NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1
. Basis of Presentation
Nature of Business.
SandRidge Energy, Inc. is an oil and natural gas exploration and production company headquartered in Oklahoma City, Oklahoma with its principal focus on developing high-return, growth-oriented projects in the U.S. Mid-Continent and Niobrara Shale.
Principles of Consolidation.
The consolidated financial statements include the accounts of the Company and its wholly owned or majority owned subsidiaries, including its proportionate share of the Royalty Trusts. All significant intercompany accounts and transactions have been eliminated in consolidation.
Interim Financial Statements.
The unaudited condensed consolidated financial statements as of
December 31, 2016
have been derived from and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s
2016
Form 10-K. The unaudited condensed consolidated financial statements were also prepared in accordance with the accounting policies stated in the audited consolidated financial statements contained in the
2016
Form 10-K. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the financial statements include all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, necessary to state fairly the information in the Company’s unaudited condensed consolidated financial statements.
On May 16, 2016, the Company and certain of its direct and indirect subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court confirmed the Debtors’ joint plan of reorganization (the “Plan”) on September 9, 2016, and the Debtors’ subsequently emerged from bankruptcy on October 4, 2016 (the “Emergence Date”).
Fresh Start Accounting.
Upon emergence from bankruptcy, the Company applied fresh start accounting to its financial statements because (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims.
The Company elected to apply fresh start accounting effective October 1, 2016, to coincide with the timing of its normal fourth quarter reporting period, which resulted in SandRidge becoming a new entity for financial reporting purposes. The Company evaluated and concluded that events between October 1, 2016 and October 4, 2016 were immaterial and use of an accounting convenience date of October 1, 2016 was appropriate. As such, fresh start accounting is reflected in the consolidated balance sheet as of December 31, 2016. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the financial statements for the period after October 1, 2016 will not be comparable with the financial statements prior to that date. References to the “Successor” or the “Successor Company” relate to SandRidge subsequent to October 1, 2016. References to the “Predecessor” or “Predecessor Company” refer to SandRidge on and prior to October 1, 2016.
Significant Accounting Policies.
For a description of the Company’s significant accounting policies, see Note
3
of the consolidated financial statements included in the
2016
Form 10-K as well as the items noted below.
Reclassifications.
Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. These reclassifications have no effect on the Company’s previously reported results of operations.
Use of Estimates.
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The more significant areas requiring the use of assumptions, judgments and estimates include: oil, natural gas and natural gas liquids (“NGL”) reserves; impairment tests of long-lived assets; depreciation, depletion and amortization; asset retirement obligations; determinations of significant alterations to the full cost pool and related estimates of fair value used to allocate the
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
full cost pool net book value to divested properties, as necessary; income taxes; valuation of derivative instruments; contingencies; and accrued revenue and related receivables. Although management believes these estimates are reasonable, actual results could differ significantly.
Recent Accounting Pronouncements Not Yet Adopted.
The Financial Accounting Standards Board “FASB” issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Its objective is to increase the usefulness of information in the financial statements regarding the nature, timing and uncertainty of revenues. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which defers the effective date of ASU 2014-09 to January 1, 2018 for the Company, with early adoption permitted in 2017. The ASU must be adopted using either the retrospective transition method, which requires restating previously reported results or the cumulative effect (modified retrospective) transition method, which utilizes a cumulative-effect adjustment to retained earnings in the period of adoption to account for prior period effects rather than restating previously reported results. The Company plans to adopt the ASU on January 1, 2018 using the modified retrospective transition method. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
The FASB issued ASU 2016-02, “Leases (Topic 842),” which requires companies to recognize assets and liabilities for the rights and obligations created by long-term leases of assets on the balance sheet. The guidance requires adoption by application of a modified retrospective transition approach for existing long-term leases and is effective for the Company on January 1, 2019. Early adoption is permitted. The Company does not plan to early adopt and is currently evaluating the effect that the guidance will have on its consolidated financial statements and related disclosures.
The FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” with the objective of reducing the existing diversity in practice of classification on certain cash receipts and payments in the statement of cash flows. The guidance requires adoption by application of a retrospective method to each period presented. The amendments are effective for the Company on January 1, 2018, with early adoption permitted. The Company plans to early adopt the ASU in its second quarter on April 1, 2017. The guidance will have no impact on the consolidated financial statements and related disclosures.
The FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory” which removes the prohibition in Accounting Standards Codification (“ASC”) 740 against the immediate recognition of current and deferred income tax effects of intraentity transfers of assets other than inventory. The amendments in this ASU are effective for the Company on January 1, 2018, with early adoption permitted on January 1, 2017. The ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not plan to early adopt and is currently evaluating the effect that the guidance will have on its consolidated financial statements.
The FASB Issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which provides more consistency in applying the guidance, reduces the costs of application, and makes the definition of a business more operable. The ASU is effective for the Company on January 1, 2018 and amendments should be applied prospectively on and after January 1, 2018. The Company plans to early adopt the ASU in its second quarter on April 1, 2017. Due to the prospective nature of the ASU no disclosures are required upon transition.
