SandRidge Energy, Inc. Updates Shareholders on Operations and Reports Financial Results for Third Quarter and First Nine Months of 2016 (11/08/16)
OKLAHOMA CITY, Nov. 8, 2016 /PRNewswire/ -- SandRidge Energy, Inc. (the "Company") (NYSE: SD) today announced financial and operational results for the quarter ended September 30, 2016.
Production in the third quarter was 4.6 MMBoe (49.6 MBoepd, 28% oil, 24% NGLs, 48% natural gas). One drilling rig was active in Oklahoma during the entire quarter, and one drilling rig was active for part of the quarter in the North Park Basin of Colorado, with well completion activity continuing into the fourth quarter. Capital expenditures were $52 million during the third quarter, bringing the total amount invested to $161 million through the third quarter of 2016, excluding acquisitions. Capital expenditure and operational guidance, noted below, has been updated for 2016 in addition to introducing 2017 capital expenditure guidance.
The Company reported a net loss of $404 million and net cash from operating activities of $75 million for the third quarter of 2016. When adjusting these reported amounts for items that are typically excluded by the investment community on the basis that such items affect the comparability of results, the Company's "adjusted net income" amounted to $25 million and "adjusted operating cash flow" totaled $32 million. Earnings before interest, income taxes, depreciation, depletion, and amortization, adjusted for certain other items, otherwise referred to as "adjusted EBITDA", for the third quarter was $65 million.
The Company has defined and reconciled adjusted net income, adjusted operating cash flow and adjusted EBITDA to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures in supporting tables at the conclusion of this press release under the "Non-GAAP Financial Measures" beginning on page 15.
James Bennett, SandRidge President and CEO said, "2016 has been a watershed year for SandRidge. The Company successfully restructured its balance sheet and currently has no cash interest burden and over $500 million of liquidity. We intend to conserve capital by reducing our 2016 capital expenditures from our original plan of $285 million to $220-240 million. Our multi and extended lateral program is more capital efficient every quarter. In the Mid-Continent, recent drilling and completion costs are below $2 million per lateral, with the completion of a dual two-mile extended lateral, the equivalent of four one-mile laterals in a single well, for $1.7 million per lateral. Recent drilling activity included our first Niobrara two-mile extended lateral, which demonstrates an attractive and repeatable combination of well costs and oil productivity. With an inventory of 1,300 proved and probable Niobrara laterals, we will resume Niobrara drilling in early 2017, further targeting additional productive Niobrara oil benches, tighter well spacing, and higher oil recoveries per well. We will continue using extended laterals in both of our plays."
Highlights during and subsequent to the third quarter include:
Relisted October 4th on NYSE with Ticker Symbol "SD"
Continuing to Improve Capital Efficiency by Expanding Use of Multi and Extended Laterals1
First Niobrara Extended Lateral and First Niobrara Test of an Additional Bench Drilled in Third Quarter, Completed and Flowing Back in Fourth Quarter
North Park Niobrara Type Curve of 315 MBoe (86% Oil) EUR per Single Lateral
Drilled Six Mid-Continent Laterals and Three North Park Basin Laterals in Third Quarter
John Suter, SVP of Operations, Named Successor to Steve Turk who is Retiring as COO
Third Quarter Production of 4.6 MMBoe (49.6 MBoepd, 28% Oil, 24% NGLs, 48% Natural Gas)
Hedge Positions Added for Remainder of 2016 and in 2017 and 2018
Updating 2016 Guidance and Introducing 2017 Capital Expenditure Guidance
Total Liquidity of $536 Million Including Unrestricted Cash of $111 Million and $425 Million Available Under Senior Credit Facility as of October 31st
(1) A "lateral" is defined as a single one-mile section lateral whereas an "extended lateral" is defined as a two-mile lateral drilled across two sections, and a "multilateral" defined as two or more one-mile laterals drilled within a one-mile section.
Bennett went on to say, "SandRidge expects to create value with competitive project IRRs from both the high-graded harvest of our Mid-Continent position and the portfolio diversification and potential long term oil growth of our emerging North Park Niobrara project and non-Mississippian targets in the Mid-Continent. Our larger goals are to increase oil weighting, reduce cost structure, and effectively manage a portfolio of competitive projects already in hand, while looking for additional opportunities to create resource value. We plan to achieve all of this while protecting our balance sheet, liquidity and minimizing cash flow outspend."
COO Steve Turk Retiring, SandRidge Names John Suter to Become New COO
Effective December 31st, SandRidge Chief Operating Officer (COO) Steve Turk, 65, will retire, after having served in this leadership role since March 2015. John Suter, 56, now Senior Vice President of Operations, is being promoted to COO effective December 1st.
