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SandRidge Energy Second Quarter 2021 Results

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   |    Monday,August 16,2021

SandRidge Energy Inc. reported its Q2 2021 results.

Recent Highlights:

• SandRidge's Board of Directors has approved the initiation of a share repurchase program (the "Program") as a means of opportunistically returning capital to shareholders. Under the Program, the Company may repurchase up to $25 million worth of its outstanding common stock beginning as early as August 16, 2021.
• 2Q21 net cash⁽¹⁾ increased by $14.1 million quarter-over-quarter to $70.6 million. Total cash and cash equivalents was $90.6 million as of June 30, 2021.
• Second quarter net production was 19.0 MBoed from our Mid-Continent assets, compared to 17.5 MBoed in the prior quarter, up by 1.5 MBoed despite no new drilling or completions activity in the first half of 2021. Total second quarter net production was 19.0 MBoed compared to 18.2 MBoed in the prior quarter.⁽²⁾
• 2Q21 net income was $16.3 million for the quarter, or $0.45 per share. Adjusted net income⁽³⁾ was $16.5 million, or $0.45 per share.
• As of June 30, 2021, the Company returned 49 wells to production that were previously curtailed due to the 2020 commodity price downturn, resulting in average incremental production of 0.8 MBoed in the first half of 2021.
• Second quarter realized oil, natural gas, and natural gas liquids prices, before the impact of derivatives, were $64.73, $1.66 and $17.33, respectively, compared to $53.99, $1.85 and $17.00 in the prior quarter.
• As of June 30, 2021, the Company did not have any open derivatives contracts.
• SandRidge announced updated production, expense, and capital expenditure guidance for 2021.
• During 2Q21, SandRidge closed on the acquisition of all overriding royalty interests held by SandRidge Mississippian Royalty Trust I for a net purchase price of $3.6 million.
• Subsequent to the sale of its North Park Basin ("NPB") assets in 1Q21, the Company is no longer engaged in the routine flaring of produced natural gas.

Financial Results

Profitability & Realized Pricing

For the three-months ended June 30, 2021, the Company reported net income of $16.3 million, or $0.45 per share, and net cash provided by operating activities of $18.9 million. After adjusting for certain items, the Company's adjusted net income amounted to $16.5 million, or $0.45 per share, operating cash flow totaled $20.5 million and adjusted EBITDA was $20.8 million for the quarter. The Company defines and reconciles adjusted net income, operating cash flow, adjusted EBITDA, and other non-GAAP financial measures to the most directly comparable GAAP measure in supporting tables at the conclusion of this press release on pages 10-13.

Second quarter realized oil, natural gas, and natural gas liquids prices, before the impact of derivatives,⁽¹⁾ were $64.73, $1.66 and $17.33, respectively, compared to $53.99, $1.85 and $17.00 in the prior quarter.

For the six-months ended June 30, 2021, the Company reported net income of $51.3 million, or $1.42 per share, and net cash provided by operating activities of $33.2 million. After adjusting for certain items, to include the one-time gain of $19.7 million related to the sale of NPB assets, the Company's adjusted net income amounted to $33.9 million, or $0.94 per share, operating cash flow totaled $40.2 million and adjusted EBITDA was $42.5 million for the six months period ended.

Operating Costs

During the second quarter of 2021, lease operating expense ("LOE") was $9.2 million or $5.33 per Boe compared to $8.0 million, or $4.85 per Boe in the prior quarter. Mid-Continent represented $9.2 million or $5.33 per Boe compared to $7.1 million or $4.47 per Boe in the prior quarter. Increased expenses were driven in part by workover activity associated with the Company's well reactivation program.

For the three months ended June 30, 2021, general and administrative expense ("G&A") was $2.5 million, or $1.46 per Boe compared to $2.1 million, or $1.27 per Boe for the three months ended March 31, 2021.⁽²⁾ Adjusted G&A⁽³⁾ was $2.0 million, or $1.13 per Boe during the second quarter of 2021 compared to $1.9 million, or $1.14 per Boe during first quarter of 2021.

