SandRidge Energy(US:SD)2020-02-27 21:17PART I Item 1. Business SandRidge Energy, Inc. is an oil and natural gas E&P company in Mid-Continent and North Park Basin, prioritizing free cash flow and strategic acquisitions General Reorganization Under Chapter 11 and Emergence from Bankruptcy Our Business Strategy Primary Business Operations SandRidge's primary operations are oil and natural gas E&P in Mid-Continent and North Park Basin, with 89.9 MMBoe proved reserves as of December 31, 2019 Exploration and Production Activities by Geographic Area (as of December 31, 2019) | Area | Estimated Net Proved Reserves (MMBoe) | Daily Production (MBoe/d) | Reserves/Production (Years) | Gross Acreage | Net Acreage | Capital Expenditures (In millions) | | :---------------- | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------- | :------------ | :-------------------------------- | | Mid-Continent | 61.4 | 23.9 | 7.0 | 578,667 | 399,912 | $29.2 | | North Park Basin | 28.5 | 4.6 | 16.9 | 117,564 | 109,579 | $129.3 | | Other | — | — | — | 4,628 | 1,456 | $3.3 | | Total | 89.9 | 28.5 | 8.6 | 700,859 | 510,947 | $161.8 | Estimated Proved Reserves (MMBoe) | Category | Dec 31, 2019 (MMBoe) | Dec 31, 2018 (MMBoe) | Dec 31, 2017 (MMBoe) | | :----------------------- | :----------- | :----------- | :----------- | | Total proved developed | 62.1 | 92.3 | 123.8 | | Total proved undeveloped | 27.8 | 67.9 | 53.8 | | Total proved | 89.9 | 160.2 | 177.6 | - Proved reserves decreased from 160.2 MMBoe at December 31, 2018, to 89.9 MMBoe at December 31, 2019, primarily due to downward revisions of 50.9 MMBoe from lower year-end SEC oil and natural gas prices (39.8 MMBoe from downgrading PUDs and 11.1 MMBoe from remaining proved reserves), and 10.9 MMBoe due to increased commodity price differentials99100555 Production and Price History | Metric | 2019 | 2018 | 2017 | | :-------------------------- | :----- | :----- | :----- | | Oil (MBbls) | 3,519 | 3,477 | 4,157 | | NGL (MBbls) | 2,910 | 2,829 | 3,376 | | Natural gas (MMcf) | 33,164 | 36,175 | 44,237 | | Total volumes (MBoe) | 11,956 | 12,335 | 14,906 | | Average daily total (MBoe/d) | 32.8 | 33.8 | 40.8 | | Average Oil Price (per Bbl) | $52.96 | $61.73 | $48.72 | | Average NGL Price (per Bbl) | $12.23 | $23.72 | $18.16 | | Average Natural Gas Price (per Mcf) | $1.33 | $1.85 | $2.09 | | Total (per Boe) | $22.26 | $28.27 | $23.90 | Competition Seasonal Nature of Business Environmental Regulations Operations face extensive environmental regulations on emissions, water, and hydraulic fracturing, potentially increasing costs and delaying projects - Oil and natural gas operations are subject to stringent federal, state, tribal, regional, and local laws and regulations concerning worker safety, environmental discharges, and natural resource protection127 - Changes in environmental regulations, such as stricter permitting, construction, or waste handling requirements, could lead to delays, increased costs, and potential liabilities, which the company may not be able to pass on to customers128 - Hydraulic fracturing, a key production method, faces increasing federal and state scrutiny, with potential for more stringent permitting, disclosure, operational, or well construction requirements, or outright prohibitions, which could reduce commercially viable production and increase costs154 - Regulations addressing climate change and GHG emissions, including methane, could lead to increased operating costs for pollution control equipment, impact demand for oil and natural gas, and potentially lower the value of reserves145 Other Regulation of the Oil and Natural Gas Industry The oil and natural gas industry is extensively regulated by federal, state, and local authorities, impacting drilling, production, and transportation - The oil and natural gas industry is extensively regulated at federal, state, local, and tribal levels, covering activities from drilling permits and production rates to environmental protection and waste prevention157159 - Federal agencies like FERC, CFTC, and FTC have substantial enforcement authority, including significant civil penalties, for market manipulation and non-compliance with regulations concerning natural gas sales and transportation162164167 - The cost and availability of transportation significantly affect oil and natural gas sales, with federal and state regulations governing pipeline access and rates, which can impact marketing and revenues161168 Employees - SandRidge Energy, Inc. is an oil and natural gas company focused on exploration and production in the U.S. Mid-Continent and North Park Basin of Colorado64 - The company's 2020 business strategy focuses on maximizing free cash flow by strategically rationalizing corporate and field-level costs, limiting drilling capital to high-return locations with near-term payouts, and pursuing accretive acquisitions and business combinations68 - SandRidge emerged from Chapter 11 bankruptcy on October 4, 2016, with all prior common stock and debt securities