Q3 2021 SandRidge Energy Inc Earnings Call
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Good morning, My name is David and I'll be your conference operator today.
At this time I'd like to welcome everyone to the Sandridge Energy third quarter 2021 earnings call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
If you'd like to withdraw your question Press Star one once again, thank you Scott Prestridge director of Finance and Investor Relations you May begin your conference.
Thank you and welcome everyone with me today are Grayson training, our CEO and CFO.
<unk>, our CFO and CEO as well as Dean perish, our VP of operations.
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, adjusted G&A and other non-GAAP financial measures reconciliations of these measures can be found on our website with that I will turn the call over to Chris.
Thank you and good morning.
Hopefully you have had time to review the earnings release, we posted yesterday after the market closed.
The company is well positioned to capitalize on recent commodity price tailwind.
To include a capital program Accordingly, the reactivation of over 100 wells through the third quarter and more than two turns of net debt net cash since last year.
Before discussing these points in more detail, though Paul will touch on a few highlights from the third quarter earnings.
Thank you Grayson simply put.
<unk> 21 was a strong quarter, despite no new drilling or completion activity. Our daily average production remained relatively flat at $18 seven Boe per day for the third quarter compared to 19 M. Boe per day in the prior quarter the production for the quarter as well as the <unk>.
Year benefited from the reactivation of over 100 wells throughout 2021 that were curtailed during last year's commodity price downdraft there.
During the quarter net cash, including restricted cash increased to 99 million a $28 $4 million increase from the prior quarter, primarily due to flat production higher commodity prices and price realizations and our continued focus on cost minimization.
As of November five 2021.
The company's cash on hand, including restricted cash was approximately $115 $8 million.
The company has no remaining debt or revolving debt obligations as the company repaid its $20 million term loan in full and terminated its previously existing credit facility in early September.
Our adjusted EBITDA increased approximately 60% quarter over quarter to $34 million again, despite no new drilling or completion activities during in either period.
Commodity price realizations increased by 7%, 74% and 55% from last quarter to $69 40 per barrel $2 89 per Mcf and $26 93 per barrel for oil gas and Ngls respectively.
We have maintained our large NOL position, which was over $1 $6 billion as of the end of <unk> 'twenty. One our NOL position has and will continue to allow us to shield our future cash flows from federal income taxes.
Our cost discipline and continued to improve during the quarter with previously implemented initiatives further manifesting in our financials, partially offset by an increase in workover activity associated with well reactivation.
This quarter total G&A was lower quarter over quarter at approximately $2 2 million or $1 29 per Boe.
Compared to $2 5 million.
Or $1 46 per Boe.
The prior quarter.
The team also held LOE and expense workovers to approximately $9 $1 million or $5 27 per Boe during the quarter, while reactivating over 100 wells through the third quarter of this year.
This general level low should be sustainable going forward, even with continued planned well reactivation and capital projects during the remainder of the year. We believe we compare favorably with our peers on both the G&A and LOE.
Absolute and per Boe basis.
We continued to generate net income for our shareholders. During the quarter. We have earned net income of approximately $29 million, a 76% increase from the prior quarter and an approximate $80 million year to date net income during the third quarter.
We have continued to explore opportunities to leverage our existing infrastructure and acreage footprint to best position ourselves to enhance shareholder value and maintain our commitment to ESG initiatives. As a result, we have entered into a cooperation agreement with the University of Oklahoma to explore carbon capture utilization and sequestration potential across the company's asset base.
In addition, we have maintained our commitment to not flare produced natural gas the company maintained its commitment to protecting shareholder capital invested and while reactivation and other capital projects by entering into hedges for natural gas and natural gas liquids for October of <unk>, 2020 one through February of 2022.
Contract months.
Which represents approximately 13%.
Of our third quarter total net production on a pro rata basis. The company remains unhedged for March 2022 forward.
We have had and will continue to evaluate and pursue merger and acquisition opportunities with a special focus on highly accretive synergistic assets in combinations that will maximize shareholder value.
Note that our earnings release posted yesterday and the 10-Q that we'll file later today provide further detail on our financial and operational performance during the third quarter and first nine months of 2021.
You saw it.
That would be helpful to walk through some of the company's highlights management strategy and other business detail.
First let's begin with our asset base.
Because here in the mid Con region, with a primarily PDP, well set which do not require any routine flaring of produced gas.
These well understood assets almost fully held by production with a long history, showing and diversified production profile.
Double digit reserve life and have little to no substantial future geologic reservoir are materially concentrated capital risk.
The producing assets.
As a result of this focus in mid Con the company was able to keep quarter over quarter production.
As well as the trailing 12 month average rates in mid con relatively flat at nearly 19 in BOE per day, despite new new drilling activities driven in part by reactivation of over 100 well.
We plan to continue this well reactivation program through the remainder of the year, which has cumulatively added a time normalized 3000 gross barrels of equivalent per day.
<unk> delivered over 100% capital weighted rate of return.
In addition, we plan to convert a subset of these and other PDP wells to more efficient long term artificial lift method, which will likely reduce their go forward costs.
The year began with base profile decline expectation of upper teens, which will be extended further through this type of activity to the lower teens.
While we continue to press on operating costs.
We anticipate expenses.
Blissfully Workover expenses.
To remain at the prior quarter's level as we reactivate more well.
