Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. This discussion and analysis should be read in conjunction with other sections of this report, including: “Business” in Item 1, “Selected Financial Data” in Item 6 and “Financial Statements and Supplementary Data” in Item 8. Additionally, discussion of our operating and financial data for 2018 compared to 2017 can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" under Part II of our previously filed 2018 Annual Report on Form 10-K, which was filed with the SEC on March 5, 2019. Our discussion and analysis includes the following subjects:
•Overview;
•Consolidated Results of Operations;
•Liquidity and Capital Resources;
•Valuation Allowance; and
•Critical Accounting Policies and Estimates.
Overview
We are an oil and natural gas company with a principal focus on exploration and production activities in the U.S. Mid-Continent and North Park Basin of Colorado.
Operational Activities
Operational activities for the years ended December 31, 2019, and 2018 include the following:
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Year Ended December 31,
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2019
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2018
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Gross Wells Drilled(2)
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|
Net Wells Drilled(2)
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Average Rigs Drilling
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Gross Wells Drilled(2)
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Net Wells Drilled(2)
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Average Rigs Drilling
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Area
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|
Mid-Continent (1)
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11
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3.9
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0.6
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22
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8.0
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1.7
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North Park Basin
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10
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10.0
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0.4
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14
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14.0
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0.7
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Total
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21
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13.9
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1.0
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36
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22.0
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2.4
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____________________
(1) Eight and fifteen wells were drilled under our previous drilling participation agreement in the NW STACK during the years ended December 31, 2019 and 2018. Under this agreement, we receive a 20% net working interest after funding 10% of the drilling and completion costs related to the subject wells. The last well under this agreement was completed in the second quarter of 2019.
(2) Includes wells with a rig release date during the years ended December 31, 2019 or 2018, respectively.
The chart below shows production by product for the years ended December 31, 2019 and 2018, and 2017:
Total production for 2019 was comprised of approximately 29.4% oil, 46.2% natural gas and 24.4% NGLs compared to 28.2% oil, 48.9% natural gas and 22.9% NGLs in 2018.
Recent Events
•On December 12, 2019, the Board appointed John P. Suter as Interim President and Chief Executive Officer in addition to his current role as Chief Operating Officer. Mr. Suter succeeds Mr. Paul D. McKinney, who resigned from his position as President and Chief Executive Officer and as a director of the Company.
•On February 4, 2020, the Company issued Workers Adjustment and Retraining Notification (WARN) Act notices to approximately 63 of its 120 Oklahoma City based employees as a result of its workforce reduction at its corporate headquarters.
Outlook
As discussed in “Business— Our Business Strategy” in Item 1 of this report, we will focus on maximizing free cash flow in 2020 through a combination of cost control measures and the continued exercise of financial discipline and prudent capital allocation, which includes limiting our drilling capital to locations we believe will provide high rates of return in the currently depressed commodity price environment. As a result, we have reduced our planned capital expenditures for 2020 to between $25.0 million and $30.0 million. Given this expected level of capital expenditures, our oil, natural gas and NGL production will likely decline in 2020. We will be prepared to expand our capital program if commodity prices increase sufficiently. We will also continue our pursuit of acquisitions and business combinations which provide high margin properties with attractive returns at current commodity prices.
Consolidated Results of Operations
The majority of our consolidated revenues and cash flow are generated from the production and sale of oil, natural gas and NGLs. Our revenues, profitability and future growth depend substantially on prevailing prices received for our production, the quantity of oil, natural gas and NGLs we produce, and our ability to find and economically develop and produce our reserves. Prices for oil, natural gas and NGLs fluctuate widely and are difficult to predict. To provide information on the general trend in pricing, the average annual NYMEX prices for oil and natural gas for recent years are presented in the table below:
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Year Ended December 31,
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2019
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2018
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2017
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2016
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2015
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Oil (per Bbl)
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$
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57.04
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|
$
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64.90
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$
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50.85
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|
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$
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43.47
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|
|
$
|
48.75
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Natural gas (per Mcf)
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$
|
2.53
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|
|
$
|
3.07
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|
|
$
|
3.02
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|
|
$
|
2.55
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|
|
$
|
2.62
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|
In order to reduce our exposure to price fluctuations, we have historically entered into commodity derivative contracts for a portion of our anticipated future oil and natural gas production as discussed in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” Reducing the Company’s exposure to price volatility helps mitigate the risk that we will not have adequate funds available for our capital expenditure programs. During periods where the strike prices for our commodity derivative contracts are below market prices at the time of settlement, we may not fully benefit from increases in the market price of oil and natural gas. Conversely, during periods of declining market prices of oil and natural gas, our commodity derivative contracts may partially offset declining revenues and cash flow to the extent strike prices for our contracts are above market prices at the time of settlement.
Acquisitions and Divestitures of Oil and Gas Properties
Nonmonetary transaction. During the three-month period ended September 30, 2019, the Company transferred its interest in certain proved oil and natural gas properties located in Comanche, Harper and Sumner counties in Kansas along with associated electrical infrastructure and an insignificant amount of accounts receivable with an aggregate estimated fair value of $5.4 million, for an interest in certain other proved oil and natural gas properties located in Comanche, Harper and Barber counties in Kansas. The fair value of the non-oil and gas assets given in the transaction approximated their carrying value, therefore no gain or loss was recognized on the transfer.
Divestiture of Permian Basin Properties. On November 1, 2018, we sold substantially all of our oil and natural gas properties, rights and related assets in the CBP region of the Permian Basin, primarily located in Andrews County, TX, along with all of our 13,125,000 common units representing a 25% equity interest in the Permian Trust, to an independent third party for $14.5 million in cash, subject to certain remaining post-closing adjustments, and reduced our asset retirement obligations by approximately $26.9 million. The CBP assets and interest in the Permian Trust include 1,066 producing wells within the Permian Trust's area of mutual interest, certain wells not associated with the Permian Trust, a field office, and all equipment, inventory and yards associated with our CBP operations. As a result of this divestiture, we no longer have any obligations associated with the Permian Trust. This transaction did not result in a significant alteration of the relationship between our capitalized costs and proved reserves and, accordingly, the divestiture was accounted for as an adjustment to the full cost pool with no gain or loss recognized on the sale.
Acquisition of Oil and Natural Gas Interests. On November 2, 2018, we acquired certain interests in oil and natural gas properties, rights and related assets in the Mississippian Lime and NW STACK areas of Oklahoma and Kansas for approximately $22.5 million in net consideration, net of post-closing adjustments, and assumed asset retirement obligations of approximately $6.4 million. The acquired assets primarily consist of interests in 1,199 producing wells, approximately 80% of which we operate, an additional 11.1% working interest in approximately 397,000 gross (44,000 net) acres across the Mid-Continent, and an additional 13.2% working interest ownership in our saltwater gathering and disposal system in the Mississippian Lime.
Acquisition of NW STACK Properties. On February 10, 2017, we acquired assets consisting of approximately 13,000 net acres in Woodward County, Oklahoma for approximately $47.8 million in cash, net of post-closing adjustments. Also included in the acquisition were working interests in four wells previously drilled on the acreage.
2017 Oil and Natural Gas Property Divestitures. In 2017, we divested various non-core oil and natural gas properties for approximately $17.1 million in cash. All of these divestitures were accounted for as adjustments to the full cost pool with no gain or loss recognized.
Oil, Natural Gas and NGL Production and Pricing
The table below presents production and pricing information for the years ended December 31, 2019, 2018, and 2017.
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Year Ended December 31,
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2019
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2018
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2017
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Production data (in thousands)
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Oil (MBbls)
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3,519
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3,477
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4,157
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NGL (MBbls)
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2,910
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|
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2,829
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|
|
3,376
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Natural gas (MMcf)
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33,164
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36,175
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|
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44,237
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Total volumes (MBoe)
|
11,956
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|
|
12,335
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|
|
14,906
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Average daily total volumes (MBoe/d)
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32.8
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|
|
33.8
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|
|
40.8
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Average prices—as reported(1)
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Oil (per Bbl)
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$
|
52.96
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|
|
$
|
61.73
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|
|
$
|
48.72
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NGL (per Bbl)
|
$
|
12.23
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|
|
$
|
23.72
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|
|
$
|
18.16
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Natural gas (per Mcf)
|
$
|
1.33
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|
|
$
|
1.85
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|
|
$
|
2.09
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Total (per Boe)
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$
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22.26
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|
|
$
|
28.27
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|
|
$
|
23.90
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Average prices—including impact of derivative contract settlements(2)
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Oil (per Bbl)
|
$
|
53.30
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|
|
$
|
51.35
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|
|
$
|
49.75
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NGL (per Bbl)
|
$
|
12.23
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|
|
$
|
23.72
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|
|
$
|
18.16
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Natural gas (per Mcf)
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$
|
1.48
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|
|
$
|
1.89
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|
|
$
|
2.15
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|
Total (per Boe)
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$
|
22.78
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|
|
$
|
25.47
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|
|
$
|
24.38
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____________________
(1)Prices represent actual average prices for the periods presented and do not include the impact of derivative transactions.
(2)Excludes early settlements of commodity derivative contracts prior to their contractual maturity, if any.
For a discussion of reserves, PV-10 and reconciliation to Standardized Measure, see “Business— Primary Operations—Proved Reserves” in Item 1 of this report.
The table below presents production by area of operation for the years ended December 31, 2019, 2018 and 2017, and illustrates the impact of (i) natural declines in existing producing wells in the Mid-Continent, (ii) the Permian Divestiture in November 2018 and drilling no new wells in the Permian and other regions during 2019, 2018 and 2017, and (ii) continued development of the North Park Basin properties, which were acquired in December 2015 and the NW STACK, which was acquired in February 2017.
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Year Ended December 31,
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2019
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|
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2018
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|
|
|
2017
|
|
|
|
Production (MBoe)
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|
|
% of Total Production
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|
|
Production (MBoe)
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|
|
% of Total Production
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|
|
Production (MBoe)
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|
|
% of Total Production
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|
Mississippian Lime
|
9,403
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|
|
78.6
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%
|
|
10,003
|
|
|
81.1
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%
|
|
12,838
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|
|
86.2
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%
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NW STACK
|
1,020
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|
|
8.6
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%
|
|
925
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|
|
7.5
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%
|
|
882
|
|
|
5.9
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%
|
North Park Basin
|
1,533
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|
|
12.8
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%
|
|
1,034
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|
|
8.4
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%
|
|
673
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|
|
4.5
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%
|
Permian Basin
|
—
|
|
|
—
|
%
|
|
373
|
|
|
3.0
|
%
|
|
513
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|
|
3.4
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
11,956
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|
|
100.0
|
%
|
|
12,335
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|
|
100.0
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%
|
|
14,906
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|
|
100.0
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%
|
Revenues
Consolidated revenues for the years ended December 31, 2019, 2018, and 2017 are presented in the table below (in thousands).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Revenues
|
|
|
|
|
|
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
|
|
Variances in oil, natural gas and NGL revenues attributable to changes in the average prices received for our production and total production volumes sold for the years ended December 31, 2019 and 2018 are shown in the table below (in thousands):
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|
|
|
|
|
|
|
|
|
2017 oil, natural gas and NGL revenues
|
$
|
356,210
|
|
Change due to production volumes in 2018
|
(59,897)
|
|
Change due to average prices in 2018
|
52,413
|
|
2018 oil, natural gas and NGL revenues
|
348,726
|
|
Change due to production volumes in 2019
|
(1,059)
|
|
Change due to average prices in 2019
|
(81,563)
|
|
2019 oil, natural gas and NGL revenues
|
$
|
266,104
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and NGL revenues decreased by a combined $82.6 million, or 23.7% for the year ended December 31, 2019, compared to 2018 due largely to a decrease in average prices received for our oil, natural gas, and NGL production in 2019, and a 0.4 MMBoe decrease in total production, primarily resulting from natural declines in existing producing wells and as a result of selling our Permian properties in the fourth quarter of 2018. Partially offsetting these production declines were 10 wells drilled and brought to production within North Park and 11 wells brought to production in the NW STACK areas during 2019. Additionally, in the fourth quarter of 2018 we acquired working interests in certain oil and natural gas properties in the Mississippian Lime and NW STACK areas of Oklahoma and Kansas.
Operating Expenses
Operating expenses for the years ended December 31, 2019, 2018, and 2017 consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses ($/Boe)
|
$
|
7.61
|
|
|
$
|
7.12
|
|
|
$
|
6.65
|
|
Production, ad valorem, and other taxes ($/Boe)
|
$
|
1.62
|
|
|
$
|
2.06
|
|
|
$
|
1.22
|
|
Depreciation and amortization—oil and natural gas ($/Boe)
|
$
|
12.28
|
|
|
$
|
10.32
|
|
|
$
|
7.92
|
|
Production, ad valorem, and other taxes (% of oil, natural gas, and NGL revenue)
|
7.3
|
%
|
|
7.3
|
%
|
|
5.1
|
%
|
Lease operating expenses for 2019 increased $3.2 million, or $0.49/Boe from 2018. This increase is primarily due to (i) an increase in workover expense in 2019 compared to 2018 largely resulting from artificial lift repairs in the Mid-Continent,
and (ii) bringing on several multi-well pads in the North Park Basin during 2019 which resulted in additional expenditures for trucking produced water to disposal wells in 2019.
Production, ad valorem, and other taxes as a percentage of oil, natural gas, and NGL revenue remained consistent in 2019 compared to 2018.
Depreciation and depletion for oil and natural gas properties increased by $19.6 million for the year ended December 31, 2019 compared to 2018 due to an increase in the average depreciation and depletion rate to $12.28 per Boe in 2019 compared to an average rate of $10.32 in 2018. This rate increase is primarily due to a decrease in the trailing twelve-month weighted average SEC prices for oil and natural gas during 2019, which resulted in a decrease in reserve volumes. The rate increase is also a result of development activities in 2019 taking place in areas where our finding and development costs are higher than those included in historical depreciation and depletion rates.
Impairment
Impairment expense for the years ended December 31, 2019, 2018, and 2017 consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Impairment
|
|
|
|
|
|
Full cost pool ceiling limitation
|
$
|
409,574
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Drilling assets
|
—
|
|
|
22
|
|
|
4,019
|
|
Midstream assets
|
—
|
|
|
4,148
|
|
|
—
|
|
|
|
|
|
|
|
Total impairment
|
$
|
409,574
|
|
|
$
|
4,170
|
|
|
$
|
4,019
|
|
Full cost pool impairment. Impairment for the year ended December 31, 2019 largely resulted from a decrease in the trailing twelve-month weighted average SEC prices for oil and natural gas in 2019, lower NGL prices, increases in expected operating expenses, and a decrease in PUDs due to a decrease in year-end SEC commodity pricing.
Calculation of the full cost ceiling test is based on, among other factors, trailing twelve-month SEC prices as adjusted for price differentials and other contractual arrangements. The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at December 31, 2019 were $55.69 per barrel of oil and $2.58 per Mcf of natural gas, before price differential adjustments.
Based on the SEC prices over the eleven months ended February 1, 2020, as well as the short-term pricing outlook for the remainder of the first quarter 2020, we anticipate the SEC prices utilized in the March 31, 2020 full cost ceiling test may be $56.71 per barrel of oil and $2.32 per Mcf of natural gas, (the "estimated first quarter prices"). Applying these estimated first quarter prices, and holding all other inputs constant to those used in the calculation of our December 31, 2019 ceiling test, an additional full cost ceiling limitation impairment is not indicated for the first quarter of 2020.
However, a full cost ceiling limitation impairment may still be realized in the first quarter of 2020 and in subsequent quarters based on the outcome of numerous other factors such as additional declines in the actual trailing twelve-month SEC prices, lower NGL pricing, changes in estimated future development costs and operating expenses, and other adjustments to our levels of proved reserves. Any such ceiling test impairments in 2020 could be material to our net earnings.
Midstream asset impairment. Impairment recorded on midstream assets in 2018 primarily reflects the write-down of midstream generator assets classified as held for sale to estimated net realizable value.
Non-Operating Expenses
Non-operating expenses for the years ended December 31, 2019, 2018, and 2017 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
General and administrative
|
$
|
32,058
|
|
|
$
|
40,619
|
|
|
75,133
|
|
Accelerated vesting of employment compensation
|
—
|
|
|
6,545
|
|
|
|
—
|
|
Proxy contest
|
—
|
|
|
7,139
|
|
|
|
—
|
|
Terminated merger costs
|
—
|
|
|
—
|
|
|
8,162
|
|
Employee termination benefits
|
4,792
|
|
|
32,657
|
|
|
4,815
|
|
(Gain) loss on derivative contracts
|
(1,094)
|
|
|
17,155
|
|
|
(24,090)
|
|
Other operating (income) expense
|
(608)
|
|
|
(998)
|
|
|
479
|
|
Total non-operating expenses
|
$
|
35,148
|
|
|
103,117
|
|
|
64,499
|
|
General and administrative expenses decreased $8.6 million, or 21.1%, for the year ended December 31, 2019 compared to 2018 due primarily to a $7.5 million decrease in compensation-related costs largely resulting from a reduction in force during the second quarter of 2019 and additional declines in headcount throughout 2019. The remainder of the decrease is substantially related to reductions in other corporate office and technology expenses.
