# Sandridge Energy Inc: Form 10-Q for the period ended Mar 31, 2023

- Company: [Sandridge Energy Inc](/companies/sd.md) (CIK 1349436)
- Form: 10-Q
- Filed: 2023-05-05
- Accepted by EDGAR: May 5, 2023, 16:08 ET
- Period: 2023-03-31
- Accession: 0001628280-23-016135
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1349436/000162828023016135/sd-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1349436/000162828023016135/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $43.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $21.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $23.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.64 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 37,110,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $39.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $9.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $285.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $324.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $628.2m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $66.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $116.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $511.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 19,751 characters.

### Introduction

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 the accompanying unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report, as well as our audited consolidated financial statements and the accompanying notes included in the 2022 Form 10-K. Our discussion and analysis includes the following subjects:

- Overview;
- Consolidated Results of Operations;
- Liquidity and Capital Resources; and
- Critical Accounting Policies and Estimates.

The financial information with respect to the three-month periods ended March 31, 2023 and 2022, discussed below, is unaudited. In the opinion of management, this information contains all adjustments, which consist only of normal recurring adjustments unless otherwise disclosed, necessary to state fairly the accompanying unaudited condensed consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year.

### Overview

We are an independent oil and natural gas company with a principal focus on acquisition, development and production activities in the U.S. Mid-Continent region (“Mid-Con”).

The chart below shows production by product for the three-month periods ended March 31, 2023 and 2022:

Total MBoe production for the three-month period ended March 31, 2023 was comprised of approximately 17.4% oil, 54.6% natural gas and 28.0% NGL compared to 13.3% oil, 53.9% natural gas and 32.8% NGL in 2022.

### Recent Events

- Consistent with our 2023 capital development program announced on March 15, 2023, we drilled two wells and completed two wells during the quarter ended March 31, 2023.

### Outlook

We will continue to focus on growing the cash value allocation capability of our asset base in a safe, responsible and efficient manner, while exercising prudent capital allocations to projects we believe provide high rates of returns in the current commodity price environment. These projects include (1) a continuation of our well reactivation program, (2) artificial lift conversions to more efficient and cost effective systems, (3) focused drilling in high-graded areas and (4) limited opportunistic leasing in proven areas around or adjacent to our area of operations that could further bolster future development. Given near term commodity price dynamics, and that our Midcon assets are 99% held by production, which preserves the tenor of our development option, we concluded our drilling activity this quarter, with remaining completions to occur in the second quarter. We will continue to monitor forward-looking commodity prices, results, costs and other factors that could influence returns on investments, which will continue to shape our disciplined development decisions in 2023 and beyond. We will also continue to maintain optionality to execute on value accretive merger and acquisition opportunities that could bring synergies, leverage our core competencies, compliment our portfolio of assets, further utilize our NOLs or otherwise yield attractive returns for our shareholders.

### Consolidated Results of Operations

Our consolidated revenues and cash flows are generated from the production and sale of oil, natural gas and NGL. Our revenues, profitability and future growth depend substantially on prevailing prices received for our production, the quantity of oil, natural gas and NGL we produce, and our ability to find and economically develop and produce our reserves. Prices for oil, natural gas and NGL fluctuate widely and are difficult to predict. To provide information on the general trend in pricing, the average New York Mercantile Exchange ("NYMEX") prices for oil and natural gas are shown in the tables below:

|  | Three-month periods ended March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| NYMEX Oil (per Bbl) | $75.93 | $82.79 | $93.06 | $108.83 | $95.02 |
| NYMEX Natural gas (per Mcf) | $2.74 | $5.76 | $8.32 | $7.75 | $4.84 |

In order to reduce our exposure to price fluctuations, from time to time we may enter into commodity derivative contracts for a portion of our anticipated future oil, natural gas and NGL production as discussed in “Item 3. Quantitative and Qualitative Disclosures About Market Risk.” 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 oil and natural gas market prices, our commodity derivative contracts may partially offset declining revenues and cash flows to the extent strike prices for our contracts are above market prices at the time of settlement. See “Note 3 — Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.

