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spk00: Good day and thank you for standing by. Welcome to the Sand Ridge Energy second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I now like to hand the conference over to your speaker today, Mr. Pressridge, Director of Finance and Investor Relations. Please go ahead.
spk03: Thank you, and good morning, everyone. With me today are Grayson Prannon, our Chief Executive Officer and Chief Operating Officer, Salah Ghamidi, our Chief Financial Officer and Chief Accounting Officer, and Dean Parrish, our Vice President of Operations. Other members of the management team are joining us this morning as well. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty. Actual results may differ materially from those projected in these four looking statements. 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 morning. Hopefully you've had time to review the earnings release we posted yesterday after the market closed. For the last couple of years, and particularly over the last 15 months, Board of Management have worked to transform our company in almost all respects. This transformation of focusing our application, streamlining our organizational and cost factors, more than a full list of net debt to net cash, a position the company well has been a tip in the tailwind of recent commodity price improvements. To include an expanded capital program to reactivate over 100 wells in the second half of this year. Before discussing any points in more detail, Bob will touch on a few highlights from the second quarter, Greg. Thank you, Grayson. Simply put, 2Q21 was a strong quarter. Despite no new drilling or completion activities, our mid-continent daily average production increased from 17,500 BOE per day last quarter to 19,000 BOE per day this quarter. and was flat compared to Q4 of 2020. The quarter-over-quarter growth was driven in part by the reactivation of 49 wells that curtailed during last year's commodity price downdrafts. During the quarter, our cash and cash equivalents balance, including restricted cash, increased to $90.6 million, a $14 million increase from the prior quarter primarily as a result of higher production, higher commodity price realizations, and our continued focus on cost minimization, and despite being offset by the acquisition of the ORIs held by the Sanford Mississippian Trust One for a purchase price of $4.9 million. Total debt outstanding remained at $20 million with the minimum interest expense during the first half of 2021. Despite closing on the sale of our North Park Basin assets, during the first quarter of this year, our adjusted EBITDA remained relatively flat from the prior quarter at $20.8 million compared to $21.7 million. For reasons I'll discuss in a moment, I'd like to point out that our EBITDA has very little I and no federal income taxes affecting T. Commodity price realizations remain strong over the quarter at $64.73 per barrel for oil, $1.66 per MCF for gas and $17.33 per BOE of NGLs. I would like to remind our investors that these figures represent 2Q averages and do not reflect movements made in benchmark commodity prices over the last several months in the third quarter. As I alluded to earlier, regarding our EBITDA, we have maintained our large NOL position, which was over $1.6 billion as of the end of the second quarter of 2021. Our NOL position has and will continue to allow us to shield our future cash flows from federal income taxes. Our cost discipline continued to improve during the quarter with previously implemented initiatives further manifesting in our financials. partially offset by an increase in work over activity associated with well reactivations this quarter adjusted gna was approximately 2 million dollars or 1.13 per boe and 3.8 million or 1.14 per boe for the first half of the year the team also held loe and expense workovers to 9.2 million dollars or 5.33 per boe during the quarter while also reactivating 49 wells over the first half of the year. This level of LOE should be sustainable going forward, even with an expanded planned well reactivation program in the second half of the year. We believe we can pair favorably with our peers on both GNA and LOE on a per-BOE basis. Also, it's relatively rare for an E&P company to generate net income. We did that, however, for the last two quarters, earning net income of approximately $16 million for this quarter and $51 million over the first half of the year, which included an almost $20 million gain on the sale of North Park Basin. Also in the rarity category, we had no oil and gas impairments for the second consecutive quarter. Another notable item during the first half of 2021 was the simplification of our asset base. We exited North Park Basin in February are higher-declined, higher-cost assets. We are now focused solely on our core, long-lived, predominantly PDP mid-con properties and no longer engage in the routine flaring of produced natural gas. As discussed previously, during the quarter, we purchased for $4.9 million in cash all the overriding