Q4 2023 SandRidge Energy Inc Earnings Call
Operator: Please wait; the conference will begin shortly. Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator. At this time, I would like to welcome everyone to the SandRidge 4th Quarter 2020 SEA Conference. All lines have been placed on mute to prevent any background noise.
Please wait the conference will begin shortly.
[music].
Ladies and gentlemen, thank you for standing by my name is desert Ray and I will be your conference operator today.
At this time I would like to welcome everyone to the Sandwich fourth quarter 'twenty 'twenty conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to rephrase your question, again, press the star 1. I would now like to turn the conference over to Scott Prestridge, SPP Finance and Strategy. Please go ahead.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press the star one.
I would now like to turn the conference over to Scott The streets, SVP Finance and strategy. Please go ahead.
Scott Prestridge: Thank you, and welcome everyone. With me today are Grayson Pranin, our CEO; Brandon Brown, our CFO, as well as Dean Parrish, our SVP of operations. We would like to remind you that today's call contains forward-looking statements, which are subject to risk 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 GNA and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I'll turn the call over to Grayson.
Thank you and welcome everyone with me today are grateful granted our CEO.
<unk> Brown, our CFO as well as Dean perish, our SVP of operations.
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.
With that I'll turn the call okay great.
Grayson R. Pranin: Thank you and good morning. I'm pleased to report on another consistent quarter of results for the year and that the company's activity continues to translate to meaningful free cash flow from our producing assets. Before expanding on this, Brandon will touch on a few highlights. Thank you, Grayson.
Thank you and good morning.
I am pleased to report on another consistent quarter of results in the year.
And then the company's activity continues to translate to meaningful free cash flow from our producing assets.
Before expanding on this brand and we'll touch on a few highlights.
Yes.
Brandon L. Brown: Production averaged approximately 17 MVOE per day for the year, with oil production up approximately 10% compared to the prior year, driven by the higher oil content from our Northwest stack well. The company generated adjusted EBITDA of nearly $20 million for the quarter and approximately $93 million for the year, as we have pointed out in the past. Our adjusted EVDA is a unique metric for SandRidge due to us having no eye and very little... given that we have no debt and a substantial NOL position that shields our cash flows from federal income tax. On the I portion, we in fact generated approximately $2.8 million of interest income during the quarter and $10.6 million for the year for cash held in a diversity of high-yield deposit accounts.
Thank you Greg.
<unk> averaged approximately 17 and BOE per day for the year with oil production up approximately 10% compared to the prior year.
Driven by the higher oil content from our northwest stack wells.
The company generated adjusted EBITDA of nearly $14 million.
Water.
And approximately $93 million for the year.
As we have pointed out in the past.
Adjusted EBITDA is a unique metric for sandridge due to us having no.
Very little T <unk>.
Given that we have no debt and substantial NOL position.
That shield, our cash flows from federal income taxes.
On the ice portion.
In fact generated approximately $2 $8 million of interest income during the quarter and $10 6 million.
Year for cash held and a diversity of high yield deposit accounts.
Brandon L. Brown: The company initiated a return of capital program last year with a total cumulative dividends paid to date of approximately $137 million or $3.70 per share, including the one-time dividend of $1.50 per share paid on February 20th of this year. In addition, our board recently approved an 11 cents per share dividend, which is a 10% increase over the previous quarter's regular weight dividend. This will be paid on March 29th, 2024 to shareholders of record on March 15th, 2024.
The company initiated a return of capital program last year with a total cumulative dividends paid to date.
Approximately $137 million or $3 70 per share.
Including the one time dividend of $1 54 per share paid on February 28 of this year.
In addition, our board recently approved an 11% per share dividend, which is a 10% increase over the previous quarters regular way dividend.
This will be paid on March 29, 2024 to shareholders of record on March 15 2024.
Brandon L. Brown: Net cash, including restricting cash, at year-end 2023 is $254 million, and the just before. The $1.50 per share dividend paid on February 20th, 2024 represents approximately $200 million, which represents over $5.30 per share of our common stock issued in outstanding. The company has no term debt or revolving debt obligations as of December 31st, 2023 and continues to live within cash flow, funding all its capital expenditures and Cash Flow from Operations and Cash Held on the Balance Sheet. Commodity price realizations for the year before considering the impact of hedges were $74.69 per barrel of oil, $1.71 per mcf of gas, and $20.83 per barrel of NGL.
Net cash including restricted cash at year end 2023 was $254 million.
And adjusted for.
The $1 <unk> per share dividend paid on February 22020 for approximately 200 million.
Which represents over.
$5 30 per share of our common stock issued and outstanding.
Company has no term debt or revolving debt obligations as of December 31, two.
2023.
Turning to live within cash flow funding all its capital expenditures and.
In cash flow from operations and cash held on the balance sheet.
Modest price realization for the year before considering the impact of hedges were $74 69 per barrel of oil $1 71 per mcf of gas and $20 83.
Our barrel Ngls.