### Revenues

Consolidated revenues for the three-month periods ended March 31, 2023 and 2022 are presented in the table below (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Oil | $19,410 | $19,781 | $(371) |
| NGL | 10,347 | 17,742 | (7,395) |
| Natural gas | 13,390 | 19,964 | (6,574) |
| Total revenues | $43,147 | $57,487 | $(14,340) |

### Oil, Natural Gas and NGL Production and Pricing

Our production and pricing information for the three-month periods ended March 31, 2023 and 2022 is shown in the table below:

| Production data | Three Months Ended March 31, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Oil (MBbls) | 261 | 214 | 47 |
| NGL (MBbls) | 420 | 526 | (106) |
| Natural gas (MMcf) | 4,912 | 5,195 | (283) |
| Total volumes (MBoe) | 1,500 | 1,606 | (106) |
| Average daily total volumes (MBoe/d) | 16.7 | 17.8 | (1) |
| **Average prices—as reported (1)** |  |  |  |
| Oil (per Bbl) | $74.26 | $92.35 | $(18.09) |
| NGL (per Bbl) | $24.62 | $33.73 | $(9.11) |
| Natural gas (per Mcf) | $2.73 | $3.84 | $(1.11) |
| Total (per Boe) | $28.76 | $35.80 | $(7.04) |
| **Average prices—including impact of derivative contract settlements** |  |  |  |
| Oil (per Bbl) | $74.26 | $92.35 | $(18.09) |
| NGL (per Bbl) | $24.62 | $33.14 | $(8.52) |
| Natural gas (per Mcf) | $3.92 | $3.69 | $0.23 |
| Total (per Boe) | $32.67 | $35.12 | $(2.45) |

**(1)** Prices represent actual average sales prices for the periods presented and do not include effects of derivative settlements.

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 three-month period ended March 31, 2023 are shown in the table below (in thousands):

|  | Three Months Ended March 31, 2023 |
| --- | ---: |
| 2022 oil, natural gas and NGL revenues | $57,487 |
| Change due to production volumes | (3,049) |
| Change due to average prices | (11,291) |
| 2023 oil, natural gas and NGL revenues | $43,147 |

Revenue decreased due to unfavorable realized commodity prices and a decrease in production. See "Item 1A—Risk Factors" included in our 2022 Form 10-K for additional discussion of the potential impact these events may have on our future revenues.

### Operating Expenses

Operating expenses for the three-month periods ended March 31, 2023 and 2022 consisted of the following (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Lease operating expenses | $11,694 | $10,862 | $832 |
| Production, ad valorem, and other taxes | 3,751 | 4,110 | (359) |
| Depreciation and depletion—oil and natural gas | 3,454 | 2,401 | 1,053 |
| Depreciation and amortization—other | 1,618 | 1,575 | 43 |
| Total operating expenses | $20,517 | $18,948 | $1,569 |
| Lease operating expenses ($/Boe) | $7.79 | $6.76 | $1.03 |
| Production, ad valorem, and other taxes ($/Boe) | $2.50 | $2.56 | $(0.06) |
| Depreciation and depletion—oil and natural gas ($/Boe) | $2.30 | $1.50 | $0.80 |
| Production, ad valorem, and other taxes (% of oil, natural gas, and NGL revenue) | 8.7% | 7.1% | 1.6% |

The increase in lease operating expenses was primarily due to inflationary pressures and higher production costs associated with more producing wells driven by our well reactivation and drilling programs.

Production, ad valorem, and other taxes decreased primarily due to lower commodity prices and related revenues. Production, ad valorem, and other taxes increased as a percentage of oil, natural gas, and NGL revenue due to an increase in ad valorem taxes as a result of increased valuation assessments on our oil and gas properties.

The increase in depreciation and depletion for oil and natural gas properties was primarily the result of capital expenditures for the second quarter of 2022 through the first quarter of 2023 and a decrease in proved reserves at March 31, 2023, primarily as a result of lower SEC prices, which increased our depletion rate.

### Impairment

A ceiling limitation calculation is performed at the end of each quarter. If the full cost pool balance exceeds the ceiling limitation, an impairment of the full cost pool is required. Calculation of the full cost ceiling test is based on, among other factors, trailing twelve-month first-day-of-the-month index prices (“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 March 31, 2023 were $90.97 per barrel of oil and $5.95 per MMBtu of natural gas, before price differential adjustments.

The ceiling limitation was not exceeded; therefore, no full cost ceiling limitation impairments were recorded during the three-month periods ended March 31, 2023 or 2022. During certain periods within the past five years, the SEC prices used in the full cost ceiling test have been lower than the SEC prices used for the March 31, 2023 full cost ceiling test and resulted in material ceiling limitation impairments. Full cost pool ceiling limitation impairments have no impact to our cash flow or liquidity.

