SandRidge Energy Inc (SD) 2024 Q4 法說會逐字稿

Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2024, SandRidge Energy Conference call. Today's conference is being recorded.

(Operator Instructions)

At this time, I would like to turn the conference over to Scott Prestridge, a Senior Vice President of Finance and Strategy. Please go ahead.

Thank you and welcome everyone. With me today are Grayson Pranin, our CEO, Jonathan Frates, our CFO, Brandon Brown, our CAO, as well as Dean Parrish, our COO. We would like to remind you that today's contents contain forward-looking statements and assumptions which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements.

These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties as discussed in greater detail in our earnings release and our SEC filings. We may also refer to adjusted EBITDA and adjusted GNA and other non-GAAP financial measures. Reconciliations of these measures can be found on our website.

With that. I'll turn the call over to Grayson.

Thank you and good afternoon. I am pleased to report on a positive quarter in the year for the company. In the fourth quarter, total production averaged over 19 MBOE per day, made up of 48% liquids, and that the company's expanded activity continues to translate to meaningful free cash flow from our producing assets. Before expanding on this, Jonathan will touch on a few highlights.

Thank you, Grayson. Despite headwinds from natural gas prices last year, the company generated adjusted EBITDA of $24 million in the fourth quarter and $69 million for the year. As we have pointed out in the past, adjusted EBITDA is a unique metric for SandRidge in that we have no debt in a substantial NOL position that shields our cash flows from federal income taxes.

During the year, we generated approximately $7.9 million of interest income from cash held in various high yield deposit accounts, which offset a significant portion of our corporate GNA cash including restricted cash at the end of the year, was just under $100 million, which represents more than $2.68 per share of our common stock outstanding. The company paid $72 million in dividends in 2024, made up of $16 million in regular and $56 million in special dividends.

Combined with 2023, we have paid shareholders a total of $154 million in dividends for more than $4 per share. On March 7, 2025, the board of directors declared an $0.11 per share cash dividend payable on March 31st to shareholders of record on March 20th.

As noted, the company has no term debt or revolving debt obligations and continues to live within cash flow, funding all capital expenditures and capital returns with cash flow from operations and cash on the balance sheet. Commodity price realizations for the fourth quarter before considering the impact of hedges for $71.44 per barrel of oil, $1.47 per MCF gas, and $18.19 per barrel of NGLs. For the full year, realizations were $74.31 per barrel of oil, $1.10 per MCF of gas, and $18.87 per barrel of NGLs.

Following a run up in prices, we added hedges for natural gas and ethane during the quarter, the details of which can be found in our earnings release in 10-K. While we plan to continue to retain upside exposure to commodities, these hedges secure cash flows for a percentage of our production over the year. We have maintained our large federal NOL position, which was roughly $1.6 billion gross at quarter end. Our NOL position has and will continue to allow us to shield our cash flows from federal income taxes.

As always, our commitment to cost discipline continues to yield results with adjusted GNA for the fourth quarter of approximately $2.4 million or $1.39 per BOE and $9.3 million or $1.54 per BOE for the year. Net income was approximately $18 million or $0.47 per basic share during the quarter, and $63 million or $1.69 per basic share during the year. Netcast provided by operating activities, was approximately $26 million for the fourth quarter and $74 million for the year.

Finally, the company generated free cash flow before acquisitions of approximately $13 million during the quarter and $48 million for the full year. Before shifting to our outlook, we should note that our earnings release in 10-K will provide further details on our financial and operational performance during the quarter.

Thank you, Jonathan. We thought it would be useful to give a brief update on operations as well as our acquisition last year before touching on other company highlights. Last quarter, we successfully completed an initiated production from the company's first operated wells in the Cherokee play. With three drilled but uncompleted wells or ducts achieving costs below historical industry average in the plate.

We hope to further leverage these cost efficiencies over our operated one rig development program this year. Dean will touch more on this later. The company closed a second acquisition in the Cherokee shale play of the midcontinent region that exchanged and increased our ownership interest in producing and undeveloped oil and natural gas properties for $5.7 million and terminated the previously announced joint development agreement.