Okay.
Brandon L. Brown: As alluded to earlier, we have maintained our large federal NOL position, which is estimated to be $1.6 billion and a quarter annual. Our NOL position has allowed us, and will continue to allow us, to shield our cash flows from federal income tax. Our commitment to cost discipline has continued to be impactful with adjusted DNA for the quarter of $2.2 million and $8.8 million or $1.42 per BOE for the year. We continue to generate net income for our shareholders. During the year, we earned adjusted net income of approximately $69 million, or $1.87 per basic share.
As alluded to earlier, we have maintained our large federal NOL position, which is estimated to be one 6 billion at quarter.
Our NOL position has and will continue to allow us to shield our cash flows from federal income taxes.
Our commitment to cost discipline has continued to be impactful with adjusted G&A.
For the quarter up $2 2 million and $8 8 million or $1 42 per Boe.
Yeah.
We continued to generate net income for our shareholders.
Sure.
We earned adjusted net income of approximately $69 million.
$1 87 per basic share.
Grayson R. Pranin: Net cash provided by operating activities of approximately $116 million. This has all culminated in the company producing approximately $89 million in free cash flow for the year, which represents a conversion rate of approximately 96% relative to adjusted EBITDA, or approximately $2.40 per share of cap and stock outstanding. Before shifting to our Outlook, we should note that our earnings release and 10-K provide further detail on our financial and operational performance during the year. Thank you, Brandon.
Net cash provided by operating activities of approximately 116.
$16 million.
This is all culminating in the company producing approximately $89 million in free cash flow for the year, which represents a conversion rate of approximately 96% relative to adjusted EBITDA or approximately $2 45 per share of common stock outs.
Okay.
Yes.
Before shifting to our outlook, we should note that our earnings release.
K provide further detail.
On our financial and operational performance during the year.
Thank you Brandon.
Grayson R. Pranin: We thought it would be helpful to walk through some of the company's highlights, management strategy, and other business details. As I mentioned previously, we had positive results this past year with the Northwest stack wells adding oilier production while converting over 96% of EBITDA to free cash flow. Production for the year from our MidCon assets averaged approximately 17 MBOE per day, roughly 4% over the midpoint of 2023 guidance, with oil volumes increasing 10% from the prior year, aided by the oilier content from our northwest stack area. The company's largest natural gas purchaser remained in ethane rejection, and we anticipate that a majority of our natural gas stream could remain in ethane rejection this year. While this impacts the total volume of NGLs, the remaining volume will be composed of more profitable C3 plus components like propane, butane, and gasoline on a percentage basis. Likewise, the assay remaining in the natural gas stream will improve its BTU quality. Let us pause for a moment to revisit the key highlights of SandRidge.
We thought it would be helpful to walk through some of the company's highlights management strategy and other business details.
I mentioned previously we had positive results this past year.
The northwest stack wells, adding oil production, while converting over 96% of EBITDA to free cash flow.
Production for the year from our mid Con assets averaged approximately 17 Boe per day.
<unk>, 4% over the midpoint of 2023 guidance.
With oil volumes, increasing 10% from the prior year aided.
Aided by the all their content from our northwest stack area.
The company's largest natural gas purchase or remained in ethane rejection.
Dissipate that a majority of our natural gas stream could remain in ethane rejection this year.
While this impacts the total volume of Ngls.
Meaning volume will be composed of more profitable phase III plus components like propane butane and gasoline on a percentage basis.
Likewise yesterday remaining in the natural gas stream will improve its btu quality.
Oh it is.
For a moment to revisit the key highlights of Sandridge.
Grayson R. Pranin: Our asset base is focused in the mid-continent region with a primarily PDP wealth set that does not require any routine flaring of produced gas. These well understood assets are almost fully held by production with a long history of shallowing and diversified production profile and double-digit reserve life. These assets include more than 1,000 miles each of owned and operated SWD and electric infrastructure over our footprint.
Our asset base, that's focused in the mid continent region with a primarily PDP well set which do not require any routine flaring of produced gas.
He is well understood assets are almost fully held by production with a long history shallow and diversified production profile and double digit reserve life.
These assets include more than 1000 miles each of owned and operated <unk> and electric infrastructure over our footprint.
Grayson R. Pranin: This substantial, owned, and integrated infrastructure provides the company both cost and strategic advantages. Bolstering asset operating margins through reduced lifting as well as water handling and disposal costs, and combined with other advantages, helps de-risk individual well profitability for a majority of our producing wells down to $40 WTI and $2 Henry Hub. While we have recently seen spot prices below $2.00 per Henry Hub, WTI has been in the mid to high 70s, which has and will buoy our revenue and cash flows this year.
This substantial owned and integrated infrastructure provides the company both cost and strategic advantages.
Bolstering asset operating margin.
This lifting as well as water handling and disposal costs.
And combined with other advantages help derisk individual well profitability for majority of our producing well count to $40 <unk> and $2 Henry hub.
