery of shares are available for future grant under the 2023 Plan. The Company’s policy is to issue new shares when RSAs are granted and RSUs and PSUs are vested.

Restricted Stock Units

During 2023, the Company granted RSUs to employees and non-employee directors under both the 2023 Plan and the Prior Incentive Plan. RSUs granted to employees are a long-term compensation component, subject to service conditions, and vest ratably over an approximate three-year period. The RSUs granted to non-employee directors under the 2023 Plan vest one year from the date of the grant or on the date of the Company’s annual shareholder meeting, subject to certain conditions.

Compensation cost for share-based payments to employees is recognized ratably over the period during which the recipient is required to provide service in exchange for the award. Compensation cost is based on the fair value of the equity instrument on the date of grant using the Company’s closing price on the grant date. Forfeitures are estimated during the vesting period, resulting in the recognition of compensation cost only for those awards that are expected to actually vest. Estimated forfeitures are adjusted to actual forfeitures when the award vests. All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.

A summary of activity related to RSUs is as follows:

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The grant date fair value of RSUs granted during 2023, 2022 and 2021 was $7.4 million, $6.1 million and $3.3 million, respectively. The fair value of the RSUs that vested during 2023, 2022 and 2021 was $2.5 million, $1.9 million and $2.4 million, respectively, based on the closing price of the Company’s common stock on the vesting date.

As of December 31, 2023, there was $4.7 million of total unrecognized compensation costs related to unvested RSUs which is expected to be recognized over a weighted average period of 2.1 years.

Performance Share Units

During 2023, the Company granted PSUs to employees under both the 2023 Plan and the Prior Incentive Plan. PSUs are a long-term compensation component granted to certain employees. The PSUs are RSU awards granted subject to performance criteria. The performance criteria relates to the evaluation of the Company’s total shareholder return (“TSR”) ranking against peer companies’ TSR over the applicable performance period and subject to service conditions through the vesting date. TSR is determined based on the change in the entity’s stock price plus dividends and distributions for the applicable performance period.

PSUs granted to employees in 2023 and 2022 are subject to an approximate three-year performance period and service conditions through the vesting date. The performance periods for the 2023 PSU grants and the 2022 PSU grants end on December 31, 2025 and December 31, 2024, respectively. PSUs granted in 2021 were subject to an approximate one-year performance period which ended on December 31, 2021. Subsequent to the performance period, the PSUs were subject to service-based criteria until the PSUs vested on September 29, 2023.

Compensation cost for share-based payments to employees is recognized ratably over the period during which the recipient is required to provide service in exchange for the award. Compensation cost is based on the fair value of the equity instrument on the date of grant. All PSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period. The grant date fair value of the PSUs was determined through the use of the Monte Carlo simulation method. This method requires the use of subjective assumptions such as the price and the expected volatility of the Company’s stock and its self-determined Peer Group companies’ stock, risk free rate of return and cross-correlations between the Company and its Peer Group companies. Expected volatilities for the Company’s and each peer company utilized in the model are estimated using a historical period consistent with the awards’ remaining performance period as of the grant date. The risk-free interest rate is based on the yield on U.S. Treasury Constant Maturity for a term consistent with the remaining performance period. The valuation model assumes dividends, if any, are immediately reinvested.

The following table summarizes the assumptions used to calculate the grant date fair value of the PSUs granted during 2023:

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A summary of activity related to PSUs is as follows:

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The grant date fair value of PSUs granted during 2023, 2022 and 2021 was $6.3 million, $14.2 million and $2.2 million, respectively. The fair value of the PSUs that vested during 2023 and 2022 was $0.7 million and $0.1 million, respectively, based on the closing price of the Company’s common stock on the vesting date. No PSUs vested during 2021.

As of December 31, 2023, there was $8.7 million of total unrecognized compensation costs related to unvested PSUs which is expected to be recognized over a weighted average period of 1.5 years.

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Restricted Stock

Under the Prior Director Plan, the Company granted RSAs to its non-employee directors in 2022 and 2021 as a component of their compensation arrangement. Vesting occurs upon completion of the one-year vesting period. The holders of RSAs generally have the same rights as a shareholder of the Company with respect to such shares, including the right to vote and receive dividends or other distributions paid with respect to the shares. RSAs are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restriction period.

A summary of activity related to RSAs is as follows:

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The grant date fair value of RSAs granted during both 2022 and 2021 was $0.2 million and $0.2 million, respectively. The fair value of the RSAs that vested during 2023, 2022 and 2021 was $0.2 million, $0.4 million and $0.5 million, respectively, based on the closing price of the Company’s common stock on the vesting date.

Share-Based Compensation Expense

The following table presents the compensation expenses included in General and administrative expenses in the Consolidated Statements of Operations (in thousands):

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