Employee termination benefits for the year ended December 31, 2019, include cash and share-based severance costs incurred related to (i) a reduction in force in the second quarter of 2019 and (ii) severance costs associated with the departure of our former Executive Vice President, General Counsel and Corporate Secretary, Phil Warman, and former CEO, Paul McKinney.
Employee termination benefits for the year ended December 31, 2018, include cash and share-based severance costs incurred primarily as a result of (i) the reduction in force in the first quarter of 2018 and (ii) severance costs associated with the departure of our former CEO, James Bennett, former CFO, Julian Bott, and other senior officers.
See "Note 20 - Employee Termination Benefits" to the consolidated financial statements in Item 8 of this report for additional information.
We recorded net (gain) loss on commodity derivative contracts of $(1.1) million and $17.2 million for the years ended December 31, 2019, and 2018, respectively, as reflected in the accompanying consolidated statements of operations, which includes net cash (receipts) payments upon settlement of $(6.3) million and $35.3 million, respectively.
On November 14, 2017, we entered into an Agreement and Plan of Merger with Bonanza Creek. In contemplation of the proposed merger, which would have been partially financed with debt, we entered into several oil derivative contracts in November 2017. Approximately $8.0 million of the total 2018 loss reported above related to net cash payments upon settlement for these oil derivatives.
Our derivative contracts are not designated as accounting hedges and, as a result, changes in the fair value of our commodity derivative contracts are recorded each quarter as a component of operating expenses. Internally, management views the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil and natural gas production to determine “effective prices.” In general, cash is received on settlement of contracts due to lower oil and natural gas prices at the time of settlement compared to the contract price for our commodity derivative contracts, and cash is paid on settlement of contracts due to higher oil and natural gas prices at the time of settlement compared to the contract price for our commodity derivative contracts. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” of this report for additional discussion of our commodity derivatives.
Accelerated vesting of employment compensation costs incurred during the year ended December 31, 2018 include compensation costs recognized for the accelerated vesting of certain share and incentive-based awards granted to our employees and directors related to the change in the composition of the Board resulting from the 2018 annual meeting as discussed in "Note 19 - Proxy Contest" to the consolidated financial statements in Item 8 of this report.
Proxy contest costs for the year ended December 31, 2018 include legal, consulting and advisory fees incurred in the proxy contest which were initiated in response to shareholder actions in 2018. See "Note 19 - Proxy Contest" to the consolidated financial statements in Item 8 of this report for additional discussion of this matter.
Other Income (Expense)
Other income (expense) for the years ended December 31, 2019, 2018, and 2017 is reflected in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Other (expense) income
|
|
|
|
|
|
Interest expense, net
|
$
|
(2,974)
|
|
|
$
|
(2,787)
|
|
|
$
|
(3,868)
|
|
Gain on extinguishment of debt
|
—
|
|
|
1,151
|
|
|
—
|
|
Other income, net
|
436
|
|
|
2,865
|
|
|
2,550
|
|
Total other (expense) income
|
$
|
(2,538)
|
|
|
1,229
|
|
|
$
|
(1,318)
|
|
Interest expense for the years ended December 31, 2019, 2018, and 2017 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Interest expense
|
|
|
|
|
|
Interest expense on debt
|
$
|
3,658
|
|
|
$
|
2,747
|
|
|
$
|
4,786
|
|
Interest expense on right of use assets
|
160
|
|
|
—
|
|
|
—
|
|
Write off of debt issuance costs
|
142
|
|
|
—
|
|
|
—
|
|
Amortization of debt issuance costs, premium and discounts
|
558
|
|
|
423
|
|
|
100
|
|
Capitalized interest
|
(1,453)
|
|
|
(22)
|
|
|
—
|
|
Total
|
3,065
|
|
|
3,148
|
|
|
4,886
|
|
Less: interest income
|
(91)
|
|
|
(361)
|
|
|
(1,018)
|
|
Total interest expense, net
|
$
|
2,974
|
|
|
$
|
2,787
|
|
|
$
|
3,868
|
|
Interest expense incurred during the year ended December 31, 2019 is primarily comprised of interest and fees paid on the credit facility. Interest expense incurred during the year ended December 31, 2018 is primarily comprised of interest recorded on the Building Note and commitment fees on the undrawn portion of the credit facility.
Gain on extinguishment of debt was recognized for the year ended December 31, 2018 as a result of writing off the unamortized premium in conjunction with the repayment of the Building Note during the first quarter of 2018.
See “Note 11 - Long-Term Debt” to the consolidated financial statements in Item 8 of this report for additional discussion of our long-term debt transactions.
Liquidity and Capital Resources
At December 31, 2019, our cash and cash equivalents, excluding restricted cash, were $4.3 million. Additionally, we had $57.5 million outstanding under our $225.0 million credit facility which matures on April 1, 2021, and $2.9 million in outstanding letters of credit, which reduce the amount available under the credit facility. As of February 21, 2020, the Company had approximately $2.7 million in cash and cash equivalents, excluding restricted cash, $48.5 million outstanding under our credit facility, and $2.9 million in outstanding letters of credit.
Working Capital and Sources and Uses of Cash
Our principal sources of liquidity for 2020 include cash flow from operations, cash on hand and amounts available under our credit facility, as discussed in “—Credit Facility” below.
Our working capital deficit decreased to $49.8 million at December 31, 2019, compared to $63.9 million at December 31, 2018, largely due to a reduction in accounts payable and accrued expenses outstanding on those dates, which is primarily due to a decline in drilling and completions activity in the fourth quarter of 2019 compared to 2018. This reduction was partially offset by fluctuations in the timing and amount of payments and borrowings on our revolving credit facility and in the levels of accounts receivable largely due to the decline in oil, natural gas and NGL revenues in 2019 compared to 2018.
We intend to spend between $25.0 million and $30.0 million in our 2020 capital budget plan, excluding any expenditures for acquisitions. We intend to fund capital expenditures and other commitments for the next 12 months using cash flows from our operations, borrowings under our credit facility and cash on hand. We intend to reduce our capital spending below our projected cash flows from operations for the year, subject to changing industry conditions or events.
Cash Flows
Our cash flows from operations are substantially dependent on current and future prices for oil and natural gas, which historically have been, and may continue to be, volatile. For example, during the period from January 2015 through December 2019, the NYMEX settled price for oil fluctuated between a high of $76.41 per Bbl and a low of $26.21 per Bbl, and the month-end NYMEX settled price for gas fluctuated between a high of $4.72 per MMBtu and a low of $1.71 per MMBtu.
If oil or natural gas prices decline from current levels, they could have a material adverse effect on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. This could result in full cost pool ceiling impairments. Further, if our future capital expenditures are limited or deferred, or we are unsuccessful in developing reserves and adding production through our capital program, the value of our oil and natural gas properties, financial condition and results of operations could be adversely affected.
Cash flows for the years ended December 31, 2019, 2018, and 2017 are presented in the following table and discussed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Cash flows provided by operating activities
|
$
|
121,324
|
|
|
$
|
145,514
|
|
|
$
|
181,179
|
|
Cash flows used in investing activities
|
(189,849)
|
|
|
(183,453)
|
|
|
(245,724)
|
|
Cash flows (used in) provided by financing activities
|
54,848
|
|
|
(43,724)
|
|
|
(8,218)
|
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(13,677)
|
|
|
$
|
(81,663)
|
|
|
$
|
(72,763)
|
|
Cash Flows from Operating Activities
The $24.2 million decrease in operating cash flows for the year ended December 31, 2019 compared to 2018, is primarily due to (i) the decline in oil, natural gas and NGL revenues, and (ii) a decrease in accounts payable and accrued expenses outstanding resulting from a reduction in drilling and completions activity in the fourth quarter of 2019 compared to the fourth quarter of 2018. These decreases in cash flow were partially offset by (i) receiving cash on the settlement of derivatives in 2019 compared to paying cash in 2018 (ii) a reduction in cash paid for employee termination benefits, (iii) a reduction in 2019 payroll, benefits and other headcount driven costs resulting from reductions in force during 2018 and 2019, and (iv) a reduction in production, ad valorem and other taxes largely resulting from declining production levels. Additionally, in 2018 we incurred costs related to the proxy contest, which were non-recurring in 2019.
See “—Consolidated Results of Operations” for further analysis of the changes in revenues and operating expenses, and see “Note 20 - Employee Termination Benefits” to the accompanying consolidated financial statements included in Item 8 of this report for additional detail on cash paid for employee termination benefits.
Cash Flows from Investing Activities
During the year ended December 31, 2019, cash flows used in investing activities primarily consisted of capital expenditures for drilling and completion activities.
During the year ended December 31, 2018, cash flows used in investing activities primarily consisted of capital expenditures for drilling and completion activities and cash paid for the acquisition of interests in certain Mid-Continent properties. These expenditures were partially offset by cash proceeds received for the Permian Divestiture and other non-core asset divestitures in 2018.
Capital Expenditures.
Our capital expenditures for the years ended December 31, 2019, 2018, and 2017, are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Capital Expenditures
|
|
|
|
|
|
Drilling and completion
|
$
|
157,999
|
|
|
$
|
158,695
|
|
|
$
|
194,388
|
|
Leasehold and geophysical
|
3,790
|
|
|
11,680
|
|
|
51,645
|
|
Other - operating
|
—
|
|
|
419
|
|
|
854
|
|
Other - corporate
|
245
|
|
|
392
|
|
|
1,358
|
|
Capital expenditures, excluding acquisitions (on an accrual basis)
|
162,034
|
|
|
171,186
|
|
|
248,245
|
|
Acquisitions(1)
|
(236)
|
|
|
24,764
|
|
|
48,312
|
|
Current year total capital expenditures, including acquisitions
|
161,798
|
|
|
195,950
|
|
|
296,557
|
|
Change in capital accruals(2)
|
29,644
|
|
|
15,861
|
|
|
(28,999)
|
|
Total cash paid for capital expenditures
|
$
|
191,442
|
|
|
$
|
211,811
|
|
|
$
|
267,558
|
|
____________________
(1)Excludes $5.4 million for the year ended December 31, 2019 related to a nonmonetary transaction.
(2)Reflects cash paid during the period presented for expenditures related to the prior year's capital program.
Capital expenditures, excluding acquisitions, for exploration and development activities decreased for the year ended December 31, 2019 compared to 2018, which is in line with the planned decrease in drilling and completion activity and related costs as reflected in our lower capital expenditures budget in 2019. Due to continued depressed market prices for oil, natural gas and NGL prices, we have again reduced our expected capital expenditures budget and drilling plan for 2020 in order to focus on generating free cash flow in future periods.
Cash Flows from Financing Activities
Our financing activities provided $54.8 million of cash for the year ended December 31, 2019, which consisted primarily of proceeds from borrowings from our credit facility during each period.
Our financing activities used $43.7 million of cash for the year ended December 31, 2018, which consisted primarily of repaying the Building Note and cash paid for employee tax obligations in connection with the withholding of common shares upon vesting of employee share-based compensation awards.
Indebtedness
Credit Facility
We have approximately $164.6 million of available borrowing capacity under our credit facility at December 31, 2019. The borrowing base under the credit facility is $225.0 million, which was reduced from $300.0 million during the borrowing base redetermination completed in November 2019. The level of our credit facility's borrowing base is determined by our lenders in their sole discretion, and is largely based on the estimated value of our oil and natural gas properties in the Company's most recently delivered reserve report. This reserve report takes into account the prevailing oil, natural gas, NGL prices at that time. If future commodity prices are consistent or lower than those experienced in 2019, planned reductions in our 2020 drilling and completions capital budget may lead to a decrease in our future reserve base as we will continue to deplete our reserves with production from existing wells without adding significant additional reserves through capital development. This may result in additional reductions in our borrowing capacity in future periods.
The credit facility has two significant covenants which require us to maintain (i) a maximum consolidated total net leverage ratio, measured as of the end of any fiscal quarter, of no greater than 3.50 to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the end of any fiscal quarter, of no less than 2.25 to 1.00. These financial covenants are subject to customary cure rights. We were in compliance with all applicable financial covenants under the credit facility as of December 31, 2019.
See “Note 11 - Long-Term Debt” to the accompanying consolidated financial statements included in Item 8 of this report for additional discussion of the Company’s debt during 2019 and 2018.
Contractual Obligations and Off-Balance Sheet Arrangements
At December 31, 2019, our contractual obligations included asset retirement obligations, operating leases, and other individually insignificant obligations. Additionally, we have certain financial instruments representing potential commitments that were incurred in the normal course of business to support our operations, including standby letters of credit and surety bonds. The underlying liabilities insured by these instruments are reflected in our balance sheets, where applicable. Therefore, no additional liability is reflected for the letters of credit and surety bonds.
As of December 31, 2019, we had future contractual payment commitments under various agreements, which are summarized below. The operating leases are not recorded in the accompanying consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than
1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than
5 years
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations(1)
|
75,016
|
|
|
22,119
|
|
|
13,773
|
|
|
2,636
|
|
|
36,488
|
|
Long-term debt obligations (2)
|
57,500
|
|
|
—
|
|
|
57,500
|
|
|
—
|
|
|
—
|
|
Leases and other(3)
|
5,124
|
|
|
2,074
|
|
|
2,014
|
|
|
399
|
|
|
637
|
|
Total
|
$
|
137,640
|
|
|
$
|
24,193
|
|
|
$
|
73,287
|
|
|
$
|
3,035
|
|
|
$
|
37,125
|
|
____________________
(1)Asset retirement obligations are based on estimates and assumptions that affect the reported amounts as of December 31, 2019. These estimates and assumptions can be inherently unpredictable and may differ from actual results given the uncertainty of when we may be required to plug and abandon a well or retire an asset. As a result, we do not expect to incur all of the estimated costs for the current asset retirement obligation shown above in the next twelve months, and have budgeted $4.5 million for actual expected plugging and abandonment costs in 2020.
(2)Includes debt principal amounts and assumes debt principal amounts will be outstanding until their last contractual maturity.
(3)Includes trustee fees for SandRidge Mississippian Trust II, which announced on January 23, 2020, that it will be required to dissolve and commence winding up in the first quarter of 2020. As a result, certain trustee fees included in the table above may not be incurred in future years.
Valuation Allowance
Upon emergence from bankruptcy and the application of fresh start accounting, our tax basis in property, plant, and equipment exceeded the book carrying value of our assets. Additionally, we had significant U.S. federal net operating losses remaining after the attribute reduction caused by the restructuring transactions. As such, the Successor Company had significant
deferred tax assets to consume upon emergence. We considered all available evidence and concluded that it was more likely than not that some or all of the deferred tax assets would not be realized and established a valuation allowance against our net deferred tax asset upon emergence and maintained the valuation allowance for the subsequent periods through September 30, 2019.
We continue to closely monitor all available evidence in considering whether to maintain a valuation allowance on our net deferred tax asset. Factors considered include, but are not limited to, the reversal periods of existing deferred tax liabilities and deferred tax assets, our historical earnings and the prospects of future earnings. For purposes of the valuation allowance analysis, “earnings” is defined as pre-tax earnings as adjusted for permanent tax adjustments.
In determining whether to maintain the valuation allowance at December 31, 2019, we concluded that the objectively verifiable negative evidence of the presumption of cumulative negative earnings upon emergence and actual cumulative negative earnings for the Successor Company period ending December 31, 2019, is difficult to overcome with any forms of positive evidence that may exist. Accordingly, we have not changed our judgment regarding the need for a full valuation allowance against our net deferred tax asset for the period ending December 31, 2019.
See “Note 14 - Income Taxes” to the accompanying consolidated financial statements for additional discussion of income tax related matters.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s financial statements requires management to make assumptions and prepare estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Estimates are based on historical experience and various other assumptions believed to be reasonable; however, actual results may differ significantly. The Company’s critical accounting policies and additional information on significant estimates are discussed below. See “Note 1—Summary of Significant Accounting Policies” to the Company’s consolidated financial statements in Item 8 of this report for additional discussion of significant accounting policies.
Derivative Financial Instruments. To manage risks related to fluctuations in prices attributable to its expected oil and natural gas production, the Company enters into oil and natural gas derivative contracts. Entrance into such contracts is dependent upon prevailing or anticipated market conditions. The Company may also, from time to time, enter into interest rate swaps in order to manage risk associated with its exposure to variable interest rates and issue long-term debt that contains embedded derivatives.
The Company recognizes its derivative instruments as either assets or liabilities at fair value with changes in fair value recognized in earnings unless designated as a hedging instrument. The Company has elected not to designate price risk management activities as accounting hedges under applicable accounting guidance, and, accordingly, accounts for its commodity derivative contracts at fair value with changes in fair value reported currently in earnings. The Company’s earnings may fluctuate significantly as a result of changes in fair value. Derivative assets and liabilities are netted whenever a legally enforceable master netting agreement exists with the counterparty to a derivative contract. The related cash flow impact of the Company’s derivative activities are reflected as cash flows from operating activities unless the derivative contract contains a significant financing element, in which case, cash settlements are classified as cash flows from financing activities in the consolidated statements of cash flows.
Fair values of the substantial majority of the Company’s commodity derivative financial instruments are determined primarily by using discounted cash flow calculations or option pricing models, and are based upon inputs that are either readily available in the public market, such as oil and natural gas futures prices, volatility factors, interest rates and discount rates, or can be corroborated from active markets. Estimates of future prices are based upon published forward commodity price curves for oil and natural gas instruments. Valuations also incorporate adjustments for the nonperformance risk of the Company or its counterparties, as applicable.
