Annual Statements Open main menu
  1. Annual Statements
  2. » Companies
  3. » SANDRIDGE ENERGY INC
  4. » Quarter Report: 2022 September (Form 10-Q)

SANDRIDGE ENERGY INC - Quarter Report: 2022 September (Form 10-Q)

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-33784
SANDRIDGE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware20-8084793
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1 E. Sheridan Ave, Suite 500
Oklahoma City, Oklahoma
73104
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (405) 429-5500
Former name, former address and former fiscal year, if changed since last report: Not applicable
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $.001 par valueSDNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☑
Non-accelerated filer
☐
Smaller reporting company☑
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No þ
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☑ No o

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of the close of business on October 28, 2022, was 36,867,913.



Table of Contents
References in this report to the “Company,” “SandRidge,” “we,” “our,” and “us” mean SandRidge Energy, Inc., including its consolidated subsidiaries and its proportionately consolidated share of SandRidge Mississippian Trust I and SandRidge Mississippian Trust II, (collectively, the “Royalty Trusts”).

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) of the Company includes “forward-looking statements” as defined by the SEC. These forward-looking statements may include projections and estimates concerning our capital expenditures, liquidity, capital resources and debt profile, the timing and success of specific projects, the potential impact of international negotiations on the supply and demand of oil, natural gas and natural gas liquids (“NGL”), outcomes and effects of litigation, claims and disputes, elements of our business strategy, compliance with governmental regulation of the oil, natural gas and NGL industry, including environmental regulations, acquisitions and divestitures and the potential effects on our financial condition and other statements concerning our operations, financial performance and financial condition.

Forward-looking statements are generally accompanied by words such as “estimate,” “assume,” “target,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “goal,” “should,” “intend” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements are based on certain assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected. The Company disclaims any obligation to update or revise these forward-looking statements unless required by law, and it cautions readers not to rely on them unduly. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties relating to, among other matters, the risks and uncertainties discussed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2021 (the “2021 Form 10-K and 10-K/A”) and in Item 1A of this Quarterly Report.



Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 2022

INDEX
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.


Table of Contents
PART I. Financial Information

ITEM 1. Financial Statements

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
September 30,
2022		December 31,
2021
ASSETS
Current assets
Cash and cash equivalents$238,859 $137,260 
Restricted cash - other1,744 2,264 
Accounts receivable, net31,075 21,505 
Derivative contracts4,040 — 
Prepaid expenses1,346 626 
Other current assets1,582 80 
Total current assets278,646 161,735 
Oil and natural gas properties, using full cost method of accounting
Proved1,493,956 1,454,016 
Unproved11,553 12,255 
Less: accumulated depreciation, depletion and impairment(1,377,639)(1,373,217)
127,870 93,054 
Other property, plant and equipment, net93,691 97,791 
Other assets230 332 
Total assets$500,437 $352,912 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses$54,077 $45,779 
Derivative contracts— 21 
Asset retirement obligation17,142 17,606 
Other current liabilities841 627 
Total current liabilities72,060 64,033 
Asset retirement obligation44,321 41,762 
Other long-term obligations1,757 1,795 
Total liabilities118,138 107,590 
Commitments and contingencies (Note 7)
Stockholders’ Equity
Common stock, $0.001 par value; 250,000 shares authorized; 36,865 issued and outstanding at September 30, 2022 and 36,675 issued and outstanding at December 31, 2021
37 37 
Warrants88,518 88,520 
Additional paid-in capital1,062,775 1,062,737 
Accumulated deficit(769,031)(905,972)
Total stockholders’ equity382,299 245,322 
Total liabilities and stockholders’ equity$500,437 $352,912 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents    
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(In thousands, except per share data)

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues
Oil, natural gas and NGL$70,899 $46,584 $198,146 $114,403 
Total revenues70,899 46,584 198,146 114,403 
Expenses
Lease operating expenses9,693 9,080 30,067 26,266 
Production, ad valorem, and other taxes4,768 2,219 13,677 6,929 
Depreciation and depletion — oil and natural gas3,091 2,092 8,318 6,790 
Depreciation and amortization — other1,582 1,513 4,720 4,482 
General and administrative2,382 2,229 7,083 6,841 
Restructuring expenses76 (1,696)718 614 
Employee termination benefits— — — 49 
(Gain) loss on derivative contracts(4,258)4,129 (3,194)4,129 
(Gain) loss on sale of assets— 761 — (18,952)
Other operating income(25)(202)(140)(315)
Total expenses17,309 20,125 61,249 36,833 
Income from operations53,590 26,459 136,897 77,570 
Other income (expense)
Interest expense, net(12)(256)(191)(387)
Other income, net147 2,396 235 2,711 
Total other income 135 2,140 44 2,324 
Income before income taxes53,725 28,599 136,941 79,894 
Income tax (benefit) expense— — — — 
Net income$53,725 $28,599 $136,941 $79,894 
Net Income per share
Basic$1.46 $0.78 $3.73 $2.20 
Diluted$1.45 $0.77 $3.69 $2.15 
Weighted average number of common shares outstanding
Basic36,797 36,577 36,710 36,318 
Diluted37,150 36,996 37,121 37,200 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
Common Stock
Warrants
Additional Paid-In Capital
Accumulated Deficit
Total
Shares
Amount
SharesAmount
Nine Months Ended September 30, 2022
Balance at December 31, 2021
36,675 $37 6,981 $88,520 $1,062,737 $(905,972)$245,322 
Issuance of stock awards, net of cancellations51 — — — — — — 
Stock-based compensation— — — — 384 — 384 
Tax withholdings paid in exchange for shares withheld on employee vested stock awards— — — — (235)— (235)
Net income
— — — — — 34,724 34,724 
Balance at March 31, 202236,726 $37 6,981 $88,520 $1,062,886 $(871,248)$280,195 
Issuance of stock awards, net of cancellations16 — — — — — — 
Stock-based compensation— — — — 440 — 440 
Net income
— — — — — 48,492 48,492 
Balance at June 30, 202236,742 $37 6,981 $88,520 $1,063,326 $(822,756)$329,127 
Issuance of stock awards, net of cancellations123 — — — — — — 
Stock-based compensation— — — — 384 — 384 
Tax withholdings paid in exchange for shares withheld on employee vested stock awards— — — — (942)— (942)
Warrants exercised— — — (2)7 — 5 
Net income
— — — — — 53,725 53,725 
Balance at September 30, 2022
36,865 $37 6,981 $88,518 $1,062,775 $(769,031)$382,299 
Nine Months Ended September 30, 2021
Balance at December 31, 202035,928 $36 6,734 $88,520 $1,062,220 $(1,022,710)$128,066 
Issuance of stock awards, net of cancellations6 — — — — — — 
Stock-based compensation— — — — 236 — 236 
Issuance of common stock for general unsecured claims201 — — — — — — 
Issuance of warrants for general unsecured claims— — 247 — — — — 
Tax withholdings paid in exchange for shares withheld on employee vested stock awards— — — — (19)— (19)
Net Income
— — — — — 35,043 35,043 
Balance at March 31, 202136,135 $36 6,981 $88,520 $1,062,437 $(987,667)$163,326 
Issuance of stock awards, net of cancellations425 1 — — (1)— — 
Stock options exercised and Stock-based compensation— — — — 584 — 584 
Tax withholdings paid in exchange for shares withheld on employee vested stock awards— — — — (594)— (594)
Net Income
— — — — — 16,252 16,252 
Balance at June 30, 202136,560 $37 $6,981 $88,520 $1,062,426 $(971,415)$179,568 
Issuance of stock awards, net of cancellations114 — — — — — — 
Stock-based compensation— — — — 236 — 236 
Tax withholdings paid in exchange for shares withheld on employee vested stock awards— — — — (286)— (286)
Net Income
— — — — — 28,599 28,599 
Balance at September 30, 202136,674 $37 6,981 $88,520 $1,062,376 $(942,816)$208,117 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Table of Contents

