Sandridge Energy, Inc. Reports Financial and Operational Results for Third Quarter and First Nine Months of 2012

OKLAHOMA CITY, Nov. 8, 2012 /PRNewswire/ -- SandRidge Energy, Inc. (NYSE: SD) today announced financial and operational results for the quarter and nine months ended September 30, 2012.

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Key Financial Results

Third Quarter

• Adjusted EBITDA of $297 million for third quarter 2012 compared to $171 million in third quarter 2011.
• Operating cash flow of $281 million for third quarter 2012 compared to $147 million in third quarter 2011.
• Net loss applicable to common stockholders of $184 million, or $0.39 per diluted share, for third quarter 2012 compared to net income available to common stockholders of $561 million, or $1.16 per diluted share, in third quarter 2011.
• Adjusted net income of $29.6 million, or $0.05 per diluted share, for third quarter 2012 compared to adjusted net income of $5.1 million, or $0.01 per diluted share, in third quarter 2011.

Nine Months

• Adjusted EBITDA of $752 million for the first nine months of 2012 compared to $484 million in the first nine months of 2011.
• Operating cash flow of $654 million for the first nine months of 2012 compared to $386 million in the first nine months of 2011.
• Net income available to common stockholders of $393 million, or $0.81 per diluted share, for the first nine months of 2012 compared to net income available to common stockholders of $441 million, or $0.97 per diluted share, in the first nine months of 2011.
• Adjusted net income of $87.6 million, or $0.16 per diluted share, for the first nine months of 2012 compared to adjusted net income of $3.1 million, or $0.01 per diluted share, in the first nine months of 2011.

⁽¹⁾ Guidance presented herein does not give effect to any sale of Permian assets. 

Adjusted net income available (loss applicable) to common stockholders, adjusted EBITDA and operating cash flow are non-GAAP financial measures. Each measure is defined and reconciled to the most directly comparable GAAP measure under "Non-GAAP Financial Measures" beginning on page 10.

Highlights

• Record oil and total production of 4.9 MMBbls and 9.5 MMBoe in the third quarter
• SandRidge has now drilled 91 Mississippian wells in eight counties in Kansas covering over 170 miles; 65 wells had an average 30-day IP of 291 Boe per day
• SandRidge has drilled and studied the results of 75 wells supporting the development of the Mississippian play with at least four horizontal wells per section
• Current liquidity of $1.3 billion with a cash balance of approximately $535 million; at September 30, no borrowings were outstanding under the credit facility and the leverage ratio was 3.2x

SandRidge announced that it is exploring the sale of its assets in the Permian Basin, other than those associated with SandRidge Permian Trust.  The relevant assets produce approximately 24,500 Boe per day (67% oil, 15% NGLs and 18% natural gas).  Proceeds would be used to fund the company's capital expenditure program in the Mississippian Play and to repay debt, building upon SandRidge's strong liquidity and further improving its leverage.

Tom Ward, SandRidge's Chairman and CEO, commented, "Our acquisitions and development of properties in the Permian Basin over the last four years have been integral to our conversion from a natural gas company to an oil rich enterprise.  Now, we believe there is an opportunity to capitalize on current strong valuations for mature, conventional oil assets in the Permian Basin and convert the proceeds of a sale into development of our industry leading position in the high growth, high return Mississippian Play.  At the same time, this transaction would strengthen our balance sheet and provide liquidity that, together with cash flow, would fully fund capital expenditures through 2014."

Drilling and Operational Activities

SandRidge averaged 46 rigs operating during the third quarter of 2012 and drilled 328 wells. The company drilled a total of 875 wells during the first nine months of 2012. A total of 302 gross operated wells were completed and brought on production during the third quarter of 2012, bringing the total number of operated wells completed and brought on production during 2012 to 859 gross wells.

Mississippian Play. During the third quarter of 2012, SandRidge drilled 112 horizontal wells: 78 in Oklahoma and 34 in Kansas. This brings the total horizontal wells drilled during the first nine months of 2012 to 271 wells. Additionally, SandRidge drilled 15 disposal wells during the third quarter for a total of 52 disposal wells in the first nine months of 2012. To date, 1,140 horizontal wells have been drilled in the Mississippian play, including 507 drilled by SandRidge. The company presently has 32 rigs operating in the play: 21 drilling horizontal wells in Oklahoma, nine drilling horizontal wells in Kansas and two drilling disposal wells. The company plans to drill approximately 390 horizontal wells in the Mississippian play during 2012 and exit the year with 32 rigs drilling horizontal wells.

