UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 20, 2012
SANDRIDGE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware | 1-33784 | 20-8084793 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
123 Robert S. Kerr Avenue Oklahoma City, Oklahoma |
73102 | |||
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, including Area Code: (405) 429-5500
Not Applicable.
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01 | Other Events |
On June 20, 2012, a subsidiary of SandRidge Energy, Inc. (the Company) completed its acquisition from Hunt Oil Company, Hunt Chieftain Development, L.P., and Hunt Oil Company of Louisiana, Inc. of certain oil and gas properties consisting of 74 active wells and approximately 184,471 gross (102,864 net) acres located in the Gulf of Mexico (the Acquired Properties). The Company paid approximately $38.5 million for the Acquired Properties, subject to adjustments made in the ordinary course, which the Company funded from its cash balance, and assumed plugging and abandonment obligations related to the Acquired Properties.
SandRidge is filing this amendment (Amendment) to the Current Report on Form 8-K filed on June 22, 2012 to give effect to the acquisition of the Acquired Properties. The SandRidge pro forma financial information is filed as Exhibit 99.1 to this Amendment. SandRidge is also filing this Amendment to provide certain historical financial information about the Acquired Properties, which is filed as Exhibit 99.2.
Item 9.01 | Financial Statements and Exhibits |
(d) | Exhibits: |
23.1 | Consent of Hein & Associates LLP | |
99.1 | Pro Forma Financial Information. Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2012, Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2012, Unaudited Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 2012, Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2011 and related notes showing the pro forma effects of the acquisition of certain properties from Hunt Oil Company, Hunt Chieftain Development, L.P., and Hunt Oil Company of Louisiana, Inc. (the Hunt Acquisition Properties) | |
99.2 | Financial Statements of Businesses Acquired. Statements of Revenues and Direct Operating Expenses of the Hunt Acquisition Properties for the year ended December 31, 2011 (Audited) and for the Three Months Ended March 31, 2012 and 2011 (Unaudited) and related notes |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SANDRIDGE ENERGY, INC. (Registrant) | ||||||
Date: August 31, 2012 | By: | /s/ James D. Bennett | ||||
James D. Bennett | ||||||
Executive Vice President and Chief Financial Officer |
Exhibit Index
No. |
Description | |
23.1 | Consent of Hein & Associates LLP | |
99.1 | Pro Forma Financial Information. Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2012, Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2012, Unaudited Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 2012, Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2011 and related notes showing the pro forma effects of the acquisition of certain properties from Hunt Oil Company, Hunt Chieftain Development, L.P., and Hunt Oil Company of Louisiana, Inc. (the Hunt Acquisition Properties) | |
99.2 | Financial Statements of Businesses Acquired. Statements of Revenues and Direct Operating Expenses of the Hunt Acquisition Properties for the year ended December 31, 2011 (Audited) and for the Three Months Ended March 31, 2012 and 2011 (Unaudited) and related notes |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-180781 and 333-173185) and Registration Statements on Form S-8 (Nos. 333-177004, 333-160527, 333-155441 and 333-148299) of SandRidge Energy, Inc. of our report dated August 10, 2012 relating to the statements of revenues and direct operating expenses of the Hunt Acquisition Properties, which appear in this Current Report on Form 8-K.
/s/ HEIN & ASSOCIATES LLP HEIN & ASSOCIATES LLP Houston, Texas August 31, 2012 |
Exhibit 99.1
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information reflects the historical financial statements of SandRidge Energy, Inc. (SandRidge) adjusted on a pro forma basis to give effect to its acquisition of oil and natural gas properties from Hunt Oil Company, Hunt Cheiftain Development, L.P., and Hunt Oil Company of Louisiana, Inc. (collectively, Hunt). SandRidges historical results have also been adjusted to give effect to (i) the acquisition of Dynamic Offshore Resources, LLC (Dynamic) by SandRidge and SandRidges issuance of approximately 74.0 million shares of SandRidge common stock and $750.0 million aggregate principal amount of 8.125% Senior Notes due 2022, herein referred to as the financing transactions, to fund the acquisition of Dynamic and (ii) the conveyance of royalty interests in certain oil and natural gas properties (the Mississippian Trust II Royalty Interests) to SandRidge Mississippian Trust II by SandRidge. These transactions are described further below.
| Acquisition of Properties from Hunt. On June 20, 2012, SandRidge acquired oil and natural gas properties from Hunt for approximately $38.5 million, net of purchase price adjustments and subject to post-closing adjustments. The properties comprise approximately 184,000 gross (103,000 net) acres in the Gulf of Mexico (the Acquired Properties). |
| Dynamic Acquisition. On April 17, 2012, SandRidge completed its acquisition of Dynamic for approximately $1.2 billion, comprised of approximately $680.0 million in cash and approximately 74.0 million shares of SandRidge common stock, referred to herein as the Dynamic Acquisition. Dynamic is an oil and natural gas exploration, development and production company with operations in the Gulf of Mexico. |
| 8.125% Senior Notes due 2022. On April 17, 2012, concurrent with the closing of the Dynamic Acquisition, SandRidge issued $750.0 million aggregate principal amount of 8.125% Senior Notes due 2022 (the 8.125% Senior Notes). Net proceeds from the offering were approximately $730.1 million after deducting offering expenses, and were used primarily to finance the cash portion of the Dynamic Acquisition. |
| SandRidge Mississippian Trust II. On April 23, 2012, SandRidge Mississippian Trust II (the Mississippian Trust II), a newly formed Delaware statutory trust, completed its initial public offering of 29,900,000 common units representing beneficial interests in the Mississippian Trust II. Net proceeds to the Mississippian Trust II, after underwriting discounts and commissions, were $590.2 million. Concurrent with the closing, SandRidge conveyed the Mississippian Trust II Royalty Interests to the Mississippian Trust II in exchange for the net proceeds of the Mississippian Trust IIs initial public offering, which were further reduced by $3.1 million for a structuring fee paid to certain of the underwriters, and 19,825,000 units (7,393,750, common units and 12,431,250, subordinated units) representing approximately 39.9% of the beneficial interest in the Mississippian Trust II. The Mississippian Trust II Royalty Interests are in certain existing wells and wells to be drilled on oil and natural gas properties leased by SandRidge in the Mississippian formation in northern Oklahoma and southern Kansas within an area of mutual interest. SandRidge intends to use the net proceeds from the offering for general corporate purposes, which may include the funding of its drilling program. |
The unaudited pro forma condensed combined balance sheet is based on the unaudited March 31, 2012 SandRidge and Dynamic balance sheets and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition, the financing transactions and the conveyance of the Mississippian Trust II Royalty Interests as if those transactions occurred on March 31, 2012. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2012, provided to update the unaudited pro forma condensed combined statement of operations to the period most recently reported by SandRidge, is based on the unaudited statement of operations of SandRidge for the six months ended June 30, 2012, the unaudited statement of revenues and direct operating expenses of the Acquired Properties for the period of January 1, 2012 through June 20, 2012 and the unaudited statement of operations of Dynamic for the period of January 1, 2012 through April 17, 2012 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition, the financing transactions and the Mississippian Trust II Royalty Interests conveyance as if those transactions occurred on January 1, 2011. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2012 is based on the unaudited statement of operations of SandRidge, the unaudited statement of revenues and direct operating expenses of the Acquired Properties and the unaudited statement of operations of Dynamic for the three months ended March 31, 2012 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition, the financing transactions and the Mississippian Trust II Royalty Interests conveyance as if those transactions occurred on January 1, 2011. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 is based on the audited statement of operations of SandRidge, the audited statement of revenues and direct operating expenses of the Acquired Properties and the audited statement of operations of Dynamic for the year ended December 31, 2011 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition and the financing transactions as if they occurred on January 1, 2011. Additionally, the audited statements of operations of both SandRidge and Dynamic for the year ended December 31, 2011 have been adjusted for certain acquisition or divesture transactions, as further described below.
SandRidges historical results for the year ended December 31, 2011 have been adjusted on a pro forma basis to give effect to (i) its conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II (described above), (ii) the sale of certain producing properties located in eastern Texas (the East Texas Properties) and (iii) its conveyance of royalty interests in certain oil and natural gas properties located in Andrews County, Texas (the Permian Trust Royalty Interests) to SandRidge Permian Trust. SandRidges historical results have also been adjusted to give effect to SandRidges July 2010 acquisition of Arena Resources, Inc. (Arena), including all related adjustments, as if they had occurred prior to 2011. The sale of the East Texas Properties, the conveyance of the Permian Trust Royalty Interests and the acquisition of Arena are described further below.
| East Texas Sale. On November 14, 2011, SandRidge sold producing properties located on over 23,000 net acres in Gregg, Harrison, Rusk and Panola counties in Texas for an agreed upon price of $231.0 million (East Texas Sale). |
| SandRidge Permian Trust. On August 16, 2011, the SandRidge Permian Trust (the Permian Trust) completed its initial public offering of 34,500,000 common units representing beneficial interests in the Permian Trust. Net proceeds to the Permian Trust, after certain offering expenses, were $580.6 million. Concurrent with the closing, SandRidge conveyed the Permian Trust Royalty Interests to the Permian Trust in exchange for the net proceeds of the Permian Trusts initial public offering and 18,000,000 units (4,875,000 common units and 13,125,000 subordinated units), representing approximately 34.3% of the beneficial interest in the Permian Trust. The Permian Trust Royalty Interests conveyed to the Permian Trust are in certain oil and natural gas properties located in the Central Basin Platform of the Permian Basin in Andrews County, Texas and entitle the Permian Trust to a percentage of the proceeds from the sale of oil, natural gas and natural gas liquids production from currently producing wells and development wells to be drilled by SandRidge within an area of mutual interest. SandRidge used a portion of the net proceeds from the offering to repay borrowings under its senior credit facility and for general corporate purposes. |
| Arena Acquisition. On July 16, 2010, SandRidge completed the acquisition of all of the outstanding shares of common stock of Arena, referred to herein as the Arena Acquisition. In connection with the acquisition, SandRidge paid $4.50 in cash and issued 4.7771 shares of SandRidge common stock for each share of Arena common stock outstanding for a total value per share of $35.79, based upon the $6.55 closing price of SandRidge common stock on July 16, 2010, the closing date of the acquisition. The consideration received by Arena shareholders was valued at $1.4 billion in the aggregate. SandRidge was the surviving parent company after completion of the acquisition. Arena was an oil and natural gas exploration, development and production company with operations in Texas, Oklahoma, Kansas and New Mexico. In the second quarter of 2011, SandRidge completed its valuation of assets acquired and liabilities assumed related to the Arena Acquisition. |
Dynamics historical consolidated statement of operations for the year ended December 31, 2011 has been adjusted on a pro forma basis to give effect to its acquisition of certain oil and natural gas interests in the Gulf of Mexico as described further below.
