Attached files
| file | filename |
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| 8-K - FORM 8-K - SANDRIDGE ENERGY INC | d8k.htm |
Exhibit 99.1
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information reflects the historical results of SandRidge Energy, Inc. (“SandRidge”) adjusted on a pro forma basis to give effect to its conveyance of royalty interests in certain oil and natural gas properties located in Andrews County, Texas (the “Royalty Interests”) to SandRidge Permian Trust. SandRidge’s historical results have also been adjusted to give effect to SandRidge’s July 2010 acquisition of Arena Resources, Inc. (“Arena”). These transactions are described further below.
| • | SandRidge Permian Trust. On May 25, 2011, SandRidge and SandRidge Permian Trust (the “Trust”), a newly formed Delaware trust, filed a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) relating to the initial public offering of common units representing beneficial interests in the Trust. In connection with the offering, SandRidge will convey to the Trust the Royalty Interests in exchange for the net proceeds from the offering and units representing approximately 40% of the beneficial interest of the Trust. The Royalty Interests will entitle the Trust to a percentage of the proceeds received by SandRidge from the production of oil, natural gas and natural gas liquids from currently producing wells and development wells to be drilled by SandRidge within an area of mutual interest. SandRidge intends to use 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. |
The unaudited pro forma condensed balance sheet is based on the unaudited March 31, 2011 SandRidge balance sheet and gives effect to the conveyance of the Royalty Interests as if it occurred on that date. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2010 is based on the audited statement of operations of SandRidge for the year ended December 31, 2010 and the unaudited statement of operations of Arena for the period from January 1, 2010 through July 16, 2010, and includes pro forma adjustments to give effect to the Arena Acquisition and the Royalty Interests conveyance as if those transactions occurred on January 1, 2010. The unaudited pro forma condensed statement of operations for the three months ended March 31, 2011 gives effect to the Royalty Interests conveyance as if it occurred on January 1, 2011.
The pro forma adjustments reflecting the Arena Acquisition under the acquisition method of accounting and the Royalty Interests conveyance are preliminary and 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 pro forma financial statements were prepared. SandRidge believes the estimates and assumptions used are reasonable and the significant effects of the transactions are properly reflected. However, estimates and assumptions are subject to change as additional information becomes available. To the extent there are significant changes in these amounts, the assumptions and estimates herein could change significantly. The pro forma statement for the year ended December 31, 2010 does not reflect any cost savings (or associated costs to achieve such savings) from the operating efficiencies, synergies or other restructuring that could result from the Arena Acquisition.
These unaudited pro forma financial statements are for informational purposes only. They do not purport to present the results that would have actually occurred had the transactions described above been completed on the assumed dates or for the periods presented, or which may be realized in the future. These unaudited pro forma financial statements should be read in conjunction with the accompanying footnotes, SandRidge’s Annual Report on Form 10-K for the year ended December 31, 2010, its Quarterly Report on Form 10-Q for the three months ended March 31, 2011, and SandRidge’s and the Trust’s Registration Statement on Forms S-3 and S-1 filed by SandRidge and the Trust with the SEC on May 25, 2011.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 2011
