SandRidge Energy, Inc. Updates Shareholders on Operations and Reports Financial Results for Fourth Quarter and Full Year of 2014

OKLAHOMA CITY, Feb. 26, 2015 /PRNewswire/ -- SandRidge Energy, Inc. (NYSE: SD) posted financial and operational results for the period ended December 31, 2014. Additionally, presentation slides will be available on the Company's website, www.sandridgeenergy.com, under Investor Relations/Events at 7am EST on February 27.

Along with Q4 financial results, SandRidge today announced its reduced 2015 capital plan, year-end 2014 reserves growth, and an increased PUD type curve.

The Company intends to improve its capital efficiency in the current price environment, which would preserve drilling project economics and grow the location inventory. Capital efficiencies will be captured through durable innovations in the development program and service cost reductions. Principles of the 2015 drilling capital allocation include only investing in projects with an expected attractive return at recent strip pricing and making efficient use of existing infrastructure.

• Cost reductions will be from a combination of process efficiencies, expanded use of multilaterals and service provider cost reductions.
• Second half targeted costs with the new PUD type curve are expected to yield 40%+ IRR at recent strip pricing, similar to previous type curve and cost structure returns at $80 WTI.

James Bennett, Chief Executive Officer and President commented, "We remain intensely aware of the current pricing environment and know that it requires bold steps. Our 2015 focus is on visibility of improved capital efficiency and balance sheet flexibility. This means we are reducing our capital expenditure program by 56% from 2014 levels to $700 million in 2015, and we are now high-grading every new well based on strict cost control, offset well performance and proximity to existing infrastructure. We have maintained liquidity and financial flexibility, including renegotiating our covenants and reaffirming our borrowing base at $900 million. These moves, coupled with the recent outstanding additions to our senior management team and board of directors have positioned us for a successful 2015."

Key Financial Results

Fourth Quarter

• Adjusted EBITDA, pro forma for divestitures and net of noncontrolling interest, was $224 million in the fourth quarter of 2014 compared to $190 million in the fourth quarter of 2013, 18% year-over-year growth.
• Adjusted operating cash flow of $203 million for fourth quarter 2014 compared to $243 million in fourth quarter 2013.
• Adjusted net income of $44.1 million, or $0.08 per diluted share, for fourth quarter 2014 compared to $39.2 million, or $0.07 per diluted share, in fourth quarter 2013.

Full Year

• Adjusted EBITDA, pro forma for divestitures and net of noncontrolling interest, was $820 million in 2014 compared to $609 million in 2013, 35% year-over-year growth.
• Adjusted operating cash flow of $712 million for 2014 compared to $812 million in 2013.
• Adjusted net income of $149.9 million, or $0.26 per diluted share, for 2014 compared to $103.9 million, or $0.18 per diluted share, in 2013.

Additional Financial Information

The Company closed 2014 with $181 million in cash and approximately $900 million credit facility availability. 

In February 2015, the Company's senior credit facility was amended, and the facility's borrowing base was set at $900 million. As part of the amendment, the maximum total leverage ratio was suspended until June 30, 2016, and beginning March 31, 2015, a maximum senior secured leverage ratio of 2.25x will apply as will a minimum interest coverage ratio. Additionally, the amendment permits the Company to incur junior debt in an amount not to exceed $500 million and increases by 0.25% the margin used in the calculation of interest under the senior credit facility. More detailed disclosures regarding the amendment will be included in the Company's Annual Report on Form 10-K.

• Full-year 2014 Adjusted G&A cost per Boe down 22% from 2013, from $5.02 to $3.90

Adjusted net income available to common stockholders, pro forma adjusted EBITDA and adjusted operating cash flow are non-GAAP financial measures. Each measure is defined and reconciled to the most directly comparable GAAP measure under "Non-GAAP Financial Measures" beginning on page 10.

