SandRidge Energy(SD) - 2021 Q2 - Quarterly Report

Report Information Filing Details This 10-Q quarterly report for SandRidge Energy, Inc. covers the period ending June 30, 2021, detailing its Delaware registration, NYSE listing, and status as a non-accelerated filer and smaller reporting company with 36,588,775 common shares outstanding as of August 5, 2021 - Registrant: SandRidge Energy, Inc., a company focused on the acquisition, development, and production of oil and natural gas resources in the United States[2][20] Filing Status and Shares Outstanding | Metric | Value | | :--- | :--- | | Filing Type | 10-Q Quarterly Report | | Period End Date | June 30, 2021 | | Commission File Number | 001-33784 | | Registrant Status | Non-accelerated filer, Smaller reporting company | | Common Stock Outstanding (as of August 5, 2021) | 36,588,775 shares | DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS This quarterly report contains forward-looking statements regarding capital expenditures, liquidity, business strategies, and litigation outcomes, which are based on assumptions but are not guarantees of future performance and are subject to significant risks and uncertainties - The report includes forward-looking statements concerning capital expenditures, liquidity, project timing, litigation outcomes, business strategies, and regulatory compliance[7] - These statements are based on assumptions and analyses, but are not guarantees of future performance and are subject to significant business, economic, competitive, regulatory, and other risks, contingencies, and uncertainties[8] - The company undertakes no obligation to update or revise these forward-looking statements, except as required by law, and cautions readers not to place undue reliance on them[8] PART I. FINANCIAL INFORMATION - The unaudited financial statements include condensed consolidated balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with notes, prepared in accordance with GAAP[10][12][14][16][17][19][22] ITEM 1. Financial Statements (Unaudited) This section presents SandRidge Energy, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, cash flows, and notes, providing detailed financial position and performance information for the reporting period Condensed Consolidated Balance Sheets Total assets increased from $260.8 million to $296.4 million as of June 30, 2021, driven by a significant rise in cash and cash equivalents, while total liabilities decreased, leading to a substantial increase in stockholders' equity Condensed Consolidated Balance Sheet Highlights (Units: $ thousand) | Metric | June 30, 2021 | December 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | $88,338 | $22,130 | +$66,208 | | Total Current Assets | $113,556 | $50,812 | +$62,744 | | Net Oil and Natural Gas Properties | $82,725 | $106,222 | -$23,497 | | Total Assets | $296,447 | $260,832 | +$35,615 | | Total Current Liabilities | $59,243 | $68,877 | -$9,634 | | Total Liabilities | $116,879 | $132,766 | -$15,887 | | Total Stockholders' Equity | $179,568 | $128,066 | +$51,502 | Condensed Consolidated Statements of Operations The company reported a net income of $16.3 million in Q2 2021, a significant reversal from a $215.8 million net loss in Q2 2020, primarily due to increased oil, natural gas, and NGL revenues and the absence of large impairment charges in 2020 Condensed Consolidated Statements of Operations Highlights (Units: $ thousand, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $34,196 | $16,655 | $67,819 | $56,984 | | Total Expenses | $18,147 | $232,041 | $16,708 | $285,129 | | Operating Income (Loss) | $16,049 | $(215,386) | $51,111 | $(228,145) | | Net Income (Loss) | $16,252 | $(215,779) | $51,295 | $(228,449) | | Basic Earnings Per Share | $0.45 | $(6.06) | $1.42 | $(6.42) | | Diluted Earnings Per Share | $0.44 | $(6.06) | $1.38 | $(6.42) | - The significant improvement in net income is primarily attributed to the absence of impairment charges in Q2 2021 (compared to $201.8 million in Q2 2020) and increased oil, natural gas, and NGL revenues[14][41] Condensed Consolidated Statement of Changes in Stockholders' Equity Total stockholders' equity increased from $128.1 million as of December 31, 2020, to $179.6 million as of June 30, 2021, primarily driven by $51.3 million in net income during the six-month period Changes in Stockholders' Equity (Units: $ thousand) | Metric | Balance as of December 31, 2020 | Net Income (H1 2021) | Stock-based Compensation (H1 2021) | Tax Payments for Vested Equity Awards (H1 2021) | Balance as of June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $128,066 | $51,295 | $799 | $(613) | $179,568 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $33.2 million for the six months ended June 30, 2021, while investing activities generated $29.9 million from asset sales, reversing prior period cash usage, and financing activities used $0.8 million Condensed Consolidated Statements of Cash Flows Highlights (Units: $ thousand) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $33,231 | $13,462 | | Net Cash Provided by (Used in) Investing Activities | $29,907 | $(5,308) | | Net Cash Provided by (Used in) Financing Activities | $(795) | $805 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $62,343 | $8,959 | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $90,609 | $14,927 | - The increase in operating cash flow is primarily attributed to improved commodity prices and cost reduction measures, while