Q1 2022 SandRidge Energy Inc Earnings Call
As al 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 with that I will turn the call over to Greg.
Thank you good morning.
I am proud to report on another strong quarter result for the company.
And that the company remains well positioned to capitalize on recent commodity price tailwind.
To include focus high graded drilling in the core of the northwest stack and a continuation of our well reactivation.
Add incremental production this year.
Before expanding on that Rob will touch on a few highlights from the first quarter.
Thank you Greg.
Spite as having no drilling or completion activity during the past year.
Were able to slightly increase <unk> 21 to <unk> 22 production, averaging $17 five Boe per day and $17 eight Boe per day in the mid con over their respective periods the.
The production for the quarter as well as the last year benefited from the reactivation of over 139 wells that were previously curtailed very commodity price downdrafts in 2020.
Net cash, including restricted cash increased to approximately $166 million, which represents $4 51 per share of common stock issued and outstanding as of March 31 2022.
Approximately $26 million increase over the quarter was supported by production from a well reactivation program as well as higher commodity prices and realizations and net of approximately $5 million and pre purchases of materials related to our 2022.
Capital program.
The company has no term debt revolving debt obligations as of March 31, 2022, and continues to live within cash flow funding all of its capital expenditures with organic free cash flow and cash held on the balance sheet.
Over the quarter the company generated adjusted EBITDA of approximately $39 million again, despite no new drilling or completion activities as we have pointed out in the past our adjusted EBITDA is a unique metric for sandwich due to us having no <unk> and very little T. <unk>.
Given that we have no debt.
The actual NOL position fields of our cash flows from federal income taxes.
Commodity price realizations in the first quarter before considering the impact of hedges increased to $93 35 per barrel and 384 per Mcf, which represent 97% and 82% of daily average index spot prices, the wtf oil and Henry hub natural gas and NGL realizations were $33 73 per barrel or 35.
5% relative to <unk>. Please note that current natural gas prices in the second quarter of 2022, having recently reached spot prices above $7 per Mcf beginning in April subsequent to the quarter, we're reporting on.
As of today, we have no open hedge positions or commodity derivative contracts. However, as we invest shareholder capital into our drilling completion and while reactivation programs will work side by side with our board to evaluate essentially entered into hedge positions to help protect investor capital spent.
As alluded to earlier, we have maintained our large NOL position, which is estimated to be $1 6 billion as of the end of <unk> 'twenty two or.
Our NOL position has and will continue to allow us to shield, our cash flows and federal income taxes.
Our cost discipline continued to improve during the quarter with adjusted G&A decreased to $2 2 million or $1 35 per Boe.
From $2 5 million or $1 46 per Boe in the prior quarter we.
We have also held <unk> and expense Workovers to approximately $10 9 million were <unk> 76 per Boe during the quarter, partially driven by an increase in workover activity associated with well reactivation and well repairs and higher commodity prices.
We still believe we compare favorably with our peers in regard to G&A and LOE on Bolton obsolete and a per Boe basis.
We continued to generate net income for our shareholders.
During the quarter, we earned net income of approximately $35 million or <unk> 95 per share.
We can note that our earnings release yesterday, and the 10-Q that we plan to file later today provide further detail on our financial and operational performance during the quarter.
Thank you Pablo.
We thought it would be helpful to walk through some of the Companys highlights.
The strategy and other business detail.
As I mentioned previously we are pleased with the results in the first quarter and are positioned to capitalize on robust commodity prices with high rate of return drilling in the northwest stack continued well reactivation and further strengthened cash flow from our already producing properties in mid con.
We were able to keep mid con production flat with.
With modest increases from Q1 2021 to Q1 2022.
Despite no new drilling activity during the period.
Even in part by the continued benefit of our well reactivation of 139, well since early 2021.
We will continue to reactivate well targeting 30 projects over the year averages averaging over 100% IRR.
In addition, we will convert artificial lift system of 35, well to rod pump.
Eight and optimizing lifting efficiency and lower <unk> cost for this well set.
With the additional inventory economic at today's commodity prices.
Together with our board, we will evaluate the potential for additional capital allocation later in the year.