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$136,941 $79,894 
Adjustments to reconcile net income to net cash provided by operating activities
Provision for doubtful accounts— (2,329)
Depreciation, depletion, and amortization13,038 11,272 
Debt issuance costs amortization— 57 
Write off of debt issuance costs— 174 
(Gain) loss on derivative contracts(3,194)4,129 
Realized settlement losses on derivative contracts(867)— 
Gain on sale of assets— (18,952)
Stock-based compensation1,131 1,036 
Other115 107 
Changes in operating assets and liabilities(12,534)(9,073)
Net cash provided by operating activities134,630 66,315 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property, plant and equipment(31,129)(8,615)
Acquisition of assets(1,431)(3,545)
Purchase of other property and equipment(49)(59)
Proceeds from sale of assets448 38,086 
Net cash (used in) provided by investing activities(32,161)25,867 
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of borrowings— (20,000)
Reduction of financing lease liability(295)(493)
Debt issuance costs— (75)
Proceeds from exercise of stock options77 21 
Proceeds from exercise of warrants5 — 
Tax withholdings paid in exchange for shares withheld on employee vested stock awards(1,177)(899)
Net cash used in financing activities(1,390)(21,446)
NET INCREASE IN CASH, CASH EQUIVALENTS and RESTRICTED CASH101,079 70,736 
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year139,524 28,266 
CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period$240,603 $99,002 
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of amounts capitalized$(198)$(168)
Supplemental Disclosure of Noncash Investing and Financing Activities
Purchase of Plant, Property and Equipment in accounts payables and accrued expenses$8,153 $2,169 
Right-of-use assets obtained in exchange for financing lease obligations$538 $960 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

Nature of Business. SandRidge Energy, Inc. is an oil and natural gas acquisition, development and production company headquartered in Oklahoma City, Oklahoma with a principal focus on developing and producing hydrocarbon resources in the United States Mid-Continent region (“Mid-Con”).

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned or majority owned subsidiaries, including its proportionate share of the Royalty Trusts. All intercompany accounts and transactions have been eliminated in consolidation.

Interim Financial Statements. The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes contained in the Company’s 2021 Form 10-K and 10-K/A. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the financial statements include all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, necessary to fairly state the Company’s unaudited condensed consolidated financial statements.     

Significant Accounting Policies. The unaudited condensed consolidated financial statements were prepared in accordance with the accounting policies stated in the Company’s 2021 Form 10-K and 10-K/A, as well as the items noted below.

Use of Estimates. The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The more significant areas requiring the use of assumptions, judgments and estimates include: oil, natural gas and natural gas liquids reserves; impairment tests of long-lived assets; the carrying value of unproved oil and natural gas properties; depreciation, depletion and amortization; asset retirement obligations; determinations of significant alterations to the full cost pool and related estimates of fair value used to allocate the full cost pool net book value to divested properties, as necessary; valuation allowances for deferred tax assets; income taxes; valuation of derivative instruments; contingencies; and accrued revenue and related receivables. Although management believes the estimates used in the areas noted above are reasonable, actual results could differ significantly from those estimates.


2. Fair Value Measurements

The Company measures and reports certain assets and liabilities on a fair value basis and has classified and disclosed its fair value measurements using the levels of the fair value hierarchy noted below. The carrying values of cash, restricted cash, accounts receivable, prepaid expenses, certain other current and non-current assets, accounts payable and accrued expenses, and other current liabilities and other long-term obligations included in the unaudited condensed consolidated balance sheets approximated fair value at September 30, 2022 and December 31, 2021.

Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3Measurement based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity).

8
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Assets and liabilities that are measured at fair value are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values, stated below, considers the market for the Company’s financial assets and liabilities, the associated credit risk and other factors. The Company considers active markets as those in which transactions for the assets and liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company had assets and liabilities classified in Level 2 of the hierarchy as of September 30, 2022 and December 31, 2021, respectively, as described below.

Level 2 Fair Value Measurements

Commodity Derivative Contracts. As applicable, the fair values of the Company’s oil, natural gas and NGL fixed price swaps are based upon inputs that are either readily available in the public market, such as oil, natural gas and NGL futures prices, volatility factors and discount rates, or can be corroborated from active markets. As applicable, if the Company has a commodity derivative contract in place, the fair value is determined through the use of a discounted cash flow model or option pricing model using the applicable inputs discussed above. The Company applies a weighted average credit default risk rating factor for its counterparties or gives effect to its credit default risk rating, as applicable, in determining the fair value of these derivative contracts. Credit default risk ratings are based on current published credit default swap rates.

Fair Value - Recurring Measurement Basis

As of September 30, 2022 and December 31, 2021 the following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis by the fair value hierarchy (in thousands):

September 30, 2022

Fair Value Measurements
Netting (1)
Assets at Fair Value
Level 1
Level 2
Level 3
Assets
Commodity derivative contracts$— $4,040 $— $— $4,040 
Total
$— $4,040 $— $— $4,040 

December 31, 2021

Fair Value Measurements
Netting (1)
Liabilities at Fair Value
Level 1
Level 2
Level 3
Liabilities
Commodity derivative contracts$— $200 $— $179 $21 
Total
$— $200 $— $179 $21 
____________________
(1)    Represents the effect of netting assets and liabilities for counterparties with which the right of offset exists.

3. Derivatives

Commodity Derivatives 

The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil, natural gas and NGL. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil, natural gas or NGL production sales through the use of commodity derivative contracts.

