Common stock, $0.001 par value; 250,000 shares authorized; 37,205 issued and outstanding at September 30, 2024 and 37,091 issued and outstanding at December 31, 2023
37
37
Additional paid-in capital
1,004,264
1,071,021
Accumulated deficit
(557,544)
(602,947)
Total stockholders’ equity
446,757
468,111
Total liabilities and stockholders’ equity
$
565,240
$
574,166
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Nature of Business. SandRidge Energy, Inc. is an oil and natural gas acquisition, development and production company headquartered in Oklahoma City, Oklahoma and organized in 2006 with a principal focus on developing and producing hydrocarbon resources in the United States.
Principles of Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly owned or majority-owned subsidiaries, including its proportionate share of the Royalty Trust. 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 2023 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 Company’s 2023 Form 10-K, as well as the items noted below.
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 NGL reserves; impairment tests of long-lived assets; the carrying value of unproved oil and natural gas properties; depreciation, depletion and amortization; asset retirement obligations; determinations of significant alterations to the full cost pool and related estimates of fair value used to allocate the full cost pool net book value to divested properties, as necessary; valuation allowances for deferred tax assets; income taxes; valuation of derivative instruments; contingencies; and accrued revenue and related receivables. Although management believes the estimates used in the areas noted above are reasonable, actual results could differ significantly from those estimates.
Recent Accounting Pronouncements Not Yet Adopted. The FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which require greater disaggregation of income tax disclosures. The amendments in this update change income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. This update changes said disclosures by requiring disaggregation by jurisdiction of disclosures of pretax income (or loss) and income tax expense (or benefit). This ASU is to be applied on a prospective basis, with retrospective application permitted. The guidance in this update is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the potential effect of the adoption of this ASU will have on our consolidated financial statements and related disclosures.
The FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires entities to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires entities to disclose the title and position of the Chief Operating Decision Maker. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. We expect this ASU to only impact our disclosures with no impact to our consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, amended by ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This guidance provides optional practical expedients and exceptions for applying United States Generally Accepted Accounting Principles ("US GAAP") provisions to contracts, hedging relationships, and other transactions that reference LIBOR, or other reference rates expected to be discontinued because of reference rate changes, if certain criteria are met. The guidance in this update was effective upon its issuance. If elected, the guidance is to be applied prospectively through December 31, 2024. At this time, we do not expect this ASU to impact our disclosures or consolidated financial statements.
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, accounts payable and accrued expenses and other current liabilities included in the unaudited condensed consolidated balance sheets approximated fair value at September 30, 2024 and December 31, 2023.
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 and 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, 2024, as described below, and no assets or liabilities classified in Level 2 of the hierarchy as of December 31, 2023.
Level 2 Fair Value Measurements
Commodity Derivative Contracts. As applicable, the fair values of the Company’s oil, natural gas and NGL fixed price swaps are based upon inputs that are either readily available in the public market, such as oil, natural gas and NGL futures prices, volatility factors and discount rates, or can be corroborated from active markets. Historically, if the Company has a commodity derivative contract in place, the 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.
Level 3 Fair Value Measurements
Acquisitions. The Company applies the provisions of the fair value measurement standard on a non-recurring basis to its oil and gas properties acquired. The Company recognized the assets acquired in our acquisitions at cost at a relative fair value basis (See “Note 5 — Acquisitions” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information). Fair value was determined using a discounted cash flow model. The underlying future commodity prices included in the Company’s estimated future cash flows of its oil and gas properties were determined using NYMEX forward strip prices as of the closing date of each acquisition. The estimated future cash flows also included assumptions independently prepared by Cawley, Gillespie & Associates for the estimates of production from the oil and natural gas properties, future operating, development costs and income taxes of the acquired properties and risk adjusted discount rates.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Fair Value - Recurring Measurement Basis
As ofSeptember 30, 2024 the following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis by the fair value hierarchy (in thousands):
September 30, 2024
Fair Value Measurements
Netting (1)
Assets at Fair Value
Level 1
Level 2
Level 3
Assets
Commodity derivative contracts
$
—
$
2,190
$
—
$
523
$
1,667
Total
$
—
$
2,190
$
—
$
523
$
1,667
(1) Represents the effect of netting assets and liabilities for counterparties with which the right of offset exists.
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, natural gas and NGL. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil, natural gas or NGL production sales through the use of commodity derivative contracts.
Historically, the Company has not designated any of its derivative contracts as hedges for accounting purposes. As applicable, if the Company has open derivative contracts, the Company has recorded such contracts at fair value with changes in derivative contract fair values recognized as a gain or loss on derivative contracts in the condensed consolidated income statements. Commodity derivative contracts were settled on a monthly basis, and the commodity derivative contract valuations were adjusted on a mark-to-market valuation basis quarterly.
The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Gain) loss on derivative contracts
$
(1,866)
$
—
$
(1,866)
$
(1,447)
Settlement gains (losses) on derivative contracts
$
199
$
—
$
199
$
5,876
Master Netting Agreements and the Right of Offset. As applicable, the Company historically 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.