I'm happy to report that we spud the first of nine well budget this year targeting the Meramec in the northwest stack play in April .
Thus far drilling is progressing as planned.
Extremely pleased with the planning and approach of our team has taken on this front.
As Bob mentioned earlier, we pre purchased nearly $5 million.
Our materials to include.
<unk> for all of our drilling program pumping units for our capital Workovers and other items.
Investment made earlier this year is key to warding off inflationary pressures in today's market.
It has already benefited the program.
We hope to share more details on the execution of this program in the next call.
Let's talk for a moment to revisit the key highlights of Sandridge.
Our app the big focus in the mid continent region, with a primarily PDP wells, which do not require any routine flaring of produced gas.
These assets are fully held by production.
Longhead breed delorme.
<unk> production profile and double digit reserve life.
These assets include more than 1000 miles each of owned and operated FWD and electrical infrastructure over our footprint.
Substantial owned and integrated infrastructure provides the company, both cough and strategic advantages.
Both bring asset operating margin through reduced lifting as well as water handling and disposal costs.
And combined with other advantages help derisk individual well profitability down to $40 <unk> and $2 Henry hub.
In addition, the Interconnectivity and ample capacity helped buffer against unforeseen curtailment.
Our assets continue to yield significant free cash flow with total net cash now totally totaling nearly $166 million with zero debt as of quarter end.
This cash generation potential provide several path to increase shareholder value both data and has benefited by relatively low G&A burden.
As we realize value generate cash our board is committed to utilizing our assets.
Including our cash and maximize shareholder value.
Ben Rodgers value proposition has materially derisked from a financial perspective.
Our strengthened balance sheet robust net cash position finance financial flexibility and over $1 billion in NOL.
Further.
The company is not subject to any fees or other significant off balance sheet financial commitments.
Currently the company does not have any open hedging contract.
After March 31.
However, we could enter into hedges from time to time in support of securing return for our capital campaign.
Commodity risks or other fundamental drivers.
Finally, it's worth highlighting that we take our ESG commitment seriously.
Implemented disciplined processes around there.
We remain committed to our strategy to focus on growing the cash value incineration capability.
<unk>.
<unk> responsible for fitbit manner while.
Prudently allocating capital to high return organic growth opportunity and remain watchful for potential value accretive opportunities.
This strategy has four point.
One maximize the cap value and generation capacity of our commitment on PDP asset five.
Spending and flattening our production profile with high rate of return Workover, while reactivation and artificial lift conversion.
Continuously grasp on the operating and administrative costs.
But the second is the share we convert as much EBITDA to free cash flow as possible by exercising capital stewardship.
Vesting in projects and opportunities that have a high risk adjusted fully burdened rate of return.
Executing on our nine well drilling program in the core of the northwest stack to economically add deductions.
A third at the remained open and maintain optionality for opportunistic value accretive acquisitions.
Our book is on value, adding opportunities that bring synergies.
Further leveraging <unk> core competencies complement our balance of the company's portfolio or otherwise yield a competitive return.
Florida as we generate cash we will continue to work with our board to assess past maximize shareholder value to include investment opportunities strategic opportunities return of capital and other uses.
The final stable is the uphold our ESG responsibilities.
Now circling back to this year's drilling program.
We've had a controlled and peripheral full start to drilling and we will continue to pursue with thoughtful and disciplined execution. This year in order to realize high rates of return with these investments.
The program consists of nine wells that are offset to highly profitable horizontal well.
Favorable geologic and reservoir characteristics.
The focused area, we will be developing with this year's program had been previously delineated by Sandridge and other reputable operators.
We know that very well.
Approximately 50%.
The program will be infill development with the remaining 40% being the FERC <unk> or co development that again.
That productive.
Profitable well.
Of note is that we are benefiting from having a long tenured history and mid Con <unk>.
Previous development program and can lever, a very tight cost structure to add incremental barrel WAC reduction in a very capital efficient way.
Gross D&C costs are estimated to be $4 $75 million or single lateral and $7 million for extended lateral.
But reflect 18 drilling and other material equipment and services already secured at reasonable cost.
And current market estimates.
We will continue to lean forward and requisite named the remaining items, where the program to further offset inflationary pressures.