royalty interest assets of Sanford Mississippian Trust I. When that trust, along with Mississippi and Trust II, ultimately liquidate, our company will no longer have any affiliated trusts. Finally, our board has approved the initiation of a share repurchase program as a means of opportunistically returning capital to shareholders. As a result, the company may purchase up to $25 million worth of its outstanding common stock beginning as early as August 16th, 2021. We should note, that the release posted yesterday and the 10-Q that we will file later today provide further detail on our financial and operational performance during the second quarter and first half of 2021. Thank you, Bob. It's thought to be helpful to walk through some of the company's highlights, management strategy, and other business details. Over the last few years, the Board of Management has focused the company's assets, optimized production profiles, streamlining its organization and cost structure, and strengthening its balance sheet. With the divestment of North Park in February of this year, the asset base is now focused in the mid-continent region, with primarily PDT wells that do not require any routine funding to produce gas. These well-listed assets form a fully qualified production, a long history of shallowing and diversified production We have little to no substantial future geologic reservoir or materially concentrated capital risk across the producing assets. Some of the points of these assets are long histories and long wins. Double-sended reserve lights enable high-res production history to aid in production. More than 1,000 miles each of owned and operated SED and electric infrastructure over our footprint. This substantial owned and integrated infrastructure provides companies with cost and strategic advantages, bolstering asset operating margins through reduced lifting, as well as water handling and disposal costs, while de-risking positive pre-cash. In addition, the interconnectivity and ample capacity help buffer against unforeseen curtailment. Shallow decline. began this year with base profile decline expectations of the upper team, which are anticipated to extend further to the low team, driven in part to our well reactivation and workover program. Diversified production profiles, both from a gas liquid hydrocarbon mix perspective and an over 975 reducing well base perspective. High interest in mostly HDP, which aids break-evens and make spending commitments in minutes. As a result of this focus in MidCon, the company was able to increase quarter-over-quarter production from 17.5 to 19 MDOE per day, despite no new drilling before completion, driven in part by the reactivation of 49 wells through the workshop this year. Our apps have robust free cash flow capabilities which contributes to the increase of $14 million of cash this quarter, now totaling over $90 million. Our high ECOSAW free cash flow conversion is aided by our low per VOV cost structure and one cap as well as improving commodity prices and realization. This cash generation potential provides several paths to increase shareable value. This all sums up to, at the 9X trip, we've developed PD10 reserve bodies that easily approximate more than 320 million. And we have begun to build on that by, one, extending and flattening our production profile with high rate return projects and well reactivation. We plan to reactivate another 100 wells in the second half of this year. Two, actively managing our realizations and further reducing costs. Three, growing our asset base with opportunistic, economic needs, and free cash well-appreciated acquisitions. Four, maintaining an appropriate level of exposure to commodity upside. As we realize value generates cash, our report is committed to utilizing our assets, including our cash, to maximize shareholder value. SandRidge is a value proposition, and it's here we see from a financial perspective our strength and balance sheet for above net cash position, financial flexibility, and over $1.6 billion in annual wealth. Further, the company is not subject to MBCs or other significant off-balance sheet financial conditions. And with the recent purchase of the overriding world interest asset, SandRidge Mississippi and Trust won during the quarter, we have simplified our operating net. Our goal for strategy is to grow the cash value and generation capability of our business in a safe, responsible, efficient manner while remaining disciplined for value-created opportunities. This strategy has four points. Again, you'll hear me echo our plan to maximize the cash value and generation capacity of our incumbent NITCON PDP app at five. Extending and flattening our production profile to privately-returned, work-over, and well-read applications. Actively managing marketing options to maximize price relocation. Continue to trust on operating and administrative costs. The second is to ensure we convert as much EBITDA as we can to our costs through capital disciplines, and investing in projects and opportunities that have high