Because we did not designate any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts were recognized as gains and losses in the earnings of the relevant period. Changes in fair value were principally measured based on a comparison of future prices to the contract price at the end of the period.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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) the Company’s net derivative asset and liability positions as of September 30, 2024 (in thousands):
September 30, 2024
Gross Amounts
Gross Amounts Offset
Amounts Net of Offset
Financial Collateral
Net Amount
Assets
Derivative contracts - current
$
1,694
$
(410)
$
1,284
$
—
$
1,284
Derivative contracts - non-current
$
496
$
(113)
$
383
$
—
$
383
Total
$
2,190
$
(523)
$
1,667
$
—
$
1,667
As of September 30, 2024, the Company's open derivative contracts consisted of natural gas and NGL commodity derivative contracts under which we will receive a fixed price for the contract and pay a floating market price to the counterparty over a specified period for a contracted volume. These commodity derivative contracts consisted of the following:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
September 30, 2024
December 31, 2023
Oil and natural gas properties
Proved
$
1,677,882
$
1,538,724
Unproved
17,487
11,197
Total oil and natural gas properties
1,695,369
1,549,921
Less: accumulated depreciation, depletion and impairment
(1,406,957)
(1,393,801)
Net oil and natural gas properties capitalized costs
288,412
156,120
Land
200
200
Electrical infrastructure
121,818
121,819
Non-oil and natural gas equipment
1,643
1,656
Building and structures
3,603
3,603
Financing leases
864
1,399
Total
128,128
128,677
Less: accumulated depreciation and amortization
(46,434)
(42,184)
Other property, plant and equipment, net
81,694
86,493
Total property, plant and equipment, net
$
370,106
$
242,613
5. Acquisitions
On August 30, 2024, the Company closed the previously announced acquisition of oil and natural gas properties in the Cherokee Play of the Western Anadarko Basin, pursuant to the Purchase and Sale Agreement signed on July 29, 2024, as amended on August 30, 2024 (the “Cherokee Play Acquisition”). The Company funded the acquisition with cash on hand. A portion of the purchase price has been held in escrow. The Cherokee Play Acquisition has been accounted for as an asset acquisition in accordance with ASC 805. The fair value of the consideration paid by the Company and allocation of that amount to the underlying assets acquired, on a relative fair value basis, was recorded on the Company’s books as of the date of the closing. Determining the fair value of the assets acquired and liabilities assumed requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of oil and natural gas properties. The inputs and assumptions related to the oil and natural gas properties are categorized as Level 3 in the fair value hierarchy.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table represents the allocation of the total cost of the Cherokee Play Acquisition to the assets acquired and liabilities assumed as of the Cherokee Play Acquisition closing date:
(in thousands)
Total Cost
Cash at closing
$
101,686
Holdback and escrow(1)
22,159
Total Consideration
$
123,845
Allocation of Total Consideration
Assets
Oil and natural gas properties
$
129,681
Total Assets
$
129,681
Liabilities
Accounts payable and accrued expenses
$
5,836
Total liabilities assumed
5,836
Net Assets Acquired and Liabilities Assumed
$
123,845
__________________
(1) Represents escrowed amounts for conveyed interest upon completion of well included in amended Purchase and Sale Agreement (the “PSA”), funds held in escrow pending title due diligence and funds held in escrow to satisfy Seller’s indemnification obligations under Article XII of the PSA.
As part of the Cherokee Play Acquisition, the Company entered a joint development agreement with the seller which provides an option for the Company’s participation in the drilling and completion operations of drilling spacing units. The joint development agreement terminates upon the earlier of a mutual agreement between each party or the conclusion of drilling and completion operations of the drilling spacing units.
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in thousands):
September 30, 2024
December 31, 2023
Accounts payable and other accrued expenses
$
14,769
$
12,854
Production payable
30,050
21,086
Payroll and benefits
3,290
4,146
Taxes payable
370
742
Total accounts payable and accrued expenses
$
48,479
$
38,828
7. Commitments and Contingencies
Included below is a discussion of the Company's various future commitments and contingencies as of September 30, 2024. The Company has provided accruals where necessary for contingent liabilities, based on ASC 450, Contingencies, when it has determined that a liability is probable and reasonably estimable. The Company continuously assesses the potential liability related to the Company's pending litigation and revises its estimates when additional information becomes available. Additionally, the Company currently expenses all legal costs as they are incurred. The commitments and contingencies under these arrangements are not recorded in the accompanying consolidated balance sheets.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 (“In re SandRidge Energy, Inc. Securities Litigation”); 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 (“Lanier Trust”)
Both cases were settled with all defendants except the SandRidge Mississippian Trust I (“the Trust”), which is being sued by a class of purchasers of units 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, based on allegations that the Trust, made misrepresentations or omissions concerning various topics including the performance of wells operated by the Company. The Company is contractually obligated to indemnify the Trust for losses, claims, damages, liabilities and expenses, including reasonable costs of investigation and attorneys’ fees and expenses, which it is required to advance. Such indemnification is not covered by insurance. Considering the status of the Lanier Trust matter, and the facts, circumstances and legal theories relating thereto, the Company is not able to determine the likelihood of an outcome or provide an estimate of any reasonably possible loss or range of possible loss related thereto. However, such losses, if incurred, could be material. The Company has not established any liabilities relating to the Lanier Trust matter and believes that the plaintiffs’ claims are without merit.
Separately, the Company had received a demand by two of the settling individual defendants to fund a proposed settlement of $17 million with those defendants. The Company refused and filed an action in Oklahoma state court seeking a declaratory judgment that the defendants were not entitled to indemnification. The insurance carriers funded the settlement of $17 million and filed a counterclaim, which seeks reimbursement of the $17 million settlement, with each carrier to receive their funded portion of the $17 million. The Company disputes any liability, as it believes it has meritorious defenses. Considering the status of this matter, and the facts, circumstances and legal theories thereto, the Company is not able to determine the likelihood of an outcome. The Company has not established any liabilities relating to this matter.
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8. 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. In assessing the realizability of the deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future income in periods in which the deferred tax assets can be utilized. In prior years, we determined that the deferred tax assets did not meet the more likely than not threshold of being utilized and thus recorded a valuation allowance. We have partially released our valuation allowance on our deferred tax assets by $66.0 million and $50.6 million as of September 30, 2024 and December 31, 2023, respectively. We anticipate being able to utilize these deferred tax assets based on the generation of future income. A change in the estimate of future income could cause the valuation allowance to be adjusted in subsequent periods.The Company recognized $15.4 million in federal and state income tax benefit for the three and nine-month periods ended September 30, 2024 and no federal or state income tax expense or benefit for the three and nine-month periods ended September 30, 2023.
