Company Quick10K Filing
Quick10K
Sandridge Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$8.18 36 $292
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-06-21 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-30 Officers
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-05-07 Accountant, Exhibits
8-K 2019-04-03 Officers
8-K 2019-01-28 Officers, Exhibits
8-K 2019-01-28 Officers, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-09-17 Officers
8-K 2018-09-10 Regulation FD, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-06-19 Enter Agreement, Officers, Shareholder Vote, Other Events, Exhibits
8-K 2018-06-18 Other Events, Exhibits
8-K 2018-06-15 Other Events, Exhibits
8-K 2018-06-11 Other Events, Exhibits
8-K 2018-06-06 Other Events, Exhibits
8-K 2018-06-05 Other Events, Exhibits
8-K 2018-06-04 Other Events, Exhibits
8-K 2018-05-29 Other Events, Exhibits
8-K 2018-05-22 Regulation FD
8-K 2018-05-07 Other Events, Exhibits
8-K 2018-04-16 Officers, Other Events, Exhibits
8-K 2018-04-09 Other Events, Exhibits
8-K 2018-03-10 Officers
8-K 2018-02-21 Earnings, Exhibits
8-K 2018-02-08 Officers, Regulation FD, Exhibits
8-K 2018-01-22 Enter Agreement, Shareholder Rights, Regulation FD, Exhibits
SIRI Sirius XM 26,310
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KAI Kadant 985
CTAC ChaSerg Technology Acquisition 280
VBIV VBI Vaccines 129
NLS Nautilus 124
ACY Aerocentury 18
OPXS Optex Systems Holdings 0
NEIK Northstar Electronics 0
MONO Monopar Therapeutics 0
SD 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits
EX-31.1 sd10q63019-ex311ceocer.htm
EX-31.2 sd10q63019-ex312cfocer.htm
EX-32.1 sd10q63019-ex321sectio.htm

Sandridge Energy Earnings 2019-06-30

SD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

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 June 30, 2019
OR
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)

Delaware20-8084793
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
123 Robert S. Kerr Avenue
Oklahoma City, Oklahoma
73102 
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (405429-5500
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 classTrading SymbolName of each exchange on which registered
Common Stock, $.001 par valueSDNew 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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No o

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of the close of business on August 2, 2019, was 35,737,539.



Table of Contents
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 each of SandRidge Mississippian Trust I and SandRidge Mississippian Trust II for periods ending June 30, 2019 and December 31, 2018 and SandRidge Permian Trust for the period ending June 30, 2018 (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, outcomes and effects of litigation, claims and disputes, elements of our business strategy, compliance with governmental regulation of the oil and natural gas 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, 2018 (the “2018 Form 10-K”) and in Item 1A of this Quarterly Report.




Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended June 30, 2019

INDEX

ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 6.



Table of Contents
PART I. Financial Information

ITEM 1. Financial Statements

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share data) 
June 30,
2019
December 31, 2018
ASSETS
Current assets 
Cash and cash equivalents $7,808 $17,660 
Restricted cash - other 1,981 1,985 
Accounts receivable, net 51,025 45,503 
Derivative contracts  5,286 
Prepaid expenses 2,927 2,628 
Other current assets 247 265 
Total current assets 63,988 73,327 
Oil and natural gas properties, using full cost method of accounting 
Proved 1,390,054 1,269,091 
Unproved 46,274 60,152 
Less: accumulated depreciation, depletion and impairment (652,709)(580,132)
783,619 749,111 
Other property, plant and equipment, net 197,706 200,838 
Other assets 1,500 1,062 
Total assets $1,046,813 $1,024,338 

LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities 
Accounts payable and accrued expenses $95,734 $111,797 
Asset retirement obligation 14,820 25,393 
Other current liabilities 1,355  
Total current liabilities 111,909 137,190 
Long-term debt 52,000  
Asset retirement obligation 46,176 34,671 
Other long-term obligations 4,587 4,756 
Total liabilities 214,672 176,617 
Commitments and contingencies (Note 8) 
Stockholders’ Equity 
Common stock, $0.001 par value; 250,000 shares authorized; 35,762 issued and outstanding at June 30, 2019 and 35,687 issued and outstanding at December 31, 2018
36 36 
Warrants 88,518 88,516 
Additional paid-in capital 1,058,200 1,055,164 
Accumulated deficit (314,613)(295,995)
Total stockholders’ equity 832,141 847,721 
Total liabilities and stockholders’ equity $1,046,813 $1,024,338 
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 OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,  
2019201820192018
Revenues 
Oil, natural gas and NGL $75,196 $79,304 $148,244 $166,270 
Other 192 158 380 320 
Total revenues 75,388 79,462 148,624 166,590 
Expenses 
Lease operating expenses 25,076 19,757 47,855 43,276 
Production, ad valorem, and other taxes 5,877 5,683 10,957 11,917 
Depreciation and depletion — oil and natural gas 39,419 30,961 75,884 58,958 
Depreciation and amortization — other 2,986 3,040 5,929 6,193 
Impairment    4,170 
General and administrative 10,084 10,077 20,023 23,759 
Accelerated vesting of employment compensation  6,545  6,545 
Proxy contest  7,191  7,598 
Employee termination benefits 4,465 1,043 4,465 32,630 
Loss on derivative contracts  30,104 209 48,434 
Other operating expense (income) 37 (1,254)119 (1,238)
Total expenses 87,944 113,147 165,441 242,242 
Loss from operations (12,556)(33,685)(16,817)(75,652)
Other (expense) income 
Interest expense, net (702)(651)(1,287)(1,599)
Gain on extinguishment of debt    1,151 
Other (expense) income, net (26)217 (457)1,090 
Total other (expense) income (728)(434)(1,744)642 
Loss before income taxes (13,284)(34,119)(18,561)(75,010)
Income tax benefit  (45) (42)
Net loss $(13,284)$(34,074)$(18,561)$(74,968)
Loss per share 
Basic $(0.38)$(0.97)$(0.53)$(2.15)
Diluted $(0.38)$(0.97)$(0.53)$(2.15)
Weighted average number of common shares outstanding 
Basic 35,356 35,017 35,339 34,800 
Diluted 35,356 35,017 35,339 34,800 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands) 
Common Stock
Warrants
Additional Paid-In Capital
Accumulated Deficit
Total
Shares
Amount
Shares
Amount
Six Months Ended June 30, 2019 
Balance at December 31, 201835,687 $36 6,604 $88,516 $1,055,164 $(295,995)$847,721 
Stock-based compensation
— — — — 1,073 — 1,073 
Issuance of warrants for general unsecured claims
— — 1 2 (2)—  
Cumulative effect of adoption of ASU 2016-02
— — — — — (57)(57)
Net loss
— — — — — (5,277)(5,277)
Balance at March 31, 2019 35,687 36 6,605 88,518 1,056,235 (301,329)843,460 
Issuance of stock awards, net of cancellations
75 — — — — — 
Stock-based compensation
— — — — 2,170 — 2,170 
Cash paid for tax withholdings on vested stock awards
(205)(205)
Net loss
— — — — — (13,284)(13,284)
Balance at June 30, 2019 35,762 $36 6,605 $88,518 $1,058,200 $(314,613)$832,141 


Common Stock
Warrants
Additional Paid-In Capital
Accumulated Deficit
Total
Shares
Amount
Shares
Amount
Six Months Ended June 30, 2018 
Balance at December 31, 201735,650 $36 6,570 $88,500 $1,038,324 $(286,920)$839,940 
Cancellation of stock awards, net of issuances
(90)— — — — — — 
Stock-based compensation
— — — — 16,055 — 16,055 
Cash paid for tax withholdings on vested stock awards
— — — — (1,661)— (1,661)
Net loss
— — — — — (40,894)(40,894)
Balance at March 31, 2018 35,560 36 6,570 88,500 1,052,718 (327,814)813,440 
Cancellation of stock awards, net of issuances
(254)(1)— — 1 —  
Common stock issued for general unsecured claims
26— — — — — — 
Stock-based compensation
— — — — 6,605 — 6,605 
Issuance of warrants for general unsecured claims
— — 52 14 (14)—  
Cash paid for tax withholdings on vested stock awards
— — — — (5,715)— (5,715)
Net loss
— — — — (34,074)(34,074)
Balance at June 30, 2018 35,332 $35 6,622 $88,514 $1,053,595 $(361,888)$780,256 


