Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SD > SEC Filings for SD > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for SANDRIDGE ENERGY INC

Form 10-Q for SANDRIDGE ENERGY INC


9-Nov-2012

Quarterly Report


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 the Company's business, financial condition, results of operations, liquidity and capital resources. This discussion and analysis should be read in conjunction with the Company's unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report, as well as the Company's audited consolidated financial statements and the accompanying notes included in the 2011 Form 10-K. The Company's discussion and analysis includes the following subjects:
Overview of the Company;

Recent Developments;

Recent Accounting Pronouncements;

Results by Segment;

Consolidated Results of Operations; and

Liquidity and Capital Resources.

The financial information with respect to the three and nine-month periods ended September 30, 2012 and 2011, discussed below, is unaudited. In the opinion of management, this information contains all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the 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 of the Company

SandRidge is an independent oil and natural gas company concentrating on development and production activities in the Mid-Continent, west Texas and Gulf of Mexico. The Company's primary areas of focus are the Mississippian formation in the Mid-Continent area of Oklahoma and Kansas and the Permian Basin in west Texas. The Company owns and operates additional interests in the Mid-Continent, Gulf of Mexico, WTO and Gulf Coast.

In April 2012, the Company completed the Dynamic Acquisition for total consideration of approximately $1.2 billion. Dynamic is an oil and natural gas exploration, development and production company with operations in the Gulf of Mexico. In June 2012, the Company acquired the Gulf of Mexico Properties which consisted of approximately 184,000 gross (103,000 net) acres of oil and natural gas properties in the Gulf of Mexico for approximately $38.5 million, net of purchase price adjustments and subject to post-closing adjustments. These acquisitions expanded the Company's presence in the Gulf of Mexico, adding oil and natural gas reserves and production to its existing asset base in this area.

The Company also operates businesses that are complementary to its primary development and production activities, including gas gathering and processing facilities, an oil and gas marketing business and an oil field services business, including a drilling rig business. These complementary businesses provide the Company with operational flexibility and an advantageous cost structure by reducing the Company's dependence on third parties for these services. The extent to which each of these supplemental businesses contributes to the Company's consolidated results of operations largely is determined by the amount of work each performs for third parties. Revenues and costs related to work performed by these businesses for the Company's own account are eliminated in consolidation and, therefore, do not directly contribute to the Company's consolidated results of operations.

Recent Developments

August 2012 Debt Offering. In August 2012, the Company issued $825.0 million of unsecured 7.5% Senior Notes due 2023 and $275.0 million of additional unsecured 7.5% Senior Notes due 2021. Net proceeds from this offering were approximately $1.1 billion, after deducting offering expenses and excluding accrued interest funded through the offering, and were used to fund the Company's tender offer for, and subsequent redemption of, its Senior Floating Rate Notes, as described below, and for general corporate purposes, including to fund the Company's capital expenditures.

Tender Offer and Redemption of Senior Floating Rate Notes. In August 2012, the Company announced a cash tender offer to purchase any and all of the outstanding $350.0 million aggregate principal amount of its Senior Floating Rate Notes for total consideration of $1,002.50 per $1,000 principal amount of such notes tendered by August 17, 2012. Holders tendering after August 17, 2012 were eligible to receive $972.50 per $1,000 principal amount of notes tendered. The Company purchased approximately 94.3%, or $329.9 million, of the aggregate principal amount of its Senior Floating Rate Notes pursuant to the tender


Table of Contents

offer, which expired on August 31, 2012. On September 4, 2012, the Company redeemed the remaining outstanding $20.1 million aggregate principal amount of its Senior Floating Rate Notes at par value, plus accrued interest. The premium paid to purchase these notes and the unamortized debt issuance costs associated with the notes, totaling $3.1 million, were recorded as a loss on extinguishment of debt for the three and nine-month periods ended September 30, 2012.

Senior Notes Exchange Offers. On October 11, 2012, the Company commenced registered exchange offers for the 7.5% Senior Notes due 2023, the additional 7.5% Senior Notes due 2021 and the 8.125% Senior Notes due 2022. The terms of each series of senior notes to be issued in these exchange offers will be identical to the terms of the respective series of senior notes to be exchanged, except that the transfer restrictions, registration rights and provisions for additional interest relating to the exchanged notes will not apply to the senior notes to be issued in the exchange offers. The exchange offers are expected to close in November 2012.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 1 to the Company's unaudited interim condensed consolidated financial statements included in Item 1 of this Quarterly Report.