9
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company has not designated any of its derivative contracts as hedges for accounting purposes. As applicable, if the Company has open derivative contracts, the Company has recorded such contracts at fair value with changes in derivative contract fair values recognized as a gain or loss on derivative contracts in the condensed consolidated income statements. Commodity derivative contracts were settled on a monthly basis, and the commodity derivative contract valuations were adjusted to the mark-to-market valuation on a quarterly basis.

The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Gain) loss on derivative contracts$(4,258)$4,129 $(3,194)$4,129 
Realized settlement gains (losses) on derivative contracts$218 $— $(867)$— 

Master Netting Agreements and the Right of Offset. As applicable, the Company has had master netting agreements with all of its commodity derivative counterparties and has presented its derivative assets and liabilities with the same counterparty on a net basis in the unaudited condensed consolidated balance sheets. As a result of the netting provisions, the Company's maximum amount of loss under commodity derivative transactions due to credit risk is limited to the net amounts due from its counterparties.

The following table summarizes (i) the Company's commodity derivative contracts on a gross basis, (ii) the effects of netting assets and liabilities for which the right of offset exists based on master netting arrangements and (iii) the Company’s net derivative asset and liability positions as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022

Gross Amounts
Gross Amounts Offset
Amounts Net of Offset
Financial Collateral
Net Amount
Assets
Derivative contracts - current
$4,040 $— $4,040 $— $4,040 
Total
$4,040 $— $4,040 $— $4,040 

December 31, 2021
Gross Amounts
Gross Amounts Offset
Amounts Net of Offset
Financial Collateral
Net Amount
Liabilities
Derivative contracts - current
$200 $179 $21 $— $21 
Total
$200 $179 $21 $— $21 

As of September 30, 2022, the Company's open derivative contracts consisted of natural gas commodity derivative contracts under which we will receive a fixed price for the contract and pay a floating market price to the counterparty over a specified period for a contracted volume. These commodity derivative contracts consisted of the following:

NotionalUnitsWeighted Average Fixed Price per Unit
Natural Gas Price Swaps: October 2022 - March 20232,088,000 MMBtu$8.39 

10
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Because we did not designate any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts were recognized as gains and losses in current period earnings. As a result, and as applicable, our current period earnings could have been significantly affected by changes in the fair value of our commodity derivative contracts. Changes in fair value were principally measured based on a comparison of future prices to the contract price at the end of the period.

Fair Value of Derivatives 

The following table presents the fair value of the Company’s derivative contracts on a net basis with the same counterparty (in thousands):
Type of ContractBalance Sheet ClassificationSeptember 30,
2022
Derivative assets
Natural Gas Current assets - Derivative Contracts$4,040 
Total net derivative contracts$4,040 

Type of ContractBalance Sheet ClassificationDecember 31, 2021
Natural Gas and NGL price swapsCurrent liabilities - Derivative Contracts$21 
Total net derivative contracts$21 

See Note 2 for additional discussion of the fair value measurement of the Company’s derivative contracts.

4. Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):
September 30,
2022		December 31,
2021
Oil and natural gas properties
Proved
$1,493,956 $1,454,016 
Unproved
11,553 12,255 
Total oil and natural gas properties
1,505,509 1,466,271 
Less: accumulated depreciation, depletion and impairment(1,377,639)(1,373,217)
Net oil and natural gas properties 127,870 93,054 
Land200 200 
Electrical infrastructure121,819 121,819 
Other non-oil and natural gas equipment1,638 1,575 
Building and structures3,603 3,603 
Financing leases1,497 1,384 
Total128,757 128,581 
Less: accumulated depreciation and amortization(35,066)(30,790)
Other property, plant and equipment, net
93,691 97,791 
Total property, plant and equipment, net
$221,561 $190,845 

11
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. Acquisitions and Divestitures

Overriding Royalty Interest Assets

On April 22, 2021, the Company acquired all of the overriding royalty interest assets of SandRidge Mississippian Trust I (the “Trust”). The gross purchase price was $4.9 million (net $3.6 million, given our 26.9% ownership of the Trust).

North Park Basin Sale

On February 5, 2021, the Company sold all of its oil and natural gas properties and related assets of the North Park Basin ("NPB"), in Colorado, for a gross purchase price of $47 million. The sale closed for net proceeds of $38.9 million in cash, net of $8.1 million in closing adjustments, primarily for production revenue received prior to closing. Consequently, the Company allocated a portion of the full cost pool net book value, using the income approach, to the divested oil and gas properties and recognized a reduction of full cost pool assets of $22.0 million and a reduction of $4.6 million to its non-full cost pool assets. As the sale significantly altered the relationship between capitalized costs and proved reserves, the Company recognized a $19.7 million gain related to the assets sold. During the three months ended September 30, 2021 we recognized additional closing adjustments of $0.8 million, which reduced the gain on the sale of assets to $18.9 million. The $18.9 million gain represents net proceeds of $38.9 million coupled with the release of revenues in suspense of $0.5 million and the relief of asset retirement obligations of $6.1 million offset by the reduction of $26.6 million in oil and gas properties related to NPB.

6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following (in thousands):
September 30,
2022		December 31,
2021
Accounts payable and other accrued expenses$20,731 $13,727 
Production payable25,845 23,974 
Payroll and benefits2,961 3,942 
Taxes payable4,306 3,902 
Drilling advances234 234 
Total accounts payable and accrued expenses$54,077 $45,779 

7. Commitments and Contingencies

Legal Proceedings. The Company is subject to various legal proceedings and claims arising in the ordinary course of its business. The Company has provided accruals where necessary for contingent liabilities, based on ASC 450, Contingencies, when it has determined that a liability is probable and reasonably estimable. The Company continuously assesses the potential liability related to the Company's pending litigation and revises its estimates when additional information becomes available. Additionally, the Company currently expenses all legal costs as they are incurred.

As previously disclosed in the Company's 2021 Form 10-K and 10-K/A, there are certain ongoing Cases (as that term is defined in the Company's 2021 Form 10-K and 10-K/A).

In each of the Cases, lead plaintiffs seek to recover unspecified damages, interest, costs and expenses incurred in the litigation on behalf of themselves and class members. Although the claims against the Company in each Case have been discharged, the Company remains a nominal defendant as the Cases await final judgement. The Company may also be contractually obligated to indemnify two former officers who are defendants and the SandRidge Mississippian Trust I against losses, claims, damages, liabilities and expenses, including reasonable costs of investigation and attorney’s fees and expenses, which it is required to advance, arising out of the Cases, although the Company disputes any such obligations. Such indemnification is not covered by insurance with respect to the Trust. As of October 2020, we have exhausted all remaining insurance coverage for the costs of indemnification and expect no further reimbursements.