While we have recently seen spot spot prices below $2 Henry hub.
<unk> has been in the mid to high seventies.
<unk> has and will buoy, our revenue and cash flows this year.
Grayson R. Pranin: Our assets continue to yield meaningful free cash flow, with total net cash as of year-end and adjusted for recent dividends totaling approximately $200 million. This cash generation potential provides several paths to increase shareholder value realization and is benefited by a low G&A burden. In fact, interest income earned from our cash assets offsets our cash G&A last year.
Our assets continue to yield meaningful free cash flow with total net cash as of year end and adjusted for recent dividends totaling approximately $200 million.
This cash generation potential to provide several path to increase shareholder value realization and it's benefited by low G&A burden in fact.
Interest income earned from our cash assets offsets our cash G&A last year.
Grayson R. Pranin: As we realize value from our producing assets and generate cash, our board is committed to utilizing our assets, including our cash, to maximize shareholder value. SandRidge's value proposition is materially de-risked from a financial perspective by our strength in the balance sheet, robust net cash position, no debt, financial flexibility, and approximately $1.6 billion in annual wealth. In addition, the company is not subject to MVCs or other significant off-balance sheet financial commitments.
As we realized value from our existing assets and generate cash our board is committed to utilizing our assets, including our cash.
To maximize shareholder value.
Beverages value proposition has materially derisked from a financial perspective by a strengthened balance sheet robust net cash position.
Note that financial flexibility.
Absolutely $1 $6 billion in Nols.
Further the company is not subject to MVC or other significant off balance sheet financial commitment.
Finally.
Grayson R. Pranin: It is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around it. We remain committed to our strategy to focus on growing the cash value and generation capability of our business in a safe, responsible, and efficient manner, while prudently allocating capital to high-return organic growth projects and remaining open to value-creative opportunities. This strategy has five points.
It is worth highlighting that we take our ESG commitments seriously have implemented disciplined processes around them.
We remain committed to our strategy to focus on growing the cash value and generation capability of our business in a safe responsible and efficient manner, while prudently allocating capital to high return organic growth projects.
It remained open to value accretive opportunities.
This strategy has five points.
Grayson R. Pranin: The first is to maximize the cash value and generation capacity of our incumbent MidCon PDP asset by extending and flattening our production profile with a high rate-of-return workover and artificial lift conversion, as well as continuously reducing operating and administrative costs. Second, is to ensure that we convert as much EBITDA to free cash flow as possible by exercising capital stewardship and investing in projects and opportunities that have high risk-adjusted, fully burdened rates of return on economically add production. The third is to maintain the optionality to execute on value-creative merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets, further utilize its approximately 1.6 billion in net operating losses or otherwise yield attractive returns for its shareholders. I'd like to pause here for a moment to touch on the Northwest Beck acquisitions that closed last year, which increased our interest in 26 operated wells. We like these types of small ball bolt-ons where we can efficiently add production for an accretive return.
The first is to maximize the cash value and generation capacity of our midcon PDP assets.
By extending and flattening our production profile with high rate of return Workover and artificial lift conversions as.
As well as continuously pressing on operating and administrative costs.
The second is to ensure we convert as much EBITDA to free cash flow as possible by.
By exercising capital stewardship, and investing in projects and opportunities that have high risk adjusted fully burden rates of return to economically add production.
The third is to maintain optionality to execute value accretive merger and acquisition opportunities that could bring synergies leverage the company's core competencies complement its portfolio of assets.
For the utilized its approximately $1 6 billion of net operating losses or otherwise yield attractive returns for shareholders.
I'd like to pause here for a moment to touch on the northwest stack acquisition that closed last year, which.
Which increased our interest in 'twenty six operated well.
We like these types of small ball bolt ons, where we can efficiently add production for accretive returns.
Grayson R. Pranin: We will continue to look for opportunities like this, as well as larger ones that meet the characteristics I described earlier. Fourth, as we generate cash, we will continue to work with our board to assess paths to maximize shareholder value, including investment in strategic opportunities, return of capital, and other uses. To this end, the company expanded its return of capital program, which consisted of 1. A $3.70 per share of cumulative dividends paid to date, to $0.11 per share, a regular cash dividend, an increase of 10% from the prior quarter.
We will continue to look for opportunities like this as well as larger one that meet the characteristics I described earlier.
Fourth as we.
<unk> cash we will continue to work with our board to assess path to maximize shareholder value to include investment in strategic opportunities return of capital and others.
So you just end the company expanded its return of capital program that consisted of one <unk>.
$3 70 per share of cumulative dividends paid to date.
Two of.
11 cents per share regular way cash dividend, an increase of 10% from the prior quarters.
Grayson R. Pranin: And finally, an opportunistic share repurchase program of up to $75. Please note that the company's cash position is also a strategic advantage and provides competitive leverage in evaluating M&A, especially given the outlook on interest rates, capital markets, and the impact of the optionality on the number and type of opportunities that could become available at certain levels. Note that there is a high bar both at the management and board levels for mergers and acquisitions.