This allowed us to increase and optimize our undeveloped positions around the best results of the play. It also allows us to control our development and operations. We see this as a real benefit as we implement our own cost-focused program, which will include efficiencies gained from pad drilling, zipper or simulfrac, and other industry best practices.

I'd like to pause for a moment to highlight the play. The Cherokee formation in the mid-continental region has become a highly productive hydrocarbon target with increased horizontal activity over the last few years. It is comprised of mostly self-sourcing shales with interbedded high proxy sands. The play is currently being developed and delineated across the Northeast Texas panhandle of Western Oklahoma, encompassing five counties.

The DSUs we will be developing are focused in the southern area of the Cherokee core, offsetting some of the more productive wells in the place. As the play has extended to the south, productivity has meaningfully increased with depth. Two recent co-developed non up wells that directly offset the units we will be developing this year had an average two stream IP 30 of approximately 1,400 BOE per day with 60% oil.

And another offsetting well recently turned in line was incrementally better. We hope to share more details on this and our operated results next quarter. As I mentioned previously, production for the fourth quarter was over 19 NBOE per day. This represents a 19% increase year over year on a BOE basis and a 28% increase on an oil basis. As we look forward to developing our high return Cherokee assets this year, we anticipate growing oilier production farms further.

However, we will continue to be mindful of results, commodity prices, costs, and other factors which will shape our capital allocation decisions this year and beyond. There are no significant expirations this year, and we have the financial flexibility to adjust our development plan to respond to either tail or headwinds.

Shifting over natural gas prices, last year saw Henry Hub prices in the low 2s, which is now up to the mid-4s, and near doubling over a short period. The increase in natural gas prices will boost our revenue, and as we realize better prices, the fixed portion of our costs will be diluted at higher benchmark prices.

The combination of our charity and legacy assets as well as improvement in natural gas prices, give us multifaceted options to include Cherokee development in a constructive WTI environment as well as further capitalizing on the potential of our incumbent properties through well reactivation, incremental production optimization projects, and possibly development.

If Natural gas and liquid price remain strong over meaningful tenor, or potentially both when WTI and Henry Hub are both constructive. Conversely, given the relatively low breakeven of our producing properties, And a cash balance of just under 100 million. We're also well positioned to take advantage of lower commodity environments by acquiring additional producing properties at attractive prices.

Long and short, we have a more versatile kit bag with better positions us to take advantage of not only the current, but future commodity cycles. Now, pivoting back to the base business, I will turn things over to Dean.

Thank you, Grayson. Let's start on our capital program. We completed three operated and one non-operated ducks in the Cherokee play last year. Which had an average 30-day IP of approximately 1,400 BOE per day with around 60% oil. These ducks were located up towards the northern end of the play, and as we move our capital program south this year, deeper into the basin, we expect productivity to be further enhanced.

We did see some meaningful cost efficiencies with the most recent completions and are hopeful to leverage these savings going forward. We spun our first operated Cherokee well in February and hope to share the results of this well on our next call.

We plan to drill eight operated Cherokee wells with one rig this year and complete six wells. The remaining two completions are anticipated to carry over to next year. Roughly 75% of our planned wells are proved undeveloped or pubs, with others projected to be converted to pubs by year end.

This means that our planned drilling locations this year will offset producing wells, which translates to higher relative confidence and well performance. Additionally, this could set up new PU additions or extensions at the end of the year. Gross well costs vary by depth but are anticipated to between $9 million and $11 million.

While we have taken proactive steps to help mitigate the effects of inflation, further changes to tariffs or other factors could influence these costs in the future. From a timing standpoint, most of the production from this year's capital program will occur in the second half of the year, with the benefit extending into next year.

We intend to spend between $66 million and $85 million in our 2025 capital program, which is made up of $47million to $63 million in drilling and completion activity and between $19 million to $22 million dollars in capital workovers, production, optimization, and selective leasing in the Cherokee play. Our high graded leasing is focused to further bolster our interest, consolidate our position, and extend development in future years.

We intend to fund capital expenditures and other commitments using cash flows from our operations and cash on hand. The oilier content and increased productivity from these Cherokee wells will help to boost relative rates of return while decreasing break-even pricing in high graded areas down to roughly $35 WTI.