However.
There will be a central focus this year and has bearings on unsecured costs and future drilling decisions.
So additional inventory is economic at today's commodity pricing.
Program results.
Commodity price stabilization or further flattening.
Well costs.
To include expanded inflate their control.
Well the thing and other factors will guide future drilling decision and.
Inventory considerations.
And then just into well reactivation, we will continuously assess these factors along with our board evaluate the potential for a digital future capital allocation in a prudent manner.
Put simply we will continue to prove up the results first and then go from there.
Shifting to expenses.
We're able to lower adjusted G&A quarter over quarter from $2 5 million or $1 40.
<unk> per Boe in the prior quarter to $2 2 million or $1 35 per Boe in the first quarter.
Benefiting from our core values remain cost disciplined as well as prior initiatives.
We have tailored our organization to be fit for purpose.
We continue to balance the weighting of field versus corporate personnel to reflect where we actually create value and.
And outdoor is necessary, but more perfunctory and lab core function.
Operations accounting and administration.
Tax and HR.
Despite expanding activity and producing well count our total personnel remain at roughly 100 people.
Although corporate personnel and 15 people we have retained the key technical Gulf that is.
Both the experience and institutional knowledge of our area of operations.
Towards drilling and completions.
As well as the ability to collect the additional outsourcing of centralized areas to do more.
While we continue to press on operating costs, we anticipate expenses.
Statistically workover expenses to remain near this level as we reactivate and repair more wells this year.
The increase in commodity price has improved the economics of the wells that may have been or would have remained shut in otherwise.
The good news is that this will translate to additional production how's.
However, while profitable the remaining tranche of well reactivation have relatively higher operating costs.
Increased power water chemical and other expenses.
In addition to the cost of an increasingly producing well count in.
And in place and will continue to be accretive throughout the year.
We will continue to combat inflationary pressures as well through rigorous bidding processes.
It's very material equipment and <unk>.
It is over an appropriate tenure to offset market increases.
As well as continuing to leverage our significant infrastructure operation Center and other company advantages.
In summary.
The company has $166 million.
Net cash and cash equivalents at quarter end, which represents $4 51 per share of our common stock issued and outstanding.
Modest production increases from Q1 2021 to <unk>.
Q1 2022.
Periods on mid Con positioning.
Expanded too.
22 capital program of high return projects that further enhanced production and arrest decline.
To include nine new well high graded in the quarter the northwest stack.
<unk> of our well reactivation program.
Low overhead has popped year G&A of $1 35 per Boe.
No debt.
In fact negative leverage.
Significant free cash flow and a growing net cash position.
Supported by a diverse production profile low decline multi digit life asset base.
One 6 billion, NOL, which will yield future fee cash flow from federal income tax.
Large owned and operated <unk> and electrical infrastructure that provides.
And strategic advantages requiring little to no future capital to maintain.
This concludes our prepared remarks. Thank you for your time I will now open the call to questions.
As a reminder, if you would like to ask a question over the phone. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again, well pause for just a moment to compile the Q&A roster.
And our first question comes from Josh Young from Verizon Entrust. Please go ahead. Your line is open.
Great. Thank you.
Thanks, Great.
And in July .
Great quarter can you talk a little bit about well I guess I have a few quick questions. So one you guys. Historically had disclosed your net cash position as of the day before the press release and I noticed that that was missing and I guess I was curious about that.
And I guess, that's probably a quick answer and then.
Then your <unk> was up.
But you're also your realized gas price was up was there a connection there and if not could you guys address the combination of kind of the change in <unk> kind of where that came from and then kind of why your realized gas price versus the hub price.
Proved and then finally and I guess this is probably People's the biggest question is just.
What are you guys doing with the cash and how do you avoid losing a bunch of money and drilling wells like every other operator has in the area that you guys are active in over I mean over a multiyear period.
Since people have been drilling the wells of the type that you are planning or actively drilling in that area.
Alright. Thanks, Josh This is the law and I'll go ahead and take the.
Cash disclosure.
So we in the past orders did reports cash on hand, I just wanted to clear that.
That was not true net cash.