And finally, an opportunistic share repurchase program of up to $75 million.
Please note that the company's cash position is also a strategic advantage and provides competitive leverage in evaluating M&A.
Especially given the outlook on interest rates capital market and the impact of the Optionality on the number and type of opportunities that could become available at certain levels.
No doubt there is a high bar, both at the management and board levels for mergers and acquisitions.
Grayson R. Pranin: Management will continue to assess and promote the regular way return of capital discussions, Advanced M&A Evaluation, meet with shareholders and investors, and work with our board to further enhance paths to maximize shareholder value. These topics remain paramount.
Management will continue to assess it promote regular way return of capital discussions.
Advanced M&A valuations.
Shareholders and investors and worked with our board to further enhanced path to maximize shareholder value.
These topics remain paramount.
Grayson R. Pranin: In the interim, we have secured favorable banking terms and kept our cash position diversified across interest-bearing accounts at multiple significant, well-capitalized financial institutions. As Brandon mentioned before, the company earned $10.6 million in interest income this past year. The final staple is to uphold our ESG responsibility.
In the interim we have secured favorable banking terms and keep our cash position diversified across interest bearing accounts at multiple significant well capitalized financial institution.
As Brandon mentioned before the company earned $10 6 million.
Just income this past year.
Final staple as to uphold our ESG responsibilities.
Now.
Grayson R. Pranin: They're coming back into our capital program. During the past year, we completed 16 artificial lift conversions as the company continues to focus on high-return, value-adding projects that provide benefits such as lowering forward-looking costs, enhancing production on existing wells, and further moderating its already modest decline profile. The systems we have and will be installing are tailored for the well's current fluid production and will reduce the electrical demand from the current artificial lift system and is key to decreasing future utility costs. This year, our production optimization campaign includes 14 artificial lift conversions, as well as heel completions, accessing previously unsimulated intervals, re-completions that would add new uphold zones and proven productive formations, and refacts that would re-stimulate We plan to spend between $8 to $11 million in CapEx on production optimization and limited opportunistic leasing this year.
Circling back to our capital program.
During the past year, we completed 16 artificial lift conversion as the company continues to focus on high return value, adding projects that provides benefits such as lowering forward looking costs enhancing production on existing well and further moderating it's already modest decline profile.
The systems, we have and we will be installing our tailored for the wells current fluid production and will reduce the electrical demand from the current artificial lift system. It is key to decreasing future utility costs.
This year, our production optimization campaign includes 14 artificial lift conversions as well as he'll completions.
<unk> previously on simulated intervals.
Re completions that would add new uphold zone and proven productive formations and re fracs.
Would re stimulate quality reservoir.
We plan to spend between $8 million to $11 million in Capex on production optimization and limited opportunistic leasing this year.
Grayson R. Pranin: In addition to our production optimization projects last year, we completed four operated wells in the northwest stack, which increased overall oil content on a BOE basis, as well as our prior well reactivation program, which has returned over 180 wells to production over the past few years. However, given the commodity price dynamics this year, and that our mid-con assets are 99% held by production, which preserves the tenor of our development options, we will not be operating a drilling rig this year and will instead pursue more meaningful levels of well reactivation. We will continue to monitor commodity price dynamics and maintain flexibility to adjust as may be warranted and factor in these considerations. The modding price is firmly over $80 WTI and $4 Henry Hub over a confident tenor, and or a reduction in well costs is needed before we can return to exercise the option value of further development or reactivation.
In addition to our production optimization projects last year, we completed four operated wells in the northwest stack, which increased overall content on a Boe basis.
As well as our prior well reactivation program, which has returned over 180 wells to production over the past few years.
Given the commodity price dynamics this year and then our mid con assets are 99% held by production.
Which preserves the tenor of our development option, we will not be operating a drilling rig this year and will be for more meaningful levels of well reactivation.
We will continue to monitor commodity price dynamics and maintain flexibility to adjust this may be warranted and factor in these considerations.
Commodity prices firmly over $80, <unk> and $4 Henry hub overconfident tenor.
<unk> or reduction in well costs are needed before we can return to exercise the option value of further development or reactivation the focused efforts over the past several quarters and optimizing our wells production profile and cost focus have contributed to flattening the expected based asset level decline of our already.
Grayson R. Pranin: The focused efforts over the past several quarters in optimizing our wells production profile and cost focus have contributed to flattening the expected base asset level decline of our already producing assets to a single-digit average over the next 10 years, taking into account the impact of further production optimizations, development, or acquisition. The company continues to ensure that all projects meet high rates of return thresholds and remains capitally disciplined as commodity price landscapes change, while we have prudently reduced activity near term. The Tempered Commodity Pricing Environment could be constructive for M&A. Our producing mid-con assets will continue to generate cash flow in the near term. With the recent drop, natural gas prices are projected to increase over the next year plus.
Leasing assets.