James Bennett, SandRidge CEO and President said, "I want to thank Steve for his contributions to SandRidge during his tenure with the company. His extensive experience and informed decision making approach have provided consistent, steady leadership. Through our succession planning program, John's promotion to COO is something we have prepared for. John has taken on additional responsibilities across all of our operating areas in recent months and we expect the transition to be seamless."
Mr. Suter joined SandRidge in April 2015 as Senior Vice President of Mid-Continent Operations, bringing with him extensive experience in the exploration and production sector, including most recently serving as Vice President of the Woodford business unit at American Energy Partners, LP from November 2013. From May 2010 to September 2013, he served as Vice President of Operations for Chesapeake Energy Corporation's Western Division, and before that, as Chesapeake's District Manager for the Barnett Shale and Southern Oklahoma assets. Before joining Chesapeake Energy, Mr. Suter served in various operational roles at Continental Resources, Inc., Cabot Oil & Gas Corporation and Petro-Lewis Corporation. He holds a Bachelor of Science degree in Petroleum Engineering from Texas Tech University.
Mid-Continent Assets in Oklahoma and Kansas
•Third quarter production of 4.3 MMBoe (46.2 MBoepd, 24% oil, 25% NGLs, 51% natural gas)
•Drilled six laterals in the third quarter, bringing three laterals online
•24 laterals drilled in the first nine months of 2016 with all Mid-Continent activity focused in Oklahoma
•First nine months of Mississippian drilling and completion costs averaged $1.9 million per lateral or $392 per completed foot, a ~26% reduction from all of 2015
Multi and Extended Lateral Development
•100% multi and extended lateral Mississippian drilling in 2016
•First North Park Niobrara extended lateral drilled
•100% multi and extended lateral development planned in 2017 across both Niobrara and Mid-Continent assets
In 2013, SandRidge pioneered Mississippian multilateral technology, the technique of drilling two to four laterals from a single vertical wellbore. In late 2014, the Company's expanded development included extended laterals.
Since inception of the multi and extended lateral program, the Company has drilled and completed 123 laterals using multilateral design and 50 laterals using extended lateral design. Most notably, SandRidge has uniquely applied the full section development multilateral design, where three or more laterals are drilled from a single wellbore. Both multi and extended laterals enable the Company to reduce drilling and completion costs and decrease operating expenses with common well site facilities and artificial lift equipment.
In the first nine months of 2016, SandRidge drilled and completed 17 laterals using multi and extended lateral designs in the Mid-Continent, including 100% Mississippian multi and extended lateral drilling. The previously reported Dettle 2408 1-29 20H, the first Mississippian dual extended lateral (two two-mile laterals), produced a 30-Day IP of 1,099 Boepd2 (60% oil) and was drilled and completed for $6.8 million ($1.7 million per lateral).
Another example, the Earl 2414 1-11H 14H, a Chester extended lateral development well, was drilled for $4.3 million ($2.1 million per lateral), and produced a 30-Day IP of 560 Boepd (62% oil), matching expectations.
In the third quarter, the Richey 2407 1-21H, a Mississippian full section development well exceeded expectations with a 30-Day IP of 688 Boepd (66% oil) and was drilled and completed for a total of $5.3 million ($1.8 million per lateral).
Most recently, technical teams applied extended lateral drilling technology in the Company's North Park Basin asset by drilling and completing an extended lateral Niobrara well, the Castle 1-17H 20. Although early, initial rates are outperforming expectations. The Company plans to drill 100% multi and extended laterals in 2017 across both the North Park Basin and Mid-Continent assets.
(2) Calculated as the highest consecutive 30-Day average production rate during the early life of a well.
Niobrara Asset in North Park Basin, Jackson County, Colorado
•Third quarter production of 161 MBo (1.8 MBopd), an increase of 49% compared to the second quarter of 2016
•Averaged 3.3 MBopd the second half of October, including production from 11 Niobrara laterals drilled in 2016
•North Park Niobrara type curve of 315 MBoe (86% oil) per single lateral, supported by cumulative production from 14 laterals
•Drilled three laterals, completed four laterals, and brought three laterals online during the third quarter
•Drilled first two-mile extended lateral, the Castle 1-17H 20, for below $7 million, less than $3.5 million per lateral
SandRidge drilled 10 wells with 11 total laterals in the North Park Basin in 2016. The goal for the first five wells was to test initial drilling and completion techniques in the new basin and to prove production performance. The first five wells demonstrated consistent performance to establish the play. The Company's first Niobrara well, the Gregory 1-9H, exceeded type curve production expectations with a previously reported 30-Day IP of 550 Boepd (89% oil). The well has been online for over seven months, averaged 310 Boepd (84% oil) during the month of October, and has produced a total of ~75 MBo. In the second quarter, four additional laterals were drilled, completed, and brought online, with an average 30-Day IP of 460 Boepd. Averaging 91% oil, all four wells met or exceeded type curve performance estimates and indicated consistent performance in this area of development.
