SandRidge Energy Inc (SD) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to SandRidge Energy Third Quarter 2020 Earnings Call. (Operator Instructions)

Please be advised today's conference is being recorded. (Operator Instructions). I would now like to hand the conference over to David Zu, Director of Finance. Thank you. Please go ahead.

Thank you, and welcome, everyone. With me today are Carl Giesler, our CEO; Salah Gamoudi; our CFO; and Grayson Pranin, our VP of Engineering and Reservoir 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-Q that we will file later today, both provide subsequent detail on our financial and operating performance during the third quarter.

Accordingly, as usual, we'll keep our prepared remarks brief. You've seen a lot of our hard work over the last 6 months come together in this third quarter, starting with HS&E despite sharp personnel reductions, substantial outsourcing, numerous well adjustments in response to volatile commodity prices and other distractions, the company's streak without a recordable incident stands at 26 net months and counting, quite a remarkable feat.

From a debt and liquidity perspective, our financial position became considerably stronger during the quarter. We ended 3Q with less than $1 million net debt versus more than $45 million the previous quarter. And at the beginning of this week, we had approximately $16 million of cash on hand versus debt of $12 million.

This substantial deleveraging reflects not only the approximately $35 million proceeds for the sale of our headquarter's building, but also the significant cost and capital efficiencies implemented by our team.

From a production and financial performance perspective, the small ball and capital-efficient workover program and cost curtailment initiatives that we implemented over the last 6 months have become evident in our results. Yesterday's earnings release again reaffirmed our 2020 guidance from May. We're increasingly confident that we should achieve and on several metrics, better those targets.

We held production steady this quarter with 22.3 MBoe a day compared to 23.6 MBoe a day in the prior quarter. At this point in the year, we should approach, if not surpass, 8.2 billion BOE high end of the 2020 guidance from May. LOE continues to fall, coming in at $8.1 million or $3.94 per BOE compared to just under $9 million and just over $4 per BOE in the prior quarter. We believe our per BOE LOE compares favorably with almost all our public small-cap oil and gas peers. Looking to year-end, we should have a good chance to be meaningfully below the $48 million low end of the 2020 LOE guidance from May.

Adjusted G&A similarly continues to fall, coming in at $2.3 million or $1 -- $1.11 per BOE compared to $3.7 million or $1.74 per BOE in the prior quarter. As with LOE, we believe our per BOE adjusted G&A stacks up well against almost all our public small-cap oil and gas peers. For the year, we should be able to land safely within $11 million to $15 million range of 2020 adjusted G&A guidance from May. Finally, on the financial front, adjusted G&A came in at $15.4 million, rebounding approximately 75% from the prior quarter.

From a corporate structure perspective, the company is becoming simpler. We closed on the acquisition of the overriding royalty interest held by SandRidge Mississippian Trust II for a net purchase price of $3.3 million. We have one remaining affiliated trust, SandRidge Mississippian Trust I left. That Trust has announced that per the agreement government of Trust, it will need to commence winding up this month.

Finally, from a strategic perspective, due to a building sale, cost efficiencies and capital discipline, we now find ourselves in a happy position of being one of the few, if not the only small-cap publicly-traded gas-oriented oil and gas companies transitioning to an increasing net cash positive balance. This position affords us the benefits of time and patience as well as wide strategic birth. We'll continue to evaluate adding assets with a focus on those with high PDP weighting that we believe we can acquire in an equity value-accretive manner as well as divesting assets that no longer align with our strategic direction. We'll also assess returning capital to shareholders, ensuring we do it in a financially prudent and economically efficient manner.

We'll now open the call to questions.

(Operator Instructions)

Our first question is from Noel Parks with Coker & Palmer Institutional.

I just had a couple of questions. The absorption of the SandRidge Trust Number II that you did. Actually, is the original Trust, the Mississippian I, is that still independent at this point? I haven't really kept up with it.

It is independent in the sense that it has not completed its liquidation. That Trust announced this month that it will begin at the process of unwinding later this month. And that announcement was made by the trustee for the trust. We own a significant portion, roughly 25% of that trust. So -- but we don't control it. And we have some of the same whites during the wind down that we had with the Mississippian Trust II. In other words, we imagine the trustee will follow through in a fiduciary duty, which typically to us a marketing program, where they elicit each for the override royalty interest in wells that we operate, that are owned by the trust, that overrides are. And then when that process is concluded, we will have the opportunity to exercise the right of first refusal and buy that. And our Board made the decision to exercise that right with the wind up of the Mississippian Trust II.

Got it. And actually, was the timing of, I guess, when -- who they trust sort of began, its plans for unwinding, was that something that you were aware of well in advance? Or is that something they can kind of just do at whatever point they decide?

The answer to the first question is we had an inkling, and I'll explain, and the answer to the second question is no. So the ability for the Trust to wind up is actually fairly formulaic per the trust documents. And once they meet or their sale can be a certain level of distributions for 4 quarters in a row, they are required to wind down. And so they don't have discretion. That's what drives the wind down. And so we can monitor what the distributions are. And then like other analysts, project what we think based on the wells that we operate. We know they have a royal interest on, what their distributable cash flow might be and have a pretty good sense of when they wind down. But just for clarity, we have no particular nonpublic insight into what their plans are. We just can't do the math.

Got you. Okay. And I just also wanted to -- after you pointed out that the LOE trends have been positive, and you think there's still more room for that to come down going forward. Can you just talk a little bit about what the drivers of that would be?

Yes. I mean the drivers have been -- your kind of classic blank page review of how you operate your producing wells. Everything from making sure we rightsize our compression so we're not paying for more compression that we need on a well that 2 years ago, may have justified more compression, and now, it doesn't. It means revisiting how, what chemicals we used and how you source them. It means being very aggressive on your RFPs, particularly on trucking solar disposal. It means thinking through how you staff your field operations and making sure that you have the right size personnel force. It means making sure that we're taking full advantage of the telemetry scada that we use to monitor the wells. It means that when we do workovers, expense workovers -- you first asked, if we have an extra part laying around rather than buying a new park. It's a lot of the small details that you implement that -- and to be fair, one of the things that I'm proud of for [Grayson] and [Dean], who've really been tipping the spear of implementing this as well as their teams, led by [Cain] and [Dunn], they to do a really nice job of focusing on these details and that LOE reduction isn't just based on a curtailment of the number of wells that we have. In fact, it's only a small part of it. So it's really -- you got to say, in a sense, focusing on details.

(Operator Instructions)

Ladies and gentlemen, this concludes the Q&A and today's conference call. Thank you for your participation. And at this time, you may now disconnect.