sd-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33784



SANDRIDGE ENERGY, INC.
(Exact name of registrant as specified in its charter)


Delaware						20-8084793
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1 E. Sheridan Ave, Suite 500 Oklahoma City, Oklahoma						73104
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (405) 429-5500

Former name, former address and former fiscal year, if changed since last report: Not applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $.001 par value

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of the close of business on November 2, 2023, was 37,091,269.

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References in this report to the “Company,” “SandRidge,” “we,” “our,” and “us” mean SandRidge Energy, Inc., including its consolidated subsidiaries and its proportionately consolidated share of SandRidge Mississippian Trust I and SandRidge Mississippian Trust II, (collectively, the “Royalty Trusts”).

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) of the Company includes “forward-looking statements” as defined by the SEC. These forward-looking statements may include projections and estimates concerning our capital expenditures, liquidity, capital resources and debt profile, the timing and success of specific projects, the potential impact of international negotiations on the supply and demand of oil, natural gas and natural gas liquids (“NGL”), outcomes and effects of litigation, claims and disputes, elements of our business strategy, compliance with governmental regulation of the oil, natural gas and NGL industry, including environmental regulations, acquisitions and divestitures and the potential effects on our financial condition and other statements concerning our operations, financial performance and financial condition.

Forward-looking statements are generally accompanied by words such as “estimate,” “assume,” “target,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “goal,” “should,” “intend” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements are based on certain assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected. The Company disclaims any obligation to update or revise these forward-looking statements unless required by law, and it cautions readers not to rely on them unduly. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties relating to, among other matters, the risks and uncertainties discussed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”) filed with the Securities and Exchange Commission on March 15, 2023 and in Item 1A of this Quarterly Report.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

FORM 10-Q

Quarter Ended September 30, 2023

INDEX


PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Income Statements	5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26
ITEM 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	28
ITEM 1A.	Risk Factors	29
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
ITEM 3.	Defaults Upon Senior Securities	29
ITEM 4.	Mine Safety Disclosures	30
ITEM 5.	Other Information	30
ITEM 6.	Exhibits	31
Signature

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PART I. Financial Information

ITEM 1. Financial Statements

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)


	September 30, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	230,706	$	255,722
Restricted cash - other	1,537		1,746
Accounts receivable, net	25,657		34,735
Derivative contracts	—		4,429
Prepaid expenses	926		523
Other current assets	1,479		7,747
Total current assets	260,305		304,902
Oil and natural gas properties, using full cost method of accounting
Proved	1,538,863		1,507,690
Unproved	11,189		11,516
Less: accumulated depreciation, depletion and impairment	(1,388,781)		(1,380,574)
	161,271		138,632
Other property, plant and equipment, net	87,824		92,244
Other assets	3,172		190
Deferred tax assets	64,529		64,529
Total assets	$	577,101	$	600,497



LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	38,937	$	46,335

Asset retirement obligation	15,574		16,074
Other current liabilities	659		870
Total current liabilities	55,170		63,279

Asset retirement obligation	50,382		47,635
Other long-term obligations	2,032		1,661
Total liabilities	107,584		112,575
Commitments and contingencies (Note 7)
Shareholders’ Equity
Common stock, $0.001 par value; 250,000 shares authorized; 37,091 issued and outstanding at September 30, 2023 and 36,868 issued and outstanding at December 31, 2022	37		37

Additional paid-in capital	1,074,219		1,151,689
Accumulated deficit	(604,739)		(663,804)
Total shareholders’ equity	469,517		487,922
Total liabilities and shareholders’ equity	$	577,101	$	600,497

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(In thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
Oil, natural gas and NGL	$	38,149	$	70,899	$	114,715	$	198,146

Total revenues	38,149		70,899		114,715		198,146
Expenses
Lease operating expenses	11,450		9,693		31,946		30,067
Production, ad valorem, and other taxes	2,031		4,768		8,522		13,677
Depreciation and depletion — oil and natural gas	4,217		3,091		11,415		8,318
Depreciation and amortization — other	1,637		1,582		4,870		4,720

General and administrative	2,619		2,382		8,004		7,083
Restructuring expenses	42		76		343		718
Employee termination benefits	—		—		19		—
Gain on derivative contracts	—		(4,258)		(1,447)		(3,194)

Other operating (income) expense	(31)		(25)		(152)		(140)
Total expenses	21,965		17,309		63,520		61,249
Income from operations	16,184		53,590		51,195		136,897
Other income (expense)
Interest income (expense), net	2,455		(12)		7,782		(191)
Other income, net	31		147		88		235
Total other income (expense)	2,486		135		7,870		44
Income before income taxes	18,670		53,725		59,065		136,941
Income tax (benefit) expense	—		—		—		—
Net income	$	18,670	$	53,725	$	59,065	$	136,941
Net income per share
Basic	$	0.51	$	1.46	$	1.60	$	3.73
Diluted	$	0.50	$	1.45	$	1.59	$	3.69
Weighted average number of common shares outstanding
Basic	36,969		36,797		36,906		36,710
Diluted	37,161		37,150		37,123		37,121