12
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In light of the status of the Cases and the facts, circumstances and legal theories relating thereto, the Company is not able to determine the likelihood of an outcome in either case or provide an estimate of any reasonably possible loss or range of possible loss related thereto. Accordingly, the Company has not established or accrued any liabilities relating to the Cases and believes that the plaintiffs' claims are without merit. However, considering the exhaustion of insurance coverage available to the Company, such losses, if incurred, could be material. The Company intends to continue to vigorously defend against the Cases in its capacity as a nominal defendant.

8. Income Taxes

For each interim reporting period, the Company estimates the effective tax rate expected for the full fiscal year and uses that estimated rate in providing for income taxes on a current year-to-date basis.

Deferred income taxes are provided to reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company’s deferred tax assets have been reduced by a valuation allowance due to a determination that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence. The Company continues to closely monitor and weigh all available evidence, including both positive and negative, in making its determination whether to maintain a valuation allowance. As a result of the significant weight placed on the Company's trailing three-year cumulative negative earnings position, the Company continued to maintain a full valuation allowance against its net deferred tax asset at September 30, 2022 and December 31, 2021. As a result, the Company had no federal or state income tax expense or benefit for the three and nine-month periods ended September 30, 2022 and 2021.

Internal Revenue Code (“IRC”) Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. As a result of the Chapter 11 reorganization and related transactions, the Company experienced an ownership change within the meaning of IRC Section 382 during 2016 that subjected certain of the Company’s tax attributes, including net operating losses ("NOLs"), to an IRC Section 382 limitation. This limitation has not resulted in cash taxes for any period subsequent to the ownership change. Since the 2016 ownership change, the Company has generated additional NOLs and other tax attributes that are not currently subject to an IRC Section 382 limitation. The Company adopted the tax benefits preservation plan, as amended on March 16, 2021, in order to protect the Company’s ability to use its tax NOLs and certain other tax benefits.

As of September 30, 2022, the Company had approximately $1.6 billion of federal NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $1.6 billion of federal NOL carryforwards, $0.7 billion expire during the years 2028 through 2037, while the remaining $0.9 billion do not have an expiration date. Additionally, the Company had federal tax credits in excess of $33.5 million which begin expiring in 2029.
The Company did not have unrecognized tax benefits at September 30, 2022 and December 31, 2021.

The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2018 to present remain open for federal examination. Additionally, tax years 2005 through 2017 remain subject to examination for the purpose of determining the amount of federal NOL and other carryforwards. The number of years open for state tax audits varies, depending on the state, but are generally from three to five years.
    
9. Equity

Common Stock, Performance Share Units, and Stock Options. At September 30, 2022, the Company had approximately 250.0 million shares of common stock authorized, 36.9 million shares of common stock, par value $0.001 per share, issued and outstanding. Further, at September 30, 2022, the Company had an immaterial number of unvested restricted stock awards, 0.3 million shares of unvested restricted stock units, 0.2 million unvested stock options outstanding, and an immaterial number of unvested performance share units.

13
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Warrants. The Company issued approximately 4.9 million Series A warrants and 2.1 million Series B warrants that were exercisable until October 4, 2022 for one share of common stock per warrant at initial prices of $41.34 and $42.03 per share, respectively, subject to adjustments pursuant to the terms of the warrants, to certain holders of general unsecured claims as defined in the 2016 bankruptcy reorganization plan. The warrants contained customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. During the quarter ended September 30, 2022, warrant holders exercised 91 Series A warrants and 41 Series B warrants for 132 shares of common stock.

Share Repurchase Program. In August 2021, the Company's Board of Directors (the “Board”) approved the initiation of a share repurchase program (the "Program") authorizing the Company to purchase up to an aggregate of $25.0 million of the Company’s common stock. The Program is in accordance with Rule 10b-18 of the Exchange Act. Subject to applicable rules and regulations, repurchases under the Program can be made from time to time in open markets at the Company's discretion and in compliance with safe harbor provisions, or in privately negotiated transactions. The Program does not require any specific number of shares to be acquired, and can be modified or discontinued by the Board at any time. The Company did not repurchase any common stock under the Program during the three or nine-month periods ended September 30, 2022.

10. Revenues

The following table disaggregates the Company’s revenue by source for the three and nine-month periods ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(In thousands)
Oil$23,855 $15,198 $66,238 $45,412 
NGL15,364 14,863 52,559 34,344 
Natural gas31,680 16,523 79,349 34,647 
Total revenues (1)
$70,899 $46,584 $198,146 $114,403 
(1)Nine months ended September 30, 2021 includes 36 days of production and related revenues for NPB, which was sold on February 5, 2021.

Oil, natural gas and NGL revenues. A majority of the Company’s revenues come from the sale of oil, natural gas and NGLs and are recorded at a point in time when control of the oil, natural gas and NGL production passes to the purchaser at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck. As the Company’s purchaser obtains control of the production prior to selling it to other end customers, the Company presents its revenues on a net basis, rather than on a gross basis.

Pricing for the Company’s oil, natural gas and NGL contracts is variable and is based on either an index price, net of deductions, or a percentage of the sales price obtained by the purchaser, which is also based on index prices. The transaction price is allocated on a pro-rata basis to each unit of oil, natural gas or NGL sold based on the terms of the contract. Oil, natural gas and NGL revenues are also recorded net of royalties, discounts and allowances, and transportation costs, as applicable. Taxes assessed by governmental authorities on oil, natural gas and NGL sales are presented separately from revenues and are included in production, ad valorem, and other tax expense in the condensed consolidated income statements.

Revenues Receivable. The Company records an asset in accounts receivable, net on its consolidated balance sheet for revenues receivable from contracts with customers at the end of each period. Pricing for revenues receivable is estimated using current month crude oil, natural gas and NGL prices, net of deductions. Revenues receivable are typically collected the month after the Company delivers the related production to its purchaser. As of September 30, 2022 and December 31, 2021, the Company had revenues receivable of $25.4 million and $18.8 million, respectively. The Company did not record any bad debt expense on revenues receivable nor write-offs during the three and nine-month periods ended September 30, 2022 and 2021, as the Company’s purchasers of oil, natural gas and NGL have had no issues of payment collectability or lack of credit worthiness with the Company.