The FASB Issued ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic: 610-20): Clarifying the Scope of Asset Derecognition Guidance and the Accounting for Partial Sales of Nonfinancial Assets,” which helps filers determine the guidance applicable for gain/loss recognition subsequent to the adoption of ASU 2014-09, Revenue from Contracts with Customers. The amendments also clarify that the derecognition of all businesses except those related to conveyances of oil and gas rights or contracts with customers should be accounted for in accordance with the derecognition and deconsolidation guidance in Topic 810, Consolidation. The Company plans to adopt the ASU on January 1, 2018 using the modified retrospective transition method. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2
. Acquisitions and Divestitures
Acquisition of Properties.
On February 10, 2017, the Company acquired approximately
13,000
net acres in Woodward County, Oklahoma for approximately
$47.6 million
in cash, net of post-closing adjustments. Also included in the acquisition were working interests in
four
wells previously drilled on the acreage.
Divestiture of West Texas Overthrust Properties and Release from Treating Agreement.
On January 21, 2016, the Predecessor Company paid
$11.0 million
in cash and transferred ownership of substantially all of its oil and natural gas properties and midstream assets located in the Piñon field in West Texas Overthrust (the “WTO”) to Occidental Petroleum Corporation (“Occidental”) and was released from all past, current and future claims and obligations under an existing
30
year treating agreement between the companies. As of the date of the transaction, the Predecessor Company had accrued approximately
$111.9 million
for penalties associated with shortfalls in meeting its delivery requirements under the agreement since it became effective in late 2012. The Predecessor Company recognized a loss of approximately
$89.1 million
on the termination of the treating agreement and the cease-use of transportation agreements that supported production from the Piñon field and reduced its asset retirement obligations associated with its oil and natural gas properties by
$34.1 million
.
3
. Fair Value Measurements
The Company measures and reports certain assets and liabilities on a fair value basis and has classified and disclosed its fair value measurements using the levels of the fair value hierarchy noted below. The carrying values of cash, restricted cash, accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses and other current liabilities included in the unaudited condensed consolidated balance sheets approximated fair value at
March 31, 2017
and
December 31, 2016
. As a result, these financial assets and liabilities are not discussed below. The fair values of property, plant and equipment and related impairments, which are calculated using Level 3 inputs, are discussed in Note 4.
|
|
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2
|
Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
|
|
Level 3
|
Measurement based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable for objective sources (i.e., supported by little or no market activity).
|
Assets and liabilities that are measured at fair value are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values, stated below, considers the market for the Company’s financial assets and liabilities, the associated credit risk and other factors. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company has assets and liabilities classified in Level 1 and Level 2 of the hierarchy as of
March 31, 2017
and
December 31, 2016
, as described below.
Level 1 Fair Value Measurements
Investments.
The fair value of investments, consisting of assets attributable to the Company’s non-qualified deferred compensation plan, is based on quoted market prices. Investments of
$6.1 million
and
$2.8 million
are included in other current assets at
March 31, 2017
and
December 31, 2016
, respectively, and investments of
$4.8 million
are included in other assets at
December 31, 2016
in the unaudited condensed consolidated balance sheets.
Level 2 Fair Value Measurements
Commodity Derivative Contracts.
The fair values of the Company’s oil and natural gas fixed price swaps are based upon inputs that are either readily available in the public market, such as oil and natural gas futures prices, volatility factors and discount rates, or can be corroborated from active markets. Fair value is determined through the use of a discounted cash flow model or option pricing model using the applicable inputs discussed above. The Company applies a weighted average credit default risk
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
rating factor for its counterparties or gives effect to its credit default risk rating, as applicable, in determining the fair value of these derivative contracts. Credit default risk ratings are based on current published credit default swap rates.
Level 3 Fair Value Measurements
Debt Holder Conversion Feature
. The Predecessor Company’s
8.125%
Convertible Senior Notes due 2022 and
7.5%
Convertible Senior Notes due 2023 (collectively, the “Convertible Senior Unsecured Notes”) each contained a conversion option whereby, prior to Chapter 11 filings, the Convertible Senior Unsecured Notes holders had the option to convert the notes into shares of Predecessor Company common stock. These conversion features were identified as embedded derivatives that met the criteria to be bifurcated from their host contracts and accounted for separately from the Convertible Senior Unsecured Notes.
The fair values of the holder conversion features were determined using a binomial lattice model based on certain assumptions including (i) the Predecessor Company’s stock price, (ii) risk-free rate, (iii) recovery rate, (iv) hazard rate and (v) expected volatility. The significant unobservable input used in the fair value measurement of the conversion features was the hazard rate, an estimate of default probability.