investing cash flow significantly increased due to $37.9 million in proceeds from asset sales[17][128][129] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering accounting policies, fair value measurements, derivatives, property, plant and equipment, impairment, acquisitions, divestitures, debt, commitments and contingencies, income taxes, equity, revenues, employee termination benefits, earnings per share, and subsequent events - The notes provide essential context and details for the unaudited financial statements, covering significant accounting policies, estimates, and recent accounting pronouncements[19][22][23][136] 1. Basis of Presentation SandRidge Energy, Inc. focuses on US oil and gas resource acquisition, development, and production; its unaudited interim financial statements are GAAP-compliant, involving estimates and assumptions, with ASU 2019-12 adopted without material impact and ASU 2020-04 under review - SandRidge Energy, Inc. is a company focused on the acquisition, development, and production of oil and natural gas resources in the United States[20] - The unaudited interim financial statements are prepared in accordance with GAAP, requiring management to make significant estimates and assumptions, particularly regarding reserves, impairment, and valuations[22][24][25] - The company adopted ASU 2019-12 (simplifying income tax accounting) on January 1, 2021, with no material impact, and is evaluating the potential future impact of ASU 2020-04 (reference rate reform)[27][28] 2. Fair Value Measurements The company measures and reports certain assets and liabilities at fair value, categorized by a fair value hierarchy, with most current assets/liabilities and long-term debt having book values approximating fair values, and no open commodity derivative contracts or transfers between fair value levels during the period - Assets and liabilities measured at fair value are categorized into Level 1, 2, or 3 based on the observability of inputs, with most current assets/liabilities and long-term debt having book values approximating fair values[29][30][33] - Fair values for commodity derivative contracts (Level 2) are determined using discounted cash flow or option pricing models with observable inputs like oil and gas futures prices and volatility, adjusted for credit default risk[31] - As of June 30, 2021, and December 31, 2020, there were no open commodity derivative contracts or transfers between fair value measurement levels for the three and six months ended June 30, 2021, and 2020[32][33] 3. Derivatives The company previously used commodity derivative contracts to manage oil and gas price risk but had no open contracts as of June 30, 2021, or December 31, 2020; historically, these contracts were not designated as accounting hedges, with fair value changes recognized in profit or loss - The company uses commodity derivative contracts to manage price risk for oil and natural gas production, but had no open contracts as of June 30, 2021, and December 31, 2020[33][35] - Historically, derivative contracts were not designated as hedging instruments, so changes in their fair value were recognized as gains or losses in the condensed consolidated statements of operations[34][36] Derivative Activities (Units: $ thousand) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Gain (Loss) on Commodity Derivative Contracts | $— | $(2,241) | $— | $(12,467) | | Cash Received on Settlements | $— | $6,490 | $— | $10,577 | 4. Property, Plant and Equipment Net property, plant, and equipment decreased from $209.3 million to $182.3 million as of June 30, 2021, primarily due to a reduction in net oil and gas properties from $106.2 million to $82.7 million, influenced by depreciation, depletion, and impairment Property, Plant and Equipment (Units: $ thousand) | Asset Class | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Proved Oil and Natural Gas Properties | $1,439,904 | $1,463,950 | | Unproved Oil and Natural Gas Properties | $13,365 | $17,964 | | Less: Accumulated Depreciation, Depletion, and Impairment | $(1,370,544) | $(1,375,692) | | Net Oil and Natural Gas Properties | $82,725 | $106,222 | | Other Property, Plant and Equipment, Net | $99,572 | $103,118 | | Total Property, Plant and Equipment, Net | $182,297 | $209,340 | 5. Impairment The company recorded no full cost pool ceiling impairment charges for the three and six months ended June 30, 2021, a stark contrast to Q2 2020, which saw $201.8 million in total impairment, including $163.8 million for the full cost pool and $38.0 million for the corporate headquarters - No full cost pool ceiling impairment charges were recorded for the three and six months ended June 30, 2021[40] Impairment Charges (Units: $ million) | Impairment Type | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Full Cost Pool Ceiling Impairment | $163.8 | $171.8 | | Corporate Headquarters Impairment | $38.0 | $38.0 | | Total Impairment Charges | $201.8 | $209.8 | - The $38.0 million corporate headquarters impairment on June 30, 2020, resulted from an agreement to sell the headquarters in May 2020, reducing its carrying value to estimated fair value less costs to sell[42] 6. Acquisitions and Divestitures On April 22, 2021, the company acquired all excess royalty assets of SandRidge Mississippian Trust I for $4.9 million (net $3.6 million), and on February 5, 2021, sold its North Park Basin (NPB) oil and gas assets for $39.7 million net proceeds, recognizing a $19.7 