| XTO Acquisition. On August 31, 2011, Dynamic acquired certain oil and natural gas interests in the Gulf of Mexico from XTO Offshore Inc. and other related subsidiaries of ExxonMobil Corporation (Exxon) for $173.5 million (the XTO Acquisition). The properties acquired comprise substantially all of the Gulf of Mexico assets that Exxon acquired as part of its acquisition of XTO Energy, Inc. in 2010 (the XTO Acquisition Properties). |
The pro forma adjustments reflecting: (i) SandRidges acquisition of properties from Hunt, (ii) the acquisition of Dynamic by SandRidge under the acquisition method of accounting, (iii) SandRidges conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II, (iv) SandRidges sale of the East Texas Properties, (v) SandRidges conveyance of the Permian Trust Royalty Interests to the Permian Trust, (vi) final adjustments recorded in 2011 related to SandRidges Arena Acquisition, and (vii) Dynamics acquisition of the XTO Acquisition Properties include the use of estimates and assumptions as described in the related notes. The pro forma adjustments are based on information available to management at the time these unaudited pro forma condensed combined financial statements were prepared. SandRidge believes the estimates and assumptions used are reasonable and the significant effects of the transaction are properly reflected. However, the estimates and assumptions are subject to change as additional information becomes available. The pro forma financial statements do not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies, synergies or other restructuring that could result from the acquisition of properties from Hunt or the Dynamic Acquisition. Additionally, the unaudited pro forma condensed combined statements of operations exclude the impact of non-recurring expenses SandRidge and Dynamic have incurred or will incur as a result of the acquisition of properties from Hunt, the Dynamic Acquisition and related financing, primarily non-capitalizable banking and legal fees, the bargain purchase gain and an income tax benefit resulting from a partial release of the valuation allowance on SandRidges deferred tax asset. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 also excludes certain non-recurring adjustments recorded in 2011 relating to SandRidges July 2010 acquisition of Arena.
The unaudited pro forma condensed combined financial information is for informational purposes only and is not intended to represent or to be indicative of the results that actually would have occurred had the transactions described above been completed as of the dates set forth in this unaudited pro forma condensed combined financial information and should not be taken as indicative of SandRidges future combined results of operations or financial position. Actual results may differ significantly from that reflected in the unaudited pro forma condensed combined financial information for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma condensed combined financial information and actual results. The unaudited pro forma financial information should be read in conjunction with the accompanying footnotes, SandRidges Quarterly Reports on Form 10-Q for the six months ended June 30, 2012 and three months ended March 31, 2012 and Annual Report on Form 10-K for the year ended December 31, 2011, the Permian Trusts Annual Report on Form 10-K for the year ended December 31, 2011, the Mississippian Trust IIs Quarterly Reports on Form 10-Q for the six months ended June 30, 2012 and three months ended March 31, 2012, Dynamics financial statements and related notes for the year ended December 31, 2011 included in SandRidges current report on Form 8-K filed on April 9, 2012 and for the three months ended March 31, 2012 included in SandRidges current report on Form 8-K filed on May 18, 2012, the unaudited Statements of Revenues and Direct Operating Expenses for the three months ended March 31, 2012 and 2011 and the audited Statements of Revenues and Direct Operating Expenses for the year ended December 31, 2011 for the Acquired Properties, both included in an exhibit to this current report, and other information that SandRidge has filed with the Securities and Exchange Commission.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2012
SandRidge Historical |
Dynamic Historical |
Dynamic Acquisition Pro Forma Adjustments |
SandRidge as Adjusted for Dynamic Acquisition |
Acquired Properties Pro Forma Adjustments |
SandRidge Mississippian Trust II Pro Forma Adjustments |
SandRidge Pro Forma Combined |
||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 127,842 | $ | 48,468 | $ | (48,468 | )(a) | |||||||||||||||||||||
23,862 | (b) | $ | 151,704 | $ | (38,593 | )(m) | $ | 587,087 | (q) | $ | 700,198 | |||||||||||||||||
Accounts receivable, net |
240,636 | 81,569 | | 322,205 | | | 322,205 | |||||||||||||||||||||
Derivative contracts |
7,526 | 22,967 | | 30,493 | | | 30,493 | |||||||||||||||||||||
Inventories |
9,491 | | | 9,491 | | | 9,491 | |||||||||||||||||||||
Costs in excess of billings |
1,621 | | | 1,621 | | | 1,621 | |||||||||||||||||||||
Notes receivable abandonments |
| 4,097 | 2,075 | (d) | ||||||||||||||||||||||||
(6,172 | )(e) | | | | | |||||||||||||||||||||||
Other current assets |
32,324 | 17,431 | (2,571 | )(c) | ||||||||||||||||||||||||
6,172 | (e) | 53,356 | | | 53,356 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
419,440 | 174,532 | (25,102 | ) | 568,870 | (38,593 | ) | 587,087 | 1,117,364 | |||||||||||||||||||
Oil and natural gas properties, net (full cost method) |
5,034,146 | | 1,180,776 | (e) | ||||||||||||||||||||||||
565,978 | (c) | 6,780,900 | 93,901 | (n) | | 6,874,801 | ||||||||||||||||||||||
Other property, plant and equipment, net |
576,668 | | 1,342 | (e) | 578,010 | | | 578,010 | ||||||||||||||||||||
Property and equipment, net |
| 1,182,118 | (1,182,118 | )(e) | | | | | ||||||||||||||||||||
Restricted deposits |
27,904 | | | 27,904 | | | 27,904 | |||||||||||||||||||||
Derivative contracts |
1,109 | 3,020 | | 4,129 | | | 4,129 | |||||||||||||||||||||
Goodwill |
235,396 | | | 235,396 | | | 235,396 | |||||||||||||||||||||
Notes receivable abandonments |
| 17,108 | (3,775 | )(d) | ||||||||||||||||||||||||
(13,333 | )(e) | | | | | |||||||||||||||||||||||
Other assets |
83,436 | 14,029 | (3,286 | )(f) | ||||||||||||||||||||||||
13,333 | (e) | |||||||||||||||||||||||||||
(9,243 | )(g) | |||||||||||||||||||||||||||
(10 | )(c) | |||||||||||||||||||||||||||
19,921 | (h) | 118,180 | | | 118,180 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 6,378,099 | $ | 1,390,807 | $ | 544,483 | $ | 8,313,389 | $ | 55,308 | $ | 587,087 | $ | 8,955,784 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||||||
Current maturities of long-term debt |
$ | 1,070 | $ | | $ | | $ | 1,070 | $ | | $ | | $ | 1,070 | ||||||||||||||
Accounts payable and accrued expenses |
601,785 | 64,758 | 51,498 | (e) | 718,041 | | | 718,041 | ||||||||||||||||||||
Billings and estimated contract loss in excess of costs incurred |
34,310 | | | 34,310 | | | 34,310 | |||||||||||||||||||||
Derivative contracts |
97,462 | | 20,238 | (e) | 117,700 | | | 117,700 | ||||||||||||||||||||
Asset retirement obligation |
32,906 | 74,433 | (8,228 | )(d) | 99,111 | 18,736 | (o) | | 117,847 | |||||||||||||||||||
Other current liabilities |
| 71,736 | (71,736 | )(e) | | | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
767,533 | 210,927 | (8,228 | ) | 970,232 | 18,736 | | 988,968 | ||||||||||||||||||||
Long-term debt |
2,813,484 | 345,000 | (345,000 | )(f) | ||||||||||||||||||||||||
750,000 | (b) | 3,563,484 | | | 3,563,484 | |||||||||||||||||||||||
Derivative contracts |
292,110 | | 3,627 | (e) | 295,737 | | | 295,737 | ||||||||||||||||||||
Asset retirement obligation |
100,126 | 295,637 | (45,919 | )(d) | 349,844 | 36,707 | (o) | | 386,551 | |||||||||||||||||||
Deferred income taxes |
| 42,561 | (42,561 | )(i) | | | | | ||||||||||||||||||||
Other long-term obligations |
13,787 | 9,525 | (3,627 | )(e) | ||||||||||||||||||||||||
(5,898 | )(g) | 13,787 | | | 13,787 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
3,987,040 | 903,650 | 302,394 | 5,193,084 | 55,443 | | 5,248,527 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Equity |
||||||||||||||||||||||||||||
SandRidge Energy, Inc. stockholders equity: |
||||||||||||||||||||||||||||
Preferred stock, $0.001 par value, 50,000 shares authorized |
||||||||||||||||||||||||||||
8.5% Convertible perpetual preferred stock; 2,650 shares issued and outstanding at March 31, 2012; aggregate liquidation preference of $265,000 |
3 | | | 3 | | | 3 | |||||||||||||||||||||
6.0% Convertible perpetual preferred stock; 2,000 shares issued and outstanding at March 31, 2012; aggregate liquidation preference of $200,000 |
2 | | | 2 | | | 2 | |||||||||||||||||||||
7.0% Convertible perpetual preferred stock; 3,000 shares issued and outstanding at March 31, 2012; aggregate liquidation preference of $300,000 |
3 | | | 3 | | | 3 | |||||||||||||||||||||
Common stock, $0.001 par value, 800,000 shares authorized; 416,478 issued and 415,544 outstanding (historical) and 490,440 issued and 489,506 outstanding (pro forma) |
401 | | 74 | (c) | 475 | | | 475 | ||||||||||||||||||||
Members capital |
| 487,157 | (487,157 | )(j) | | | | | ||||||||||||||||||||
Additional paid-in capital |
