SandRidge Energy, Inc.
Q1 2021 Earnings Call Transcript

Published: 12 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the SandRidge Energy First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Brendan Brown . Please go ahead, sir.

[Unidentified Company Representative:]

Thank you and welcome everyone. With me today are Carl Giesler, our CEO; Salah Gamoudi, our CFO; and Grayson Pranin, our COO, as well as other members of management. We would like to remind you that today’s call contains forward-looking statements and assumptions, which are subject to risks and uncertainties 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.

[Carl Giesler:]

Thank you and good morning. Hopefully you've had time to peruse the earnings release and the investor presentation we posted yesterday after the market closed. We typically aim to keep brief our prepared remarks. Today however, we plan on being more expansive. Over the last several years and particularly during 2020, the Board and management have worked to reset, if you will, our company in almost all respects; from focusing our asset base, to streamlining our capital organization on cost structures, to reassessing and tightening our capital allocation. Accordingly, we think it'd be useful to your assessment of our company, if we walk through the presentation, in addition to reviewing our 1Q 2021 earnings. Before turning to that presentation, though, Salah will touch on a few highlights from the first quarter earnings.

[Salah Gamoudi:]

Thank you. Simply put, 1Q 2021 was a strong quarter. During the quarter, our net cash position increased just over $48 million to almost $57 million to compared to just over $8 million in the prior quarter. This net cash position reflects more than full flip from just over $51.5 million in net debt that we had entering 2020. Our adjusted EBITDA more than doubled from the prior quarter to almost $22 million and just over $9 million in 4Q 2020. You should note that 4Q 2020 was burdened by one-time $5.3 million cash hedge loss due to the unwinding of all of our hedge positions. Even without that hedge line impact, 1Q 2021 adjusted EBITDA would still be meaningfully higher. Know that our board and management made the decision to unwind our calendar 2021 gas hedges last November, based on an improving 2021 gas price outlook. That decision appears prescient, as those swaps were just over $2.60 per Mmbtu. Prices this year have been trading and the NYMEX curve remains meaningfully higher. Our production held fairly steady during the quarter, with our Mid-Con assets producing 17,500 BOE per day compared to 19,000 BOE per day in the prior quarter. This quarter’s production is particularly notable, given the substantial two-plus-week negative impact from the snowpocalypse in February. Note, that we closed the sale of our North Park Basin asset on February 5, on the North Park Basin for only 36 days are in 1Q 2021 makes quarter over quarter production comparison less relevant for that asset. Price realizations, particularly for NGL appear to be migrating back up to pre pandemic low, our 1Q 2021 oil and gas realization were up 41% and 19% from the prior quarter.

[Question-and:]

[Operator:]

And our first question comes from the line of . Go ahead, please. Your line is open.

[Unidentified Analyst:]

Good morning.

[Grayson Pranin:]

Good morning.

[Unidentified Analyst:]

Thanks for thanks for the presentation and all the, context on where you brought the company to, strategically, so, at this point, where you have achieved a big improvement in efficiency. And as you plan it out, continue to shift away from a high CapEx strategy. From here forward, can you maybe talk a little bit about, other than, what well, I guess, with commodity prices, sort of at the centre of it more of an upside case scenario, in terms of what would encourage you to do get out -- get a little bit more aggressive in terms of spending and maybe talk a little bit about, what the next couple years would look like, if it turned out that we're in a temporary price spiked for oil and the script turns out to be more ready for gas than it looks like right now.

[Grayson Pranin:]

Yes. Yeah I will handle this question. And I don't want to talk where we get Q4 and the future I will say.

[Unidentified Analyst:]

Sure.

[Grayson Pranin:]

I will say that, the level price we get we're going to maximize the cash where we get them up and that is our overarching goal. And so at this point to kind of answer the first part of your question. I think we're focused on new and few things. So organically or internally there's, always things that you can do to price on costs. So a little bit of brand and as we previewed on G&A will continue to impress you always find things and keep moving. The biggest thing that we started to do and really will do is pointing to systematic about is working on major automakers. And thinking about what optionality we might have to actively manage the price realizations particularly around gas and NGLs. That is an area that just have not put a lot of times or very recently to be meaningful, going forward. Thirdly, and this is also the meaningful bucket, we have been very conscious with liquidity until closing the major sales. We’re building in more population that actually got the cash. And now our team is planning to do their homework and homework is very importantly. There's no better way to lose money in that project. We look at well reactivations, drill outs, maybe some refracs and things like that. But of course, we do that as we require more capital, we'll have to go through the board to get healthy process to get those projects and get approval. That's something that we're definitely doing. And then finally, this is a little bit happened in the background. We are very cognizant of the value that you can realize the enterprise by being smart how you often play PMA obligations. And they're so well over the coming into live various fringe areas of asset base, where people actually pays positive money for well -- for making money and have an open PMA liability. And so with focus on shedding that, that's a little bit less every quarter-to-quarter, but I think something that will be very important. And then finally, like we said, we continue to evaluate M&A that fits up criteria. Right now, being predominantly PDP is a little bit developed risk, and that plays to our core strength of being smart on costs and production profile optimization. And obviously, in the regulatory regime like jobs if you won’t get experience.