Based on the SEC prices over the trailing ten months ended April 30, 2023, as well as two months of NYMEX strip pricing for May and June of 2023 as of April 25, 2023, we estimate the SEC prices utilized in the June 30, 2023 full cost ceiling test may be $83.50 per barrel of oil and $4.79 per MMBtu of natural gas (the "estimated second quarter prices"). Applying these estimated second quarter prices, and holding all other inputs constant to those used in the calculation of our March 31, 2023 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the second quarter of 2023.

Any actual full cost ceiling limitation impairment recognized in future quarters may fluctuate significantly from projected amounts based on the outcome of numerous other factors such as 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.

### Other Operating Expenses (Income)

Other operating expenses (income) for the three-month periods ended March 31, 2023 and 2022 consisted of the following (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| General and administrative | $2,909 | $2,530 | $379 |
| Restructuring expenses | 39 | 209 | (170) |
| Employee termination benefits | 19 | — | 19 |
| (Gain) loss on derivative contracts | (1,447) | 1,064 | (2,511) |
| Other operating income | (94) | (64) | (30) |
| Total other operating expenses | $1,426 | $3,739 | $(2,313) |

General and administrative expenses increased primarily due to an increase in professional service fees for the three-month periods ended March 31, 2023 as compared to same period in 2022.

The following table summarizes derivative activity for the three-month periods ended March 31, 2023 and 2022 (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| (Gain) loss on derivative contracts | $(1,447) | $1,064 |
| Realized settlement gains (losses) on derivative contracts | $5,876 | $(1,085) |

As applicable, our derivative contracts were not designated as accounting hedges and, as a result, changes in their fair values were recorded each quarter as a component of operating expenses. Internally, management has historically viewed the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil, natural gas and NGL 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, natural gas and NGL prices at the time of settlement, compared to the contract price for our commodity derivative contracts. See further discussion of derivative contracts in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” included in Part I of this Quarterly Report.

### Other Income (Expense)

Our other income (expense) for the three-month periods ended March 31, 2023 and 2022 are presented in the table below (in thousands):

| Other income (expense) | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Interest income (expense), net | $2,499 | $(152) |
| Other income, net | 55 | 76 |
| Total other income (expense) | $2,554 | $(76) |

Interest income incurred during the three-month period ended March 31, 2023 is primarily comprised of interest income received from cash deposits. Interest expense incurred during the three-month period ended March 31, 2022 is primarily comprised of interest paid on royalty obligations of $0.1 million.

### Liquidity and Capital Resources

As of March 31, 2023, our cash and cash equivalents, including restricted cash was $287.6 million. For the next twelve months, we expect to have ample liquidity with cash on hand and cash from operations. We had no outstanding term or revolving debt obligations as of March 31, 2023.

### Working Capital and Sources and Uses of Cash

Our principal sources of liquidity for the next year include cash flows from operations and cash on hand.

Our working capital increased to $257.7 million at March 31, 2023, compared to $241.6 million at December 31, 2022. The positive impact on working capital resulted primarily from an increase in cash and cash equivalents at March 31, 2023 as a result of cash flows from operations.

### Cash Flows

Our cash flows from operations are substantially dependent on current and future prices for oil, natural gas and NGL, which historically have been, and may continue to be, volatile. Cash flows from operations are also affected by timing of cash receipts and disbursements and changes in other working capital assets and liabilities.

Our cash flows for the three-month periods ended March 31, 2023 and 2022 are presented in the following table and discussed below (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Cash flows provided by operating activities | $39,847 | $32,193 |
| Cash flows used in investing activities | (9,408) | (5,619) |
| Cash flows used in financing activities | (343) | (320) |
| Net increase in cash and cash equivalents and restricted cash | $30,096 | $26,254 |

### Cash Flows from Operating Activities

The $7.7 million increase in cash flows from operations for the three-month period ended March 31, 2023 compared to the same period in 2022 is primarily due to changes in operating assets and liabilities, offset by a decrease in revenues from lower commodity prices and production.

### Cash Flows from Investing Activities

Our cash flows used in investing activities during the three-month period ended March 31, 2023 reflects capital expenditures of $9.4 million primarily related to capital expenditures made for drilling, capital workovers, and well reactivations.

Our cash flows used in investing activities during the three-month period ended March 31, 2022 reflects capital expenditures of $5.6 million primarily related to purchases of inventory in preparation of the drilling program and workovers related to the well reactivation program.