4,632,544 | | 541,964 | (k) | 5,174,508 | | | 5,174,508 | ||||||||||||||||||||
Treasury stock, at cost |
(6,617 | ) | | | (6,617 | ) | | | (6,617 | ) | ||||||||||||||||||
Accumulated deficit |
(3,169,153 | ) | | 105,819 | (c) | |||||||||||||||||||||||
| 94,415 | (i) | ||||||||||||||||||||||||||
| (13,026 | )(l) | (2,981,945 | ) | (135 | )(p) | | (2,982,080 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total SandRidge Energy, Inc. stockholders equity |
1,457,183 | 487,157 | 242,089 | 2,186,429 | (135 | ) | | 2,186,294 | ||||||||||||||||||||
Noncontrolling interest |
933,876 | | | 933,876 | | 587,087 | (q) | 1,520,963 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total equity |
2,391,059 | 487,157 | 242,089 | 3,120,305 | (135 | ) | 587,087 | 3,707,257 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and equity |
$ | 6,378,099 | $ | 1,390,807 | $ | 544,483 | $ | 8,313,389 | $ | 55,308 | $ | 587,087 | $ | 8,955,784 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited pro forma financial information.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
SandRidge Historical |
Dynamic Historical |
Dynamic Acquisition Pro Forma Adjustments |
SandRidge as Adjusted for Dynamic Acquisition |
Acquired Properties Historical (o) |
Acquired Properties Pro Forma Adjustments |
SandRidge Mississippian Trust II Pro Forma Adjustments |
SandRidge Pro Forma Combined |
|||||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||
Oil and natural gas |
$ | 771,123 | $ | 173,588 | $ | 1,229 | (a) | $ | 945,940 | $ | 28,232 | $ | | $ | | $ | 974,172 | |||||||||||||||
Drilling and services |
62,941 | | | 62,941 | | | | 62,941 | ||||||||||||||||||||||||
Midstream and marketing |
17,158 | | | 17,158 | | | | 17,158 | ||||||||||||||||||||||||
Other |
8,847 | 3,117 | | 11,964 | | | | 11,964 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total revenues |
860,069 | 176,705 | 1,229 | 1,038,003 | 28,232 | | | 1,066,235 | ||||||||||||||||||||||||
Expenses |
||||||||||||||||||||||||||||||||
Production |
205,791 | 48,721 | 17,697 | (b) | 272,209 | 11,519 | | | 283,728 | |||||||||||||||||||||||
Production taxes |
23,255 | | 752 | (b) | 24,007 | 462 | | | 24,469 | |||||||||||||||||||||||
Drilling and services |
36,802 | | | 36,802 | | | | 36,802 | ||||||||||||||||||||||||
Midstream and marketing |
16,513 | | | 16,513 | | | | 16,513 | ||||||||||||||||||||||||
Exploration |
| 2,864 | (2,864 | )(c) | | | | | | |||||||||||||||||||||||
Depreciation and depletion oil and natural gas |
226,326 | 55,177 | (2,086 | )(d) | ||||||||||||||||||||||||||||
(177 | )(e) | 279,240 | | 11,767 | (d) | | 291,007 | |||||||||||||||||||||||||
Depreciation, depletion and amortization other |
29,860 | | | 29,860 | | | | 29,860 | ||||||||||||||||||||||||
Accretion of asset retirement obligation |
10,572 | | 5,360 | (b) | ||||||||||||||||||||||||||||
1,853 | (f) | 17,785 | | 1,937 | (p) | | 19,722 | |||||||||||||||||||||||||
General and administrative |
112,017 | 9,989 | (3,250 | )(g) | ||||||||||||||||||||||||||||
(12,421 | )(h) | 106,335 | | (105 | )(h) | 250 | (q) | 106,480 | ||||||||||||||||||||||||
Gain on derivative contracts |
(415,204 | ) | | 28,922 | (b) | (386,282 | ) | | | | (386,282 | ) | ||||||||||||||||||||
Loss on sale of assets |
3,380 | | | 3,380 | | | | 3,380 | ||||||||||||||||||||||||
Other |
| 25,116 | (23,809 | )(b) | ||||||||||||||||||||||||||||
(1,307 | )(i) | | | | | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total expenses |
249,312 | 141,867 | 8,670 | 399,849 | 11,981 | 13,599 | 250 | 425,679 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Income from operations |
610,757 | 34,838 | (7,441 | ) | 638,154 | 16,251 | (13,599 | ) | (250 | ) | 640,556 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other income (expense) |
||||||||||||||||||||||||||||||||
Interest expense |
(135,534 | ) | (6,633 | ) | 6,633 | (j) | ||||||||||||||||||||||||||
(18,112 | )(j) | |||||||||||||||||||||||||||||||
(501 | )(j) | |||||||||||||||||||||||||||||||
10,875 | (k) | (143,272 | ) | | | | (143,272 | ) | ||||||||||||||||||||||||
Bargain purchase gain |
124,446 | | (124,446 | )(l) | | |||||||||||||||||||||||||||
Loss on derivative contracts |
| (28,922 | ) | 28,922 | (b) | | | | | | ||||||||||||||||||||||
Other income (expense), net |
2,387 | (3,387 | ) | | (1,000 | ) | | | | (1,000 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total other expense |
(8,701 | ) | (38,942 | ) | (96,629 | ) | (144,272 | ) | | | | (144,272 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Income (loss) before income taxes |
602,056 | (4,104 | ) | (104,070 | ) | 493,882 | 16,251 | (13,599 | ) | (250 | ) | 496,284 | ||||||||||||||||||||
Income tax benefit |
(103,587 | ) | (923 | ) | 104,251 | (m) | (259 | ) | | | | (259 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income (loss) |
705,643 | (3,181 | ) | (208,321 | ) | 494,141 | 16,251 | (13,599 | ) | (250 | ) | 496,543 | ||||||||||||||||||||
Less: net income attributable to noncontrolling interest |
100,958 | | | 100,958 | | | 11,429 | (r) | 112,387 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income (loss) attributable to SandRidge Energy, Inc. |
604,685 | (3,181 | ) | (208,321 | ) | 393,183 | 16,251 | (13,599 | ) | (11,679 | ) | 384,156 | ||||||||||||||||||||
Preferred stock dividends |
27,763 | | | 27,763 | | | | 27,763 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Income available (loss applicable) to SandRidge Energy, Inc. common stockholders |
$ | 576,922 | $ | (3,181 | ) | $ | (208,321 | ) | $ | 365,420 | $ | 16,251 | $ | (13,599 | ) | $ | (11,679 | ) | $ | 356,393 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per share available to SandRidge Energy, Inc. common stockholders |
||||||||||||||||||||||||||||||||
Basic |
$ | 1.34 | $ | 0.77 | $ | 0.75 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Diluted |
$ | 1.14 | $ | 0.68 | $ | 0.67 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Weighted average number of SandRidge Energy, Inc. common shares outstanding |
||||||||||||||||||||||||||||||||
Basic |
430,802 | 43,890 | (n) | 474,692 | 474,692 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Diluted |
530,378 | 43,890 | (n) | 574,268 | 574,268 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited pro forma financial information.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2012
SandRidge Historical |
Dynamic Historical |
Dynamic Acquisition Pro Forma Adjustments |
SandRidge as Adjusted for Dynamic Acquisition |
Acquired Properties Historical (o) |
Acquired Properties Pro Forma Adjustments |
SandRidge Mississippian Trust II Pro Forma Adjustments |
SandRidge Pro Forma Combined |
|||||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||
Oil and natural gas |
$ | 341,365 | $ | 143,792 | $ | 1,504 | (a) | $ | 486,661 | $ | 14,433 | $ | | $ | | $ | 501,094 | |||||||||||||||
Drilling and services |
29,309 | | | 29,309 | | | | 29,309 | ||||||||||||||||||||||||
Midstream and marketing |
8,306 | | | 8,306 | | | | 8,306 | ||||||||||||||||||||||||
Other |
2,655 | 2,874 | | 5,529 | | | | 5,529 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total revenues |
381,635 | 146,666 | 1,504 | 529,805 | 14,433 | | | 544,238 | ||||||||||||||||||||||||
Expenses |
||||||||||||||||||||||||||||||||
Production |
83,310 | 37,814 | 15,499 | (b) | 136,623 | 6,545 | | | 143,168 | |||||||||||||||||||||||
Production taxes |
12,254 | | 642 | (b) | 12,896 | 241 | | | 13,137 | |||||||||||||||||||||||
Drilling and services |
17,560 | | | 17,560 | | | | 17,560 | ||||||||||||||||||||||||
Midstream and marketing |
7,954 | | | 7,954 | | | | 7,954 | ||||||||||||||||||||||||
Exploration |
| 2,222 | (2,222 | )(c) | | | | | | |||||||||||||||||||||||
Depreciation and depletion oil and natural gas |
87,066 | 45,109 | 1,389 | (d) | ||||||||||||||||||||||||||||
(149 | )(e) | 133,415 | | 5,782 | (d) | | 139,197 | |||||||||||||||||||||||||
Depreciation, depletion and amortization other |
14,513 | | | 14,513 | | | | 14,513 | ||||||||||||||||||||||||
Accretion of asset retirement obligation |
2,607 | | 4,015 | (b) | ||||||||||||||||||||||||||||
2,038 | (f) | 8,660 | | 969 | (p) | | 9,629 | |||||||||||||||||||||||||
General and administrative |
50,301 | 7,511 | (2,444 | )(g) | ||||||||||||||||||||||||||||
(2,474 | )(h) | 52,894 | | | 250 | (q) | 53,144 | |||||||||||||||||||||||||
Loss on derivative contracts |
254,646 | | 33,838 | (b) | 288,484 | | | | 288,484 | |||||||||||||||||||||||
Loss on sale of assets |
3,080 | | | 3,080 | | | | 3,080 | ||||||||||||||||||||||||
Other |
| 21,463 | (20,156 | )(b) | ||||||||||||||||||||||||||||
(1,307 | )(i) | | | | | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total expenses |
533,291 | 114,119 | 28,669 | 676,079 | 6,786 | 6,751 | 250 | 689,866 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
(Loss) income from operations |
(151,656 | ) | 32,547 | (27,165 | ) | (146,274 | ) | 7,647 | (6,751 | ) | (250 | ) | (145,628 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other income (expense) |
||||||||||||||||||||||||||||||||
Interest expense |
(66,965 | ) | (2,960 | ) | 2,960 | (j) | ||||||||||||||||||||||||||
(15,234 | )(j) | |||||||||||||||||||||||||||||||
(422 | )(j) | |||||||||||||||||||||||||||||||
10,875 | (k) | (71,746 | ) | | | | (71,746 | ) | ||||||||||||||||||||||||
Loss on derivative contracts |