Strictly what was available in the bank it wasn't unreconciled balance that didn't take out things like outstanding checks and things like that.
We did not report that this quarter because we.
We are currently spending money on our capital program and so unlike in prior years, where our capital program was very small.
It had de Minimis impact on our on our free cash flow.
Capital being spent on our drilling and.
Workover program. This year is a lot more meaningful and so.
We want to make sure that we give investors the full picture through separate financials quarterly and give them context, and unlike past years and past quarters, there isn't just sort of a.
Our cash build every single quarter this sequential and routine.
Our capital program will dip into some of those cash balances as we go so we didn't feel like it was as meaningful a disclosure this quarter.
Go ahead and upgrade can take the other questions.
Yes, good morning, Josh Thanks for calling in and great questions.
I'll tackle.
LOE and differentials.
Yeah.
There was no connection between.
Louis and differentials very different drivers between the two.
First one the differential we were happy to see that improvement and the decrease in the relative differentials on a percentage basis, a lot of that is driven by <unk>.
Two things.
A as.
Index prices move up the fixed components of those.
Fees are reduced and diluted.
The second is just.
Marketing win win molecules are traded on what day so.
Some positive benefits there and.
<unk> exceeded our guidance.
I think we have some tailwind behind us in general with T.
<unk> and Henry hub.
On LOE.
There's really three drivers there.
The first we have more producing wells today.
Add to power water chemical and other similar type cost.
The second is.
Continued workover activity as we reactivate and report repair more wells.
Commodity price increases that helps us bring more wells online.
So I would anticipate that workover activity.
We remain kind of at this quarter's level.
Going into next quarter.
And the third is inflation I think.
<unk>.
All e&ps are having to work through that environment.
In addition to other markets.
We have a proactive approach.
Going in bidding out.
All of the services equipment and materials to gain favorable prices in the current market and appropriate tenure and.
And we will continue to lean into that throughout the year.
And then third.
Potential use of cash this is something thats important to us and very much priority.
We're actively discussing with our board to assess that.
Best use of those cash assets.
I do think we don't want to repeat that.
Tens of others or in the past. So we wanted to make sure that that's appropriately put to use and a sound investments.
We're definitely conservative and not wanting to overrun on our skis and Thats why we are having a controlled and purposeful start towards drilling program.
But we have had meaningful increase in commodity prices over the last quarter in fact over the last weeks and days.
So as we see that we continue to assess.
The potential for increased capital allocation.
Again do that in a prudent manner.
In addition to that Josh to kind of round out <unk> points.
Our cash reserves, we do want to make it clear to our investors and our shareholder base that.
We will be extremely prudent in the current commodity price environment for any material cash M&A.
So use of this cash will need to be very very value accretive and secure.
For us to use it on any sort of cash M&A type transaction.
Or combination.
Great. Thank you guys.
Once again, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Our next question comes from <unk> <unk>.
<unk> a private investor. Please go ahead your line is open.
Hi, Good morning, Grayson in China, and we have done in the quarter.
Quick question for you today, if I may.
First you said you were pleased with the result.
Small increase.
One of your peer.
Carlos CEO today I said.
It seems like <unk> is one of the most compelling investment opportunity and genetic sector I'm quoting here and I would agree but I found accentuated even superior investment in there.
The quick math is incredible I can disclose like 166 million or about <unk>.
It's an increase of 26 million since Q4.
And you paid like 5 million.
Ariel just using their four walls.
You are very low.
Im not talking about <unk>, but just like total cost like I think it's like.
Yeah.
Pandora and 82 cents per barrel like cash should mathematically go up in <unk>.
Q2, and Q3 and Q4.
I mean.
It could be a $7 shared some credible.
On top of that you have.
Some of the nine new wells will be coming and contributing at the end of the year and based on the deck on page eight I mean.
We would new unchartered territory will be like over like 100% return so that could be even more cash coming.
So and repeating what you say is solid at $1 7 billion NOL that shield you from taxes, no tax, meaning like no interest and no data amortization.
$20.
Sure, it's really undervalued despite.
350.
$350 that's.
Choice, 250% return over the last 12 months.
So my question is would you be comfortable like off raising Carlos Youre, saying like St Regis as one of the most compelling investment opportunity in the energy sector.
