Q2 2021 SandRidge Energy Inc Earnings Call
Net.
[music].
Good day, and thank you for standing by and welcome to the Sandridge Energy second quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session we need to press star one on your telephone. Please be advised today's conference is being recorded give you require any further.
Since please press star zero and now like to hand, the conference over to your Speaker today, Mr. Chris Rich director of Finance and Investor Relations. Please go ahead.
Thank you and good morning, everyone.
With me today, our growth from credit.
And our Chief Executive Officer, and Chief operating Officer.
And the loss per annuity, our chief financial Officer, and Chief Accounting Officer and.
And Eric Vice President of operations and.
Members of the management team are joining us.
And then.
And we'd like to remind you that today's call contains forward looking statements and assumptions.
They're subject to risks and uncertainties.
Actual results may differ materially from those projected and these forward looking statements.
And May also refer to adjusted EBITDA, and adjusted G&A and other non-GAAP financial measures.
Filiation of these measures can be found on our website.
With that I'll turn the call over and integrate.
Thank you and good morning.
Hopefully and review the earnings post Covid.
Yes.
Mark.
For the last several years and particularly over the last 15 months oil.
And the management and have worked to transform our company and almost all of its debt.
This transformation.
Okay.
Streamlining our organizational and cost structure.
More than a full with a net debt to net cash.
Positioning the company well benefit from the tailwind of recent commodity price.
James.
And it's possible program to reactivate over 100 wells and the second.
Half of this year.
Before discussing in more detail.
While the approximate two highlights from the second quarter growth.
Thank you Greg.
Simply put $2.21 was a strong quarter.
No new drilling or completion activities, our mid continent daily average production increased from $17.5000 Boe per day last quarter to 19000 Boe per day, this quarter and was flat compared to Q4.2020.
The quarter over quarter growth was driven in part by the reactivation of 49 wells curtail during last year's commodity price downdraft.
During the quarter, our cash and cash equivalents balance, including restricted cash increased to $96 million.
A $14 million increase from the prior quarter, primarily as a result of higher production commodity higher commodity price realizations and our continued focus on cost optimization and despite being offset by the acquisition of the Orient held by the San Fran and Mississippian Trust one per purchase price of $4 nine.
Yeah.
Total debt outstanding and remained at $20 million with de Minimis interest expense during the first half of 2021.
Despite closing on the sale of our North Park basin assets.
During the first quarter of this year, our adjusted EBITDA remained relatively flat from the prior quarter at $28 million compared to $21.7 million per regions I'll discuss in a moment I would like to point out that our EBITDA has very little high and no federal income taxes affecting T.
Commodity price realizations remained strong over the quarter at $64.73 per barrel per oil $1.66 per mcf per gas and $17.33 per Boe.
Of Ngls I would like to remind our investors that these figures represent <unk> averages and do not reflect movements made and benchmark commodity prices over the last several months and third quarter.
As I alluded to earlier regarding our EBITDA, we have maintained our large NOL position, which was over $1 billion as of the end of the second quarter of 2021, our NOL position has and will continue to allow us to shield, our future cash flows from federal and.
From taxes.
And our cost discipline continued to improve during the quarter. The previously implemented initiatives further manifesting in our financials, partially offset by an increase and workover activity associated with well reactivation.
This quarter adjusted G&A was approximately $2 million from a $1.13 per Boe.
And $3.8 million or $1.14 per Boe for the first half of the year.
The team also held LOE and expense Workovers to $9.2 million or $5.33 per Boe during the quarter. While also reactivating 49 wells over the first half of the year.
This level of Hello, Lee should be sustainable going forward, even though with an expanded planned well reactivation.
Program and the second half of the year, we believe we compare favorably with our peers on both G&A and LOE on a per Boe basis.
Also it's relatively rare for an E&P company to generate net income we did that however for the last two quarters, earning net income of approximately $16 million for the first quarter for this quarter and $51 million over the first half of the year, which included and almost $20 million gain on the sale of North Park.
Base.
Also on the rarity category, we have no oil and gas impairments for the second consecutive quarter.
Another notable items during.
During the first half of 2021 was the simplification of our asset base, we exited.