| SandRidge | ||||||||||||
| Permian Trust | ||||||||||||
| SandRidge | Pro Forma | SandRidge | ||||||||||
| Historical | Adjustments | Pro Forma | ||||||||||
| (In thousands) | ||||||||||||
| ASSETS | ||||||||||||
| Current assets |
||||||||||||
| Cash and cash equivalents |
$ | 8,537 | $ | 231,710 | (a) | $ | 240,247 | |||||
| Accounts receivable, net |
164,087 | — | 164,087 | |||||||||
| Derivative contracts |
781 | — | 781 | |||||||||
| Inventories |
4,278 | — | 4,278 | |||||||||
| Other current assets |
21,112 | — | 21,112 | |||||||||
| Total current assets |
198,795 | 231,710 | 430,505 | |||||||||
| Oil and natural gas properties, using full cost method of accounting |
||||||||||||
| Proved |
8,388,198 | — | 8,388,198 | |||||||||
| Unproved |
571,447 | — | 571,447 | |||||||||
| Less: accumulated depreciation, depletion and impairment |
(4,554,435 | ) | — | (4,554,435 | ) | |||||||
| 4,405,210 | — | 4,405,210 | ||||||||||
| Other property, plant and equipment, net |
506,629 | — | 506,629 | |||||||||
| Restricted deposits |
27,876 | — | 27,876 | |||||||||
| Goodwill |
235,182 | — | 235,182 | |||||||||
| Other assets |
71,776 | — | 71,776 | |||||||||
| Total assets |
$ | 5,445,468 | $ | 231,710 | $ | 5,677,178 | ||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current liabilities |
||||||||||||
| Current maturities of long-term debt |
$ | 1,004 | $ | — | $ | 1,004 | ||||||
| Accounts payable and accrued expenses |
376,264 | — | 376,264 | |||||||||
| Billings and estimated contract loss in excess of costs incurred |
32,243 | — | 32,243 | |||||||||
| Derivative contracts |
234,059 | — | 234,059 | |||||||||
| Asset retirement obligation |
25,360 | — | 25,360 | |||||||||
| Total current liabilities |
668,930 | — | 668,930 | |||||||||
| Long-term debt |
3,171,385 | (323,500 | )(a) | 2,847,885 | ||||||||
| Derivative contracts |
260,192 | — | 260,192 | |||||||||
| Asset retirement obligation |
94,293 | — | 94,293 | |||||||||
| Other long-term obligations |
9,409 | — | 9,409 | |||||||||
| Total liabilities |
4,204,209 | (323,500 | ) | 3,880,709 | ||||||||
| Commitments and contingencies |
||||||||||||
| 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, 2011; aggregate liquidation preference of $265,000 |
3 | — | 3 | |||||||||
| 6.0% Convertible perpetual preferred stock; 2,000 shares issued and outstanding at March 31, 2011; aggregate liquidation preference of $200,000 |
2 | — | 2 | |||||||||
| 7.0% Convertible perpetual preferred stock; 3,000 shares issued and outstanding at March 31, 2011; aggregate liquidation preference of $300,000 |
3 | — | 3 | |||||||||
| Common stock, $0.001 par value, 800,000 shares authorized; 410,649 issued and 410,098 outstanding at March 31, 2011 |
398 | — | 398 | |||||||||
| Additional paid-in capital |
4,539,565 | — | 4,539,565 | |||||||||
| Treasury stock, at cost |
(4,145 | ) | — | (4,145 | ) | |||||||
| Accumulated deficit |
(3,305,860 | ) | — | (3,305,860 | ) | |||||||
| Total SandRidge Energy, Inc. stockholders’ equity |
1,229,966 | — | 1,229,966 | |||||||||
| Noncontrolling interest |
11,293 | 555,210 | (a) | 566,503 | ||||||||
| Total equity |
1,241,259 | 555,210 | 1,796,469 | |||||||||
| Total liabilities and equity |
$ | 5,445,468 | $ | 231,710 | $ | 5,677,178 | ||||||
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, 2010
| Arena | SandRidge | SandRidge | ||||||||||||||||||||||
| Acquisition | As Adjusted | Permian Trust | SandRidge | |||||||||||||||||||||
| SandRidge | Arena | Pro Forma | for Arena | Pro Forma | Pro Forma | |||||||||||||||||||
| Historical | Historical | Adjustments | Acquisition | Adjustments | Combined | |||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Oil and natural gas |