| (33,838 | ) | 33,838 | (b) | | | | | | ||||||||||||||||||||||
Other income (expense), net |
2,468 | (2,099 | ) | | 369 | | | | 369 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total other expense |
(64,497) | (38,897) | 32,017 | (71,377) | | | | (71,377) | ||||||||||||||||||||||||
(Loss) income before income taxes |
(216,153) | (6,350) | 4,852 | (217,651) | 7,647 | (6,751) | (250) | (217,005) | ||||||||||||||||||||||||
Income tax expense (benefit) |
71 | (920 | ) | 920 | (m) | 71 | | | | 71 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net (loss) income |
(216,224 | ) | (5,430 | ) | 3,932 | (217,722 | ) | 7,647 | (6,751 | ) | (250 | ) | (217,076 | ) | ||||||||||||||||||
Less: net income attributable to noncontrolling interest |
1,954 | | | 1,954 | | | 9,382 | (r) | 11,336 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net (loss) income attributable to SandRidge Energy, Inc. |
(218,178 | ) | (5,430 | ) | 3,932 | (219,676 | ) | 7,647 | (6,751 | ) | (9,632 | ) | (228,412 | ) | ||||||||||||||||||
Preferred stock dividends |
13,881 | | | 13,881 | | | | 13,881 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
(Loss applicable) income available to SandRidge Energy, Inc. common stockholders |
$ | (232,059 | ) | $ | (5,430 | ) | $ | 3,932 | $ | (233,557 | ) | $ | 7,647 | $ | (6,751 | ) | $ | (9,632 | ) | $ | (242,293 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss per share available to SandRidge Energy, Inc. common stockholders |
||||||||||||||||||||||||||||||||
Basic |
$ | (0.58 | ) | $ | (0.49 | ) | $ | (0.51 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Diluted |
$ | (0.58 | ) | $ | (0.49 | ) | $ | (0.51 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||
Weighted average number of SandRidge Energy, Inc. common shares outstanding |
||||||||||||||||||||||||||||||||
Basic |
400,597 | 73,962 | (n) | 474,559 | 474,559 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Diluted |
400,597 | 73,962 | (n) | 474,559 | 474,559 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited pro forma financial information.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
SandRidge Pro Forma Historical (Note 4) |
Dynamic Pro Forma Historical (Note 5) |
Dynamic Acquisition Pro Forma Adjustments |
SandRidge As Adjusted for Dynamic |
Acquired Properties Historical (o) |
Acquired Properties Pro Forma Adjustments |
SandRidge Pro Forma Combined |
||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Oil and natural gas |
$ | 1,187,259 | $ | 616,420 | $ | (3,050 | )(a) | |||||||||||||||||||||
(16,496 | )(b) | $ | 1,784,133 | $ | 87,112 | $ | | $ | 1,871,245 | |||||||||||||||||||
Drilling and services |
103,298 | | | 103,298 | | | 103,298 | |||||||||||||||||||||
Midstream and marketing |
66,690 | | | 66,690 | | | 66,690 | |||||||||||||||||||||
Other |
18,431 | | 16,496 | (b) | 34,927 | | | 34,927 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
1,375,678 | 616,420 | (3,050 | ) | 1,989,048 | 87,112 | | 2,076,160 | ||||||||||||||||||||
Expenses |
||||||||||||||||||||||||||||
Production |
309,367 | 133,094 | 58,087 | (b) | 500,548 | 28,780 | | 529,328 | ||||||||||||||||||||
Production taxes |
44,850 | | 797 | (b) | 45,647 | 1,353 | | 47,000 | ||||||||||||||||||||
Drilling and services |
65,654 | | | 65,654 | | | 65,654 | |||||||||||||||||||||
Midstream and marketing |
66,007 | | | 66,007 | | | 66,007 | |||||||||||||||||||||
Exploration expense |
| 15,085 | (15,085 | )(c) | | | | | ||||||||||||||||||||
Depreciation and depletion oil and natural gas |
311,306 | 203,457 | (21,041 | )(d) | ||||||||||||||||||||||||
(10,851 | )(e) | 482,871 | | 28,890 | (d) | 511,761 | ||||||||||||||||||||||
Depreciation and amortization other |
53,630 | | | 53,630 | | | 53,630 | |||||||||||||||||||||
Accretion of asset retirement obligations |
9,368 | | 15,028 | (b) | ||||||||||||||||||||||||
7,443 | (f) | 31,839 | | 3,876 | (p) | 35,715 | ||||||||||||||||||||||
Impairment |
2,825 | | | 2,825 | | | 2,825 | |||||||||||||||||||||
General and administrative |
150,143 | 24,400 | (9,279 | )(g) | 165,264 | | | 165,264 | ||||||||||||||||||||
Gain on derivative contracts |
(44,075 | ) | | (43,734 | )(b) | (87,809 | ) | | | (87,809 | ) | |||||||||||||||||
Gain on sale of assets |
(2,044 | ) | | (19 | )(b) | (2,063 | ) | | | (2,063 | ) | |||||||||||||||||
Other |
| 84,124 | (73,893 | )(b) | | | ||||||||||||||||||||||
(10,231 | )(i) | | | | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total expenses |
967,031 | 460,160 | (102,778 | ) | 1,324,413 | 30,133 | 32,766 | 1,387,312 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income from operations |
408,647 | 156,260 | 99,728 | 664,635 | 56,979 | (32,766 | ) | 688,848 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other income (expense) |
||||||||||||||||||||||||||||
Interest expense |
(234,200 | ) | (13,007 | ) | 13,007 | (j) | | | ||||||||||||||||||||
(60,938 | )(j) | | | |||||||||||||||||||||||||
(1,688 | )(j) | (296,826 | ) | | | (296,826 | ) | |||||||||||||||||||||
Loss on extinguishment of debt |
(38,232 | ) | | | (38,232 | ) | | | (38,232 | ) | ||||||||||||||||||
Gain on derivative contracts |
| 43,734 | (43,734 | )(b) | | | | | ||||||||||||||||||||
Bargain purchase gain |
| 282 | | 282 | | | 282 | |||||||||||||||||||||
Other income (expense), net |
970 | (145 | ) | | 825 | | | 825 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other (expense) income |
(271,462 | ) | 30,864 | (93,353 | ) | (333,951 | ) | | | (333,951 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income before income taxes |
137,185 | 187,124 | 6,375 | 330,684 | 56,979 | (32,766 | ) | 354,897 | ||||||||||||||||||||
Income tax expense (benefit) |
377 | (5,359 | ) | 5,359 | (m) | 377 | | | 377 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income |
136,808 | 192,483 | 1,016 | 330,307 | 56,979 | (32,766 | ) | 354,520 | ||||||||||||||||||||
Less: net income attributable to noncontrolling interest |
97,547 | 460 | | 98,007 | | | 98,007 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income attributable to SandRidge Energy, Inc. |
39,261 | 192,023 | 1,016 | 232,300 | 56,979 | (32,766 | ) | 256,513 | ||||||||||||||||||||
Preferred stock dividends |
55,583 | | | 55,583 | | | 55,583 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(Loss applicable) income available to SandRidge Energy, Inc. common stockholders |
$ | (16,322 | ) | $ | 192,023 | $ | 1,016 | $ | 176,717 | $ | 56,979 | $ | (32,766 | ) | $ | 200,930 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(Loss) earnings per share |
||||||||||||||||||||||||||||
Basic |
$ | (0.04 | ) | $ | 0.37 | $ | 0.43 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
Diluted |
$ | (0.04 | ) | $ | 0.37 | $ | 0.42 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
Weighted average number of common shares outstanding |
||||||||||||||||||||||||||||
Basic |
398,851 | 73,759 | (n) | 472,610 | 472,610 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Diluted |
398,851 | 81,553 | (n) | 480,404 | 480,404 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited pro forma financial information.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
On June 20, 2012, SandRidge acquired oil and natural gas properties from Hunt Oil Company, Hunt Cheiftain Development, L.P., and Hunt Oil Company of Louisiana, Inc. (collectively, Hunt) for $38.5 million, net of purchase price adjustments and subject to post-closing adjustments. The properties comprise approximately 184,000 gross (103,000 net) acres in the Gulf of Mexico (the Acquired Properties).
On April 23, 2012, SandRidge Mississippian Trust II (the Mississippian Trust II), a newly formed Delaware statutory trust, completed its initial public offering (IPO) of 29,900,000 common units representing beneficial interests in the Mississippian Trust II. Net proceeds to the Mississippian Trust II, after underwriting discounts and commissions, were $590.2 million. Concurrent with the closing, SandRidge conveyed certain royalty interests to the Mississippian Trust II in exchange for the net proceeds of the Mississippian Trust IIs IPO, which were further reduced by $3.1 million for a structuring fee paid to certain of the underwriters, and 19,825,000 units (7,393,750 common units and 12,431,250 subordinated units) representing approximately 39.9% of the beneficial interest in the Mississippian Trust II. The royalty interests conveyed to the Mississippian Trust II are in certain existing wells and wells to be drilled on oil and natural gas properties leased by SandRidge in the Mississippian formation in northern Oklahoma and southern Kansas within an area of mutual interest (the Mississippian Trust II Royalty Interests).
On February 1, 2012, SandRidge Energy, Inc. (SandRidge) and Dynamic Offshore Holding, LP (the Seller) entered into an Equity Purchase Agreement (the Equity Purchase Agreement) for SandRidge to acquire 100% of the outstanding equity interests of Dynamic Offshore Resources, LLC (Dynamic), a wholly-owned subsidiary of the Seller. On April 17, 2012, SandRidge completed its acquisition of Dynamic (the Dynamic Acquisition) for approximately $1.2 billion, comprised of approximately $680.0 million in cash and approximately 74 million shares of SandRidges common stock. Dynamic is an oil and natural gas exploration, development and production company with operations in the Gulf of Mexico.
