SandRidge Energy, Inc. Reports Financial and Operational Results for Second Quarter and First Six Months of 2011

OKLAHOMA CITY, Aug. 4, 2011 /PRNewswire/ -- SandRidge Energy, Inc. (NYSE: SD) today announced financial and operational results for the quarter and six months ended June 30, 2011.

Key Financial Results

Second Quarter

• Adjusted EBITDA of $156 million ($182 million including realized gains on out-of-period derivative contract settlements) for second quarter 2011 compared to $132 million ($195 million including realized gains on out-of-period derivative contract settlements) in second quarter 2010.
• Operating cash flow of $134 million for second quarter 2011 compared to $135 million in second quarter 2010.
• Net income available to common stockholders of $196 million, or $0.42 per diluted share, for second quarter 2011 compared to net income available to common stockholders of $45 million, or $0.21 per diluted share, in second quarter 2010.
• Adjusted net loss of $2.0 million, or $0.00 per diluted share, (adjusted net income of $23.9 million, or $0.05 per diluted share, including realized gains on out-of-period derivative contract settlements) in second quarter 2011 compared to adjusted net loss of $1.9 million, or $0.01 per diluted share, (adjusted net income of $60.4 million, or $0.23 per diluted share, including realized gains on out-of-period derivative contract settlements) in second quarter 2010.

Six Months

• Adjusted EBITDA of $305 million ($341 million including realized gains on out-of-period derivative contract settlements) for the first six months of 2011 compared to $274 million ($336 million including realized gains on out-of-period derivative contract settlements) in the first six months of 2010.
• Operating cash flow of $234 million for the first six months of 2011 compared to $222 million in the first six months of 2010.
• Net loss applicable to common stockholders of $120 million, or $0.30 per diluted share, for the first six months of 2011 compared to net income available to common stockholders of $63 million, or $0.31 per diluted share, in the first six months of 2010.
• Adjusted net loss of $9.0 million, or $0.02 per diluted share, (adjusted net income of $26.2 million, or $0.05 per diluted share, including realized gains on out-of-period derivative contract settlements) in the first six months of 2011 compared to adjusted net income of $10.5 million, or $0.04 per diluted share, (adjusted net income of $72.8 million, or $0.28 per diluted share, including realized gains on out-of-period derivative contract settlements) in the first six months of 2010.

Adjusted net (loss applicable) income available to common stockholders, adjusted EBITDA and 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 9.

Highlights

• Drilled 238 wells during second quarter 2011 and 461 wells during first six months of 2011.
• Oil production in second quarter 2011 of 2.77 MMBbls compared to 2.58 MMBbls in first quarter 2011 and 1.34 MMBbls in second quarter 2010.
• Total production in second quarter 2011 of 5.64 MMBoe compared to 5.46 MMBoe in first quarter 2011 and 4.56 MMBoe in second quarter 2010.
• July 2011 average daily production of 66 MBoe with one-day record high of 68 MBoe.
• Most active driller in the Mid-Continent Mississippian Play with 14 rigs operating and 111 horizontal wells drilled.
• Added 200,000 net acre position in new Mississippian Play.
• Increasing 2011 capital expenditure guidance by $500 million, from $1.3 billion to $1.8 billion, reflecting an increase in Mississippian drilling activity and continued acreage purchases both in the Mississippian and the Central Basin Platform.
• Increasing 2011 production guidance to 24.1 MMBoe from 23.3 MMBoe.
• Guiding 2012 capital program to $1.8 billion and production to 29.1 MMBoe.

Tom L. Ward, Chairman and CEO commented, "We are pleased to announce the joint venture with Atinum Partners on our Mississippian project where results continue to meet or exceed our expectations. Our management team has been consistent in discussing several alternatives to fund the drilling of our large Mississippian acreage position within ten years and bring forward the NAV of this asset. With this announcement, we will begin to increase our rig count in Oklahoma and Kansas to average 24 rigs in 2012, which nearly doubles our current rig count. Additionally, we have identified and established an acreage position in a new area that is similar in size, characteristics and cost to our first Mississippian play. In connection with increasing our rig count and acreage position, we are increasing our 2011 capital budget to $1.8 billion and establishing a 2012 capital budget of $1.8 billion.