On optimizing production from our incumbent asset base, we're focused on high return and value adding projects that provide benefits such as lowering forward-looking costs, enhancing production on existing wells, and further moderating our base decline profile.

The artificial lift systems we have, and we'll be installing in our conversion program are tailored for the well's current fluid production and will reduce the electrical demand from the current artificial lift system, which is key to decreasing future utility costs.

The focused efforts over the past quarters in optimizing our well's production profile and costs have continued to flatten the expected base asset level decline of our already producing assets to single digits.

In addition to artificial lift conversions and optimization programs to extend runtime, we will reactivate previously curtailed wells to cost effectively add production. Our well reactivations are currently very targeted, but we could expand this program with further natural gas tailwinds.

Our legacy assets remain approximately 99% held by production, which cost effectively maintains our development option over a reasonable tenner. These non-Cherokee assets have higher relative gas content, but commodity price futures are not yet at preferred levels to resume further development or more well reactivations at this time.

Commodity prices firmly over $80 WTI and $4 Henry hub over a confident tenor and or reduction in well costs are needed before we would return to exercise the option value of further development or well reactivation. While natural gas is now over $4 the curve is backward dated after 2025, and WTI has not yet reached targeted levels.

At current WTI prices, we would need to see additional natural gas price increases before adding incremental capital to this year's development plans. With that said, we will continue to monitor commodity prices and may adjust our plan accordingly.

Now shifting to lease operating expenses. Despite continued inflationary pressures and increased wealth count from our recent acquisition and prior capital programs, LOE and expense workovers for the quarter were held to approximately $11.3 million or $6.43 per BOE and $40 million or $6.61 per BOE for the full year.

A nearly 3% reduction from the prior year. We will continue to actively press on operating costs through rigorous fitting processes, leveraging our significant infrastructure, operation centre and other company advantages. With that, I will turn things back over to Grayson.

Thank you, Dean. I will now revisit the key highlights of SandRidge. Our asset base is focused on the midcontinent regions with a primarily PDP well set, which does not require any routine flaring of produced gas. These well understood assets are almost fully held by production with a long history, shallowing, and diversified production profile and double-digit reserve life. Our incumbent assets include more than 1,000 miles each of owned and operated SWD and electrical infrastructure over our footprint.

This substantial owned and integrated infrastructure helps de-risk individual well profitability for a majority of our legacy producing wells down to roughly $40 WTI and $2 a Henry hub. Our assets continue to yield free cash flow, and we have negative net leverage. This cash generation potential provides several paths to increase shareholder value realization and has benefited by low GNA burden.

SandRidge's value proposition is materially de-risked from a financial perspective by strengthened balance sheet, financial flexibility, and advantage tax position. Further, the company is not subject to NBCs or other significant off-balance sheet financial commitments. We have bolstered our inventory to provide further organic growth optionality and incremental oil diversification with low break even in high graded areas.

We maintain financial flexibility that allows us to adjust our strategy to take advantage of commodity cycles. This flexibility provides advantages and strategic optionality to further grow our business and provides a buffer to commodity headwinds while protecting our capital return program. Finally, it's worth highlighting that we take our ESG commitments seriously and have implemented discipline processes around them.

We remain committed to our strategy in growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high return organic growth projects. We will also evaluate merger and acquisition opportunities in a disciplined manner with consideration of our balance sheet and commitment to our capital return program. This strategy has five points.

One, maximize the value of our incumbent mid-con PDP assets by extending and flattening our production profile with high rate of return production optimization projects, as well as continuously pressing on operating and administrative costs.

Two, excise capital stewardship and investment projects and opportunities that have high risk adjusted, fully burdened rates of return while being mindful and prudently targeting reasonable reinvestment rates that sustain our cash flows and prioritize our regular way dividend.

Three, maintain optionality to equities on value creative merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets. Further utilize its approximately $1.6 billion of federal net operating losses or otherwise yield attractive returns for its shareholders.

Four, as we generate cash, we will continue to work with our board to assess paths to maximize shareholder value to include investment and strategic opportunities, advancement of our return of capital program, and other uses.