14
Table of Contents
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. Earnings per Share

The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share:
Earnings
Weighted Average Shares
Earnings Per Share
(In thousands, except per share amounts)
Three Months Ended September 30, 2022
Basic earnings per share
$53,725 36,797 $1.46 
Effect of dilutive securities
Restricted stock units— 263 
Restricted stock awards— 2 
Performance share units (1)— — 
Stock options— 88 
Diluted earnings per share (2)
$53,725 37,150 $1.45 
Three Months Ended September 30, 2021
Basic earnings per share$28,599 36,577 $0.78 
Effect of dilutive securities
Restricted stock units— 343 
Restricted stock awards— 28 
Performance share units (1)— — 
Stock options— 48 
Diluted earnings per share (2)
$28,599 36,996 $0.77 
Nine Months Ended September 30, 2022
Basic earnings per share
$136,941 36,710 $3.73 
Effect of dilutive securities
Restricted stock units— 309 
Restricted stock awards — 22 
Performance share units (1)— — 
Stock options— 80 
Diluted earnings per share (2)
$136,941 37,121 $3.69 
Nine Months Ended September 30, 2021
Basic earnings per share$79,894 36,318 $2.20 
Effect of dilutive securities
Restricted stock units— 787 
Restricted stock awards54 
Performance share units (1)— — 
Stock options— 41 
Diluted earnings per share (2)
$79,894 37,200 $2.15 
____________________

(1)The performance share unit awards are contingently issuable and are considered in the calculation of diluted earnings per share. The Company assesses the number of awards that would be issuable, if any, under the terms of the agreement if the end of the reporting period were the end of the contingency period.
(2)The incremental shares of potentially dilutive restricted stock units, restricted stock awards and stock options were included for the three and nine-month periods ended September 30, 2022 and 2021 as their effect was dilutive under the treasury stock method.


15
Table of Contents
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. This discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report, as well as our audited consolidated financial statements and the accompanying notes included in the 2021 Form 10-K and 10-K/A. Our discussion and analysis includes the following subjects:

•Overview;
•Consolidated Results of Operations;
•Liquidity and Capital Resources; and
•Critical Accounting Policies and Estimates.

The financial information with respect to the three and nine-month periods ended September 30, 2022 and 2021, discussed below, is unaudited. In the opinion of management, this information contains all adjustments, which consist only of normal recurring adjustments unless otherwise disclosed, necessary to state fairly the accompanying unaudited condensed consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full fiscal year.

Overview

We are an independent oil and natural gas company with a principal focus on acquisition, development and production activities in the U.S. Mid-Continent region (“Mid-Con”). Prior to February 5, 2021, we held assets in the North Park Basin ("NPB" or “North Park") of Colorado, which have been sold in their entirety.

The chart below shows production by product for the three and nine-month periods ended September 30, 2022 and 2021:
sd-20220930_g1.jpg
(1)Excludes 67 MBoe of oil production from North Park Basin, which was sold on February 5, 2021.

Total MBoe production for the three-month period ended September 30, 2022 was comprised of approximately 15.8% oil, 53.7% natural gas and 30.5% NGL compared to 12.7% oil, 55.2% natural gas and 32.1% NGL in 2021.

Total MBoe production for the nine-month period ended September 30, 2022 was comprised of approximately 14.0% oil, 53.8% natural gas and 32.2% NGL compared to 14.4% oil, 52.5% natural gas and 33.1% NGL in 2021.


16
Table of Contents


Recent Events

•Consistent with our 2022 capital development program, we drilled three wells and completed three wells during the quarter ended September 30, 2022.

•On October 5, 2022 the Company’s Board of Directors appointed Ms. Nancy Dunlap to serve as a member of the Board. Ms. Dunlap also joined the Audit Committee.


Outlook

We will continue to focus on growing the cash value and generation capability of our asset base in a safe, responsible and efficient manner, while exercising prudent capital allocations to projects we believe provide high rates of returns in the current commodity price environment. These projects include (1) a continuation of our well reactivation program, (2) artificial lift conversions to more efficient and cost effective systems and (3) focused drilling in high-graded areas. We will continue to monitor forward-looking commodity prices, results, costs and other factors that could influence returns on investments, which will continue to shape our disciplined development decisions in 2022 and beyond. We will also continue to maintain optionality to execute on value accretive merger and acquisition opportunities that could bring synergies, leverage our core competencies, compliment our portfolio of assets, further utilize our NOLs or otherwise yield attractive returns for our shareholders.


Consolidated Results of Operations

Our consolidated revenues and cash flows are generated from the production and sale of oil, natural gas and NGL. Our revenues, profitability and future growth depend substantially on prevailing prices received for our production, the quantity of oil, natural gas and NGL we produce, and our ability to find and economically develop and produce our reserves. Prices for oil, natural gas and NGL fluctuate widely and are difficult to predict. To provide information on the general trend in pricing, the average New York Mercantile Exchange ("NYMEX") prices for oil and natural gas are shown in the tables below:
    
Three-month periods ended
September 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
NYMEX Oil (per Bbl)$93.06 $108.83 $95.02 $77.34 $70.59 
NYMEX Natural gas (per Mcf)$8.32 $7.75 $4.84 $4.93 $4.48 

Nine-month periods ended
September 30, 2022September 30, 2021
NYMEX Oil (per Bbl)$98.96 $65.06 
NYMEX Natural gas (per Mcf)$6.99 $3.47 

In order to reduce our exposure to price fluctuations, from time to time we may enter into commodity derivative contracts for a portion of our anticipated future oil, natural gas and NGL production as discussed in “Item 3. Quantitative and Qualitative Disclosures About Market Risk.” During periods where the strike prices for our commodity derivative contracts are below market prices at the time of settlement, we may not fully benefit from increases in the market price of oil and natural gas. Conversely, during periods of declining oil and natural gas market prices, our commodity derivative contracts may partially offset declining revenues and cash flows to the extent strike prices for our contracts are above market prices at the time of settlement. See “Note 3 — Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.

17
Table of Contents
Revenues

Consolidated revenues for the three and nine-month periods ended September 30, 2022 and 2021 are presented in the table below (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
20222021Change% Change20222021Change% Change
Oil$23,855 $15,198 $8,657 57 %$66,238 $45,412 $20,826 46 %
NGL15,364 14,863 501 3 %52,559 34,344 18,215 53 %
Natural gas31,680 16,523 15,157 92 %79,349 34,647 44,702 129 %
Total revenues (1)$70,899 $46,584 $24,315 52 %$198,146 $114,403 $83,743 73 %

(1)Mid-Continent represented $111.2 million, or 97.2% of total consolidated revenues for the nine-months ended September 30, 2021. NPB represented $3.2 million, or 2.8% of total consolidated revenues for the nine-months ended September 30, 2021.