Results by Segment

The Company operates in three business segments: exploration and production, drilling and oil field services and midstream gas services. These segments represent the Company's three main business units, each offering different products and services. The exploration and production segment is engaged in the acquisition, development and production of oil and natural gas properties and includes the activities of the Royalty Trusts. The drilling and oil field services segment is engaged in the contract drilling of oil and natural gas wells. The midstream gas services segment is engaged in the purchasing, gathering, treating and selling of natural gas. The All Other column in the tables below includes items not related to the Company's reportable segments, including its CO2 gathering and sales and corporate operations.

Management evaluates the performance of the Company's business segments based on income (loss) from operations, which is defined as segment operating revenues less operating expenses and depreciation, depletion, amortization and accretion. Results of these measurements provide important information to the Company about the activity and profitability of the Company's lines of business.


Table of Contents

The following table sets forth financial information regarding each of the Company's business segments for the three and nine-month periods ended September 30, 2012 and 2011 (in thousands).

                             Exploration and    Drilling and Oil Field     Midstream Gas
                               Production              Services               Services        All Other      Consolidated Total
Three Months Ended
September 30, 2012
Revenues                    $     493,848       $           95,307        $     30,901       $      945     $          621,001
Inter-segment revenue                 (74 )                (67,547 )           (20,582 )              -                (88,203 )
Total revenues              $     493,774       $           27,760        $     10,319       $      945     $          532,798

(Loss) income from
operations(1)               $     (48,454 )     $            2,515        $     (3,434 )     $  (26,498 )   $          (75,871 )
Interest income (expense)             351                        -                (136 )        (82,109 )              (81,894 )
Loss on extinguishment of
debt                                    -                        -                   -           (3,056 )               (3,056 )
Other (expense) income, net          (260 )                      -                   -            1,502                  1,242
(Loss) income before income
taxes                       $     (48,363 )     $            2,515        $     (3,570 )     $ (110,161 )   $         (159,579 )
Three Months Ended
September 30, 2011
Revenues                    $     321,456       $          108,595        $     44,111       $    2,420     $          476,582
Inter-segment revenue                 (67 )                (83,048 )           (29,457 )           (257 )             (112,829 )
Total revenues              $     321,389       $           25,547        $     14,654       $    2,163     $          363,753

Income (loss) from
operations(1)               $     717,327       $            2,507        $     (2,016 )     $  (21,236 )   $          696,582
Interest income (expense)             163                        7                (144 )        (58,978 )              (58,952 )
Other income (expense), net            11                        -                   -             (683 )                 (672 )
Income (loss) before income
taxes                       $     717,501       $            2,514        $     (2,160 )     $  (80,897 )   $          636,958


Table of Contents

                            Exploration and   Drilling and Oil Field    Midstream Gas                    Consolidated
                              Production             Services              Services       All Other         Total
Nine Months Ended September
30, 2012
Revenues                    $   1,271,803     $          297,715        $     81,861     $    3,904     $  1,655,283
Inter-segment revenue                (229 )             (207,014 )           (55,173 )            -         (262,416 )
Total revenues              $   1,271,574     $           90,701        $     26,688     $    3,904     $  1,392,867

Income (loss) from
operations(2)               $     614,045     $           10,672        $     (9,792 )   $  (80,039 )   $    534,886
Interest income (expense)             910                      -                (429 )     (217,909 )       (217,428 )
Bargain purchase gain             124,446                      -                   -              -          124,446
Loss on extinguishment of
debt                                    -                      -                   -         (3,056 )         (3,056 )
Other income, net                   1,750                      -                   -          1,879            3,629
Income (loss) before income
taxes                       $     741,151     $           10,672        $    (10,221 )   $ (299,125 )   $    442,477
Nine Months Ended September
30, 2011
Revenues                    $     906,461     $          272,587        $    148,367     $    8,525     $  1,335,940
Inter-segment revenue                (200 )             (197,469 )           (95,968 )         (928 )       (294,565 )
Total revenues              $     906,261     $           75,118        $     52,399     $    7,597     $  1,041,375