North Park Basin and February a higher decline higher cost assets.
We are now focused solely on our core long lived predominantly PDP midcon properties and no longer engage and the routine flaring of produced natural gas.
As discussed previously during the quarter, we purchased from <unk>.
For $9 million and cash all the overriding royalty interest assets of Sandridge, Mississippian Trust, one and when that trust along with Mississippian Trust II ultimately liquidate our company will no longer have any affiliated trust.
And finally, our board has approved the initiation of a share repurchase program as the needs and Opportunistically returning capital to shareholders as a result company and repurchase up to $25 million worth of its outstanding common stock beginning as early as August 16th.
'twenty one.
We should note that the relief posted yesterday and the 10-Q that we will file later today provide further detail on our financial and operational performance during the second quarter and first half of 2021.
Thank you plop profit.
The health of a walk through from the company.
And even strategy and obviously as in detail.
Over the last few years for oil.
And then and have focused the company's assets.
A modest production profile and streamline the organization and cost structure.
And strengthened its balance sheet.
With the divestiture, Florida profit February of this year, the asset base and output and the mid continent region.
And with PDP well debt.
Which do not require and entertain financing and produce GAAP.
These wellness app from a fully held by production on.
With.
Xiaomi and the prototypes.
We had a little from no substantial piece of geologic and reservoir are materially and concentrated capital and risks across the producing app.
From our point of view.
Our <unk>.
Long history and modeling.
Total business and certify and enable IRA and document through the eight and agency debt.
More than a 1000 miles east of owned and operated <unk> and electric infrastructure over ARPA.
That is substantial and.
Integrated infrastructure company, both cost and strategic advantages.
Ultimately Apple operating and operating margin.
Reduced lifting as well on Nevada and <unk>.
Total comp.
File derisking positive free cash flow.
In addition, and Interconnectivity and ample capacity helps buffer against unforeseen curtailment.
Shallow decline.
We began the year with eight profile on expectations with the upper teens.
Which are anticipated to be extended further into the low teens driven in part through our well reactivation and Workover program.
Diversified production profile.
From a GAAP liquid hydrocarbon mix perspective and.
And over 975, producing wells and 8%.
Honestly interest and monthly HCP, Inc.
And is breakeven to Nick and the commitments.
And then.
As a result of this publicly mid con the company was able to increase quarter over quarter production.
$17 five to 19 and BOE per day.
No new drilling and completion.
Driven in part by the reactivation of 49 well.
Through the first half this year.
Our app.
Free cash flow capability, which contributed to the increase of $14 million per cash this quarter now totaling over $90 million.
Our high and EBITDA cash flow from Brittany.
Aided by our LOE per <unk> cost structure and one on Capex.
As well and improving commodity prices and the realization.
This cash generation.
Potential provide sales path.
Create shareholder value.
This all sums up to 99 per script.
Proved developed and.
And reserve block equaling approximately more than $320 million.
And we have begun to build on that by.
One day.
Pending and flattening on Dunkin' profile from.
High ratings and fewer projects and while reactivation.
With plans to reactivate and one of the 100 well.
This year.
To actively managing on a realization and further reducing costs.
Three growing our asset base with optimistic economically and free cash flow accretive acquisition.
For maintaining an appropriate level of exposure to commodity upside.
As we realize the value and generate cash.
And that to utilize on an asset.
Including our cash and maximize shareholder value.
The average and the value profit businesses materially zebra and financial perspective on it.
Strengthened balance sheet from.
<unk> net cash position and financial flexibility and number.
And one 6 billion and NOL.
Further the company is not subject to MPC for other significant off balance sheet financing.
And with the recent purchases the overriding royalty interest asset.
Sandridge Mississippian Trust one during the quarter via the clinical side of our operated net.
Our go forward strategy, the growth and cash value and generating capability of our business and our state responsible efficient manner, while remaining disciplined for value accretive opportunities.
And this strategy has worked on.
Again, when the petrol are cleaned and maximize the cash value generate from the capacity of our income this myth on PDE five.
Spending and flattening our production profile of the product return and Workover program.
Actively managing marketing options and maximize price realization.
Continuing to press on operating and administrative costs.
The settlements, Germany converted EBITDA and free cash flow.