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 adopted the Tax Benefits Preservation Plan, as amended on March 16, 2021 and June 20, 2023, in order to protect the Company’s ability to use its tax NOLs and certain other tax benefits.
As of September 30, 2024, the Company had approximately $1.6 billion of federal NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $1.6 billion of federal NOL carryforwards, $0.7 billion expire during the years 2025 through 2037, while the remaining $0.9 billion do not have an expiration date. In addition, the Company had approximately $1.1 billion of state NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $1.1 billion in state NOL carryforwards, $199.1 million are derived from states the Company currently does not operate in. $650.7 million do not have an expiration date and $237.4 million will begin expiring in 2026 through 2037. Additionally, the Company had federal tax credits in excess of $33.5 million which begin expiring in 2029.
The Company did not have unrecognized tax benefits at September 30, 2024 or December 31, 2023.
The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2020 to present remain open for federal examination. Additionally, tax years 2005 through 2019 remain subject to examination for the purpose of determining the amount of federal NOL 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
9. Equity
Capital Stock and Equity Awards. Our authorized capital stock consists of 300 million shares, which include 250 million shares of common stock, $0.001 par value per share (“common stock”) and 50 million shares of preferred stock, par value $0.001 per share. At September 30, 2024, the Company had 37.2 million shares of common stock issued and outstanding. Further, at September 30, 2024, the Company had 0.1 million of unvested restricted stock awards, 0.2 million shares of unvested restricted stock units, 0.1 million unvested stock options outstanding and an immaterial number of unvested performance share units.
Share Repurchase Program. In May 2023, the Company's Board of Directors (the “Board”) approved a share repurchase program (the “Program”) authorizing the Company to repurchase up to an aggregate of $75.0 million of the Company’s outstanding common stock with the Company’s cash on hand. The Program replaced the prior share repurchase program previously approved by the Board in August 2021 of $25.0 million.Purchases under the Program are intended to meet the requirements of Rule 10b5-1 of the Exchange Act. The Program does not require any specific number of shares to be acquired, and can be modified or discontinued by the Board at any time. The Company did not repurchase any common stock under the Program or the prior share repurchase program during the three or nine-month periods ended September 30, 2024 or 2023.
Dividends. In January 2024, the Board approved a one-time cash dividend of $1.50 per share of the Company's common stock, which was paid on February 20, 2024 to shareholders of record as of the close of business on February 5, 2024. The aggregate total payout was approximately $55.6 million. Additionally, in March 2024, the Board increased the on-going quarterly dividend to $0.11 per share which was paid in March, May, and August 2024. The aggregate total payout was $12.2 million. The $0.11 per share dividend is subject to quarterly approval by the Board. Dividend payments for the nine-month period ended September 30, 2024 totaled $68.2 million, which included $0.4 million of dividends on vested stock awards. Cash dividends for the nine-months ended September 30, 2023 totaled $77.8 million.
The Tax Benefits Preservation Plan. On July 1, 2020, the Board declared a dividend distribution of one right (a “Right”) for each outstanding share of the Company’s common stock to shareholders of record at the close of business on July 13, 2020. On June 20, 2023, the Company entered into an amendment to the Tax Benefits Preservation Plan to extend the expiration time of the Tax Benefits Preservation Plan from July 1, 2023 to July 1, 2026. Each Right entitles its holder, under certain circumstances, to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company, par value $0.001 per share, at an exercise price of $5.00 per Right, subject to adjustment. The description and terms of the Rights are set forth in the tax benefits preservation plan, dated as of July 1, 2020, as amended, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (and any successor rights agent, the “Rights Agent”). The Tax Benefits Preservation Plan will expire on the earliest of: (i) the time at which the Rights are redeemed pursuant to the Tax Benefits Preservation Plan, (ii) the time at which the Rights are exchanged pursuant to the Tax Benefits Preservation Plan, (iii) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in Section 13(f) of the Tax Benefits Preservation Plan, at which time, the Rights are terminated, (iv) the time at which the Board determines that the NOLs are utilized in all material respects or that an ownership change under Section 382 would not adversely impact in any material respect the time period in which the Company could use the NOLs, or materially impair the amount of the NOLs that could be used by the Company in any particular time period, for applicable tax purposes and (v) the Close of Business on July 1, 2026. At the Company's 2024 Annual Meeting held on June 12, 2024, the Company's stockholders approved the extension of the Tax Benefits Preservation Plan to July 1, 2026.
The Company adopted the Tax Benefits Preservation Plan, as amended on March 16, 2021, and June 20, 2023, in order to protect shareholder value against a possible limitation on the Company’s ability to use its tax net operating losses (the “NOLs”) and certain other tax benefits to reduce potential future U.S. federal income tax obligations. The NOLs are a valuable asset to the Company, which may inure to the benefit of the Company and its shareholders. However, if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), its ability to fully utilize the NOLs and certain other tax benefits will be substantially limited and the timing of the usage of the NOLs and such other benefits could be substantially delayed, which could significantly impair the value of those assets. Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more of its “five-percent shareholders” (as such term is defined in Section 382 of the Code) increases by more than 50 percentage points over the lowest percentage of stock owned by such shareholder or shareholders at any time over a three-year period. The Tax Benefits Preservation Plan is intended to prevent against such an “ownership change” by deterring any person or group from acquiring beneficial ownership of 4.9% or more of the Company’s securities.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. Revenues
The following table disaggregates the Company’s revenue by source for the three and nine-month periods ended September 30, 2024 and 2023:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(In thousands)
Oil
$
16,871
$
21,333
$
47,202
$
60,327
Natural gas
4,349
7,183
13,302
27,378
NGL
8,837
9,633
25,813
27,010
Total revenues
$
30,057
$
38,149
$
86,317
$
114,715
Oil, Natural Gas and NGL revenues. A majority of the Company’s revenues come from sales of oil, natural gas and NGLs. In accordance with the contracts governing these sales, revenues are recorded at a point in time when control of the oil, natural gas and NGL production passes to the purchaser at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck. As the Company’s purchaser obtains 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 purchaser, 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, ad valorem, and other taxes expense in the condensed consolidated income statements.