$ | 774,763 | $ | 114,833 | $ | — | $ | 889,596 | $ | — | $ | 889,596 | ||||||||||||
| Drilling and services |
28,543 | — | — | 28,543 | — | 28,543 | ||||||||||||||||||
| Midstream and marketing |
100,118 | — | — | 100,118 | — | 100,118 | ||||||||||||||||||
| Other |
28,312 | — | — | 28,312 | — | 28,312 | ||||||||||||||||||
| Total revenues |
931,736 | 114,833 | — | 1,046,569 | — | 1,046,569 | ||||||||||||||||||
| Expenses |
||||||||||||||||||||||||
| Production |
237,863 | 12,382 | — | 250,245 | — | 250,245 | ||||||||||||||||||
| Production taxes |
29,170 | 6,014 | — | 35,184 | — | 35,184 | ||||||||||||||||||
| Drilling and services |
22,368 | — | — | 22,368 | — | 22,368 | ||||||||||||||||||
| Midstream and marketing |
90,149 | — | — | 90,149 | — | 90,149 | ||||||||||||||||||
| Depreciation and depletion - oil and natural gas |
275,335 | 28,853 | 24,596 | (b) | 328,784 | — | 328,784 | |||||||||||||||||
| Depreciation, depletion and amortization - other |
50,776 | 243 | — | 51,019 | — | 51,019 | ||||||||||||||||||
| General and administrative |
179,565 | 31,842 | (27,587 | )(c) | 183,820 | 900 | (g) | 184,720 | ||||||||||||||||
| Loss (gain) on derivative contracts |
50,872 | (1,124 | ) | — | 49,748 | — | 49,748 | |||||||||||||||||
| Loss on sale of assets |
2,424 | — | — | 2,424 | — | 2,424 | ||||||||||||||||||
| Total expenses |
938,522 | 78,210 | (2,991 | ) | 1,013,741 | 900 | 1,014,641 | |||||||||||||||||
| (Loss) income from operations |
(6,786 | ) | 36,623 | 2,991 | 32,828 | (900 | ) | 31,928 | ||||||||||||||||
| Other income (expense) |
||||||||||||||||||||||||
| Interest income |
296 | 197 | — | 493 | — | 493 | ||||||||||||||||||
| Interest expense |
(247,738 | ) | — | (2,504 | )(d) | (250,242 | ) | 9,549 | (h) | (240,693 | ) | |||||||||||||
| Other income, net |
2,558 | — | — | 2,558 | — | 2,558 | ||||||||||||||||||
| Total other (expense) income |
(244,884 | ) | 197 | (2,504 | ) | (247,191 | ) | 9,549 | (237,642 | ) | ||||||||||||||
| (Loss) income before income taxes |
(251,670 | ) | 36,820 | 487 | (214,363 | ) | 8,649 | (205,714 | ) | |||||||||||||||
| Income tax (benefit) expense |
(446,680 | ) | 23,100 | 424,400 | (e) | 820 | — | 820 | ||||||||||||||||
| Net income (loss) |
195,010 | 13,720 | (423,913 | ) | (215,183 | ) | 8,649 | (206,534 | ) | |||||||||||||||
| Less: net income attributable to noncontrolling interest |
4,445 | — | — | 4,445 | 28,721 | (i) | 33,166 | |||||||||||||||||
| Net income (loss) attributable to SandRidge Energy, Inc. |
190,565 | 13,720 | (423,913 | ) | (219,628 | ) | (20,072 | ) | (239,700 | ) | ||||||||||||||
| Preferred stock dividends and accretion |
37,442 | — | — | 37,442 | — | 37,442 | ||||||||||||||||||
| Income available (loss applicable) to SandRidge Energy, Inc. common stockholders |
$ | 153,123 | $ | 13,720 | $ | (423,913 | ) | $ | (257,070 | ) | $ | (20,072 | ) | $ | (277,142 | ) | ||||||||
| Income (loss) per share available (applicable) to SandRidge Energy, Inc. common stockholders |
||||||||||||||||||||||||
| Basic |
$ | 0.52 | $ | (0.65 | ) | $ | (0.70 | ) | ||||||||||||||||
| Diluted |
$ | 0.52 | $ | (0.65 | ) | $ | (0.70 | ) | ||||||||||||||||
| Weighted average number of SandRidge Energy, Inc. common shares outstanding |
||||||||||||||||||||||||
| Basic |
291,869 | 102,585 | (f) | 394,454 | 394,454 | |||||||||||||||||||
| Diluted |
315,349 | 79,105 | (f) | 394,454 | 394,454 | |||||||||||||||||||
The accompanying notes are an integral part of this unaudited pro forma financial information.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2011
| SandRidge Historical |
SandRidge Permian Trust Pro Forma Adjustments |
SandRidge Pro Forma |
||||||||||
| (In thousands, except per share amounts) | ||||||||||||
| Revenues |
||||||||||||
| Oil and natural gas |
$ | 266,942 | $ | — | $ | 266,942 | ||||||
| Drilling and services |
21,034 | — | 21,034 | |||||||||
| Midstream and marketing |