The goal for the second five well package was to test concepts related to various targeting, drilling and completion techniques. In the second quarter, a grouping of three laterals utilizing batch drilling and zipper frac completions improved cycle times. This lateral grouping, now under evaluation, used a combination of crosslinked gel and slickwater frac systems. In the third quarter, three additional laterals were drilled. The first Niobrara extended lateral, the Castle 1-17H 20, and a lateral testing a shallower Niobrara bench, the Hebron 4-18H, were completed and brought online in the fourth quarter. Results for this five well pilot program are expected to be reported in the fourth quarter earnings release.
Drilling and completion cost reductions have been an ongoing focus throughout the year. Drilling efficiencies, such as mud and bit system advances, reduced overall drilling cycle times by 69% since the beginning of the program. Current spud to rig release cycle time is averaging 11 days. Additionally, further cost reductions from extended lateral drilling are expected to deliver wells costs of less than $7 million ($3.5 million per lateral) in 2017, supported by the highlighted recent extended lateral Castle 1-17H 20.
Construction of the Big Horn Central Tank Battery (CTB), which became operational in mid-October, has further advanced our field development. This facility will be the prototype for future full field development and supports all 11 laterals drilled in 2016. Future facility expansion will support production for up to 70 laterals at the Big Horn CTB, and the shared gathering concept will reduce the overall drilling footprint, wellsite facility costs and operating costs. Additionally, the Company completed a summer construction program building roads, pads and flow lines in advance of continued 2017 development. Aiding future well placement, a 64 square mile 3D seismic survey, planned for early 2017 will be merged with and is complementary to the existing 54 square mile 3D survey.
Other Operational Updates
•During the third quarter, Permian Central Basin Platform properties produced 153 MBoe (1.7 MBoepd, 80% oil, 13% NGLs, 7% natural gas)
Key Financial Results
•Adjusted EBITDA, net of Noncontrolling Interest, was $65 million for third quarter 2016 compared to $118 million in third quarter 2015
•Adjusted operating cash flow of $32 million for third quarter 2016 compared to $45 million in third quarter 2015
•Adjusted net income of $25 million for third quarter 2016 compared to adjusted net loss of $45 million in third quarter 2015
•Adjusted EBITDA, net of Noncontrolling Interest, was $169 million in the first nine months of 2016 compared to $510 million in first nine months of 2015, pro forma for divestitures
•Adjusted operating cash flow of ($60) million in the first nine months of 2016 compared to $302 million in the first nine months of 2015
•Adjusted net loss of $93 million in the first nine months of 2016 compared to adjusted net loss of $61 million in the first nine months of 2015
During and after the third quarter, SandRidge added oil and natural gas hedge positions through the remainder of 2016, while also adding positions in both 2017 and 2018. For the calendar year of 2017, the Company now has approximately 2.6 million barrels of oil hedged at an average WTI price of $51.45 as well as 29.2 billion cubic feet of natural gas hedged at an average price of $3.19 per MMBtu. For 2018, the Company has approximately 1.1 million barrels of oil hedged at an average WTI price of $55.10.
Capital expenditures in 2016 are now anticipated to be $220 to $240 million for the full year (midpoint reduced $10 million vs prior guidance), with production estimates ranging from 19.0 to 19.4 MMBoe (100 MBoe greater than prior guidance midpoint). The production estimate includes a 200 MBoe contingency for potential weather downtime as was experienced in late 2015.
The Company is in the process of developing its capital expenditures budget for 2017 and, in the current pricing environment, expects that total capital expenditures will be less than $200 million in 2017.