Drilling and Operational Activities

"I'm pleased we exited 2014 on a solid note operationally," stated James Bennett, SandRidge's Chief Executive Officer and President. "Our Mid-Continent asset base continues to demonstrate strong results as our reserves grew by 37% while attaining over 600% production replacement at $9.00 per Boe finding cost. With the success of our multilateral program, averaging 20% of our laterals in the second half of 2014, we are expanding this innovative development approach to 40% of our program for 2015. Our resource expansion and innovation programs were bolstered by the addition of our first two mile lateral in the Mississippian and our continued successes in the Chester and Woodford. The 2015 budget also keeps a meaningful commitment to continued new ventures and appraisal initiatives. Looking further into 2015, our utilization of existing power and salt water disposal assets will contribute to an approximate 60% reduction in new infrastructure investments."

Operational Highlights

• 2014 year-end reserve metrics
  • 604% reserve replacement overall with all-in F&D of $9.00 per Boe
  • Added 143 MMBoe through the drill bit with 517% drill bit reserve replacement
  • 34% increase in consolidated SEC PV-10 reserves value to $5.5 billion
  • 37% increase in consolidated proved reserves to 516 MMBoe
  • 26% increase in consolidated proved liquids reserves of 218 MMBbls
  • 65% of total reserves are proved developed reserves, 74% of value is proved developed
  • Proved reserves/production ratio of 18.7 years
  • Mississippian PUD type curve increased 27% in overall EUR to 484 Mboe, oil EUR remained unchanged at 118 Mbo, gas EUR increased 37% to 1.6 Bcf 
• 3 New Q4 Woodford wells delivered 397 Boe per day 30-day IPs (77% oil)
• 10 New Q4 Chester wells delivered 470 Boe per day 30-day IPs (59% oil)
• Full-year Mid-Continent lateral cost averaged $3.0 million
• 121 Q4 Mid-Continent laterals had an average 30-day IP of 378 Boe per day (8% above new type curve)
• At a $2.6 MM program average, 39 laterals in the 2014 multilateral program delivered 100% of new type curve 90-day cumulative production at 85% of a Mississippian single lateral cost

Mid-Continent: During the fourth quarter of 2014, SandRidge drilled 122 laterals: 100 in Oklahoma and 22 in Kansas. The Company averaged 33 horizontal rigs operating in the play: 27 in Oklahoma and 6 in Kansas. Additionally, the Company averaged 3 rigs drilling disposal wells. The Company's Mid-Continent assets produced 76.1 MBoe per day during the fourth quarter (36% Oil, 17% NGLs, 47% Natural Gas).

Permian Basin: In the Company's Permian properties, 23 wells were drilled during the fourth quarter of 2014, all for SandRidge Permian Trust. The Company's Permian Basin assets produced 5.3 MBoe per day during the quarter (86% Oil, 9% NGLs, 5% Natural Gas). 

Other Operating Areas: During the fourth quarter, SandRidge's legacy west Texas properties produced approximately 5.5 MBoe per day (1% Oil, 99% Natural Gas). Additionally, its legacy Mid-Continent assets produced 1.5 MBoe per day in the quarter (15% Oil, 16% NGLs, 69% Natural Gas).

Royalty Trusts: As of December 31, 2014, the Company had fulfilled its drilling obligation to the Permian Trust (PER) by drilling and perforating for completion approximately 888 equivalent Trust Development Wells. The Company was obligated to drill seven development wells for SandRidge Mississippian Trust II (SDR). The Company expects to complete its drilling obligations for SDR in the first quarter of 2015.

Proved Reserves

The Company's estimated consolidated proved reserves as of December 31, 2014 were 516 MMBoe, representing a 37% increase (after adjustments for divestitures) from December 31, 2013.  During 2014, the Company recognized additional proved reserves of 143 MMBoe from discoveries and extensions, and 20 MMBoe from revisions of previous estimates. The overall EUR for the Company's PUD type curve increased 27% to 484 MBoe.

Proved developed reserves constituted 65% of total proved reserves as of December 31, 2014. The December 31, 2014 estimated future net cash flows from consolidated proved reserves, discounted at an annual rate of 10%, before income taxes ("PV-10") were $5.5 billion, an increase of 34% (after adjustments for divestitures) from December 31, 2013. Third party engineers prepared reserve reports for a combined 93% of the total proved PV-10 value as of December 31, 2014.

Considering only those assets retained by the Company after divestitures, the Company achieved reserve replacement of 604%, primarily due to continued successful execution of horizontal drilling programs in the Mississippian play. SandRidge's all-in finding and development cost for retained assets, which include land and geophysical costs, were $9.00 per barrel of oil equivalent.