Revenues Receivable. The Company records an asset in accounts receivable, net on its condensed consolidated balance sheet for revenues receivable from contracts with purchasers 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 on operated properties are typically collected the month after the Company delivers the related production to its purchaser. As of September 30, 2024 and December 31, 2023, the Company had revenues receivable of $15.2 million and $14.5 million, respectively. The Company did not record any credit losses on revenues receivable nor write-offs during the three and nine-month periods ended September 30, 2024 or 2023, as the Company’s purchasers of oil, natural gas and NGL have had no issues of payment collectability or lack of credit worthiness with the Company.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. Earnings per Share
The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share:
Net Income (loss)
Weighted Average Shares
Earnings Per Share
(In thousands, except per share amounts)
Three Months Ended September 30, 2024
Basic earnings per share
$
25,484
37,134
$
0.69
Effect of dilutive securities
Restricted stock units
—
20
Restricted stock awards
—
12
Performance share units(1)
—
—
Stock options
—
14
Diluted earnings per share(2)
$
25,484
37,180
$
0.69
Three Months Ended September 30, 2023
Basic earnings per share
$
18,670
36,969
$
0.51
Effect of dilutive securities
Restricted stock units
—
118
Restricted stock awards
—
15
Performance share units(1)
—
—
Stock options
—
59
Diluted earnings per share(2)
$
18,670
$
37,161
$
0.50
Nine Months Ended September 30, 2024
Basic earnings per share
45,403
37,087
$
1.22
Effect of dilutive securities
Restricted stock units
—
21
Restricted stock awards
—
26
Performance share units(1)
—
—
Stock options
—
16
Diluted earnings per share(2)
$
45,403
37,150
$
1.22
Nine Months Ended September 30, 2023
Basic earnings per share
$
59,065
36,906
$
1.60
Effect of dilutive securities
Restricted stock units
—
161
Restricted stock awards
—
8
Performance share units(1)
—
—
Stock options
—
48
Diluted earnings per share(2)
$
59,065
$
37,123
$
1.59
____________________
(1)The performance share unit awards are contingently issuable and are considered in the calculation of diluted earnings per share. The Company assesses the number of awards that would be issuable, if any, under the terms of the agreement if the end of the reporting period were the end of the contingency period.
(2)The incremental shares of potentially dilutive restricted stock units, restricted stock awards, and stock options were included for the three and nine-month periods ended September 30, 2024 as their effect was dilutive under the treasury stock method. The incremental shares of potentially dilutive restricted stock units and stock options were included for the three and nine-month periods ended September 30, 2023 as their effect was dilutive under the treasury stock method.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
12. Subsequent Events
On November 5, 2024, the Board declared a cash dividend of $0.11 per share of the Company’s common stock, payable on November 29, 2024 to shareholders of record on November 15, 2024.
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. This discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report, as well as our audited consolidated financial statements and the accompanying notes included in the 2023 Form 10-K. Our discussion and analysis includes the following subjects:
•Overview;
•Consolidated Results of Operations;
•Liquidity and Capital Resources; and
•Critical Accounting Policies and Estimates.
The financial information with respect to the three and nine-month periods ended September 30, 2024 and 2023, discussed below, is unaudited. In the opinion of management, this information contains all adjustments, which consist only of normal recurring adjustments unless otherwise disclosed, necessary to state fairly the accompanying unaudited condensed consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year.
Overview
We are an independent oil and natural gas company with a principal focus on acquisition, development and production activities in the U.S. Mid-Continent region (“Mid-Con”).
The charts below show production by product and percent revenues for the three and nine-month periods ended September 30, 2024 and 2023:
Total MBoe production for the three-month period ended September 30, 2024 was comprised of approximately 14.8% oil, 50.4% natural gas and 34.8% NGL compared to 16.8% oil, 55.5% natural gas and 27.7% NGL in 2023. Total MBoe production for the nine-month period ended September 30, 2024 was comprised of approximately 14.5% oil, 54.2% natural gas and 31.3% NGL compared to 17.4% oil, 54.8% natural gas and 27.8% NGL in 2023.
•On August 30, 2024, the Company closed on its previously announced acquisition of certain producing oil and natural gas properties in the Cherokee Play of the Western Anadarko Basin for $123.8 million, before customary post-closing adjustments. See “Note 5 — Acquisitions” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report and Liquidity and Capital Resources section of Item 2 for additional information.
•On September 30, 2024, Mr. Jonathan Frates notified the Board of Directors (the “Board”) of the Company that he will resign as Chairman of the Board, effective October 1, 2024. On September 30, 2024, the Board announced that it had appointed (i) Mr. Frates to serve as the Company’s Executive Vice President and Chief Financial Officer, effective October 21, 2024 and (ii) Mr. Brandon Brown to serve as the Company’s Senior Vice President and Chief Accounting Officer, effective October 21, 2024. Mr. Brown will no longer serve as Chief Financial Officer upon the commencement of Mr. Frates’ role as Chief Financial Officer on October 21, 2024.