Capital expenditures for the three-month periods ended March 31, 2023 and 2022 are summarized below (in thousands):

| Capital Expenditures | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Drilling and completion | $10,243 | $3,343 |
| Capital workovers | 1,836 | 2,348 |
| Leasehold and geophysical | 141 | 287 |
| Capital expenditures (on an accrual basis) | 12,220 | 5,978 |
| Changes in accounts payable and accrued expenses | (2,753) | (349) |
| Inventory material transfers to oil and natural gas properties | (75) | — |
| Total cash paid for capital expenditures | $9,392 | $5,629 |

### Cash Flows from Financing Activities

Cash used in financing activities for the three-month period ended March 31, 2023 consisted primarily of $0.2 million of cash used for tax withholdings paid in exchange for shares withheld on employee vested stock awards that were settled by net exercise and finance lease payments of $0.1 million. Cash used in financing activities for the three-month period ended March 31, 2022 consisted primarily of cash paid for tax obligations on employee vested stock awards of $0.2 million and finance lease payments of $0.1 million offset by immaterial proceeds from the exercise of stock options. Net exercises of stock awards allows the holder of a stock award to tender back to us a number of shares at fair value upon the vesting of such stock award, that equals the employee payroll tax obligation due. We then remit a cash payment to the relevant taxing authority on behalf of the employee for their payroll tax obligations resulting from the vesting of their stock award.

### Contractual Obligations and Off-Balance Sheet Arrangements

At March 31, 2023, our contractual obligations included asset retirement obligations, 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 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 surety bonds or other instruments.

There were no other significant changes in total contractual obligations and off-balance sheet arrangements from those reported in the 2022 Form 10-K.

### Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2022 Form 10-K. For a discussion of recent accounting pronouncements, newly adopted and recent accounting pronouncements not yet adopted, see “Note 1—Basis of Presentation” to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report. We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first three months of 2023.

## Market risk

As filed, 3,964 characters.

### General

This discussion provides information about the financial instruments we have historically used to manage commodity prices. All contracts were settled in cash and did not require the actual delivery of a commodity at settlement. Additionally, our exposure to credit risk and interest rate risk is also discussed.

*Commodity Price Risk.* Our most significant market risk relates to the prices we receive for our oil, natural gas and NGLs. Due to the historical price volatility of these commodities, from time to time, we have historically entered, depending upon our view of opportunities under the then-prevailing current market conditions, we enter into commodity derivative contracts for a portion of our anticipated production volumes for the purpose of reducing the impact of the variability of oil and natural gas prices.

We have used, and may use, a variety of commodity-based derivative contracts, including fixed price swaps, basis swaps and collars. At March 31, 2023, we had no open commodity derivative contracts or obligations to enter into commodity derivative contracts.

Because we historically have not designated 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 current period earnings. As a result, and when applicable, 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.

The following table summarizes derivative activity for the three-month periods ended March 31, 2023 and 2022 (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| (Gain) loss on derivative contracts | $(1,447) | $1,064 |
| Realized settlement gains (losses) on derivative contracts | $5,876 | $(1,085) |

See “Note 3 — Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.

*Credit Risk.* As applicable, we were exposed to credit risk related to counterparties to our derivative financial contracts. All of our derivative transactions have been carried out in the over-the-counter market. The use of derivative transactions in over-the-counter markets involves the risk that the counterparties may be unable to meet the financial terms of the transactions. The counterparties for all of our derivative transactions have had an “investment grade” credit rating. We have historically monitored the credit ratings of our derivative counterparties and considered our counterparties’ credit default risk ratings in determining the fair value of our derivative contracts. Our derivative contracts have historically been with multiple counterparties to minimize exposure to any individual counterparty, and in addition our counterparties have been large financial institutions.

We did not require collateral or other security from counterparties to support derivative instruments. We historically had master netting agreements with our derivative contract counterparties, which allowed us to net our derivative assets and liabilities by commodity type with the same counterparty. As a result of the netting provisions, our maximum amount of loss under derivative transactions due to credit risk was limited to the net amounts due from the counterparties under the commodity derivative contracts. Therefore, we were not required to post additional collateral under our commodity derivative contracts.

We are also exposed to credit risk related to the collection of receivables from our joint interest partners for their proportionate share of expenditures on wells and properties we operate. Historically, our credit losses on joint interest receivables have been immaterial.

## Controls and procedures

As filed, 1,290 characters.

### Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s CEO and CFO, the Company performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of the end of the period covered by this Quarterly Report. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2023, to provide reasonable assurance that the information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 133 characters.

There have been no material changes to the risk factors previously discussed in Item 1A—Risk Factors in the Company's 2022 Form 10-K.

Filed May 5, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-016135. Last ingested by Listed: Oct 24, 2026, 15:11 ET. No prices; not investment advice.