We have been able to control cost despite general inflationary pressures in the market.
You do a proactive approach to secure equipment material and services at attractive rates.
Over her tenure that supports our capital program as well as the benefit of prior initiatives undertaken by the board and management over the last several years.
Which have yielded an absolute and per Boe reduction in L.
A 70% and more than 30% respectively since 2016.
Our focus and being a low cost leader is further aided by our owned and operated infrastructure.
24 hour manned operations center.
Active and routine bidding of services among other factors.
To take a moment to highlight the more than 1000 miles each of owned and operated SWT in electric infrastructure over our footprints.
Which provides the company both the cost and strategic advantages bolster.
Bolstering asset operating margin to reduce lifting as well as water handling and disposal costs, while derisking positive free cash flow down to $40 <unk> and $2 Henry hub.
In addition, the.
Interconnectivity and ample capacity helped buffer against unforeseen curtailment.
The current utilization of the saltwater disposal and gathering system is only 110 that have historical peak rates.
With the assistance from the University of Oklahoma.
The company is evaluating the opportunity to better leverage the underutilized capacity of this infrastructure.
To include the technical feasibility of purposes, each assets, the one day transport <unk> sequester.
Admitted from nearby industrial facilities.
In addition to the environmental benefit of reducing emissions.
Proposed federal tax legislation contemplates meaningful financial incentives for the injection <unk> sequestration of Sidoti.
While these projects are in their infancy and require additional research before moving into the commercial stages.
Company is excited to continue exploring their potential through its partnership with University of Oklahoma shifts.
Shifting over to administration in support of these assets.
Over the last year, plus we have tailored our organization to be efficient cost effective and fit for purpose.
We have rebalanced, the weighting of field versus corporate personnel to reflect where we actually create value and outsource necessary, but more perfunctory and last core functions such as operations accounting land administration.
Tax and HR.
Beyond the more than $6 million in per year, G&A savings outsourcing provides us greater flexibility and scalability to adjust to changes in our business or the market.
Only selective and relatively small additions of key technical roles would be required for expanded activity to include drilling.
The results of our organizational streamlining is up more than 60% reduction in G&A on both an absolute and per Boe basis since 2018.
Now it comes in many of the points. We just covered our assets have significant free cash flow capability, which contributed to the increase of $28 million of total net cash this quarter now totaling over $99 million net of debt Paydown as of September 32012.
He wants.
Outside of smart risk adjusted high rate of return investments are value accretive opportunities. Our goal is to translate as much of the company and value generating resources to free cash flow.
This efficiency of converting EBITDA to free cash flow is supported by our LOE per Boe cost structure in light capex requirement as well as improved commodity prices and realizations.
Our go forward strategy, which we plan to maintain is to focus on growing the cash value and generation capabilities of our business in a safe responsible efficient manner, while remaining vigilant for value accretive opportunities.
This strategy has four points.
One.
Maximize the cash value in generation.
Paucity of our incumbent Midcon assets.
By extending and flattening our base production profile with high rate of return Workover and well reactivation.
At current pricing there is additional tranche of wells that can be reactivated.
We plan to include this well set as well as the potential for a drilling program as part of the 2022 capital allocation planning.
Plan to share more details on this front on the next call.
<unk> managing marketing often maximize price realization is also key while continuing to press on the operating and administration costs.
Second prong is to ensure we convert as much EBITDA to free cash flow as possible through capital discipline and investing in projects and opportunities that have a high risk adjusted fully burn rates of return.
Third is to remain vigilant and maintain optionality for opportunistic value accretive acquisitions.
We will focus on PDP weighted assets that fit our core competencies of cost efficiency and production optimization.
Which will also have sufficient midstream optionality in our and favorable regulatory areas.
The final prong is upheld our ESG responsibility to include the continuance of no flaring as well as assessing the viability for carbon capture utilization and sequestration applications across the company's assets.
This all sums up to at the October 29th Nymex strip Unaudited proved developed PV 10 reserve value that we believe approximately more than $410 million.
It is important to note that sandwich value proposition has materially derisked from a financial perspective, our strengthened balance sheet robust net cash position financial flexibility and over $1 billion in NOL.
Further the company is not subject to mdc's or other significant off balance sheet financial commitment.
And over 80% of wells can produce profitably down to $40 <unk> and $2 Henry hub.
This cash generation potential provide several paths to increase shareholder value realization.
It's benefited by a relatively low <unk>.
As we realize value and generate cash our board is committed to utilizing our assets, including our cash to maximize shareholder value.
Finally worth highlighting that we take our ESG commitments seriously and have implemented disciplined processes around them.
In summary of some of the company's current strikes.
Have low overhead top tier G&A of $1 29 per Boe and <unk> 21.
Of low operating cost benefiting from a large <unk> and electrical infrastructure, requiring a little to no future capital to maintain.
Have no debt and in fact negative leverage.
Significant free cash flow and a growing net cash position supported by a diverse production profile multi digit life asset base can.
And I mentioned, the $1 6 billion of Nols, which will shield future free cash flow from federal income taxes as well as the inventory of low cost high return well reactivation. It will help flatten production decline.
We'll have no routine flaring of produced natural gas among other factors.
This concludes our prepared remarks. Thank you for your time, we'll now open the call for questions.
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And that does conclude today's conference call you may now disconnect.
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