Proved Reserves. Approximately 93.2% of the Company’s reserves were estimated by independent petroleum engineers for the year ended December 31, 2019. Estimates of proved reserves are based on the quantities of oil, natural gas and NGLs that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. However, there are numerous uncertainties inherent in
estimating quantities of proved reserves and in projecting future revenues, rates of production and timing of development expenditures, including many factors beyond the Company’s control. Estimating reserves is a complex process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner and relies on assumptions and subjective interpretations of available geologic, geophysical, engineering and production data. The accuracy of reserve estimates is a function of the quality and quantity of available data, engineering and geological interpretation and judgment. In addition, as a result of volatility and changing market conditions, commodity prices and future development costs will change from period to period, causing estimates of proved reserves to change, as well as causing estimates of future net revenues to change. For the years ended December 31, 2019, 2018 and 2017, the Company revised its proved reserves from prior years’ reports by approximately (58.5) MMBoe, (33.2) MMBoe and 10.9 MMBoe, respectively, due to decreases in SEC prices used to value reserves at the end of the applicable period, production performance indicating more (or less) reserves in place, larger (or smaller) reservoir size than initially estimated or additional proved reserve bookings within the original field boundaries. Estimates of proved reserves are key components of the Company’s financial estimates used to determine depreciation and depletion on oil and natural gas properties and its full cost ceiling limitation. Future revisions to estimates of proved reserves may be material and could materially affect the Company’s future depreciation, depletion and impairment expenses.
Method of Accounting for Oil and Natural Gas Properties. The Company’s business is subject to accounting rules that are unique to the oil and natural gas industry. There are two allowable methods of accounting for oil and natural gas business activities: the successful efforts method and the full cost method. The Company uses the full cost method to account for its oil and natural gas properties. All direct costs and certain indirect costs associated with the acquisition, exploration and development of oil and natural gas properties are capitalized. Exploration and development costs include dry well costs, geological and geophysical costs, direct overhead related to exploration and development activities and other costs incurred for the purpose of finding oil, natural gas and NGL reserves. Amortization of oil and natural gas properties is calculated using the unit-of-production method based on estimated proved oil, natural gas and NGL reserves. Sales and abandonments of oil and natural gas properties being amortized are accounted for as adjustments to the full cost pool, with no gain or loss recognized, unless the adjustments would significantly alter the relationship between capitalized costs and proved oil, natural gas and NGL reserves. A significant alteration would not ordinarily be expected to occur upon the sale of reserves involving less than 25% of the proved reserve quantities of a cost center.
Under the successful efforts method, geological and geophysical costs and costs of carrying and retaining undeveloped properties are charged to expense as incurred. Costs of drilling exploratory wells that do not result in proved reserves are charged to expense. Depreciation, depletion and impairment of oil and natural gas properties are generally calculated on a well by well, lease or field basis versus the aggregated “full cost” pool basis. Additionally, gain or loss is generally recognized on all sales of oil and natural gas properties under the successful efforts method. As a result, the Company’s financial statements will differ from companies that apply the successful efforts method since the Company will generally reflect a higher level of capitalized costs as well as a higher oil and natural gas depreciation and depletion rate, and the Company will not have exploration expenses that successful efforts companies frequently have.
Impairment of Oil and Natural Gas Properties. In accordance with full cost accounting rules, capitalized costs are subject to a limitation. The capitalized cost of oil and natural gas properties and electrical infrastructure costs, net of accumulated depreciation, depletion and impairment, less related deferred income taxes, may not exceed an amount equal to the ceiling limitation. The Company calculates its full cost ceiling limitation using SEC prices adjusted for basis or location differentials, held constant over the life of the reserves. If capitalized costs exceed the ceiling limitation, the excess must be charged to expense. Once incurred, a write-down cannot be reversed at a later date. The Company recorded full cost ceiling impairment of $409.6 million for the year ended December 31, 2019. No full cost ceiling impairment was recorded for the years ended December 31, 2018 and 2017. See “—Consolidated Results of Operations” for additional discussion of full cost ceiling impairments.
Unproved Properties. The balance of unproved properties consists primarily of costs to acquire unproved acreage. These costs are initially excluded from the Company’s amortization base until it is known whether proved reserves will or will not be assigned to the property. The Company assesses all properties, on an individual basis or as a group if properties are individually insignificant, classified as unproved on a quarterly basis for possible impairment or reduction in value. The assessment includes consideration of various factors, including, but not limited to, the following: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; assignment of proved reserves; and economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject to amortization. Costs of seismic data are allocated to various unproved leaseholds and transferred to the amortization base with the associated leasehold costs on a specific project basis. For leases that do not have existing production that would otherwise extend the lease term, the Company estimates that any associated unproved costs will be evaluated and transferred to the amortization base of the full cost pool within a three to five year period from the original lease date. For leases that are held by production, the Company
estimates that any associated unproved costs will be evaluated and transferred to the amortization base of the full cost pool within a 10-year period from the original lease date.
Property, Plant and Equipment, Net. Other capitalized costs including other property and equipment, such as electrical infrastructure assets and buildings, are carried at cost or the amortized fair value established on the Emergence Date. Renewals and improvements are capitalized while repairs and maintenance are expensed. Depreciation of such property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from 7 to 39 years for buildings and 1 to 27 years for the electrical infrastructure assets and other equipment. When property and equipment components are disposed of, the cost and the related accumulated depreciation are removed and any resulting gain or loss is reflected in operations. The carrying value of property and equipment, other than the electrical infrastructure assets, is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying value of such asset or asset group may not be recoverable. Assets are considered to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset or asset group including disposal value, if any, is less than the carrying amount of the asset or asset group. If an asset or asset group is determined to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset or asset group exceeds its fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two as considered appropriate based on the circumstances. The Company may also determine fair value by using the present value of estimated future cash inflows and/or outflows, or third-party offers or prices of comparable assets with consideration of current market conditions to value its non-financial assets and liabilities when circumstances dictate determining fair value is necessary. Changes in such estimates could cause the Company to reduce the carrying value of property and equipment.
See “—Consolidated Results of Operations” and “Note 9—Impairment” to the Company’s consolidated financial statements in Item 8 of this report for a discussion of the Company’s impairments.
Asset Retirement Obligations. Asset retirement obligations represent the estimate of fair value of the cost to plug, abandon and remediate the Company’s wells at the end of their productive lives, in accordance with applicable federal and state laws. The Company estimates the fair value of an asset’s retirement obligation in the period in which the liability is incurred (at the time the wells are drilled or acquired). Estimating future asset retirement obligations requires management to make estimates and judgments regarding timing, existence of a liability and what constitutes adequate restoration. The Company employs a present value technique to estimate the fair value of an asset retirement obligation, which reflects certain assumptions and requires significant judgment, including an inflation rate, its credit-adjusted, risk-free interest rate, the estimated settlement date of the liability and the estimated current cost to settle the liability based on third-party quotes and current actual costs. Inherent in the present value calculation are the timing of settlement and changes in the legal, regulatory, environmental and political environments, which are subject to change. Changes in timing or to the original estimate of cash flows will result in changes to the carrying amount of the liability.
Revenue Recognition. Sales of oil, natural gas and NGLs are recorded at a point in time when control of the oil, natural gas and NGL production passes to the customer at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck, net of royalties, discounts and allowances, as applicable. The Company deducts transportation costs from oil, natural gas and NGL revenues. Taxes assessed by governmental authorities on oil, natural gas and NGL sales are included in production, ad valorem and other taxes in the consolidated statements of operations. See "Note 16—Revenues" to the Company's consolidated financial statements in Item 8 of this report for further information on the Company's accounting policies related to revenues.
Income Taxes. Deferred income taxes are recorded for temporary differences between the financial statement and income tax basis of assets and liabilities. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns. As of December 31, 2019, the Company had a full valuation allowance against its net deferred tax asset. The valuation allowance serves to reduce the tax benefits recognized from the net deferred tax asset to an amount that is more likely than not to be realized based on the weight of all available evidence.
New Accounting Pronouncements. For a discussion of recently adopted accounting standards and recent accounting standards not yet adopted, see “Note 1—Summary of Significant Accounting Policies” to the Company’s consolidated financial statements in Item 8 of this report.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control over Financial Reporting
Management of SandRidge Energy, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) (the COSO criteria). Based on management’s assessment using the COSO criteria, management concluded the Company’s internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche LLP an independent registered public accounting firm, as stated in its report which appears herein.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ JOHN P. SUTER
|
|
/s/ MICHAEL A. JOHNSON
|
John P. Suter
Chief Operating Officer and Interim President and Chief Executive Officer
|
|
Michael A. Johnson
Senior Vice President and Chief Financial Officer
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
SandRidge Energy, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of SandRidge Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 27, 2020 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Houston, Texas
February 27, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
SandRidge Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of SandRidge Energy, Inc. and subsidiaries (the "Company") as of December 31, 2019, the related consolidated statement of operations, changes in stockholders' equity (deficit), and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Houston, Texas
February 27, 2020
We have served as the Company's auditor since 2019.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of SandRidge Energy, Inc.
Opinion on the Financial Statements
We have audited the consolidated balance sheet of SandRidge Energy, Inc. and its subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
|
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|
|
|
/s/ PricewaterhouseCoopers LLP
|
|
Oklahoma City, Oklahoma
|
|
March 5, 2019
|
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|
We served as the Company's auditor from 2005 to 2019.
|
|
SandRidge Energy, Inc. and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
4,275
|
|
|
$
|
17,660
|
|
|
|
|
|
Restricted cash - other
|
1,693
|
|
|
1,985
|
|
Accounts receivable, net
|
28,644
|
|
|
45,503
|
|
Derivative contracts
|
114
|
|
|
5,286
|
|
Prepaid expenses
|
3,342
|
|
|
2,628
|
|
Other current assets
|
538
|
|
|
265
|
|
Total current assets
|
38,606
|
|
|
73,327
|
|
Oil and natural gas properties, using full cost method of accounting
|
|
|
|
Proved
|
1,484,359
|
|
|
1,269,091
|
|
Unproved
|
24,603
|
|
|
60,152
|
|
Less: accumulated depreciation, depletion and impairment
|
(1,129,622)
|
|
|
(580,132)
|
|
|
379,340
|
|
|
749,111
|
|
Other property, plant and equipment, net
|
188,603
|
|
|
200,838
|
|
Other assets
|
1,140
|
|
|
1,062
|
|
Total assets
|
$
|
607,689
|
|
|
$
|
1,024,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued expenses
|
$
|
64,937
|
|
|
$
|
111,797
|
|
Asset retirement obligations
|
22,119
|
|
|
25,393
|
|
Other current liabilities
|
1,367
|
|
|
—
|
|
Total current liabilities
|
88,423
|
|
|
137,190
|
|
Long-term debt
|
57,500
|
|
|
—
|
|
Asset retirement obligations
|
52,897
|
|
|
34,671
|
|
Other long-term obligations
|
6,417
|
|
|
4,756
|
|
Total liabilities
|
205,237
|
|
|
176,617
|
|
Commitments and contingencies (Note 13)
|
|
|
|
Stockholders’ Equity
|
|
|
|
Common stock, $0.001 par value; 250,000 shares authorized; 35,772 issued and outstanding at December 31, 2019 and 35,687 issued and outstanding at December 31, 2018
|
36
|
|
|
36
|
|
Warrants
|
88,520
|
|
|
88,516
|
|
Additional paid-in capital
|
1,059,253
|
|
|
1,055,164
|
|
Accumulated deficit
|
(745,357)
|
|
|
(295,995)
|
|
Total stockholders’ equity
|
402,452
|
|
|
847,721
|
|
Total liabilities and stockholders’ equity
|
$
|
607,689
|
|
|
$
|
1,024,338
|
|
The accompanying notes are an integral part of these consolidated financial statements.
SandRidge Energy, Inc. and Subsidiaries
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
(In thousands, except per share amounts)
|
|
|
|
|
Revenues
|
|
|
|
|
|
Oil, natural gas and NGL
|
$
|
266,104
|
|
|
$
|
348,726
|
|
|
$
|
356,210
|
|
Other
|
741
|
|
|
669
|
|
|
1,089
|
|
Total revenues
|
266,845
|
|
|
349,395
|
|
|
357,299
|
|
Expenses
|
|
|
|
|
|
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
|
|
Impairment
|
409,574
|
|
|
4,170
|
|
|
4,019
|
|
General and administrative
|
32,058
|
|
|
40,619
|
|
|
75,133
|
|
Accelerated vesting of employment compensation
|
—
|
|
|
6,545
|
|
|
—
|
|
Proxy contest
|
—
|
|
|
7,139
|
|
|
—
|
|
Terminated merger costs
|
—
|
|
|
—
|
|
|
8,162
|
|
Employee termination benefits
|
4,792
|
|
|
32,657
|
|
|
4,815
|
|
(Gain) loss on derivative contracts
|
(1,094)
|
|
|
17,155
|
|
|
(24,090)
|
|
|
|
|
|
|
|
Other operating (income) expense
|
(608)
|
|
|
(998)
|
|
|
479
|
|
Total expenses
|
713,612
|
|
|
359,770
|
|
|
317,668
|
|
(Loss) income from operations
|
(446,767)
|
|
|
(10,375)
|
|
|
39,631
|
|
Other (expense) income
|
|
|
|
|
|
Interest expense, net
|
(2,974)
|
|
|
(2,787)
|
|
|
(3,868)
|
|
Gain on extinguishment of debt
|
—
|
|
|
1,151
|
|
|
—
|
|
|
|
|
|
|
|
Other income, net
|
436
|
|
|
2,865
|
|
|
2,550
|
|
Total other (expense) income
|
(2,538)
|
|
|
1,229
|
|
|
(1,318)
|
|
(Loss) income before income taxes
|
(449,305)
|
|
|
(9,146)
|
|
|
38,313
|
|
Income tax benefit
|
—
|
|
|
(71)
|
|
|
(8,749)
|
|
Net (loss) income
|
$
|
(449,305)
|
|
|
$
|
(9,075)
|
|
|
$
|
47,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share
|
|
|
|
|
|
Basic
|
$
|
(12.68)
|
|
|
$
|
(0.26)
|
|
|
$
|
1.45
|
|
Diluted
|
$
|
(12.68)
|
|
|
$
|
(0.26)
|
|
|
$
|
1.44
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
Basic
|
35,427
|
|
|
35,057
|
|
|
32,442
|
|
Diluted
|
35,427
|
|
|
35,057
|
|
|
32,663
|
|
The accompanying notes are an integral part of these consolidated financial statements.
SandRidge Energy, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Warrants
|
|
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
19,635
|
|
|
$
|
20
|
|
|
6,442
|
|
|
$
|
88,381
|
|
|
$
|
758,498
|
|
|
$
|
(333,982)
|
|
|
$
|
512,917
|
|
Issuance of stock awards, net of cancellations
|
1,583
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
Common stock issued for debt
|
14,328
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
268,765
|
|
|
—
|
|
|
268,779
|
|
Common stock issued for general unsecured claims
|
104
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,912
|
|
|
—
|
|
|
17,912
|
|
Issuance of warrants for general unsecured claims
|
—
|
|
|
—
|
|
|
128
|
|
|
119
|
|
|
(119)
|
|
|
—
|
|
|
—
|
|
Cash paid for tax withholdings on vested stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,730)
|
|
|
—
|
|
|
(6,730)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,062
|
|
|
47,062
|
|
Balance at December 31, 2017
|
35,650
|
|
|
36
|
|
|
6,570
|
|
|
88,500
|
|
|
1,038,324
|
|
|
(286,920)
|
|
|
839,940
|
|
Issuance of stock awards, net of cancellations
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for general unsecured claims
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,276
|
|
|
—
|
|
|
24,276
|
|
Issuance of warrants for general unsecured claims
|
—
|
|
|
—
|
|
|
34
|
|
|
16
|
|
|
(16)
|
|
|
—
|
|
|
—
|
|
Cash paid for tax withholdings on vested stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,420)
|
|
|
—
|
|
|
(7,420)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,075)
|
|
|
(9,075)
|
|
Balance at December 31, 2018
|
35,687
|
|
|
36
|
|
|
6,604
|
|
|
88,516
|
|
|
1,055,164
|
|
|
(295,995)
|
|
|
847,721
|
|
Issuance of stock awards, net of cancellations
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock issued for general unsecured claims
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,460
|
|
|
—
|
|
|
4,460
|
|
Issuance of warrants for general unsecured claims
|
—
|
|
|
—
|
|
|
55
|
|
|
4
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
Cash paid for tax withholdings on vested stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(367)
|
|
|
—
|
|
|
(367)
|
|
Cumulative effect of adoption of ASU 2016-02
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(57)
|
|
|
(57)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(449,305)
|
|
|
(449,305)
|
|
Balance at December 31, 2019
|
35,772
|
|
|
$
|
36
|
|
|
6,659
|
|
|
$
|
88,520
|
|
|
$
|
1,059,253
|
|
|
$
|
(745,357)
|
|
|
$
|
402,452
|
|
The accompanying notes are an integral part of these consolidated financial statements.
