SandRidge Energy(SD) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial information, including statements, management's analysis, market risk, and internal controls ITEM 1. Financial Statements (Unaudited) This section presents SandRidge Energy, Inc.'s unaudited condensed consolidated financial statements for the quarter and six months ended June 30, 2024, including balance sheets, income statements, statements of changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, accounting policies, fair value measurements, derivatives, property, and other financial details Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheet Highlights (in thousands): | Metric | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $209,908 | $252,407 | | Total current assets | $237,162 | $277,854 | | Net oil and natural gas properties | $155,316 | $156,120 | | Total assets | $529,571 | $574,166 | | Total current liabilities | $46,157 | $49,324 | | Total liabilities | $104,764 | $106,055 | | Total stockholders' equity | $424,807 | $468,111 | - Total assets decreased by approximately $44.6 million from December 31, 2023, to June 30, 2024, primarily driven by a reduction in cash and cash equivalents[7] Condensed Consolidated Income Statements This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net income Condensed Consolidated Income Statement Highlights (in thousands, except per share data): | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $25,977 | $33,419 | $56,260 | $76,566 | | Total expenses | $19,757 | $19,612 | $41,622 | $41,555 | | Income from operations | $6,220 | $13,807 | $14,638 | $35,011 | | Net income (loss) | $8,794 | $16,637 | $19,919 | $40,395 | | Basic EPS | $0.24 | $0.45 | $0.54 | $1.10 | | Diluted EPS | $0.24 | $0.45 | $0.54 | $1.09 | - Net income decreased by 47.1% for the three months ended June 30, 2024, and by 50.7% for the six months ended June 30, 2024, compared to the same periods in 2023[10] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the company's stockholders' equity, including net income and dividend distributions Changes in Stockholders' Equity (Six Months Ended June 30, 2024, in thousands): | Item | Amount | | :----------------------------------- | :------- | | Balance at January 1, 2024 | $468,111 | | Dividends to shareholders | $(64,068) | | Net income | $19,919 | | Balance at June 30, 2024 | $424,807 | - Total stockholders' equity decreased by $43.3 million from January 1, 2024, to June 30, 2024, primarily due to dividend payments[12] Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Cash Flow Highlights (Six Months Ended June 30, in thousands): | Activity | 2024 | 2023 | | :----------------------------------- | :------- | :------- | | Net cash provided by operating activities | $27,093 | $63,852 | | Net cash used in investing activities | $(5,119) | $(23,024) | | Net cash used in financing activities | $(64,626) | $(74,269) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(42,652) | $(33,441) | | Cash, cash equivalents and restricted cash, end of period | $211,292 | $224,027 | - Net cash provided by operating activities decreased by 57.6% for the six months ended June 30, 2024, compared to the same period in 2023[14] - Net cash used in investing activities significantly decreased by 77.8% for the six months ended June 30, 2024, primarily due to lower capital expenditures[14] Notes to Condensed Consolidated Financial Statements This section offers detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Basis of Presentation This note describes the company's business and the basis for preparing the condensed consolidated financial statements - SandRidge Energy, Inc. is an oil and natural gas acquisition, development, and production company focused on U.S. hydrocarbon resources[16] - The company is evaluating ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting), which are expected to impact disclosures but not consolidated financial statements[20][21] Note 2. Fair Value Measurements This note provides information on the fair value measurements of the company's financial instruments - The company had no assets or liabilities classified in Level 2 of the fair value hierarchy as of June 30, 2024, and December 31, 2023[24] Note 3. Derivatives This note details the company's derivative financial instruments and their impact on financial results - There were no open commodity derivative contracts as of June 30, 2024, and December 31, 2023[26][27] Derivative Activity (Six Months Ended June 30, in thousands): | Metric | 2024 | 2023 | | :----------------------------------- | :--- | :------- | | (Gain) loss on derivative contracts | — | $(1,447) | | Settlement gains (losses) on derivative contracts | — | $5,876 | Note 4. Property, Plant and Equipment This note provides a breakdown of the company's property, plant, and equipment, including oil and natural gas properties Property, Plant and Equipment (in thousands): | Metric | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------ | :------------------ | | Net oil and natural gas properties capitalized costs | $155,316 | $156,120 | | Other property, plant and equipment, net | $83,312 | $86,493 | | Total property, plant and equipment, net | $238,628 | $242,613 | Note 5. Accounts Payable and Accrued Expenses This note presents a detailed breakdown of the company's accounts payable and accrued expenses Accounts Payable and Accrued Expenses (in thousands): | Metric | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------ | :------------------ | | Accounts payable and other accrued expenses | $12,118 | $12,854 | | Production payable | $20,254 | $21,086 | | Payroll and benefits | $2,913 | $4,146 | | Taxes payable | $409 | $742 | | Total accounts payable and accrued expenses | $35,694 | $38,828 | - Total accounts payable and accrued expenses decreased by $3.1 million from December 31, 2023, to June 30, 2024[31] Note 6. Commitments and Contingencies This note outlines the company's significant contractual commitments and potential contingent liabilities - The company is contractually obligated to indemnify SandRidge Mississippian Trust I in a class action lawsuit, with potential material losses[33] - Insurance carriers are seeking reimbursement of a $17 million settlement, which the company disputes[34] - The company has not established any liabilities for these matters, believing the claims are without merit[33][34] Note 7. Income Taxes This note provides information on the company's income tax position, including net operating loss carryforwards - The company reported no federal or state income tax expense or benefit for the three or six-month periods ended June 30, 2024 and 2023[37] - As of June 30, 2024, the company had approximately $1.6 billion in federal NOL carryforwards and $1.1 billion in state NOL carryforwards[39] - The company adopted a Tax Benefits Preservation Plan to protect its ability to use NOLs against IRC Section 382 ownership change limitations[38] Note 8. Equity This note describes the company's equity structure, share repurchases, and dividend distributions - As of June 30, 2024, the company had 37.2 million shares of common stock issued and outstanding[42] - The Board approved a $75.0 million share repurchase program in May 2023, but no common stock was repurchased during the three or six-month periods ended June 30, 2024 or 2023[43] - Dividend payments for the six-month period ended June 30, 2024, totaled $64.0 million, including a one-time $1.50 per share dividend and ongoing quarterly dividends of $0.11 per share[44] Note 9. Revenues This note provides a detailed breakdown of the company's revenues by product type and discusses contributing factors Total Revenues by Product (in thousands): | Product | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Oil | $14,732 | $19,584 | $30,331 | $38,994 | | Natural gas | $2,946 | $6,805 | $8,953 | $20,195 | | NGL | $8,299 | $7,030 | $16,976 | $17,377 | | Total revenues | $25,977 | $33,419 | $56,260 | $76,566 | - Total revenues decreased by 22.3% for the three months and 26.5% for the six months ended June 30, 2024, compared to the prior year, primarily due to lower commodity prices and production volumes[47][48] Note 10. Earnings per Share This note presents the basic and diluted earnings per share calculations for the reported periods Earnings Per Share (EPS) Data: | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.24 | $0.45 | $0.54 | $1.10 | | Diluted EPS | $0.24 | $0.45 | $0.54 | $1.09 | - Basic and diluted EPS decreased significantly for both the three and six-month periods ended June 30, 2024, reflecting the decline in net income[51] Note 11. Subsequent Events This note discloses significant events that occurred after the reporting period, including acquisitions and new derivative contracts - On July 29, 2024, the company agreed to acquire certain producing assets and leasehold interests in the Western Anadarko Basin for $144 million, expected to close by the end of Q3 2024[53] - Subsequent to June 30, 2024, the company entered into new oil and NGL derivative contracts for periods extending into June 2026[53] - On August 6, 2024, the Board declared a cash dividend of $0.11 per share, payable on August 30, 2024[53] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources, highlighting a significant decline in revenues and operating cash flows due to lower commodity prices and production volumes. It also details recent acquisitions and strategic outlook, including plans for integrating new assets and potential drilling activities Introduction This introduction sets the context for management's discussion and analysis of the company's financial condition and results of operations - This discussion aims to help readers understand the company's business, financial condition, results of operations, liquidity, and capital resources[55] - The financial information for the interim periods is unaudited and not necessarily indicative of full fiscal year results[56] Overview This overview describes the company's business, operational focus, and recent strategic developments - SandRidge Energy is an independent oil and natural gas company focused on acquisition, development, and production in the U.S. Mid-Continent region[57] Production Composition (Total MBoe): | Period | Oil | Natural Gas | NGL | | :----------------------------------- | :-- | :---------- | :-- | | Three Months Ended June 30, 2024 | 13.6% | 54.3% | 32.1% | | Six Months Ended June 30, 2024 | 14.3% | 56.3% | 29.4% | - The company recently acquired producing oil and gas assets for $2.1 million and entered an agreement to acquire Western Anadarko Basin assets for $144 million, expanding its operational focus[59][60] Consolidated Results of Operations This section analyzes the company's consolidated financial performance, focusing on revenue and expense drivers - Consolidated revenues and cash flows are substantially dependent on volatile oil, natural gas, and NGL prices and production