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands)


	Common Stock			Warrants			Additional Paid-In Capital		Accumulated Deficit		Total
	Shares	Amount		Shares	Amount
Nine Months Ended September 30, 2023
Balance at January 1, 2023	36,868	$	37	—	$	—	$	1,151,689	$	(663,804)	$	487,922
Issuance of stock awards, net of cancellations	34	—		—	—		—		—		—
Tax withholdings paid in exchange for shares withheld on employee vested stock awards	—	—		—	—		(211)		—		(211)
Stock-based compensation	—	—		—	—		396		—		396
Net income	—	—		—	—		—		23,758		23,758
Balance at March 31, 2023	36,902	$	37	—	$	—	$	1,151,874	$	(640,046)	$	511,865
Issuance of stock awards, net of cancellations	64	—		—	—		—		—		—

Stock-based compensation	—	—		—	—		576		—		576
Dividends to shareholders	—	—		—	—		(74,380)		—		(74,380)
Net income	—	—		—	—		—		16,637		16,637
Balance at June 30, 2023	36,966	$	37	—	$	—	$	1,078,070	$	(623,409)	$	454,698
Issuance of stock awards, net of cancellations	125	—		—	—		—		—		—
Tax withholdings paid in exchange for shares withheld on employee vested stock awards	—	—		—	—		(718)		—		(718)
Stock-based compensation	—	—		—	—		544		—		544
Dividends to shareholders	—	—		—	—		(3,677)		—		(3,677)
Net income	—	—		—	—		—		18,670		18,670
Balance at September 30, 2023	37,091	$	37	—	$	—	$	1,074,219	$	(604,739)	$	469,517
Nine Months Ended September 30, 2022
Balance at January 1, 2022	36,675	$	37	6,981	$	88,520	$	1,062,737	$	(905,972)	$	245,322
Issuance of stock awards, net of cancellations	51	—		—	—		—		—		—
Tax withholdings paid in exchange for shares withheld on employee vested stock awards	—	—		—	—		(235)		—		(235)
Stock-based compensation	—	—		—	—		384		—		384
Net income	—	—		—	—		—		34,724		34,724
Balance at March 31, 2022	36,726	$	37	6,981	$	88,520	$	1,062,886	$	(871,248)	$	280,195
Issuance of stock awards, net of cancellations	16	—		—	—		—		—		—

Stock-based compensation	—	—		—	—		440		—		440
Net income	—	—		—	—		—		48,492		48,492
Balance at June 30, 2022	36,742	$	37	6,981	$	88,520	$	1,063,326	$	(822,756)	$	329,127
Issuance of stock awards, net of cancellations	123	—		—	—		—		—		—
Tax withholdings paid in exchange for shares withheld on employee vested stock awards	—	—		—	—		(942)		—		(942)
Stock-based compensation	—	—		—	—		384		—		384
Warrants exercised					(2)		7				5
Net income	—	—		—	—		—		53,725		53,725
Balance at September 30, 2022	36,865	$	37	6,981	$	88,518	$	1,062,775	$	(769,031)	$	382,299

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	59,065	$	136,941
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation, depletion, and amortization	16,285		13,038







Gain on derivative contracts	(1,447)		(3,194)
Realized settlement gains (losses) on derivative contracts	5,876		(867)



Stock-based compensation	1,422		1,131
Other	118		115
Changes in operating assets and liabilities	8,040		(12,534)
Net cash provided by operating activities	89,359		134,630
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment	(25,681)		(31,129)
Acquisition of assets	(11,232)		(1,431)
Purchase of other property and equipment	(29)		(49)
Proceeds from sale of assets	1,411		448
Net cash used in investing activities	(35,531)		(32,161)
CASH FLOWS FROM FINANCING ACTIVITIES


Dividends paid to shareholders	(77,804)		—
Reduction of financing lease liability	(414)		(295)

Proceeds from exercise of stock options	94		77
Proceeds from exercise of warrants	—		5
Tax withholdings paid in exchange for shares withheld on employee vested stock awards	(929)		(1,177)
Net cash used in financing activities	(79,053)		(1,390)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS and RESTRICTED CASH	(25,225)		101,079
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year	257,468		139,524
CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period	$	232,243	$	240,603
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of amounts capitalized	$	(75)	$	(198)

Supplemental Disclosure of Noncash Investing and Financing Activities
Capital expenditures for property, plant and equipment in accounts payables and accrued expenses	$	888	$	8,153
Right-of-use assets obtained in exchange for financing lease obligations	$	443	$	538
Inventory material transfers to oil and natural gas properties	$	1,246	$	—
Asset retirement obligation capitalized	$	12	$	—
Asset retirement obligation removed due to divestiture	$	(137)	$	—

Dividend payable	$	253	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Nature of Business. SandRidge Energy, Inc. is an oil and natural gas acquisition, development and production company headquartered in Oklahoma City, Oklahoma with a principal focus on developing and producing hydrocarbon resources in the United States Mid-Continent region (“Mid-Con”).