SandRidge Energy, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
(In thousands)
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net (loss) income
|
$
|
(449,305)
|
|
|
$
|
(9,075)
|
|
|
$
|
47,062
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities
|
|
|
|
|
|
Provision for doubtful accounts
|
16
|
|
|
(462)
|
|
|
406
|
|
Depreciation, depletion and amortization
|
158,558
|
|
|
139,263
|
|
|
131,887
|
|
Impairment
|
409,574
|
|
|
4,170
|
|
|
4,019
|
|
|
|
|
|
|
|
Debt issuance costs amortization
|
558
|
|
|
470
|
|
|
430
|
|
Amortization of discount, net of premium, on debt
|
—
|
|
|
(47)
|
|
|
(330)
|
|
Gain on extinguishment of debt
|
—
|
|
|
(1,151)
|
|
|
—
|
|
Write off of debt issuance costs
|
142
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on derivative contracts
|
(1,094)
|
|
|
17,155
|
|
|
(24,090)
|
|
Cash received (paid) on settlement of derivative contracts
|
6,266
|
|
|
(35,325)
|
|
|
7,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
4,254
|
|
|
23,377
|
|
|
15,750
|
|
Other
|
(187)
|
|
|
(1,571)
|
|
|
344
|
|
Changes in operating assets and liabilities increasing (decreasing) cash
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
15,829
|
|
|
16,560
|
|
|
115
|
|
Prepaid expenses
|
(714)
|
|
|
2,620
|
|
|
127
|
|
Other current assets
|
(301)
|
|
|
170
|
|
|
191
|
|
Other assets and liabilities, net
|
(610)
|
|
|
(1,754)
|
|
|
4,186
|
|
Accounts payable and accrued expenses
|
(17,217)
|
|
|
(4,257)
|
|
|
(2,199)
|
|
Asset retirement obligations
|
(4,445)
|
|
|
(4,629)
|
|
|
(3,979)
|
|
Net cash provided by operating activities
|
121,324
|
|
|
145,514
|
|
|
181,179
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Capital expenditures for property, plant and equipment
|
(191,678)
|
|
|
(187,047)
|
|
|
(219,246)
|
|
Acquisitions of assets
|
236
|
|
|
(24,764)
|
|
|
(48,312)
|
|
Proceeds from sale of assets
|
1,593
|
|
|
28,358
|
|
|
21,834
|
|
Net cash used in investing activities
|
(189,849)
|
|
|
(183,453)
|
|
|
(245,724)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Proceeds from borrowings
|
211,096
|
|
|
10,000
|
|
|
—
|
|
Repayments of borrowings
|
(153,596)
|
|
|
(46,304)
|
|
|
—
|
|
Debt issuance costs
|
(911)
|
|
|
—
|
|
|
(1,488)
|
|
Reduction of financing lease liability
|
(1,374)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for tax withholdings on vested stock awards
|
(367)
|
|
|
(7,420)
|
|
|
(6,730)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year
|
19,645
|
|
|
101,308
|
|
|
174,071
|
|
CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of year
|
$
|
5,968
|
|
|
$
|
19,645
|
|
|
$
|
101,308
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
1. Summary of Significant Accounting Policies
Nature of Business. SandRidge Energy, Inc. is an oil and natural gas company with a principal focus on the acquisition, exploration and development of hydrocarbon resources in the United States.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned or majority owned subsidiaries, including its proportionate share of the Royalty Trusts. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. These reclassifications have no effect on the Company’s previously reported results of operations.
Use of Estimates. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The more significant areas requiring the use of assumptions, judgments and estimates include: oil, natural gas and NGL reserves; impairment tests of long-lived assets; the carrying value of unproved oil and natural gas properties; depreciation, depletion and amortization; asset retirement obligations; determinations of significant alterations to the full cost pool and related estimates of fair value used to allocate the full cost pool net book value to divested properties, as necessary; valuation allowances for deferred tax assets; income taxes; valuation of derivative instruments; contingencies; and accrued revenue and related receivables. Although management believes these estimates are reasonable, actual results could differ significantly from those estimates.
Cash and Cash Equivalents. The Company considers all highly-liquid instruments with an original maturity of three months or less to be cash equivalents as these instruments are readily convertible to known amounts of cash and bear insignificant risk of changes in value due to their short maturity period.
Restricted Cash. The Company maintains restricted escrow funds as required by certain contractual arrangements in accordance with the Plan.
Accounts Receivable, Net. The Company has receivables for sales of oil, natural gas and NGLs, as well as receivables related to the drilling, completion, and production of oil and natural gas, which have a contractual maturity of one year or less. An allowance for doubtful accounts has been established based on management’s review of the collectibility of the receivables in light of historical experience, the nature and volume of the receivables and other subjective factors. Accounts receivable are charged against the allowance, upon approval by management, when they are deemed uncollectible. Refer to Note 5 for further information on the Company’s accounts receivable and allowance for doubtful accounts.
Fair Value of Financial Instruments. Certain of the Company’s financial assets and liabilities are measured at fair value. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company’s financial instruments, not otherwise recorded at fair value, consist primarily of cash, restricted cash, trade receivables, prepaid expenses, and trade payables and accrued expenses. The carrying values of cash, trade receivables and trade payables are considered to reflect fair values due to the short-term maturity of these instruments. See Note 4 for further discussion of the Company’s fair value measurements.
Fair Value of Non-financial Assets and Liabilities. The Company also applies fair value accounting guidance to initially, or as events dictate, measure non-financial assets and liabilities such as those obtained through business acquisitions, property, plant and equipment and asset retirement obligations. These assets and liabilities are subject to fair value adjustments only in certain circumstances and are not subject to recurring revaluations. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two as considered appropriate based on the circumstances. Under the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and natural gas production or other applicable sales estimates, operational costs and a risk-adjusted discount rate. The Company may use the present value of estimated future cash inflows and/or outflows, third-party offers or prices of comparable assets with consideration of current market conditions to fair value its non-financial assets and liabilities when necessary.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Derivative Financial Instruments. The Company enters into oil and natural gas derivative contracts to manage risks related to fluctuations in prices of its expected oil and natural gas production. The Company considers current and anticipated market conditions, planned capital expenditures, and any debt service requirements when determining whether to enter into oil and gas derivative contracts. The Company may also, from time to time, enter into interest rate swaps in order to manage risk associated with its exposure to variable interest rates.
The Company recognizes its derivative instruments as either assets or liabilities at fair value with changes in fair value recognized in earnings unless designated as a hedging instrument. The Company has elected not to designate price risk management activities as accounting hedges under applicable accounting guidance. The Company nets derivative assets and liabilities whenever it has a legally enforceable master netting agreement with the counterparty to a derivative contract. The related cash flow impact of the Company’s derivative activities are reflected as cash flows from operating activities unless the derivative contract contains a significant financing element, in which case, cash settlements are classified as cash flows from financing activities in the consolidated statements of cash flows. See Note 6 for further discussion of the Company’s derivatives.
Oil and Natural Gas Operations. The Company uses the full cost method to account for its oil and natural gas properties. Under full cost accounting, all costs directly associated with the acquisition, exploration and development of oil, natural gas and NGL reserves are capitalized into a full cost pool. These capitalized costs include costs of unproved properties and internal costs directly related to the Company’s acquisition, exploration and development activities and capitalized interest. The Company capitalized gross internal costs of $5.7 million, $8.8 million and $14.8 million during the years ended December 31, 2019, 2018 and 2017, respectively. Capitalized costs are amortized using the unit-of-production method. Under this method, depreciation and depletion is computed at the end of each quarter by multiplying total production for the quarter by a depletion rate. The depletion rate is determined by dividing the total unamortized cost base plus future development costs by net equivalent proved reserves at the beginning of the quarter.
Costs associated with unproved properties are excluded from the amortizable cost base until it has been determined that proved reserves exist or a lease is impaired. Unproved properties are reviewed at the end of each quarter to determine whether the costs incurred should be reclassified to the full cost pool and amortized. The costs associated with unproved properties are primarily the costs to acquire unproved acreage. All items classified as unproved property are assessed, on an individual basis or as a group if properties are individually insignificant, on a quarterly basis for possible impairment. The assessment includes consideration of various factors, including, but not limited to, the following: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; assignment of proved reserves; and whether the proved reserves can be developed economically. During any period in which these factors indicate an impairment, all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject to amortization. Costs of seismic data are allocated to unproved leaseholds and transferred to the amortization base with the associated leasehold costs on a specific project basis.
Under the full cost method of accounting, total capitalized costs of oil and natural gas properties and electrical infrastructure assets, net of accumulated depreciation, depletion and impairment, less related deferred income taxes may not exceed the ceiling limitation. A ceiling limitation calculation is performed at the end of each quarter. If the ceiling limitation is exceeded, a write-down or impairment of the full cost pool is required. A write-down of the carrying value of the full cost pool is a non-cash charge that reduces earnings and impacts stockholders’ equity and typically results in lower depreciation and depletion expense in future periods. Once incurred, a write-down cannot be reversed at a later date.
The ceiling limitation calculation is prepared using SEC prices adjusted for basis or location differentials, held constant over the life of the reserves. If applicable, these prices would be further adjusted to include the effects of any fixed price arrangements for the sale of oil and natural gas. Derivative contracts that qualify and are designated as cash flow hedges are included in estimated future cash flows, although the Company historically has not designated any of its derivative contracts as cash flow hedges. The future cash outflows associated with future development or abandonment of wells are included in the computation of the discounted present value of future net revenues for purposes of the ceiling limitation calculation.
Sales and abandonments of oil and natural gas properties being amortized are accounted for as adjustments to the full cost pool, with no gain or loss recognized, unless the adjustments would significantly alter the relationship between capitalized costs and proved oil, natural gas and NGL reserves. A significant alteration would not ordinarily be expected to occur upon the sale of reserves involving less than 25% of the proved reserve quantities of a cost center.
Property, Plant and Equipment, Net. Other capitalized costs, including other property and equipment, such as electrical infrastructure assets and buildings, are carried at cost or the fair value established on the Emergence Date. Renewals
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
and improvements are capitalized while repairs and maintenance are expensed. Depreciation of such property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from 7 to 39 years for buildings and 1 to 27 years for the electrical infrastructure assets and other equipment. When property and equipment components are disposed, the cost and the related accumulated depreciation are removed and any resulting gain or loss is reflected in the consolidated statements of operations.
Realization of the carrying value of property and equipment, other than electrical infrastructure assets, is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying value of such asset may not be recoverable. Assets are considered to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset or asset group including disposal value is less than the carrying amount of the asset or asset group. Impairment is measured as the excess of the carrying amount of the impaired asset or asset group over its fair value. See Note 9 for further discussion of impairments.
Capitalized Interest. Interest is capitalized on assets being made ready for use using a weighted average interest rate based on the Company’s borrowings outstanding during that time. During the year ended December 31, 2019 the Company capitalized interest of approximately $1.5 million on unproved properties that were not currently being depreciated or depleted and on which exploration activities were in progress. During the year ended December 31, 2018, the Company capitalized an insignificant amount of interest costs and did not capitalize any interest costs in the year ended December 31, 2017, as capital expenditures were largely funded through sources other than debt during these periods.
Debt Issuance Costs. The Company includes unamortized line-of-credit debt issuance costs, if any, related to its credit facility in other assets in the consolidated balance sheets. Other debt issuance costs related to long-term debt, if any, are presented in the balance sheets as a direct deduction from the associated debt liability. Debt issuance costs are amortized to interest expense over the term of the related debt. When debt is retired, any unamortized costs are written off and included in gain or loss on extinguishment of debt.
Asset Retirement Obligations. The Company owns oil and natural gas assets that require expenditures to plug, abandon and remediate associated property at the end of their productive lives, in accordance with applicable federal and state laws. Liabilities for these asset retirement obligations are recorded at the estimated present value at the time the wells are drilled or acquired, with the offsetting increase to property cost. These property costs are depreciated on a unit-of-production basis within the full cost pool. The liability accretes each period until it is settled or the asset is sold and the liability is removed. Both the accretion and the depreciation are included in the consolidated statements of operations. The Company determines its asset retirement obligations by calculating the present value of estimated expenses related to the liability. Estimating future asset retirement obligations requires management to make estimates and judgments regarding timing, existence of a liability and what constitutes adequate restoration. Inherent in the present value calculation are the timing of settlement and changes in the legal, regulatory, environmental and political environments, which are subject to change. See Note 12 for further discussion of the Company’s asset retirement obligations.
Revenue Recognition and Natural Gas Balancing. Sales of oil, natural gas and NGLs are recorded at a point in time when control of the oil, natural gas and NGL production passes to the customer at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck, net of royalties, discounts and allowances, as applicable. Additionally, the Company deducts transportation costs from oil, natural gas and NGL revenues. Taxes assessed by governmental authorities on oil, natural gas and NGL sales are included in production, ad valorem and other taxes in the consolidated statements of operations. See Note 16 for further information on the Company's accounting policies related to revenues.
The Company accounts for natural gas production imbalances using the sales method, which recognizes revenue on all natural gas sold even though the natural gas volumes sold may be more or less than the Company's ownership entitles it to sell. Liabilities are recorded for imbalances greater than the Company’s proportionate share of remaining estimated natural gas reserves. The Company has recorded a liability for natural gas imbalance positions of $1.6 million and $1.7 million at December 31, 2019 and 2018, respectively. The Company includes the gas imbalance positions in other long-term obligations in the consolidated balance sheets.
Allocation of Share-Based Compensation. Equity compensation provided to employees directly involved in exploration and development activities is capitalized to the Company’s oil and natural gas properties. Equity compensation not capitalized is recognized in general and administrative expenses, production expenses, and other operating expense in the accompanying consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities reported for financial statement purposes and their tax basis. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized.
The Company has elected an accounting policy in which interest and penalties on income taxes resulting from the underpayment or late payment of income taxes due to a taxing authority or relating to income tax contingencies are presented as a component of the income tax provision, rather than as interest expense.
Earnings per Share. Basic earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of diluted common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities consist of unvested restricted stock awards, performance share units, warrants, and stock options using the treasury method.
Under the treasury method, the amount of unrecognized compensation expense related to unvested stock-based compensation grants or the proceeds that would be received if the warrants were exercised are assumed to be used to repurchase shares at the average market price. When a loss exists, all potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share. See Note 21 for the Company’s earnings per share calculation.
Commitments and Contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Environmental expenditures are expensed or capitalized, as appropriate, depending on future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Environmental liabilities related to future costs are recorded on an undiscounted basis when assessments and/or remediation activities are probable and costs can be reasonably estimated. See Note 13 for discussion of the Company’s commitments and contingencies.
Concentration of Risk. All of the Company’s commodity derivative transactions have been carried out in the over-the-counter market, which involves the risk that the counterparties may be unable to meet the financial terms of the transactions. The counterparties for all of the Company’s commodity derivative transactions have an “investment grade” credit rating. The Company monitors the credit ratings of its commodity derivative counterparties on an ongoing basis and considers their credit default risk ratings in determining the fair value of its commodity derivative contracts. The Company’s commodity derivative contracts are with multiple counterparties to minimize exposure to any individual counterparty.
If the Company defaults on its credit facility it will also default on commodity derivative contracts with counterparties that are lenders under the credit facility. The Company does not require collateral or other security from counterparties to support commodity derivative instruments. The Company has master netting agreements with all of its commodity derivative counterparties, which allow the Company to net its commodity derivative assets and liabilities for like commodities and derivative instruments with the same counterparty. As a result of the netting provisions, the Company’s maximum amount of loss under commodity derivative transactions due to credit risk is limited to the net amounts due from the counterparties under the commodity derivative contracts. The Company’s loss is further limited as any amounts due from a defaulting counterparty that is a lender under the credit facility can be offset against any amounts owed to the same counterparty under the credit facility.
The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payment for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. The Company’s joint interest partners are primarily independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the joint interest partners to reimburse the Company could be adversely affected.
Purchasers of the Company’s oil, natural gas and NGL production consist primarily of independent marketers, large oil and natural gas companies and gas pipeline companies. The Company believes alternate purchasers are available in its areas of operations and does not believe the loss of any one purchaser would materially affect its ability to sell the oil, natural gas and NGLs it produces.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
The Company had sales exceeding 10% of total revenues to the following oil and natural gas purchasers (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
% of Revenue
|
December 31, 2019
|
|
|
|
Targa Pipeline Mid-Continent West OK LLC
|
$
|
85,780
|
|
|
32.1
|
%
|
Sinclair Crude Company
|
$
|
74,810
|
|
|
28.0
|
%
|
Plains Marketing, L.P.
|
$
|
69,214
|
|
|
25.9
|
%
|
|
|
|
|
December 31, 2018
|
|
|
|
Targa Pipeline Mid-Continent West OK LLC
|
$
|
126,548
|
|
|
36.2
|
%
|
Plains Marketing, L.P.
|
$
|
102,182
|
|
|
29.2
|
%
|
Sinclair Crude Company
|
$
|
62,623
|
|
|
17.9
|
%
|
|
|
|
|
December 31, 2017
|
|
|
|
Targa Pipeline Mid-Continent West OK LLC
|
$
|
144,583
|
|
|
40.5
|
%
|
Plains Marketing, L.P.
|
$
|
117,927
|
|
|
33.0
|
%
|
Recent Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842),” and subsequently issued other associated ASU's related to Topic 842 which supersede Accounting Standards Codification ("ASC") 840 and require lessees to recognize right of use ("ROU") lease assets and liabilities on the balance sheet for long-term leases formerly classified as operating leases under ASC 840, and to disclose key information about leasing arrangements. The Company adopted this ASU on January 1, 2019 using a modified retrospective approach for all ROU leases that existed at the period of adoption and did not restate its comparative periods. See Note 7 for additional discussion of the new leasing standard.