<unk> digit average over the next 10 years.
Before the impact of further production optimization development or acquisitions.
Company continues to ensure that all projects high rate of return thresholds and remains capital discipline as commodity price landscape changes.
Well, we are prudently reduce activity near term a tempered commodity price environment could be constructive for M&A.
We are producing mid con assets will continue to generate cash flow near term with at recent strip natural gas prices projected to increase over the next year plus.
Grayson R. Pranin: In the interim, the lower natural gas and NGL price environment could present more cost-effective opportunities for acquisition, which would then be positioned to benefit from future price improvements, in addition to further leverage the temporal low natural gas price environment. As well as activity around it, we have allocated capital for targeted, high-graded leasing near our footprint this year, which could further bolster our drilling inventory. Now, shifting to expenses. We're able to keep adjusted GNA at $2.2 million for the quarter and $8.8 million, or $1.42 per BOE, for the year, which compares favorably with our peers. It was 7% below the midpoint of 2023.
In the interim the lower natural gas and NGL price environment could present more cost effective opportunities for acquisitions.
Which would then be positioned to benefit from future price improvement.
In addition.
Further leveraged the temporal low natural gas price environment.
As well as the activity around it we have allocated capital for targeted high graded leasing near our footprint this year, which could further bolster our drilling inventory in the future.
Now shifting to expenses.
We're able to keep adjusted G&A at $2 2 million for the quarter and $8 8 million or $1 42 per Boe for the year.
Which compares favorably with our peers it was 7% below the midpoint of 2023 guidance.
Grayson R. Pranin: The efficiency of our organization stems from our core values to remain cost-disciplined as well as prior initiatives, which 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 outsource necessary but more perfunctory and less core functions such as operations accounting, land administration, IT, tax, and HR. Given our efficient structure, and the ability to flex with both activity and commodity prices, our total personnel has remained consistent at just over 100 people, while retaining key technical skill sets that have both the experience and institutional knowledge of our area of operation.
The efficiency of our organization stems from our core values to remain cost disciplined as well as prior initiatives.
Which is 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 outsource necessary for more perfunctory and less core functions, such as operations accounting and administration IP tax in HR.
Given our efficient structure and ability to flex with both activity and commodity prices. Our total personnel has remained consistent.
Over 100 people, while retaining key technical skill set have both the experience and institutional knowledge of our area of operations.
Grayson R. Pranin: We believe that the sufficiency and structure are favorable advantages that could be effectively applied over a broader asset base and a benefit as a company evaluates the potential for M&A. Despite inflationary pressures and an increased well count from our prior well reactivation and development program, as well as increased interest associated with our recent Northwest stack acquisition. LOE and expense workovers for the quarter were $9.9 million or $6.73 per BOE for the quarter and $41.9 million or $6.80 per VOE for the year, which was 3% below the midpoint of 2023 guidance. We are projecting a decrease in expense workover this year as well as a softening in utility costs and reduced water handling costs.
We believe that this efficiency and structure are favorable advantages that could be effectively applied over a broader asset base and a benefit as a company evaluate the potential for M&A.
Despite inflationary pressures and an increased well count from a prior well reactivation and development programs.
As well as the increased interest associated with our recent northwest stack acquisition.
LOE and expense Workovers for the quarter were $9 9 million or $6 73 per Boe for the quarter.
And $41 9 million or $6 80 per Boe for the year, which was 3% below the midpoint of 2023 guidance.
We are projecting a decrease in expense workovers this year as well as softening in utility cost and reduce water handling costs.
Grayson R. Pranin: We will continue to actively press on operating costs through rigorous bidding processes, leveraging our significant infrastructure, operations center, and other company advantages. While I have previously addressed commodity price dynamics, I wanted to reinforce a few salient points here. The first being that the majority of our producing properties are economical, down to $40 WTI and $2 Henry Hub, while they all made up 17% of total production last year, contributed over 50% of revenue on a BOE basis to fight the current sub-2 natural gas prices. The forward-looking future curve remains in contango, and at recent strips, projected to nearly double spot prices by this winter.
We will continue to actively pressed on the operating cost through rigorous bidding processes, leveraging our significant infrastructure operation Center and other company advantages.
While I have previously address commodity pricing dynamics I wanted to reinforce a few points here.
The first being the majority of our producing properties or academic down to $40 <unk> and $2 Henry hub.
While all made up 17% of total production last year and contributed over 50% of revenue on a Boe basis.
Despite current sub $2 natural gas prices.
Forward looking future curve remains in contango and at recent strip projected to nearly double spot priced by this winter.
Grayson R. Pranin: Also, WTI has remained constructive in the mid to high 70s this year, where we've judiciously decreased capital spending in light of natural gas prices. More significant reductions in oil prices and a structural change in natural gas futures would be needed before we implemented more severe steps like material proactive well curtailment that would impact our production levels near term. However, we will continue to monitor commodity prices and have the financial and operational flexibility to make further adjustments in response to positive or negative commodity prices in the future that prudently steward the business and optimize cash flow. Please note that our guidance for 2024 includes price realizations between 50% and 70% of Henry Hub for natural gas to capture the potential range of realizations of the year, with the high-end more representative of winter pricing and then a low-end towards sub-$2 That said... and to reinforce my earlier comment.