Oil, Natural Gas and NGL Production and Pricing

Our production and pricing information for the three and nine-month periods ended September 30, 2022 and 2021 is shown in the table below:
Three Months Ended September 30,Nine Months Ended September 30,
20222021Change% Change20222021Change% Change
Production data
Oil (MBbls)259 219 40 18 %680 734 (54)(7)%
NGL (MBbls)499 552 (53)(10)%1,566 1,686 (120)(7)%
Natural gas (MMcf)5,286 5,710 (424)(7)%15,712 16,059 (347)(2)%
Total volumes (MBoe)1,638 1,722 (84)(5)%4,864 5,096 (232)(5)%
Average daily total volumes (MBoe/d)17.8 18.7 (1)(5)%17.8 18.7 (1)(5)%
Average prices—as reported (1)
Oil (per Bbl)$92.24 $69.40 $22.84 33 %$97.41 $61.87 $35.54 57 %
NGL (per Bbl)$30.79 $26.93 $3.86 14 %$33.56 $20.37 $13.19 65 %
Natural gas (per Mcf)$5.99 $2.89 $3.10 107 %$5.05 $2.16 $2.89 134 %
Total (per Boe)$43.28 $27.06 $16.22 60 %$40.74 $22.45 $18.29 81 %
Average prices—including impact of derivative contract settlements
Oil (per Bbl)$92.24 $69.40 $22.84 33 %$97.41 $61.87 $35.54 57 %
NGL (per Bbl)$30.79 $26.93 $3.86 14 %$33.36 $20.37 $12.99 64 %
Natural gas (per Mcf)$6.03 $2.89 $3.14 109 %$5.01 $2.16 $2.85 132 %
Total (per Boe)$43.42 $27.06 $16.36 60 %$40.56 $22.45 $18.11 81 %
__________________
(1)     Prices represent actual average sales prices for the periods presented and do not include effects of derivative settlements.

18
Table of Contents
The table below presents production by area of operation for the three and nine-month periods ended September 30, 2022 and 2021:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Production (MBoe)% of TotalProduction (MBoe)% of TotalProduction (MBoe)% of TotalProduction (MBoe)% of Total
Mid-Continent1,638 100.0 %1,722 100.0 %4,864 100.0 %5,029 98.7 %
North Park Basin— — %— — %— — %67 1.3 %
Total1,638 100.0 %1,722 100.0 %4,864 100.0 %5,096 100.0 %


Variances in oil, natural gas and NGL revenues attributable to changes in the average prices received for our production and total production volumes sold for the three and nine-month periods ended September 30, 2022 are shown in the table below (in thousands):
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
2021 oil, natural gas and NGL revenues$46,584 $114,403 
Change due to production volumes(3,636)(9,451)
Change due to average prices27,951 93,194 
2022 oil, natural gas and NGL revenues$70,899 $198,146 

Revenue increased due to favorable realized commodity prices offset by a slight decrease in production primarily as a result of the sale of NPB, in addition to natural production declines partially offset by our well reactivation program and production from new wells. See "Item 1A—Risk Factors" included in our 2021 Form 10-K and 10-K/A for additional discussion of the potential impact these events may have on our future revenues.

Operating Expenses

Operating expenses for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands):    
Three Months Ended September 30,Nine Months Ended September 30,
20222021Change% Change20222021Change% Change
Lease operating expenses$9,693$9,080$6137%$30,067$26,266$3,80114%
Production, ad valorem, and other taxes4,7682,2192,549115%13,6776,9296,74897%
Depreciation and depletion—oil and natural gas3,0912,09299948%8,3186,7901,52823%
Depreciation and amortization—other1,5821,513695%4,7204,4822385%
Total operating expenses$19,134$14,904$4,23028%$56,782$44,467$12,31528%
Lease operating expenses ($/Boe)$5.92$5.27$0.6512%$6.18$5.15$1.0320%
Production, ad valorem, and other taxes ($/Boe)$2.91$1.29$1.62126%$2.81$1.36$1.45107%
Depreciation and depletion—oil and natural gas ($/Boe)$1.89$1.22$0.6755%$1.71$1.33$0.3829%
Production, ad valorem, and other taxes (% of oil, natural gas, and NGL revenue)6.7%4.8%1.9%40%6.9%6.1%0.8%13%

The increase in lease operating expenses was primarily due to inflationary pressures, a higher number of producing wells and higher workover expense due to our well reactivation program.
19
Table of Contents

Production, ad valorem, and other taxes increased primarily due to higher commodity prices and related revenues as discussed above for the three-and nine-months ended September 30, 2022. Further, it increased as a percentage of oil, natural gas, and NGL revenue for the three and nine-months ended September 30, 2022 as compared to the same periods in 2021. The increase in production, ad valorem, and other taxes as a percentage of commodity revenues stems primarily from an increase in ad valorem taxes for the three-months ended September 30, 2022. For the three-months ended September 30, 2021, ad valorem taxes were lower in part due to a change in estimate related to NPB. For the nine-months ended September 30, 2022, the increase in percentage of commodity revenues related primarily to an increase in production taxes.

The increase in depreciation and depletion for oil and natural gas properties was primarily the result of increased capital expenditures which increased our depletion rate.

Impairment

A ceiling limitation calculation is performed at the end of each quarter. If the full cost pool balance exceeds the ceiling limitation, an impairment of the full cost pool is required. Calculation of the full cost ceiling test is based on, among other factors, trailing twelve-month first-day-of-the-month index prices (“SEC prices”) as adjusted for price differentials and other contractual arrangements. The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at September 30, 2022 were $91.71 per barrel of oil and $6.13 per Mcf of natural gas, before price differential adjustments.

The ceiling limitation was not exceeded; therefore, no full cost ceiling limitation impairments were recorded during the three and nine-month periods ended September 30, 2022 or 2021. During certain periods within the past five years, the SEC prices used in the full cost ceiling test have been lower than the SEC prices used for the September 30, 2022 full cost ceiling test and resulted in material ceiling limitation impairments. Full cost pool ceiling limitation impairments have no impact to our cash flow or liquidity.

Based on the SEC prices over the trailing ten months ended October 1, 2022, as well as two months of NYMEX strip pricing for November and December of 2022 as of October 11, 2022, we estimate the SEC prices utilized in the December 31, 2022 full cost ceiling test may be $94.08 per barrel of oil and $6.49 per Mcf of natural gas (the "estimated year-end prices"). Applying these estimated year-end prices, and holding all other inputs constant to those used in the calculation of our September 30, 2022 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the fourth quarter of 2022.

Any actual full cost ceiling limitation impairment recognized in future quarters may fluctuate significantly from projected amounts based on the outcome of numerous other factors such as declines in the actual trailing twelve-month SEC prices, lower NGL pricing, changes in estimated future development costs and operating expenses, and other adjustments to our levels of proved reserves.

