Q1 2020 Earnings Call

And welcome to the Sandridge energy first quarter Twentytwenty earnings call.

At this time all participants are in a listen only mode.

After the speakers presentation, there will be a question and answer session twice. Good question. During this session you'll need to press star one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like turn the conference over to your speaker today.

Thank you welcome everyone.

With me today.

Carl Giesler or CEO, John Theater deal, though Mike Johnson CFO.

Last galvin SVP of reserves and business development among other members of our management.

We would like to remind you that today's call contains forward looking statements in assumptions, which are subject to risks and uncertainty and actual results may differ materially from those projected and these forward looking statements.

We will also refer to adjusted DNA and other non-GAAP financial measures reconciliations of these measures can be found on our website now let me turn the call over to Carl.

Thank you and good morning, we appreciate your interest in Sandridge, we issued our earnings release yesterday evening and will fall or 10-Q later today, both provide substitute detail on our operating and financial performance during the first quarter.

Accordingly will concentrate this call on the recent major initiatives at our company and their impact to our business, both near and longer term.

To dress Cobot 19 up front I know that like companies everywhere weve instituted appropriate procedures and policies to protect the health and maintain the productivity of our employees.

As pandemic, you balls would act responsibly and in line with federal state and local guidelines.

We have taken advantage of the recent steep downdraft in commodity prices to focus more rigorously on the fundamental function couple of business.

Namely to operate and at the appropriate time grow.

Our assets in a safe responsible cost efficient in cash return generating manner.

Our immediate emphasis has been to optimize cash flow.

That said, we have reexamined cost across our business.

Corporate we recently implemented or second reduction enforced this year.

Lowering our staff count from around 120 at the end of 2019.

To about 26 by the end of the second quarter.

We've also initiated more than 3 million annual office software and other non personnel savings measures.

We expect year over year, adjusted DNA to fall by more than 50% from 21 29 billion in 2019, the $13 million issue.

Once the impact of a recent corporate initiatives has flowed through we anticipate run rate adjusted you need to settle around 11 million per year.

In the field. We've also reduced personnel from about 150 year in 19 to around 100 today.

Coupling that streamlined workforce with non personnel cost reductions such as aggressive vendor bidding in compression rightsizing.

We expect year over year Elouise to fall by almost 45%.

91 million last year, just over 50 million this year.

Once the impact of our recent field initiatives has flowed through we anticipate run rate L. are we to settle below 45 million.

Also in the field in addition to reducing costs, we've been diligent about actively monitoring our properties to optimize cash flow in the current low commodity price environment.

Beyond cost savings also committed to limiting our capex to that which is required for safety or mechanical integrity or for most band quit quick payback projects.

We expect year over year Capex to fall by about 95% from 162 million last year to approximately 7 million this year.

Further to optimize cash flow, we took advantage of the recent increasing gas future prices the hedging up to 70% of our expected PDP gas production through October of this year.

As with other Npvs. This brings downturn in commodity prices negatively impacted our borrowing base, which was recently, we determined that 75 million.

Our drawn borrowing so I will remain well below that amount. Additionally, we recently agreed to sell our corporate headquarters our largest non cash generating asset the 35.5 million following a competitive process and he very challenging market.

That sell closes in the third quarter this year.

It will not only meaningfully improve our liquidity, but also save is more than two and a half million an annual maintenance expense.

Further to liquidity our current hedge book has a monetizable mark to market value of approximately 5 million.

Given our relatively low debt level. The recently agreed headquarter sale as well as our significant cost and Capex reductions, we remain confident no liquidity situation and options to expand or access to capital.

As evidence of this note that we chose not to extend the tenor over current credit facility past April 2021.

Simply wasn't worth increased pricing and other restrictions that would've been required in this historically tight oil and gas bank market.

Rest assured, though we'll continue to work with our bank group in modern the market for appropriate ways to access capital as we execute our business plan.

An added benefit of our internally focused cash flow and liquidity initiatives is that they will position us well to take advantage of and growth opportunities that the market might provide.

Whether organically or through acquisition, we will continue to evaluate ways to grow and upgrade or asset base on an economically accretive basis.

We expect that are costing capital discipline, our diligence and evaluating opportunities and our patients which serve our shareholders well.

We'd be remiss not to public we thank our employees.

Despite the hardships and challenges from cobot 19, as well as significant changes within our organization or streak of no reportable DHS related incidents moves into its 22nd month.

Additionally, our updated 2020 production guidance remains relatively flat compared to the substantial downward reductions in our costs in cap ex guidance not a small feet.

Finally, I want to personally thank three key members of our executive team who move onto other opportunities in July.

John Mike and Lance have been professional engaged and most of all it's also ironically indispensable and successfully navigating the recent changes and challenges of the current environment, we wish them well.

Well now open the call to questions.

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question press, the pound or how should key please standby well, we compile the Q name roster.

Your first question comes from Noel Parks with Cook and Palmer Your line is open.

Good morning.

Good morning.

I just had a few questions I'm looking at the Mississippian production whatever roughly does the the base decline standard that or nowadays.

Yeah. So we're we're in the.

Roughly 25% or so just depending on the product profitability basis.

25% per year.

Okay.

Great and.

I actually would be a the sale of the headquarters there just wondering is there.

Any shift in expenses on the income statement as a result of that I'm, just I guess going from.

Oney asset to Ah, I guess running or leasing it from Karen.

[noise] it'll be an outright sale and we've negotiated the ability to retain a few floors that will be more than sufficient for needs through the end of this year.

And that will be rent free.

At the end of this year will need to find alternative office space that I think will be.

Incredibly cheaper than the two and half million, we're paying to keep the building.

Okay, Great got it and Tom.

How does the borrowing base redetermination process.

What is it mainly impacted.

Primarily right by use of Oh a much.

More conservative price deck on the banks part of any different assumptions about.

You know production type curves or anything that they're also laid down.

Yeah, the unfortunate lock of having one of the worst month ever to have a bank borrowing base redetermination.

All right.

And I, just did roughly what what sort of long term deck, where they applying where they into thirtys or something like that or.

It is far less if that.

Really okay.

Okay. So its safe to say, even less than say, where the current strip is now.

For sure.

Okay.

So that really was sort of a sort of all our worst case really pessimistic commodity price you as they used to determine the base that then.

That's right. It's also fair. This is a bank group that has stood what this for a long long long time and.

You know.

At least last five or so years had not been smoothed the stride.

Sure under understood.

And.

One thing I'm, just taking a look back at the at the 10-K it looked like the HM acreage expirations that you showed there were a for 2020 about 26000 gross 15000 net and I'm just wondering if you had.

Was acreage that.

Wasn't yeah wasn't considered core for you when you were a plan to let it go or if you had done some lease extensions on on some of those.

Yeah. No. This is John sooner that was predominantly in North Park.

Some acreage to the.

Southern into the play that was not in our core that we've ever going to advertise through our through our maps that we've shown some out kind of exterior acreage.

Okay. So there were no no pods or anything in that acreage.

No Sir.

Okay.

Great I think that's all for me Thanks a lot.

Thank you.

There are no further questions at this time, ladies and gentlemen. This concludes todays conference call you may now disconnect.

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