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8-K/A - FORM 8-K/A - SANDRIDGE ENERGY INCd404969d8ka.htm
EX-99.2 - FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED - SANDRIDGE ENERGY INCd404969dex992.htm
EX-23.1 - CONSENT OF HEIN & ASSOCIATES LLP - SANDRIDGE ENERGY INCd404969dex231.htm

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”). SandRidge’s historical results have also been adjusted to give effect to (i) the acquisition of Dynamic Offshore Resources, LLC (“Dynamic”) by SandRidge and SandRidge’s 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 II’s 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.


SandRidge’s 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. SandRidge’s historical results have also been adjusted to give effect to SandRidge’s 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 Trust’s 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.

Dynamic’s 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) SandRidge’s acquisition of properties from Hunt, (ii) the acquisition of Dynamic by SandRidge under the acquisition method of accounting, (iii) SandRidge’s conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II, (iv) SandRidge’s sale of the East Texas Properties, (v) SandRidge’s conveyance of the Permian Trust Royalty Interests to the Permian Trust, (vi) final adjustments recorded in 2011 related to SandRidge’s Arena Acquisition, and (vii) Dynamic’s 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 SandRidge’s 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 SandRidge’s 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 SandRidge’s 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, SandRidge’s 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 Trust’s Annual Report on Form 10-K for the year ended December 31, 2011, the Mississippian Trust II’s Quarterly Reports on Form 10-Q for the six months ended June 30, 2012 and three months ended March 31, 2012, Dynamic’s financial statements and related notes for the year ended December 31, 2011 included in SandRidge’s current report on Form 8-K filed on April 9, 2012 and for the three months ended March 31, 2012 included in SandRidge’s 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 II’s 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 SandRidge’s 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 SandRidge’s 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 SandRidge’s 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 SandRidge’s July 2010 acquisition of Arena Resources, Inc. (“Arena”). SandRidge’s 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”). SandRidge’s 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. Dynamic’s 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 Dynamic’s 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, SandRidge’s 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 Trust’s Annual Report on Form 10-K for the year ended December 31, 2011, the Mississippian Trust II’s Quarterly Reports on Form 10-Q for the six months ended June 30, 2012 and three months ended March 31, 2012, Dynamic’s financial statements and related notes for the year ended December 31, 2011 included in SandRidge’s current report on Form 8-K filed on April 9, 2012 and for the three months ended March 31, 2012 included in SandRidge’s 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 Dynamic’s 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 Dynamic’s 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 Dynamic’s long-term debt, was funded through a portion of the net proceeds from SandRidge’s 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 Dynamic’s 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 SandRidge’s credit adjusted risk-free rate.
  (5) The deferred tax liability is a result of the difference between the estimated fair value and SandRidge’s 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 SandRidge’s 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 Dynamic’s asset retirement obligation and related notes receivable balance as a result of calculating these amounts based on SandRidge’s 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 Dynamic’s assets and liabilities based on the asset and liability line items presented by SandRidge.

 

  (f) Adjustment to reflect repayment of Dynamic’s 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 SandRidge’s 8.125% Senior Notes. See (b) above.

 

  (i) Adjustment to recognize offset of newly created net deferred tax liability with SandRidge’s 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 Dynamic’s deferred tax liability to $0 as a result of SandRidge’s 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 Dynamic’s 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 SandRidge’s 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 SandRidge’s 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 II’s 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 SandRidge’s drilling program, which may include funding of SandRidge’s 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 Dynamic’s 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 Dynamic’s 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 entity’s 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 entity’s 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 Dynamic’s accretion expense due to changes in the asset retirement obligation as a result of calculating the obligation based upon SandRidge’s credit adjusted risk-free rate.

 

  (g) Adjustment to capitalize a portion of Dynamic’s general and administrative expenses as allowed under the full cost method, using SandRidge’s 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 SandRidge’s 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 Dynamic’s 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 SandRidge’s 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 SandRidge’s historical statement of operations for the six months ended June 30, 2012.

 

  (m) Adjustment to reverse Dynamic’s income tax benefit. There was no pro forma income tax provision related to the acquisition of Dynamic due to SandRidge’s 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 SandRidge’s 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 SandRidge’s existing net deferred tax asset, resulting in the release of $103.3 million of valuation allowance against SandRidge’s existing net deferred tax asset, which is reflected in SandRidge’s 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 II’s 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. SandRidge’s Unaudited Pro Forma Condensed Consolidated Statement of Operations

SandRidge’s 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 II’s 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 Trust’s 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 SandRidge’s 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 SandRidge’s 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 SandRidge’s existing net deferred tax asset, resulting in the release of $7.0 million of valuation allowance against SandRidge’s 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 Arena’s 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 II’s 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 SandRidge’s senior credit facility with proceeds from the Permian Trust’s 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 SandRidge’s 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

Dynamic’s 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%.