22,258 | — | 22,258 | |||||||||
| Other |
2,614 | — | 2,614 | |||||||||
| Total revenues |
312,848 | — | 312,848 | |||||||||
| Expenses |
||||||||||||
| Production |
73,957 | — | 73,957 | |||||||||
| Production taxes |
10,575 | — | 10,575 | |||||||||
| Drilling and services |
15,041 | — | 15,041 | |||||||||
| Midstream and marketing |
22,283 | — | 22,283 | |||||||||
| Depreciation and depletion - oil and natural gas |
73,886 | — | 73,886 | |||||||||
| Depreciation and amortization - other |
13,093 | — | 13,093 | |||||||||
| General and administrative |
34,414 | 225 | (g) | 34,639 | ||||||||
| Loss on derivative contracts |
277,628 | — | 277,628 | |||||||||
| Gain on sale of assets |
(201 | ) | — | (201 | ) | |||||||
| Total expenses |
520,676 | 225 | 520,901 | |||||||||
| Loss from operations |
(207,828 | ) | (225 | ) | (208,053 | ) | ||||||
| Other income (expense) |
||||||||||||
| Interest income |
5 | — | 5 | |||||||||
| Interest expense |
(59,443 | ) | 2,247 | (h) | (57,196 | ) | ||||||
| Loss on extinguishment of debt |
(36,181 | ) | — | (36,181 | ) | |||||||
| Other income, net |
1,197 | — | 1,197 | |||||||||
| Total other expense |
(94,422 | ) | 2,247 | (92,175 | ) | |||||||
| Loss before income taxes |
(302,250 | ) | 2,022 | (300,228 | ) | |||||||
| Income tax expense |
88 | — | 88 | |||||||||
| Net loss |
(302,338 | ) | 2,022 | (300,316 | ) | |||||||
| Less: net income attributable to noncontrolling interest |
6 | 9,656 | (i) | 9,662 | ||||||||
| Net loss attributable to SandRidge Energy, Inc. |
(302,344 | ) | (7,634 | ) | (309,978 | ) | ||||||
| Preferred stock dividends |
13,940 | — | 13,940 | |||||||||
| Loss applicable to SandRidge Energy, Inc. common stockholders |
$ | (316,284 | ) | $ | (7,634 | ) | $ | (323,918 | ) | |||
| Loss per share |
||||||||||||
| Basic |
$ | (0.79 | ) | $ | (0.81 | ) | ||||||
| Diluted |
$ | (0.79 | ) | $ | (0.81 | ) | ||||||
| Weighted average number of common shares outstanding |
||||||||||||
| Basic |
398,251 | 398,251 | ||||||||||
| Diluted |
398,251 | 398,251 | ||||||||||
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 FINANCIAL STATEMENTS
| 1. | Basis of Presentation |
The unaudited pro forma condensed balance sheet as of March 31, 2011 is based on the SandRidge Energy, Inc. (“SandRidge”) unaudited March 31, 2011 balance sheet and assumes conveyance of royalty interests in certain oil and natural gas properties located in Andrews County, Texas by SandRidge to SandRidge Permian Trust (the “Trust”), a Delaware statutory trust formed in May 2011 by SandRidge, on that date. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2010 is based on the audited statement of operations of SandRidge for the year ended December 31, 2010 and the unaudited statement of operations of Arena Resources, Inc. (“Arena”) for the period from January 1, 2010 through July 16, 2010, and includes pro forma adjustments to give effect to SandRidge’s acquisition of Arena (“Arena Acquisition”) in July 2010 and SandRidge’s conveyance of the royalty interests described above as if those transactions occurred on January 1, 2010. The unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2011 is based on the unaudited statement of operations of SandRidge for the three months ended March 31, 2011 and gives effect to SandRidge’s conveyance of the royalty interests as if it occurred on January 1, 2011.
Consolidation of the Trust 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 Trust and that it will consolidate the activities of the Trust with its results for periods subsequent to the Trust’s initial public offering (“IPO”). In consolidation, the Trust’s net income attributable to common units of the Trust owned by third parties will be reflected as noncontrolling interest. Accordingly, the pro forma impact of the royalty interest conveyance primarily is limited to giving effect to noncontrolling interest accounting.