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)
Six Months Ended June 30,  
20192018
CASH FLOWS FROM OPERATING ACTIVITIES 
Net loss $(18,561)$(74,968)
Adjustments to reconcile net loss to net cash provided by operating activities 
Provision for doubtful accounts (91)(6)
Depreciation, depletion, and amortization 81,813 65,151 
Impairment  4,170 
Debt issuance costs amortization 238 235 
Amortization of premiums and discounts on debt  (47)
Write off of debt issuance costs142  
Gain on extinguishment of debt  (1,151)
Loss on derivative contracts 209 48,434 
Cash received (paid) on settlement of derivative contracts 5,078 (17,393)
Stock-based compensation 3,104 21,909 
Other (57)(1,563)
Changes in operating assets and liabilities (9,402)11,346 
Net cash provided by operating activities 62,473 56,117 
CASH FLOWS FROM INVESTING ACTIVITIES 
Capital expenditures for property, plant and equipment (123,676)(95,328)
Acquisition of assets 236  
Proceeds from sale of assets 852 13,563 
Net cash used in investing activities (122,588)(81,765)
CASH FLOWS FROM FINANCING ACTIVITIES 
Proceeds from borrowings112,596  
Repayments of borrowings (60,596)(36,304)
Reduction of financing lease liability (635) 
Debt issuance costs (901) 
Cash paid for tax withholdings on vested stock awards (205)(7,376)
Net cash provided by (used in) financing activities 50,259 (43,680)
NET DECREASE IN CASH, CASH EQUIVALENTS and RESTRICTED CASH (9,856)(69,328)
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year 19,645 101,308 
CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period $9,789 $31,980 
Supplemental Disclosure of Cash Flow Information 
Cash paid for interest, net of amounts capitalized $(949)$ 
Supplemental Disclosure of Noncash Investing and Financing Activities 
Purchase of PP&E in accounts payable $17,224 $29,464 
Right-of-use assets obtained in exchange for financing lease obligations $2,655 $ 

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 exploration and production company headquartered in Oklahoma City, Oklahoma 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.

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 2018 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 2018 Form 10-K as well as the items noted below.

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 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 natural gas liquids (“NGL”) reserves; impairment tests of long-lived assets; asset retirement obligations; depreciation, depletion and amortization; income taxes; valuation of derivative instruments; contingencies; and accrued revenue and related receivables. In the second quarter of 2019, the Company revised estimated retirement dates for certain Mid-Continent properties. These revisions resulted in the reclassification of $9.7 million in asset retirement obligations from current liabilities to long-term obligations on the accompanying condensed consolidated balance sheet as of June 30, 2019. Although management believes the estimates used in the areas noted above are reasonable, actual results could differ significantly.

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 4 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,” which changes 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.

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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

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, certain other current assets and other assets, accounts payable and accrued expenses, other current liabilities and other long-term obligations included in the unaudited condensed consolidated balance sheets approximated fair value at June 30, 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, which are calculated using Level 3 inputs, are discussed in Note 5.

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).

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 or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company had no financial assets or liabilities where fair value differed from carrying value classified in the fair value hierarchy as of June 30, 2019. The Company had assets classified in Level 2 of the hierarchy as of December 31, 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.

Fair Value - Recurring Measurement Basis

The Company had no commodity derivative contracts in place at June 30, 2019. The following table summarizes the Company’s assets measured at fair value on a recurring basis by the fair value hierarchy as of December 31, 2018 (in thousands):

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 effect of netting assets and liabilities for counterparties with which the right of offset exists.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

Transfers. The Company did not have any transfers between Level 1, Level 2 or Level 3 fair value measurements during the three and six-month periods ended June 30, 2019 and 2018.

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 and natural gas. The Company, on occasion, has sought to manage this risk through the use of commodity derivative contracts, which allow the Company to limit its exposure to commodity price volatility on a portion of its forecasted oil and natural gas sales. The Company has not designated any of its derivative contracts as hedges for accounting purposes and records all derivative contracts at fair value with changes in derivative contract fair values recognized as gain or loss on derivative contracts in the unaudited condensed consolidated statements of operations. At June 30, 2019, the Company had no commodity derivative contracts in place. Historically, none of the Company’s commodity derivative contracts could 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 Board and management of the Company are continuing to evaluate the futures market for oil and natural gas to mitigate exposure to adverse oil and natural gas price changes.

The following table summarizes derivative activity for the three and six-month periods ended June 30, 2019, and 2018 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2019201820192018
Loss on commodity derivative contracts$ $30,104 $209 $48,434 
Cash paid (received) on settlements$ $11,274 $(5,078)$17,393 

Master Netting Agreements and the Right of Offset. Historically, the Company 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. 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 shared in the collateral supporting the Company’s credit facility.

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) for the Company’s net derivative liability positions, the applicable portion of shared collateral under the credit facility as of December 31, 2018 (in thousands):

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 








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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

Fair Value of Derivatives 

The following table presents the fair value of the Company’s derivative contracts as of December 31, 2018, on a gross basis without regard to same-counterparty netting (in thousands):
Type of Contract
Balance Sheet Classification
December 31, 2018
Derivative assets 
Natural gas price swaps
Derivative contracts-current $5,286 
Total net derivative contracts
$5,286 

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

4. Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequently issued other associated ASU's related to Topic 842 which supersede ASC 840 and require lessees to recognize 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. Leases to explore for or produce oil and natural gas were not impacted by this guidance. This ASU became effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. 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.