Permian Basin. The company drilled 214 wells during the third quarter, which brings the total wells drilled during the first nine months of 2012 to 602 wells. SandRidge plans to operate 10 rigs in the Permian Basin during the fourth quarter and will drill approximately 740 wells in 2012. The rigs will operate on the Central Basin Platform, where the company currently holds approximately 225,000 net acres, drilling primarily Grayburg/San Andres/Clear Fork vertical wells at depths ranging from 4,500 feet to 7,500 feet. Including SandRidge Permian Trust's production, SandRidge produced approximately 31,000 Boe per day in the Permian Basin during the third quarter.  The company has announced it is exploring a sale of its Permian assets other than those associated with the trust.  The relevant assets produce approximately 24,500 Boe per day.

Gulf of Mexico. SandRidge drilled two operated wells and participated in the drilling of one non-operated well during the third quarter. SandRidge plans to either drill or participate in the drilling of three additional wells in the fourth quarter. Additionally, SandRidge performed 13 recompletions during the third quarter and plans to perform eight additional recompletions through the remainder of the year for a total of 21 recompletions. SandRidge also expects to participate in 16 non-operated recompletions during 2012.

Operational and Financial Statistics

Information regarding the company's production, pricing, costs and earnings is presented below:

Discussion of Third Quarter 2012 Financial Results

Oil and natural gas revenue increased 53% to $488 million in third quarter 2012 from $318 million in the same period of 2011 as a result of increases in oil and natural gas production and realized reported oil prices. Oil production increased 55% to 4.9 MMBbls from third quarter 2011 production of 3.2 MMBbls and natural gas production increased 52% to 27.2 Bcf from third quarter 2011 production of 17.9 Bcf. Production increases were attributable to continued development of the company's properties in the Mississippian play and Permian Basin and production contributed by properties acquired in the second quarter of 2012. Realized reported prices, which exclude the impact of derivative settlements, were $84.50 per barrel and $2.60 per Mcf during third quarter 2012. Realized reported prices in the same period of 2011 were $79.31 per barrel and $3.64 per Mcf.

Third quarter 2012 production expense was $14.47 per Boe compared to third quarter 2011 production expense of $14.01 per Boe. The increase was primarily due to the additional costs related to offshore properties acquired during the second quarter of 2012. In SandRidge's primary onshore operations, production expense continued to decrease as a result of improving efficiencies.  In the Permian Basin, the third quarter production expense decreased 26% year-over-year from $13.82 to $10.19 per Boe.  In the Mid-Continent region, which is comprised mostly of the company's Mississippian assets, third quarter production expense decreased 5% year-over-year from $10.12 to $9.62 per Boe.

Depletion per unit in third quarter 2012 was $18.49 per Boe compared to $14.03 per Boe in the same period of 2011. The increase in rate per unit primarily resulted from the addition of offshore properties acquired during the second quarter of 2012 to the company's depletable asset base and, to a lesser extent, from non-core asset sales in the first half of 2012 and the fourth quarter of 2011.

Capital Expenditures

The table below summarizes the company's capital expenditures for the three and nine-month periods ended September 30, 2012 and 2011:

Derivative Contracts

The tables below set forth the company's consolidated oil and natural gas price and basis swaps and collars for the fourth quarter of 2012 and the years 2013 through 2015 as of November 5, 2012 and include contracts that have been novated to, or the benefits of which have been conveyed to, SandRidge sponsored royalty trusts.

Balance Sheet

The company's capital structure at September 30, 2012 and December 31, 2011 is presented below:

During the third quarter of 2012, the company's debt, net of cash balances, increased by approximately $500 million primarily as a result of the August senior notes offering and funding the company's drilling program. Proceeds from the August $1.1 billion senior notes offering were used to refinance $350 million of 2014 senior note maturities with the remaining net proceeds to be used to fund the company's 2013 drilling program. On November 5, 2012, the company had no amount drawn under its $775 million senior credit facility and approximately $535 million of cash, leaving approximately $1.3 billion of available liquidity. The company was in compliance with all applicable covenants contained in its debt agreements during the nine months ended September 30, 2012 and through and as of the date of this release.

2012 Operational Guidance: The company is updating its full guidance for 2012.

2013 Operational Guidance: The company is presenting full guidance for 2013.

2013 Guidance:  SandRidge estimates production of approximately 39.2 MMBoe and capital expenditures of $1.75 billion in 2013.  The higher gas percentage of total production in 2013 reflects a significant reduction in drilling capital directed toward the company's Permian Basin assets. A majority of SandRidge's planned capital expenditures will go to funding its Mississippian program, where the company plans to drill approximately 580 horizontal producers and 74 disposal wells in 2013. The remaining 2013 drilling capital will be used to maintain the company's offshore properties, where it intends to spend approximately $200 million, and to drill approximately 220 wells associated with the SandRidge Permian Trust development program.

Non-GAAP Financial Measures

Operating cash flow, adjusted EBITDA, adjusted net income available (loss applicable) to common stockholders and adjusted net income attributable to noncontrolling interest are non-GAAP financial measures.