And capital discipline, and investing and Providence and opportunities that have high risk adjusted fully diluted and the rates of return.
The third additional items and maintain optionality for opportunistic value accretive acquisitions.
We will focus on PDP weighted assets.
And our competency authenticity and production optimization.
And have sufficient midstream optionality and earn a favorable regulatory areas.
The final product is up for uphold our ESG responsibility.
And regarding the cost discipline over the last several years and supported and management has implemented measures to lessen and athletes and per Yogi duct and the ltvs of 70% and more than 30%, respectively and 2016.
We will continue to press on operating costs.
However, we anticipate expenses.
And the Workover expenses for the year.
Near term and we reactivate more wells for the remainder of the year.
Fundamental to our culture has been and deliberate shift.
And while it organizations and.
And as a result, we have tailored our organization to a P P and cash flow focused structure to be more fit for purpose.
This change will rebound and the bleeding.
Corporate personnel to reflect where we actually create value.
And outsource necessary, but more perfunctory and last quarter function.
And as operations accounting.
And administration.
On tax and HR.
And with more than 6 million and per your G&A.
Our corporate outsourcing provides us greater flexibility and scalability to adjusted to changes in our business or the market.
And regarding production optimization.
And we focused on relatively low quick payback and high return and work progress over the last year and.
And I have enjoyed success and our execution.
And I purposely discipline and our approach and we've worked to Delever our balance sheet.
And our liquidity and capital access over the latter part of 2020.
Now with a much stronger balance sheet and liquidity position as well as the vastly improved and firming price realization.
We plan to more aggressively pursued mentioned is that will further flatten our already shallow base decline.
Over the first half of the year, we brought.
Brought back online and 49 well with.
Which collectively added 1500 gross barrels of equivalent per day and delivered over 100% rate of return.
We plan to expand this program and the second half of this year targeting over 100 wells for reactivation.
Projected economics for these wells that are now also over 100% rate of return.
In addition, we will plan to convert on a subset of these wells to more efficient long term artificial lift method, which will likely reduce their go forward costs.
Well reactivation projects on the highest risk adjusted returns and the company's inventory on.
Unlike drilling there is very little relative geologic and reservoir and mechanical or risk concentration.
Recently, we had filed to re completion and permit to be at Spago, and reservoir formation and legacy vertical well and.
Initial work is scheduled for this year and tested pressure as well as the oil and gas competition will bear the influence on completion and capital decisions.
We will continue to evaluate the opportunity for these types of relatively low capital high return projects across our almost 375000 acre footprint to hub.
Further and declines in the future.
Our performance continues to exceed the expectations that we laid out earlier this year.
As we discussed previously this outperformance driven by material uplift and realized prices.
And finally, a successful well reactivation and early this year.
We plan to expand the slowing based on program are bringing on and additional 100 well for the second half of this year.
As such we are adjusting our guidance to reflect the uplift and production increasing the midpoint of guidance by over 15%.
As well as the associated increase in capital and expense needed to do so.
Please note that while expenses estimated to be up and increase on an absolute basis. It is not increasing on a per unit basis.
Demonstrating that we are bringing on more production and cost effectively.
Please note that the revised guidance does not budget for joining at this time.
And we'll focus on our well reactivation program near term and do so and a safe efficient and cost effective manner.
We will continue to evaluate opportunities for drilling the stryker strengthening and prices firming around current spot Corp hub.
In summary, and both companies and its assets current strength.
We have low overhead top tier G&A of $1.37 per Boe and the first half of 'twenty one.
We have low operating costs benefiting from a large S&P and electrical infrastructure, requiring little from known future capital to maintain.
Our substantial free cash flow and a growing net position.
Supported by a diverse production profile low decline multi visit life apathy.
Inventory of low cost high return, while reactivation will help flattening production decline.
No routine flaring and produced natural gas among other factors.
This concludes our prepared remarks, thank you for your time.
We will now open the call to questions.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question for Steve How key please standby, while we compile the Q&A roster.
Your first question the line of Noel Parks with Tuohy brothers investments.
True.
Oh.
Hi.
Can you hear me.
Thanks, Rob on the detail on the update.
A couple of things you are talking about.