million gain, significantly reducing NPB's revenue and operating expenses - On April 22, 2021, the company acquired all excess royalty assets of SandRidge Mississippian Trust I for $4.9 million (net $3.6 million)[43] - On February 5, 2021, the company sold all its North Park Basin (NPB) oil and natural gas assets for $39.7 million net proceeds, recognizing a $19.7 million gain[44] North Park Basin (NPB) Contribution to Consolidated Financial Statements | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Revenues | $3.2 million (4.7% of total) | $17.4 million (30.5% of total) | | Lease Operating Expenses | $0.9 million (5.4% of total) | $5.8 million (23.7% of total) | | Production, Ad Valorem, and Other Taxes | $0.2 million (5.3% of total) | $1.1 million (21.4% of total) | | Production | 0.1 MMBoe (2.0% of total) | 0.6 MMBoe (11.7% of total) | 7. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses decreased from $51.4 million to $42.9 million as of June 30, 2021, primarily due to reductions in accounts payable and other accrued expenses, payroll and benefits, and taxes payable Accounts Payable and Accrued Expenses (Units: $ thousand) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Accounts Payable and Other Accrued Expenses | $19,555 | $23,017 | | Production Payables | $15,645 | $15,367 | | Payroll and Benefits | $2,775 | $5,640 | | Taxes Payable | $4,645 | $6,864 | | Total Accounts Payable and Accrued Expenses | $42,896 | $51,426 | 8. Long-Term Debt As of June 30, 2021, the company had $20.0 million outstanding on a term loan under a new $30.0 million credit facility maturing November 30, 2023, with $10.0 million available on its revolving loan, a Q2 2021 weighted average interest rate of 2.60%, and compliance with all financial covenants - As of June 30, 2021, the company had $20.0 million outstanding on a term loan under a new credit facility, with $10.0 million available on its revolving loan, maturing November 30, 2023[50] - The weighted average interest rate on outstanding borrowings under the new credit facility was approximately 2.60% and 2.62% for the three and six months ended June 30, 2021, respectively[52] - As of June 30, 2021, the company was in compliance with all applicable covenants, with a consolidated net total leverage ratio of (0.15) and a consolidated interest coverage ratio of 59.73[55] 9. Commitments and Contingencies The company is involved in various legal proceedings and claims, and while some claims have been discharged, it remains a nominal defendant in ongoing cases and may be contractually obligated to indemnify former executives and SandRidge Mississippian Trust I; due to uncertainties and exhausted insurance coverage, potential losses cannot be estimated but could be material - The company is subject to various legal proceedings and claims arising in the ordinary course of business, accruing contingent liabilities when probable and reasonably estimable[57] - Although claims were discharged under the plan, the company remains a nominal defendant in certain ongoing cases and may be contractually obligated to indemnify two former executives and SandRidge Mississippian Trust I[58][59] - Given the status of the cases and exhausted insurance coverage, the company cannot determine the likelihood of any outcome or provide an estimate of any reasonably possible loss, but such losses could be material if incurred[60] 10. Income Taxes Due to cumulative negative earnings, the company maintains a full valuation allowance against its net deferred tax assets, resulting in no federal or state income tax expense or benefit for the three and six months ended June 30, 2021, and possesses approximately $1.6 billion in federal net operating loss (NOL) carryforwards and over $33.5 million in federal tax credits - The company maintains a full valuation allowance against its net deferred tax assets due to cumulative negative earnings, resulting in no income tax expense or benefit for the current period[63] - The company possesses approximately $1.6 billion in federal NOL carryforwards (with $0.8 billion expiring between 2025-2037 and $0.8 billion with no expiration) and over $33.5 million in federal tax credits[65] - A 2016 IRC Section 382 ownership change limited the utilization of certain tax attributes, and future ownership changes could further impact NOL and other tax attribute utilization[64] 11. Equity As of June 30, 2021, the company had 36.6 million shares of common stock issued (out of 250 million authorized), approximately 0.1 million unvested restricted stock awards, 1.1 million unvested restricted stock units, and 0.1 million unexercised stock options, plus Series A and B warrants convertible into 4.9 million and 2.1 million common shares, respectively, exercisable until October 4, 2022; the company adopted a Tax Benefits Preservation Plan to protect NOLs by preventing any person or group from acquiring 4.9% or more beneficial ownership - As of June 30, 2021, the company had 36.6 million shares of common stock issued (out of 250 million authorized) and held various unvested equity awards[68] - Approximately 4.9 million Series A warrants and 2.1 million Series B warrants are exercisable until October 4, 2022, with initial exercise prices of $41.34 and $42.03 per share, respectively[69] - The company adopted a Tax Benefits Preservation Plan to prevent an "ownership change" under IRC Section 382, which would limit its ability to utilize valuable net operating losses (NOLs), by