Company Quick10K Filing
SandRidge Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 36 $227
10-Q 2019-11-12 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-09 Quarter: 2019-03-31
10-K 2019-03-05 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-02-22 Annual: 2017-12-31
10-Q 2017-11-03 Quarter: 2017-09-30
10-Q 2017-08-07 Quarter: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-K 2017-03-03 Annual: 2016-12-31
10-Q 2016-11-08 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
10-Q 2016-05-16 Quarter: 2016-03-31
10-K 2016-03-30 Annual: 2015-12-31
10-Q 2015-11-05 Quarter: 2015-09-30
10-Q 2015-08-06 Quarter: 2015-06-30
10-Q 2015-05-07 Quarter: 2015-03-31
10-K 2015-02-27 Annual: 2014-12-31
10-Q 2014-08-07 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-02-28 Annual: 2013-12-31
10-Q 2015-01-08 Quarter: 2013-12-31
10-Q 2013-11-06 Quarter: 2013-09-30
10-Q 2013-08-08 Quarter: 2013-06-30
10-Q 2013-05-08 Quarter: 2013-03-31
10-K 2013-03-01 Annual: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-Q 2012-08-06 Quarter: 2012-06-30
10-Q 2012-05-07 Quarter: 2012-03-31
10-K 2012-02-27 Annual: 2011-12-31
10-Q 2011-11-07 Quarter: 2011-09-30
10-Q 2011-08-08 Quarter: 2011-06-30
10-Q 2011-05-09 Quarter: 2011-03-31
10-K 2011-02-28 Annual: 2010-12-31
10-Q 2010-11-08 Quarter: 2010-09-30
10-Q 2010-08-09 Quarter: 2010-06-30
10-Q 2010-05-07 Quarter: 2010-03-31
10-K 2010-03-01 Annual: 2009-12-31
8-K 2020-02-04 Other Events
8-K 2019-12-12 Officers, Regulation FD, Exhibits
8-K 2019-11-12 Earnings, Exhibits
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 2019-03-25 Officers
8-K 2019-03-04 Earnings, 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 2018-05-07 Earnings, 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
SD 2019-09-30
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 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 sd10q93019-ex311ceocer.htm
EX-31.2 sd10q93019-ex312cfocer.htm
EX-32.1 sd10q93019-ex321sectio.htm

SandRidge Energy Earnings 2019-09-30

SD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
RGCO 228 244 69 58 0 9 23 317 0% 14.0 4%
SD 227 1,047 215 331 0 47 165 270 0% 1.6 5%
TTI 227 1,439 1,144 1,072 171 -20 61 1,058 16% 17.5 -1%
PHX 224 207 70 63 0 16 39 264 0% 6.8 8%
EPM 221 96 16 43 0 18 28 190 0% 6.7 19%
REI 218 961 445 153 117 22 42 207 76% 4.9 2%
CHAP 205 1,291 553 246 107 -82 47 566 44% 12.0 -6%
AXAS 184 419 265 147 0 44 96 370 0% 3.9 10%
GDP 182 234 153 119 0 22 77 275 0% 3.6 9%

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 September 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 October 31, 2019, was 35,774,611.



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 September 30, 2019 and December 31, 2018 and SandRidge Permian Trust for the period ending September 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 September 30, 2019

INDEX

ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
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) 
September 30,
2019
December 31, 2018
ASSETS
Current assets
Cash and cash equivalents$4,035  $17,660  
Restricted cash - other1,693  1,985  
Accounts receivable, net31,706  45,503  
Derivative contracts1,133  5,286  
Prepaid expenses1,999  2,628  
Other current assets830  265  
Total current assets41,396  73,327  
Oil and natural gas properties, using full cost method of accounting
Proved1,455,609  1,269,091  
Unproved26,107  60,152  
Less: accumulated depreciation, depletion and impairment(855,765) (580,132) 
625,951  749,111  
Other property, plant and equipment, net191,280  200,838  
Other assets1,325  1,062  
Total assets$859,952  $1,024,338  

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses$79,812  $111,797  
Asset retirement obligation13,968  25,393  
Other current liabilities1,415    
Total current liabilities95,195  137,190  
Long-term debt62,000    
Asset retirement obligation45,901  34,671  
Other long-term obligations5,612  4,756  
Total liabilities208,708  176,617  
Commitments and contingencies (Note 9)
Stockholders’ Equity
Common stock, $0.001 par value; 250,000 shares authorized; 35,730 issued and outstanding at September 30, 2019 and 35,687 issued and outstanding at December 31, 2018
36  36  
Warrants88,518  88,516  
Additional paid-in capital1,058,905  1,055,164  
Accumulated deficit(496,215) (295,995) 
Total stockholders’ equity651,244  847,721  
Total liabilities and stockholders’ equity$859,952  $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 September 30,Nine Months Ended September 30,
2019201820192018
Revenues
Oil, natural gas and NGL$58,188  $97,491  $206,432  $263,761  
Other181  169  561  489  
Total revenues58,369  97,660  206,993  264,250  
Expenses
Lease operating expenses23,866  21,913  71,721  65,189  
Production, ad valorem, and other taxes4,346  7,339  15,303  19,256  
Depreciation and depletion — oil and natural gas38,871  33,090  114,755  92,048  
Depreciation and amortization — other2,981  3,036  8,910  9,229  
Impairment165,507    165,507  4,170  
General and administrative6,238  9,064  26,261  32,823  
Accelerated vesting of employment compensation      6,545  
Proxy contest  (459)   7,139  
Employee termination benefits  23  4,465  32,653  
(Gain) loss on derivative contracts(1,756) 11,329  (1,547) 59,763  
Other operating expense (income)23  (105) 142  (1,343) 
Total expenses240,076  85,230  405,517  327,472  
(Loss) income from operations(181,707) 12,430  (198,524) (63,222) 
Other (expense) income
Interest expense, net(722) (627) (2,009) (2,226) 
Gain on extinguishment of debt      1,151  
Other income (expense), net827  (118) 370  972  
Total other income (expense)105  (745) (1,639) (103) 
(Loss) income before income taxes(181,602) 11,685  (200,163) (63,325) 
Income tax benefit  (30)   (72) 
Net (loss) income$(181,602) $11,715  $(200,163) $(63,253) 
(Loss) earnings per share
Basic$(5.12) $0.33  $(5.66) $(1.81) 
Diluted$(5.12) $0.33  $(5.66) $(1.81) 
Weighted average number of common shares outstanding
Basic35,491  35,308  35,390  34,971  
Diluted35,491  35,330  35,390  34,971  