Also <unk> has remained constructive in the mid to high $70. This year.
Well, we judiciously decreased capital spending in light of natural gas prices.
More significant reductions in oil prices.
And a structural change in natural gas futures would be needed before we implemented more severe step like material proactive well curtailment.
Impact our production levels near term however.
However, we will continue to monitor commodity prices and have the financial and operational flexibility to make further adjustments in risk.
Through positive or negative commodity prices in the future to prudently steward the business and optimize cash flows.
Please note that our guidance for 2024 includes price realization between 50% and 70% of Henry hub for natural gas to capture the potential range of realizations over the year with.
With the high end more representative of winter pricing and low end towards sub $2 Henry hub.
That said and.
And to reinforce my earlier comment.
Grayson R. Pranin: SandRidge's value proposition is materially de-risked from a financial perspective by our strong balance sheet for BuffNet Cast Position. No debt, financial flexibility, approximately $1.6 billion in annual wealth. Long and short.
Sandwiches value proposition has materially derisked from a financial perspective by our strong balance sheet.
Robust net cash position.
With that financial flexibility.
Approximately $1 6 billion and Nols.
Long and short.
Grayson R. Pranin: The company is well positioned to navigate. It's not leverage, i.e., M&A. The Current Landscape. In summary,
The company is well positioned to navigate.
If not leverage.
M&A.
The current landscape.
In summary.
Grayson R. Pranin: The company has approximately $200 million of net cash and cash equivalents at year-end after adjusting for recent dividends, which represents approximately $5.30 per share for common stock issued and outstanding. Average production for the year, approximately 17 MVOE per day, which is a 10% increase in oil from the prior year. Mid-composition that is 99% held by production, which preserves the option value of future development potential in a cost-effective manner. Low overhead.
The company had approximately 200 million net cash and cash equivalent at year end after adjusting for recent dividends, which represents approximately $5 30 per share for our common stock issued and outstanding.
Average production for the year of approximately 17 Boe per day, which is a 10% increase in the oil from the prior year.
Mid composition that at 99% held by production.
Which preserves the option value of future development potential in a cost effective manner.
Operator: Top tier adjusted GNA of $1.42 per POE. No debt. In fact, negative leverage. Packed full of free cash flow in a growing net cash position, supported by a diverse production profile, flattening expected annual base PDP declines, a single-digit average over the next 10 years, and a multi-digit reserve life asset base. 1.6 billion in NOLs, which will shield future free cash flow from federal income tax, and a large owned and operated SWD and electrical infrastructure that provides cost and strategic advantages requiring little to no future capital to maintain. This concludes our prepared remarks. Thank you for your time. We'll now open the call to questions. The floor is now open for your questions. To ask a question this time, please press star followed by the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Low overhead top tier adjusted G&A of $1 42 per Boe.
No debt in fact negative leverage.
Impactful free cash flow and a growing net cash position supported by a diverse production profile flattening expected annual base PDP declines are single digit average over the next 10 years.
And our multi digit reserve life asset base.
One $6 billion in Nols, which will still future free cash flow for federal income taxes.
And a large owned and operated at the BD in electrical infrastructure, which provides cost and strategic advantages requiring little to no future capital to maintain.
This concludes our prepared remarks. Thank you for your time, we'll now open the call to questions.
Florida is now open for your questions.
Ask a question at this time, please press star followed by the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Josh Young: Your first question comes from the line of Josh Young with Bison Interest. Hey Grayson, thanks for taking my questions. So, first of all, your guys' results are great considering how little you're reinvesting. So, I wanted to commend you on that, you know, very low decline rate, and you're also not reinvesting into gas production at low prices. So, I wanted to commend you on that.
Your first question comes from the line of Josh Yeah Goodbye.
Your line is open.
Hey, great.
Thanks for taking my questions. So.
First of all.
You guys results are great considering how little you're reinvesting so I wanted to commend you on that very low decline rate and you're also not reinvesting into gas production at low prices. So I wanted to commend you for that.
Grayson R. Pranin: I wanted to ask about the cash balance. So, you guys have done some special dividends, which are sort of fun to receive as a shareholder but don't really add any value over time. And you are sitting on a very large cash balance. How do you think about the sort of maximum return approach towards deploying that, and what is the opportunity cost is of sitting on such a large cash balance, considering the free cash flow profile of the asset? Yes, good morning Josh.
Wanted to ask on the cash balance. So you guys have done some special dividends, which are our sort of fund to receive as a shareholder but don't really sort of compound value over time and you are sitting on a very large cash balance how do you think about the sort of maximum return approach towards deploying.