Recent Accounting Pronouncements Not Yet Adopted. The FASB issued ASU 2016-13, “Financial Instruments —Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments,” and subsequently issued other associated ASU's related to Topic 326, which change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for the interim and annual periods beginning after December 31, 2018, and will be applied using a modified retrospective approach resulting in a cumulative effect adjustment to retained earnings upon adoption. The Company does not plan to early adopt and is currently evaluating the effect the guidance will have on its consolidated financial statements; however, the impact is not expected to be material.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which simplifies various aspects of accounting for income taxes, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax laws, and year-to-date loss limitation in interim-period tax accounting. The standard is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted, and will be applied on a prospective basis. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
2. Supplemental Cash Flow Information
Supplemental disclosures to the consolidated statements of cash flows are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
$
|
(2,157)
|
|
|
$
|
(4,045)
|
|
|
$
|
(2,438)
|
|
Cash received for income taxes
|
$
|
—
|
|
|
$
|
4,381
|
|
|
$
|
4,348
|
|
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities
|
|
|
|
|
|
Purchase of PP&E in accounts payable
|
$
|
4,592
|
|
|
$
|
34,235
|
|
|
$
|
50,096
|
|
Right-of-use assets obtained in exchange for financing lease obligations
|
$
|
3,347
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Carrying value of properties exchanged
|
$
|
5,384
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity issued for debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(268,779)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Acquisitions and Divestitures of Oil and Gas Properties
2019 Acquisitions and Divestitures
Nonmonetary transaction. During the third quarter of 2019, the Company transferred its interest in certain proved oil and natural gas properties located in Comanche, Harper and Sumner counties in Kansas along with associated electrical infrastructure and an insignificant amount of accounts receivable with an aggregate estimated fair value of $5.4 million, for an interest in certain other proved oil and natural gas properties located in Comanche, Harper and Barber counties in Kansas. The fair value of the assets given in the transaction approximated their carrying value, therefore no gain or loss was recognized on the transfer.
2018 Divestitures
Divestiture of Permian Basin Properties. On November 1, 2018, the Company sold substantially all of its oil and natural gas properties, rights and related assets in the CBP region of the Permian Basin, primarily located in Andrews County, TX, along with 13,125,000 common units representing a 25% equity interest in the Permian Trust, to an independent third party for $14.5 million in cash, subject to certain remaining post-closing adjustments, and reduced its asset retirement obligations by approximately $26.9 million. The CBP assets and interest in the Permian Trust included 1,066 producing wells within the Permian Trust's area of mutual interest, certain wells not associated with the Permian Trust, a field office, and all equipment, inventory and yards associated with the Company's CBP operations. As a result of this divestiture, the Company no longer has any obligations associated with the Permian Trust. This transaction did not result in a significant alteration of the relationship between the Company’s capitalized costs and proved reserves and, accordingly, the divestiture was accounted for as an adjustment to the full cost pool with no gain or loss recognized on the sale.
2018 Acquisitions
Acquisition of Oil and Natural Gas Interests. On November 2, 2018, the Company acquired an interest in certain oil and natural gas properties, rights and related assets in the Mississippian Lime and NW STACK areas of Oklahoma and Kansas for approximately $22.5 million in net consideration, net of post-closing adjustments, and assumed asset retirement obligations of approximately $6.4 million. The acquired assets primarily consist of interests in 1,199 producing wells, approximately 80% of which are operated by the Company, an additional 11.1% working interest in approximately 397,000 gross (44,000 net) acres across the Mid-Continent, and an additional 13.2% working interest ownership in the Company's saltwater gathering and disposal system in the Mississippian Lime.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
2017 Acquisitions
Acquisition of Properties. On February 10, 2017, the Company acquired assets consisting of approximately 13,000 net acres in Woodward County, Oklahoma for approximately $47.8 million in cash, net of post-closing adjustments. Also included in the acquisition were working interests in four wells previously drilled on the acreage.
2017 Divestitures
2017 Property Divestitures. In 2017, the Company divested various non-core oil and natural gas properties for approximately $17.1 million in cash. All of these divestitures were accounted for as adjustments to the full cost pool with no gain or loss recognized.
4. Fair Value Measurements
The Company measures and reports certain assets and liabilities on a fair value basis and has classified and disclosed its fair value measurements using the levels of the fair value hierarchy noted below. The carrying values of cash, restricted cash, accounts receivable, prepaid expenses, certain other current and non-current assets, accounts payable and accrued expenses and other current liabilities and other long-term obligations included in the consolidated balance sheets approximated fair value at December 31, 2019, and December 31, 2018. Additionally, the carrying amount of debt associated with borrowings outstanding under the credit facility approximates fair value as borrowings bear interest at variable rates. As a result, these financial assets and liabilities are not discussed below. The fair values of property, plant and equipment classified as assets held for sale and related impairments and nonmonetary transactions, which are calculated using Level 3 inputs, are discussed in Note 8 and Note 9.
|
|
|
|
|
|
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
Level 2
|
|
Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
|
Level 3
|
|
Measurement based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable for objective sources (i.e., supported by little or no market activity).
|
Assets and liabilities that are measured at fair value are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the fair value assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values, stated below, considers the market for the Company's financial assets and liabilities, the associated credit risk and other factors. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company has assets and liabilities classified in Level 2 of the hierarchy as of December 31, 2019 and 2018, as described below.
Level 2 Fair Value Measurements
Commodity Derivative Contracts. The fair values of the Company’s oil and natural gas fixed price swaps are based upon inputs that are either readily available in the public market, such as oil and natural gas futures prices, volatility factors and discount rates, or can be corroborated from active markets. Fair value is determined through the use of a discounted cash flow model or option pricing model using the applicable inputs discussed above. The Company applies a weighted average credit default risk rating factor for its counterparties or gives effect to its credit default risk rating, as applicable, in determining the fair value of these derivative contracts. Credit default risk ratings are based on current published credit default swap rates.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Fair Value - Recurring Measurement Basis
The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis by the fair value hierarchy (in thousands):
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
Netting(1)
|
|
Assets/Liabilities at Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
Netting(1)
|
|
Assets/Liabilities at Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
5,286
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________
(1)Represents the impact of netting assets and liabilities with counterparties where the right of offset exists.
Transfers. During the years ended December 31, 2019, 2018 and 2017, the Company did not have any transfers between Level 1, Level 2 or Level 3 fair value measurements.
Fair Value of Non-Financial Assets and Liabilities
See Note 9 for discussion of the Company’s impairment valuations.
5. Accounts Receivable
A summary of accounts receivable is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Oil, natural gas and NGL sales
|
$
|
22,281
|
|
|
$
|
31,780
|
|
Joint interest billing
|
5,165
|
|
|
13,083
|
|
Other
|
2,315
|
|
|
1,935
|
|
Total accounts receivable
|
29,761
|
|
|
46,798
|
|
Less: allowance for doubtful accounts
|
(1,117)
|
|
|
(1,295)
|
|
Total accounts receivable, net
|
$
|
28,644
|
|
|
$
|
45,503
|
|
The following table presents the balance and activity in the allowance for doubtful accounts for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
1,295
|
|
|
$
|
1,274
|
|
|
$
|
880
|
|
Additions charged to costs and expenses
|
6
|
|
|
758
|
|
|
397
|
|
Deductions(1)
|
(184)
|
|
|
(737)
|
|
|
(3)
|
|
Ending balance
|
$
|
1,117
|
|
|
$
|
1,295
|
|
|
$
|
1,274
|
|
____________________
(1)Deductions represent the write-off of receivables and collections of amounts for which an allowance had previously been established.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
6. Derivatives
Commodity Derivatives
The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil and natural gas. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil or natural gas production sales through the use of commodity derivative contracts. The Company has not designated any of its derivative contracts as hedges for accounting purposes. All derivative contracts are recorded at fair value with changes in derivative contract fair values recognized as gain or loss on derivative contracts in the condensed consolidated statements of operations. None of the Company’s commodity derivative contracts may be terminated prior to contractual maturity solely as a result of a downgrade in the credit rating of a party to the contract. Commodity derivative contracts are settled on a monthly basis, and the commodity derivative contract valuations are adjusted to the mark-to-market valuation on a quarterly basis.
The following table summarizes derivative activity for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
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)
|
|
Master Netting Agreements and the Right of Offset. The Company has master netting agreements with all of its commodity derivative counterparties and has presented its derivative assets and liabilities with the same counterparty on a net basis by commodity type in the consolidated balance sheets. As a result of the netting provisions, the Company's maximum amount of loss under commodity derivative transactions due to credit risk is limited to the net amounts due from its counterparties. As of December 31, 2019, the counterparties to the Company’s open commodity derivative contracts consisted of three financial institutions, all of which are also lenders under the Company’s credit facility. The Company is not required to post additional collateral under its commodity derivative contracts as all of the counterparties to the Company’s commodity derivative contracts share in the collateral supporting the Company’s credit facility.
The following tables summarize (i) the Company's commodity derivative contracts on a gross basis, (ii) the effects of netting assets and liabilities for which the right of offset exists based on master netting arrangements and (iii) for the Company’s net derivative liability positions, the applicable portion of shared collateral under the credit facility as of December 31, 2019 and 2018 (in thousands):
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts
|
|
Gross Amounts Offset
|
|
Amounts Net of Offset
|
|
Financial Collateral
|
|
Net Amount
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts - current
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts
|
|
Gross Amounts Offset
|
|
Amounts Net of Offset
|
|
Financial Collateral
|
|
Net Amount
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts - current
|
|
$
|
5,286
|
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,286
|
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019, the Company’s open commodity derivative contracts consisted of the following:
Oil Price Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional (Bbl)
|
|
Weighted Average
Fixed Price
|
January 2020 - March 2020
|
273,000
|
|
|
$
|
61.05
|
|
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Fair Value of Derivatives
The following table presents the fair value of the Company’s derivative contracts on a gross basis without regard to same-counterparty netting (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
Type of Contract
|
|
Balance Sheet Classification
|
|
2019
|
|
2018
|
Derivative assets
|
|
|
|
|
|
|
Oil price swaps
|
|
Derivative contracts - current
|
|
$
|
114
|
|
|
$
|
—
|
|
Natural gas price swaps
|
|
Derivative contracts - current
|
|
$
|
—
|
|
|
$
|
5,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivative contracts
|
|
|
|
$
|
114
|
|
|
$
|
5,286
|
|
See Note 4 for additional discussion of the fair value measurement of the Company’s derivative contracts.
7. Leases
As discussed in Note 1, the Company adopted ASU 2016-02, "Leases (Topic 842)" on January 1, 2019 using a modified retrospective approach for all ROU leases that existed at the period of adoption and did not restate its comparative periods.
Topic 842 provides practical expedients to assist with the transition to the new standard. The Company elected the 'package of practical expedients,' and therefore did not have to reassess prior conclusions about lease identification, lease classification and initial indirect costs. The Company also elected the land easement practical expedient and short-term lease recognition exemption, under which leases with initial terms less than 12 months are not required to be presented on the balance sheet. The Company further elected the practical expedient to combine lease and non-lease components for asset classes including drilling rigs, compressors and various office equipment.
The Company determines if an arrangement is or contains a lease at inception. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Lease liabilities were recognized based on the present value of the lease payments not yet paid over the lease term at January 1, 2019 for existing leases and at the commencement date for any new leases entered into subsequent to January 1, 2019. As most of the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate was used as the discount rate when determining the present value of future payments. Lease assets are recognized based on the lease liability plus any prepaid lease payments and excluding lease incentives and initial direct costs incurred for the same periods. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that option will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Adoption of this standard resulted in additional ROU lease assets and lease liabilities of approximately $2.3 million and $2.4 million, respectively, as of January 1, 2019, which did not materially impact the Company's consolidated financial statements. The difference between the net lease assets and liabilities was recognized as a cumulative-effect adjustment to the opening balance of retained earnings. Operating leases are included in other assets, other current liabilities and other long-term obligations, and finance leases are included in other property, plant and equipment, other current liabilities and other long-term obligations on the accompanying condensed consolidated balance sheet as of December 31, 2019. The Company had no significant capital or operating leases with terms longer than 12 months at December 31, 2018.
The Company had operating and financing leases for vehicles, drilling rigs and equipment outstanding during the year ended December 31, 2019, which were not significant to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
The components of lease costs recognized for the Company's ROU leases are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Short-term lease cost (1)
|
|
$
|
9,994
|
|
Financing lease cost
|
|
1,397
|
|
Operating lease cost
|
|
188
|
|
Total lease cost
|
|
$
|
11,579
|
|
___________________
(1)$4.8 million of short-term lease cost was capitalized as part of oil and natural gas properties during the year ended December 31, 2019. Portions of these costs were reimbursed to the Company by other working interest owners.
8. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Oil and natural gas properties
|
|
|
|
Proved
|
$
|
1,484,359
|
|
|
$
|
1,269,091
|
|
Unproved
|
24,603
|
|
|
60,152
|
|
Total oil and natural gas properties
|
1,508,962
|
|
|
1,329,243
|
|
Less accumulated depreciation, depletion and impairment
|
(1,129,622)
|
|
|
(580,132)
|
|
Net oil and natural gas properties capitalized costs
|
379,340
|
|
|
749,111
|
|
|
|
|
|
Land
|
4,400
|
|
|
4,400
|
|
Electrical infrastructure
|
126,482
|
|
|
131,176
|
|
Non-oil and natural gas equipment
|
12,665
|
|
|
13,458
|
|
Buildings and structures
|
77,148
|
|
|
77,148
|
|
Financing Leases
|
2,109
|
|
|
—
|
|
Total
|
222,804
|
|
|
226,182
|
|
Less accumulated depreciation and amortization
|
(34,201)
|
|
|
(25,344)
|
|
Other property, plant and equipment, net
|
188,603
|
|
|
200,838
|
|
Total property, plant and equipment, net
|
$
|
567,943
|
|
|
$
|
949,949
|
|
The average rates used for depreciation and depletion of oil and natural gas properties were $12.28 per Boe in 2019, $10.32 per Boe in 2018 and $7.92 per Boe in 2017.
See Note 9 for discussion of impairment of other property, plant and equipment.
Costs Excluded from Amortization
The following table summarizes the costs, by year incurred, related to unproved properties, which were excluded from oil and natural gas properties subject to amortization at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Cost Incurred
|
|
|
|
|
|
|
|
Total
|
|
2019
|
|
2018
|
|
2017
|
|
2016 and Prior
|
Property acquisition
|
$
|
23,973
|
|
|
$
|
2,653
|
|
|
$
|
2,353
|
|
|
$
|
4,280
|
|
|
$
|
14,687
|
|
Exploration
|
630
|
|
|
10
|
|
|
16
|
|
|
564
|
|
|
40
|
|
Total costs incurred
|
$
|
24,603
|
|
|
$
|
2,663
|
|
|
$
|
2,369
|
|
|
$
|
4,844
|
|
|
$
|
14,727
|
|
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
For leases that do not have existing production that would otherwise extend the lease term, the Company estimates that any associated unproved costs will be evaluated and transferred to the amortization base of the full cost pool within a three to five year period from the original lease date. For leases that are held by production, the Company estimates that any associated unproved costs will be evaluated and transferred to the amortization base of the full cost pool within a 10-year period from the original lease date. In addition, the Company’s internal engineers evaluate all properties on a quarterly basis.
9. Impairment
The Company assesses the need to impair its oil and gas properties during its quarterly full cost pool ceiling limitation calculation. The Company analyzes various property, plant and equipment for impairment when certain triggering events occur by comparing the carrying values of the assets to their estimated fair values. The full cost pool ceiling limitation and estimated fair values of drilling, midstream, and other assets were determined in accordance with the policies discussed in Note 1.
Impairment for the years ended December 31, 2019, 2018 and 2017 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Full cost pool ceiling limitation(1)
|
|
$
|
409,574
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Drilling assets(2)
|
|
—
|
|
|
22
|
|
|
4,019
|
|
|
|
|
|
|
|
|
Midstream assets(3)
|
|
—
|
|
|
4,148
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
409,574
|
|
|
$
|
4,170
|
|
|
$
|
4,019
|
|
____________________
(1) Impairment recorded in the year ended December 31, 2019 largely resulted from a decrease in the trailing twelve-month weighted average SEC prices for oil and natural gas prices in 2019, lower NGL prices, increases in expected operating expenses, and other less significant inputs. See Note 22 for additional discussion of our oil and gas producing properties.
(2) Impairment recorded in the years ended December 31, 2018 and 2017 reflects the write-down of remaining drilling and oilfield services assets classified as held for sale to net realizable value.
(3) Impairment recorded in 2018 reflects the write down of $5.7 million in midstream generator assets classified as held for sale to their net realizable value of $1.6 million.
10. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
Accounts payable and other accrued expenses
|
$
|
29,423
|
|
|
|
$
|
62,733
|
|
Production payable
|
22,530
|
|
|
|
28,253
|
|
Payroll and benefits
|
7,021
|
|
|
|
12,891
|
|
Taxes payable
|
4,988
|
|
|
|
5,350
|
|
Drilling advances
|
514
|
|
|
|
2,031
|
|
Accrued interest
|
461
|
|
|
|
539
|
|
Total accounts payable and accrued expenses
|
$
|
64,937
|
|
|
|
$
|
111,797
|
|
11. Long-Term Debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
Credit facility
|
$
|
57,500
|
|
|
$
|
—
|
|
|
|
|
|
Total debt
|
57,500
|
|
|
—
|
|
Less: current maturities of long-term debt
|
—
|
|
|
—
|
|
Long-term debt
|
$
|
57,500
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Credit Facility. On June 21, 2019, the Company amended and restated its existing $600.0 million reserve-based revolving credit facility. The initial borrowing base of the restated credit facility was $300.0 million, which was reduced to $225.0 million during the semi-annual redetermination concluded in November 2019. The next borrowing base redetermination is scheduled for April 2020. The restatement extended the credit facility maturity date to April 1, 2021 from March 31, 2020. The Company has $57.5 million outstanding under the credit facility at December 31, 2019, and $2.9 million in outstanding letters of credit, which reduce availability under the restated credit facility on a dollar-for-dollar basis.
The interest rate on outstanding borrowings under the restated credit facility was determined by a pricing grid tied to borrowing base utilization of (a) LIBOR plus an applicable margin that varies from 2.00% to 3.00% per annum, or (b) the base rate plus an applicable margin that varies from 1.00% to 2.00% per annum. Interest on base rate borrowings is payable quarterly in arrears and interest on LIBOR borrowings is payable every one, two, three or six months, at the election of the Company. Quarterly, the Company pays commitment fees assessed at annual rates of 0.50% on any available portion of the credit facility. During the year ended December 31, 2019, the weighted average interest rate paid for borrowings outstanding under both the previously outstanding credit facility and the amended and restated credit facility was approximately 4.7%.
The Company has the right to prepay loans under the credit facility at any time without a prepayment penalty, other than customary “breakage” costs with respect to LIBOR loans.
The restated credit facility is secured by (i) first-priority mortgages on at least 85% of the PV-9 valuation of all proved reserves included in the most recently delivered reserve report of the Company, (ii) a first-priority perfected pledge of substantially all of the capital stock owned by each credit party and equity interests in the Royalty Trusts that are owned by a credit party and (iii) a first-priority perfected security interest in substantially all the cash, cash equivalents, deposits, securities and other similar accounts, and other tangible and intangible assets of the credit parties (including but not limited to as-extracted collateral, accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, real property and the proceeds of the foregoing).
The restated facility includes events of default and certain customary affirmative and negative covenants. The Company is required to maintain certain financial covenants including (i) a maximum consolidated total net leverage ratio, measured as of the end of any fiscal quarter, of no greater than 3.50 to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the end of any fiscal quarter, of no less than 2.25 to 1.00. As of December 31, 2019, the Company was in compliance with all applicable covenants and had a consolidated total net leverage ratio of 0.38 and consolidated interest coverage ratio of 37.89.
The credit facility previously outstanding from February 10, 2017 through June 21, 2019 had an initial borrowing base of $425.0 million, which was reduced to $350.0 million during a borrowing base redetermination in October 2018. The previously outstanding credit facility had materially similar terms and covenants to the current amended and restated credit facility, but was secured by first-priority mortgages on at least 95% of the PV-9 valuation of the Company's proved reserves and interest was calculated based on a pricing grid tied to the borrowing base utilization rate of (a) LIBOR plus an applicable margin that varied from 3.00% to 4.00% per annum, or (b) the base rate plus an applicable margin that varied from 2.00% to 3.00% per annum. The Company incurred an immaterial amount of interest expense on the previously outstanding credit facility during the years ended December 31, 2018 and 2017.
Building Note. In February 2018, the Company fully repaid the Building Note in the amount of $36.3 million, which was comprised of an initial principal amount of $35.0 million and $1.3 million in in-kind interest costs that were previously added to the principal. An unamortized premium of $1.2 million was recognized as a gain on extinguishment of debt in the condensed consolidated statement of operations for the year ended December 31, 2018 in connection with the repayment.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
12. Asset Retirement Obligations
The following table presents the balance and activity of the Company’s asset retirement obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
60,064
|
|
|
$
|
77,544
|
|
|
$
|
106,481
|
|
Liability incurred upon acquiring and drilling wells
|
2,771
|
|
|
7,079
|
|
|
1,336
|
|
Revisions in estimated cash flows(1)
|
12,208
|
|
|
870
|
|
|
(28,565)
|
|
Liability settled or disposed in current period(2)
|
(5,379)
|
|
|
(31,967)
|
|
|
(11,308)
|
|
Accretion
|
5,352
|
|
|
6,538
|
|
|
9,600
|
|
Ending balance
|
75,016
|
|
|
60,064
|
|
|
77,544
|
|
Less: current portion
|
22,119
|
|
|
25,393
|
|
|
41,017
|
|
Asset retirement obligations, net of current
|
$
|
52,897
|
|
|
$
|
34,671
|
|
|
$
|
36,527
|
|
____________________
(1) Revisions for the years ended December 31, 2019, 2018 and 2017 relate primarily to changes in estimated well lives due to changes in oil and natural gas prices and changes in plugging cost estimates.
(2) Liability settled or disposed for the year ended December 31, 2018 includes $26.9 million associated with the Permian Properties sold in November 2018.
13. Commitments and Contingencies
Included below is a discussion of the Company's various future commitments and contingencies as of December 31, 2019. The commitments and contingencies under these arrangements are not recorded in the accompanying consolidated balance sheets. At December 31, 2019 the Company's only material commitment in each of the next five years and beyond is its asset retirement obligations. See Note 12 for additional discussions.
Litigation and Claims. As previously disclosed, on May 16, 2016, the Debtors filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Bankruptcy Court confirmed the Plan on September 9, 2016, and the Debtors subsequently emerged from bankruptcy on October 4, 2016.
Pursuant to the Plan, claims against the Company were discharged without recovery in each of the following consolidated cases (the “Cases”):
• In re SandRidge Energy, Inc. Securities Litigation, Case No. 5:12-cv-01341-LRW, USDC, Western District of
Oklahoma; and
• Ivan Nibur, Lawrence Ross, Jase Luna, Matthew Willenbucher, and the Duane & Virginia Lanier Trust v. SandRidge
Mississippian Trust I, et al., Case No. 5:15-cv-00634-SLP, USDC, Western District of Oklahoma
The lead plaintiffs in both In re SandRidge Energy, Inc. Securities Litigation and Lanier Trust assert claims on behalf of themselves and (i) in In re SandRidge Energy, Inc. Securities Litigation, a class of all purchasers of SandRidge common stock from February 24, 2011 and November 8, 2012 under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and (ii) in Lanier Trust, a putative class of purchasers of SandRidge Mississippian Trust I and SandRidge Mississippian Trust II common units between April 7, 2011 and November 8, 2012 under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, both based on allegations that defendants, which include certain former officers of the Company and the SandRidge Mississippian Trust I, made misrepresentations or omissions concerning various topics including the
performance of wells operated by the Company in the Mississippian region.
Discovery in each of the Cases closed on June 19, 2019. Following a hearing on class certification in each of the Cases on September 6, 2019, the court granted class certification in In re SandRidge Energy, Inc. Securities Litigation on September 30, 2019. The motion for class certification in Lanier Trust remains pending.
In each of the Cases, lead plaintiffs seek to recover unspecified damages, interest, costs and expenses incurred in the litigation on behalf of themselves and class members. Although the claims against the Company in each Case have been discharged pursuant to the Plan, the Company remains a nominal defendant in each of the Cases to the extent necessary to allow
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
recovery from applicable insurance policies or proceeds. In addition, the Company owes indemnity obligations and/or the obligation to advance legal fees, to certain former officers who remain as defendants in each action. The Company may also be
contractually obligated to indemnify the SandRidge Mississippian Trust I against losses, claims, damages, liabilities and expenses, including reasonable costs of investigation and attorney’s fees and expenses, arising out of the Cases, and such indemnification is not covered by insurance.
In light of the status of the Cases, and the facts, circumstances and legal theories relating thereto, the Company is not able to determine the likelihood of an outcome in either case or provide an estimate of any reasonably possible loss or range of possible loss related thereto. However, considering the erosion of insurance coverage available to the Company, such losses, if incurred, could be material. The Company has not established any liabilities relating to the Cases and believes that the plaintiffs’ claims are without merit. The Company intends to continue to vigorously defend against the Cases in its capacity as a nominal defendant.
In addition to the matters described above, the Company is involved in various lawsuits, claims and proceedings which are being handled and defended by the Company in the ordinary course of business, none of which is deemed to be individually material at this time. Due to the inherent uncertainty of litigation, however, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our results of operations, financial position or liquidity.
14. Income Taxes
The Company’s income tax (benefit) provision consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
(33)
|
|
|
$
|
(8,719)
|
|
State
|
—
|
|
|
(38)
|
|
|
(30)
|
|
|
—
|
|
|
(71)
|
|
|
(8,749)
|
|
Deferred
|
|
|
|
|
|
Federal
|
—
|
|
|
—
|
|
|
—
|
|
State
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total (benefit) provision
|
$
|
—
|
|
|
$
|
(71)
|
|
|
$
|
(8,749)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the (benefit) provision for income taxes at the statutory federal tax rate to the Company’s actual income tax (benefit) provision is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Computed at federal statutory rate
|
$
|
(94,354)
|
|
|
$
|
(1,921)
|
|
|
$
|
13,409
|
|
State taxes, net of federal benefit
|
(20,500)
|
|
|
119
|
|
|
(284)
|
|
Non-deductible expenses
|
137
|
|
|
849
|
|
|
1,711
|
|
Stock-based compensation
|
602
|
|
|
1,874
|
|
|
1,109
|
|
|
|
|
|
|
|
Discharge of debt and other reorganization related items
|
—
|
|
|
206
|
|
|
1,018
|
|
Return to provision adjustments (1)
|
(6,096)
|
|
|
(1,292)
|
|
|
341,681
|
|
Impact of legislative changes
|
—
|
|
|
—
|
|
|
243,801
|
|
Release of valuation allowance
|
—
|
|
|
—
|
|
|
(8,719)
|
|
Change in valuation allowance
|
120,211
|
|
|
132
|
|
|
(602,452)
|
|
Other
|
—
|
|
|
(38)
|
|
|
(23)
|
|
Total (benefit) provision
|
$
|
—
|
|
|
$
|
(71)
|
|
|
$
|
(8,749)
|
|
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
____________________
(1) The adjustment for the period ended December 31, 2017, primarily related to the Company’s decision to file its 2016 income tax returns using an alternate method than previously estimated with respect to its Chapter 11 related transactions.
Deferred income taxes are provided to reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company’s deferred tax assets have been reduced by a valuation allowance due to a determination made that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence. The Company continues to closely monitor and weigh all available evidence, including both positive and negative, in making its determination whether to maintain a valuation allowance. During the year ended December 31, 2017, the Company reduced the valuation allowance associated with deferred tax assets related to alternative minimum tax ("AMT") credits that became realizable as a result of a special tax election. Accordingly, the Company recorded an income tax benefit of $8.7 million in the year ended December 31, 2017. As a result of the significant weight placed on the Company’s cumulative negative earnings position, the Company continued to maintain the full valuation allowance against its remaining net deferred tax asset at December 31, 2017, December 31, 2018 and December 31, 2019.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Deferred tax liabilities
|
|
|
|
|
Investments(1)
|
$
|
109,289
|
|
|
$
|
112,343
|
|
|
Derivative contracts
|
29
|
|
|
1,128
|
|
|
Total deferred tax liabilities
|
109,318
|
|
|
113,471
|
|
|
Deferred tax assets
|
|
|
|
|
Property, plant and equipment
|
300,704
|
|
|
267,865
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
383,418
|
|
|
302,190
|
|
|
|
|
|
|
|
Tax credits and other carryforwards
|
34,148
|
|
|
35,640
|
|
|
Asset retirement obligations
|
18,747
|
|
|
15,016
|
|
|
Other
|
2,290
|
|
|
3,816
|
|
|
Total deferred tax assets
|
739,307
|
|
|
624,527
|
|
|
Valuation allowance
|
(629,989)
|
|
|
(511,056)
|
|
|
Net deferred tax liability
|
$
|
—
|
|
|
$
|
—
|
|
|
____________________
(1) Includes the Company’s deferred tax liability resulting from its investment in the Royalty Trusts.
The "Tax Cuts and Jobs Act" (the "TCJA") enacted in December 2017 includes significant changes to the taxation of business entities, most of which are effective for taxable years beginning after December 31, 2017. These changes include, among others, a permanent reduction to the corporate income tax rate from a maximum 35% to a flat 21% rate, expansion of expensing capital expenditures for a period of time, new limitations on the utilization of net operating losses ("NOLs"), and limitations on the deduction of interest expense and executive compensation. Based on our analysis of the TCJA and guidance currently available we recorded income tax expense of approximately $243.8 million in the period ended December 31, 2017, which was completely offset by a decrease in the corresponding valuation allowance. The provisional amount primarily related to the remeasurement of our gross deferred tax assets and liabilities existing at December 31, 2017 at the appropriate tax rate expected to exist at the time of their reversal. We completed our analysis of the impact of the TCJA and recorded an immaterial adjustment to income tax expense in the year ended December 31, 2018, which was completely offset by an increase in the corresponding valuation allowance.
Internal Revenue Code (“IRC”) Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. As a result of the Chapter 11 reorganization and related transactions, the Company experienced an ownership change within the meaning of IRC Section 382 during 2016 that subjected certain of the Company’s tax attributes, including net operating losses ("NOLs"), to an IRC Section 382 limitation. This limitation has not resulted in cash taxes for any period subsequent to the ownership change. Since the 2016 ownership change, the Company has generated additional NOLs and other tax attributes that are not currently subject to an IRC Section 382 limitation. The Company's ability to use NOLs and other tax attributes to reduce taxable income and income taxes could be materially impacted by a future IRC 382 ownership change. Future transactions involving the
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Company's stock including those outside of the Company's control could cause an IRC 382 ownership change resulting in a limitation on tax attributes currently not limited and a more restrictive limitation on tax attributes currently subject to the previous IRC 382 limitation.
As of December 31, 2019, the Company had approximately $1.4 billion of federal NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $1.4 billion of federal NOL carryforwards, $0.8 billion expire during the years 2025 through 2037, while $0.6 billion do not have an expiration date. Additionally, the Company had federal tax credits in excess of $32.0 million which begin expiring in 2029.
The Company did not have unrecognized tax benefits at December 31, 2019 or 2018.
The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2016 to present remain open for federal examination. Additionally, tax years 2005 through 2015 remain subject to examination for the purpose of determining the amount of federal NOL and other carryforwards. The number of years open for state tax audits varies, depending on the state, but is generally from three to five years.
15. Equity
Common Stock and Performance Share Units. At December 31, 2019, the Company had 35.8 million shares of common stock, par value $0.001 per share, issued and outstanding, including 0.2 million shares of unvested restricted stock awards, and 250.0 million shares of common stock authorized. The Company also had restricted stock awards and an immaterial amount of performance share units and stock options outstanding at December 31, 2019 as discussed further in Note 17.
Warrants. Since the fourth quarter of 2016, the Company has issued approximately 4.7 million Series A warrants and 2.0 million Series B warrants to certain holders of general unsecured claims as defined in the Plan. These warrants are exercisable until October 4, 2022 for one share of common stock per warrant at initial exercise prices of $41.34 and $42.03 per share, respectively, subject to adjustments pursuant to the terms of the warrants. The warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions.
Shares Withheld for Taxes. The following table shows the number of shares withheld for taxes and the associated value of those shares (in thousands). These shares were accounted for as treasury stock when withheld, and then immediately retired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Number of shares withheld for taxes
|
|
56
|
|
495
|
|
349
|
Value of shares withheld for taxes
|
|
$
|
367
|
|
|
$
|
7,420
|
|
|
$
|
6,730
|
|
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
16. Revenues
The Company adopted ASC 606 on January 1, 2018, using the modified retrospective method for all contracts outstanding on that date. Adoption of ASC 606 had no impact on the Company’s consolidated balance sheet, results of operations, equity or cash flows as of the adoption date.
The following table disaggregates the Company’s revenue by source for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
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. A majority of the Company’s revenues come from sales of oil, natural gas and NGLs. In accordance with the contracts governing these sales, performance obligations to customers are satisfied and revenues are recorded at a point in time when control of the oil, natural gas and NGL production passes to the customer at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck. As the Company’s customers obtain control of the production prior to selling it to other end customers, the Company presents its revenues on a net basis, rather than on a gross basis.
Pricing for the Company’s oil, natural gas and NGL contracts is variable and is based on volumes sold multiplied by either an index price, net of deductions, or a percentage of the sales price obtained by the customer, which is also based on index prices. The transaction price is allocated on a pro-rata basis to each unit of oil, natural gas or NGL sold based on the terms of the contract. Oil, natural gas and NGL revenues are also recorded net of royalties, discounts and allowances, and transportation costs, as applicable. Taxes assessed by governmental authorities on oil, natural gas and NGL sales are presented separately from revenues and are included in production, ad valorem, and other taxes expense in the consolidated statements of operations.