risk-adjusted fully driven rates of return. The third is to keep digitalized and maintain optionality for opportunistic value-increased acquisitions. We'll focus on PDP-weighted assets that support competency and production optimization, have sufficient midstream optionality, and are in a favorable regulatory area. The final clause is to uphold our ESG responsibility. In regard to cost discipline, over the last several years, the Board of Management has implemented measures that have led to an absolute and per BOD reduction in LODs of 70% and more than 30% respectively since 2016. We will continue to press on operating costs. However, we anticipate expenses, explicitly work over expenses, will increase in the interim as we reactivate more wells over the remainder of the year. Fundamental to our culture has been a deliberate shift of what if, what is, organization. And as a result, we have tailored our organization to a PDP and cash flow focused structure to be more fit for purpose. This change has rebalanced the building of skilled versus corporate personnel to reflect where we actually see value and outsource necessary but more perfunctory and less for the functions such as operations accounting, land administration, IT, tax, and HR. Beyond the more than $6 million in per-year G&A savings, outsourcing provides us greater flexibility and scalability to adjust to the changes in our business or the market. In regard to production optimization, we focused on relatively low, quick payback, and high-return workovers over the last year. and have enjoyed success in our execution. We are purposefully disciplined in our approach as we work to de-level our balance sheet, expand our liquidity, and capital access over the latter part of 2020. Now, with a much stronger balance sheet and liquidity position, as well as vastly improved and firming price realizations, we plan to more aggressively pursue initiatives that will further flatten our already shallowing base decline. Over the first half of the year, we brought back online 49 wells, which collectively added 1,500 gross barrels of equipment per day and delivered over 100% rate of return. We plan to expand this program in the second half of this year, targeting over 100 wells for reactivation. Projected economics for this well set are now also over 100% rate of return. In addition, we will plan to convert a subset of these wells to more efficient long-term artificial list method which will likely reduce their go for cost well reactivation projects are the highest risk-adjusted returns in the company's inventory unlike drilling there's very little relative geologic reservoir mechanical or risk concentration recently we have filed two recompletion permits to the oswego and red fork formations in legacy vertical wells Initial work is scheduled for this year and tested pressure as well as oil and gas composition will bear influence on completion of capital decisions. We will continue to evaluate the opportunity for these types of relatively low capital, high return projects across our almost 375,000 acre footprint to help further thin declines in the future. Our performance continues to exceed the expectation that we laid out earlier this year. As we discussed previously, this outperformance is driven by material uplift and realized prices, combining with successful well reactivations earlier this year. We plan to expand this well reactivation program by bringing on an additional 100 wells over the second half of this year. As such, we are adjusting our guidance to better reflect the uplift in production, increasing the midpoint of guidance by over 15%. as well as the associated increase in capital and expense needed to do so. Please note that while expense is estimated to be up and increase on an absolute basis, it is not increasing on a per unit basis, demonstrating that we are bringing on more production cost-effectively. Please note that the revised guidance does not budget for joining at this time, as we will focus on our well reactivation program near term and do so in a safe, efficient, and cost-effective manner. We will continue to evaluate opportunities for drilling, strengthening prices, firming around the current spot or above. In summary of the company and its assets' current strengths, we have low overhead, top-tier G&A of $1.37 per BOE in the first half of 2021. We have low operating costs benefiting from a large S&D and electrical infrastructure, requiring little to no future capital to maintain. A substantial free cash flow and a growing net position supported by a diverse production profile, low-decline, multi-digit life asset base. Inventory of low-cost, high-return well reactivation will help flatten production declines. No routine flaring of produced natural gas, among other factors. This concludes our prepared remarks. Thank you for your time. We'll now open the call to questions.
spk00: As a reminder, to ask a question, you need to press Star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question we'll find of Noel Parks with TUI Brothers Investors.