Principles of Consolidation. The condensed 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.

Interim Financial Statements. The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes contained in the Company’s 2022 Form 10-K. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the financial statements include all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, necessary to fairly state the Company’s unaudited condensed consolidated financial statements.

Significant Accounting Policies. The unaudited condensed consolidated financial statements were prepared in accordance with the accounting policies stated in the Company’s 2022 Form 10-K, as well as the items noted below.

Use of Estimates. The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP 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 the estimates used in the areas noted above are reasonable, actual results could differ significantly from those estimates.

2. 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, accounts payable and accrued expenses and other current liabilities included in the unaudited condensed consolidated balance sheets approximated fair value at September 30, 2023 and December 31, 2022.


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 from objective sources (i.e., supported by little or no market activity).

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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 of 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 and liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company had assets classified in Level 2 of the hierarchy as of December 31, 2022 and none as of September 30, 2023.

Level 2 Fair Value Measurements

Commodity Derivative Contracts. As applicable, the fair values of the Company’s oil, natural gas and NGL fixed price swaps are based upon inputs that are either readily available in the public market, such as oil, natural gas and NGL futures prices, volatility factors and discount rates, or can be corroborated from active markets. As applicable, if the Company has a commodity derivative contract in place, the 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.

Fair Value - Recurring Measurement Basis

There were no open commodity derivative contracts as of September 30, 2023. As of December 31, 2022 the following table summarizes the Company’s assets measured at fair value on a recurring basis by the fair value hierarchy (in thousands):

December 31, 2022


	Fair Value Measurements						Netting		Assets at Fair Value
	Level 1		Level 2		Level 3



Assets
Commodity derivative contracts	$	—	$	4,429	$	—	$	—	$	4,429
Total	$	—	$	4,429	$	—	$	—	$	4,429

3. Derivatives

Commodity Derivatives

The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil, natural gas and NGL. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil, natural gas or NGL production sales through the use of commodity derivative contracts. There were no open commodity derivative contracts as of September 30, 2023.

Historically, the Company has not designated any of its derivative contracts as hedges for accounting purposes. As applicable, if the Company has open derivative contracts, the Company has recorded such contracts at fair value with changes in derivative contract fair values recognized as a gain or loss on derivative contracts in the condensed consolidated income statements. Commodity derivative contracts were settled on a monthly basis, and the commodity derivative contract valuations were adjusted on a mark-to-market valuation basis quarterly.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gain on derivative contracts	$	—	$	(4,258)	$	(1,447)	$	(3,194)
Realized settlement gains (losses) on derivative contracts	$	—	$	218	$	5,876	$	(867)

Master Netting Agreements and the Right of Offset. As applicable, the Company historically has had 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 in the unaudited condensed 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 was limited to the net amounts due from its counterparties. There were no open commodity derivatives contracts as of September 30, 2023. As of December 31, 2022, the Company’s open commodity derivative contracts were held with one counterparty.

There were no open derivative positions as of September 30, 2023. The following table summarizes (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) the Company’s net derivative asset position as of December 31, 2022 (in thousands):


	Gross Amounts		Gross Amounts Offset		Amounts Net of Offset		Financial Collateral		Net Amount
Assets
Derivative contracts - current	$	4,429	$	—	$	4,429	$	—	$	4,429
Total	$	4,429	$	—	$	4,429	$	—	$	4,429

Because we did not designate any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts were recognized as gains and losses in the earnings of the relevant period. As a result, and as applicable, our current period earnings could have been significantly affected by changes in the fair value of our commodity derivative contracts. Changes in fair value were principally measured based on a comparison of future prices to the contract price at the end of the period.

Fair Value of Derivatives

The following table presents the fair value of the Company’s derivative contracts on a net basis with the same counterparty (in thousands):


Type of Contract	Balance Sheet Classification	December 31, 2022






Natural Gas	Current assets - Derivative Contracts	$	4,429


Total net derivative contracts		$	4,429

See Note 2 for additional discussion of the fair value measurement of the Company’s derivative contracts.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

4. Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):


	September 30, 2023		December 31, 2022
Oil and natural gas properties
Proved	$	1,538,863	$	1,507,690
Unproved	11,189		11,516
Total oil and natural gas properties	1,550,052		1,519,206
Less: accumulated depreciation, depletion and impairment	(1,388,781)		(1,380,574)
Net oil and natural gas properties	161,271		138,632

Land	200		200
Electrical infrastructure	121,819		121,819
Other non-oil and natural gas equipment	1,656		1,644
Building and structures	3,603		3,603
Financing leases	1,307		1,468
Total	128,585		128,734
Less: accumulated depreciation and amortization	(40,761)		(36,490)
Other property, plant and equipment, net	87,824		92,244
Total property, plant and equipment, net	$

SEC Form 10-Q filed by SandRidge Energy Inc.