Moving to more efficient artificial lift.
And those right rod conversions or.
Yes, we are.
Converting from the initial artificial lift.
Which were predominantly ESP or gas lift.
Through our long term artificial lift system, which is either a rod pump per plunger lift.
Great.
Okay, Thanks and gum.
And I was.
It's been a terrific time to.
Be on hedged given the upswing soon and commodity prices over the last couple of quarters and can you just.
Refresh my memory did you monetize from 2021 hedges at some point.
Earlier in the year.
I know yes. This is so we did end up doing that we monetize their hedges and <unk> 'twenty, one or <unk> 2000 and sorry.
Okay.
Thanks.
And.
And I was just curious.
And your program on returning wells to production.
Are there any third party infrastructure issues that.
Are you spending on the way of.
We're trending and any of the wells.
Yes.
Better commodity prices, especially on the gas and NGL side.
And I was.
Alright, and just thinking about profitability and infrastructure getting a little bit more tax and spend.
And in recent times.
No no that's the benefit that's having an owned and operated large infrastructure system and alright.
And that are able to take advantage of ample capacity that we have on each of those.
Okay, Great and I think just my last one.
On.
And then just thinking about P.
The transat.
Transaction environment, we have seen a lot of activity across a number of different basis, and just thinking about in the mid con, particularly conventional reservoirs.
Are there P back.
The pilot players still out there.
And.
And in your area and.
I'm just curious is among growth if any of them.
Also our spend and significant cash.
Capex these days.
Sure Yes.
There continues to be private equity players and on around mid con.
And we like to remain wide eyed that both their operations as well as a public company operations. Just so that we can benchmark our performance relative to them.
And do you think that we compare favorably and.
In addition, we.
We remain vigilant and.
Research and the potential opportunities and the market and mid con.
And I'm really just looking for.
And on something Thats, the appropriate fit at the right price.
Address that question correctly.
Great. Thanks, a lot that's all I had.
Your next question on line of Brent <unk> with <unk> capital.
Hey, it's Brent with Mccomas capital Thanks for taking the question.
And I'd love to follow up with you guys offline on this maybe but.
Congrats on what looks like a really high return on reactivation program I am assuming debt.
And you guys are probably.
And a pretty rational actors you did the I imagine you did the best III Activations first from the 49 or are they more on linear in terms of the the uptick that you get from from and incremental and reactivation on the next hundred just any color would be appreciated.
Sure.
It's a mix.
There was a subset of their that didn't require any well interventions or workover. So it's just a matter of growing oil and turning on the well so those got turned on and quickly.
We did go in and high grade and as we've had continued price uplift.
We felt it was appropriate to bring on the next 100 wells throughout tranche and the back half of this year.
Okay. So you had somewhat easy to turn on to turn them on and that there might have been.
Much production, so and then I guess the.
A follow up would be how many of the next 139 required and work over the next.
100, or so it would require and workover.
A majority.
The majority of it Okay and can you remind me what's the.
And what's the average cash cash cost on a workover.
These workovers on average there are about $65.
Okay got it okay. Thank you very much I'll follow up off line.
Thank you appreciate it Brent.
And as a reminder, if you would like to ask a question. Please prescribing and number one on your telephone keypad again that starting and number one to ask a question. Your next question line of Josh Young Boston interest.
Hey, guys.
So couple of questions one on the price realizations and it looks like.
Realizations for gas and Ngls weren't up that much even though the.
Headline price for those commodities were up.
Sure.
You could help reconcile kind of weird.
And that differences and if there are any opportunities to improve your realizations versus the cash.
On the other items.
Yes, Thanks, Josh and good morning.
I'll touch on a few points and then I'll turn it over to Florida.
And reinforced from others, so we've seen improvement and realization since last year.
We're focused on further improving realizations by actively working with our largest purchasers.
In addition, we believe that as a benchmark increases.
Sandy realization will also improve.
Fixed cost components are less impactful.
Subject to change and local market conditions.
That's correct and one thing we just wanted to make sure that everybody was and Josh and then you are with that which is all of our investors are aware of is that <unk>.
Of 'twenty or 'twenty, one sorry.
On the commodity prices.
