Q1 2021 SandRidge Energy Inc Earnings Call
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I would now like to hand, the conference over to your Speaker today Brandon Brown. Please go ahead.
Thank you on one.
From everyone with me today are causing the flare.
The loss of the lending, our CFO and Grace and Brannon, our CFO as well as the other members of maintenance.
We would like to remind you that today's call contains forward looking statements and assumptions, which are subject to risks and uncertainty.
And actual results may differ materially from those projected in these forward looking statements.
We may also refer to adjusted EBITDA, and adjusted G&A and other non-GAAP financial measures.
Reconciliations of these measures can be found on our website.
Thank you and good morning, hopefully you have had time to crude to the earnings release, the Investor presentation, We posted yesterday after the market closed.
Typically named the key brief our prepared remarks.
Today, However, we plan on being more expensive over the last several years and particularly during 2020 the board of management to have work.
Set if you will of company.
Almost all of the specs on focusing on our asset base the streamlining our capital organization on cost structures to reassessing tightening our capital allocation.
Accordingly, we think of the useful to your assessment of our company. If we walk through the presentation. In addition to reviewing the <unk> 21 earnings.
Before turning to that presentation, though.
Ill touch on a few highlights from the first quarter earnings.
Thank you simply put $1 21 was a strong quarter.
During the quarter of our net cash position increased just over $48 million almost $57 million to compared to just over $8 million of the prior quarter. The net cash position reflects more than a forklift.
From just over 51 $5 million and net debt that we had entering 2020.
Our adjusted EBITDA more than doubled from the prior quarter to almost $22 million from just over $9 million and for Q2, we should note. The <unk> 'twenty was burdened by a onetime $5 $3 million cash hedge loss due to the unwinding of all of our hedge position.
Even without that hedge on wine impact <unk> 21, adjusted EBITDA would still be meaningfully higher.
No that our board of management made the decision to unwind our calendar 'twenty one gas hedges last November based on an improving 2021 gas price outlook.
That decision appears prescient as those swaps were just over $2 60 per ml Btu.
Prices this year have been trading in the Nymex curve remain meaningfully higher or production held fairly steady during the quarter for.
For the mid Con assets, producing 17 of 5000 Boe per day compared to 19 in the prior quarter. This quarter quarter's production is particularly notable given the substantial two plus week negative impact from the Snowpocalypse in February.
Note that we closed the sale of our north of our basin asset on February 5th only North Park Basin for only 36 days during the <unk> 'twenty, one mix quarter over quarter production comparisons less relevant for that asset.
Price realizations, particularly for NGL appear to be migrating back up the pre pandemic level.
The <unk> 21 oil and gas realizations were up 41% of 19% from the prior quarter.
The <unk> realizations as a percentage of <unk>.
Was 29% and <unk> 21 up from 21% in the prior quarter of.
The cost discipline and continued to improve during the quarter with previously implemented initiatives now manifesting in our financials.
This quarter, we saved nearly $1 million off of adjusted G&A compared to the prior quarter lowering debt to $1 9 million from $1 14 per Boe.
While we continue to aggressively press G&A expenses, we do not expect G&A to remain the flow in our non-GAAP going quarterly basis.
The team also compressed with operating expenses by $3 million compared to <unk> 20, reducing at the $8 million or $4 85 per Boe.
This general level of LOE should be sustainable going forward, we believe that we compare favorably with our peers on both the G&A and LOE.
Per Boe basis.
It's relatively rare for an E&P company to generate net income.
That however, this quarter, earning net income of $35 million included an almost $20 million gain on the sales north of our base.
Also in the rarity category, we have no oil and gas impairments for the first time since the second quarter of 2019.
Lastly, in the rare category the <unk>.
So gradually with the waning challenges of COVID-19, our streak of without a recordable HSN. The incident is now on the 33 months as of the debt. We believe few of any public E&P public E&P companies can both of the street, which is further detailed on page seven of our latest investor presentation.
The final notable.
And $1 21 was the simplification of our assets.
Due in large parts of an increasingly challenging Colorado regulatory environment the eggs.
<unk> in February are high decline higher cost North Park basin assets. We're now focused solely on our core of long list of predominantly PDP mid con property.