"The execution of our 2011 and 2012 plans will move the company significantly toward our 2014 goal of a self-funding capital program, delivering double-digit annual production growth and a debt to EBITDA ratio of less than 2 times."

Drilling Activities

SandRidge averaged 29 rigs operating during the second quarter of 2011 and drilled 238 wells. The company drilled a total of 461 wells during the first six months of 2011. A total of 231 gross (219 net) operated wells were completed and brought on production during the second quarter of 2011, bringing the total number of operated wells completed and brought on production during 2011 to 439 gross (408 net). Currently, the company has 32 rigs operating (including 2 drilling saltwater disposal wells), of which 21 are SandRidge-owned Lariat rigs.

Permian Basin

The company drilled 200 wells in the Permian Basin during the second quarter of 2011 and 399 wells during the first six months of 2011. The company has identified approximately 7,900 drilling locations on its 228,000 net acres in the Permian Basin. Production from the Permian Basin grew from approximately 13,100 Boe per day in second quarter 2010 to approximately 28,100 Boe per day in second quarter 2011, reflecting the Arena acquisition in July 2010, development of the company's acreage holdings and the previously announced sales of Wolfberry and New Mexico assets producing approximately 3,100 Boe per day. SandRidge presently operates 16 rigs in the Permian Basin, all of which are operating on the Central Basin Platform drilling primarily San Andres and Clear Fork vertical wells at depths ranging from 4,500 feet to 7,500 feet. The company plans to drill over 800 wells in the Permian Basin in 2011.

Mississippian Play

The Mississippian oil play in the Mid-Continent area of Oklahoma and Kansas is an expansive, shallow carbonate hydrocarbon system. During the second quarter of 2011, SandRidge drilled 38 horizontal wells in the Mississippian play bringing the total number of operated wells drilled during 2011 in the Mississippian to 61. Industry-wide, approximately 250 horizontal wells have been drilled in the Mississippian across a 150-mile long area with SandRidge having drilled 111 wells. The company grew its Mississippian production from approximately 770 Boe per day in second quarter 2010 to over 8,400 Boe per day in second quarter 2011. SandRidge has identified over 4,000 drilling locations on approximately 900,000 net acres it has leased in the play. The company presently has 16 rigs operating in the play, of which 14 are drilling horizontal producer wells with 2 drilling saltwater disposal wells, and plans to increase the Mississippian rig count to average 24 rigs in 2012. SandRidge plans to drill 172 horizontal wells in the Mississippian play in 2011.

New Mississippian Play

SandRidge has established a 200,000 net acre position in a new horizontal Mississippian play comparable in size, characteristics and cost to the now proven Mississippian horizontal play. This new play is a shallow hydrocarbon system in a thick, porous, carbonate section. The Mississippian section ranges from 250 to 700 feet thick with enhanced porosity development just beneath the pre-Pennsylvanian unconformity. The geological setting is an extensive regional stratigraphic trap within a hydrocarbon system that has a long history of Mississippian production from thousands of vertical wells.

Operational and Financial Statistics

Information regarding the company's production, pricing, costs and earnings is presented below:

Discussion of Second Quarter 2011 Financial Results

Oil and natural gas revenue increased 108% to $312.1 million in second quarter 2011 from $150.0 million in the same period of 2010 as a result of increases in oil production and realized reported oil prices. Oil production increased 106% to 2.77 MMBbls from second quarter 2010 production of 1.34 MMBbls mainly due to oil production from Permian Basin properties acquired in July 2010 and continued development of the company's oil properties. Second quarter 2011 total production increased 24% to 5.64 MMBoe from 4.56 MMBoe in second quarter 2010. Realized reported prices, which exclude the impact of derivative settlements, were $89.09 per barrel and $3.81 per Mcf during second quarter 2011. Realized reported prices in the same period of 2010 were $62.56 per barrel and $3.41 per Mcf.

Production expense increased 46% to $81.8 million in second quarter 2011 from $56.0 million in the same period of 2010 due primarily to the addition of costs from Permian Basin properties acquired in July 2010. Second quarter 2011 production expense was $14.51 per Boe compared to second quarter 2010 production expense of $12.27 per Boe.