volumes[64] - The company uses commodity derivative contracts to reduce exposure to price fluctuations, though none were open as of June 30, 2024[64] Revenues This section provides a detailed analysis of the company's revenues, including production volumes and average prices Consolidated Revenues (in thousands): | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $25,977 | $33,419 | $56,260 | $76,566 | | Change (YoY) | -22.3% | - | -26.5% | - | Production Volumes and Average Prices (Six Months Ended June 30): | Metric | 2024 | 2023 | Change | | :----------------------------------- | :--- | :--- | :----- | | Oil (MBbls) | 393 | 549 | -156 | | Natural gas (MMcf) | 9,250 | 10,097 | -847 | | NGL (MBbls) | 804 | 861 | -57 | | Total volumes (MBoe) | 2,739 | 3,093 | -354 | | Oil (per Bbl) | $77.18 | $70.99 | $6.19 | | Natural gas (per Mcf) | $0.97 | $2.00 | $(1.03) | | NGL (per Bbl) | $21.11 | $20.19 | $0.92 | - Revenue decreases were primarily due to lower commodity prices and production volumes, with production declines attributed to natural well declines and increased downtime from inclement weather[68] Operating Expenses This section analyzes the company's operating expenses, including lease operating expenses and depreciation Operating Expenses (in thousands): | Expense Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Lease operating expenses | $8,738 | $8,802 | $19,630 | $20,496 | | Production, ad valorem, and other taxes | $1,841 | $2,740 | $3,737 | $6,491 | | Depreciation and depletion—oil and natural gas | $4,350 | $3,744 | $8,426 | $7,198 | | Total operating expenses | $16,593 | $16,901 | $35,135 | $37,418 | - Lease operating expenses decreased for the six months ended June 30, 2024, due to reduced utility costs and expense workovers, but increased per Boe due to decreased production volumes[70] - Depreciation and depletion for oil and natural gas properties increased due to a decrease in proved reserves, which raised the depletion rate[71] Impairment This section discusses the company's assessment of asset impairments, particularly full cost ceiling limitations - No full cost ceiling limitation impairments were recorded during the three or six-month periods ended June 30, 2024 or 2023[73] - The company estimates no full cost ceiling limitation impairment for the third quarter of 2024 based on estimated SEC prices[74] Other Operating Expenses This section details other operating expenses, including general and administrative costs and restructuring expenses Other Operating Expenses (in thousands): | Expense Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and administrative | $3,050 | $2,476 | $6,382 | $5,385 | | Restructuring expenses | $81 | $262 | $81 | $301 | | (Gain) loss on derivative contracts | — | — | — | $(1,447) | | Total other operating expenses | $3,164 | $2,711 | $6,487 | $4,137 | - General and administrative expenses increased for both periods, primarily due to higher service and personnel costs[76] Other Income (Expense) This section analyzes the company's non-operating income and expenses, primarily interest income Other Income (Expense) (in thousands): | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income (expense), net | $2,491 | $2,828 | $5,189 | $5,327 | | Other income (expense), net | $83 | $2 | $92 | $57 | | Total other income | $2,574 | $2,830 | $5,281 | $5,384 | - Total other income decreased slightly for both periods, primarily due to a reduction in net interest income from cash deposits[79][80] Liquidity and Capital Resources This section discusses the company's liquidity position, capital resources, and ability to meet financial obligations - As of June 30, 2024, the company had $211.3 million in cash and cash equivalents (including restricted cash) and no outstanding term or revolving debt obligations[81] - Cash on hand and cash from operations are expected to be adequate to meet short and long-term liquidity needs[81] Working Capital and Sources and Uses of Cash This section analyzes changes in working capital and the primary sources and uses of cash - Working capital decreased to $191.0 million at June 30, 2024, from $228.5 million at December 31, 2023, primarily due to $64.0 million in dividend payments[82] Cash Flows from Operating Activities This section analyzes the cash generated or used by the company's core operating activities - Cash flows from operations decreased by $36.8 million for the six-month period ended June 30, 2024, compared to 2023, mainly due to lower revenues from reduced commodity prices and sales volumes[84] Cash Flows from Investing Activities This section analyzes the cash flows related to the company's investment activities, including capital expenditures Capital Expenditures (Six Months Ended June 30, in thousands): | Category | 2024 | 2023 | | :----------------------------------- | :--- | :------- | | Drilling, completion, and capital workovers | $2,468 | $21,347 | | Leasehold and geophysical | $900 | $(191) | | Capital expenditures (accrual basis) | $3,368 | $21,156 | | Acquisitions | $2,103 | — | | Total cash paid for capital expenditures | $5,678 | $24,327 | - Cash used in investing activities decreased significantly due to a reduction in capital expenditures, with drilling options deferred due to lower natural gas prices[85] Cash Flows from Financing Activities This section analyzes the cash flows related to the company's financing activities, such as dividends - Cash used in financing activities decreased for the six-month