SandRidge Energy Q3 2023 Earnings Report

SandRidge Energy EPS Results

• Actual EPS: $0.44
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

SandRidge Energy Revenue Results

• Actual Revenue: $38.15 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

SandRidge Energy Announcement Details

• Quarter: Q3 2023
• Date: 11/6/2023
• Time: N/A
• Conference Call Date: Tuesday, November 7, 2023
• Conference Call Time: 2:00PM ET

SandRidge Energy (NYSE:SD) engages in the acquisition, development, and production of oil, natural gas, and natural gas liquids in the United States Mid-Continent. The company was incorporated in 2006 and is headquartered in Oklahoma City, Oklahoma.

SandRidge Energy Q3 2023 Earnings Call Transcript

[Operator]

Good day. My name is Karen, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Q3 2023 SandRidge Energy Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. I'd now like to turn the call over to Scott Prestridge, Senior VP of Finance and Strategy.

[Speaker 1]

Thank you, and welcome, everyone. With me today are Grayson Prannen, our CEO Brandon Brown, our CFO and Dean Parrish, our SVP of Operations. We'd like to remind you that today's call contains forward looking statements and assumptions, which are subject to risk and uncertainty, and actual results may differ materially from those projected

[Speaker 2]

in these forward looking statements.

[Speaker 1]

We may also refer to adjusted EBITDA and adjusted G and A and other non GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I'll turn the call over to Grayson.

[Speaker 2]

Thank you, and good morning. I'm pleased to report on another to the Q1 results and that the company's activity continues to translate to meaningful free cash flow from our producing assets year to date. Before expanding on this, Brandon will touch on a few highlights.

[Speaker 3]

Thank you, Grayson. Production for the quarter averaged 17.2 to MBOE per day. Oil production increased approximately 20% in the 1st 9 months of 2023 compared to the same period in 2022, driven by the higher oil content from our Northwest Stack well. The company generated adjusted EBITDA of nearly $23,000,000 for the quarter and $74,000,000 for the 1st 9 months of the year. As we have pointed out in the past, our adjusted EBITDA is a unique metric for SandRidge.

[Speaker 3]

Due to us having no I and very little T, given that we have no debt and a substantial and a well position that shields our to cash flows from federal income taxes. On the I portion, we in fact generated approximately $2,500,000 of interest income during the quarter Approximately $7,800,000 for the 1st 9 months of the year from cash held in a diversity of high yield deposit accounts. Net cash, including restricted cash, totaled $232,000,000 which represents over $6 per share of our common stock issued and outstanding as of September 30, 2020. The company has no term debt or revolving debt obligations as of September 30, 2023, and and continue to live within cash flow, funding all its capital expenditures with cash flow from operations and cash held on the balance sheet. The mining price realizations before considering the impact of hedges were $73.88 per barrel or to $1.78 per Mcf of gas and $20.77 per barrel of NGLs for the 1st 9 months of the year.

[Speaker 3]

While oil and natural gas market benchmark prices for WTI and area or lower over the first half of the year. The company has maintained healthy commodity price realizations year to date and in position to benefit from increases in recent strip prices. As alluded to earlier, we have maintained our large to our federal NOL position, which is estimated to be approximately $1,600,000,000 at the end of the quarter. Our NOL position has and will continue to allow us to shield our cash flows from federal income taxes. Our commitment to cost discipline has continued to be impactful with adjusted E and A for the quarter of approximately $2,100,000 to our shareholders.

[Speaker 3]

During the quarter, we earned net income of $18,700,000 or $0.51 per basic share to net cash provided by operating activities of nearly $26,000,000 This is all culminating in the company producing approximately to $64,000,000 in free cash flow during the 1st 9 months of 2023, which represents a conversion rate of approximately 86% relative to adjusted EBITDA or just over $1.70 per share of common stock outstanding. Before shifting to our outlook, we should note that our earnings release and 10 Q provide further detail on our financial and operational performance during the quarter.

[Speaker 2]

Thank you, Brandon. We thought it would be helpful to walk through some of the company's highlights, management strategy and other business details. As I mentioned previously, this past quarter had positive results with the Northwest STACK wells adding relatively oilier production, while converting over 86% of EBITDA to free cash flow during the 1st 9 months of the year. Production from our Mid Con assets averaged 17.2 MBOE per day for the quarter, with oil volumes increasing 20% over the 1st 9 months of the year compared to the same period in 2022 aided by the oilier production content from our Northwest STACK area. The company's largest natural gas purchaser remained in ethane rejection during the quarter, and we anticipate that a majority of our natural gas stream Could remain in ethane rejection for the remainder of the year.