Revenues Receivable. The Company records an asset in accounts receivable, net on its consolidated balance sheet for revenues receivable from contracts with customers at the end of each period. Pricing for revenues receivable is estimated using current month crude oil, natural gas and NGL prices, net of deductions. Revenues receivable are typically collected the month after the Company delivers the related production to its customers. As of December 31, 2019 and 2018 the Company had revenues receivable of $22.3 million and $31.8 million, respectively, and did not record any bad debt expense on revenues receivable during the year ended December 31, 2019.
17. Share-Based Compensation
Share-Based Compensation
Omnibus Incentive Plan. The Omnibus Incentive Plan became effective on October 4, 2016 and authorizes the issuance of up to 4.6 million shares of SandRidge common stock.
Persons eligible to receive awards under the Omnibus Incentive Plan include non-employee directors of the Company, employees of the Company or any of its affiliates, and certain consultants and advisors to the Company or any of its affiliates. The types of awards that may be granted under the Omnibus Incentive Plan include stock options, restricted stock, performance awards and other forms of awards granted or denominated in shares of common stock, as well as certain cash-based awards. At December 31, 2019, the Company had restricted stock awards and immaterial amounts of performance share units and stock options outstanding under the Omnibus Incentive Plan. Forfeitures for these awards are recognized as they occur.
Restricted Stock Awards. The Company’s restricted stock awards are equity-classified awards and are valued based upon the market value of the Company’s common stock on the date of grant. Vesting for certain restricted stock awards was accelerated in connection with executive terminations and reductions in force in the first quarter of 2018 and second quarter of
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
2019. Additionally, certain restricted stock awards vested in June 2018 as a result of the accelerated vesting event related to the change in the composition of the Board resulting from the 2018 annual meeting discussed in Note 19. The Company granted additional restricted stock awards in the second half of 2018. Outstanding restricted shares at December 31, 2019 will generally vest over either a one-year period or three-year period with a remaining weighted average contractual period of 1.3 years and have an insignificant amount of associated unrecognized compensation cost.
The following table presents a summary of the Company’s unvested restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
|
(In thousands)
|
|
|
Unvested restricted shares outstanding at December 31, 2016
|
1,407
|
|
|
$
|
24.32
|
|
Granted
|
671
|
|
|
$
|
19.97
|
|
Vested
|
(827)
|
|
|
$
|
23.23
|
|
Forfeited / Canceled
|
(146)
|
|
|
$
|
23.52
|
|
Unvested restricted shares outstanding at December 31, 2017
|
1,105
|
|
|
$
|
22.62
|
|
Granted
|
370
|
|
|
$
|
16.00
|
|
Vested
|
(1,066)
|
|
|
$
|
22.63
|
|
Forfeited / Canceled
|
(44)
|
|
|
$
|
21.04
|
|
Unvested restricted shares outstanding at December 31, 2018
|
365
|
|
|
$
|
16.07
|
|
Granted
|
93
|
|
|
$
|
8.06
|
|
Vested (1)
|
(210)
|
|
|
$
|
16.29
|
|
Forfeited / Canceled
|
(15)
|
|
|
$
|
16.25
|
|
Unvested restricted shares outstanding at December 31, 2019
|
233
|
|
|
$
|
12.66
|
|
____________________
(1) The aggregate intrinsic value of restricted stock that vested during 2019 was approximately $1.5 million based on the stock price at the time of vesting.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Performance Share Units. In February 2017, the Company granted equity-classified awards in the form of performance share units. The vesting for certain performance share units was accelerated in connection with executive terminations and a reduction in force in the first quarter of 2018. All remaining units vested in June 2018 as a result of the accelerated vesting as discussed in Note 19 and were settled in shares of the Company's common stock with one share of common stock being issued per performance share unit. In September 2018, the Company granted an immaterial amount of additional performance share units. The following table presents a summary of the Company's performance share units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Units
|
|
Fair Value per Unit at December 31, 2019
|
|
|
(In thousands)
|
|
|
Unvested performance share units outstanding at December 31, 2016
|
|
—
|
|
|
|
Granted
|
|
199
|
|
|
|
Vested
|
|
—
|
|
|
|
Forfeited / Canceled
|
|
(16)
|
|
|
|
Unvested performance share units outstanding at December 31, 2017
|
|
183
|
|
|
|
Granted
|
|
111
|
|
|
|
Vested
|
|
(177)
|
|
|
|
Forfeited / Canceled
|
|
(6)
|
|
|
|
Unvested performance share units outstanding at December 31, 2018
|
|
111
|
|
|
|
|
Granted
|
|
—
|
|
|
|
Vested
|
|
(19)
|
|
|
|
Forfeited / Canceled
|
|
—
|
|
|
|
Unvested performance share units outstanding at December 31, 2019
|
|
92
|
|
|
$
|
20.41
|
|
Incentive-Based Compensation
Performance Units. In October 2016, the Company granted liability-classified awards in the form of performance units. The vesting for certain performance units was accelerated in connection with executive terminations and a reduction in force in the first quarter of 2018. All remaining units vested in June 2018 as a result of the accelerated vesting as discussed in Note 19 and were paid at the issuance value of $100 each. The value for previous vestings was determined by annual scorecard results. The following table presents a summary of the Company's performance units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Units
|
|
Fair Value per Unit at December 31, 2018
|
|
|
(In thousands)
|
|
|
Unvested performance units outstanding at December 31, 2016
|
|
87
|
|
|
|
Granted
|
|
—
|
|
|
|
Vested
|
|
(32)
|
|
|
|
Forfeited / Canceled
|
|
(6)
|
|
|
|
Unvested performance units outstanding at December 31, 2017
|
|
49
|
|
|
|
Granted
|
|
—
|
|
|
|
Vested
|
|
(48)
|
|
|
|
Forfeited / Canceled
|
|
(1)
|
|
|
|
Unvested performance units outstanding at December 31, 2018
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
The following tables summarize the Company's share and incentive-based compensation for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Compensation Expense(1)
|
|
Executive Terminations(2)
|
|
Reduction in Force(2)
|
|
Accelerated Vesting(3)
|
|
Total
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Equity-classified awards:
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
$
|
2,526
|
|
|
$
|
197
|
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
3,223
|
|
Performance share units
|
|
282
|
|
|
|
281
|
|
|
|
—
|
|
|
|
—
|
|
|
|
563
|
|
Stock options
|
|
661
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
673
|
|
Total share-based compensation expense
|
|
3,469
|
|
|
|
490
|
|
|
|
500
|
|
|
|
—
|
|
|
|
4,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Capitalized compensation expense
|
|
(204)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(204)
|
|
Share and incentive-based compensation expense, net
|
|
$
|
3,265
|
|
|
|
$
|
490
|
|
|
|
$
|
500
|
|
|
|
$
|
—
|
|
|
|
$
|
4,255
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Equity-classified awards:
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
$
|
4,735
|
|
|
$
|
8,140
|
|
|
$
|
3,777
|
|
|
$
|
5,181
|
|
|
$
|
21,833
|
|
Performance share units
|
|
619
|
|
|
|
1,056
|
|
|
|
158
|
|
|
|
610
|
|
|
|
2,443
|
|
Total share-based compensation expense
|
|
5,354
|
|
|
|
9,196
|
|
|
|
3,935
|
|
|
|
5,791
|
|
|
|
24,276
|
|
Liability-classified awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance units
|
|
756
|
|
|
|
2,151
|
|
|
|
558
|
|
|
|
1,309
|
|
|
|
4,774
|
|
Total share and incentive-based compensation expense
|
|
6,110
|
|
|
|
11,347
|
|
|
|
4,493
|
|
|
|
7,100
|
|
|
|
29,050
|
|
Less: Capitalized compensation expense
|
|
(482)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(555)
|
|
|
|
(1,037)
|
|
Share and incentive-based compensation expense, net
|
|
$
|
5,628
|
|
|
|
$
|
11,347
|
|
|
|
$
|
4,493
|
|
|
|
$
|
6,545
|
|
|
|
$
|
28,013
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Equity-classified awards:
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
$
|
14,731
|
|
|
$
|
1,825
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,556
|
|
Performance share units
|
|
1,356
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,356
|
|
Total share-based compensation expense
|
|
16,087
|
|
|
|
1,825
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,912
|
|
Liability-classified awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance units
|
|
2,574
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,574
|
|
Total share and incentive-based compensation expense
|
|
18,661
|
|
|
|
1,825
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,486
|
|
Less: Capitalized compensation expense
|
|
(2,521)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,521)
|
|
Share and incentive-based compensation expense, net
|
|
$
|
16,140
|
|
|
|
$
|
1,825
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
17,965
|
|
____________________
(1)Recorded in general and administrative expense in the accompanying consolidated statements of operations.
(2)Recorded in employee termination benefits in the accompanying consolidated statements of operations.
(3)Recorded in accelerated vesting of employment compensation in the accompanying consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
18. Incentive and Deferred Compensation Plans
Annual Incentive Plan. The Annual Incentive Plan ("AIP") incorporates quantitative performance measures, strategic qualitative goals and competitive target award levels for management and employees for the 2018 and 2017 performance years. Incentive bonus awards for 2019 will be provided at the discretion of the Board of Directors and will be paid quarterly during 2020. Payout percentages ranged from 0% to 200% of specified target levels based on actual performance in 2018 and 2017. As of December 31, 2019, the Company had accrued approximately $2.7 million for the 2019 AIP. Payment of $7.1 million was made in the first quarter of 2019 for the 2018 performance year.
401(k) Plan. The Company maintains a 401(k) retirement plan for its employees. Under this plan, eligible employees may elect to defer a portion of their earnings up to the maximum allowed by IRS. For the years ended December 31, 2019, 2018, and 2017, the Company made matching contributions to the plan equal to 100% on the first 10% of employee deferred wages, excluding incentive compensation, totaling $2.2 million, $2.8 million, and $3.6 million, respectively. The decrease in contributions is due primarily to reductions in force that occurred in each of those years. Participants in the plan are immediately 100% vested in the discretionary employee contributions and related earnings on those contributions. The Company's matching contributions and related earnings vest based on years of service, with full vesting occurring on the fourth anniversary of employment.
19. Proxy Contest
In the second quarter of 2018, the Company engaged in a proxy contest with its largest shareholder, Carl C. Icahn and certain affiliated entities, which resulted in the election of a majority of non-incumbent directors to the Company's Board of Directors. As confirmed by general counsel, the election of a majority of non-incumbent directors nominated in connection with the proxy contest resulted in the accelerated vesting of certain share and incentive-based compensation awards granted to the Company's employees and directors as discussed further in Note 17.
The Company incurred legal, consulting and advisory fees of $7.1 million related to the proxy contest during the year ended December 31, 2018.
20. Employee Termination Benefits
The following table presents a summary of employee termination benefits for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Share-Based Compensation (6)
|
|
Number of Shares
|
|
Total Employee Termination Benefits
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
Executive Employee Termination Benefits(1)
|
|
$
|
1,194
|
|
|
$
|
490
|
|
|
37
|
|
|
$
|
1,684
|
|
Other Employee Termination Benefits(2)
|
|
2,608
|
|
|
500
|
|
|
44
|
|
|
3,108
|
|
|
|
$
|
3,802
|
|
|
$
|
990
|
|
|
81
|
|
|
$
|
4,792
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
Executive Employee Termination Benefits(3)
|
|
$
|
11,945
|
|
|
$
|
9,196
|
|
|
554
|
|
|
$
|
21,141
|
|
Other Employee Termination Benefits(4)
|
|
7,581
|
|
|
3,935
|
|
|
209
|
|
|
11,516
|
|
|
|
$
|
19,526
|
|
|
$
|
13,131
|
|
|
763
|
|
|
$
|
32,657
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
Executive Employee Termination Benefits(5)
|
|
$
|
2,500
|
|
|
$
|
1,825
|
|
|
96
|
|
|
$
|
4,325
|
|
Other Employee Termination Benefits
|
|
490
|
|
|
—
|
|
|
—
|
|
|
490
|
|
|
|
$
|
2,990
|
|
|
$
|
1,825
|
|
|
96
|
|
|
$
|
4,815
|
|
____________________
(1) On December 12, 2019, the Company's then current CEO, Paul McKinney, separated employment from the Company, and on June 14, 2019, the Company’s then current Executive Vice President, General Counsel and Corporate
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Secretary, Philip Warman, separated employment from the Company. As a result, the Company paid cash severance costs and incurred share-based compensation costs associated with these separations during 2019.
(2) As a result of a reduction in workforce in the second quarter of 2019, certain employees received termination benefits including cash severance and accelerated share-based compensation upon separation of service from the Company.
(3) On February 8, 2018, the Company’s then current CEO, James Bennett, separated employment from the Company, and on February 22, 2018, the Company’s then current CFO, Julian Bott, also separated employment from the Company. In accordance with the terms of their respective employment agreements, the Company incurred cash severance costs and share-based compensation costs associated with the accelerated vesting of awards during the first quarter of 2018.
(4) As a result of a reduction in workforce in the first quarter of 2018, certain employees received termination benefits including cash severance and accelerated share and incentive-based compensation vesting upon separation of service from the Company.
(5) Includes cash severance costs and share-based compensation costs associated with the accelerated vesting of awards related to the departure of the Company's former Executive Vice President of Investor Relations and Strategy, Duane Grubert.
(6) Share-based compensation recognized in connection with the accelerated vesting of restricted stock awards and performance share units upon the departure of certain executives and the reductions in workforce in 2019 and 2018 reflects the remaining unrecognized compensation expense associated with these awards at the date of termination. The unrecognized compensation expense was calculated using the grant date fair value for restricted stock awards and performance share units. One share of the Company’s common stock was issued per performance share unit.
See Note 17 for additional discussion of the Company’s share-based compensation awards.
21. (Loss) Earnings per Share
The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
|
Weighted Average Shares
|
|
|
(Loss) Earnings Per Share
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
Basic loss per share
|
$
|
(449,305)
|
|
|
35,427
|
|
|
$
|
(12.68)
|
|
Effect of dilutive securities
|
|
|
|
|
|
Restricted stock awards(1)
|
—
|
|
|
—
|
|
|
|
Performance share units(1)
|
—
|
|
|
—
|
|
|
|
Warrants(1)
|
—
|
|
|
—
|
|
|
|
Diluted loss per share
|
$
|
(449,305)
|
|
|
35,427
|
|
|
$
|
(12.68)
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
Basic loss per share
|
$
|
(9,075)
|
|
|
35,057
|
|
|
$
|
(0.26)
|
|
Effect of dilutive securities
|
|
|
|
|
|
Restricted stock awards(1)
|
—
|
|
|
—
|
|
|
|
Performance share units(1)
|
—
|
|
|
—
|
|
|
|
Warrants(1)
|
—
|
|
|
—
|
|
|
|
Diluted loss per share
|
$
|
(9,075)
|
|
|
35,057
|
|
|
$
|
(0.26)
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
47,062
|
|
|
32,442
|
|
|
$
|
1.45
|
|
Effect of dilutive securities
|
|
|
|
|
|
Restricted stock awards
|
—
|
|
|
221
|
|
|
|
Performance share units(2)
|
—
|
|
|
—
|
|
|
|
Warrants(2)
|
—
|
|
|
—
|
|
|
|
Diluted earnings per share
|
$
|
47,062
|
|
|
32,663
|
|
|
$
|
1.44
|
|
____________________
(1) No incremental shares of potentially dilutive restricted stock awards, performance share units or warrants were included for the year ended December 31, 2019 and 2018, as their effect was antidilutive under the treasury stock method.
(2) No incremental shares of potentially dilutive performance share units or warrants were included for the year ended December 31, 2017, as their effect was antidilutive under the treasury stock method.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
See Note 17 for discussion of the Company’s share-based compensation awards.
22. Supplemental Information on Oil and Natural Gas Producing Activities (Unaudited)
The supplemental information below includes capitalized costs related to oil and natural gas producing activities; costs incurred in oil and natural gas property acquisition, exploration and development; and the results of operations for oil and natural gas producing activities. Supplemental information is also provided for oil, natural gas and NGL production and average sales prices; the estimated quantities of proved oil, natural gas and NGL reserves; the standardized measure of discounted future net cash flows associated with proved oil, natural gas and NGL reserves; and a summary of the changes in the standardized measure of discounted future net cash flows associated with proved oil, natural gas and NGL reserves.