Other Operating Expenses (Income)

Other operating expenses (income) for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222021Change% Change20222021Change% Change
General and administrative$2,382$2,229$1537%$7,083$6,841$2424%
Restructuring expenses76(1,696)1,772104%71861410417%
Employee termination benefits————%—49(49)(100)%
(Gain) loss on derivative contracts(4,258)4,129(8,387)(203)%(3,194)4,129(7,323)(177)%
(Gain) loss on sale of assets—761(761)(100)%—(18,952)18,952(100)%
Other operating income(25)(202)177(88)%(140)(315)175(56)%
Total other operating expenses (income)$(1,825)$5,221$(7,046)(135)%$4,467$(7,634)$12,101(159)%

General and administrative expenses were consistent between the three and nine-month periods ended September 30, 2022 and 2021.
20
Table of Contents

Restructuring expenses for the three-month period ended September 30, 2022 represent fees and costs associated with the 2016 bankruptcy, while restructuring expenses for the nine-month period ended September 30, 2022 represent fees and costs associated with the 2016 bankruptcy and our exit from NPB in Colorado. The lower restructuring expenses for the three and nine-months ended September 30, 2021 relates primarily to accrued expenses for the 2016 Bankruptcy that were removed as a result of the notice of completion of final distribution being filed in the United States Bankruptcy Court for the Southern District of Texas on July 26, 2021.

The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Gain) loss on derivative contracts$(4,258)$4,129 $(3,194)$4,129 
Realized settlement gains (losses) on derivative contracts$218 $— $(867)$— 

As applicable, our derivative contracts were not designated as accounting hedges and, as a result, changes in their fair values were recorded each quarter as a component of operating expenses. Management views the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil, natural gas and NGL production to determine “effective prices.” In general, cash is received on settlement of contracts due to lower oil and natural gas prices at the time of settlement, compared to the contract price for our commodity derivative contracts; and, cash is paid on settlement of contracts due to higher oil, natural gas and NGL prices at the time of settlement, compared to the contract price for our commodity derivative contracts. See further discussion of derivative contracts in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” included in Part I of this Quarterly Report.

The loss on sale of assets for the three-months ended September 30, 2021 relates to a reduction to the NPB sales price as a result of post-closing adjustments during the third quarter of 2021. The decreases in gain on sale of assets relate to the gain from sale of NPB in February 2021. See “Note 5 — Acquisitions and Divestitures” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding the sale of NPB.

Other Income (Expense)

Our other income (expense) for the three and nine-month periods ended September 30, 2022 and 2021 are presented in the table below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Other income (expense)
Interest expense, net
$(12)$(256)$(191)$(387)
Other income, net147 2,396 235 2,711 
Total other income $135 $2,140 $44 $2,324 

Interest expense incurred during the three-month period ended September 30, 2022 is primarily comprised of interest related to vehicle leases and letters of credit. Interest expense incurred during the nine-month period ended September 30, 2022 is primarily comprised of interest paid on royalty obligations of $0.1 million, interest on vehicle leases and letters of credit. Interest expense incurred during the three and nine-month periods ended September 30, 2021 is primarily comprised of interest paid on the prior 2020 Credit Facility as discussed in our 2021 10-K and 10-K/A.

The Other income, net line item for the three and nine-months ended September 30, 2022 is primarily comprised of gains on the sale of fleet vehicles and the removal of previously accrued liabilities due to a change in estimate. The Other income, net line item for the three and nine-month periods ended September 30, 2021 includes the removal of an allowance for doubtful accounts recorded for the year ended December 31, 2020 as a result of management determining the receivable from a government agency is collectible.

21
Table of Contents
Liquidity and Capital Resources

As of September 30, 2022, our cash and cash equivalents, including restricted cash was $240.6 million. For the next twelve months, we expect to have ample liquidity with cash on hand and cash from operations. We had no outstanding term or revolving debt obligations as of September 30, 2022.

Working Capital and Sources and Uses of Cash

Our principal sources of liquidity for the next year include cash flows from operations and cash on hand.

Our working capital increased to $206.6 million at September 30, 2022, compared to $97.7 million at December 31, 2021. The positive impact on working capital resulted primarily from an increase in cash and cash equivalents at September 30, 2022 as a result of cash flows from operations, partially offset by increased accrued liabilities due to our increased capital expenditure activity in 2022.

Cash Flows

Our cash flows from operations are substantially dependent on current and future prices for oil, natural gas and NGL, which historically have been, and may continue to be, volatile. Cash flows from operations are also affected by timing of cash receipts and disbursements and changes in other working capital assets and liabilities.

Our cash flows for the nine-month periods ended September 30, 2022 and 2021 are presented in the following table and discussed below (in thousands):
Nine Months Ended September 30,
20222021
Cash flows provided by operating activities$134,630 $66,315 
Cash flows provided by (used in) investing activities(32,161)25,867 
Cash flows used in financing activities(1,390)(21,446)
Net increase in cash and cash equivalents and restricted cash$101,079 $70,736 

Cash Flows from Operating Activities

The $68.3 million increase in cash flows from operations for the nine-month period ended September 30, 2022 compared to the same period in 2021, is primarily due to higher revenues as a result of improved commodity prices as discussed above, offset by a slight decrease in production. The changes in operating assets and liabilities do not include changes in accounts payable or accrued expenses attributable to capital expenditures noted in the capital expenditure table below.

Cash Flows from Investing Activities

Our cash flows used in investing activities during the nine-month period ended September 30, 2022 reflects capital expenditures of $31.1 million primarily related to capital expenditures made for drilling, capital workovers, well reactivations, inventory purchases and an acreage acquisition for $1.4 million. Cash outflows were partially offset by $0.4 million of proceeds from the sale of assets.

During the nine-month period ended September 30, 2021, cash flows from investing activities primarily reflects $38.1 million of net cash proceeds from the sale of assets offset by capital expenditures of $8.6 million and acquisition of overriding royalty interests for $3.6 million. See "Note 5—Acquisitions and Divestitures" to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report for additional information.


22
Table of Contents
Capital expenditures for the nine-month periods ended September 30, 2022 and 2021 are summarized below (in thousands):
Nine Months Ended September 30,
20222021
Capital Expenditures
Drilling, completion and capital workovers (1)$37,656 $6,374 
Leasehold and geophysical597 467 
Capital expenditures, excluding acquisitions (on an accrual basis)38,253 6,841 
Acquisitions1,431 3,604 
Capital expenditures, including acquisitions39,684 10,445 
Changes in accounts payable and accrued expenses(7,124)1,774 
Total cash paid for capital expenditures$32,560 $12,219 
(1)We capitalized $4.7 million in inventory purchases, net of inventory utilized during 2022 on drilling, completion, capital workover and well reactivation activities.

Cash Flows from Financing Activities

Cash used in financing activities for the nine-month period ended September 30, 2022 consisted primarily of $1.2 million of cash used for tax withholdings paid in exchange for shares withheld on employee vested stock awards that were settled by net exercise, and finance lease payments of $0.3 million offset by immaterial proceeds from the exercise of stock options. Cash used in financing activities for the nine-month period ended September 30, 2021 consisted primarily of repayments of borrowings under the prior 2020 Credit Facility of $20.0 million, finance lease payments of $0.5 million and cash paid for tax withholdings paid in exchange for shares withheld on employee vested stock awards that were settled by net exercise of $0.9 million. Net exercises of stock awards allows the holder of a stock award to tender back to us a number of shares at fair value upon the vesting of such stock award, that equals the employee payroll tax obligation due. We then remit a cash payment to the relevant taxing authority on behalf of the employee for their payroll tax obligations resulting from the vesting of their stock award.