•On September 30, 2024, the Company announced that the Board had appointed Mr. Vincent Intrieri, a Board member, to serve as the Company’s Chairman of the Board, effective October 1, 2024, to fill the vacancy following Mr. Frates’ resignation from the Board. Mr. Intrieri will also join the Board’s Compensation and Nominating and Governance Committees.
•On August 6, 2024, the Board declared a cash dividend of $0.11 per share of the Company’s common stock, which was paid on August 30, 2024 to shareholders of record on August 16, 2024. The total payout was approximately $4.1 million.
Outlook
We remain committed to growing the cash value and generation capability of our asset base in a safe, responsible and efficient manner, while prudently allocating capital to high-return, organic growth projects. These standalone projects include (1) Development in the Cherokee Shale Play, which includes completions of four drilled uncompleted (“DUC”) wells, and initiating a drilling program, (2) Production Optimization program through artificial lift conversions to more efficient and cost-effective systems and high-graded heel completion projects in the NW Stack and (3) opportunistic leasing that could bolster future development and complement the recently acquired Cherokee assets. Our legacy non-Cherokee leasehold remains approximately 99% held by production, which cost-effectively maintains our development option over a reasonable tenor. These legacy non-Cherokee assets have higher relative gas content for which prices are not yet at optimal levels to resume development or material reactivations. We will continue to monitor forward-looking commodity prices, project results, costs and other factors that could influence returns and adjust capital allocations accordingly. These and other factors will continue to shape our development decisions for the remainder of the year and beyond.
We also remain vigilant in evaluating further merger and acquisition opportunities, with consideration of our strong balance sheet and commitment to our capital return program.
Consolidated Results of Operations
Our consolidated revenues and cash flows are generated from the production and sale of oil, natural gas and NGL. Our revenues, profitability and future growth depend substantially on prevailing prices received for our production, the quantity of oil, natural gas and NGL we produce, and our ability to find and economically develop and produce our reserves. Prices for oil, natural gas and NGL fluctuate widely and are difficult to predict. To provide information on the general trend in pricing, the average New York Mercantile Exchange ("NYMEX") prices for oil and natural gas are shown in the tables below:
In order to reduce our exposure to price fluctuations, from time to time we may enter into commodity derivative contracts for a portion of our anticipated future oil, natural gas and NGL production as discussed in “Item 3. Quantitative and Qualitative Disclosures About Market Risk.” During periods where the strike prices for our commodity derivative contracts are below market prices at the time of settlement, we may not fully benefit from increases in the market price of oil and natural gas. Conversely, during periods of declining oil and natural gas market prices, our commodity derivative contracts may partially offset declining revenues and cash flows to the extent strike prices for our contracts are above market prices at the time of settlement. See “Note 3 — Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.
Revenues
Consolidated revenues for the three and nine-month periods ended September 30, 2024 and 2023 are presented in the table below (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Change
2024
2023
Change
Oil
$
16,871
$
21,333
$
(4,462)
$
47,202
$
60,327
$
(13,125)
Natural gas
4,349
7,183
(2,834)
13,302
27,378
(14,076)
NGL
8,837
9,633
(796)
25,813
27,010
(1,197)
Total revenues
$
30,057
$
38,149
$
(8,092)
$
86,317
$
114,715
$
(28,398)
Oil, Natural Gas and NGL Production and Pricing
Our production and pricing information for the three and nine-month periods ended September 30, 2024 and 2023 is shown in the table below:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Change
2024
2023
Change
Production data
Oil (MBbls)
231
267
(36)
624
816
(192)
Natural gas (MMcf)
4,729
5,276
(547)
13,979
15,373
(1,394)
NGL (MBbls)
544
440
104
1,348
1,301
47
Total volumes (MBoe)
1,563
1,586
(23)
4,302
4,679
(377)
Average daily total volumes (MBoe/d)
17.0
17.2
(0.2)
15.7
17.1
(1.4)
Average prices—as reported(1)
Oil (per Bbl)
$
73.07
$
79.83
$
(6.76)
$
75.66
$
73.88
$
1.78
Natural gas (per Mcf)
$
0.92
$
1.36
$
(0.44)
$
0.95
$
1.78
$
(0.83)
NGL (per Bbl)
$
16.25
$
21.89
$
(5.64)
$
19.15
$
20.77
$
(1.62)
Total (per Boe)
$
19.23
$
24.04
$
(4.81)
$
20.07
$
24.52
$
(4.45)
Average prices—including impact of derivative contract settlements
Oil (per Bbl)
$
73.71
$
79.83
$
(6.12)
$
75.89
$
73.88
$
2.01
Natural gas (per Mcf)
$
0.92
$
1.36
$
(0.44)
$
0.95
$
2.16
$
(1.21)
NGL (per Bbl)
$
16.34
$
21.89
$
(5.55)
$
19.19
$
20.77
$
(1.58)
Total (per Boe)
$
19.36
$
24.04
$
(4.68)
$
20.11
$
25.77
$
(5.66)
__________________
(1) Prices represent actual average sales prices for the periods presented and do not include effects of derivative settlements.
Variances in oil, natural gas and NGL revenues attributable to changes in the average prices received for our production and total production volumes sold for the three and nine-month periods ended September 30, 2024 are shown in the table below (in thousands):
Three Months Ended September 30, 2024
Nine Months Ended September 30, 2024
2023 oil, natural gas and NGL revenues
$
38,149
$
114,715
Change due to production volumes
(459)
(7,579)
Change due to average prices
(7,633)
(20,819)
2024 oil, natural gas and NGL revenues
$
30,057
$
86,317
Oil, natural gas, and NGL revenues decreased primarily due to lower commodity prices and production volumes. Production volumes decreased primarily due to the natural declines of our producing wells, partially offset by one month of production for our newly acquired wells in the Cherokee Play of the Western Anadarko Basin. The Company did not drill any new wells in the trailing twelve months ended September 30, 2024. See "Item 1A—Risk Factors" included in our 2023 Form 10-K for additional discussion of the potential impact these events may have on our future revenues.
