NOTE 6 – EMPLOYEE STOCK OPTIONS

Compensation expense charged against income for share-based awards during the three months ended March 31, 2013 and 2012 was $815,763 and $290,886, respectively, and is included in general and administrative expense in the accompanying financial statements.

In 2011, Stanford’s Board of Directors and stockholders approved and adopted a long-term incentive plan which allows for the issuance of up to 2,500,000 shares of common stock through the grant of qualified stock options, non-qualified stock options and restricted stock. In 2013, the stockholders approved an amendment to the long-term incentive plan, increasing the number of shares eligible under the plan to 5,000,000. a As of March 31, 2013, there were 2,325,000 shares remaining eligible for issuance under the plan. On January 1, 2013, the Company granted 1,375,000 non-qualified stock options exercisable at $4.50 per share. On February 13 2013, the Company granted 25,000 non-qualified stock options exercisable at $4.50 per share.  On March 15, 2013, the Company granted 150,000 non-qualified options exercisable at $5.50 per share.  No options were granted during the three months ended March 31, 2012.  The stock options vest at the rate of 20% each year over five years beginning one year from the date granted and expire ten years from the date granted.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model and using certain assumptions. The expected volatility is based on the historical price volatility of the Dow Jones U.S. Oil and Gas Index. The Company used the simplified method for estimating the expected term for options granted. Under the simplified method, the expected term is equal to the midpoint between the vesting period and the contractual term of the stock option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected life of the stock options. The following are the weighted-average assumptions used to determine the fair value of options granted during the three months ended March 31, 2013:

A summary of the stock option activity as of March 31, 2013, and changes during the three months then ended is as follows:

The weighted-average grant-date fair value of options granted during 2013 was $4.15 per share. As of March 31, 2013, there was approximately $6,712,499 of unrecognized compensation cost related to stock options that is expected be recognized over a weighted-average period of 2.8 years. The aggregate intrinsic value of options exercisable as of March 31, 2013 is $1,002,250.  The aggregate intrinsic value was determined based on the $6.95 market value of the Company’s common stock on March 28, 2013.