Subsequent to the quarter, we purchased for $4 $9 million of cash all of the overwriting royalty interest assets the standards of Mississippian Trust one.
When that truck ultimately liquidate our company will no longer have any affiliate of truck. Additionally, we expect to receive back about $1 3 billion of that purchase price to reflect our 26, 9% ownership in that trial.
Before shifting to our Investor presentation, we should note that the release posted yesterday from the 10-Q that we'll file later today provide further detail on our financial and operational performance for <unk> 'twenty one.
Okay.
Now turning to the presentation.
We thought it'd be helpful to walk through what we're calling the reset sandridge.
Over the last few years before management focus of the company's assets optimized production profile streamline the organization cost structure and strengthen the balance.
The key highlights on page three.
We have streamlined our assets as of mid.
Con focused primarily on PDP assets.
Many of these properties, especially well as we've had them a long time.
The almost fully HCP.
The long lived shallow and diversified production profile.
The detailed data on page six overlay the cost of the acreage acreage position is more than 1000 miles of owned and operated SMB and electric infrastructure, representing more than 1 billion invested capital and providing the company both cost of strategic advantages.
Our assets have robust free cash flow capability.
Particularly with the low current cost.
Cost structure on the light capex requirements as well as improving commodity prices of utilization.
The cash generation potential provide several paths to increase shareholder value.
The non non net stress, we believe our PDP PV 10 value of approximates more than $230 billion and we can build on that.
Extending the flattening of production profile of small ball projects well.
By actively managing our price realizations further reducing costs.
By growing our asset base with opportunistic economically accretive acquisition and by maintaining exposure to commodity price upside.
As we realized value generate cash of <unk> committed to utilizing the assets, including our cash to maximize shareholder value.
The lease debt SCE value propositions of materially de risk the financial distress perspective by a strengthened balance sheet and financial flexibility.
Quarter end, we had a significant cash position of net life of liquidity approaching 65 million, excluding restricted cash we don't have and we see the.
Other significant off balance sheet financial commitments and with the recent purchase of the overriding royalty interest of standards. The signal Trust. One we have no affiliate of trust contingent operating net.
On the opposite end of the spectrum. The ended the quarter with approximately $1 7 billion, Nols, which could help meaningfully reduced tax impact of a dividend program or other use of cash.
Final worth highlighting that we take the ESG commitment fees.
We've implemented system processes of assets.
The next page four laid out of the forward strategy.
The bumper stickers that will completely focused on building the cash value of generation capability of the business.
Responsible efficient.
This just talks gas has forecast.
The first of its maximize the cash value of generation capacity of our income.
Mid con PDP assets.
You will hear a version of this of course throughout this call.
One of extending flatten out of production profile of high impact Workover on other small box project as well as low risk.
While the Activations.
We actively manage marketing options to maximize the price realization.
Three continue the press on costs.
The second promise to ensure we convert as much EBITDA to cash as possible.
Good friend once told me the plant by achieved Burger with it it doesn't count.
The keeping LOE cost type capex discipline.
The working capital management limited interest drag of key for us converting EBITDA into true free cash flow per.
Other partners to keep vigilant for opportunistic value accretive acquisitions.
The focus on PDP weighted assets, a set of core competencies cost efficiency and production of optimization.
Have sufficient midstream optionality and see on favorable regulatory areas.
The detailed on page 11, mid con assets purchased from the during resource of several new facts as well of last fall on this firm purchase of the Mississippian Trust overriding royalty interests are emblematic of this approach.
The final prong is to uphold our ESG responsibilities.
Congrats on a little bit quicker as a moving the remainder of this presentation.
Page five details of accordingly kind of assets.
The drug.
So are we in the sale of the point so one long list more than a nine year reserve life to shallow decline the tech.
Expectations of upper teen declines this year, the down shifting from low teens of lower going forward.
Three of diversified production, both from a hydrocarbon mix one of the gas NGL weighted the well base. So we have more than 950 producing well.
Finally, with most of the HPT this makes spending to minimum commitment from them.
All of the sums up to add the Nymex strip PV PV 10 value, we believe approximately more than 230.