In conjunction with the Equity Purchase Agreement, SandRidge secured $725.0 million in committed financing (the Bridge Loan) from Bank of America, N.A., SunTrust Bank and The Royal Bank of Scotland plc that was available for SandRidges use to fund the cash portion of the Dynamic purchase price. SandRidge incurred a $10.9 million fee in connection with securing the Bridge Loan. Rather than using the Bridge Loan, however, SandRidge issued $750.0 million of 8.125% Senior Notes due 2022 (the 8.125% Senior Notes) on April 17, 2012 to primarily fund the cash portion of the Dynamic purchase price. The pro forma effects of the 8.125% Senior Notes and common stock issuance, herein referred to as the financing transactions, have been reflected in the pro forma adjustments.
The unaudited pro forma condensed combined balance sheet is based on the unaudited March 31, 2012 SandRidge and Dynamic balance sheets and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition, the financing transactions and the conveyance of the Mississippian Trust II Royalty Interests as if those transactions occurred on March 31, 2012. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2012 is based on the unaudited statement of operations of SandRidge for the six months ended June 30, 2012, the unaudited statement of revenues and direct operating expenses of the Acquired Properties for the period of January 1, 2012 through June 20, 2012 and the unaudited statement of operations of Dynamic for the period of January 1, 2012 through April 17, 2012 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition, the financing transactions and the Mississippian Trust II Royalty Interests conveyance as if those transactions occurred on January 1, 2011. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2012 is based on the unaudited statement of operations of SandRidge, the unaudited statement of revenues and direct operating expenses of the Acquired Properties and the unaudited statement of operations of Dynamic for the three months ended March 31, 2012 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition, the financing transactions and the Mississippian Trust II Royalty Interests conveyance as if those transactions occurred on January 1, 2011. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 is based on the audited statement of operations of SandRidge, the audited statement of revenues and direct operating expenses of the Acquired Properties and the audited statement of operations of Dynamic for the year ended December 31, 2011 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition and the financing transactions as if they occurred on January 1, 2011. Additionally, the audited statements of operations for both SandRidge and Dynamic for the year ended December 31, 2011 have been adjusted for certain acquisition or divesture transactions.
The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2012, three months ended March 31, 2012 and year ended December 31, 2011 exclude the impact of non-recurring expenses SandRidge and Dynamic have incurred or will incur as a result of the acquisition of properties from Hunt, the Dynamic Acquisition and related financings, primarily banking and legal fees, the bargain purchase gain and an income tax benefit resulting from a partial release of the valuation allowance on SandRidges deferred tax asset. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 also excludes certain non-recurring adjustments recorded in 2011 relating to SandRidges July 2010 acquisition of Arena Resources, Inc. (Arena). SandRidges historical results for the year ended December 31, 2011 have been adjusted on a pro forma basis to give effect to (i) its conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II, (ii) the sale of certain producing properties located in eastern Texas (the East Texas Properties) and (iii) its conveyance of the royalty interests in certain oil and natural gas properties located in Andrews County, Texas (the Permian Trust Royalty Interests) to SandRidge Permian Trust (the Permian Trust). SandRidges historical results for the year ended December 31, 2011 have also been adjusted to give effect to final adjustments recorded in 2011 by SandRidge with respect to its July 2010 acquisition of Arena as if they had occurred prior to 2011. See Note 4 to the unaudited pro forma condensed combined financial statements for further discussion of these pro forma adjustments to the SandRidge historical statement of operations. Dynamics historical consolidated statement of operations for the year ended December 31, 2011 has also been adjusted on a pro forma basis to give effect to Dynamics 2011 acquisition of certain oil and natural gas interests in the Gulf of Mexico. See Note 5 to the unaudited pro forma condensed combined financial statements for further discussion of these pro forma adjustments to the Dynamic historical statement of operations.
SandRidge believes that the assumptions used in the preparation of these unaudited pro forma condensed combined financial statements provide a reasonable basis for presenting the effects directly attributable to the transactions described above. The unaudited pro forma financial information should be read in conjunction with the accompanying footnotes, SandRidges Quarterly Reports on Form 10-Q for the six months ended June 30, 2012 and three months ended March 31, 2012 and Annual Report on Form 10-K for the year ended December 31, 2011, the Permian Trusts Annual Report on Form 10-K for the year ended December 31, 2011, the Mississippian Trust IIs Quarterly Reports on Form 10-Q for the six months ended June 30, 2012 and three months ended March 31, 2012, Dynamics financial statements and related notes for the year ended December 31, 2011 included in SandRidges current report on Form 8-K filed on April 9, 2012 and for the three months ended March 31, 2012 included in SandRidges current report on Form 8-K filed on May 18, 2012, the unaudited Statements of Revenues and Direct Operating Expenses for the three months ended March 31, 2012 and 2011 and the audited Statements of Revenues and Direct Operating Expenses for the year ended December 31, 2011 for the Acquired Properties, both included in an exhibit to this current report, and other information that SandRidge has filed with the Securities and Exchange Commission.
Consolidation of the Trusts by SandRidge. In accordance with Accounting Standards Codification Topic 810, including the guidance in Accounting Standards Update 2009-17, SandRidge consolidates the activities of variable interest entities of which it is the primary beneficiary. SandRidge has determined that it is the primary beneficiary of the Permian Trust and began consolidating the activities of the Permian Trust with its results beginning in August 2011. Additionally, SandRidge has determined that it is the primary beneficiary of the Mississippian Trust II and began consolidating the activities of the Mississippian Trust II with its results beginning in April 2012. In consolidation, the royalty trust net income attributable to common units of the royalty trusts owned by third parties is reflected as noncontrolling interest. Accordingly, the pro forma impact of the Permian Trust and Mississippian Trust II Royalty Interests conveyances primarily are limited to giving effect to noncontrolling interest accounting.
Note 2. Pro Forma Adjustments Unaudited Pro Forma Condensed Combined Balance Sheet
The following adjustments were made in the preparation of the unaudited pro forma condensed combined balance sheet:
(a) | Adjustment to eliminate Dynamics cash balance, which was excluded from the assets acquired. |
(b) | In connection with the closing of the Dynamic Acquisition, SandRidge received funds, net of approximately $19.9 million in costs, associated with its issuance of $750.0 million principal amount of 8.125% Senior Notes. The net proceeds from the issuance were used to fund the cash portion of the Dynamic purchase price and to pay associated transaction costs of approximately $13.1 million with the remainder of the proceeds used for general corporate purposes. |
(c) | Adjustment to reflect consideration paid by SandRidge in the acquisition and adjustments to historical book values of Dynamics assets and liabilities as of March 31, 2012 to their estimated fair values, in accordance with the acquisition method of accounting. The following table reflects the preliminary allocation of consideration to the assets acquired and the liabilities assumed and the resulting bargain purchase gain based on the preliminary estimates of fair value (in thousands, except stock price): |
Consideration(1) |
||||
Shares of SandRidge common stock issued |
73,962 | |||
SandRidge common stock price |
$ | 7.33 | ||
|
|
|||
Fair value of common stock issued |
542,138 | |||
Cash consideration(2) |
680,000 | |||
Cash balance adjustment(3) |
13,091 | |||
|
|
|||
Total purchase price |
1,235,229 | |||
|
|
|||
Estimated Fair Value of Liabilities Assumed |
||||
Current liabilities |
136,494 | |||
Asset retirement obligation(4) |
315,922 | |||
Long-term deferred tax liability(5) |
94,415 | |||
Other non-current liabilities |
3,627 | |||
|
|
|||
Amount attributable to liabilities assumed |
550,458 | |||
|
|
|||
Total purchase price plus liabilities assumed |
1,785,687 | |||
|
|
|||
Estimated Fair Value of Assets Acquired |
||||
Current assets |
125,568 | |||
Oil and natural gas properties(6) |
1,746,753 | |||
Other property, plant and equipment |
1,342 | |||
Other non-current assets |
17,843 | |||
|
|
|||
Amount attributable to assets acquired |
1,891,506 | |||
|
|
|||
Bargain purchase gain(7) |
$ | (105,819 | ) | |
|
|
(1) | Consideration paid by SandRidge consists of 73,961,554 shares of SandRidge common stock and cash of approximately $680.0 million. The value of the stock consideration is based upon the closing price of $7.33 per share of SandRidge common stock on April 17, 2012 (the closing date of the acquisition). Under the acquisition method of accounting, the purchase price is determined based on the total cash paid and the fair value of SandRidge common stock issued on the acquisition date. |
(2) | Cash paid to Dynamic, including amounts paid to retire Dynamics long-term debt, was funded through a portion of the net proceeds from SandRidges issuance of $750.0 million of 8.125% Senior Notes. |
(3) | In accordance with the Equity Purchase Agreement, SandRidge remitted to the Seller a cash payment equal to the difference between Dynamics average daily cash balance for the 30-day period ending on the second day prior to closing and the actual cash balance on the second day prior to closing. This resulted in an additional cash payment by SandRidge of $13.1 million at closing. |
(4) | The estimated fair value of the acquired asset retirement obligation was determined using SandRidges credit adjusted risk-free rate. |
(5) | The deferred tax liability is a result of the difference between the estimated fair value and SandRidges expected tax basis in the assets acquired and liabilities assumed from Dynamic. |
(6) | The fair value of oil and natural gas properties acquired was estimated using a discounted cash flow model, with future cash flows estimated based upon estimated oil and natural gas reserve quantities and forward strip oil and natural gas prices as of April 17, 2012, discounted to present value using SandRidges risk weighted assessments for proved, probable and possible reserves and an industry-based weighted average cost of capital. |
(7) | The bargain purchase gain results from the excess of the fair value of the net assets acquired over the consideration paid, and as additional information becomes available, is subject to adjustment. |
(d) | Adjustment to Dynamics asset retirement obligation and related notes receivable balance as a result of calculating these amounts based on SandRidges credit adjusted risk-free rate. Based on applicable agreements, Dynamic is to be reimbursed specified amounts by sellers of oil and natural gas properties following the performance of decommissioning operations. These reimbursable amounts are presented as notes receivable abandonments. |
(e) | Adjustments to align the presentation of Dynamics assets and liabilities based on the asset and liability line items presented by SandRidge. |
(f) | Adjustment to reflect repayment of Dynamics outstanding long-term debt at closing pursuant to the terms of the Equity Purchase Agreement, as well as to eliminate the related unamortized debt issuance costs of $3.3 million. |
(g) | Adjustment to reverse the assets and liabilities related to natural gas imbalances recorded by Dynamic under the entitlement method. SandRidge uses the sales method of accounting for natural gas imbalances. |
(h) | Adjustment to reflect estimated deferred debt costs associated with the issuance of SandRidges 8.125% Senior Notes. See (b) above. |
(i) | Adjustment to recognize offset of newly created net deferred tax liability with SandRidges existing net deferred tax assets and the resulting release of approximately $94.4 million in the current valuation allowance against those existing net deferred tax assets and to adjust Dynamics deferred tax liability to $0 as a result of SandRidges net deferred tax asset. The release of the valuation allowance has been reflected as a credit to accumulated deficit in the accompanying unaudited pro forma condensed combined balance sheet, but has not been included in the accompanying unaudited pro forma condensed combined statements of operations due to its non-recurring nature. |