SandRidge believes that the assumptions used provide a reasonable basis for presenting the effects directly attributable to these transactions. These unaudited pro forma financial statements should be read in conjunction with SandRidge’s and the Trust’s Registration Statement filed on Forms S-3 and S-1 with the United States Securities and Exchange Commission by SandRidge and the Trust on May 25, 2011, SandRidge’s Annual Report on Form 10-K for the year ended December 31, 2010, and its Quarterly Report on Form 10-Q for the three months ended March 31, 2011.
| 2. | Pro Forma Adjustments |
The following adjustments were made in the preparation of the unaudited pro forma financial information:
| (a) | Adjustment to reflect estimated proceeds from the Trust’s issuance of 29,850,000 common units to third parties through its IPO at an assumed price of $20 per unit net of estimated underwriting fees and offering expenses. Net proceeds will be used to reduce amounts outstanding, if any, under SandRidge’s senior credit facility and for general and corporate purposes, which may include funding of SandRidge’s drilling obligation to the Trust. Amounts outstanding under the senior credit facility totaled $323.5 million at March 31, 2011. |
| (b) | Adjustment to recognize additional depletion attributable to the Arena Acquisition properties for the year ended December 31, 2010, using the unit of production method under the full cost method of accounting, as if the acquisition had taken place on January 1, 2010. |
| (c) | Adjustment to reflect the elimination of non-recurring expenses related to the Arena Acquisition that are reflected in the historical SandRidge or Arena income statement for the year ended December 31, 2010: |
| Acquisition costs(1) |
$ | 19,017 | ||
| Stock compensation expense(2) |
4,626 | |||
| Cancelled options(3) |
3,944 | |||
| Total non-recurring expenses |
$ | 27,587 | ||
| (1) | Expenses incurred by both SandRidge and Arena related to the Arena Acquisition, including professional fees and employee severance. |
| (2) | Stock compensation expense related to restricted stock awards of Arena common stock granted immediately prior to and in conjunction with the Arena Acquisition that were assumed by SandRidge. |
| (3) | Expense related to out-of-the-money Arena options that vested and cancelled at the time of the merger. |
| (d) | Adjustment to recognize additional interest expense related to the $177.9 million drawn on SandRidge’s senior credit facility to fund the cash portion of the Arena Acquisition purchase price. Additional interest expense was based upon the average annual interest rate paid on amounts outstanding under SandRidge’s senior credit facility during the period from January 1, 2010 to July 16, 2010. |
| (e) | Adjustment to reverse Arena’s historical income tax provision for the period from January 1, 2010 through July 16, 2010 and reverse the release of a portion of SandRidge’s valuation allowance for the year ended December 31, 2010. A deferred tax liability resulted from the step-up in basis on the property acquired from Arena. This deferred tax liability was offset with SandRidge’s existing net deferred tax asset, resulting in the release of $447.5 million of valuation allowance against SandRidge’s existing net deferred tax asset. The release of the valuation allowance is considered non-recurring and therefore reversed in the pro forma condensed combined statement of operations for the year ended December 31, 2010. |
| (f) | Total shares issued in connection with the Arena Acquisition consisted of (i) approximately 188.9 million shares issued in exchange for 39.5 million shares of outstanding Arena common stock and (ii) 1.4 million shares issued in exchange for outstanding options to purchase Arena common stock considered in-the-money (based on the closing price of $35.98 per share of Arena common stock on July 16, 2010) that converted into shares of SandRidge common stock in accordance with the merger agreement. |
| (g) | The Trust’s general and administrative expenses are estimated at $1.2 million annually and include an annual administrative services fee of $0.3 million payable by the Trust to SandRidge that will be eliminated in consolidation. |
| (h) | Adjustment to reflect reduction of interest expense due to repayment of amounts outstanding under senior credit facility with proceeds from the Trust’s IPO. |
| (i) | Reflects net income of the Trust attributable to an assumed third party beneficial ownership of 60%. Such amounts were estimated based on pro forma distributable income of the Trust of $60.5 million less estimated depletion of $12.6 million for the year ended December 31, 2010 and on pro forma distributable income of $19.6 million less estimated depletion of $3.5 million for the three months ended March 31, 2011. |