During the fourth quarter of 2014, the Company's net debt, net of cash balances, increased by approximately $410 million as a result of funding the Company's drilling program. On December 31, 2014, the Company had no amount drawn under its $900 million senior credit facility. The Company was in compliance with all applicable covenants contained in its debt instruments during the fourth quarter and through and as of the date of this release.

2015 Operational Guidance  

The Company is initiating 2015 guidance of total production of 28.0-30.5 MMBoe, or 6% organic growth at the midpoint, and capital expenditures of $700 million. The Company plans to spend approximately $400 million on Mid-Continent focus area drilling and approximately $30 million on appraisal drilling outside its focus acreage. The Company began 2015 with 32 rigs and expects to reduce to 7 rigs by mid-year, drilling approximately 180 laterals in its focus area in 2015. Additional 2015 Guidance detail is available on the Company's website, www.sandridgeenergy.com, under Investor Relations/Guidance.  

Non-GAAP Financial Measures

Adjusted operating cash flow, adjusted EBITDA, pro forma adjusted EBITDA, adjusted net income and adjusted net income attributable to noncontrolling interest are non-GAAP financial measures.

The Company defines adjusted operating cash flow as net cash provided by operating activities before changes in operating assets and liabilities and adjusted for cash received (paid) on financing derivatives. It defines EBITDA as net income (loss) before income tax (benefit) expense, interest expense and depreciation, depletion and amortization and accretion of asset retirement obligations. Adjusted EBITDA, as presented herein, is EBITDA excluding asset impairment, interest income, (gain) loss on derivative contracts net of cash received on settlement of derivative contracts, loss on sale of assets, transaction costs, legal settlements, consent solicitation costs, severance, loss on extinguishment of debt and other various non-cash items (including non-cash portion of noncontrolling interest and stock-based compensation). Pro forma adjusted EBITDA, as presented herein, is adjusted EBITDA excluding adjusted EBITDA attributable to properties or subsidiaries sold during the period.

Adjusted operating cash flow and adjusted EBITDA are supplemental financial measures used by the Company's management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the Company's ability to internally fund exploration and development activities and to service or incur additional debt. The Company also uses these measures because adjusted operating cash flow and adjusted EBITDA relate to the timing of cash receipts and disbursements that the Company may not control and may not relate to the period in which the operating activities occurred. Further, adjusted operating cash flow and adjusted EBITDA allow the Company to compare its operating performance and return on capital with those of other companies without regard to financing methods and capital structure. These measures should not be considered in isolation or as a substitute for net cash provided by operating activities prepared in accordance with generally accepted accounting principles ("GAAP"). Adjusted EBITDA should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the Company's adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Management also uses the supplemental financial measure of adjusted net income, which excludes tax (benefit) expense adjustments, asset impairment, (gain) loss on derivative contracts net of cash received on settlement of derivative contracts, loss on sale of assets, transaction costs, legal settlements, consent solicitation costs, loss on extinguishment of debt, severance and other non-cash items from income (loss) applicable to common stockholders. Management uses this financial measure as an indicator of the Company's operational trends and performance relative to other oil and natural gas companies and believes it is more comparable to earnings estimates provided by securities analysts. Adjusted net income is not a measure of financial performance under GAAP and should not be considered a substitute for loss applicable to common stockholders.

The supplemental measure of adjusted net income attributable to noncontrolling interest is used by the Company's management to measure the impact on the Company's financial results of the ownership by third parties of interests in the Company's less than wholly-owned consolidated subsidiaries. Adjusted net income attributable to noncontrolling interest excludes the portion of asset impairment, (gain) loss on derivative contracts net of cash received on settlement of derivative contracts, legal settlement and loss on sale of assets attributable to third-party ownership in less than wholly-owned consolidated subsidiaries from net loss attributable to noncontrolling interest. Adjusted net income attributable to noncontrolling interest is not a measure of financial performance under GAAP and should not be considered a substitute for net income attributable to noncontrolling interest.

The tables below reconcile the most directly comparable GAAP financial measures to operating cash flow, EBITDA and adjusted EBITDA, adjusted net income available to common stockholders and adjusted net income attributable to noncontrolling interest.