(j) | Adjustment to eliminate Dynamics historical members capital. |
(k) | Adjustment to reflect issuance of approximately 74.0 million shares of SandRidge common stock at $7.33 per share (closing stock price on April 17, 2012), net of par value and estimated issuance costs of approximately $0.1 million. |
(l) | Adjustment to reflect additional estimated costs related to the acquisition, including professional fees and employee severance. The additional expense has not been included in the accompanying unaudited pro forma condensed combined statements of operations due to its non-recurring nature. |
(m) | Adjustment to reflect cash consideration of $38.5 million to acquire oil and natural gas properties from Hunt and $0.1 million for associated transaction costs. |
(n) | Adjustment to reflect the fair value of oil and natural gas properties acquired, estimated using a discounted cash flow model, with future cash flows estimated based upon estimated oil and natural gas reserve quantities and forward strip oil and natural gas prices as of June 20, 2012, discounted to present value using SandRidges risk weighted assessments for proved reserves and an industry-based weighted average cost of capital. |
(o) | Adjustment to reflect the estimated fair value of the asset retirement obligation associated with the oil and natural gas properties acquired from Hunt using SandRidges credit adjusted risk-free rate. |
(p) | Adjustment to reflect estimated acquisition costs, including professional fees. The additional expense has not been included in the accompanying unaudited pro forma condensed combined statements of operations due to its non-recurring nature. |
(q) | Adjustment to reflect proceeds from the Mississippian Trust IIs issuance of 29,900,000 common units to third parties through its IPO at $21 per unit net of estimated underwriting fees, offering expenses and structuring fees. Net proceeds will be used for general corporate purposes and to fund SandRidges drilling program, which may include funding of SandRidges drilling obligation to the MississippianTrust II. |
Note 3. Pro Forma Adjustments Unaudited Pro Forma Condensed Combined Statements of Operations
The following adjustments were made in the preparation of the unaudited pro forma condensed combined statements of operations:
(a) | Adjustment to reverse the effect on revenues of natural gas imbalances recorded by Dynamic under the entitlement method. SandRidge uses the sales method of accounting for natural gas imbalances. |
(b) | Adjustments to align the presentation of Dynamics revenues and expenses based on the statement of operations line items and presentation utilized by SandRidge. |
(c) | Adjustment to eliminate expense related to unsuccessful exploration costs, geological and geophysical costs and delay rentals attributable to the development of oil and natural gas properties from Dynamics historical financial statements in accordance with the full cost method of accounting for oil and natural gas properties. SandRidge follows the full cost method of accounting for oil and natural gas properties while Dynamic followed the successful efforts method of accounting for oil and natural gas properties prior to its acquisition by SandRidge. Certain costs that are capitalized under the full cost method are expensed under the successful efforts method. These costs consist primarily of unsuccessful exploration drilling costs, geological and geophysical costs, delay rental on leases, abandonment costs and general and administrative expenses directly related to exploration and development activities. |
(d) | Adjustment to depreciation and depletion resulting from the pro forma calculation of the combined entitys depletion expense under the full cost method of accounting for oil and natural gas properties. The pro forma depletion adjustments utilize depletion rates of $15.83, $15.73 and $15.69 per Boe for the six months ended June 30, 2012, three months ended March 31, 2012 and year ended December 31, 2011, respectively. The pro forma depletion adjustment for the six months ended June 30, 2012 reflects depletion using the combined entitys rate through the acquisition date for the acquisition of properties from Hunt (June 20, 2012) and the Dynamic Acquisition (April 17, 2012). Under the successful efforts method of accounting, proved property acquisition costs are amortized on a unit-of-production basis over total proved reserves and costs of wells, related equipment and facilities are depreciated over the life of the proved developed reserves that will utilize those capitalized assets on a field-by-field basis. Under the full cost method of accounting, property acquisition costs, costs of wells, related equipment and facilities and future development costs are included in a single full cost pool, which is amortized on a unit-of-production basis over total proved reserves. |
(e) | Adjustment to eliminate the impairment of oil and natural gas properties recorded by Dynamic under the successful efforts method of accounting. |
(f) | Adjustment to Dynamics accretion expense due to changes in the asset retirement obligation as a result of calculating the obligation based upon SandRidges credit adjusted risk-free rate. |
(g) | Adjustment to capitalize a portion of Dynamics general and administrative expenses as allowed under the full cost method, using SandRidges historical capitalization rates of approximately 33%, 33% and 38% for the period of January 1 through April 17, 2012, the three months ended March 31, 2012 and the year ended December 31, 2011, respectively. |
(h) | Adjustment to eliminate non-recurring acquisition costs, which were included in SandRidges historical statements of operations for the six months ended June 30, 2012 and the three months ended March 31, 2012. |
(i) | Adjustment to eliminate the loss on abandonment recorded by Dynamic under the successful efforts method of accounting. Under full cost accounting, any differences between the recorded asset retirement obligation and actual plugging and abandonment costs are recorded as an adjustment to accumulated depletion. |
(j) | Adjustment to eliminate historical interest expense on Dynamics debt, which was repaid at closing, record interest expense on the $750.0 million principal amount of 8.125% Senior Notes and amortize estimated debt issuance costs of $19.9 million related to the 8.125% Senior Notes over the term of the notes. The pro forma adjustment for the six months ended June 30, 2012 reflects interest expense and amortization of debt issuance costs through April 17, 2012. |
(k) | Adjustment to eliminate the non-recurring fee SandRidge incurred to secure the Bridge Loan, which was included in SandRidges historical statements of operations for the six months ended June 30, 2012 and three months ended March 31, 2012. |
(l) | Adjustment to reverse the bargain purchase gain resulting from the Dynamic Acquisition. The bargain purchase gain is the excess fair value of net assets acquired over consideration paid and was included in SandRidges historical statement of operations for the six months ended June 30, 2012. |
(m) | Adjustment to reverse Dynamics income tax benefit. There was no pro forma income tax provision related to the acquisition of Dynamic due to SandRidges net deferred tax asset position and the corresponding full valuation allowance. A net deferred tax liability resulted from the difference between the estimated fair value and SandRidges tax basis in the assets acquired and liabilities assumed. The net deferred tax liability also includes the effects of deferred tax assets associated with net operating losses and other tax attributes acquired through the Dynamic Acquisition. This net deferred tax liability was offset with SandRidges existing net deferred tax asset, resulting in the release of $103.3 million of valuation allowance against SandRidges existing net deferred tax asset, which is reflected in SandRidges historical statement of operations for the six months ended June 30, 2012. The release of the valuation allowance is considered non-recurring and therefore reversed in the pro forma adjustments for the six months ended June 30, 2012. |
(n) | Adjustment to weighted average shares outstanding for the issuance of SandRidge common stock in conjunction with the Dynamic Acquisition. |
(o) | Adjustment to recognize revenues and direct operating expenses of the properties acquired from Hunt. |
(p) | Adjustment to record accretion expense on the asset retirement obligation assumed in the acquisition of oil and natural gas properties from Hunt. |
(q) | The Mississippian Trust IIs general and administrative expenses are estimated at $1.3 million annually and include an annual administrative services fee of $0.3 million payable by the Mississippian Trust II to SandRidge that is eliminated in consolidation. Adjustment for the Mississippian Trust II for the six months ended June 30, 2012 is net of amounts attributable to the Mississippian Trust II from April 23, 2012 to June 30, 2012 already reflected in the SandRidge historical results. |
(r) | Reflects net income of the Mississippian Trust II attributable to the third-party beneficial ownership of 60.1%. Such amounts were estimated based on pro forma distributable income of the Mississippian Trust II of $27.7 million less depletion of $8.7 million and $22.5 million less estimated depletion of $6.9 million for the six months ended June 30, 2012 and three months ended March 31, 2012, respectively. Adjustment for the Mississippian Trust II for the six months ended June 30, 2012 is net of amounts attributable to the Mississippian Trust II from April 23, 2012 to June 30, 2012 already reflected in the SandRidge historical results. |
Note 4. SandRidges Unaudited Pro Forma Condensed Consolidated Statement of Operations
SandRidges unaudited pro forma condensed statement of operations for the year ended December 31, 2011 included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 gives effect to the following transactions:
| SandRidge Mississippian Trust II. On April 23, 2012, the Mississippian Trust II completed its IPO. Concurrent with the closing, SandRidge conveyed the Mississippian Trust II Royalty Interests to the Mississippian Trust II in exchange for the net proceeds of the IPO and 19,825,000 units (7,393,750, common units and 12,431,250, subordinated units). See Note 1 for further discussion of the Mississippian Trust IIs IPO. |
| East Texas Sale. On November 14, 2011, SandRidge sold producing properties located on over 23,000 net acres in Gregg, Harrison, Rusk and Panola counties in Texas for an agreed upon price of $231.0 million (East Texas Sale). |
| SandRidge Permian Trust. On August 16, 2011, the Permian Trust completed its IPO of 34,500,000 common units representing beneficial interests in the Permian Trust. Net proceeds to the Permian Trust, after certain offering expenses, were $580.6 million. Concurrent with the closing, SandRidge conveyed the Permian Trust Royalty Interests to the Permian Trust in exchange for the net proceeds of the Permian Trusts IPO and 18,000,000 units (4,875,000 common units and 13,125,000 subordinated units), representing approximately 34.3% of the beneficial interest in the Permian Trust. |
| Arena Acquisition. On July 16, 2010, SandRidge completed the acquisition of all of the outstanding shares of common stock of Arena. In connection with the acquisition, SandRidge paid $4.50 in cash and issued 4.7771 shares of SandRidge common stock for each share of Arena common stock outstanding for a total value per share of $35.79, based upon the $6.55 closing price of SandRidge common stock on July 16, 2010, the closing date of the acquisition. The consideration received by Arena shareholders was valued at $1.4 billion in the aggregate. SandRidge was the surviving parent company after completion of the acquisition. In the second quarter of 2011, SandRidge completed its valuation of assets acquired and liabilities assumed related to the Arena Acquisition. |
The unaudited pro forma condensed statement of operations for the year ended December 31, 2011 is based on the audited statement of operations of SandRidge for the year ended December 31, 2011, and includes pro forma adjustments to give effect to SandRidges conveyance of the Permian Trust Royalty Interests to the Permian Trust, the East Texas Sale and the conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II as if those transactions occurred on January 1, 2011, and to reflect the effects of final adjustments for the Arena Acquisition. SandRidge believes that the assumptions used provide a reasonable basis for presenting the effects directly attributable to these transactions. Certain reclassifications have been made to the historical statement of operations for the year ended December 31, 2011 to conform to the presentation in the historical statements of operations for the six months ended June 30, 2012 and the three months ended March 31, 2012.