That and what's the opportunity cost is sitting on such a large cash balance considering the free cash flow profile of the assets.
Yes, good morning, Josh.
Grayson R. Pranin: Thank you for joining the call and for the question. I appreciate your time here. You know, this is something that we consistently spend a lot of time on and have meaningful conversations with our board and are constantly evaluating. We're trying to balance, you know, a growing cash position with maintaining the optionality of M&A, especially given the reduced natural gas price environment today that we think that we can take advantage of, as well as the other things that I mentioned on the call, as well as returning capital to shareholders. And we're looking at that as a three-prong approach, right, on making sure that we have a good regular dividend that we can consistently, you know, approve quarter after quarter and balance that out over time.
Thanks for joining the call and for the question.
I appreciate your time here.
No. This is something that we consistently spend a lot of time on.
And have meaningful conversations with our board.
And are constantly evaluating we're trying to balance our growing cash position with maintaining the optionality of M&A, especially given the reduced natural gas price environment today, but we think that we can take advantage of.
As well as the other things that I mentioned on the call as.
As well as returning capital to shareholders.
We're looking at that is that a three pronged approach right on making sure that we have a good regular way dividend that we can consistently.
Accrue quarter after quarter.
And balance that out over time.
Grayson R. Pranin: Second is to top off with special dividends, again just balancing the time that we're taking to review M&A versus being capitally disciplined in the current environment, as well as opportunistic share. So I don't think that we're sticking to any one option and know that as dynamics change this year going forward, we'll re-evaluate. So if something's not working, we'll have additional discussions and try to account for all the factors. Okay, but I guess two quick follow-ups on that. One, have you guys actually repurchased a single share since you went net cash positive at, I think, $5 a share three years ago? You know, there's been discussion of it and approval of it. Have you guys actually bought a single share back? We have not, but we continue to maintain the program.
Second is to.
Pop off the special dividend again, just balancing the time that we're taking to review M&A versus being capital discipline in the current environment.
As well as opportunistic share repurchases.
So I don't think that we're sticking to any one option.
And note that as dynamics change this year going forward, we will reevaluate something's not working we'll have additional discussions.
Tried to account for all the facts at the time.
Okay.
But I guess two two quick follow ups on that one have you guys actually repurchased a single share. Since you went net cash positive at I think it was $5 a share three years ago there.
There has been discussion a bit on approval of it have you guys actually bought.
A single share back.
We have not but we can continue to maintain the program and opportunistically repurchased during market dislocations compared to our NAV.
Grayson R. Pranin: The intent there is to opportunistically repurchase during market dislocations compared to our NAD. The program is not intended to buy back certain amounts at certain times or do it under any circumstances, so we're not trying to make a goal of repurchasing all $75 million this year. But, for example, if there's a dislocation between our share price and we still have a strong support commodity, a high NAD, those are perfect opportunities to buoy our share price and repurchase shares. Fortunately and unfortunately, you know, the share price has performed relatively well since the announcement of the Return of Capital Program. With the recent changes that we made last year and this year, fewer instances of market discount... Okay, great.
The program is not intended to buyback.
Certain amounts at certain times, we're doing under any circumstances. So we're not trying to make a goal of repurchasing $75 million this year, but for example.
Dislocation between our share price.
And we still have strong support and commodity.
Those are perfect opportunities to buoy, our share price and repurchase shares.
Fortunately and unfortunately the share prices.
Performed relatively well since announcement of the return of capital program.
With the recent changes that we made last year and then again this year with less instances market dislocation.
Grayson R. Pranin: And then just last question, aren't you better off buying much smaller assets of the sort you did buy one last year of this sort, just a very high discount rate with a lot of cash flow versus the purchase cost? Aren't you better off focusing on that rather than on this M&A where you'd be advantaged by having a large cash balance? Like, aren't you better off going and hiring more landmen and doing many million-dollar to $10 million sorts of deals rather than trying to preserve this optionality? No, it's a great question.
Okay, Great and then just last follow up aren't you better off buying much smaller assets of the sort you did buy one last year of this work just at a very high discount rate with a lot of.
Cash flow versus the purchase costs aren't you better off focusing on that rather than on sort of this.
M&A, where you'd be advantaged with having a large cash balances aren't you better off going in hiring more land men and doing many million to $10 million sorts of deals rather than trying to preserve this optionality.
No. It's a great question. The answer is we are looking at those things.
Grayson R. Pranin: You know, the answer is that we are looking at those things. We try to take advantage of them when they come. We're constantly doing business development to drum up new opportunities. However, there's not always perfect timing between buyer and seller, right? And you have to have that alignment to get things done on the small ball acquisition front.
Tried to take advantage of them when they come.
Currently doing BD.
New opportunities.
However, there is not always perfect timing with buyer and seller right and you have to have that alignment to get things done on a small ball acquisition front.