Operating Expenses
Operating expenses for the three and nine-month periods ended September 30, 2024 and 2023 consisted of the following (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Change
2024
2023
Change
Lease operating expenses
$
9,104
$
11,450
$
(2,346)
$
28,734
$
31,946
$
(3,212)
Production, ad valorem, and other taxes
1,813
2,031
(218)
5,550
8,522
(2,972)
Depreciation and depletion—oil and natural gas
8,345
4,217
4,128
16,771
11,415
5,356
Depreciation and amortization—other
1,605
1,637
(32)
4,947
4,870
77
Total operating expenses
$
20,867
$
19,335
$
1,532
$
56,002
$
56,753
$
(751)
Lease operating expenses ($/Boe)
$
5.82
$
7.22
$
(1.40)
$
6.68
$
6.83
$
(0.15)
Production, ad valorem, and other taxes ($/Boe)
$
1.16
$
1.28
$
(0.12)
$
1.29
$
1.82
$
(0.53)
Depreciation and depletion—oil and natural gas ($/Boe)
$
5.34
$
2.66
$
2.68
$
3.90
$
2.44
$
1.46
Production, ad valorem, and other taxes (% of oil, natural gas and NGL revenue)
6.0
%
5.3
%
0.7
%
6.4
%
7.4
%
(1.0)
%
Lease operating expenses decreased for the three and nine-months ended September 30, 2024 compared to the same period in 2023 due to a reduction in utility costs and expense workovers.
Production, ad valorem, and other taxes for the three and nine-month periods ended September 30, 2024 decreased primarily due to lower commodity prices, sales volumes, and related revenues. Production, ad valorem, and other taxes for the three-month period ended September 30, 2024 increased as a percentage of oil, natural gas and NGL revenue primarily due to an increase in ad valorem taxes. Production, ad valorem, and other taxes for the nine-month period ended September 30, 2024 decreased as a percentage of oil, natural gas and NGL revenue primarily due to a decrease in ad valorem taxes as a result of decreased valuation assessments on our oil and gas properties.
The increase in depreciation and depletion for oil and natural gas properties was primarily the result of our acquisition in the Cherokee Play of the Western Anadarko Basin during the three months ended September 30, 2024, which increased the value of our proved properties and subsequently our combined depletion rate for the period ended September 30, 2024.
A ceiling limitation calculation is performed at the end of each quarter. If the full cost pool balance exceeds the ceiling limitation, an impairment of the full cost pool is required. Calculation of the full cost ceiling test is based on, among other factors, trailing twelve-month first-day-of-the-month index prices (“SEC prices”) as adjusted for price differentials and other contractual arrangements. The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at September 30, 2024 were $78.64 per barrel of oil and $2.21 per MMBtu of natural gas, before price differential adjustments.
The ceiling limitation was not exceeded; therefore, no full cost ceiling limitation impairments were recorded during the three or nine-month periods ended September 30, 2024 or 2023. During certain periods within the past five years, the SEC prices used in the full cost ceiling test have been lower than the SEC prices used for the September 30, 2024 full cost ceiling test and resulted in material ceiling limitation impairments. Full cost pool ceiling limitation impairments have no impact to our cash flow or liquidity.
Based on the SEC prices over the trailing ten months ended October 31, 2024, as well as two months of NYMEX strip pricing for November and December of 2024 as of October 25, 2024, we estimate the SEC prices utilized in the December 31, 2024 full cost ceiling test may be $75.95 per barrel of oil and $2.17 per MMBtu of natural gas (the "estimated fourth quarter prices"). Applying these estimated fourth quarter prices, and holding all other inputs constant to those used in the calculation of our September 30, 2024 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the fourth quarter of 2024.
Any actual full cost ceiling limitation impairment recognized in future quarters may fluctuate significantly from projected amounts based on the outcome of numerous other factors such as declines in the actual trailing twelve-month SEC prices, lower NGL pricing, changes in estimated future development costs and operating expenses, and other adjustments to our levels of proved reserves.
Other Operating Expenses
Other operating expenses for the three and nine-month periods ended September 30, 2024 and 2023 consisted of the following (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Change
2024
2023
Change
General and administrative
$
2,304
$
2,619
$
(315)
$
8,686
$
8,004
$
682
Restructuring expenses
260
42
218
341
343
(2)
Employee termination benefits
—
—
—
—
19
(19)
(Gain) loss on derivative contracts
(1,866)
—
(1,866)
(1,866)
(1,447)
(419)
Other operating (income) expense, net
—
(31)
31
24
(152)
176
Total other operating expenses
$
698
$
2,630
$
(1,932)
$
7,185
$
6,767
$
418
The decrease in general and administrative expenses for the three-month period ended September 30, 2024 was primarily the result of a decrease in personnel costs and professional fees. The increase in general and administrative expenses for the nine-month period ended September 30, 2024 was primarily the result of an increase in personnel costs.
The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands):
Our derivative contracts were not designated as accounting hedges and, as a result, changes in their fair values were recorded each quarter as a component of operating expenses. Internally, management has historically viewed the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil, natural gas and NGL production to determine “effective prices.” In general, cash is received on settlement of contracts due to lower oil and natural gas prices at the time of settlement, compared to the contract price for our commodity derivative contracts; and, cash is paid on settlement of contracts due to higher oil, natural gas and NGL prices at the time of settlement, compared to the contract price for our commodity derivative contracts. See further discussion of derivative contracts in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” included in Part I of this Quarterly Report.