Depletion per unit in second quarter 2011 was $13.51 per Boe compared to $11.90 per Boe in the same period of 2010. The increase in rate per unit primarily was a result of an increase in the company's depreciable oil and natural gas properties, mainly due to the Arena acquisition in July 2010.

Capital Expenditures

The table below summarizes the company's capital expenditures for the three and six-month periods ended June 30, 2011 and 2010:

Derivative Contracts

The tables below set forth the company's oil swaps and natural gas price and basis swaps for the years 2011 through 2015 as of August 1, 2011 and include contracts, the benefits of which have been conveyed to SandRidge Mississippian Trust I.

Balance Sheet

The company's capital structure at June 30, 2011 and December 31, 2010 is presented below:

At June 30, 2011, the company's debt was $2.9 billion, a decrease of approximately $279 million from March 31, 2011. In April, the company raised approximately $535 million in proceeds from the sale of a portion of its interest in SandRidge Mississippian Trust I (NYSE: SDT) and the divestiture of its non-core New Mexico properties, with proceeds from these transactions used to repay borrowings under the senior credit facility. On August 1, 2011, the company had $195 million drawn under its $790 million senior credit facility and approximately $2.2 million of cash, leaving approximately $573 million of available liquidity (including the impact of outstanding letters of credit). The company was in compliance with all of the financial and other covenants contained in its debt agreements as of and during the six months ended June 30, 2011.

Operational Guidance

2011 Guidance Update: The company is updating certain guidance for 2011 from the information previously provided on May 5, 2011. The company has increased its projected oil and natural gas production to reflect increased drilling activity. Projected lifting costs have increased to $14.10 to $15.50 per barrel from $11.80 to $13.10 per barrel due to higher workover activity level, saltwater disposal in the Central Basin Platform and higher costs associated with rapid growth of the emerging Mississippian play. Per unit DD&A-other, G&A-stock and interest expense have decreased due to the increase in projected production. Projected capital expenditures have increased to $1.8 billion from $1.3 billion primarily due to increased leasing activity, well count and well costs in the Mississippian play.

2012 Initial Operational Guidance: The company is introducing certain guidance for 2012. The company expects to incur approximately $1.8 billion in capital expenditures and produce approximately 29.1 MMBoe.

Non-GAAP Financial Measures

Operating cash flow, adjusted EBITDA and adjusted net (loss applicable) income available to common stockholders are non-GAAP financial measures.

The company defines operating cash flow as net cash provided by operating activities before changes in operating assets and liabilities. It defines EBITDA as net income (loss) before income tax (benefit) expense, interest expense and depreciation, depletion and amortization. Adjusted EBITDA, as presented herein, is EBITDA excluding interest income, realized gains on out-of-period derivative contract settlements, (gain) loss on sale of assets, transaction costs, loss on extinguishment of debt and other various non-cash items (including noncontrolling interest, stock-based compensation, unrealized (gain) loss on derivative contracts, provision for doubtful accounts and inventory obsolescence).

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 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, 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 (loss applicable) income available to common stockholders, which excludes unrealized (gain) loss on derivative contracts, realized gains on out-of-period derivative contract settlements, transaction costs, loss on extinguishment of debt and (gain) loss on sale of assets from net income available (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 (loss applicable) income available to common stockholders is not a measure of financial performance under GAAP and should not be considered a substitute for net income available (loss applicable) to common stockholders.

The tables below reconcile the most directly comparable GAAP financial measures to operating cash flow, EBITDA and adjusted EBITDA, and adjusted net (loss applicable) income available to common stockholders.

Conference Call Information

The company will host a conference call to discuss these results on Friday, August 5, 2011 at 8:00 am CDT. The telephone number to access the conference call from within the U.S. is 866-271-5140 and from outside the U.S. is 617-213-8893. The passcode for the call is 65105088. An audio replay of the call will be available from August 5, 2011 until 11:59 pm CDT on September 5, 2011. The number to access the conference call replay from within the U.S. is 888-286-8010 and from outside the U.S. is 617-801-6888. The passcode for the replay is 62166030.