period ended June 30, 2024, primarily due to lower cash dividends paid to shareholders ($64.0 million in 2024 vs. $73.8 million in 2023)[87] Contractual Obligations and Off-Balance Sheet Arrangements This section outlines the company's contractual obligations and any off-balance sheet arrangements - Contractual obligations at June 30, 2024, included asset retirement obligations, leases, and other insignificant obligations, with no significant changes from the 2023 Form 10-K[88] Critical Accounting Policies and Estimates This section refers to the company's critical accounting policies and estimates, noting any material changes - The company refers to its 2023 Form 10-K for a description of critical accounting policies and estimates and to Note 1 for recent accounting pronouncements, reporting no material changes in the current period[89] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily commodity price risk, and its historical use of cash-settled derivative contracts to manage this volatility. It also addresses credit risk from derivative counterparties and joint interest partners General This section provides a general overview of the market risks impacting the company's financial performance - The company's most significant market risk relates to the prices received for its oil, natural gas, and NGLs[91] Commodity Price Risk This section details the company's exposure to commodity price fluctuations and its strategies for managing this risk - The company historically used commodity derivative contracts (fixed price swaps, basis swaps, and collars) to reduce the impact of oil and natural gas price volatility[92] - As of June 30, 2024, the company had no open commodity derivative contracts or obligations[92] - Changes in the fair value of derivative contracts were recognized as gains and losses in current period earnings, as they were not designated as accounting hedges[92] Credit Risk This section discusses the company's exposure to credit risk from derivative counterparties and joint interest partners - The company is exposed to credit risk related to counterparties to its derivative financial contracts and joint interest partners[93][94] - Derivative transactions were historically with investment-grade counterparties, and master netting agreements limited maximum loss to net amounts[93][94] ITEM 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2024, and reports no material changes in internal control over financial reporting during the quarter Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[97] Changes in Internal Control Over Financial Reporting This section reports on any material changes in the company's internal control over financial reporting - There was no change in the company's internal control over financial reporting during the quarter ended June 30, 2024, that materially affected or is reasonably likely to materially affect it[98] PART II. OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, and a list of exhibits ITEM 1. Legal Proceedings This section refers to Note 6 (Commitments and Contingencies) in Part I, Item 1 for detailed information regarding the company's legal proceedings - Information regarding legal proceedings is provided in Note 6—Commitments and Contingencies[100] ITEM 1A. Risk Factors This section references the company's 2023 Form 10-K for general risk factors and introduces a new risk specifically related to the pending acquisition of assets in the Western Anadarko Basin, highlighting the uncertainty of its completion - General risk factors are detailed in Item 1A of the 2023 Form 10-K[102] - A new risk factor concerns the pending Western Anadarko Basin Acquisition, which is subject to closing conditions that may not be satisfied, potentially adversely affecting the company[102] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's equity-based compensation plans, which allow for 'net exercise' of vested awards to cover tax withholdings. During April 2024, 8,375 shares were purchased this way, but no shares were repurchased under the publicly announced share repurchase program during the quarter - Equity-based compensation plans allow for 'net exercise' of vested awards, where shares are tendered to satisfy tax withholding requirements[103] Share Repurchases (Three Months Ended June 30, 2024): | Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | | :----------------------------------- | :------------------------------- | :--------------------------- | | April 1, 2024 - April 30, 2024 | 8,375 | $14.77 | | May 1, 2024 - May 31, 2024 | — | — | | June 1, 2024 - June 30, 2024 | — | — | | Total | 8,375 | - | - No shares were purchased under the publicly announced $75.0 million share repurchase program during the three-month period ended June 30, 2024[105] ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[106] ITEM 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable[106] ITEM 5. Other Information No other information was reported under this item - No other information was reported under this item[106] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, amendments to the Tax Benefits Preservation Plan, subsidiary guarantors, and various certifications - Exhibits include organizational documents, amendments to the Tax Benefits Preservation Plan, subsidiary guarantors, and Section 302 and 906 Certifications[108] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Document, Label Linkbase, and Presentation Linkbase Documents are also filed[108]