[Speaker 2]

While this could impact the total volume of NGLs, The remaining volume will be composed of more profitable C3 plus components like propane, butane and gasoline on a percentage basis. Likewise, the ethane remaining in our natural gas stream will improve its BTU quality. Let's pause here for a moment to revisit the key highlights of SandRidge. Our asset base is focused in the Mid Continent region with a primarily PDP well set, which do not require any routine flaring of produced gas. These well understood assets are almost fully held by production with a long history, shallowing and diversified production profile and double digit reserve life.

[Speaker 2]

These assets include more than 1,000 miles each of owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure provides the company both cost and strategic advantages, bolstering asset operating margin through reduced lifting as well as water handling and disposal costs. And combined with other advantages help derisk individual well profitability for majority of our producing wells down to $40 WTI and $2 Henry Hub. In addition, the interconnectivity and ample capacity help buffer against unforeseen curtailment. Our assets continue to yield meaningful free cash flow with total net cash now totaling 232,000,000 This cash generation potential provides several paths to increase shareholder value realization and is benefited by relatively low G and A burden.

[Speaker 2]

As we realize value and generate cash, our Board is committed to utilizing our assets, including our cash to maximize shareholder value. Danbridge's value proposition is materially derisked from a financial perspective by our strength and balance sheet, robust net cash position, no debt, financial flexibility and approximately $1,600,000,000 in NOLs. Further, The company is not subject to MVCs or other significant off balance sheet financial commitments. Finally, It's worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around them. We remain committed to our strategy to focus on growing the cash value and generation capability of our business in a safe, in a responsible, efficient manner, while prudently allocating capital to high return organic growth opportunities and remain open to value accretive opportunities.

[Speaker 2]

This strategy has 5 points. 1st is to maximize the cash value and generation capacity of our incumbent Mid Con PDP assets by extending and flattening our production profile with high rate of return workover and artificial lift conversions, as well as continuously pressing on operating and administrative costs. The second is to ensure we convert as much EBITDA to to free cash flow as possible by exercising capital stewardship and investing in projects and opportunities that have a high risk adjusted on value accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, to complement its portfolio of assets further utilizes approximately $1,600,000,000 of net operating losses or otherwise yield attractive returns for its shareholders. I'd like to pause here for a moment to highlight the acquisition that closed over the quarter, Which increased our interest in 26 operated wells in the Northwest STACK play. We like these types of small ball bolt ons where we can efficiently add production for accretive returns.

[Speaker 2]

We will continue to look for opportunities similar to these as well as larger ones that meet the characteristics I described earlier. 4th, as we generate cash, We will continue to work with our Board to assess path to maximize shareholder value to include investments and strategic opportunities, to return of capital and other uses. To this end, the company expanded its return of capital program earlier this year that consists of a $2 per share one time dividend paid on June 7, 2023, a $0.10 per share regular way cash dividend subject to quarterly approval by the Board of Directors, an expanded share buyback program of up to 75,000,000 Please note that the company's cash position is also a strategic advantage and provides competitive leverage in evaluating M and A opportunities, Especially, given the outlook on interest rates, capital markets and the impact of the optionality on a number and type of opportunities that could become available at certain levels. Know that there is a high bar at both the management and Board levels for mergers and acquisitions. Management will continue to assess and promote regular way return of capital discussions, advance M and A evaluations, Meet with shareholders and investors and work with our Board to further enhance PAS to maximize shareholder value.

[Speaker 2]

Besides executing this year's capital plan and operating in a safe and responsible manner, these topics remain paramount and a top priority. In the interim, we have secured favorable banking terms and keep our cash position diversified across interest bearing accounts at multiple significant well capitalized financial institutions. The final staple is to uphold our ESG responsibility. Circling back to this year's capital program. During the 1st 9 months of 2023, we completed 12 artificial lift conversions as the company continues to focus on high return and value adding projects that provide benefits such as lowering forward looking costs, enhancing or reactivating production on existing wells and further moderating its modest decline profile.

[Speaker 2]

The systems we have and will be installing are tailored for the wells current fluid production and will reduce the electrical demand from the current artificial lift system and is key to decreasing utility costs. In addition, The company has returned over 180 wells to production since 2021. However, we have reduced this program earlier in the year, electing to defer more meaningful levels of reactivations for periods of increased commodity prices, the specific emphasis on natural gas prices for these type of projects. The focused efforts over the past several quarters in optimizing our wells production profile and cost focus have contributed to flattening the expected base asset level decline of our already producing assets to an average of approximately 8% over the next 10 years before the impact of additional reactivations, to Development or Acquisition. The company continues to ensure that all projects meet high rate of return threshold and remain to capitally disciplined as the commodity price landscape changes.