Given that we've already discussed materials on page six from seven will move ahead to page eight this page outlines of very initiatives of the board of management of the last several years of led to an absolute and per the reduction of elderly of 70% of more than 40% of expected effectively yes.
The common theme among the most of the played out on the left.
Side of the page of the detailed quote unquote white paper.
Assessment of the bump every cost aspect of our field operations, where.
We're proud of that are per deal.
The one of the lowest of our peers.
Page nine addresses the topic on which we meet a lot of things out of Investor call. It the <unk> 'twenty earnings in early March, namely NGL and gas reserves.
Happy news that we've seen steady progress over the last few quarters that has continued into the current quarter.
No doubt journal bucket tailwind of health.
Has actively working with the largest off takers leveraging outsourced market multi execute on.
We will detail later of this presentation gas prices the NGL realizations from the two impacts on the PV TV some valuable assets.
Page 10 addresses our approach to production optimization before.
Last June we focus on relatively low capital quick payback high return, what the versus small bar projects and candidly enjoyed success of execution.
As we work to Delever, our balance sheet and expand our liquidity in capital assets of the latter part of 2020, we purposefully took a very disciplined approach limiting spend projects with a year on less payback.
Could it be the key.
Now with a much stronger balance sheet and liquidity position.
We plan to comprehensively evaluate well the activations drill out the completion even helps individuals.
More aggressive initiatives could significantly help flatten the already shallow base decline.
Skipping to page 12.
Fundamental to our reset has been the deliberate shift from of what it to what his organization.
Whilst the headwinds balance sheet constraints. The other reality is required of strategic change from a high capex production growth strategy to a more cost efficiency PDP optimization cash flow strategy for our company.
The other thing.
The internal capability and people to maybe some day.
I'll go back from the latter to the former.
Decided the radically the altra organization more fit for purpose.
It's also the operation had several key components.
The one rebalancing the weighting of the field versus corporate to reflect where we actually create value too.
To outsource necessary the more perfunctory of less core functions, such as out of operations accounting and administration.
The tax HR beyond the more than $6 million in current and G&A savings from this outsourcing provides us greater flexibility and scale of ability to adjust to changes of our business for the market.
Three contracts as needed in the drilling completion and other more episodic.
Sure.
One of happy outcome of this organizational makeover is that we've retained an upgraded multi skilled core and multi sales core team of fewer better other incentivize professionals with ample clear motivation to drive value for our company.
Page 13, Henry home another half of the outcome of the organizational streamlining and thats, where more than 60% reduction of G&A on both the absolute and per diem basis since 2018.
Here of a pause per se.
Up to this point, we've endeavored the convention that we of the asset base strong balance sheet of execution downsides to deliver on our overarching strategy to grow the cash value of generation capability of our business day possible.
Okay.
Now, we'd like to share our view on what the delivering on that strategy work.
<unk>.
Page 14 lays out how we think about our PV PV 10 reserve that.
The good busy so I'll try to unpack it.
Three bars from left to right show of year end of 'twenty audited reserve value at SEC pricing that includes the cost base.
And then we show the same year end 'twenty reserves.
Nymex pricing without the North Park Basin finally show of first quarter 'twenty, One reserve value with Nymex the may 5th Nymex pricing again without the cost base.
All three bars reflect the analysis consistent the standard industry reserve practice crude.
The performance commercial updates of price differentials operating expenses other commercials based on 12 month average.
That <unk> include the dollar per dollar value of the company's net cash position on its balance before.
Borrowers just reflect the value of our PD reserves.
Under each bar is the summary of the key drivers of the boot the price deck incorporated the <unk> Henry hub realizations, a lot of lead and average look back period of employee.
The two horizontal lines.
<unk> cost of the three vertical bars represent the market cap the.
Lower of horizontal on an influx of enterprise value essentially of market cap less of move downward for the value of on net cash position.
This enterprise value on is if you will the market proxy for the vertical bar reflects market view of.
On the value of the asset base separate and apart from the net cash position.
The one bumper sticker of the state from the state in my mind is that our estimate of the <unk> 21, PDP PV 10 value since $230 million, which is more than two times, our recent market proxy.
In terms of enterprise value of only 105.