Topic 842 provides a number of 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 utilized 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. Certain leases contain both lease and non-lease components. The Company 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 are 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. The ROU 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 June 30, 2019. The Company had no significant capital or operating leases with terms longer than 12 months at December 31, 2018.

The Company has operating and financing leases for vehicles, drilling rigs and equipment, which are not significant to the consolidated financial statements as of and for the three and six-month periods ended June 30, 2019.






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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

The components of lease costs recognized for the Company's ROU leases are shown below:

Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Short-term lease cost (1)$3,174 $8,083 
Financing lease cost348 645 
Operating lease cost43 101 
Total lease cost$3,565 $8,829 
___________________
1.$1.9 million and $5.1 million of short-term lease cost was capitalized as part of oil and natural gas properties during the three and six-month periods ended June 30, 2019, respectively. Portions of these costs were reimbursed to the Company by other working interest owners.

5. Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands): 
June 30,
2019
December 31, 2018
Oil and natural gas properties
Proved
$1,390,054 $1,269,091 
Unproved
46,274 60,152 
Total oil and natural gas properties
1,436,328 1,329,243 
Less accumulated depreciation, depletion and impairment
(652,709)(580,132)
Net oil and natural gas properties
783,619 749,111 
Land4,400 4,400 
Electrical infrastructure131,176 131,176 
Other non-oil and natural gas equipment13,327 13,458 
Buildings and structures77,148 77,148 
Financing leases2,083  
Total 228,134 226,182 
Less accumulated depreciation and amortization
(30,428)(25,344)
Other property, plant and equipment, net
197,706 200,838 
Total property, plant and equipment, net
$981,325 $949,949 

During the first quarter of 2018, the Company classified its remaining midstream generator assets as held for sale. These assets had a carrying value of $5.7 million which exceeded the estimated net realizable value of $1.6 million based on expected sales prices obtained from third parties. As a result, the Company recorded an impairment of $4.1 million for the six-month period ended June 30, 2018. The midstream generator assets were sold during the second quarter of 2018 with no gain or loss recognized on the sale. No significant assets were classified as held for sale at June 30, 2019 or December 31, 2018.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following (in thousands):
June 30,
2019
December 31, 2018
Accounts payable and other accrued expenses
$65,267 $78,219 
Payroll and benefits10,943 12,891 
Production payable11,881 12,767 
Taxes payable6,709 5,350 
Drilling advances811 2,031 
Accrued interest123 539 
Total accounts payable and accrued expenses
$95,734 $111,797 

7. Debt

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 is $300.0 million, which was reduced from $350.0 million under the previous credit facility. The next borrowing base redetermination is scheduled for October 1, 2019 with semiannual redeterminations thereafter. The facility is also subject to an initial aggregate elected commitment of $270.0 million, which the Company may reduce or seek to increase in future periods in accordance with the terms of the restated credit facility. The restatement extended the credit facility maturity date to April 1, 2021 from March 31, 2020.

The interest rate on outstanding borrowings was reduced from a pricing grid tied to the borrowing base utilization rate of (a) LIBOR plus an applicable margin that varies from 3.00% to 4.00% per annum, or (b) the base rate plus an applicable margin that varies from 2.00% to 3.00% per annum under the previous credit facility to 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 under the restated credit facility. 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. 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). Other than reducing the proportion of the Company’s proved reserves required to be subject to first-priority mortgages to 85% from 95%, these terms are materially similar to those contained in the previously existing credit facility.

The restated facility includes events of default and certain customary affirmative and negative covenants which are materially similar to those under the previous credit facility. The Company must also continue 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 June 30, 2019, the Company was in compliance with all applicable covenants and had a consolidated total net leverage ratio of 0.25 and consolidated interest coverage ratio of 63.13.

The Company had $52.0 million outstanding under the credit facility at June 30, 2019, and $7.6 million in outstanding letters of credit, which reduce availability under the restated credit facility on a dollar-for-dollar basis.

Building Note. In February 2018, the Company fully repaid a note secured by a mortgage on the Company's downtown Oklahoma City real estate (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
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

premium of $1.2 million was recognized as a gain on extinguishment of debt in the unaudited condensed consolidated statement of operations for the six-month period ended June 30, 2018 in connection with the repayment.

8. Commitments and Contingencies

Legal Proceedings. As previously disclosed, on May 16, 2016, the Company and certain of its direct and indirect subsidiaries (collectively, the "Debtors") filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court confirmed the joint plan of organization (the "Plan") of the Debtors 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 a putative class of (i) in In re SandRidge Energy, Inc. Securities Litigation 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 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. A hearing on class certification in each of the Cases has been scheduled for September 6, 2019.