deterring any person or group from acquiring 4.9% or more beneficial ownership[70][71] 12. Revenues Total revenues for the three months ended June 30, 2021, increased to $34.2 million from $16.7 million in the prior year, and for the six months, increased to $67.8 million from $57.0 million, primarily driven by higher realized prices for oil, NGLs, and natural gas, despite a decrease in total production Revenue Sources (Units: $ thousand) | Revenue Source | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Oil | $14,666 | $11,554 | $30,214 | $40,208 | | NGL | $10,625 | $1,591 | $19,481 | $7,525 | | Natural Gas | $8,905 | $3,303 | $18,124 | $8,854 | | Total Revenues | $34,196 | $16,655 | $67,819 | $56,984 | - The majority of the company's revenue is derived from the sale of oil, natural gas, and NGLs, recorded net of royalties, discounts, and transportation costs when control transfers to the customer[77][78] - Revenue receivables as of June 30, 2021, were $14.5 million, up from $12.8 million as of December 31, 2020, estimated at current month prices[79] 13. Employee Termination Benefits No employee termination benefits occurred during the three months ended June 30, 2021; for the six months, total benefits were $49 thousand, significantly lower than $5.2 million in the prior year, which included cash severance and accelerated equity incentives due to workforce reductions and the North Park asset sale - No employee termination benefits occurred in Q2 2021; total benefits for the six months ended June 30, 2021, were $49 thousand[80][81] Employee Termination Benefits (Units: $ thousand) | Category | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Cash | $32 | $5,207 | | Equity Incentives | $17 | $40 | | Total Employee Termination Benefits | $49 | $5,247 | - Prior period benefits (Q2 2020: $1.99 million; H1 2020: $5.25 million) resulted from workforce reductions and the North Park asset sale, including accelerated equity incentives[80][81] 14. Earnings (Loss) per Share Basic EPS for Q2 2021 was $0.45 and diluted EPS was $0.44, a significant improvement from basic and diluted losses of ($6.06) per share in Q2 2020; for the six months ended June 30, 2021, basic EPS was $1.42 and diluted EPS was $1.38, compared to ($6.42) per share loss in the prior year, with dilutive securities included in 2021 due to their dilutive effect, unlike their anti-dilutive effect in 2020 Earnings (Loss) per Share (Units: $ thousand, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $16,252 | $(215,779) | $51,295 | $(228,449) | | Basic Earnings Per Share | $0.45 | $(6.06) | $1.42 | $(6.42) | | Diluted Earnings Per Share | $0.44 | $(6.06) | $1.38 | $(6.42) | | Basic Weighted Average Shares Outstanding | 36,416 | 35,611 | 36,187 | 35,581 | | Diluted Weighted Average Shares Outstanding | 37,345 | 35,611 | 37,283 | 35,581 | - Incremental shares from restricted stock units, restricted stock awards, and stock options were included in the 2021 diluted EPS calculation due to their dilutive effect, unlike their anti-dilutive effect in 2020[82][83] 15. Subsequent Events Post-June 30, 2021, the board approved a $25.0 million stock repurchase program starting August 16, 2021; a July 26, 2021, amendment to the new credit facility allowed liens for swap contracts; and Carl F. Giesler, Jr. resigned as CEO and President on July 16, 2021, with Grayson Pranin appointed as the new President and CEO, while retaining COO duties - The Board of Directors approved a $25.0 million stock repurchase program, commencing August 16, 2021[84] - On July 26, 2021, the first amendment to the new credit facility became effective, allowing for liens on certain swap contracts[85] - Carl F. Giesler, Jr. resigned as Chief Executive Officer and President on July 16, 2021; Grayson Pranin was appointed as the new President and Chief Executive Officer, continuing his role as Chief Operating Officer[86][87] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of the company's financial condition, results of operations, liquidity, and capital resources for the three and six months ended June 30, 2021, focusing on strategies to maximize free cash flow, recent operational improvements, and commodity price impacts - The discussion covers the company's business, financial condition, results of operations, liquidity, and capital resources, emphasizing the unaudited nature of the interim financial information[89] - The company is an independent oil and natural gas company primarily focused on acquisition, development, and production activities in the Mid-Continent region of the United States, having divested its North Park Basin assets in February 2021[90] Introduction This introduction outlines the scope of management's discussion and analysis, aiming to help readers understand the company's business, financial condition, operating results, liquidity, and capital resources, with a focus on unaudited interim financial information for the periods ended June 30, 2021, and 2020 - The discussion and analysis aim to help readers understand the company's business, financial condition, results of operations, liquidity, and capital resources, and should be read in conjunction with the unaudited condensed consolidated financial statements[89] - Financial information for the three and six months ended June 30, 2021, and 2020, is unaudited, includes normal recurring adjustments, and interim operating results are not necessarily indicative of full-year operating results[89] Overview