Income (loss) from
operations(2)               $     834,317     $            6,496        $     (7,115 )   $  (65,228 )   $    768,470
Interest income (expense)             283                    (94 )              (456 )     (179,810 )       (180,077 )
Loss on extinguishment of
debt                                    -                      -                   -        (38,232 )        (38,232 )
Other income (expense), net         1,690                      -                (485 )         (543 )            662
Income (loss) before income
taxes                       $     836,290     $            6,402        $     (8,056 )   $ (283,813 )   $    550,823


___________________


(1) Exploration and production segment income from operations includes a net loss of $193.5 million and a net gain of $596.7 million on commodity derivative contracts for the three-month periods ended September 30, 2012 and 2011, respectively.

(2) Exploration and production segment income from operations includes net gains of $221.7 million and $489.1 million on commodity derivative contracts for the nine-month periods ended September 30, 2012 and 2011, respectively.

Exploration and Production Segment

The Company currently generates the majority of its consolidated revenues and cash flow from the production and sale of oil and natural gas. The Company's revenues, profitability and future growth depend substantially on prevailing prices for oil and natural gas and on the Company's ability to find and economically develop and produce oil and natural gas reserves. Prices for oil and natural gas fluctuate widely. In order to reduce the Company's exposure to these fluctuations, the Company enters into commodity derivative contracts for a portion of its anticipated future oil and natural gas production. Reducing the Company's exposure to price volatility mitigates the risk that it will not have adequate funds available for its capital expenditure programs.


Table of Contents

The primary factors affecting the financial results of the Company's exploration and production segment are the prices the Company receives for its oil and natural gas production, the quantity of oil and natural gas it produces and changes in the fair value of commodity derivative contracts. Comparisons of production and price data are presented in the tables below. Changes from the 2011 periods to the 2012 periods reflect increased oil production throughout 2011 and continuing in 2012 due to the Company's focus on the development of its oil properties located in the Mid-Continent and Permian Basin and the acquisition of oil and natural gas properties located in the Gulf of Mexico during the second quarter of 2012.

                                      Three Months Ended September 30,              Change
                                            2012               2011          Amount        Percent
Production data
Oil (MBbls)(1)                                   4,943          3,192          1,751          54.9  %
Natural gas (MMcf)                              27,184         17,935          9,249          51.6  %
Total volumes (MBoe)                             9,473          6,181          3,292          53.3  %
Average daily total volumes (MBoe/d)               103             67             36          53.7  %
Average prices - as reported(2)
Oil (per Bbl)(1)                     $           84.50     $    79.31     $     5.19           6.5  %
Natural gas (per Mcf)                $            2.60     $     3.64     $    (1.04 )       (28.6 )%
Total (per Boe)                      $           51.54     $    51.52     $     0.02           0.0  %
Average prices - including impact of
derivative contract settlements
Oil (per Bbl)(1)                     $           91.84     $    76.94     $    14.90          19.4  %
Natural gas (per Mcf)                $            2.23     $     3.08     $    (0.85 )       (27.6 )%
Total (per Boe)                      $           54.32     $    48.66     $     5.66          11.6  %


                                      Nine Months Ended September 30,              Change
                                            2012              2011          Amount        Percent
Production data
Oil (MBbls)(1)                                 12,925          8,540          4,385          51.3  %
Natural gas (MMcf)                             64,832         52,440         12,392          23.6  %
Total volumes (MBoe)                           23,730         17,280          6,450          37.3  %
Average daily total volumes (MBoe/d)               87             63             24          38.1  %
Average prices - as reported(2)
Oil (per Bbl)(1)                     $          86.25     $    82.61     $     3.64           4.4  %
Natural gas (per Mcf)                $           2.23     $     3.66     $    (1.43 )       (39.1 )%
Total (per Boe)                      $          53.07     $    51.94     $     1.13           2.2  %
Average prices - including impact of
derivative contract settlements
Oil (per Bbl)(1)                     $          89.63     $    75.30     $    14.33          19.0  %
Natural gas (per Mcf)                $           2.31     $     3.41     $    (1.10 )       (32.3 )%
Total (per Boe)                      $          55.14     $    47.56     $     7.58          15.9  %


__________________
(1) Includes natural gas liquids.

(2) Prices represent actual average prices for the periods presented and do not include effects of derivative transactions.