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 solely to the extent necessary to allow 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.

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9. Income Taxes

For each interim reporting period, the Company estimates the effective tax rate expected for the full fiscal year and uses that estimated rate in providing for income taxes on a current year-to-date basis.

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 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. As a result of the significant weight placed on the Company's cumulative negative earnings position, the Company continued to maintain a full valuation allowance against its net deferred tax asset at June 30, 2019. Thus, the Company had no federal income tax expense or benefit for the three and six-month periods ended June 30, 2019 and 2018, and an insignificant amount of state income tax benefit for the three and six-month periods ended June 30, 2018.

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 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.

The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2015 to present remain open for federal examination. Additionally, tax years 2005 through 2014 remain subject to examination for determining the amount of remaining federal net operating loss and other carryforwards. The number of years open for state tax audits varies, depending on the state, but are generally from three to five years.
        
10. Equity

Common Stock, Performance Share Units, and Stock Options. At June 30, 2019, the Company had 35.8 million shares of common stock, par value $0.001 per share, issued and outstanding, including 0.3 million shares of unvested restricted stock awards, 0.3 million unvested stock options, 0.1 million unvested performance share units, and 250.0 million shares of common stock authorized. See Note 12 for further discussion of the Company’s restricted stock awards, performance share units, and stock options.

Warrants. The Company has issued approximately 4.6 million Series A warrants and 2.0 million Series B warrants that 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, to certain holders of general unsecured claims as defined in the Plan. The warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. 


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11. Revenues

The following table disaggregates the Company’s revenue by source for the three and six-month periods ended June 30, 2019 and 2018:
Three Months Ended June 30, Six Months Ended June 30,  
2019 2018 2019 2018 
(In thousands)
Oil
$55,615 $49,219 $98,774 $102,554 
NGL
9,413 16,946 22,524 33,335 
Natural gas
10,168 13,139 26,946 30,381 
Other
192 158 380 320 
Total revenues
$75,388 $79,462 148,624 $166,590 

Oil, natural gas and NGL revenues. A majority of the Company’s revenues come from sales of oil, natural gas and NGLs and 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 tax expense in the consolidated statements of operations. Payment terms are typically within 30 days of control being transferred. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

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 June 30, 2019, and December 31, 2018, the Company had revenues receivable of $23.3 million and $31.8 million, respectively, and did not record any bad debt expense on revenues receivable during the three and six-month periods ended June 30, 2019.


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12. Share and Incentive-Based Compensation

Share-Based Compensation

Omnibus Incentive Plan. The Company's Omnibus Incentive Plan became effective in October 2016. The Omnibus Incentive Plan authorizes the issuance of up to 4.6 million shares of SandRidge common stock to eligible persons including non-employee directors of the Company, employees of the Company or any of its affiliates, and certain consultants and advisers to the Company or any of its affiliates. At June 30, 2019, the Company had restricted stock awards and an immaterial amount of performance share units and stock options outstanding under the Omnibus Incentive Plan. Vesting for certain restricted stock awards and performance share units was accelerated in connection with the departure of certain executives and reductions in force which occurred during the three and six-month periods ended June 30, 2019 and the six-month period ended June 30, 2018. Vesting for certain restricted stock awards, performance share units and performance units was accelerated in the second quarter of 2018 in connection with the change in the composition of the Board after the 2018 annual meeting.

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. Outstanding restricted shares will generally vest over either a one-year period or three-year period. As of June 30, 2019, the Company had approximately 0.3 million unvested restricted shares outstanding at a weighted average grant date fair value of $13.56 per share, and unrecognized compensation cost related to these awards totaled $3.1 million. The remaining weighted average contractual period over which this compensation cost may be recognized is 1.7 years.

The following tables summarize share and incentive-based compensation for the three and six-month periods ended June 30, 2019, and 2018 (in thousands):

Recurring Compensation Expense(1)
Executive Terminations(2)(3)Reduction in Force(2)(3)Accelerated Vesting(4)
Total
Three Months Ended June 30, 2019 
Equity-classified awards:
Restricted stock awards
$829 $197 $501 $ $1,527 
Performance share units 189 281   470 
Stock options 193    193 
Total share-based compensation expense 1,211 478 501  2,190 
Less: Capitalized compensation expense (62)   (62)
Share-based compensation expense, net $1,149 $478 $501 $ $2,128 
Three Months Ended June 30, 2018 
Equity-classified awards: 
Restricted stock awards $603 $