spk03: Hello? Yes, I know. Oh, hi. I wish you could hear me. Thanks for all the detail in the update. A couple of things. You're talking about converting to more efficient artificial lift. Are those like rod pump conversions or? Yes, we're converting from the initial artificial lift which were predominantly ESP or gas lifts to a long-term artificial lift system, which is either rod pumps or plunger lifts. Great. Okay, thanks. And I was – it's been a terrific time to – to be unhedged given the upswing we've seen in commodity prices the last couple of quarters. And could you just refresh my memory? Did you monetize some 2021 hedges at some point earlier in the year? I know, yes, this is Salah. We did end up doing that. We monetized our hedges in 4Q of 21, or 4Q of 20, I'm sorry. Okay, thanks. And... I was just curious, in your program of returning wells to production, are there any third-party infrastructure issues that are standing in the way of returning any of the wells? I guess with better commodity prices, especially on the gas and NGO side, I was wondering Just thinking about the possibility of infrastructure getting a little bit more taxed than it's been in recent times. No, Noel. That's the benefit of having an owned and operated large infrastructure system, and we're better able to take advantage of the ample capacity that we have in each of those systems. Okay, great. And I think my last one. Just thinking about the transaction environment, we've seen a lot of activity across a number of different basins. And just thinking about in the mid-con, particularly conventional reservoirs, are there PE-backed private players still out there in your area? I'm just curious if among those, if any of them also are spending a significant capex these days. Sure, yes. There continues to be private equity players in and around VidCon. We like to remain wide-eyed to both their operations as well as public company operations just so that we can benchmark our performance relative to them And we think that we compare favorably. In addition, you know, we remain vigilant and research, you know, potential for opportunities in the market and mid-com and are really just looking for something that's the appropriate fit at the right price. I hope I've addressed that question correctly. Great. Thanks a lot. That's all I had.
spk00: Here's our next question line of Brett Higgerson with Nokids Capital.
spk02: Hey, it's Brett with Nokids Capital. Thanks for taking the question. And I'd love to follow up with you guys offline on this maybe. But congrats on what looks like a really high return reactivation program. I am assuming that you guys are probably – You're a pretty rational actress. I imagine you did the best reactivations first in the 49, or are they more linear in terms of the uptick that you get from an incremental reactivation on the next 100? Just any color would be appreciated.
spk03: Sure. It's a mix. There was a subset up there that didn't require any well interventions or workovers, so it's just a matter of going on and turning on the well. So those got turned on quickly. We did go in in high grade, and as we've had continued price uplifts, we felt it was appropriate to bring on the next 100-well tranche in the back half of this year.
spk02: Okay, so you had some where they were just easy to turn on, but there might not have been much production. So then I guess the follow-up would be how many of the next 100, I think 30 of the first 49 required a workover, how many of the next 100 100 or so would require a workover, would you guess? A majority. A majority would. Okay. And remind me, what's the average cash cost on a workover?
spk03: These workovers vary. On average, they're about $65.
spk02: Okay. Good. Okay. Thank you very much. I'll follow up offline. Thank you. Appreciate it, Fred.
spk00: Again, as a reminder, if you would like to ask a question, please press star thing and number one on your telephone keypad. Again, that's star thing and number one. To ask a question, your next question might have Josh Young with Bison Interest.
spk01: Hey, guys. So a couple questions. One on the price realizations. It looks like the realizations for gas and NGLs weren't up that much, even though the headline price for those commodities were up – or I guess if you could help reconcile kind of where that difference is and if there are any opportunities to improve your realizations versus the other houses.
spk03: Yeah, thanks, Josh, and good morning. I'll touch on a few points, and then I'll turn it over to Fla to reinforce some others. So we've seen improvement in realizations since last year, We're focused on further improving these realizations by actively working with our largest purchasers. In addition, we believe that as the benchmark increases, sand realization will also improve as the fixed cost components are less impactful, subject to change in local market conditions. Rob? That's correct. One thing we just wanted to make sure that everybody was, and Josh, I know you are, but just all of our listeners are aware of, is that TQ of 21, the commodity prices, the posted commodity prices, they weren't as gangbusters as they have been in the third quarter. So I know there's a lot of excitement about where Henry Hub is going and things like that, but we still saw, certainly we saw commodity price improvements from the prior year, and just as Grace had said, we continue to expect that the realizations we'll continue to improve as we go along here. So, um, with our efforts on the marketing side as well, fixed cost component, the grids and speaking, I would think that we'll see that.