SandRidge Energy, Inc., an independent oil and gas company focused on US Mid-Continent acquisition, development, and production, divested its North Park Basin assets in February 2021; Q2 2021 total production was 1.73 MMBoe, with a product mix shifting towards natural gas and NGLs compared to Q2 2020 - SandRidge Energy, Inc. is an independent oil and natural gas company focused on acquisition, development, and production activities in the Mid-Continent region of the United States, having sold its North Park Basin assets[90] Product Production Mix | Product | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Oil | 13.1% | 24.2% | 15.3% | 25.5% | | Natural Gas | 51.5% | 44.1% | 51.1% | 43.7% | | NGLs | 35.4% | 31.7% | 33.6% | 30.8% | | Total Production (MMBoe) | 1,733 | 2,151 | 3,374 | 4,718 | - Total Mid-Continent production for Q2 2021 was 1.73 MMBoe, representing 100% of total production, compared to 1.93 MMBoe (89.7% of total) in Q2 2020, reflecting the NPB divestiture[104] Recent Events Recent events include a $25.0 million stock repurchase program, an amendment to the new credit facility allowing liens for swap contracts, and leadership changes with Grayson Pranin appointed President and CEO after Carl F. Giesler, Jr.'s resignation; operationally, the company restarted 49 wells in Q2 2021, adding 0.8 MBoed, and ceased routine natural gas flaring post-North Park Basin sale - The Board of Directors approved a $25.0 million stock repurchase program, commencing August 16, 2021[96] - The new credit facility was amended on July 26, 2021, to allow for liens on certain swap contracts[96] - Grayson Pranin was appointed President and Chief Executive Officer on July 16, 2021, following Carl F. Giesler, Jr.'s resignation, and continues as Chief Operating Officer[96] - In Q2 2021, the company restarted 49 wells, adding an average of 0.8 MBoed, and ceased routine natural gas flaring[96][101] Outlook The 2021 outlook focuses on maximizing free cash flow through cost control, financial discipline, and prudent capital allocation, with capital expenditures expected to be flat or slightly up from 2020; production is anticipated to decline due to natural decline, partially offset by well restarts, while the company continues to seek high-return acquisition opportunities and monitors COVID-19 variant impacts on energy demand - The 2021 focus is on maximizing free cash flow through cost control, financial discipline, and prudent capital allocation, with capital expenditures expected to be flat or slightly increased from 2020[98] - Oil, natural gas, and NGL production may decline in 2021, but well restarts could partially offset natural decline, and the company may expand its capital program further based on commodity prices[98] - The company continues to seek high-return acquisitions and business combinations and closely monitors the spread of COVID-19 variants and vaccine effectiveness for risks to a full and sustained recovery in energy demand[99][100] Consolidated Results of Operations The company's revenue and profitability are highly dependent on volatile oil, natural gas, and NGL prices and production; Q2 2021 saw significantly higher average NYMEX oil and gas prices compared to Q2 2020, and as of June 30, 2021, the company had no open commodity derivative contracts - The company's revenue, profitability, and future growth are highly dependent on prevailing prices for oil, natural gas, and NGLs, which are volatile and difficult to predict[101] NYMEX Average Prices | Commodity | June 30, 2021 (Q2) | March 31, 2021 (Q1) | December 31, 2020 (Q4) | September 30, 2020 (Q3) | | :--- | :--- | :--- | :--- | :--- | | NYMEX Oil (per barrel) | $66.18 | $58.09 | $42.58 | $40.92 | | NYMEX Natural Gas (per MMBtu) | $2.98 | $2.72 | $2.76 | $2.12 | - As of June 30, 2021, the company had no open commodity derivative contracts and no commodity derivative activity for the three and six months ended June 30, 2021[101] Revenues Consolidated revenues for the three months ended June 30, 2021, increased 107.9% to $34.2 million (Q2 2020: $16.4 million), and for the six months, increased 19.8% to $67.8 million (H1 2020: $56.6 million), primarily due to higher realized prices for oil, natural gas, and NGLs, despite lower total production from the North Park Basin divestiture and natural decline Consolidated Revenues (Units: $ thousand) | Revenue Source | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Oil | $14,666 | $11,554 | $30,214 | $40,208 | | NGL | $10,625 | $1,591 | $19,481 | $7,525 | | Natural Gas | $8,905 | $3,303 | $18,124 | $8,854 | | Total Revenues | $34,196 | $16,655 | $67,819 | $56,984 | - Revenue growth is primarily attributed to higher realized prices for oil, natural gas, and NGLs, benefiting from increased economic activity and demand recovery post-COVID-19, along with narrowing differentials[105] Production and Average Prices | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Oil (thousand barrels) | 227 | 520 | 515 | 1,202 | | NGL (thousand barrels) | 613 | 681 | 1,134 | 1,451 | | Natural Gas (million cubic feet) | 5,356 | 5,697 | 10,349 | 12,391 | | Total Production (thousand Boe) | 1,733 | 2,151 | 3,374 | 4,718 | | Average Daily Total Production (thousand Boe/day) | 19.0 | 23.6 | 18.6 | 25.9 | | Average Oil Price (per barrel) | $64.73 | $22.22 | $58.70 | $33.45 | | Average NGL Price (per barrel) | $17.33 | $2.34 | $17.18 | $5.19 | | Average Natural Gas Price (per thousand cubic feet) | $1.66 | $0.58 | $1.75 | $0.71 | | Total Average Price (per Boe) | $19.74 | $7.65 | $20.10 | $11.99 | Operating Expenses Total operating expenses decreased from $25.6 million to $15.4 million for the three months ended June 30, 2021, and from $72.0 million to $29.6 million for the six months, primarily due to reduced depreciation and depletion from asset sales and prior impairments, along with lower lease operating expenses from cost reductions and the NPB divestiture Operating Expenses (Units: $ thousand) | Expense Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Lease Operating Expenses | $9,232 | $8,698 | $17,186 | $24,340 | | Production, Ad Valorem, and Other Taxes | $2,534 | $1,854 | $4,710 | $5,053 | | Depreciation and Depletion—Oil and Natural Gas | $2,193 | $13,348 | $4,698 | $38,203 | | Depreciation and Amortization—Other | $1,475 | $1,739 | $2,969 | $4,373 | | Total Operating Expenses | $15,434 | $25,639 | $29,563 | $71,969 | - Lease operating expenses in Q2 2021 increased by $0.5 million due to well restarts but decreased by $7.2 million for the six-month period, benefiting from field personnel reductions, the NPB sale, and other cost-cutting measures[108] - The average depreciation and depletion rate for oil and natural gas properties significantly decreased, primarily due to the North Park Basin sale and the full cost pool ceiling impairment recorded in 2020, which substantially lowered the net cost basis of oil and natural gas properties[110] Impairment No full cost pool ceiling impairment charges were recorded for the three and six months ended June 30, 2021, contrasting with Q2 2020's $201.8 million in total impairment, including $163.8 million for the full cost pool and $38.0 million for the corporate headquarters; based on estimated SEC prices, no impairment is anticipated for Q3 2021 - No full cost pool ceiling impairment charges were recorded for the three and six months ended June 30, 2021[111] - In Q2 2020, total impairment charges of $201.8 million were recorded, including $163.8 million for the full cost pool ceiling and $38.0 million for the corporate headquarters[111] - Based on estimated Q3 SEC prices as of August 5, 2021 (oil at $57.70 per barrel, natural gas at $2.93 per Mcf), no full cost pool ceiling impairment is anticipated for Q3 2021, though future impairments could be material[113][114] Other Operating Expenses Other non-operating expenses decreased in Q2 2021 but resulted in a gain for the six-month period, primarily due to a $19.7 million gain on asset sales; General and Administrative (G&A) expenses significantly declined due to workforce reductions, lower IT and software costs, and reduced professional services fees; restructuring expenses included $1.3 million to resolve bankruptcy claims, and no employee termination benefits occurred in Q2 2021 Other Operating Expenses (Units: $ thousand) | Expense Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | General and Administrative | $2,522 | $4,314 | $4,612 | $9,797 | | Reorganization Expenses | $256 | $444 | $2,310 | $444 | | Employee Termination Benefits | $— | $1,993 | $49 | $5,247 | | Gain (Loss) on Derivative Contracts | $— | $(2,241) | $— | $(12,467) | | Gain (Loss) on Asset Sales | $— | $(42) | $(19,713) | $78 | | Other Operating (Income) Expense | $(65) | $150 | $(113) | $307 | | Total Non-Operating Expenses | $2,713 | $4,618 | $(12,855) | $3,406 | - General and administrative expenses decreased by $1.8 million in Q2 and $5.2 million for the six-month period, driven by workforce reductions, lower IT and software costs, and reduced professional services fees, including a $0.4 million legal retainer refund[116] - Reorganization expenses for H1 2021 included $1.3 million to resolve unsecured claims related to the 2016 bankruptcy; no employee termination benefits occurred in Q2 2021[117][118] Other Income (Expense) Total other income (expense) for Q2 2021 was a net gain of $0.203 million, a significant improvement from a net expense of ($0.389 million) in Q2 2020; for the six months ended June 30, 2021, it was a net gain of $0.184 million compared to a net expense of ($0.950 million) in the prior year, with interest expense reduced due to the new credit facility Other Income (Expense) (Units: $ thousand) | Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Expense | $(84) | $(447) | $(131) | $(1,084) | | Net Other Income (Expense) | $287 | $58 | $315 | $134 | | Total Other Income (Expense) | $203 | $(389) | $184 | $(950) | - Interest expense decreased due to the new credit facility, whereas the prior period was primarily generated by the previous credit facility[120] Liquidity and Capital Resources As of June 30, 2021, the company held $88.3 million in cash and cash equivalents with $10.0 million available on its revolving credit facility; working capital significantly improved to $54.3 million from a $18.1 million deficit at December 31, 2020, driven by cash from operations and asset sales, with sufficient liquidity projected for the next twelve months - As of June 30, 2021, the company had $88.3 million in cash and cash equivalents and $10.0 million available under its $30.0 million new credit facility[121] - Working capital increased from an $18.1 million deficit at December 31, 2020, to $54.3 million at June 30, 2021, primarily due to NPB sale proceeds and cash from operations[125] - The company anticipates sufficient liquidity for the next twelve months, primarily from cash flow from operations, cash on hand, and