The company defines operating cash flow as net cash provided by operating activities before changes in operating assets and liabilities and adjusted for cash received (paid) on financing derivatives. It defines EBITDA as net (loss) income before income tax expense (benefit), interest expense and depreciation, depletion and amortization and accretion of asset retirement obligation. Adjusted EBITDA, as presented herein, is EBITDA excluding interest income, realized gains on early settlements of derivative contracts, non-cash realized losses on amended derivative contracts, non-cash realized losses on financing derivative contracts, loss (gain) on sale of assets, transaction costs, bargain purchase gain, loss on extinguishment of debt and other various non-cash items (including non-cash portion of noncontrolling interest, stock-based compensation, unrealized losses (gains) on derivative contracts, provision for doubtful accounts and inventory obsolescence).

Operating cash flow and adjusted EBITDA are supplemental financial measures used by the company's management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company's ability to internally fund exploration and development activities and to service or incur additional debt. The company also uses these measures because operating cash flow and adjusted EBITDA relate to the timing of cash receipts and disbursements that the company may not control and may not relate to the period in which the operating activities occurred. Further, operating cash flow and adjusted EBITDA allow the company to compare its operating performance and return on capital with those of other companies without regard to financing methods and capital structure. These measures should not be considered in isolation or as a substitute for net cash provided by operating activities prepared in accordance with generally accepted accounting principles ("GAAP"). Adjusted EBITDA should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the company's adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Management also uses the supplemental financial measure of adjusted net income available (loss applicable) to common stockholders, which excludes unrealized losses (gains) on derivative contracts, realized gains on early settlements of derivative contracts, bargain purchase gain, tax expense (benefit) resulting from acquisition, financing commitment fees, non-cash realized losses on financing derivative contracts, transaction costs, loss on extinguishment of debt, non-cash realized losses on amended derivative contracts and loss (gain) on sale of assets from (loss applicable) income available to common stockholders. Management uses this financial measure as an indicator of the company's operational trends and performance relative to other oil and natural gas companies and believes it is more comparable to earnings estimates provided by securities analysts. Adjusted net income available (loss applicable) to common stockholders is not a measure of financial performance under GAAP and should not be considered a substitute for (loss applicable) income available to common stockholders.

The supplemental measure of adjusted net income attributable to noncontrolling interest is used by the company's management to measure the impact on the company's financial results of the ownership by third parties of interests in the company's less than wholly-owned consolidated subsidiaries. Adjusted net income attributable to noncontrolling interest excludes the portion of unrealized losses (gains) on commodity derivative contracts attributable to third party ownership in less than wholly-owned consolidated subsidiaries from net income attributable to noncontrolling interest. Adjusted net income attributable to noncontrolling interest is not a measure of financial performance under GAAP and should not be considered a substitute for net income attributable to noncontrolling interest.

The tables below reconcile the most directly comparable GAAP financial measures to operating cash flow, EBITDA and adjusted EBITDA, adjusted net income available (loss applicable) to common stockholders and adjusted net income attributable to noncontrolling interest.

Conference Call Information

The company will host a conference call to discuss these results on Friday, November 9, 2012 at 8:00 am CST. The telephone number to access the conference call from within the U.S. is 800-599-9795 and from outside the U.S. is 617-786-2905. The passcode for the call is 45827904. An audio replay of the call will be available from November 9, 2012 until 11:59 pm CST on December 9, 2012. The number to access the conference call replay from within the U.S. is 888-286-8010 and from outside the U.S. is +1-617-801-6888. The passcode for the replay is 10431835.

A live audio webcast of the conference call will also be available via SandRidge's website, www.sandridgeenergy.com, under Investor Relations/Events.  The webcast will be archived for replay on the company's website for 30 days.

Conference Participation

SandRidge Energy, Inc. will participate in the following upcoming events:

• November 13, 2012 – Bank of America Merrill Lynch 2012 Global Energy Conference; Miami, FL
• November 15, 2012 – Citi 2012 North American Credit Conference; New York City, NY
• December 04, 2012 – Bank of America Merrill Lynch 2012 Leveraged Finance Conference; Boca Raton, FL
• December 04, 2012 – Capital One Southcoast 7^th Annual Energy Conference; New Orleans, LA
• January 08, 2013 – Goldman Sachs 2013 Global Energy Conference; Miami, FL

At 8:00 am Central Time on the day of each presentation, the corresponding slides and any webcast information will be accessible on the Investor Relations portion of the company's website at www.sandridgeenergy.com. Please check the website for updates regularly as this schedule is subject to change. Also, please note that SandRidge Energy, Inc. intends for its website to be used as a reliable source of information for all future events in which it may participate as well as updated presentations regarding the company. Slides and webcasts (where applicable) will be archived and available for at least 30 days after each use or presentation.

Fourth Quarter and Year End 2012 Earnings Release and Conference Call

February 28, 2013 (Thursday) – Earnings press release after market close
March 1, 2013 (Friday) – Earnings conference call at 8:00 am CST