Restructuring Details and Liquidity
•20.6 million common shares outstanding
•14.8 million shares issuable upon conversion of mandatory convertible notes
•4.9 million warrants exercisable at $41.34 (net share settlement); 2.1 million warrants exercisable at $42.03 (net share settlement)
•No cash interest expense under current capital structure including undrawn revolver, $35 million secured building note and $278 million of zero interest bearing, mandatorily convertible notes
•$3.7 million par value of convertible notes converted as of October 31st
•No leverage or interest coverage financial covenants, only asset coverage ratio until October 2018
•No borrowing base redeterminations for approximately two years
•$536 million of liquidity as of October 31st, including $111 million of unrestricted cash and a $425 million undrawn revolver
New Board Appointments
Effective October 4, 2016, the composition of SandRidge Energy's five person Board of Directors consisted of:
John V. Genova (Chairman) earned his Bachelor of Science degree in Chemical and Petroleum Refining Engineering from the Colorado School of Mines in 1976. He joined Exxon in the Company's Baton Rouge Refinery in 1976. At Exxon, he held a number of positions of increasing responsibility in the Refining, Supply and Natural Gas functions. Immediately following the public announcement of the Exxon and Mobil merger, Mr. Genova led the development of a $20 billion integrated natural gas project proposal for Saudi Arabia and served as the lead Exxon/Mobil merger natural gas negotiator with the European Commission. Following approval of the Exxon and Mobil merger, he was named Director, International Gas Marketing, ExxonMobil International Limited. Subsequently, he was appointed Executive Assistant to the Chairman, Lee Raymond, and the General Manager of Corporate Planning of Exxon Mobil Corporation on April 1, 2002. In this position, he served as an Officer of ExxonMobil. In April 2004, Mr. Genova became a Director of the Board of Encore Acquisition Company and served on the Audit Committee until the company's merger with Denbury Resources in early 2010. In May 2008, Mr. Genova was appointed as President and CEO of Sterling Chemicals where he led the creation of significant value before successfully completing the sale of the company to Eastman Chemical.
James D. Bennett has served as President and Chief Executive Officer of the Company since June 2013. Prior to commencing service in his current positions, he served as President and Chief Financial Officer from March 2013 until June 2013 and Executive Vice President and Chief Financial Officer from January 2011 until March 2013. Prior to joining the Company, Mr. Bennett was Managing Director for White Deer Energy, a private equity fund focused on the exploration and production, oilfield service and equipment, and midstream sectors of the oil and gas industry. From 2006 to 2009, Mr. Bennett was employed by GSO Capital Partners L.P., where he served in various capacities, including as its Managing Director. Mr. Bennett graduated with a B.B.A. with a major in finance from Texas Tech University. Mr. Bennett has served on the boards of directors of the general partner of Cheniere Energy Partners L.P. and PostRock Energy Corporation.
Michael (Mike) L. Bennett, no relation to James Bennett, has over thirty-six years of experience in the chemical industry and serves as a member of the board of directors and the audit committee of Alliant Energy, Chairman of the board of directors of OCI N.V., and Chairman of the board of directors of OCI Partners LP. Mr. Bennett served as President and CEO of Terra Industries, Inc. from 2001 until its sale to CF Industries in 2010. He is a past Chairman of The Fertilizer Institute and the Methanol Institute.
William (Bill) M. Griffin, Jr. is an independent energy advisor with over thirty-five years of technical and leadership experience with active public and privately owned upstream energy organizations. Mr. Griffin most recently served as President and Chief Executive Officer of privately held Petro Harvester Oil & Gas. Mr. Griffin's background also includes senior leadership positions as President of Ironwood Oil & Gas, Senior Vice President of El Paso Exploration and Production Company and Vice President of Sonat Exploration Company. In addition to the board of Petro Harvester, Mr. Griffin has also served as a director for Black Warrior Methane Corporation and Four Star Oil & Gas Company. Mr. Griffin began his career with Texas Oil & Gas Corporation and is a registered professional engineer with a B.S. in mechanical engineering from Texas A&M University.
David J. Kornder has over twenty-five years of experience and has previously served as Chief Executive Officer of Cornerstone Natural Resources, LLC, Chief Financial Officer of Petrie Parkman & Co., an energy investment bank, and as Executive Vice President and Chief Financial Officer of Patina Oil & Gas Corporation from 1996 through its acquisition by Noble Energy, Inc. in May 2005. Prior to that, Mr. Kornder began his career at Deloitte & Touche LLP.
Conference Call Details
The Company will host a conference call to discuss these results on Wednesday, November 9, 2016 at 8:00 am CT. The telephone number to access the conference call from within the U.S. is (877) 201-0168 and from outside the U.S. is (647) 788-4901. The passcode for the call is 86082124. An audio replay of the call will be available from November 9, 2016 until 11:59 pm CT on December 9, 2016. The number to access the conference call replay from within the U.S. is (855) 859-2056 and from outside the U.S. is (404) 537-3406. The passcode for the replay is 86082124.
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