available amounts under the new credit facility[121][124] Working Capital and Sources and Uses of Cash The company's primary liquidity sources include operating cash flow, cash on hand, and the new credit facility; working capital significantly improved to $54.3 million as of June 30, 2021, from an $18.1 million deficit at December 31, 2020, driven by North Park Basin sale proceeds, increased operating cash, and reduced accounts payable and accrued liabilities - Primary liquidity sources include cash flow from operations, cash on hand, and available amounts under the new credit facility[124] - Working capital increased from an $18.1 million deficit at December 31, 2020, to $54.3 million at June 30, 2021, due to NPB sale proceeds, increased cash from operations, and reduced accounts payable and accrued liabilities[125] Cash Flows For the six months ended June 30, 2021, net cash from operating activities increased by $19.8 million to $33.2 million, driven by improved commodity prices and cost reductions; investing activities generated $29.9 million, primarily from $37.9 million in asset sales, while financing activities used $0.8 million Cash Flow Summary (Units: $ thousand) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Operating Activities | $33,231 | $13,462 | | Investing Activities | $29,907 | $(5,308) | | Financing Activities | $(795) | $805 | | Net Increase (Decrease) in Cash | $62,343 | $8,959 | - Operating cash flow increased by $19.8 million, primarily attributed to improved commodity prices and cost reduction measures[128] - Investing activities provided $29.9 million, mainly from $37.9 million net cash proceeds from asset sales, partially offset by $4.4 million in capital expenditures[129] Capital Expenditures (Units: $ thousand) | Category | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Drilling, Completions, and Capital Workovers | $3,242 | $2,430 | | Acquisitions | $3,604 | $— | | Total Cash Paid for Capital Expenditures | $7,993 | $6,814 | Indebtedness As of June 30, 2021, the company's long-term debt primarily consisted of a $20.0 million outstanding term loan under the new credit facility, with further details available in Note 8 - As of June 30, 2021, long-term debt primarily included a $20.0 million outstanding term loan under the new credit facility[50][133] Contractual Obligations and Off-Balance Sheet Arrangements As of June 30, 2021, the company's contractual obligations included asset retirement obligations, long-term debt, and short-term leases, with no significant changes from the 2020 10-K report, and related liabilities for surety bonds supporting operations are reflected on the balance sheet - As of June 30, 2021, contractual obligations included asset retirement obligations, long-term debt, and short-term leases[134] - There were no material changes to contractual obligations and off-balance sheet arrangements compared to the 2020 10-K report[135] - The company uses surety bonds to support operations, and related liabilities are reflected on the balance sheet[134] Critical Accounting Policies and Estimates The company refers to its 2020 10-K report for descriptions of critical accounting policies and estimates, noting no significant changes to these policies, estimates, judgments, and assumptions during the first half of 2021 - Critical accounting policies and estimates are consistent with those discussed in the 2020 10-K report[136] - No significant changes occurred in critical accounting policies, estimates, judgments, and assumptions during the first half of 2021[136] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's market risks, primarily commodity price, credit, and interest rate risks; while derivatives were historically used for commodity price volatility, no open contracts existed as of June 30, 2021; credit risk is managed through multiple investment-grade counterparties and netting agreements, and interest rate risk stems from floating-rate debt under the new credit facility - The company's most significant market risk is the price risk of oil, natural gas, and NGLs, historically mitigated through commodity derivative contracts[139] - As of June 30, 2021, the company had no open commodity derivative contracts; historically, derivative contracts were not designated as hedging instruments, with fair value changes recognized in current period profit or loss[140][141] - Credit risk is managed using multiple investment-grade counterparties and master netting agreements, while interest rate risk arises from $20.0 million in floating-rate debt under the new credit facility[143][144][146] General This section introduces the company's historical financial instruments used for commodity price management and discusses its credit and interest rate risks, noting all historical contracts were cash settled - This discussion provides information on the company's historical financial instruments used to manage commodity prices, with all contracts settled in cash[138] - The discussion also covers the credit and interest rate risks faced by the company[138] Commodity Price Risk The company primarily faces market risk from volatile oil, natural gas, and NGL prices; historically, commodity derivative contracts like fixed-price swaps, basis swaps, and collars were used to mitigate this, but as of June 30, 2021, no open contracts existed, and fair value changes for undesignated hedges were recognized in profit or loss - The company's most significant market risk is