SandRidge Energy, Inc.
Unaudited Pro forma Condensed Statement of Operations
Year Ended December 31, 2011
Pro Forma Adjustments | ||||||||||||||||||||||||
Dispositions | ||||||||||||||||||||||||
SandRidge Historical |
Arena Acquisition |
SandRidge Permian Trust |
East Texas Sale |
SandRidge Mississippian Trust II |
SandRidge Pro Forma Historical |
|||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Oil and natural gas |
$ | 1,226,794 | | | $ | (39,535 | )(f) | | $ | 1,187,259 | ||||||||||||||
Drilling and services |
103,298 | | | | | 103,298 | ||||||||||||||||||
Midstream and marketing |
66,690 | | | | | 66,690 | ||||||||||||||||||
Other |
18,431 | | | | | 18,431 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
1,415,213 | | | (39,535 | ) | | 1,375,678 | |||||||||||||||||
Expenses |
||||||||||||||||||||||||
Production |
322,877 | | | (13,510 | )(f) | | 309,367 | |||||||||||||||||
Production taxes |
46,069 | | | (1,219 | )(f) | | 44,850 | |||||||||||||||||
Drilling and services |
65,654 | | | | | 65,654 | ||||||||||||||||||
Midstream and marketing |
66,007 | | | | | 66,007 | ||||||||||||||||||
Depreciation and depletion oil and natural gas |
317,246 | | | (5,940 | )(g) | | 311,306 | |||||||||||||||||
Depreciation and amortization other |
53,630 | | | | | 53,630 | ||||||||||||||||||
Accretion of asset retirement obligation |
9,368 | | | | | 9,368 | ||||||||||||||||||
Impairment |
2,825 | | | | | 2,825 | ||||||||||||||||||
General and administrative |
148,643 | | 500 | (c) | | 1,000 | (c) | 150,143 | ||||||||||||||||
Gain on derivative contracts |
(44,075 | ) | | | | | (44,075 | ) | ||||||||||||||||
Gain on sale of assets |
(2,044 | ) | | | | | (2,044 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
986,200 | | 500 | (20,669 | ) | 1,000 | 967,031 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income from operations |
429,013 | | (500 | ) | (18,866 | ) | (1,000 | ) | 408,647 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other income (expense) |
||||||||||||||||||||||||
Interest expense |
(237,332 | ) | | 3,132 | (d) | | | (234,200 | ) | |||||||||||||||
Loss on extinguishment of debt |
(38,232 | ) | | | | | (38,232 | ) | ||||||||||||||||
Other income, net |
3,122 | (2,152 | )(a) | | | | 970 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other expense |
(272,442 | ) | (2,152 | ) | 3,132 | | | (271,462 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes |
156,571 | (2,152 | ) | 2,632 | (18,866 | ) | (1,000 | ) | 137,185 | |||||||||||||||
Income tax (benefit) expense |
(5,817 | ) | 6,247 | (b) | | (53 | )(h) | | 377 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
162,388 | (8,399 | ) | 2,632 | (18,813 | ) | (1,000 | ) | 136,808 | |||||||||||||||
Less: net income attributable to noncontrolling interest |
54,323 | | 26,612 | (e) | | 16,612 | (i) | 97,547 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to SandRidge Energy, Inc. |
108,065 | (8,399 | ) | (23,980 | ) | (18,813 | ) | (17,612 | ) | 39,261 | ||||||||||||||
Preferred stock dividends |
55,583 | | | | | 55,583 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income available (loss applicable) to SandRidge Energy, Inc. common stockholders |
$ | 52,482 | $ | (8,399 | ) | $ | (23,980 | ) | $ | (18,813 | ) | $ | (17,612 | ) | $ | (16,322 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings (loss) per share |
||||||||||||||||||||||||
Basic |
$ | 0.13 | $ | (0.04 | ) | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Diluted |
$ | 0.13 | $ | (0.04 | ) | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Weighted average number of common shares outstanding |
||||||||||||||||||||||||
Basic |
398,851 | 398,851 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Diluted |
406,645 | (7,794 | )(j) | 398,851 | ||||||||||||||||||||
|
|
|
|
|
|
(a) | Adjustment to reverse income amounts resulting from the final adjustment to liabilities established in the Arena Acquisition purchase price allocation that were reduced to zero based on final information received during the year ended December 31, 2011. Income from adjusting the liability is considered non-recurring and therefore reversed in the unaudited pro forma condensed statement of operations. |
(b) | Adjustment to reverse the release of a portion of SandRidges valuation allowance for the year ended December 31, 2011. A deferred tax liability resulted from the step-up in basis on the property acquired from Arena. This deferred tax liability was offset with SandRidges existing net deferred tax asset, resulting in the release of $7.0 million of valuation allowance against SandRidges existing net deferred tax asset for the year ended December 31, 2011. The $7.0 million valuation allowance release is presented net of $0.8 million of income tax expense related to the filing of Arenas final tax returns. The release of the valuation allowance is considered non-recurring and therefore reversed in the unaudited pro forma condensed statement of operations for the year ended December 31, 2011. |
(c) | The Permian Trust and Mississippian Trust IIs general and administrative expenses are each estimated at $1.3 million annually and include an annual administrative services fee of $0.3 million payable by each of the Permian Trust and Mississippian Trust II to SandRidge that will be eliminated in consolidation. Adjustment to the Permian Trust for the year ended December 31, 2011 is net of amounts attributable to the Permian Trust from August 16, 2011 to December 31, 2011 already reflected in the SandRidge historical results. |
(d) | Adjustment to reflect reduction of interest expense due to repayment of amounts outstanding under SandRidges senior credit facility with proceeds from the Permian Trusts IPO. |
(e) | Reflects net income of the Permian Trust attributable to third-party beneficial ownership of 65.7%. Such amounts were estimated based on pro forma income of the Permian Trust of $89.8 million less estimated depletion of $15.7 million for the year ended December 31, 2011. Adjustment for the year ended December 31, 2011 is net of amounts attributable to the Permian Trust from August 16, 2011 to December 31, 2011 already reflected in the SandRidge historical results. |
(f) | Adjustment to reduce oil and natural gas sales, production expense and production tax expense for amounts attributable to the East Texas Properties during the year ended December 31, 2011. |
(g) | Adjustment to reduce depletion, using the unit of production method under the full cost method of accounting, for amounts attributable to the East Texas Properties during the year ended December 31, 2011. |
(h) | Adjustment to income tax expense for income tax attributable to net revenues generated by the East Texas Properties during the year ended December 31, 2011. Adjustment was based upon the SandRidge consolidated effective income tax rate excluding the effects of adjustments to SandRidges valuation allowance caused by the Arena Acquisition discussed in (b) above. |
(i) | Reflects net income of the Mississippian Trust II attributable to a third-party beneficial ownership of 60.1%. Such amounts were estimated based on pro forma distributable income of the Mississippian Trust II of $37.3 million less estimated depletion of $9.7 million for the year ended December 31, 2011. |
(j) | Adjustment to the weighted average number of common shares outstanding diluted based on pro forma loss applicable to SandRidge Energy, Inc. common stockholders. |
Note 5. Dynamic Unaudited Pro Forma Condensed Statement of Operations
Dynamics unaudited pro forma condensed statement of operations for the year ended December 31, 2011 included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 gives effect to its acquisition of certain oil and natural gas interests in the Gulf of Mexico from XTO Offshore Inc. and other related subsidiaries of ExxonMobil Corporation (Exxon) for $173.5 million on August 31, 2011 (the XTO Acquisition). The properties acquired comprise substantially all of the Gulf of Mexico assets that Exxon acquired as part of its acquisition of XTO Energy, Inc. in 2010.