On the post the commodity price is worth.
They werent as gangbusters as they have and in the third quarter and so I know, there's a lot of excitement about.
Where Henry hub is going and things like that that we still fall.
Certainly we saw commodity price improvements from the prior year and just as Christian said, we continue to expect that the realizations.
But we'll continue to improve as we go along here so with our efforts on the marketing side and as well and fixed cost components and <unk> speaking of I think it will.
You bet.
Great. Okay. That's helpful. Thanks, and then my other question is on.
And it looks like there are a couple of <unk>.
Drilling permits that were filed for you guys are those workover wells or new wells and then I guess.
And to the extent that day orange to the extent that just kind of workovers that require rigs.
Neil.
On a price that you guys are tracking where you see new wells on.
And and drilling your pads.
Is there a breakeven price that you track where at certain price are higher it would start to become economic and.
Compelling and call for capital to start drilling and Mr demand months.
Yeah. Thanks, Josh.
EMEA and started during the call.
But the two recent patients that I've mentioned on a go.
Related to the permits and question.
And therefore.
Looking at testing and the Oswego and reservoir and existing vertical wells.
As I mentioned, we're really focused on what's the highest risk adjusted return and our inventory right now, but take a while the activations.
We remain focused on potential for drilling opportunities.
And I think you can see and lean into that at places from around the current spot for greater.
Right now we do have.
Inventory that is economic.
But youll see a little bit more conservative and <unk>.
And that we deliver a very high risk adjusted fully further return to shareholders on.
And as we realized growth success, so we're not going to drill and low double digit return.
Property.
Got it that's really helpful. And then just one quick follow on on that on.
It looks like you guys amended your credit agreement to be able to start to hedge if you choose to on.
You did a great job on.
And covering your hedges at a cost and total market kind of penalty for that.
Late last year that we saw and.
<unk> filings this year.
Do you guys have plans to hedge or could you kind of clarify a little bit in terms of like what the thinking there is and getting that change and the credit agreement.
Yes, Josh the change and the credit agreement and really.
Was was administrative in nature and the sense that we wanted to be able to enter and exit hedges and the normal course.
On the way that the credit agreement was structured it made that we made that difficult and so we.
We discussed that with our lender and about that fast.
With that said.
And we'll always continue.
If you look at the potential for hedging and especially as our capital program and an increase.
And we'll continue evaluating that but the change and the credit agreement and and of itself was really just allowing us to act and the normal courses at a typical E&P company work.
Got it great. Thank you.
And again, if you'd like to ask a question. Please price starting and number one on your telephone keypad again that starting and number one to ask a question and your next question on line on Michael Melby with Gate City capital market.
Hey, good morning, and congrats on the good results could you update us on a nice slide last quarter on your infrastructure asset and I. Appreciate the update here, if you're talking about any other strategic or other range you might be looking to gain value off of your interest in our traffic. Thanks.
Yes, good morning, Michael Thank you for the question.
And that's something that we continue to evaluate.
The benefit of having net large infrastructure position and we're on it.
Looking at ways to.
Increased profitability or cash flow around them, but don't have anything to report out today.
And thanks, and the share repurchase was nice to see I guess my understanding is and <unk>.
Dividend you could deliver capital back without.
And a tax efficient way I guess I should think and could you talk about your decision for share repurchases versus the dividend.
Thanks, Brent oil that's a great question.
The weighted we solid is on implementing the program and reviewing the facts and figures internally, we still believe.
As a company that's.
They are still on the value disconnect between our share price.
And our intrinsic value and so.
We thought it would be prudent to allocate capital and such a way that.
And we'll give our investors the highest return and when we reviewed debt buying back our own stock.
<unk> could potentially be an avenue for that I'd also like to point out that.
And share repurchase program is completed at our discretion.
It is a <unk> 18 program, which allows us to purchase when and where we want and how much.
And so the $25 million.
Proved us and up to announce.
And we will.
Evaluate each one of those decisions and isolation of the GAAP.
Got it thanks.
Again, if you would like to ask a question. Please press starting and number one of your telephone keypad again is starting and number one to ask any question.
And there are no other questions at this time.
This concludes today's conference call. Thank you for participating you may now disconnect.