the volatility of oil, natural gas, and NGL prices[139] - Historically, the company used commodity derivative contracts, including fixed-price swaps, basis swaps, and collars, to reduce oil and natural gas price volatility, but as of June 30, 2021, there were no open commodity derivative contracts[139][140] - Since the company did not designate any derivative contracts as accounting hedges, changes in their fair value were recognized as gains and losses in current period profit or loss[141] Credit Risk The company faced credit risk from derivative counterparties, all with "investment grade" ratings, minimized by using multiple counterparties and master netting agreements, limiting maximum loss to net receivables; credit risk from joint venture partner receivables was also present, but historical losses were negligible - Credit risk associated with derivative counterparties is managed through the use of multiple investment-grade financial institutions and master netting agreements, limiting maximum loss to net receivables[143][144] - The company does not require collateral or other security from derivative counterparties[144] - The company also faces credit risk from joint venture partner receivables, but historical credit losses have been insignificant[145] Interest Rate Risk The company faces interest rate risk from its new credit facility, which has floating rates primarily tied to LIBOR, impacting $20.0 million of outstanding floating-rate debt as of June 30, 2021 - The company is exposed to interest rate risk from its new credit facility, which has floating interest rates primarily tied to LIBOR[146] - As of June 30, 2021, $20.0 million of outstanding floating-rate debt is subject to short-term changes in market interest rates[146] ITEM 4. Controls and Procedures Management, including the CEO and CFO, assessed the effectiveness of disclosure controls and procedures as of June 30, 2021, concluding they are effective in reasonably assuring timely recording, processing, summarizing, and reporting of required information, with no significant changes in internal control over financial reporting this quarter - The CEO and CFO concluded that as of June 30, 2021, the disclosure controls and procedures were effective in ensuring information required for SEC reports is timely recorded, processed, summarized, and reported[147] - No material changes occurred in internal control over financial reporting during the quarter ended June 30, 2021[148] Disclosure Controls and Procedures Under CEO and CFO supervision, the company assessed its disclosure controls and procedures, determining their effectiveness as of June 30, 2021, to ensure proper recording, processing, summarizing, and timely reporting of SEC-required information - The company's Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, the disclosure controls and procedures were effective in ensuring information required for disclosure under the Exchange Act rules and forms is timely recorded, processed, summarized, and reported[147] Changes in Internal Control Over Financial Reporting No material changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2021, nor were any reasonably likely to materially affect it - No material changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2021[148] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings This section refers to Note 9, "Commitments and Contingencies," in Part I of the financial statements for detailed information on legal proceedings - Detailed information regarding legal proceedings is incorporated by reference from Note 9, "Commitments and Contingencies," in Part I of this quarterly report's financial statements[151] ITEM 1A. Risk Factors No material changes have occurred in the risk factors discussed in the company's 2020 10-K report - No material changes have occurred in the risk factors discussed in Item 1A, "Risk Factors," of the company's 2020 10-K report[153] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds In April 2021, the company repurchased 152,101 shares of common stock at an average price of $3.90 per share, including shares surrendered by employees for tax withholding on vested equity awards, with no repurchases in May or June 2021 Stock Repurchases (April 2021) | Period | Total Number of Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1 - April 30, 2021 | 152,101 | $3.90 | | May 1 - May 31, 2021 | — | $— | | June 1 - June 30, 2021 | — | $— | - Repurchased shares included common stock surrendered by employees to satisfy tax withholding requirements on vested equity awards[155] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[156] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable to the company[157] ITEM 5. Other Information No other information is reported under this item - No other information is reported under this item[158] ITEM 6. Exhibits This section lists exhibits filed with the 10-Q form, including organizational documents, an amendment to the Tax Benefits Preservation Plan, Section 302 and 906 certifications, and XBRL interactive data files - Exhibits include the Amended Joint Plan of Reorganization under Chapter 11, Amended and Restated Certificate of Incorporation and Bylaws, First Amendment to the Tax Benefits Preservation Plan, Section 302 and 906 certifications, and XBRL instance document, taxonomy extension schema document, calculation linkbase document, definition document, label linkbase document, and presentation linkbase document[160]