SandRidge Energy Inc (SD) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the SandRidge Energy Fourth Quarter 2020 Earnings Call. (Operator Instructions) Please note, today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to Mr. David Zu, Director of Finance. Thank you. Please go ahead, sir.

Thank you, and welcome, everyone. With me today are Carl Giesler, our CEO; Salah Gamoudi, our CFO; and Grayson Pranin, our CEO; as well as other members of management.

We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risks and uncertainties, and actual results may differ materially from those projected in these forward-looking statements. We may also refer to adjusted EBITDA and adjusted G&A and other non-GAAP financial measures. Reconciliations of these measures can be found on our website.

Thank you, and good morning. Our earnings release yesterday as well as the 10-K and investor presentation, that we will file and put on our website later today, provide substantive detail on our financial and operating performance during the fourth quarter as well as full year 2020. Those documents also provide our formal guidance for 2021. Accordingly, as usual, we'll keep our prepared remarks short.

2020 was literally transformational for SandRidge. We significantly streamlined our organization, with our personnel went out from 270 at year-end 2019 to just over 100 today. Most of this reduction is due to significant outsourcing of noncore, more administrative functions. Costs came down commensurately with both adjusted G&A and BOE down just over 50% year-over-year. We believe we compare favorably with our peers on both an absolute and per BOE cost basis.

We tightened our capital expenditures too, slashing spend to about $5 million this past year compared to more than $160 million in the year prior. Our aggressive cost and capital discipline coupled with the sale of a noncore headquarters building in Oklahoma City, and North Park Basin asset in Colorado, enabled us to literally flip our net debt from over $50 million at year-end '19 to a current net cash position of roughly the same magnitude.

On the operations side, we were able to increase our net operating working interest by buying in at a very attractive discount to PDP value, the overriding royalty interest in our wells held by SandRidge Mississippian Trust II. We anticipate having a similar opportunity later this spring with our solely remaining affiliated trust. This past fall, SandRidge Mississippian Trust I announced commencement of its dissolution process.

Despite the challenges of navigating COVID-19, as well as the various organizational shifts within SandRidge, our team remained focused. We met or beat all operational guidance metrics provided in May of last year, and have continued our street without a recordable HSE incident into its now 31st month. In 2021, we plan to maintain this organizational discipline. Specifically, we plan to continue to press cost efficiencies and implement small ball initiatives to optimize our production profile. Put differently, we will maximize the cash generation of our business.

Simultaneously, we plan to shift our strategic attention externally. We believe the oil and gas industry generally in our core mid-Con basin, particularly will benefit from consolidation. Asset aggregation offers several levers to drive shareholder value from: one, capturing scale economies in both the field and back office, to 2 high-graded investment inventory, to 3 accessing expanded sources of capital, to 4, providing our shareholders expanded liquidity, to finally gaining a broader institutional investor and research model. Finding an economically attractive way to grow our PDP asset base or combine our assets with those of another company in a value increasing manner will be a key emphasis in 2021.

We believe our publicly traded equity, growing net cash position, and streamlined and scalable organizational structure positions us well to potentially benefit from industry consolidation. Regardless, know that we'll be disciplined stewards of the company's cash. If we can't deploy that capital to expand our PDP footprint in an economically quick manner or to facilitate a value-enhancing merger, we will seek to return that cash to shareholders in an efficient manner.

We'll now open the call to questions.

(Operator Instructions) And our first question comes from Peter -- I'm sorry. Our first question comes from Garrett King with Truffle Hound Capital.

One question I had, the press release listed the company's cash balance as of March 1. Did the company have any outstanding debt on that date?

Garrett, we did. As you look at the balance sheet that was summarized in our earnings release, and that will be more fully explained in the 10-K that we'll file after market close today. We have a $30 million credit facility consisting of a $20 million term loan, that is debt, and then a $10 million undrawn revolving portion. So we do have $20 million of term loan debt on a balance sheet at an exceptionally attractive rate.

Got it. And that remained outstanding as of March 1?

That's right. I believe we put an 8-K out on that, and we did that. Our regular way of RBL that was led by RBC and others. As you know, the RBL market's in turmoil, that was expiring in April of this year. They wanted a left arm, right leg, few toes, to kind of extend that, and this is just a much more attractive option for the company from the cost, from the tenor, really just kind of a unicorn. Made a lot of sense to do this.

Understood. And is the company -- now that you guys are masking the significant cash balance, are you continuing to evaluate M&A opportunities?

Well, absolutely. You're right. Look, at the end of the day, we're well aware that the cash is not ours, it's yours. And if we can't deploy it in a way that adds side to the shareholders in pretty clear manner, and we're not going to do anything with it, we'll give it back. But you also think, it makes us -- can help make us an attractive partner with another company. Someone might be overlevered and using our cash to delever might rightsize the balance sheet of the pro forma company. That could be very value-enhancing to the pro forma entity and we can accrue an outsized portion of that value. So in my mind, having a strong balance sheet, in particular, strong cash position, makes us a more attractive partner in a strategic situation. As you know, strategic activity often talked about what we've done, that was in the details. But we believe having a strong balance sheet, particularly having a strong cash position, makes us net-net more attractive.

And our next question comes from Josh Young with Bison.

So a quick question on the price realizations. Would you mind talking a little bit about now that the asset base is down to just this 1 mid-continent asset, what's the driver of the large discount from the relevant pricing benchmarks? So I see 20% of the NGL price versus WTI and a pretty substantial discount to the NYMEX gas price. And if you could talk a little bit about how much of that is related to fixed costs or minimum volume commitments versus variable prices?

Sure. This is Grayson. Beginning with NGL, the 20% really made up of our primary marketer, Targa, is in asset recovery. So we're adding more volume, which dilutes the per barrel price. But from a revenue perspective, we're ahead. And then on the gas side, a, there are no minimum volume commitments; b, the fixed side is $0.57 per Mcf. I will say, within Q4, we realized a $1.56 per Mcf.

Okay. Great. And then just as a follow-on, can you guys comment -- I didn't hear anything and didn't see anything in the press release. Obviously, prices were extremely high during the recent storm, but a lot of production was off-line. Can you guys comment on your experience through that and if you're able to maintain production through that exceptionally high price period?

I would talk about how we maintained production and then Salah will talk about how we realize pricing. I mean, look, the team did crack the jack job, keeping our production online. A lot of our neighbors had deferment or basically shut-ins to close to 100%. We kept at all times more than half our production online and very quickly got that down to more normal deferment levels for the month of February. So really hats off to Dean Parrish, who is really point here on the executive team, but equally the field that was working with him. Guys that did a tremendous job, and that's something that could have been a lot worse and certainly was for some of our peers. Salah can talk a little bit about the pricing.

Yes. So on the pricing front, typically, what we see in the Mid-Con is our primary purchaser is Targa, as Grayson mentioned, and the way that our gas is priced is based on loss pricing, which is a weighted average sales price. And I would say 85% of that is going to come from flat front month pricing. And so in some months, that helps us where the spot price gets lower than the front month pricing during the month. Sometimes that can potentially hurt us where spot prices rise and the deferment price is lower. However, in this case, we are still working out the details. They're still 15% approximately on a historical basis of our volumes that will be priced at spot, because of sort of the chaos that happened in the Mid-Con in regards to force majeure letters, shutdowns of plants, things like that, that were happening more downstream. We're working with Targa to understand better how our pricing was affected and that weighted average sales price was affected during the month of February. And so we will be investigating that and understanding that further here in the next few weeks.

So a lot more to say about that in the first quarter.

And there are no further questions at this time, and thank you for joining today's conference call. You may now disconnect.