Table of Contents

Exploration and Production Segment - Three months ended September 30, 2012 compared to the three months ended September 30, 2011

Exploration and production segment revenues increased $172.4 million, or 53.6%, to $493.8 million in the three-month period ended September 30, 2012 from the same period in 2011, as a result of a 1,751 MBbl, or 54.9%, increase in oil production, a $5.19 per Bbl, or 6.5%, increase in the average price received for oil production and a 9,249 MMcf, or 51.6%, increase in natural gas production. These increases were slightly offset by a $1.04 per Mcf, or 28.6%, decrease in the average price received for natural gas production. The increase in oil production was due to the continued focus on increased oil drilling throughout 2011 and continuing in 2012 in the Mid-Continent and Permian Basin. Additionally, the acquisition of oil and natural gas properties located in the Gulf of Mexico during the second quarter of 2012 contributed 1,148 MBbl in oil production and 8,505 MMcf in natural gas production during the three-month period ended September 30, 2012.

Due to the long-term nature of the Company's investment in the development of its properties, the Company enters into oil and natural gas swaps and collars for a portion of its production in order to stabilize future cash inflows for planning purposes. The Company's derivative contracts are not designated as accounting hedges and, as a result, realized and unrealized gains or losses on commodity derivative contracts are recorded as a component of operating expenses. Internally, management views the settlement of such derivative contracts as adjustments to the price received for oil and natural gas production to determine "effective prices." Realized gains or losses related to settlements of derivative contracts prior to their respective contractual maturities ("early settlements") are not considered in the calculation of effective prices. The effective price received for oil for the three-month period ended September 30, 2012 was $91.84 per Bbl compared to $76.94 per Bbl during the same period in 2011. The effective price received for natural gas for the three-month period ended September 30, 2012 was $2.23 per Mcf compared to $3.08 per Mcf during the same period in 2011.

During the three-month period ended September 30, 2012, the exploration and production segment reported a $193.5 million net loss on its commodity derivative positions ($29.0 million realized gain and $222.5 million unrealized loss) compared to a $596.7 million net gain on its commodity derivative positions ($7.8 million realized loss and $604.5 million unrealized gain) in the same period in 2011. The realized gain for the three-month period ended September 30, 2012 was due to lower oil prices at the time of settlement compared to the contract price for the Company's oil price swaps. The realized loss for the three-month period ended September 30, 2011 was due to higher oil prices at the time of settlement compared to the contract price for the Company's oil price swaps. Realized gains of $2.1 million resulting from early settlements were included in the realized gain for the three-month period ended September 30, 2012. Realized gains totaling $9.9 million resulting from early settlements were included in the net realized loss for the three-month period ended September 30, 2011. Unrealized gains or losses on derivative contracts represent the change in fair value of open derivative contracts during the period. The unrealized loss on the Company's commodity contracts recorded during the three-month period ended September 30, 2012 was attributable to an increase in average oil prices at September 30, 2012 compared to the average oil prices at June 30, 2012 or the contract price for contracts entered into during the third quarter of 2012. The unrealized gain on the Company's commodity contracts recorded during the three months ended September 30, 2011 was attributable to a decrease in average oil prices at September 30, 2011 compared to the average oil prices at June 30, 2011 or the contract price for contracts entered into during the third quarter of 2011.

For the three-month period ended September 30, 2012, the Company had a loss from operations of $48.5 million in its exploration and production segment compared to income from operations of $717.3 million in the same period in 2011. An increase of $169.8 million in oil and natural gas revenues was partially offset by increases of $50.5 million in production expense and $81.7 million in depreciation and depletion on oil and natural gas properties during the three-month period ended September 30, 2012. Additionally, the Company recorded a $193.5 million net loss on derivative contracts for the three months ended September 30, 2012 compared to a $596.7 million net gain for the same period in 2011. See further discussion of these changes under "Consolidated Results of Operations" below.