Grayson R. Pranin: And we like to maintain the optionality for something that's more significant than that. So we're evaluating a range of opportunities that range from a couple million up to a couple hundred million. And know that we have a high bar, and anything that we do is going to be accretive to our shareholders. But we are promoting those small ball acquisitions right alongside the market. Great. Okay, thanks. I appreciate the time. Yeah, thank you, Josh.
And we'd like to maintain the optionality for something thats more significant than that.
So we're value we're evaluating a range of opportunities that range from a couple of million up to a couple hundred million.
Note that we have a high bar and anything that we do is going to be accretive to our shareholders.
But we are promoting those small ball acquisition right alongside the larger.
Great. Okay. Thanks, I appreciate the time.
Yes, Thank you Josh.
Josh Young: Our next question comes from the line of David Kirtle with Bluepond Capital. Your line is open. Yeah.
Our next question comes from the line of David Curdle with loop capital. Your line is open.
Yes.
David Kirtle: I'm interested in exploring the M&A environment more, and I'm curious if deal prices are better for smaller deals or for larger deals. I'm curious how big a deal you feel you could do. And I'm also curious about whether, right now, you would think that the price environment is very good, that there would be, you know, a lot of opportunities. The mid-con, in a sense, is kind of an undervalued basin, and the price, you know, Henry Hubb's gas prices are so, so low. So I would think.
I'm interested in exploring more the M&A environment and I'm curious that deal prices are better on for smaller deals or larger deals I'm curious how big a deal you feel you could do.
And I'm also curious about.
Right now you would think.
The price environment is very good that there'll be a lot of opportunities.
The mid con and a sense of kind of an undervalued.
Often.
And the pricing.
Henry hub.
Gas prices are so low.
So I would think that they would be deals to be had.
And I appreciate the fact that youre very careful I totally am onboard with that.
But I'm just kind of get a realistic understanding about.
What we can expect.
Over the year over the course of the year, how youre seeing the deal flow.
What there is out there if it's looking better so I realize I've asked a lot of questions on M&A, but if you can opine on any of those that would be helpful.
Okay.
Yes, Thank you David and good morning, I appreciate your time and questions on the call here.
I'll try to hit as many of them as I can if I Miss anything please follow back up.
I think we're seeing a constructive.
M&A market within the mid Con we agree with you.
The mid con.
Enable is a place where we're able to generate meaningful cash flow just like we have an unencumbered assets.
Think we can further leverage that.
By expanding our asset base and taking our cost focus efforts books.
So to the extent and the back office side to leverage and we know the area well.
So we continue to see things.
Like I mentioned the jobs. The challenge is you have to have alignment between the buyer and seller.
We're committed as a board and management team.
To make this a top priority.
With return of capital M&A is right behind it making sure that we are actively looking at and evaluating.
<unk> that makes sense.
And trying to do something Thats really accretive for the shareholders trying to take advantage of.
The currently lower natural gas prices.
But again, we can't.
Line on successfully there.
Only that we're going to roll up our sleeves and look at things that are small that makes sense and look at things that are a little bit larger and thats still makes sense.
And relative to.
How does one look to the other.
It depends on the.
The asset type.
Obviously, where we bought back interest in the wells that we operate we have an operating advantage there. So those things are.
Really intuitive makes a lot of sense.
You have a really strong margin there as we look at opportunities where we don't operate there are things where you can get.
A better discount rate.
On things.
Waller and larger depending on the asset quality.
Are those things well history are they relatively newer where theres more subjective interpretation of the performance.
Is there upside those are all things that we look at the value differently, depending on the assets. So hopefully I've covered all of your questions. David. Please let me know if I have it.
Well there was one more I'm just curious are you more likely to find good deals.
Small.
Small size acquisitions, or maybe big deals there are better deals because there are fewer bidders and I'm also curious how big a deal could you do.
Sure again go back to my previous comment.
There are great small ball deals I think there are really good larger deals we would have to have a string of pearl hurdles on the smaller deals where they might have.
<unk>.
Cash on cash return.
They're harder to string together to be as impactful like the differences for our organic opportunities with our capital Workover program that have really high rates of return versus our prior drilling campaign is still had high rates of return a little bit less but contributed more meaningfully on a value basis.
Yeah.
So we think there is.
Justification for looking at both.
Because there's different drivers between each of those options.
And know that we're going to do something that makes sense.
Okay.
Okay.
And I'll just say that.
Personally I think there is dislocation in your share price given your net cash balance your asset.
Youre welcome.
Low cost operations.
I think that.
The stock is dislocated from the value that it offers shareholders.
Well I appreciate your comments, David I think that's something that we look at consistently from day to day.
Make sure we're making good long term decisions.
And we want to ensure that when we do repurchase shares.
Doing it at levels that.
Also have good returns.
So we are valuing that option right right alongside all the other options. So it's not an either or answer.
No that will continue to assess that as we move through the year.
Thank you.
Thank you David.
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There are no further.
Jeff at this time, ladies and gentlemen. This concludes today's conference call you may now disconnect.
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Okay.
Yes.
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