And now the bumper sticker significant sensitivity of that PV PV 10 value to move in debt the Ti Henry hub NGL realizations as a percentage.
The last metric average NGL realizations has moved more than 10 percentage points over the last three months compared to the last 12 months on average.
Realizations hole of proved developed reserves should have even greater value.
Average LOE per BOE is also step down during the same timeframe also suggesting a higher <unk> reserve.
Finally on page 15, we circle back to where we start of this call with a <unk> 21 zone.
This page places of first quarter results in the context of our annual guidance shown as initially presented as well as on a divide by four quarterly basis, where crude.
Meaning that we're tracking better on production and substantially better on adjusted G&A in NGL and gas realizations.
At this time, thank you for your patience during this much longer than normal set of prepared remarks, we'll now open the call for questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then one on your telephone keypad, and we will pause for a moment, while we compile the Q&A roster.
And again, if you'd like to ask the question. Please press Star then one on your telephone keypad.
And our first question comes from the line of Noel Parks from Tuohy Brothers go ahead. Please.
Your line is open.
Good morning.
Good morning.
Thanks for thanks from the presentation in the.
Of the context on the.
Where you brought the company to strategically so at this point where you.
Huge.
The big improvement inefficiency.
And energy plan out there.
The shift away from <unk>.
The high kept the Capex strategy.
From from here forward can you maybe talk a little bit about.
Other than what one of I guess with commodity price sort of at the center of it.
More of an upside case scenario in terms of.
What would encourage you to.
Yes.
Get a little bit more aggressive in terms of of spending and and maybe.
Talk a little bit about.
What the next couple of years would look like if the.
Turns out that we're in.
Temporary.
Price the price Spike.
Oil and kind of.
On the strip comes out to the more right for gas.
And it looks like right now.
Yes.
I'll hand on this question.
I don't want to talk.
Of the Jack too far on the future.
Sure.
Get moving to maximize the cash and debt.
That is the overarching.
And so at this point the kind of answer the first part of your question.
I think we're focused on really two things so organically or internally.
All of these things that you can view the price on cost.
It's still a little bit of land on out.
The preview.
On G&A, but we'll continue to press you always find things and keep working.
The biggest thing that we started the.
The wood.
Disciplined and systematic about is working on.
Major off takers.
The thing about what Optionality.
To actively manage the price realizations, particularly around gas and Ngls that is an area. We just have not put a lot of times, we're very recently.
Meaningful.
Going forward.
Thirdly, and this is also the meaningful bucket we have been.
We are conscious of the liquidity until the closing of the major sales of the building and in North Park Basin, We got the cash.
And now of team is starting to do the homework and homework very importantly, there is no better way.
The project will look at while we activations drill outs.
Maybe some re fracs and things like that of course, we do that require more capital we'll have to get to the board the accounting process that those projects from the approval.
And that's something that we're definitely doing and then finally and this is a little bit happens in the background, we're very cognizant of the value of that.
The enterprise.
The smart of how you off of Le P&A obligations and Theres, some well over the coming end of life various fringe areas of our asset base. The people will actually pay is positive volume.
Making money in the half and ultimate P&A lot.
Okay.
With respect of the focus on shedding that that's a little bit less.
Evident quarter on quarter with I think something that will be very important and then finally like we said.
We continue to evaluate M&A that fits our criteria.
Right now.
A little bit of risk.
It plays to our core strengths of being smart on cost and.
Production profile of optimization and value.
Honestly in the regulatory regime debt.
Right.
The oil and gas the springs.
Great. Thanks for thanks for the the explanation.
And you just mentioned that with the.
The cash from the Colorado sale now in the door the.
It seems to kind of sort of do some homework.
The basically the other thing I was wondering.
The inventory.
Quick return projects.
<unk>.
Bringing wells back online and so forth.
Can you give a sense of as far as what you identified for those projects.
How many of them hit the kind of the.
The kind of.
Who are true at this point and.
And as you've been doing more more homework on.
What else is possible out there is some.
Is that likely the sort of replenish the.
The list of them.
Of rework jobs, you've done so far or.
Or do you think of it maybe is just defining.
Right.