Exploration and Production Segment - Nine months ended September 30, 2012 compared to the nine months ended September 30, 2011

Exploration and production segment revenues increased $365.3 million, or 40.3%, to $1,271.6 million in the nine-month period ended September 30, 2012 from the same period in 2011, as a result of a 4,385 MBbl, or 51.3%, increase in oil production, a $3.64 per Bbl, or 4.4%, increase in the average price received for oil production and a 12,392 MMcf, or 23.6%, increase in natural gas production. These increases were slightly offset by a $1.43 per Mcf, or 39.1%, decrease in the average price received for natural gas production. The increase in oil production was due to the continued focus on increased oil drilling throughout 2011 and continuing in 2012 in the Mid-Continent and Permian Basin. Additionally, the acquisition of oil and natural gas properties located in the Gulf of Mexico during the second quarter of 2012 contributed 2,068 MBbl in oil production and 13,830 MMcf in natural gas production during the nine-month period ended September 30, 2012.


Table of Contents

The effective price received for oil for the nine-month period ended September 30, 2012 was $89.63 per Bbl compared to $75.30 per Bbl during the same period in 2011. The effective price received for natural gas for the nine-month period ended September 30, 2012 was $2.31 per Mcf compared to $3.41 per Mcf during the same period in 2011.

During the nine-month period ended September 30, 2012, the exploration and production segment reported a $221.7 million net gain on its commodity derivative positions ($7.4 million realized loss and $229.1 million unrealized gain) compared to a $489.1 million net gain on its commodity derivative positions ($34.7 million realized loss and $523.8 million unrealized gain) in the same period in 2011. The realized loss for the nine-month period ended September 30, 2012 was due primarily to non-cash realized losses of $117.1 million resulting from the amendment of certain 2012 derivative contracts to contracts maturing in 2014 and 2015 for the nine-month period ended September 30, 2012. These losses were partially offset by realized gains for the nine-month period ended September 30, 2012 on the Company's oil and natural gas swaps due to lower oil and natural gas prices at the time of settlement compared to the contract price. The realized loss for the nine-month period ended September 30, 2011 was due to higher oil prices at the time of settlement compared to the contract price for the Company's oil price swaps. The unrealized gains on the Company's commodity contracts recorded during the nine-month periods ended September 30, 2012 and 2011 were attributable to a decrease in average oil prices at the end of the period compared to the average oil prices at beginning of the period, or the contract price for contracts entered into during the period. Realized gains of $59.5 million and $48.1 million resulting from early settlements were included in the net realized losses for the nine-month periods ended September 30, 2012 and 2011, respectively.

For the nine-month period ended September 30, 2012, the Company had income from operations of $614.0 million in its exploration and production segment compared to income from operations of $834.3 million in the same period in 2011. An increase of $361.9 million in oil and natural gas revenues was offset by a decrease of $267.4 million in gain on derivative contracts and increases of $100.5 million in production expense and $162.7 million in depreciation and depletion on oil and natural gas properties during the nine-month period ended September 30, 2012. See further discussion of these changes under "Consolidated Results of Operations" below.

Drilling and Oil Field Services Segment

The financial results of the Company's drilling and oil field services segment depend primarily on demand and prices that can be charged for its services. On a consolidated basis, drilling and oil field service revenues earned and expenses incurred in performing services for third parties, including third-party working interests in wells the Company operates, are included in drilling and services revenues and expenses. Drilling and oil field service revenues earned and expenses incurred in performing services for the Company's own account are eliminated in consolidation.

As of September 30, 2012, the Company owned 31 drilling rigs. The table below presents a summary of the Company's rigs as of September 30, 2012 and 2011:

                               September 30,
                               2012         2011
Rigs
Working for SandRidge         21              21
Working for third parties      9              10
Total operational             30              31
Non-operational                1               -
Total rigs                    31              31

Drilling and Oil Field Services Segment - Three months ended September 30, 2012 compared to the three months ended September 30, 2011

Drilling and oil field services segment revenues increased $2.2 million to $27.8 million in the three-month period ended September 30, 2012 from the same period in 2011, and drilling and oil field services segment expenses also increased $2.2 million during the same period to $25.2 million. The increase in revenues and expenses was primarily attributable to an increase in oil field services work performed for third parties, including an increase in third-party working interest owners as a result of higher third-party working interests in wells . . .

  Add SD to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SD - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.