Capitalized Costs Related to Oil and Natural Gas Producing Activities
The Company’s capitalized costs for oil and natural gas activities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Oil and natural gas properties
|
|
|
|
|
|
Proved
|
$
|
1,484,359
|
|
|
$
|
1,269,091
|
|
|
$
|
1,056,806
|
|
Unproved
|
24,603
|
|
|
60,152
|
|
|
100,884
|
|
Total oil and natural gas properties
|
1,508,962
|
|
|
1,329,243
|
|
|
1,157,690
|
|
Less accumulated depreciation, depletion and impairment
|
(1,129,622)
|
|
|
(580,132)
|
|
|
(460,431)
|
|
Net oil and natural gas properties capitalized costs
|
$
|
379,340
|
|
|
$
|
749,111
|
|
|
$
|
697,259
|
|
Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development
Costs incurred in oil and natural gas property acquisition, exploration and development activities which have been capitalized are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Acquisitions of properties
|
|
|
|
|
|
Proved
|
$
|
(210)
|
|
|
$
|
30,641
|
|
|
$
|
7,092
|
|
Unproved
|
2,653
|
|
|
4,197
|
|
|
91,139
|
|
Exploration
|
2,900
|
|
|
1,940
|
|
|
8,850
|
|
Development
|
156,210
|
|
|
158,361
|
|
|
187,264
|
|
Total cost incurred
|
$
|
161,553
|
|
|
$
|
195,139
|
|
|
$
|
294,345
|
|
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
Results of Operations for Oil and Natural Gas Producing Activities
The following table presents the Company’s results of operations from oil and natural gas producing activities (in thousands), which exclude any interest costs or indirect general and administrative costs and, therefore, are not necessarily indicative of the impact the Company’s operations have on actual net earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Revenues
|
$
|
266,104
|
|
|
$
|
348,726
|
|
|
$
|
356,210
|
|
Expenses
|
|
|
|
|
|
Production costs
|
110,711
|
|
|
112,173
|
|
|
116,372
|
|
Depreciation and depletion
|
146,874
|
|
|
127,281
|
|
|
118,035
|
|
Impairment
|
409,574
|
|
|
—
|
|
|
—
|
|
Total expenses
|
667,159
|
|
|
239,454
|
|
|
234,407
|
|
Income (loss) before income taxes
|
(401,055)
|
|
|
109,272
|
|
|
121,803
|
|
Income tax (benefit) expense (1)
|
(105,477)
|
|
|
28,520
|
|
|
47,722
|
|
Results of operations for oil and natural gas producing activities (excluding corporate overhead and interest costs)
|
$
|
(295,578)
|
|
|
$
|
80,752
|
|
|
$
|
74,081
|
|
____________________
(1) Income tax (benefit) expense is hypothetical and is calculated by applying the Company’s statutory tax rate to (loss) income before income taxes attributable to our oil and natural gas producing activities, after giving effect to permanent differences and tax credits.
Oil, Natural Gas and NGL Reserve Quantities
Proved oil, natural gas and NGL reserves are those quantities, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, based on oil, natural gas and NGL prices used to estimate reserves, from a given date forward from known reservoirs, and under existing economic conditions, operating methods, and government regulation prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.
The term “reasonable certainty” implies a high degree of confidence that the quantities of oil, natural gas and NGLs actually recovered will equal or exceed the estimate. To achieve reasonable certainty, the Company’s engineers and independent petroleum consultants relied on technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used to estimate the Company’s proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests. The accuracy of the reserve estimates is dependent on many factors, including the following:
•the quality and quantity of available data and the engineering and geological interpretation of that data;
•estimates regarding the amount and timing of future costs, which could vary considerably from actual costs;
•the accuracy of mandated economic assumptions; and
•the judgment of the personnel preparing the estimates.
Proved developed reserves are proved reserves expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well. Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively large major expenditure is required for recompletion.
The following table represents the Company’s estimate of proved oil, natural gas and NGL reserves attributable to the Company’s net interest in oil and natural gas properties, all of which are located in the continental United States, based upon the evaluation by the Company and its independent petroleum engineers of pertinent geoscience and engineering data in accordance with the SEC’s regulations. Over 90% of the Company’s proved reserves estimates have been prepared by independent reservoir engineers and geoscience professionals and are reviewed by members of the Company’s senior management with
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
professional training in petroleum engineering to ensure that the Company consistently applies rigorous professional standards and the reserve definitions prescribed by the SEC.
Cawley, Gillespie & Associates, Ryder Scott and Netherland Sewell, independent oil and natural gas consultants, prepared the estimates of proved reserves of oil, natural gas and NGLs for over 90% of the Company’s net interest in oil and natural gas properties as of the end of one or more of 2019, 2018 and 2017. Cawley, Gillespie & Associates, Ryder Scott and Netherland Sewell are independent petroleum engineers, geologists, geophysicists and petrophysicists and do not own an interest in the Company or its properties and are not employed on a contingent basis. The remaining proved reserves were based on Company estimates.
The Company believes the geoscience and engineering data examined provides reasonable assurance that the proved reserves are economically producible in future years from known reservoirs, and under existing economic conditions, operating methods and governmental regulations. Estimates of proved reserves are subject to change, either positively or negatively, as additional information is available and contractual and economic conditions change.
2019 Activity. Proved reserves decreased from 160.2 MMBoe at December 31, 2018 to 89.9 MMBoe at December 31, 2019, primarily as a result of downward revisions of 50.9 MMBoe associated with the decrease in year-end SEC prices for oil and natural gas consisting of (i) 39.8 MMBoe from downgrading PUDs, and (ii) 11.1 MMBoe from remaining proved reserves. The Company also recorded a decrease of 10.9 MMBoe attributable to increased commodity price differentials, and a decrease of 3.2 MMBoe attributable to well performance. These reductions were partially offset by a 12.6 MMBoe increase associated with converting undeveloped well locations from SRLs to planned XRLs as well as reduced future estimated development capital on these undeveloped locations.
2018 Activity. Proved reserves decreased from 177.6 MMBoe at December 31, 2017 to 160.2 MMBoe at December 31, 2018, primarily as a result of a one-time adjustment to future workover costs in the Company's Mississippian Lime wells. As its large population of Mississippian Lime wells transition into late-life mature production, the Company has experienced increasing operating costs which have been incorporated into its 2018 reserve report. This estimate of future costs contributed to a 24.9 MMBoe decrease associated with shorter economic lives. The Company also recorded a decrease of 8.3 MMBoe attributable to well performance and a decrease of 6.6 MMBoe due to divestitures of proved reserves. These reductions were partially offset by the acquisition of 15.4 MMBoe associated with the purchase of interests in Mid-Continent wells, extensions and discoveries of 19.3 MMBoe from successful drilling in the North Park Basin and to a lesser extent the NW STACK play in the Mid-Continent, as well as recording proved undeveloped reserves at an increased well density in the North Park Basin.
2017 Activity. During 2017, the Company recorded extensions and discoveries of 19.4 MMBoe, primarily from successful drilling in its NW STACK play in the Mid-Continent area and its North Park Basin properties, sold 1.9 MMBoe of proved reserves, and recorded upward revisions of 10.9 MMBoe, primarily as a result of significantly higher commodity prices in 2017 and minor revisions due to well performance.
|
|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
The summary below presents changes in the Company’s estimated reserves.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
NGL
|
|
Natural Gas
|
|
Total
|
|
(MBbls)
|
|
(MBbls)
|
|
(MMcf)(1)
|
|
MBoe
|
Proved developed and undeveloped reserves
|
|
|
|
|
|
|
|
As of December 31, 2016
|
52,884
|
|
|
33,607
|
|
|
464,782
|
|
|
163,955
|
|
Revisions of previous estimates
|
804
|
|
|
2,628
|
|
|
44,679
|
|
|
10,879
|
|
Acquisitions of new reserves
|
18
|
|
|
70
|
|
|
683
|
|
|
202
|
|
Extensions and discoveries
|
12,446
|
|
|
1,914
|
|
|
30,080
|
|
|
19,373
|
|
Sales of reserves in place
|
(204)
|
|
|
(529)
|
|
|
(7,055)
|
|
|
(1,909)
|
|
Production
|
(4,157)
|
|
|
(3,376)
|
|
|
(44,237)
|
|
|
(14,906)
|
|
As of December 31, 2017
|
61,791
|
|
|
34,314
|
|
|
488,932
|
|
|
177,594
|
|
Revisions of previous estimates
|
(2,316)
|
|
|
(8,952)
|
|
|
(131,518)
|
|
|
(33,188)
|
|
Acquisitions of new reserves
|
2,146
|
|
|
4,131
|
|
|
54,436
|
|
|
15,350
|
|
Extensions and discoveries
|
11,148
|
|
|
2,320
|
|
|
35,185
|
|
|
19,332
|
|
Sales of reserves in place
|
(5,273)
|
|
|
(809)
|
|
|
(2,969)
|
|
|
(6,577)
|
|
Production
|
(3,477)
|
|
|
(2,829)
|
|
|
(36,175)
|
|
|
(12,335)
|
|
As of December 31, 2018
|
64,019
|
|
|
28,175
|
|
|
407,891
|
|
|
160,176
|
|
Revisions of previous estimates
|
(25,530)
|
|
|
(9,277)
|
|
|
(142,239)
|
|
|
(58,514)
|
|
|
|
|
|
|
|
|
|
Extensions and discoveries
|
635
|
|
|
94
|
|
|
2,127
|
|
|
1,084
|
|
Sales of reserves in place
|
(297)
|
|
|
(223)
|
|
|
(2,308)
|
|
|
(905)
|
|
Production
|
(3,519)
|
|
|
(2,910)
|
|
|
(33,164)
|
|
|
(11,956)
|
|
As of December 31, 2019
|
35,308
|
|
|
15,859
|
|
|
232,307
|
|
|
89,885
|
|
Proved developed reserves
|
|
|
|
|
|
|
|
As of December 31, 2017
|
25,845
|
|
|
29,922
|
|
|
407,988
|
|
|
123,765
|
|
As of December 31, 2018
|
18,693
|
|
|
22,302
|
|
|
307,845
|
|
|
92,303
|
|
As of December 31, 2019
|
14,078
|
|
|
14,532
|
|
|
200,853
|
|
|
62,086
|
|
Proved undeveloped reserves
|
|
|
|
|
|
|
|
As of December 31, 2017
|
35,946
|
|
|
4,392
|
|
|
80,944
|
|
|
53,829
|
|
As of December 31, 2018
|
45,326
|
|
|
5,873
|
|
|
100,046
|
|
|
67,873
|
|
As of December 31, 2019
|
21,230
|
|
|
1,327
|
|
|
31,454
|
|
|
27,799
|
|
_________________
(1) Natural gas reserves are computed at 14.65 pounds per square inch absolute and 60 degrees Fahrenheit.
Standardized Measure of Discounted Future Net Cash Flows (Unaudited)
The standardized measure of discounted cash flows and summary of the changes in the standardized measure computation from year to year are prepared in accordance with ASC Topic 932, Extractive Activities—Oil and Gas, ("ASC Topic 932"). The assumptions underlying the computation of the standardized measure of discounted cash flows may be summarized as follows:
•the standardized measure includes the Company’s estimate of proved oil, natural gas and NGL reserves and projected future production volumes based upon economic conditions;
•pricing is applied based upon SEC prices at December 31, 2019, 2018, and 2017 adjusted for fixed or determinable contracts that are in existence at year-end. The calculated weighted average per unit prices for the Company’s proved reserves and future net revenues were as follows:
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At December 31,
|
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2019
|
|
2018
|
|
2017
|
Oil (per Bbl)
|
$
|
50.63
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|
|
$
|
60.86
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|
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$
|
48.47
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|
NGL (per Bbl)
|
$
|
12.45
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|
|
$
|
25.62
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|
|
$
|
20.28
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Natural gas (per Mcf)
|
$
|
1.16
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|
|
$
|
1.77
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|
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$
|
1.90
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|
|
|
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|
|
|
|
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|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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•future development and production costs are determined based upon actual cost at year-end;
•the standardized measure includes projections of future abandonment costs based upon actual costs at year-end; and
•a discount factor of 10% per year is applied annually to the future net cash flows.
The summary below presents the Company’s future net cash flows relating to proved oil, natural gas and NGL reserves based on the standardized measure in ASC Topic 932 (in thousands).
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December 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Future cash inflows from production
|
$
|
2,254,530
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|
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$
|
5,339,265
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|
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$
|
4,621,615
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Future production costs
|
(1,028,695)
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|
|
(1,996,689)
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|
|
(1,837,852)
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Future development costs(1)
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(536,081)
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|
|
(1,170,113)
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|
|
(966,203)
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Future income tax expenses (2)
|
—
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|
—
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|
|
(107)
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|
Undiscounted future net cash flows
|
689,754
|
|
|
2,172,463
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1,817,453
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10% annual discount
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(325,464)
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|
|
(1,126,860)
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(1,068,159)
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Standardized measure of discounted future net cash flows
|
$
|
364,290
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$
|
1,045,603
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$
|
749,294
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____________________
(1) Includes abandonment costs.
(2) The future income tax expenses have been computed using statutory tax rates, giving effect to allowable tax deductions and tax credits under current laws, including expected tax benefits to be realized from the utilization of net operating loss carryforwards.
The following table represents the Company’s estimate of changes in the standardized measure of discounted future net cash flows from proved reserves (in thousands):
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|
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Year Ended December 31,
|
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2019
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2018
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2017
|
Beginning present value
|
$
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1,045,603
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|
$
|
749,294
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|
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$
|
438,364
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Changes during the year
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|
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Revenues less production
|
(155,772)
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|
(236,553)
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(239,838)
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Net changes in prices, production and other costs
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(491,035)
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|
316,095
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347,458
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Development costs incurred
|
90,591
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|
80,050
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|
35,517
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Net changes in future development costs(1)
|
450,162
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(11,483)
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(64,484)
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Extensions and discoveries
|
11,921
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|
|
102,961
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|
|
112,556
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Revisions of previous quantity estimates(1)
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(478,238)
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|
|
(91,038)
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|
|
26,697
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Accretion of discount
|
101,778
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|
|
70,576
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|
|
37,226
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|
Net change in income taxes
|
—
|
|
|
56
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|
|
23
|
|
Purchases of reserves in-place
|
—
|
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|
35,713
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|
454
|
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Sales of reserves in-place
|
(3,331)
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|
|
(2,029)
|
|
|
(2,977)
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Timing differences and other(2)
|
(207,389)
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|
|
31,961
|
|
|
58,298
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Net change for the year
|
(681,313)
|
|
|
296,309
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|
|
310,930
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Ending present value(3)
|
$
|
364,290
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|
|
$
|
1,045,603
|
|
|
$
|
749,294
|
|
____________________
(1) The change in estimated future development costs and revisions of previous quantity estimates primarily reflect a decrease in planned PUD development due to declining year end SEC prices for oil and natural gas.
(2) The change in timing differences and other are related to revisions in the Company’s estimated time of production and development.
(3) Standardized Measure was determined using SEC prices, and does not reflect actual prices received or current market prices.
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SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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23. Quarterly Financial Results (Unaudited)
The Company’s operating results for each quarter of 2019 and 2018 are summarized below (in thousands, except per share data).
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|
|
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First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
2019
|
|
|
|
|
|
|
|
Total revenues
|
$
|
73,236
|
|
|
$
|
75,388
|
|
|
$
|
58,369
|
|
|
$
|
59,852
|
|
Loss from operations(1)(2)(3)
|
$
|
(4,261)
|
|
|
$
|
(12,556)
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|
|
$
|
(181,707)
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|
|
$
|
(248,243)
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|
Net loss(1)(2)(3)
|
$
|
(5,277)
|
|
|
$
|
(13,284)
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|
|
$
|
(181,602)
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|
|
$
|
(249,142)
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|
|
|
|
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Loss applicable per share to SandRidge Energy, Inc. common stockholders
|
|
|
|
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Basic
|
$
|
(0.15)
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|
|
$
|
(0.38)
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|
|
$
|
(5.12)
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|
|
$
|
(7.01)
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|
Diluted
|
$
|
(0.15)
|
|
|
$
|
(0.38)
|
|
|
$
|
(5.12)
|
|
|
$
|
(7.01)
|
|
____________________
(1) Includes loss (gain) on derivative contracts of $0.2 million, $(1.8) million and $0.5 million for the first, third, and fourth quarters, respectively.
(2) Includes employee termination benefits of $4.5 million and $0.3 million for the second quarter and fourth quarters, respectively.
(3) Includes full cost ceiling limitation impairments of $165.5 million and $244.1 million for the third and fourth quarters, respectively.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2018
|
|
|
|
|
|
|
|
Total revenues
|
$
|
87,128
|
|
|
$
|
79,462
|
|
|
$
|
97,660
|
|
|
$
|
85,145
|
|
(Loss) income from operations(1)(2)
|
$
|
(41,967)
|
|
|
$
|
(33,685)
|
|
|
$
|
12,430
|
|
|
$
|
52,847
|
|
Net (loss) income(1)(2)
|
$
|
(40,894)
|
|
|
$
|
(34,074)
|
|
|
$
|
11,715
|
|
|
$
|
54,178
|
|
|
|
|
|
|
|
|
|
(Loss applicable) income available per share to SandRidge Energy, Inc. common stockholders
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.18)
|
|
|
$
|
(0.97)
|
|
|
$
|
0.33
|
|
|
$
|
1.53
|
|
Diluted
|
$
|
(1.18)
|
|
|
$
|
(0.97)
|
|
|
$
|
0.33
|
|
|
$
|
1.53
|
|
____________________
(1) Includes loss (gain) on derivative contracts of $18.3 million, $30.1 million, $11.3 million and $(42.6) million for the first, second, third and fourth quarters, respectively.
(2) Includes employee termination benefits of $31.6 million for the first quarter, accelerated vesting of employment compensation of $6.5 million for the second quarter, and proxy contest costs of $7.2 million for the second quarter.
24. Subsequent Events
On February 4, 2020, the Company issued Workers Adjustment and Retraining Notification (WARN) Act notices to approximately 63 of its 120 Oklahoma City based employees as a result of its workforce reduction at its corporate headquarters.
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|
|
|
|
|
|
|
|
|
SandRidge Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|