List of projects for the coming year or something like that but not necessarily on a long term plan.
Sure good morning, the discretion.
Happy to answer that question.
I can't give you an exact number of inventory instead of the has a meaningful inventory debt.
But we are currently evaluating we'll be opportunistic as the market conditions, the same and continue to improve.
I do think that this inventory that is particularly robust.
On the meaningful book this year next year, particularly in the volume.
Okay terrific. So then that that really does kind of give you a line of sight.
Past or our current commodity cycle and.
And I guess that in terms of would give you a good deal of strategic flexibility.
Looking ahead as far as what you wanted to do on the capital or the acquisition side is that fair.
Thats fair and well I would just point out of that while we had a little bit overdone on for the operating wells, we have a lot of wells on a property that had temporarily.
And then of shut in.
So hard for us to evaluate play with.
And the good thing of these wells have already been drilled the.
Bringing it back on to the core nearly as much capex as re drilling.
Gotcha and then just the last one from me.
We've seen quite an uptick in corporate level.
Transaction activity M&A in just about every based on you can think of and really the from the last few weeks.
Just curious what you are.
What youre seeing.
In the.
In the mid Con and curious in particular, if you have any.
The private or PE backed assets that.
We have come to the market.
More and more things have come to the market in recent weeks.
And from time.
I think really all I have said this fraud business things kind of the market better.
The Canada.
We certainly look at them.
And you're right there has been an uptick.
And activity in the mid Con.
We feel like we're in the flow.
Of being able to look at those opportunities.
Great. Thanks, a lot of all of the strategic backdrop.
It's the permit.
And again as a reminder, if you'd like to ask the question. Please press Star and then one on your telephone keypad. Our next question comes from the line of Josh Young with price and interest go ahead. Please your line is open.
Hey, good morning, guys.
Great results.
As a couple of questions on on this presentation in front of us.
The one on <unk> you guys show on.
And the three bonds and there is kind of the of course, the implied bar, that's missing, but the bias kind of even better.
The value on our PDP PV 10 basis on kind of current.
The.
The differentials, which have improved versus Q1, I guess, how do you guys think about.
It looks like Youre kind of anchoring the value of the company each of the PDP PV 10.
Youre building the cash position, there's no dividend there's no buybacks.
There is just kind of of this increasing cash balance which of course is great. But I guess there is overriding kind of a question of what's next and it doesn't seem to get answered two of these materials. There hasnt been answered I know of kind of I guess more politely indirectly asking kind of the same thing but.
To the extent of you guys could provide just more clear guidance at a high level.
And maybe if any of that could harm.
Yes.
Sure.
Josh Thanks for listening.
And so the.
The kind of words.
Let me let me stop.
Page 14.
David I think it's appropriate.
As.
Show.
Our approximate net.
We believe our PD reserve PV 10 value.
Manner consistent.
With <unk>.
The industry audited reserve practice right.
12 month looks back so on so forth.
We did see on what's useful to lay out as you mentioned, where there is no more of kind of where things are currently.
We are seeing over the last three months last quarter, we had 29% NGL realization I can't say that last 12 months at this point that held true.
We gave you some sensitivities just what that might.
Do the math.
And then I believe you said, we're not the servicing on globally the value other just to the value.
Our reserve base of.
Obviously the.
Roughly $60 million of net cash we have on our balance sheet.
Valuable as well and that is in addition to the value of the reserve.
So in some ways the a very simple company.
We have PD reserves and we have cash.
Net cash not that complicated.
We didn't really feel the need the kind of do the math people can take the numbers Adam together in the side by the share count.
The asset value that they want is the G&A and other things.
We didn't feel the need to go there.
In terms of the cash.
Balance the necessarily the first quarter.
The offset we have.
You can step up from roughly 8 million the current.
Our net cash position and then as I mentioned, our board is committed to using that cash using all of our assets in the way to maximize the shareholder value.
And they're thinking through.
On the thoughtful fashion, what the best use of that is.
Because of the.
But at this point I think that would be very disciplined and focused on what makes most of money for shareholders on how to use that cash whether it be.
The deployment acquisition.
Some type of return.
Okay. So I guess again it just sounds like you don't really have a clear.