And I guess.
I will sneak one if so.
Why would you not buyback some shares.
Yes.
Yes, and Doug.
Thank you for the kind words and for joining the call and the.
The challenging question.
I.
Think for US, we really focus in on the blocking and tackling.
Let's make sure that.
We keep costs as low as possible.
Convert as much EBITDA to free cash flow as we can.
Prudent investment decisions.
I think this is shown evident over the last few quarters.
Benefited from the commodity price this quarter and certainly the strip looks positive going forward. So we really focus on what we can control in the business and making good decisions and.
The other influences all leads to <unk>, but I do think.
Some of this hard work is showing up in our LOE G&A.
Been able to Kent.
Again, blocking and tackling keeping production up into the right.
We're able through that well reactivation program to actually have a slight increase in Q1 of this year relative to the Q1 of last year, which is really meaningful.
So if we look at this year, we look at base declines and we anticipate.
High teens and with reactivation is getting the low single digit.
And then you add on northwest stack drilling.
With results coming online in the back half of the year that can meaningfully add to that and even some production growth in that relative period. So.
We really again focus on on what we can control.
Additionally.
In relationship to the your question about about share repurchases in the repurchase program.
Like to remind our shareholders that.
That sure that share repurchase program as of <unk>. So if the company has any material inside information.
Any sort of in sort of any restricted trading period.
We can't exercise that so there are times and places where.
Perhaps we feel it might be opportunistic to buy back shares, but again, if we are in any sort of strategic discussion.
Or have any inside information.
That can be that can be eliminated on what we can do from a securities law perspective.
Yes of course, thanks, Ana I think you said it I said it earlier that you have these nine wells.
The isolated programming to call it the northwest stack.
Do you know like any other.
Additional wells will be therefore, 2023 or 2024.
Would you decide to drill more.
Yeah.
Yes, again as I mentioned earlier, we can continue to assess.
The potential for additional cap allocation with our board.
The further increase in commodity prices certainly helped.
I think before we get into inventory, we want to resume drilling.
Manuel.
And then you'll see it.
Come out with additional commentary on inventory.
Got it.
Well economic at today's prices.
Okay.
Well do you need to stay flat in 2000, and you have an idea an indication.
Yes, I think the.
The nine well program, we actually.
Plan to have a production increase from January to December .
I think because of the timing.
<unk> not.
All of that production wedge is sitting for full effect.
Over the <unk>.
22 periods. If you look at the full fiscal year, but it will materially impact annual decline this year with additional production uplift going into next year.
Okay.
Just last for me on carbon capture.
Last year I think one of the deck you had like you disclose like thousand miles of pipeline right of ways.
51 disposable wells.
And I think like.
What are the disposal with a variety by five.
Although the rescue yes for Sandridge so.
I mean order of magnitude at least so.
I know there is no value in the carbon capture play today and you said it in the press release that you're on exploring the technical and commercial viability.
With these asset be useful it.
Yes, Doug this is the law and absolutely.
I mean, we are exploring using our encumbered asset base everything that you described is accurate.
And we have we have taken steps.
Along this path and have gotten some initial reads with our partnership with the University of Oklahoma that there is.
Substantial potential.
Carbon sequestration.
On our asset base however.
There was a loss of things to be done in regards to technical feasibility commercial viability.
Finding nanometer all of those things kind of need to come into place before we could ascribe any value to it but we have taken steps and continue to move the football down the field so to speak on those efforts.
Yes. Thank you. Thank you for taking my question.
It's appropriate and.
For us to do the due diligence here just because we have these material assets in northwest, Oklahoma that are underutilized today.
Some places only using a portion of the total capacity and how can we further leverage that but I will caveat that there is no capital currently being allocated to that and we need to prove out the commercial liability before before we do.
So as soon as we have.
Meaningful news.
That could be the case.
We'll come out and disclose that.
But right now I would not subscribe to any value to it.
Thank you well continue to work.
And congratulation again, okay.
Thank you.
We have no further questions in queue. This will conclude today's conference call. Thank you for your participation you may now disconnect.
Yeah.
[music].
Yeah.