Other Income (Expense)
Our other income (expense) for the three and nine-month periods ended September 30, 2024 and 2023 are presented in the table below (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Other income (expense)
Interest income (expense), net
$
1,553
$
2,455
$
6,742
$
7,782
Other income (expense), net
—
31
92
88
Total other income
$
1,553
$
2,486
$
6,834
$
7,870
Interest income, net during the three and nine-month periods ended September 30, 2024 and 2023is primarily comprised of interest income on cash deposits. The decrease in interest income, net is due to the Company’s lower cash balance primarily as a result of our acquisitions, and to a lesser extent, capital expenditures and quarterly dividend payments.
Income tax (benefit)
We recorded income tax benefit of $15.4 million for the three and nine-months ended September 30, 2024 which directly relates to our partial valuation allowance release. As the partial valuation allowance release as of September 30, 2024 was higher than the partial valuation allowance release as of December 31, 2023 of $50.6 million, we recognized $15.4 million of deferred federal and state income tax benefit for the three and nine-months ended September 30, 2024.
Liquidity and Capital Resources
As of September 30, 2024, our cash and cash equivalents, including restricted cash was $94.1 million. We expect our cash on hand and cash from operations to be adequate to meet our short and long-term liquidity needs. We had no outstanding term or revolving debt obligations as of September 30, 2024.
Working Capital and Sources and Uses of Cash
Our principal sources of liquidity for the next year include cash flows from operations and cash on hand.
On August 30, 2024, the Company closed on its previously announced acquisition of certain producing oil and natural gas properties in the Cherokee Play of the Western Anadarko Basin. The acquisition had an effective date of July 1, 2024 and the the consolidated income statements include activity for September 2024. After customary closing adjustments, the Company paid $123.8 million in cash on hand, of which a portion is held in escrow. As part of the joint development agreement in our Cherokee Play Acquisition, the Company completed and participated in four wells, and could spud up to two wells in the fourth quarter. See “Note 5—Acquisitions” to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report for more information. The condensed consolidated statement of cash flows contains $2.2 million in acquisition of assets related to a separate acquisition of producing properties within our incumbent area of operations in Mid-Con.
Cash payments for acquisitions of $126.0 million, dividend payments to shareholders of $68.2 million, and capital expenditures of $13.6 million were the primary drivers in the reduction of working capital to $66.8 million at September 30, 2024 compared to $228.5 million at December 31, 2023. These cash outflows were partially offset by cash flows from operations of $47.9 million.
Our cash flows from operations are substantially dependent on current and future prices for oil, natural gas and NGL, which historically have been, and may continue to be, volatile. Cash flows from operations are also affected by timing of cash receipts and disbursements and changes in other working capital assets and liabilities.
Our cash flows for the nine-month periods ended September 30, 2024 and 2023 are presented in the following table and discussed below (in thousands):
Nine Months Ended September 30,
2024
2023
Cash flows provided by operating activities
$
47,940
$
89,359
Cash flows used in investing activities
(138,662)
(35,531)
Cash flows used in financing activities(1)
(69,141)
(79,053)
Net (decrease) increase in cash and cash equivalents and restricted cash
$
(159,863)
$
(25,225)
__________________
(1) Includes$68.2 million and $77.8 million in dividend payments for the nine-month periods ended September 30, 2024 and 2023, respectively.
Cash Flows from Operating Activities
The decrease in cash flows from operations for the nine-month period ended September 30, 2024 compared to the same period in 2023 is primarily due to a decrease in revenues from lower commodity prices and sales volumes from the natural declines of our producing wells, partially offset by one month of production for our newly acquired wells in the Cherokee Play of the Western Anadarko Basin.
Cash Flows from Investing Activities
Our cash flows used in investing activities during the nine-month periods ended September 30, 2024 and 2023 reflect acquisitions of oil and gas properties for $126.0 millionand$11.2 million, andcapital expenditures of $13.6 million and $25.7 million, respectively. Our capital expenditures are primarily related to completion, production optimization and leasing activities. However, the Company did not bring online any new wells in the trailing twelve months ended September 30, 2024.
Capital expenditures for the nine-month periods ended September 30, 2024 and 2023 are summarized below (in thousands):
Nine Months Ended September 30,
2024
2023
Capital Expenditures
Drilling, completion, and capital workovers
$
6,562
$
21,773
Leasehold and geophysical
6,893
(109)
Capital expenditures (on an accrual basis)
13,455
21,664
Acquisitions
125,950
11,232
Capital expenditures, including acquisitions
139,405
32,896
Changes in accounts payable and accrued expenses
258
5,263
Inventory material transfers to oil and natural gas properties
Cash used in financing activities for the nine-month period ended September 30, 2024 consisted primarily of $68.2 million in cash dividends, $0.4 million of cash used for tax withholdings paid in exchange for shares withheld on employee vested stock awards that were settled by net exercise, and finance lease payments of $0.6 million. Since 2023, the Company has paid cash dividends totaling $149.7 million, which represents $3.50 per share in special dividends and $0.53 per share in quarterly dividends for a total of $4.03 per share in cash dividends. Cash used in financing activities for the nine-month period ended September 30, 2023 consisted primarily of $77.8 million in cash dividends, $0.9 million of cash used for tax withholdings paid in exchange for shares withheld on employee vested stock awards that were settled by net exercise, and finance lease payments of $0.4 million. Net exercises of stock awards allows the holder of a stock award to tender back to us a number of shares at fair value upon the vesting of such stock award, that equals the employee payroll tax obligation due. We then remit a cash payment to the relevant taxing authority on behalf of the employee for their payroll tax obligations resulting from the vesting of their stock award.
Contractual Obligations and Off-Balance Sheet Arrangements
At September 30, 2024, our contractual obligations included asset retirement obligations, leases and other individually insignificant obligations. Additionally, we have certain financial instruments representing potential commitments that were incurred in the normal course of business to support our operations, including surety bonds. The underlying liabilities insured by these instruments are reflected in our balance sheets, where applicable. Therefore, no additional liability is reflected for the surety bonds or other instruments.