spk01: Great. Okay. That's helpful. Thanks. And then my other question is on, um, it looks like there are a couple of, uh, drilling permits that were filed for you guys. Are those work over wells or new wells? And then I guess, uh, it, To the extent that they aren't, to the extent they're just kind of workovers that require rigs, is there a price that you guys are tracking where you see new wells in drilling your PUDs? Is there a break-even price that you'd track where at a certain price or higher, it would start to become economic and a compelling call for capital to start drilling new Mississippi land wells?
spk03: Yes, thanks, Josh. You may have heard it during the call, but the two re-completions that I mentioned are related to the permitted question. And they're looking at testing the Azuago and Red Fork in existing vertical wells. As I mentioned, we're really focused on what's the highest risk adjusted return in our inventory right now, which are the well reactivations. We remain focused on potential for drilling opportunities. And I think you can see us lean into that as prices firm around current spots are greater. Right now we do have inventory that's economic, but you'll see us be a little bit more conservative in ensuring that we deliver a very high risk adjusted, fully burdened return out to the shareholders as we realize those success. We're not going to drill in low double-digit return properties.
spk01: Got it. That's really helpful. And then just one quick follow-on on that. It looks like you guys amended your credit agreement to be able to start to hedge if you choose to. You did a great job. in covering your hedges at a cost and took a market kind of penalty for that late last year that we saw in filings this year. Do you guys have plans to hedge or could you kind of clarify a little bit in terms of like what the thinking there is in getting that change in the credit agreement?
spk03: Yeah, Josh, the change in the credit agreement really was administrative in nature in the sense that we wanted to be able to enter and exit hedges in the normal course. The way that the credit agreement was structured, it made that difficult, and so we discussed that with our lender and got that asked. With that said, we'll always continue to look at the potential for hedging, especially as our capital program here has been increased, and we'll continue evaluating that, but the change in the credit agreement in and of itself was really just allowing us to act in the normal course as any other typical E&P company would.
spk01: Got it. Great. Thank you.
spk00: Again, if you would like to ask a question, please press star then your number one on your telephone keypad. Again, that's star then your number one to ask a question in your next question. My name is Michael Melby with Gate City Capital Market.
spk04: Hey, good morning, and congrats on the good results. Could you update us? You had a nice slide last quarter on your infrastructure assets, and I appreciate the update here. Could you talk about any other strategic or other ways you might be looking to gain value off of your infrastructure assets? Thanks.
spk03: Yeah, good morning, Michael. Thank you for the question. You know, that's something that we continue to evaluate. We have the benefit of having that large infrastructure position, and we're always looking at ways to you know, increased profitability or capital around them. But I don't have anything to report out today.
spk04: Got it. Thanks. And the share repurchase was nice to see. I guess my understanding is with a dividend, you could deliver capital back without in a tax-efficient way, I guess I should say. Could you talk about your decision for share repurchases versus a dividend? Thanks.
spk03: Thanks, Michael. That's a great question. The way that we saw it is upon implementing the program and reviewing the tax figures internally, we still believe as a company that there still is a value disconnect between our share price and our intrinsic value. And so we thought it would be prudent to allocate capital in such a way that We give our investors the highest return. And when we reviewed that, buying back their own stock could potentially be an avenue for that. I'd also like to point out that the share and purchase program is completely at our discretion. It is a 10B18 program, which allows us to purchase when and where we want and how much. And so the $25 million that's approved is an up-to amount. And we will, you know, evaluate each one of those decisions in isolation as we go. Got it. Thanks.
spk00: Again, if you would like to ask a question, please press starting at number one on your telephone keypad. Again, that's starting at number one to ask a question. And there are no other questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
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