SandRidge Energy(SD) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Presents the unaudited condensed consolidated financial statements for Q2 2019, including balance sheets, operations, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets As of June 30, 2019, total assets increased slightly to $1.047 billion from $1.024 billion at year-end 2018, primarily due to an increase in oil and natural gas properties, while total liabilities rose to $214.7 million from $176.6 million, mainly driven by $52.0 million in long-term debt, resulting in a decrease in total stockholders' equity to $832.1 million from $847.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $7,808 | $17,660 | | Total current assets | $63,988 | $73,327 | | Net oil and natural gas properties | $783,619 | $749,111 | | Total assets | $1,046,813 | $1,024,338 | | Liabilities & Equity | | | | Total current liabilities | $111,909 | $137,190 | | Long-term debt | $52,000 | $— | | Total liabilities | $214,672 | $176,617 | | Total stockholders' equity | $832,141 | $847,721 | Condensed Consolidated Statements of Operations For the second quarter of 2019, the company reported a net loss of $13.3 million, an improvement from the $34.1 million net loss in Q2 2018, primarily due to the absence of significant losses on derivative contracts and proxy contest costs, with the net loss for the six months ended June 30, 2019, being $18.6 million, compared to a $75.0 million loss in the prior-year period Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $75,388 | $79,462 | $148,624 | $166,590 | | Total expenses | $87,944 | $113,147 | $165,441 | $242,242 | | Loss from operations | $(12,556) | $(33,685) | $(16,817) | $(75,652) | | Net loss | $(13,284) | $(34,074) | $(18,561) | $(74,968) | | Diluted loss per share | $(0.38) | $(0.97) | $(0.53) | $(2.15) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2019, net cash provided by operating activities was $62.5 million, up from $56.1 million in the prior-year period, while net cash used in investing activities increased to $122.6 million due to higher capital expenditures, and net cash provided by financing activities was $50.3 million, driven by borrowings, resulting in a net decrease in cash of $9.9 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $62,473 | $56,117 | | Net cash used in investing activities | $(122,588) | $(81,765) | | Net cash provided by (used in) financing activities | $50,259 | $(43,680) | | Net decrease in cash | $(9,856) | $(69,328) | Notes to Condensed Consolidated Financial Statements Details accounting policies, credit facility amendments, legal contingencies, and employee termination benefits, including ASU 2016-02 adoption - The company adopted the new lease standard ASU 2016-02 on January 1, 2019, resulting in the recognition of ROU lease assets and liabilities of approximately $2.3 million and $2.4 million, respectively, which did not materially impact the financial statements[36][39] - On June 21, 2019, the company amended and restated its credit facility, reducing the borrowing base from $350.0 million to $300.0 million and extending the maturity date to April 1, 2021, with $52.0 million outstanding as of June 30, 2019[45][49] - The company is a nominal defendant in two securities litigation cases where claims against it were discharged in bankruptcy, however, it has indemnity obligations to former officers, and potential losses, if incurred, could be material[55][56] Employee Termination Benefits (in thousands) | Period | Cash | Share-Based Compensation | Total | | :--- | :--- | :--- | :--- | | Q2 2019 | $3,486 | $979 | $4,465 | | Q2 2018 | $862 | $181 | $1,043 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting Q2 2019 revenue decrease, strategic capital discipline, and increased operational activity - The company's 2019 outlook includes a capital budget of $160.0 million to $180.0 million, a focus on capital discipline, cost reductions, and a projected 5%-6% production decline compared to full-year 2018[87] Revenue Analysis for Q2 2019 vs Q2 2018 (in thousands) | Component | Amount | | :--- | :--- | | 2018 Oil, Gas, and NGL Revenues | $79,304 | | Change due to production volumes | $17,343 | | Change due to average prices | $(21,451) | | 2019 Oil, Gas, and NGL Revenues | $75,196 | Production by Area (MBoe) | Area | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Mississippian Lime | 2,468 | 2,461 | | NW STACK | 309 | 249 | | North Park Basin | 450 | 128 | | Permian Basin | — | 113 | | Total | 3,227 | 2,951 | - Lease operating expenses increased by $1.07/Boe in Q2 2019 compared to Q2 2018, primarily due to higher costs associated with increased production and water disposal in the North Park Basin[96] - As of June 30, 2019, the company had $210.4 million available under its restated credit facility[109] Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's primary market risks: commodity prices, credit, and interest rates, with the most significant risk stemming from volatile oil and natural gas prices - The company's most significant market risk is commodity price volatility, and it had no derivative contracts in place at June 30, 2019[126][127] - In July 2019, the company executed oil swap contracts covering 347 MBbls of second-half 2019 oil sales at a weighted average strike price of $60.04/Bbl[127] - The company is exposed to interest rate risk on its credit facility, with $52.0 million in outstanding variable-rate debt as of June 30, 2019[131] Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were concluded to be effective as of June 30, 2019, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[132] - There were no material changes to the company's internal control over financial reporting during the second quarter of 2019[133] PART II. OTHER INFORMATION Legal Proceedings The company is a nominal defendant in two securities litigation cases, with claims discharged in bankruptcy but ongoing for insurance recovery and potential material indemnity obligations - The company is a nominal defendant in two securities litigation cases: In re SandRidge Energy, Inc. Securities Litigation and Ivan Nibur, et al. v. SandRidge Mississippian Trust I, et al.[137][142] - Claims against the company were discharged pursuant to its 2016 bankruptcy plan, but it remains a defendant to the extent of applicable insurance coverage[139] - The company has indemnity obligations to certain former officers and may be obligated to indemnify SandRidge Mississippian Trust I for losses, which is not covered by insurance, and the potential loss is not estimable but could be material[139][140] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There have been no material changes to the risk factors previously discussed in the Company's 2018 Form 10-K[143] Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2019, the company repurchased a total of 31,953 shares, which were tendered by employees to satisfy tax withholding obligations upon the vesting of their stock awards Share Repurchases for Q2 2019 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2019 | 2,572 | $8.31 | | June 2019 | 29,381 | $6.24 | | Total | 31,953 | N/A | - The repurchased shares were tendered by employees to satisfy tax withholding requirements on vested stock awards[145] Defaults upon Senior Securities The company reported no defaults upon its senior securities during the period - None[146] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated Credit Agreement and required CEO and CFO certifications - Exhibit 10.1 is the Amended and Restated Credit Agreement, dated June 21, 2019[148] - Exhibits 31.1, 31.2, and 32.1 contain the required certifications by the Chief Executive Officer and Chief Financial Officer[148]