Final staple is to uphold our ESG responsibilities. As we look forward to the year and beyond, we plan to further progress our Cherokee development and anticipate extending our capital investment in these high return projects in order to help maintain our production levels while providing further oil diversification. With continued success in support of commodity prices, we're hopeful to expand to a multi-year development plan.

Please keep in mind that a return of capital program will continue to be our top priority, and given our financial flexibility, we'll excise capital stewardship to respond to changes in commodity prices, costs, results, or other factors.

Shifting to administrative expenses, I will turn things over to Brandon.

Thank you, Grayson. To wrap up, I would like to emphasize that our adjusted DNA of $2.4 million or $1.39 per BOE compares favorably to our peers. The efficiency of our organization stems from our core values to remain cost disciplined, as well as our prior initiatives which have tailored our organization to be fit for purpose.

We will maintain our cost conscious and efficiency focused mindset moving forward and continue to balance the weighting of field versus corporate personnel to reflect where we create value and have outsourced necessary but perfunctory and less core functions such as operations accounting, land administration, IT tax, and HR. Our efficient structure has allowed us to operate with total personnel at just over 100 people, while retaining key technical skill sets that have both the experience and institutional knowledge of our business.

In summary, the company had free cash flow of $48 million during the year, just under $100 million in cash and cash equivalents at quarter end, which represents more than $2.68 per share of our common stock outstanding. An inventory of high rate of return, low break-even projects. An overall mid-composition that is approximately 96% held by production, which preserves the option value of future development potential of our legacy acreage in a cost-effective manner.

Low overhead, top tier adjusted DNA. No debt, negative leverage. Flattening production profile, double digit reserve life, and $1.6 billion of federal NOLs. This concludes our prepared remarks.

Thank you for your time. We will now open the call to questions.

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press one again.

Alright, we'll go first to Christopher Dowd at Third Avenue Management.

Hey guys, thanks for taking the question. Congrats on the nice Q4 results and finishing the year strong. I've got one question, and one follow up for you today. Your upper bound, the 7.1 MBOE production levels are certainly exciting given where Henry Hub prices are today and possible data center and LNG demand.

So, in addition to what you already mentioned on the forward curve, what else would you want to see to get closer to that high end of the range? And then is there any, further upside or further organic production growth available should pricing warrant? And then I've got a follow up question.

Sure, appreciate that Chris, and thanks for being on the call. A great question here. I think on the upward bound, we'd like to see gas prices ideally stabilize across the next 18 months at $5, with WTI more constructive solidly over $70. With that being said, we could have some tailwinds if results are better than expected or we're ahead of schedule. Additionally, we have, an inventory of well reactivation that we can dig into, very quickly without much lead time.

And really, I think our approach as in years past is to make sure that we have net gas prices over a confident tenner before we start deploying more capital in that direction. But I think you're right to point out that we do have, other options in addition to development that we can utilize to help grow production in a really constructive gas environment.

Right, that's really helpful. And then my only other question, given that SandRidge is in somewhat of a unique position where you've got legacy transmission line infrastructure, there's been a lot of chatter about data center folks trying to get in front of the grids and maybe cut, direct energy deals. Does your infrastructure allow you to have maybe a unique, negotiating position or is that not relevant?

Yeah, it's an interesting question. I appreciate that. We do have; our infrastructure does give us strategic advantages. When it comes to selling directly to customers, a lot of our gas has to be, processed and given them where NGL prices are today, those being taken out so that we can sell those in other markets and take advantage of those relative revenues.

So, we sell all of our gas, to large purchasers that have access to other markets. And so they have the ability to sell gas in front of the grid and we can benefit, secondarily to some of that, but it's really hard to pick up that gas at the tailgate of the plant and plug that straight into engines and electrify our own operating own grid if that makes sense.

Yeah. Really helpful. Thanks guys and again nice job on Q4.

I appreciate that.

We'll move next to Sergey Pigarev at Freedom Broker.

Hi, everyone, and thank you for taking my question. I have a question CapEx. As we see, from the guidance, I mean, like in midpoint, CapEx 2025 is like three times higher than 2024 figure and should you consider this level as like necessary level to maintain the current production and we do expect similar levels in 2026 and beyond.