Hi.
Youre still evaluating.
Knowing that the cash would come in ahead of the North Park sale on.
Obviously, theres a number of months, where this kind of deliberation going on it sounds like there isn't like a specific clear path forward. There is kind of of this multiple.
Central PA.
Past that you guys could take is that it sounds like that's a reasonable interpretation of what youre, saying.
Yes.
I think thats right and its not good the ring.
The.
I mean, you have all of the.
The traditional return of capital options.
Of course.
Yes.
If you look at the volume overstock.
I have implications for how you might do it in my mind debt.
If you put in some sort of regular dividend on what level.
The dividend what does that do longer term do value cash.
Cash the sides from returning shareholders had the very strategic elements.
I think it's pretty well accepted that.
The economies of scale on the business.
The.
The lower the cost can be the berry performs with sometimes being bigger is better.
If we were ever.
The entertainment merger of our cash can have a lot of value in that context, we could help partner with the company in the lab.
Of the them of provide low cost capital for them to accelerate high value drilling inventory. So it's very important to think through all the ways of that cash can add value to the enterprises, Inc.
Board of actively doing that and I think the appropriate fashion.
Okay. Okay, just one last thing on the saltwater disposal on page six of the presentation.
The integrated power of smiles.
I don't think the system. Thank people really I think the first of all have you seen on this and maybe many years for Sandridge and it's very exciting to see is this something you guys would look at monetizing or is the point of showing us just to highlight kind of where some of the cost savings and the opportunities are coming from.
The good question.
Hi.
My understanding is of this company is passed.
We will look somewhat thoroughly at monetizing this.
From where we said we think it's more moving these primary customers.
Using it as almost the financing vehicle.
No.
And we just don't need to do that I think can add would add unnecessary complication and artificial pricing dynamics and so we think moving.
Significant capital that's been the best period of substantial system.
A lot of cost benefit that we're seeing in their cash flow.
<unk> provides the story.
Neil strategic benefits.
Net debt assets in the round the.
On the available that means we'll just be able to operate on.
Additionally, the someone else.
Can be more competitive to get more out of them.
The answer your question distinctly I don't think were actively considering.
Monetize these assets.
Great. Thank you very much.
Our next question comes from the line of Michael Melby with Gate Citi. Go ahead. Please your line is open.
Yes. Thanks. Thanks for the question of mine was actually on slide six too with the saltwater disposal wells.
Could you confirm just the cash balance you mentioned on May seven after the purchase of the Sandridge.
And all of that.
Cash from operations.
Yes.
The cash balance that we disclosed of.
Over $1 million.
With cash on hand.
And that was after the acquisition of SPT.
The the overriding royalty interest of the FCT.
<unk> was from from.
The negative impact and then obviously cash flow from operations increase the balance.
Quarter end.
Yes, Rob the spin.
Secondly, our payment so we pay for all of that and that's why I mentioned that.
We had $1 3 million back.
Good day.
Got it thanks, and could you update us at a high level on how the.
Acquisition of the trust.
<unk>.
I guess, <unk> 15, and maybe even slide 14.
If it moves the needle at all.
Sure. So if we're looking on slide 14.
Note that the third column from the last Q1 'twenty one reserves include.
The net.
The impact of the STP acquisition.
And then in reference to slide 15, we are Reconfirming, our 2020 of our guidance does not plan of case.
Hi.
Yes.
Of course.
On the press release, we put out on the acquisition.
Overriding royalty interest.
Keith.
All of those of.
You can find them.
The PDP the coupon.
And so you can imagine we're showing them the pause in PV 10.
The meaningful.
Matters that head count.
And that does have an impact on the far right bar on on page 14, and on page 15, we provide guidance once a year and neither one of aware maybe not of exact timing of the general timing.
The liquidation process of STP the fab.
After that into our annual guidance.
Got it thanks for your help.
And there are no further questions in queue at this time I would like to turn the call back over to our presenters.
Thank you all very much for your interest in Sandridge, Inc.
Look forward to talking next quarter, if not before with some of the wrong.
And this concludes today's conference call you may now disconnect.
Yes.
Net.
Okay.
Okay.
Yes.
Great.
Yes.
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