Indebtedness

Credit Facility

On September 2, 2021, we repaid our $20.0 million term loan in full and terminated all commitments and obligations under the 2020 Credit Facility, between us, as Borrower, IEP Energy Holding LLC, as Lender, and Icahn Agency Services LLC, as Administrative Agent. Our payment to the Lender under the Credit Agreement satisfied all of our term debt and revolving debt obligations. We did not incur any early termination penalties as a result of the repayment of indebtedness or termination of the Credit Agreement. See Item 7— “Liquidity and Capital Resources” in the Company’s 2021 Form 10-K and 10-K/A.

Contractual Obligations and Off-Balance Sheet Arrangements

At September 30, 2022, our contractual obligations included asset retirement obligations, leases and other individually insignificant obligations. Additionally, we have certain financial instruments representing potential commitments that were incurred in the normal course of business to support our operations, including surety bonds. The underlying liabilities insured by these instruments are reflected in our balance sheets, where applicable. Therefore, no additional liability is reflected for the surety bonds or other instruments.

There were no other significant changes in total contractual obligations and off-balance sheet arrangements from those reported in the 2021 Form 10-K and 10-K/A.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Form 10-K and 10-K/A. For a discussion of recent accounting pronouncements, newly adopted and recent accounting pronouncements not yet adopted, see “Note 1—Basis of Presentation” to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report. We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first nine months of 2022.
23
Table of Contents
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

General

This discussion provides information about the financial instruments we used to manage commodity prices. All contracts were settled in cash and did not require the actual delivery of a commodity at settlement. Additionally, our exposure to credit risk and interest rate risk is also discussed.

Commodity Price Risk. Our most significant market risk relates to the prices we receive for our oil, natural gas and NGLs. Due to the historical price volatility of these commodities, from time to time, depending upon our view of opportunities under the then-prevailing current market conditions, we enter into commodity derivative contracts for a portion of our anticipated production volumes for the purpose of reducing the impact of the variability of oil and natural gas prices.

We have used, and may use, a variety of commodity-based derivative contracts, including fixed price swaps, basis swaps and collars. At September 30, 2022, the Company's open derivative contracts consisted of natural gas commodity derivative contracts under which we will receive a fixed price for the contract and pay a floating market price to the counterparty over a specified period for a contracted volume. These commodity derivative contracts consisted of the following:

NotionalUnitsWeighted Average Fixed Price per Unit
Natural Gas Price Swaps: October 2022 - March 20232,088,000 MMBtu$8.39 

Because we have not designated any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts were recognized as gains and losses in current period earnings. As a result, and when applicable, current period earnings could have been significantly affected by changes in the fair value of our commodity derivative contracts. Changes in fair value were principally measured based on a comparison of future prices to the contract price at the end of the period.


The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Gain) loss on derivative contracts$(4,258)$4,129 $(3,194)$4,129 
Realized settlement gains (losses) on derivative contracts$218 $— $(867)$— 

See “Note 3 — Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.

Credit Risk. As applicable, we are exposed to credit risk related to counterparties to our derivative financial contracts. All of our derivative transactions have been carried out in the over-the-counter market. The use of derivative transactions in over-the-counter markets involves the risk that the counterparties may be unable to meet the financial terms of the transactions. The counterparties for all of our derivative transactions have had an “investment grade” credit rating. We have monitored the credit ratings of our derivative counterparties and considered our counterparties’ credit default risk ratings in determining the fair value of our derivative contracts. Our derivative contracts have historically been with multiple counterparties to minimize exposure to any individual counterparty, and in addition our counterparties have been large financial institutions.

We do not require collateral or other security from counterparties to support derivative instruments. We have master netting agreements with our derivative contract counterparties, which allows us to net our derivative assets and liabilities by commodity type with the same counterparty. As a result of the netting provisions, our maximum amount of loss under derivative transactions due to credit risk is limited to the net amounts due from the counterparties under the commodity derivative contracts. Therefore, we are not required to post additional collateral under our commodity derivative contracts.

We are also exposed to credit risk related to the collection of receivables from our joint interest partners for their proportionate share of expenditures on wells and properties we operate. Historically, our credit losses on joint interest receivables have been immaterial.


24
Table of Contents
ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s CEO and CFO, the Company performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of the end of the period covered by this Quarterly Report. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022, to provide reasonable assurance that the information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
25
Table of Contents
PART II. Other Information

ITEM 1. Legal Proceedings

See "Note 7—Commitments and Contingencies” to the accompanying condensed consolidated financial statements in Item 1 of this Quarterly Report.
26
Table of Contents
ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously discussed in Item 1A—Risk Factors in the Company's 2021 Form 10-K and 10-K/A.


ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Our current equity-based compensation plans include provisions that allow for the “net exercise” of share-settled vested awards by all plan participants. In a net exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the share-based award holders are settled by having the holder tender back to us a number of shares at fair value equal to the amounts due. Net exercises are treated as purchases and retirements of shares.

The following table presents a summary of share repurchases made by the Company during the three-month period ended September 30, 2022.

PeriodTotal Number of Shares Purchased(1)Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Program(2)Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(in Millions)(2)
July 1, 2022 - July 31, 2022— $— — $25.0 
August 1, 2022 - August 31, 202248,072 $19.60 — $25.0 
September 1, 2022 - September 30, 2022— $— — $25.0 
Total48,072 — 
(1) Includes shares of common stock tendered by employees in order to satisfy tax withholding requirements upon vesting of their stock awards. Shares withheld are initially recorded as treasury shares, then immediately retired.
(2) In August 2021, the Company's Board of Directors approved the initiation of a share repurchase program authorizing the Company to purchase up to an aggregate of $25.0 million of the Company’s common stock.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.
27
Table of Contents
ITEM 6. Exhibits
Incorporated by Reference
Exhibit
No.
Exhibit DescriptionForm
SEC
File No.
ExhibitFiling Date
Filed
Herewith
2.1


8-A001-337842.110/4/2016
3.1

8-A001-337843.110/4/2016
3.2

8-A001-337843.210/4/2016
31.1*
31.2*
32.1*
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*
101.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFXBRL Taxonomy Extension Definition Document*
101.LABXBRL Taxonomy Extension Label Linkbase Document*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document*
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*


28
Table of Contents
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SandRidge Energy, Inc.
Date: November 3, 2022
By:
/s/    Salah Gamoudi
Salah Gamoudi
Executive Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer)

29