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
Nine Months Ended September 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, 201935,687  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, 201935,762  36  6,605  88,518  1,058,200  (314,613) 832,141  
Cancellations of stock awards, net of issuances
(32) —  —  —  —  —  —  
Stock-based compensation
—  —  —  —  862  —  862  
Cash paid for tax withholdings on vested stock awards
—  —  —  —  (157) —  (157) 
Net loss
—  —  —  —  —  (181,602) (181,602) 
Balance at September 30, 201935,730  $36  6,605  $88,518  $1,058,905  $(496,215) $651,244  

Common Stock
Warrants
Additional Paid-In Capital
Accumulated Deficit
Total
Shares
Amount
Shares
Amount
Nine Months Ended September 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, 201835,560  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, 201835,332  35  6,622  88,514  1,053,595  (361,888) 780,256  
Issuance of stock awards, net of cancellations359  1  —  —  (1) —    
Stock-based compensation
—  —  —  —  564  —  564  
Issuance of warrants for general unsecured claims
—  —  (20) 3  (3) —    
Net income
—  —  —  —  —  11,715  11,715  
Balance at September 30, 201835,691  $36  6,602  $88,517  $1,054,155  $(350,173) $792,535  

The accompanying notes are an integral part of these condensed consolidated financial statements.
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SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended September 30,
20192018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(200,163) $(63,253) 
Adjustments to reconcile net loss to net cash provided by operating activities
Provision for doubtful accounts(90) (6) 
Depreciation, depletion, and amortization123,665  101,277  
Impairment165,507  4,170  
Debt issuance costs amortization398  352  
Amortization of premiums and discounts on debt  (47) 
Write off of debt issuance costs142    
Gain on extinguishment of debt  (1,151) 
(Gain) loss on derivative contracts(1,547) 59,763  
Cash received (paid) on settlement of derivative contracts5,700  (29,025) 
Stock-based compensation3,930  22,415  
Other(119) (1,734) 
Changes in operating assets and liabilities(1,894) 16,407  
Net cash provided by operating activities95,529  109,168  
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment(170,723) (146,819) 
Acquisition of assets236    
Proceeds from sale of assets1,347  14,497  
Net cash used in investing activities(169,140) (132,322) 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings170,096    
Repayments of borrowings(108,096) (36,304) 
Reduction of financing lease liability(1,034)   
Debt issuance costs(910)   
Cash paid for tax withholdings on vested stock awards(362) (7,376) 
Net cash provided by (used in) financing activities59,694  (43,680) 
NET DECREASE IN CASH, CASH EQUIVALENTS and RESTRICTED CASH(13,917) (66,834) 
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year19,645  101,308  
CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period$5,728  $34,474  
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of amounts capitalized$(1,446) $  
Cash received for income taxes$  $4,381  
Supplemental Disclosure of Noncash Investing and Financing Activities
Purchase of PP&E in accounts payable$12,790  $20,955  
Right-of-use assets obtained in exchange for financing lease obligations$3,237  $  
Carrying value of properties exchanged$5,384  $  

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 September 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 5 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. Acquisitions and Divestitures of Oil and Gas Properties

Nonmonetary transaction. During the three-month period ended September 30, 2019, the Company transferred its interest in certain proved oil and natural gas properties located in Comanche, Harper and Sumner counties in Kansas along with associated electrical infrastructure and an insignificant amount of accounts receivable with an aggregate estimated fair value of $5.4 million, for an interest in certain other proved oil and natural gas properties located in Comanche, Harper and Barber counties in Kansas. The fair value of the assets given in the transaction approximated their carrying value, therefore no gain or loss was recognized on the transfer.

3. 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 September 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 and nonmonetary transactions, which are calculated using Level 3 inputs, are discussed in Note 6.

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 assets classified in Level 2 of the hierarchy as of September 30, 2019 and 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.



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

Fair Value - Recurring Measurement Basis

The following tables summarize the Company’s assets measured at fair value on a recurring basis by the fair value hierarchy (in thousands):

September 30, 2019

Fair Value Measurements
Netting(1)
Assets/Liabilities at Fair Value
Level 1
Level 2
Level 3
Assets
Commodity derivative contracts
$  $1,133  $    $1,133  
$  $1,133  $  $  $1,133  

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.

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

4. 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. All derivative contracts are recorded 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. None of the Company’s commodity derivative contracts may 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 Company entered into two oil swap contracts in July 2019 which consisted of fixed price swaps under which the Company receives a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume. 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 nine-month periods ended September 30, 2019, and 2018 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(Gain) loss on commodity derivative contracts$(1,756) $11,329  $(1,547)