SandRidge Energy Inc (SD) 2020 Q1 法說會逐字稿

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

Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to your speaker today.

Thank you, and welcome, everyone. With me today are Carl Giesler, our CEO; John Suter; COO; Mike Johnson, CFO; Lance Galvin, SVP of Reserves and Business Development, among other members of our management.

We would like to remind you that today's call contains 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. We will also refer to adjusted G&A and other non-GAAP financial measures. Reconciliations of these measures can be found on our website.

Now let me turn the call over to Carl.

Thank you and good morning. We appreciate your interest in SandRidge.

We issued our earnings release yesterday evening, and we'll file our 10-Q later today. Both provide substantive detail on our operating and financial performance during the first quarter. Accordingly, we'll concentrate this call on the recent major initiatives at our company and their impact to our business, both near and longer term.

To address COVID-19 upfront, know that, like companies everywhere, we have instituted appropriate procedures and policies to protect the health and maintain the productivity of our employees. As pandemic evolves, we'll adapt responsibly and in line with federal, state and local guidelines.

We have taken advantage of the recent steep downdraft in commodity prices to focus more rigorously on the fundamental function of a business, namely to operate and, at the appropriate time, grow our assets in a safe, responsible, cost-efficient and cash return-generating manner.

Our immediate emphasis has been to optimize cash flow. To that end, we have reexamined costs across our business. At corporate, we recently implemented our second reduction in force this year, lowering our staff count from around 120 at the end of 2019 to about 26 by the end of the second quarter. We've also initiated more than $3 million in annual office software and other non-personnel savings measures.

We expect year-over-year adjusted G&A to fall by more than 50% from $29 million in 2019 to $13 million this year. Once the impact of our recent corporate initiatives has flowed through, we anticipate run rate adjusted G&A to settle around $11 million per year.

In the field, we have also reduced personnel from about 150 at year-end '19 to around 100 today. We're coupling that streamlined workforce with non-personnel cost reductions such as aggressive vendor bidding and compression rightsizing. We expect year-over-year LOE to fall by almost 45%, $91 million last year to just over $50 million this year. Once the impact of our recent field initiatives has flowed through, we anticipate run rate LOE to settle below $45 million. Also in the field, in addition to reducing costs, we've been diligent about actively monitoring our properties to optimize cash flow in the current low commodity price environment.

Beyond cost savings, we're also committed to limiting our CapEx to that which is required for safety or mechanical integrity or for low-spend, quick-payback projects. We expect year-over-year CapEx to fall by about 95%, from $162 million last year to approximately $7 million this year. Further to optimize cash flow, we took advantage of the recent increase in gas future prices by hedging up to 70% of our expected PDP gas production through October of this year.

As with other E&Ps, this spring's downturn in commodity prices negatively impacted our borrowing base, which was recently redetermined at $75 million. Our drawn borrowings have remained well below that amount. Additionally, we recently agreed to sell our corporate headquarters, our largest noncash-generating asset, for $35.5 million following a competitive process in a very challenging market. When that sale closes in the third quarter of this year, it will not only meaningfully improve our liquidity but also save us more than $2.5 million in annual maintenance expense. Further to liquidity, our current hedge book has a monetizable mark-to-market value of approximately $5 million.

Given our relatively low debt level, the recently agreed headquarter sale as well as our significant cost and CapEx reductions, we remain confident in our liquidity situation and options to expand our access to capital. As evidence of this, note that we chose not to extend the tenor of our current credit facility past April 2021. Simply wasn't worth increased pricing and other restrictions that would have been required in this historically tight oil and gas bank market. Rest assured, though, we'll continue to work with our bank group and monitor the market for appropriate ways to access capital as we execute our business plan.

An added benefit of our internally focused cash flow and liquidity initiatives is that they will position us well to take advantage of any growth opportunities that the market might provide. Whether organically or through acquisition, we will continue to evaluate ways to grow and upgrade our asset base on an economically accretive basis. We expect that our cost and capital discipline, our diligence in evaluating opportunities and our patience will serve our shareholders well.

We'd be remiss not to publicly thank our employees. Despite the hardships and challenges from COVID-19 as well as significant changes within our organization, our streak of no reportable EHS-related incidents moves into its 22nd month. Additionally, our updated 2020 production guidance remains relatively flat compared to the substantial downward reductions in our cost and CapEx guidance, not a small feat.

Finally, I want to personally thank 3 key members of our executive team who will move on to other opportunities in July. John, Mike and Lance have been professional, engaged and, most of all, if also ironically, indispensable in successfully navigating the recent changes and challenges of the current environment. We wish them well.

We'll now open the call to questions.

(Operator Instructions) Your first question comes from Noel Parks with Coker & Palmer.

I just had a few questions. Looking at the Mississippian production, where roughly does the base decline stand to that nowadays?

Yes. So we're in the roughly 25% or so just depending on the product but on a BOE basis, 25% per year.

Okay. Great. And actually, with the sale of the headquarters, just wondering, is there any shift in expenses on the income statement as a result of that just, I guess, going from owning the asset to, I guess, renting or leasing it from here on?

It'll be an outright sale, and we've negotiated the ability to retain a few floors. That'll be more than sufficient for our needs through the end of this year, and that'll be rent free. At the end of this year, we'll need to find alternative office space that I think would be incredibly cheaper than the $2.5 million we're paying to upkeep the building.

Okay. Great. Got it. And as far as the borrowing base redetermination process, was it mainly impacted primarily by use of a much more conservative price deck on the bank's part? Any different assumptions about production type curves or anything that also weighed in?

We had the unfortunate luck of having one of the worst months ever to have a bank borrowing base redetermined. It dominated the month.

Right. And just roughly, what sort of long-term debt were they applying? Were they in the 30s or something like that? Or...

It was far less than that.

Really? Okay. Okay. So it's safe to say even less than, say, where the current strip is now?

For sure.

Okay. So that really was sort of a worst-case, really pessimistic commodity price they used to determine the base at then?

That's right. It's also fair. This is a bank group that has stood with us for a long, long, long time. And these last 5-or-so years have not been the smoothest ride.

Sure. Understood. And one thing, just taking a look back at the 10-K, it looked like the acreage expirations that you showed there were, for 2020, about 26,000 gross, 15,000 net. And I was wondering if you had -- if that was acreage that wasn't considered core for you and you were planning to let it go or if you had done some lease extensions on some of those.

Yes. No, this is John Suter. That was predominantly in North Park with some acreage to the southern end of the play that was not in our core that we've ever kind of advertised through our maps that we've shown with some kind of exterior acreage.

Okay. So there were no PUDs or anything in that acreage?

No, sir.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.