Stock-Based Compensation
 12 Months Ended
Dec. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Note 6—Stock-Based Compensation
On October 7, 2016, the stockholders of the Company approved the Centennial Resource Development, Inc. 2016 Long Term Incentive Plan (the “LTIP”). An aggregate of 16,500,000 shares of Class A Common Stock were authorized for issuance under the LTIP, and as of December 31, 2019, the Company had 4,962,545 shares of Class A Common Stock available for future grants. The LTIP provides for grants of stock options (including incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock, dividend equivalents, restricted stock units and other stock or cash-based awards.
Stock-based compensation expense is recognized within both General and administrative expenses and Exploration expense in the Consolidated Statements of Operations. The Company accounts for forfeitures of awards granted under the LTIP as they occur in determining compensation expense.
The following table summarizes stock-based compensation expense recognized for the periods presented:
 
Year Ended December 31,
(in thousands)
2019
 
2018
 
2017
Restricted stock awards
$
15,929

 
$
9,185

 
$
5,008

Stock option awards
9,562

 
9,433

 
8,160

Performance stock units
3,374

 
2,052

 
591

Other stock-based compensation expense(1)
132

 
—

 
—

Total stock-based compensation expense
$
28,997

 
$
20,670

 
$
13,759


 
(1)  
Includes expenses related to the Company’s Employees Stock Purchase Plan (the “ESPP”). In May 2019, an aggregate of 2,000,000 shares were authorized by stockholders for issuance under the ESPP, which became effective on July 1, 2019.

Restricted Stock
The following table provides a summary of the restricted stock activity during the year ended December 31, 2019:
 
Awards
 
Weighted Average Grant-Date Fair Value
Unvested balance as of December 31, 2018
1,535,945

 
$
17.88

Granted
4,109,148

 
6.59

Vested
(690,084
)
 
17.46

Forfeited
(116,013
)
 
11.39

Unvested balance as of December 31, 2019
4,838,996

 
8.51


The Company grants service-based restricted stock awards to executive officers and employees, which vest ratably over a three-year service period, and to directors, which vest over a one-year service period. Compensation cost for these service-based restricted stock awards is based on the market price of the Company’s Class A common stock on the grant date, and such costs are recognized ratably over the applicable vesting period. The weighted average grant-date fair value for restricted stock awards granted was $6.59, $18.11 and $17.33 per share for the years ended December 31, 2019, 2018 and 2017, respectively. The total fair value of restricted stock awards that vested for the years ended December 31, 2019, 2018 and 2017 was $12.0 million, $6.6 million and $2.7 million, respectively. Unrecognized compensation cost related to restricted shares that were unvested as of December 31, 2019 was $32.0 million, which the Company expects to recognize over a weighted average period of 2.2 years.
Stock Options
Stock options that have been granted under the LTIP expire ten years from the grant date and vest ratably over a three-year service period. The exercise price for an option granted under the LTIP is the closing price of the Company’s Class A Common Stock as reported by NASDAQ on the date of grant.
Compensation cost for stock options is based on the grant-date fair value of the award, which is then recognized ratably over the vesting period of three years. The Company estimates the fair value using the Black-Scholes option-pricing model. Expected volatilities are based on the weighted average volatility of the Company and an identified set of comparable companies. Expected term is based on the simplified method and is estimated as the mid-point between the weighted average vesting term and the time to expiration as of the grant date. The Company uses U.S. Treasury yield curve rates in effect at the grant date for its risk-free interest rates.
The following table summarizes the assumptions and related information used to determine the grant-date fair value of stock options awarded for the periods presented:
 
Years Ended December 31,
 
2019
 
2018
 
2017
Weighted average grant date fair value per share
$
4.32

 
$
8.58

 
$
7.15

Expected term (in years)
6

 
6

 
6

Expected stock volatility
47
%
 
42
%
 
38
%
Dividend yield
—

 
—

 
—

Risk-free interest rate
2.2
%
 
2.7
%
 
2.0
%

The following table provides information about stock option awards outstanding during the year ended December 31, 2019:
 
Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Term
(in years)
 
Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 2018
4,559,334

 
$
16.55

 
 
 
 
Granted
346,500

 
9.24

 
 
 
 
Exercised
—

 
—

 
 
 
 
Forfeited
(103,670
)
 
17.76

 
 
 
 
Expired
(37,997
)
 
17.80

 
 
 
 
Outstanding as of December 31, 2019
4,764,167

 
15.99

 
7.3
 
$
11

Exercisable as of December 31, 2019
3,530,630

 
16.00

 
7.0
 
$
—

The total fair value of stock options that vested during the years ended December 31, 2019, 2018 and 2017 was $10.2 million, $8.8 million and $4.9 million, respectively. The intrinsic value of stock options exercised was approximately $0.2 million for both the years ended December 31, 2018 and 2017. There were no stock options exercised during the year ended December 31, 2019. As of December 31, 2019, there was $4.1 million of unrecognized compensation cost related to unvested stock options, which the Company expects to recognize on a pro-rata basis over a weighted average period of 1.6 years.
Performance Stock Units
The Company grants performance stock units to certain executive officers that are subject to market-based vesting criteria as well as a three-year service period. Vesting at the end of the three-year service period is subject to the condition that the Company’s stock price increases by a greater percentage, or decreases by a lesser percentage, than the average percentage increase or decrease, respectively, of the stock prices of a peer group of companies. The market-based conditions must be met in order for the stock awards to vest, and it is, therefore, possible that no shares could vest. However, the Company recognizes compensation expense for the performance stock 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 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 Company’s 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 table summarizes the key assumptions and related information used to determine the grant-date fair value of performance stock units awarded during the periods presented:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Weighted average grant-date fair value per unit
$
6.68

 
$
22.35

 
$
21.53

Number of simulations
1,000,000

 
1,000,000

 
1,000,000

Expected stock volatility
52.3
%
 
40.2
%
 
41.6
%
Dividend yield
—
%
 
—
%
 
—
%
Risk-free interest rate
1.8
%
 
2.8
%
 
1.5
%

The following table provides information about performance stock units outstanding during the year ended December 31, 2019:
 
Awards
 
Weighted Average Grant Date Fair Value
Unvested balance as of December 31, 2018
386,459

 
$
21.94

Granted
486,213

 
6.68

Vested
—

 
—

Forfeited
—

 
—

Unvested balance as of December 31, 2019
872,672

 
13.44


As of December 31, 2019, there was $5.7 million of unrecognized compensation cost related to unvested performance stock units, which the Company expects to recognize on a pro rata basis over a weighted average period of 1.9 years