Dynamic Offshore Resources, LLC
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended December 31, 2011
Dynamic Historical |
XTO Acquisition |
Pro Forma Adjustments |
Dynamic Pro Forma Historical |
|||||||||||||
(In thousands) | ||||||||||||||||
Revenues |
$ | 520,782 | $ | 95,638 | $ | | $ | 616,420 | ||||||||
Expenses |
||||||||||||||||
Production |
113,487 | 19,607 | | 133,094 | ||||||||||||
Exploration expense |
15,085 | | | 15,085 | ||||||||||||
Depreciation, depletion and amortization |
173,585 | | 29,872 | (a) | 203,457 | |||||||||||
General and administrative expense |
24,400 | | | 24,400 | ||||||||||||
Other operating expense |
77,505 | 4,125 | 2,494 | (a) | 84,124 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
404,062 | 23,732 | 32,366 | 460,160 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from operations |
116,720 | 71,906 | (32,366 | ) | 156,260 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(9,503 | ) | | (3,504 | )(b) | (13,007 | ) | |||||||||
Commodity derivative income |
43,734 | | | 43,734 | ||||||||||||
Bargain purchase gain |
282 | | | 282 | ||||||||||||
Other |
(145 | ) | | | (145 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income |
34,368 | | (3,504 | ) | 30,864 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
151,088 | 71,906 | (35,870 | ) | 187,124 | |||||||||||
Income tax benefit |
(5,359 | ) | | | (5,359 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
156,447 | 71,906 | (35,870 | ) | 192,483 | |||||||||||
Less: net income attributable to noncontrolling interest |
460 | | | 460 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to Dynamic |
$ | 155,987 | $ | 71,906 | $ | (35,870 | ) | $ | 192,023 | |||||||
|
|
|
|
|
|
|
|
(a) | Adjustment to reflect additional depreciation, depletion and amortization expense and accretion expense attributable to XTO Acquisition properties. |
(b) | Adjustment to reflect additional interest expense incurred on $173.7 million in borrowings to fund the XTO Acquisition from January 1, 2011 to August 31, 2011, at an estimated annual rate of approximately 3.0%. |
Exhibit 99.2
HUNT ACQUISITION PROPERTIES
Statements of Revenues and Direct Operating Expenses
Year Ended December 31, 2011
and
Three Months Ended March 31, 2012 and 2011 (Unaudited)
HUNT ACQUISITION PROPERTIES
TABLE OF CONTENTS
Page | ||||
Report of Independent Registered Public Accounting Firm |
1 | |||
Statements of Revenues and Direct Operating Expenses of the Hunt Acquisition Properties for the year ended December 31, 2011 and for the Three Months Ended March 31, 2012 and 2011 (Unaudited) |
2 | |||
Notes to Statements of Revenues and Direct Operating Expenses of the Hunt Acquisition Properties |
3 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
SandRidge Energy, Inc.
We have audited the accompanying statement of revenues and direct operating expenses of the Hunt Acquisition Properties for the year ended December 31, 2011. This financial statement is the responsibility of the Companys management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and direct operating expenses of the Hunt Acquisition Properties described in Note 1 for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statement reflects the revenues and direct operating expenses of the Hunt Acquisition Properties as described in Note 1 and are not intended to be a complete presentation of the financial position, results of operations, or cash flows of the Hunt Acquisition Properties.
Hein & Associates LLP
Houston, Texas
August 10, 2012
1
HUNT ACQUISITION PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(In thousands)
Three Months Ended March 31, |
Year
Ended December 31, |
|||||||||||
2012 | 2011 | 2011 | ||||||||||
(Unaudited) | ||||||||||||
Oil and natural gas revenues |
$ | 14,433 | $ | 21,152 | $ | 87,112 | ||||||
Direct operating expenses |
6,786 | 6,917 | 30,133 | |||||||||
|
|
|
|
|
|
|||||||
Revenues in excess of direct operating expenses |
$ | 7,647 | $ | 14,235 | $ | 56,979 | ||||||
|
|
|
|
|
|
See notes to statements of revenues and direct operating expenses
2
Hunt Acquisition Properties
Notes to Statements of Revenues and Direct Operating Expenses
Note 1Properties and Basis of Presentation
The accompanying statements present the revenues and direct operating expenses of interests in oil and natural gas producing properties acquired by a wholly-owned subsidiary of SandRidge Energy, Inc. (the Company), from Hunt Oil Company, Hunt Chieftain Development, L.P. and Hunt Oil Company of Louisiana, Inc. (collectively, Hunt) on June 20, 2012. The Company paid $38.5 million for the properties. The properties, referred to herein as the Hunt Acquisition Properties, are located in the Gulf of Mexico.
The statements of revenues and direct operating expenses have been derived from Hunts historical financial records and prepared on the accrual basis of accounting. Revenues and direct operating expenses relate to the historical net revenue interests and net working interests, respectively, in the Hunt Acquisition Properties. Oil and natural gas revenues are recognized on the sales method when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. Revenues are reported net of overriding and other royalties due to third parties. Direct operating expenses include lease operating expenses, production and ad valorem taxes, transportation and all other direct operating costs associated with the properties. Direct operating expenses do not include corporate overhead, interest expense and income taxes.
The statements of revenues and direct operating expenses are not indicative of the financial condition or results of operations of the Hunt Acquisition Properties going forward due to the omission of various operating expenses. During the periods presented, the Hunt Acquisition Properties were not accounted for by Hunt as a separate business unit. As such, certain costs, such as depreciation, depletion and amortization, accretion of asset retirement obligations, general and administrative expenses and interest expense were not allocated to the Hunt Acquisition Properties.
Note 2Omitted Financial Information
Historical financial statements reflecting financial position, results of operations and cash flows from operating, investing and financing activities in accordance with accounting principles generally accepted in the United States of America are not presented as such information is not available on a property-by-property basis, nor is it practicable to obtain such information in these circumstances. Historically, no allocation of general and administrative, interest expense, corporate taxes, accretion of asset retirement obligations, and depreciation, depletion and amortization was made to the Hunt Acquisition Properties. Accordingly, the statements of revenues and direct operating expenses are presented in lieu of the financial statements required under Rule 3-01 and Rule 3-02 of the Securities and Exchange Commissions Regulation S-X.
3
Note 3Supplemental Oil and Natural Gas Reserve and Standardized Measure Information (Unaudited)
The following oil and natural gas reserve information was prepared by the Company based upon information provided by the Companys petroleum engineers and is presented in accordance with ASC Topic 932, Extractive Activities Oil and Gas.
Oil and Gas Reserve Quantities
The following table presents the estimated remaining net quantities of proved, proved developed and proved undeveloped oil and natural gas reserves of the Hunt Acquisition Properties, all of which are located in the United States, estimated by the Companys petroleum engineers, and the related summary of changes in estimated quantities of net remaining proved reserves during the year ended December 31, 2011.
Crude oil | Natural gas | |||||||
(MBbl) | (MMcf) | |||||||
Proved Reserves |
||||||||
Beginning balance |
3,768 | 54,704 | ||||||
Production |
(524 | ) | (7,912 | ) | ||||
|
|
|
|
|||||
Ending balance |
3,244 | 46,792 | ||||||
|
|
|
|
|||||
Proved Developed Reserves, December 31, 2011 |
2,286 | 24,657 | ||||||
|
|
|
|
|||||
Proved Undeveloped Reserves, December 31, 2011 |
958 | 22,135 | ||||||
|
|
|
|
Proved reserves are estimated quantities of oil and natural gas which geological and engineering data demonstrate, with reasonable certainty, to be economically producible in future years from known reservoirs under economic conditions, operating methods and government regulation existing at the time the estimate is made. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made. Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled leases, or from existing wells where a relatively large major expenditure is required for recompletion.
Standardized Measure of Discounted Future Net Cash Flows
The following table sets forth the computation of the standardized measure of discounted future net cash flows (the Standardized Measure) relating to proved reserves and the changes in such cash flows of the Hunt Acquisition Properties in accordance with ASC Topic 932. The Standardized Measure is the estimated net future cash inflows from proved reserves less estimated future production and development costs, estimated plugging and abandonment costs, estimated future income taxes (if applicable) and a discount factor. Production costs do not include depreciation, depletion and amortization of capitalized acquisitions, exploration and development costs. Future cash inflows represent expected revenues from production of period-end quantities of proved reserves based on the unweighted average of first-day-of-the-month commodity prices for the period and any fixed and determinable future price changes provided by contractual arrangements in existence at period end. Price changes based on inflation, federal regulatory changes and supply and demand are not considered. Estimated future production costs related to period-end reserves are based on period-end costs. Such costs include, but are not limited to, production taxes and direct operating costs. Inflation and other anticipatory costs are not considered until
4
the actual cost change takes effect. An annual discount factor of 10% is applied to the future net cash flows.
Future net cash inflows were estimated by using the unweighted average of first-day-of-the-month oil and natural gas prices for the period with the estimated future production of period-end proved reserves and assume continuation of existing economic conditions. These prices were $96.19 per barrel of oil and $4.12 per MMBtu of natural gas at December 31, 2011. The index prices have been adjusted for historical average location and quality differentials. Future cash inflows were reduced by estimated future development, abandonment and production costs based on period-end costs resulting in net cash flow before tax. Future income tax expense was not considered as the Hunt Acquisition Properties are not tax-paying entities.
The Standardized Measure is not intended to be representative of the fair market value of the proved reserves. The calculations of revenues and costs involve extensive judgments in estimating the timing of production and costs that will be incurred throughout the remaining lives of the properties and do not necessarily represent the amounts to be received or expended. Accordingly, the estimates of future net cash flows from proved reserves and the present value thereof may be materially different from actual subsequent results. Further, since prices and costs do not remain static, and no price or cost changes have been considered, and future production and development costs are estimates to be incurred in developing and producing the estimated proved oil and gas reserves, the results are not necessarily indicative of the fair market value of estimated proved reserves, and the results may not be comparable to estimates disclosed by other oil and gas producers. The following table presents future net cash flows relating to the Hunt Acquisition Properties based on the Standardized Measure in ASC Topic 932 (in thousands):
2011 | ||||
Future cash inflows |
$ | 526,829 | ||
Future production costs |
(105,800 | ) | ||
Future development and abandonment costs |
(133,766 | ) | ||
Future income tax expense |
| |||
|
|
|||
Future net cash flows |
287,263 | |||
10% annual discount for estimated timing of cash flows |
(73,326 | ) | ||
|
|
|||
Standardized measure of discounted futurenet cash flows |
$ | 213,937 | ||
|
|
Changes in the Standardized Measure for the year ended December 31, 2011 are as follows (in thousands):
Beginning of year |
196,757 | |||
Sales of oil and natural gas, net of costs |
(56,979 | ) | ||
Net changes in prices and production costs |
37,879 | |||
Development costs incurred |
18,123 | |||
Accretion of discount |
18,414 | |||
Changes in timing and other |
(257 | ) | ||
|
|
|||
Net increase |
17,180 | |||
|
|
|||
End of year |
$ | 213,937 | ||
|
|
5