How SandRidge Energy hopes to survive

As SandRidge Energy leaders deal with a fourth quarter net loss of $249 million or $7.01 a share and resulting downsizing of their workforce,  they are still considering a merger with another company. It might be a way to survive in the bumpy world of oil and gas.

It’s what John Suter, Interim President and CEO explained in the company’s recent earnings call after the company released its fourth quarter report.

“We intend to efficiently run the business and deliver on our forecast and guidance numbers as we did during 2019,” promised Suter. “Additionally, we continue to evaluate merger and acquisition opportunities.”

He offered no other details about any possible merger, but admitted 2019 was a “challenging year for SandRidge.” The company recently cut its downtown Oklahoma City headquarters workforce from 120 to 57.

However, Suter found some “fortunate” aspects of his company’s financial challenges in 2020. One of those “fortunates” is that even with commodity price changes and lower cash flow for SandRidge, “we have minimum leverage and debt serving commitments relative to the industry.”

Another of the “fortunates” as described by Suter is the minor investments for SandRidge that “still generate good returns and short payouts at current prices.

“Fortunately, we have no long-term contracts or other commitments that obligate us to a drilling program until we’re ready.”

Suter might have understated the company’s economic challenges when he said the firm was “rigorously seeking opportunities to reduce the cost structure of our business.”

He said SandRidge has made and will continue to cut general and administrative costs. It created 2020 plans to reduce lease operating expenses b y just below 20% from 2019.  Sutor told the earnings call that the general and administrative costs will improve from 29 million in 2019 to 19 million for 2020 at midpoint of guidance, a decrease of $10 million or 34%.

How effective will those plans be in keeping SandRidge afloat?

“This all leads to a plan that should generate positive cash flow and maintains optionality for selective capital spending should commodity prices normalize or for A&D as more and more distressed opportunities arise.”

The company’s 2020 guidance plans were based on $53 a barrel oil and $2.15 per Mcf with continued low NGL realization. Any spending will be focused on existing producing well projects that “have robust economics in this environment.”

For SandRidge, 2020 is about about “maximizing, maximizing and maximizing cash flow.”

Leaders expect their company’s oil production to drop to 8.2 Boe at the midpoint while capital expenditures could be in the range of $25 to $30 million as the company focuses on high return projects with quick payouts. It also means an anticipated reduction in lease costs from $91 million in 2019 to $75 million this year—a planned drop of 18%.

Observers probably shouldn’t expect much new Oklahoma drilling by SandRidge.

“For 2020, our capital budget guidance is focused on capital well work activity, but does include drilling two Northwest STACK wells that are in a key section where robust returns are expected even at today’s prices,” said Suter.

Most of the company’s 2020 capital expenditures on drilling will be in Colorado’s North Park where 16 of 30 new wells were brought online.

Source: Earnings call