[Speaker 2]

In addition to our small ball artificial lift While oil price has shifted up from the $60 seen earlier this year, it continues to fluctuate between the $80 $90 per to the next several quarters. 3 Hub on the other hand until recently has been in the mid to high 2s but has been contango Now approaching the mid-three dollars per MMBtu as we look towards year end. Given the commodity dynamics earlier in the year And that our Mid Con assets are 99% held by production, which preserves a tenure in our development option. We concluded our drilling program, the last operated well that came online during the Q2. We will continue to monitor commodity price dynamics and maintain flexibility to adjust as may be warranted and factor in these considerations when planning 2024 activity.

[Speaker 2]

Commodity prices firmly over $80 WTI and $4 Henry Hub over a confident tenure And or a reduction in well costs are needed before we will return to exercise the option value of further development or reactivations. With that said, our team's effort to combat inflationary pressures and execute operationally have and will translate to attractive returns in the remaining capital program, which is now primarily focused on artificial lift conversions and other small ball PDP enhancing projects. While we have reduced activity near term, a tempered commodity price environment could be constructive for M and A. Our producing Mid Con assets will continue to generate meaningful cash flow near term with the recent strip Natural gas prices projected to increase over the next year plus. In the interim, the lower natural gas and NGL price environment down from the previous year's highs to present more cost effective opportunities for acquisitions, which could then be positioned to capitalize on future price improvements.

[Speaker 2]

Now shifting to expenses. We're able to keep adjusted G and A to 2,100,000 or $1.35 per BOE for the quarter, which compares favorably with our peers. The efficiency of our organization stems from our core values to remain cost disciplined as well as prior initiatives, Which has tailored our organization to be fit for purpose. We continue to balance the weighting of our field versus corporate personnel to reflect where we actually create value and outsource necessary, but more perfunctory and less core functions, such as operational accounting, land administration, IT, tax and HR. Given our efficient structure and ability to flex with expanded activity over the past several quarters through outsourcing.

[Speaker 2]

Our total personnel has remained consistent at just over 100 people, while retaining key technical skill sets to have both the experience and institutional knowledge of our area of operations. We believe that this efficiency and structure are favorable advantages that could be effectively applied over a broader asset base and a benefit as the company evaluates potential for M and A. Despite inflationary pressures and increased well count from our prior well reactivation development programs, as well as increased interest associated with our recent Northwest STACK acquisition. LOE and expense workovers for the quarter were $11,500,000 $32,000,000 for the 1st 9 months or $6.83 per BOE. We are projecting a decrease in expense workovers for the remainder of the year as well as a softening in utility costs with future projects and reduce water handling costs from new Northwest STACK wells as they naturally decline from their peak production.

[Speaker 2]

We will continue to actively press on operating costs through rigorous bidding processes, leveraging our significant infrastructure, to Operations Center and Other Company Advantages. In summary, the company has $232,000,000 net cash and cash equivalent at quarter end, Which represents more than $6 per share of our common stock issued and outstanding. Average production over the quarter to 17.2 MBOE per day with 20% increase in oil in the 1st 9 months compared to the same period in 2022. Mid composition that is 99% held by production, which preserves the option value of future development potential in a cost effective manner. Low overhead, top tier adjusted G and A of $1.35 per BOE.

[Speaker 2]

No debt and in fact negative leverage. Meaningful free cash flow and growing net cash position supported by a diverse production profile, Flattening expected annual base PDP decline to an average approximately 8% over the next 10 years, to the multi digit reserve life asset base. Dollars 1,600,000,000 in NOLs, which will show future free cash flow from federal income taxes. Large owned and operated SWD and electrical infrastructure, which provides cost and strategic advantages Requiring little to no future capital to maintain. This concludes our prepared remarks.

[Speaker 2]

Thank you for your time. We'll now open the call to questions.

[Operator]

And a quick reminder just All right. And our first question comes from the line of David Cardell with BluePondCap. David?

[Speaker 4]

Yes. Can you talk a little bit about your buyback and whether or not at this level We should expect for you to be active in it.

[Speaker 2]

Sure. Yes. Good morning. Thank you for the question. It's a great one.

[Speaker 2]

I should explain that the intent of the buyback program, which has been authorized up to 75,000,000 to opportunistically repurchase shares during market dislocations. It's not really intended to buy back certain amounts or time periods under any conditions. It's really just meant to to take advantage of dislocations and specifically dislocations between commodity and market price.

[Operator]

David was placed back into the queue. All right, ladies and gentlemen, this concludes today's call. Thank you very much for joining. You may now all disconnect. Have a great rest of the day.