[Unidentified Analyst:]

Great. Thanks for that explanation. And did you just mention that with the cash from the Colorado sale now in the door, the team is beginning to do some homework. That brings me to the other thing I was wondering, the inventory of quick return projects, we were bringing wells back online and so forth. Can you give a sense of as far as what you identified for those projects, how many of them maybe kind of -- they will be kind of worked through at this point? And as you begin do more homework on, what else is possible out there? Is that likely to sort of replenish the list of rework jobs you've done so far, or do you think of it maybe just defining sake, list of projects for the coming year or something like that, but not necessarily a long-term plan?

[A – Grayson Pranin:]

Sure. Good morning. This is Grayson. Happy to answer that question, I can't give you an exact number of inventory, can't say that we have a really important inventory set that we are currently evaluating will be opportunistic, as market conditions sustain and continue to improve. I do think that this thing resources that is potentially robust not be meaningful both this year, next year, potentially in the fall.

[Unidentified Analyst:]

Okay. Terrific. So then that really does kind of give you a line of sight, past our current commodity cycle. And I guess that in turn will give you a good deal of strategic flexibility looking ahead, as far as what you want to do on the capital or the acquisition side, is that fair?

[Grayson Pranin:]

That's fair. And well -- I would just point out that while we are little bit predominate for the operating wells. As we have a lot of wells on our property that have been temporarily abandoned or shut in. It’s more hot for us to evaluate play with. And the good thing these wells have already been drilled. So bringing them back on and acquire nearly as much CapEx as we drill in.

[Unidentified Analyst:]

Got you. And then just the last one for me. We've seen quite an uptick in corporate level, transaction activity M&A, in just about every basin you can think of, and really just in the last few weeks, just curious what you're seeing in the Midcon? And curious in particular, if you have any private or PE-backed assets that have come to the market? I understand more things have come to the market in recent weeks than we've seen in some time.

[Grayson Pranin:]

I think really, I'd say on this part is things come to the market that are, it came to -- real panel and zip code, we certainly look at them. And you're right, there has been an uptick in activities in Midcon and we feel like we're in the flow of being able to look at those opportunities.

[Unidentified Analyst:]

Great. Thanks a lot for all the strategic backdrop. Thanks. That’s it from me.

[Operator:]

Our next question comes from the line of Josh Young with Bison Interest. Go ahead, please. Your line is open.

[Josh Young:]

Hi. Good morning, guys. These are great results. Just have a couple of questions on this presentation and follow-up. So one on slide 14, you guys show -- you the three bars, and there's kind of the fourth and five bar that's missing. But – and five is kind of even better preserved value at a PDP, PV-10 basis on, kind of, current differentials with which have improved versus Q1. I guess, how do you guys think about -- it looks like you're kind of anchoring the value of the company to the PDP PV-10. But you're building your cash position, there's no dividend, there's no buybacks. There's just, kind of, this increasing cash balance, which of course is great, but I guess there's this overriding high level question of like, what's next? That doesn't seem to get answered in these materials or hasn't been answered. I know that’s, kind of, I guess more politely, indirectly asking, kind of, the same thing. But to the extent you guys could provide just more clear guidance at a high level may be at the top?

[Carl Giesler:]

Yes. Josh, thanks for listening, and for the kind words. Let me start off. On page 14, we endeavor to do, I think, it's appropriate is show all possible that our -- what we believe our PD Reserve, PV-10 value did in manner consistent with industry-audited reserve practice, right? 12-month its back, so on so forth. And we did it was useful to layout, as you mentioned where there is no bar, kind of, where things are currently. And we are seeing over the last three months last quarter, we have 29% NGL utilization. You can't say that last 12-months at this point, does that help through, we gave you some sensitivity it's just that what that might do to that. And then I believe you said, we're not just focusing on global values tethered just to the value of our reserves reserve base. Obviously, the roughly $60 million in net cash we have on balance sheet is very valuable as well. And that is an addition to the value of reserves. So, in some ways, we're very simple company. We have PV reserves and we have cash. That gets not that complicated. We didn't really feel the need to kind of do the math, people can take the numbers and add them together and divide by the share count and get to an asset value, if they want to, the G&A and other things, we need to go there. In terms of the cash balance, this is really the first quarter, as Salah said, we had a significant step up roughly $8 million current net cash position and then as I mentioned, our Board is committed to increasing that cash and using our assets to maximize the shareholder value. And they're thinking through and the fashion what the best use for that is, and the best way to put this point, I think they'll be very disciplined and focused on what makes most money for shareholders and how they use that cash, whether it be deployment acquisition, or eventually some type of return.