cancelled and new common stock issued67 Key Operational Metrics (as of December 31, 2019) | Metric | Value | | :-------------------------------- | :------------------- | | Gross Producing Wells | 1,728 | | Net Producing Wells | 1,013.0 | | Total Gross Acres Under Lease | 701,000 | | Total Net Acres Under Lease | 511,000 | | Total Estimated Proved Reserves | 89.9 MMBoe | | Proved Developed Reserves | 69% of total proved | | Rigs Drilling | 0 | | 2020 Capital Budget Plan | $25.0 - $30.0 million | Item 1A. Risk Factors The company faces significant risks from volatile commodity prices, high-risk drilling, capital needs, refinancing challenges, imprecise reserve estimates, and regulatory changes - Revenues, profitability, and cash flow are highly dependent on volatile oil, natural gas, and NGL prices, which can fluctuate widely due to global supply/demand, economic conditions, and geopolitical factors171172173 - Drilling and producing oil and natural gas are high-risk activities, subject to uncertainties like dry wells, mechanical difficulties, and operational delays caused by geological formations, equipment shortages, weather, and regulatory requirements174175 - The company's substantial capital requirements for development and exploration, coupled with potential constraints in capital markets, could hinder its ability to execute drilling plans or construct necessary infrastructure, especially for North Park Basin assets178182187 - The credit facility, maturing April 1, 2021, poses refinancing risks. Failure to refinance on favorable terms could lead to liquidity issues, requiring reduced drilling, asset sales, or further cost cuts, materially impacting financial condition188 - Estimated reserves are inherently imprecise, relying on interpretations and assumptions that, if inaccurate, could materially affect quantities and present value. Future adjustments to reserve estimates, potentially material, are expected191192 - Concentration of operations in the Mid-Continent region (68.3% of proved reserves, 87.2% of annual production as of Dec 31, 2019) makes the company vulnerable to localized operational, regulatory, and market risks209 Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments - There are no unresolved staff comments249 Item 2. Properties Information regarding the company's properties is incorporated by reference from Item 1, 'Business' - Information regarding the Company's properties is included in Item 1250 Item 3. Legal Proceedings The company is a nominal defendant in two securities litigation cases post-2016 Chapter 11 reorganization, with potential material losses if not covered by insurance - The company is a nominal defendant in two consolidated securities litigation cases (In re SandRidge Energy, Inc. Securities Litigation and Lanier Trust) following its Chapter 11 reorganization in 2016251 - Although claims against the company were discharged, it remains a nominal defendant to allow recovery from insurance policies and has indemnity obligations to certain former officers253 - The company cannot determine the likelihood or estimate the range of possible losses for these cases, but notes that losses, if incurred and not covered by insurance, could be material254 Item 4. Mine Safety Disclosures This item is not applicable - Item 4. Mine Safety Disclosures is not applicable256 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SandRidge Energy, Inc. common stock is listed on NYSE, with no cash dividends anticipated, prioritizing cash retention; limited share repurchases in Q4 2019 - SandRidge Energy, Inc.'s common stock has been listed on the New York Stock Exchange (NYSE) under the symbol 'SD' since October 4, 2016, following its emergence from Chapter 11258 - The company has not declared or paid cash dividends on its common stock and does not anticipate doing so, intending to retain cash for business operations and expansion, including exploration, development, and production activities259 Issuer Purchases of Equity Securities (Q4 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------------------------- | :----------------------------- | :--------------------------- | | December 1, 2019 - December 31, 2019 | 1,501 | $4.08 | Item 6. Selected Financial Data Selected financial data shows a significant $449.3 million net loss in 2019 due to a $409.6 million impairment, with declining revenues and assets, and increasing debt - The financial statements after October 1, 2016, are not comparable with prior periods due to the application of fresh start accounting upon emergence from Chapter 11269 Selected Statement of Operations Data (Successor Company) | Metric (in thousands, except per share) | 2019 | 2018 | 2017 | | :-------------------------------------- | :----- | :----- | :----- | | Revenues | $266,845 | $349,395 | $357,299 | | Total operating expenses | $713,612 | $359,770 | $317,668 | | (Loss) income from operations | $(446,767) | $(10,375) | $39,631 | | Net (loss) income attributable to SandRidge Energy, Inc. | $(449,305) | $(9,075) | $47,062 | | Basic (Loss) earnings per share | $(12.68) | $(0.26) | $1.45 | Selected Balance Sheet Data (Successor Company, in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | | :---------------------------------- | :----------- | :----------- | :----------- | | Cash and cash equivalents | $4,275 | $17,660 | $99,143 | | Property, plant and equipment, net | $567,943 | $949,949 | $923,240 | | Total assets | $607,689 | $1,024,338 | $1,119,627 | | Total debt | $57,500 | $— | $37,502 | | Total stockholders' equity (deficit) | $402,452 | $847,721 | $839,940 | - Full cost ceiling limitation impairments were $409.6 million for the year ended December 31, 2019, compared to no impairments in 2018 and 2017269 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MD&A covers financial performance, operations, and outlook, highlighting a significant 2019 net loss from impairment, decreased revenues, and a 2020 plan to reduce capital expenditures - The company's 2020 outlook focuses on maximizing free cash flow through cost control and limiting drilling capital to high-return locations, with planned capital expenditures between $25.0 million and $30.0 million, which will likely lead to a decline in oil, natural gas, and NGL production276 Consolidated Revenues (in thousands) | Revenue Source | 2019 | 2018 | 2017 | | :--------------- | :----- | :----- | :----- | | Oil | $186,360 | $214,651 | $202,539 | | NGL | $35,598 | $67,111 | $61,322 | | Natural gas | $44,146 | $66,964 | $92,349 | | Other | $741 | $669 | $1,089 | | Total revenues | $266,845 | $349,395 | $357,299 | - Oil, natural gas, and NGL revenues decreased by $82.6 million (23.7%) in 2019 compared to 2018, primarily due to lower average prices and a 0.4 MMBoe decrease in total production, partly offset by new wells in North Park and NW STACK291 Operating Expenses (in thousands) | Expense Category | 2019 | 2018 | 2017 | | :-------------------------------------- | :----- | :----- | :----- | | Lease operating expenses | $90,938 | $87,786 | $99,052 | | Production, ad valorem, and other taxes | $19,394 | $25,434 | $18,211 | | Depreciation and depletion—oil and natural gas | $146,874 | $127,281 | $118,035 | | Depreciation and amortization—other | $11,684 | $11,982 | $13,852 | | Total operating expenses | $268,890 | $252,483 | $249,150 | - The company recorded a full cost pool ceiling limitation impairment of $409.6 million in 2019, primarily due to decreased trailing twelve-month SEC prices for oil and natural gas, lower NGL prices, and increased expected operating expenses296 Cash Flows (in thousands) | Cash Flow Activity | 2019 | 2018 | 2017 | | :------------------------------------ | :------- | :------- | :------- | | Operating activities | $121,324 | $145,514 | $181,179 | | Investing activities | $(189,849) | $(183,453) | $(245,724) | | Financing activities | $54,848 | $(43,724) | $(8,218) | | Net (decrease) increase in cash | $(13,677) | $(81,663) | $(72,763) | - The credit facility's borrowing base was reduced from $300.0 million to $225.0 million in November 2019, with $164.6 million available at year-end. Future reductions are possible due to declining commodity prices and reduced capital development330 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is commodity price volatility, managed with non-hedge derivative contracts, exposing the company to credit and interest rate risks - The most significant market risk is the volatility of oil, natural gas, and NGL prices. The company uses commodity derivative contracts (fixed price swaps, basis swaps, and collars) to manage this risk for a portion of anticipated production, limited to 90% of expected volumes360361 - Derivative contracts are not designated as accounting hedges, meaning changes in their fair value are recognized as gains or losses in current period earnings, leading to potential earnings fluctuations364 Derivative Activity (in thousands) | Metric | 2019 | 2018 | 2017 | | :------------------------------------ | :------- | :------- | :------- | | (Gain) loss on commodity derivative contracts | $(1,094) | $17,155 | $(24,090) | | Cash (received) paid on settlements | $(6,266) | $35,325 | $(7,260) | - The company is exposed to credit risk from derivative counterparties (all investment grade with master netting agreements) and joint interest partners. It also faces interest rate risk on its variable-rate credit facility, with $57.5 million outstanding at December 31, 2019366367368369 Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements, including balance sheets, operations, and cash flows, with notes and a $449.3 million net loss in 2019 due to impairment - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019375 Consolidated Balance Sheets (in thousands) | Asset/Liability | Dec 31, 2019 | Dec 31, 2018 | | :------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $4,275 | $17,660 | | Total current assets | $38,606 | $73,327 | | Net oil and natural gas properties capitalized costs | $379,340 | $749,111 | | Total assets | $607,689 | $1,024,338 | | Total current liabilities | $88,423 | $137,190 | | Long-term debt | $57,500 | $— | | Total liabilities | $205,237 | $176,617 | | Total stockholders' equity | $402,452 | $847,721 | Consolidated Statements of Operations (in thousands) | Item | 2019 | 2018 | 2017 | | :-------------------------------------- | :------- | :------- | :------- | | Total revenues | $266,845 | $349,395 | $357,299 | | Lease operating expenses | $90,938 | $87,786 | $99,052 | | Production, ad valorem, and other taxes | $19,394 | $25,434 | $18,211 | | Depreciation and depletion—oil and natural gas | $146,874 | $127,281 | $118,035 | | Impairment | $409,574 | $4,170 | $4,019 | | General and administrative | $32,058 | $40,619 | $75,133 | | Net (loss) income | $(449,305) | $(9,075) | $47,062 | | Basic (Loss) earnings per share | $(12.68) | $(0.26) | $1.45 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2019 | 2018 | 2017 | | :------------------------------------ | :------- | :------- | :------- | | Net cash provided by operating activities | $121,324 | $145,514 | $181,179 | | Net cash used in investing activities | $(189,849) | $(183,453) | $(245,724) | | Net cash provided by (used in) financing activities | $54,848 | $(43,724) | $(8,218) | | Net decrease in cash, cash equivalents and restricted cash | $(13,677) | $(81,663) | $(72,763) | - Proved reserves decreased from 160.2 MMBoe at December 31, 2018, to 89.9 MMBoe at December 31, 2019, primarily due to downward revisions from lower year-end SEC prices for oil and natural gas555 Standardized Measure of Discounted Future Net Cash Flows (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | | :------------------------------------------ | :----------- | :----------- | :----------- | | Standardized measure of discounted future net cash flows | $364,290 | $1,045,603 | $749,294 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in and disagreements with accountants on accounting and financial disclosure - There are no changes in and disagreements with accountants on accounting and financial disclosure571 Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes - The company's disclosure controls and procedures were effective as of December 31, 2019, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely572 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019375573 - There were no changes in the company's internal control over financial reporting during the quarter ended December 31, 2019, that materially affected or are reasonably likely to materially affect it574 Item 9B. Other Information On February 21, 2020, the company entered an at-will Letter Agreement with Interim CEO John Suter, outlining his compensation and severance terms - On February 21, 2020, the company entered into an at-will Letter Agreement with John Suter, Interim Chief Executive Officer and President and Chief Operating Officer, replacing his previous employment contract576 - The Letter Agreement maintains Mr. Suter's annual salary at $420,000 and includes a one-time bonus of $210,000577 - Severance terms include 26 weeks of payment if terminated without cause, and accelerated vesting of existing stock grants upon termination without cause or if continuously employed until September 30, 2020577 PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement for the 2019 Annual Meeting of Stockholders580 Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the definitive proxy statement - Information on executive compensation is incorporated by reference from the definitive proxy statement for the 2019 Annual Meeting of Stockholders580 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement - Information on security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the definitive proxy statement581 Item 13. Certain Relationships and Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive proxy statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive proxy statement581 Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement - Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement582 PART IV Item 15. Exhibits and Financial Statement Schedules The report includes consolidated financial statements and various exhibits, such as the Amended Joint Chapter 11 Plan and Credit Agreement, along with certifications - The report includes consolidated financial statements and various exhibits, such as the Amended Joint Chapter 11 Plan of Reorganization, Amended and Restated Certificate of Incorporation, Warrant Agreement, Amended and Restated Credit Agreement, and Settlement Agreement585587588590 - Financial statement schedules have been omitted as the required information is presented in the consolidated financial statements or notes585 - Certifications under Section 302 and Section 906 of the Sarbanes-Oxley Act are included, along with consents from independent registered public accounting firms and reserve consultants590 Item 16. Form 10-K Summary This item is not applicable - Item 16. Form 10-K Summary is not applicable591 Signatures