A live audio webcast of the conference call also will be available via SandRidge's website, www.sandridgeenergy.com, under Investor Relations/Events.   The webcast will be archived for replay on the company's website for 30 days.

Conference Participation

SandRidge Energy, Inc. will participate in the following upcoming events:

• August 8, 2011 – Tuohy Brothers' 2nd Annual Nat Gas Infrastructure & Production One-on-One Conference; New York, NY
• August 10, 2011 – Tudor, Pickering, Holt & Co., 2011 Hotter 'N Hell Energy Conference; Houston, TX
• August 16, 2011 – Enercom's The 2011 Oil & Gas Conference™; Denver, CO
• August 17, 2011 – Summer NAPE E&P Conference; Houston, TX
• August 31, 2011 – Simmons & Company International, 2011 European Energy Conference; Scotland, UK
• September 7, 2011 – Barclays Capital, 2011 CEO Energy Conference; New York, NY
• September 21, 2011 – Deutsche Bank, 2011 Energy Conference; Boston, MA
• September 27, 2011 – IHS Herold, 20th Annual Pacesetters Energy Conference; Stamford, CT
• October 5, 2011 – Johnson Rice & Co., 2011 Energy Conference; New Orleans, LA
• October 11, 2011 – Deutsche Bank, 19th Annual Leveraged Finance Conference; Scottsdale, AZ

At 8:00 am Central Time on the day of each presentation, the corresponding slides and webcast information will be accessible on the Investor Relations portion of the company's website at www.sandridgeenergy.com. Please check the website for updates regularly as this schedule is subject to change. Also, please note that SandRidge Energy, Inc. intends for its website to be used as a reliable source of information for all future events in which it may participate as well as updated presentations regarding the company. Slides and webcasts (where applicable) will be archived and available for at least 30 days after each use or presentation.

Third Quarter 2011 Earnings Release and Conference Call

November 3, 2011 (Thursday) – Earnings press release after market close

November 4, 2011 (Friday) – Earnings conference call at 8:00 am CST

For further information, please contact:

Kevin R. White
Senior Vice President
SandRidge Energy, Inc.
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
(405) 429-5515

Cautionary Note to Investors - This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, the information appearing under the heading "Operational Guidance."  These statements express a belief, expectation or intention and are generally accompanied by words that convey projected future events or outcomes.  The forward-looking statements include projections and estimates of leverage, net income, drilling rigs operating, drilling locations, funding, oil and natural gas production, derivative transactions, shares outstanding, pricing differentials, operating costs and capital spending, tax rates, and descriptions of our development plans.  We have based these forward-looking statements on our current expectations and assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances.  However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties, including the volatility of oil and natural gas prices, our success in discovering, estimating, developing and replacing oil and natural gas reserves, actual decline curves and the actual effect of adding compression to gas wells, the availability and terms of capital, the ability of counterparties to transactions with us to meet their obligations, our timely execution of hedge transactions, credit conditions of global capital markets, changes in economic conditions, the amount and timing of future development costs, the availability and demand for alternative energy sources, regulatory changes, including those related to carbon dioxide and greenhouse gas emissions, and other factors, many of which are beyond our control.  We refer you to the discussion of risk factors in Part I, Item 1A -  "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2010 and in comparable "risk factors" sections of our Quarterly Reports on Form 10-Q filed after the date of this press release.  All of the forward-looking statements made in this press release are qualified by these cautionary statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on our company or our business or operations.  Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements.  We undertake no obligation to update or revise any forward-looking statements.

SandRidge Energy, Inc. is an oil and natural gas company headquartered in Oklahoma City, Oklahoma with its principal focus on exploration and production. SandRidge and its subsidiaries also own and operate gas gathering and processing facilities and CO2 treating and transportation facilities and conduct marketing and tertiary oil recovery operations. In addition, Lariat Services, Inc., a wholly-owned subsidiary of SandRidge, owns and operates a drilling rig and related oil field services business. SandRidge focuses its exploration and production activities in the West Texas Overthrust, Permian Basin, Mid-Continent, Cotton Valley Trend in East Texas, Gulf Coast and the Gulf of Mexico. SandRidge's internet address is www.sandridgeenergy.com.

SOURCE SandRidge Energy, Inc.