[Josh Young:]

Okay, so I mean I guess, again, it just sounds like you don't really have a clear -- you're still evaluating and knowing that the cast would come in ahead of the North Park sale. Obviously, there's a number of non-spreaders kind of deliberation is going on. It sounds like there isn't like a specific clear path forward. There's kind of -- there's multiple potential paths that you guys could take. It sounds like that's a reasonable interpretation of what you're saying.

[Carl Giesler:]

Yeah, I think that's right, it's not deterring. I mean, it'd be I mean, you have all the traditional return on capital options. Of course, if you live in the favorite stock, they have implications for how you might do it, to my mind, yes. If you put in some sort of regular dividend, what level, it is special dividend? What does that do longer term to your value? Your cash asides returning it shareholders at the very strategic elements. I think it's pretty well accepted that there's economies of scale on this business is our intensive, low cost to be the very performed, so sometimes being bigger is better. We will ever entertain a merger, our cash can have a lot of value in that context. We should help partner with a company and immediately delever them, or provide low cost capital for them to accelerate high value inventory. So, it's very important to think through all the ways that that cash can add value to the enterprise and avoided actively doing nothing very inappropriate Josh.

[Josh Young:]

Okay, just one last thing on the saltwater disposal on page six of the presentation and integrated power as well. I don't think this is something people really -- this is I think, the first time you've seen on this and maybe many years for SandRidge, and it's like very exciting to see, I guess, is this something that you guys would look at monetizing, or is the point of showing us just to highlight kind of where some of the cost savings and opportunities are coming from?

[Carl Giesler:]

It’s a good question. I -- you know my understanding is that this company is passed somewhat slowly and monetizing this year, from where we see, we think it's more of this primary customers who using it as almost a financing vehicle, right. And we just don't need to do that. I think that would add unnecessary complication and artificial pricing dynamic. And so we think it's going to be capital as an investment substantial system, it provides a lot of cost benefits that we're seeing in their cash flow. And it also provides us very real strategic benefits, the extent that assets and around that that's available, that means we'll just be able to operate more efficiently than someone else and be more competitive and get more out of them. So to answer your question distinctly, I don't think we're actively considering monetizing these assets.

[Josh Young:]

Okay. Thank you very much.

[Operator:]

Our next question comes from the line of Michael Melby with Gate City. Go ahead please. Your line is open.

[Michael Melby:]

Yeah, thanks. Thanks for the question. Mine is actually on slide 6, too, with the salt water disposal wells. Could you confirm just the cash balance you mentioned on May 7th after the purchase of the SandRidge Trust and all the additional cash from operations?

[Salah Gamoudi:]

Yeah. So the cash balance that we disclosed of over $80 million was just cash on hand. And that was after the acquisition of SDT, the overwriting royalty interest of SDT was from -- so that was negative impact, and then obviously, cash flow from operations increased the balance in the quarter.

[Carl Giesler:]

Yeah, we're also expecting our payments, so we paid all of that to SDT. And that’s why I mentioned, we're expecting to get $1.3 million back.

[Michael Melby:]

Guys thanks. And could you update us at a high level on how the acquisition of the Trust impacts, I guess, slide 15, and maybe even slide 14, if it moves the needle at all? Thanks.

[Carl Giesler:]

Sure. If we’re looking at slide 14, note that that third column from left Q1 2021, reserves includes the net impact of the SDT acquisitions. And then in reference to slide 15, we're reconfirming our 2021 guidance does not find change at this time.

[Salah Gamoudi:]

In the press release that we put out on the acquisition of the overwriting royalty interest to SDT, we said that it was always your time when you're buying them and sharing them this year and wanting PDP , it is a meaningful match. That does have an impact on that far right arm on page 14. And in 15, we provide guidance once a year, and we were well aware, maybe not an exact timing, but in the general timing, liquidation process of SDT, we factored that into a new data.

[Michael Melby:]

Got it. Thanks for your help.

[Operator:]

And there are no further questions in queue at this time. I would like to turn the call back over to our presenters.

[Carl Giesler:]

Thank you all very much for your interest in SandRidge and we look forward to talking next quarter, if not before with some of you all. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.