There were no other significant changes in total contractual obligations and off-balance sheet arrangements from those reported in the 2023 Form 10-K.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies and estimates, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2023 Form 10-K. For a discussion of recent accounting pronouncements, newly adopted and recent accounting pronouncements not yet adopted, see “Note 1—Basis of Presentation” to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report. We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first nine months of 2024.
ITEM 3.Quantitative and Qualitative Disclosures About Market Risk
General
This discussion provides information about the financial instruments we have historically used to manage commodity prices. All contracts were settled in cash and did not require the actual delivery of a commodity at settlement. Additionally, our exposure to credit risk and interest rate risk is also discussed.
Commodity Price Risk. Our most significant market risk relates to the prices we receive for our oil, natural gas and NGLs. Due to the historical price volatility of these commodities, from time to time, we have historically entered, depending upon our view of opportunities under the then-prevailing current market conditions, we enter into commodity derivative contracts for a portion of our anticipated production volumes for the purpose of reducing the impact of the variability of oil and natural gas prices.
We have used, and may use, a variety of commodity-based derivative contracts, including fixed price swaps, basis swaps and collars. At September 30, 2024, the Company's open derivative contracts consisted of natural gas and NGL commodity derivative contracts under which we will receive a fixed price for the contract and pay a floating market price to the counterparty over a specified period for a contracted volume. These commodity derivative contracts consisted of the following:
Period
Type of Derivative Instrument
Index(1)
Daily Volume (Bbl)
Weighted Average Price Per Barrel
October 2024 - December 2024
Swaps
Mont Belvieu OPIS
400
$
42.76
October 2024 - December 2024
Swaps
NYMEX WTI
900
$
74.85
January 2025 - December 2025
Swaps
Mont Belvieu OPIS
300
$
39.69
January 2025 - December 2025
Swaps
NYMEX WTI
500
$
71.60
January 2026 - June 2026
Swaps
NYMEX WTI
300
$
68.67
(1) NGL swaps exclude ethane
There were no open derivative contracts at September 30, 2023.
Because we historically have not designated any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts are recognized as gains and losses in current period earnings. As a result, and when applicable, current period earnings could have been significantly affected by changes in the fair value of our commodity derivative contracts. Changes in fair value were principally measured based on a comparison of future prices to the contract price at the end of the period.
The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(Gain) loss on derivative contracts
$
(1,866)
$
—
$
(1,866)
$
(1,447)
Settlement gains (losses) on derivative contracts
$
199
$
—
$
199
$
5,876
See “Note 3 — Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.
Credit Risk. As applicable, we are exposed to credit risk related to counterparties to our derivative financial contracts. All of our derivative transactions are carried out in the over-the-counter market. The use of derivative transactions in over-the-counter markets involves the risk that the counterparties may be unable to meet the financial terms of the transactions. The counterparties for all of our current derivative transactions have had and continue to have an “investment grade” credit rating. We monitor the credit ratings of our derivative counterparties and considered our counterparties’ credit default risk ratings in determining the fair value of our derivative contracts. Our derivative contracts have historically been with multiple counterparties to minimize exposure to any individual counterparty, and in addition our counterparties have been large financial institutions.
We do not require collateral or other security from counterparties to support derivative instruments. We have master netting agreements with our derivative contract counterparties, which allows us to net our derivative assets and liabilities by commodity type with the same counterparty. As a result of the netting provisions, our maximum amount of loss under derivative transactions due to credit risk is limited to the net amounts due from the counterparties under the commodity derivative contracts. Therefore, we are not required to post additional collateral under our commodity derivative contracts.
We are also exposed to credit risk related to the collection of receivables from our joint interest partners for their proportionate share of expenditures on wells and properties we operate. Historically, our credit losses on joint interest receivables have been immaterial.
Under the supervision and with the participation of the Company’s management, including the Company’s CEO and CFO, the Company performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of the end of the period covered by this Quarterly Report. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024, to provide reasonable assurance that the information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Information regarding our risk factors appears in Item 1A. of our 2023 Form 10-K for the year ended December 31, 2023. These risk factors describe some of the assumptions, risks, uncertainties and other factors that could adversely affect our business or that could otherwise result in changes that differ materially from our expectations.
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds
Our current equity-based compensation plans include provisions that allow for the “net exercise” of share-settled vested awards by all plan participants. In a net exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the share-based award holders are settled by having the holder tender back to us a number of shares at fair value equal to the amounts due. Net exercises are treated as purchases and retirements of shares.
The following table presents a summary of share repurchases made by the Company during the three-month period ended September 30, 2024.
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program(2)
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in Millions)(2)
July 1, 2024 - July 31, 2024
—
$
—
—
$
75.0
August 1, 2024 - August 31, 2024
9,700
$
13.29
—
$
75.0
September 1, 2024 - September 30, 2024
—
$
—
—
$
75.0
Total
9,700
—
(1) Includes shares of common stock tendered by employees in order to satisfy tax withholding requirements upon vesting of their stock awards. Shares withheld are initially recorded as treasury shares, then immediately retired.
(2) In May 2023, the Company's Board of Directors approved the initiation of a share repurchase program authorizing the Company to purchase up to an aggregate of $75.0 million of the Company’s common stock.
ITEM 3.Defaults Upon Senior Securities
None.
ITEM 4.Mine Safety Disclosures
Not applicable.
ITEM 5.Other Information
During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined under Item 408(a) of Regulation S-K.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SandRidge Energy, Inc.
Date:November 7, 2024
By:
/s/ Jonathan Frates
Jonathan Frates
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