Share Repurchase Program

SandRidge's Board of Directors has approved a share repurchase program authorizing the Company to purchase up to an aggregate of $25.0 million of the Company's outstanding common stock beginning as early as August 16, 2021. The Program is in accordance with Rule 10b-18 of the Exchange Act. Subject to applicable rules and regulations, repurchases under the Program can be made from time to time in open markets at the Company's discretion and in compliance with safe harbor provisions, or in privately negotiated transactions. The Program does not require any specific number of shares be acquired and can be discontinued by SandRidge's Board of Directors at any time.

Operational Results & Update

Subsequent to closing the sale of its North Park Basin assets in the first quarter of 2021, all of SandRidge's operations are focused in the Mid-Continent region of Oklahoma and Kansas.

Production

Production totaled 1,733 MBoe (19.0 MBoed, 13.1% oil, 35.4% NGLs and 51.5% natural gas) for the three-months ended June 30, 2021. Production totaled 3,374 MBoe (18.6 MBoed, 15.3% oil, 33.6% NGLs and 51.1% natural gas) for the six-months ended June 30, 2021.

Production in the Mid-Continent totaled 1,733 MBoe (19.0 MBoed, 13.1% oil, 35.4% NGLs and 51.5% natural gas) or the three-months ended June 30, 2021. Production in the Mid-Continent totaled 3,307 MBoe (18.3 MBoed, 13.5% oil, 34.3% NGLs and 52.2% natural gas) for the six-months ended June 30, 2021.

Well Reactivation Program

During the second quarter of 2021, the Company began returning wells to production that were previously curtailed due to the commodity price downturn in the first half of 2020 and, in many cases, improving their production potential through modest capital improvements. Focused efforts to improve operating costs, along with commodity prices rebounding from their 2020 lows, have bolstered the economics of these well reactivation projects. High rates of return and low execution risk support the Company's belief that these projects represent an efficient use of capital. As of June 30, 2021, the Company brought forty-nine wells back online, resulting in average incremental production of 0.8 MBoed in the first half of 2021. Approximately thirty of these wells required workovers to return to service and accounted for capital expenditures of $0.6 million and expense dollars of $0.8 million. The balance of the wells required little to no expense to reactivate.

Proved Developed PV-10

Management believes the unaudited proved developed PV-10 reserve value of SandRidge's Mid-Continent assets to be approximately $321 million,⁽¹⁾ with an effective date of July 1, 2021, as routinely updated for the quarter from the Company's engineered year-end 2020 reserves, consistent with standard industry reserve practice, including performance and commercial updates for price differentials, operating expenses and other commercials, based on the historical trailing 12 month averages, using NYMEX strip pricing as of July 30, 2021.

Natural Gas Flaring Mitigation

Subsequent to the 1Q21 sale of its North Park Basin assets in Colorado, SandRidge is no longer engaged in the routine flaring of produced natural gas.

Overriding Royalty Interest Acquisition

On April 22, 2021, the Company announced the acquisition of all the overriding royalty interest assets of SandRidge Mississippian Trust I (the "Trust"). The gross purchase price was $4.9 million (net $3.6 million, given the Company's 26.9% ownership of the Trust).

2021 Guidance Update

Due to the incorporation of the aforementioned well reactivation program into its 2021 plans, the Company is updating production, expense, and capital expenditures guidance for 2021. The Company is also updating 2021 commodity price realization guidance to midpoints of 95% and 27% of WTI for oil and NGLs, respectively, and 60% of Henry Hub for natural gas. All other guidance figures remain unchanged from the Company's May 11, 2021 update.

Liquidity and Capital Structure

As of June 30, 2021, the Company's total liquidity was $98.3 million, based on $88.3 million of cash, excluding restricted cash and $10.0 million available under its credit facility. As of August 6, 2021, the Company's cash on hand, including restricted cash, was approximately $104.9 million.