Yeah, thanks, Sergey. Great questions and I appreciate your time. I think this year is going to be different than last year, in particular because of the acquisition that we had last year with that acquisition came interest. In high graded undeveloped properties that we're going to be developing this year as mentioned before, these are really high rate return projects and have very low break even, down to $35 WTI, and that was the catalyst between shifting to kind of a more defensive position last year where we had really low net gas prices and as our legacy assets.

Are more gas weighted and given where Henry Hub was last year, didn't make sense, given the cheap option value of that acreage to go deploy capital there. And then we acquired the predominantly PDP assets that came with additional undeveloped that we're going to be exploiting this year in order to bring that value forward. I do think that we'll be mindful of our reinvestment rates.

And we're going to target this year reinvestment rates between 55% and 80% and guiding to 50% or better next year, assuming that we continue to be, execute soundly and have constructive commodity prices, but we want to make sure that we're thoughtful about, having good free cash flow, continue to, build that. Continue to have a regular weight dividend and all the things that we mentioned that we're going to prioritize on the call. Hopefully that, answers your question, but how they, it, unpack anything else.

Thank you very much.

And we'll move next to [David Curdell] at Blue Pond Capital.

Hi, can you talk a little bit about what you see, for production growth next year? given your CapEx this year and that's just, maybe just assuming that, commodity prices are kind of flat. What do you expect for production? I realize it's kind of early, but may I ask.

Anyway. Yeah, David, thank you, great question. For next year we're going to look to grow oil production from this year about 30%, at the midpoint of guidance and on a BOE basis, just under 10%.

And if you look at the high end of guidance, as Chris was asking earlier, those multiples get better, but that's our baseline partner.

I'm sorry for the confusion. I meant in '26. And the thinking is that a lot of your wells that you're drilling now are coming on in the end of the year and will have more of an impact in '26. So, my question was really more on the production in '26 and beyond, like, is there a way to think about how fast you can grow production going forward?

Sure, first, I kind of want to set the playing field of, where economic animals and so the return on the investment is paramount relative to growing production. We do want to grow our base business because there's a lot of ancillary benefits, but we think about things from project to project. And these projects we underwrite with high rates of return. I know you know that too, but for the benefit of everybody on the call, want to reassure that we're not growing for growth's sake, but that it's deed to the business, right?

And so, as we look into 2026, we will have the potential for additional growth, as I mentioned on the call, excluding, 2026 drilling, we're going to have. Two of the eight completions carry over into the 2026, so you're going to have some new production hit in one few even excluding the drilling in next year, and we hopeful, we're hopeful that commodity prices stay constructive, and we can extend the runway here from this year into next year with this development program and with it, furthering our oil weighted growth.

Got you. Thank you. And then also, the hedges are new, and I hear you that, you want to secure the cash flow based on much better natural gas prices. Could you just remind us, like, maybe flush out a little bit about what percentage of production that your head? or how you're thinking about hedges in general going forward since it's a bit of a change.

Sure, I appreciate that, David, and I think most people on the call are aware of this, but, because we have no debt, we have no bank led edging mandates, which is a benefit to the company, and so we typically want to remain or have a lot of exposure to the upside. However, given additional capital spent this year, we felt that it was prudent to secure hedges.

At attractive prices, and that's why you've seen us favor more natural gas and some ethane here recently and less on oil just because there's, I think, some benefit to oil to the upside. But how we think about hedges are, taking some risk off the table when we're expanding our capital or return of capital programs. So, it's really risk management or opportunistically taking advantage of attractive pricing and so our most recent hedges that we layered on just this week had collars with a $4 floor and an 820 ceiling, which are pretty attractive.

So, it still allows us to participate in the market at current prices or better up to 820, so we feel pleased with that and so on the net gas side, that takes us to just under 60% of PDP volume. Of course that that is a lower number when we're looking at total production, but again, just being more cautious and prudent, we do not hedge based off of, anticipated production from our soon to be drilled wells, so we think that that's a reasonable place, but we'll continue to monitor the marketplace, the market's seen a lot of volatility and we want to balance like. Having some exposure to the upside versus mitigating downside risk.

Got you. Okay, thank you.

And this concludes the Q&A session and today's conference call.

Thank you for your participation. You may not disconnect.