Fair Value - Recurring Measurement Basis
The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis by the fair value hierarchy (in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Netting(1)
|
|
Assets/Liabilities at Fair Value
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
9,833
|
|
|
$
|
—
|
|
|
$
|
(3,180
|
)
|
|
$
|
6,653
|
|
|
Investments
|
6,124
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,124
|
|
|
|
$
|
6,124
|
|
|
$
|
9,833
|
|
|
$
|
—
|
|
|
$
|
(3,180
|
)
|
|
$
|
12,777
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
4,725
|
|
|
$
|
—
|
|
|
$
|
(3,180
|
)
|
|
$
|
1,545
|
|
|
|
$
|
—
|
|
|
$
|
4,725
|
|
|
$
|
—
|
|
|
$
|
(3,180
|
)
|
|
$
|
1,545
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Netting(1)
|
|
Assets/Liabilities at Fair Value
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Investments
|
$
|
7,541
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,541
|
|
|
|
$
|
7,541
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,541
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
29,714
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,714
|
|
|
|
$
|
—
|
|
|
$
|
29,714
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,714
|
|
____________________
(1)
Represents the effect of netting assets and liabilities for counterparties with which the right of offset exists.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Level 3 - Debt Holder Conversion Feature.
The table below sets forth a reconciliation of the Predecessor Company’s Level 3 fair value measurements for debt holder conversion features (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Beginning balance
|
$
|
29,355
|
|
|
Gain on derivative holder conversion feature
|
(880
|
)
|
|
Conversions
|
(21,194
|
)
|
|
Ending balance
|
$
|
7,281
|
|
Prior to commencement of the Chapter 11 Proceedings, the fair value of the conversion features were determined quarterly with changes in fair value recorded as interest expense.
Transfers.
The Company recognizes transfers between fair value hierarchy levels as of the end of the reporting period in which the event or change in circumstances causing the transfer occurred. During the
three
-month periods ended
March 31, 2017
and
2016
, the Company did not have any transfers between Level 1, Level 2 or Level 3 fair value measurements.
Fair Value of Financial Instruments - Long-Term Debt
The Company measured the fair value of its non-interest bearing
0.00%
Convertible Senior Subordinated Notes due 2020, (the “Convertible Notes”) using pricing that was readily available in the public market. The Company measured the fair value of its
$35.0 million
initial principal note, as amended in February 2017, which is secured by first priority mortgages on the Company’s real estate in Oklahoma City, Oklahoma (the “Building Note”) using a discounted cash flow analysis. The Company classifies these inputs as Level 2 in the fair value hierarchy. The estimated fair values and carrying values of the Company’s long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Convertible Notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
334,800
|
|
|
$
|
268,780
|
|
|
Building Note
|
$
|
40,301
|
|
|
$
|
37,516
|
|
|
$
|
40,608
|
|
|
$
|
36,528
|
|
See Note
5
for additional discussion of the Company’s long-term debt.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4
. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Oil and natural gas properties
|
|
|
|
|
Proved
|
$
|
882,946
|
|
|
$
|
840,201
|
|
|
Unproved
|
110,941
|
|
|
74,937
|
|
|
Total oil and natural gas properties
|
993,887
|
|
|
915,138
|
|
|
Less accumulated depreciation, depletion and impairment
|
(377,280
|
)
|
|
(353,030
|
)
|
|
Net oil and natural gas properties capitalized costs
|
616,607
|
|
|
562,108
|
|
|
Land
|
5,200
|
|
|
5,100
|
|
|
Non-oil and natural gas equipment
|
159,178
|
|
|
166,010
|
|
|
Buildings and structures
|
88,503
|
|
|
88,603
|
|
|
Total
|
252,881
|
|
|
259,713
|
|
|
Less accumulated depreciation and amortization
|
(7,063
|
)
|
|
(3,889
|
)
|
|
Other property, plant and equipment, net
|
245,818
|
|
|
255,824
|
|
|
Total property, plant and equipment, net
|
$
|
862,425
|
|
|
$
|
817,932
|
|
The Company recorded an impairment on its oil and natural gas properties of
$108.4 million
during the
three
-month period ended
March 31, 2016
as a result of its quarterly full cost ceiling analysis.
At
March 31, 2017
, the Company classified its remaining drilling and oilfield services assets as held for sale in the other current assets line of the unaudited condensed consolidated balance sheet. The net realizable value of the assets was determined to be
$4.4 million
based on expected sales prices obtained from a third party. The carrying value of these assets exceeded the net realizable value by
$2.5 million
, resulting in an impairment for the three-month period ended
March 31, 2017
. The Company expects to dispose of these assets prior to the fourth quarter of 2017.
Drilling Carry Commitments.
Under the terms of an agreement with Repsol E&P USA, Inc. (“Repsol”), the Predecessor Company had agreed to carry Repsol’s drilling and completion costs totaling up to approximately
$31.0 million
for wells drilled in an area of mutual interest. The Predecessor Company incurred
$5.2 million
toward this obligation during the three-month period ended March 31, 2016. Repsol filed a bankruptcy claim for this commitment, which was settled by the Company in the fourth quarter of 2016 for approximately
$1.2 million
. The Company was released from the remaining obligation by the Bankruptcy Court in conjunction with its bankruptcy proceedings.
5
. Long-Term Debt
Credit Facility.
On February 10, 2017, the
$425.0 million
reserve-based revolving credit facility (the “First Lien Exit Facility”) was refinanced and replaced by a new
$600.0 million
credit facility (the “Credit Facility”). The initial borrowing base under the Credit Facility is
$425.0 million
and the next borrowing base redetermination is scheduled for October 1, 2017, followed by semiannual borrowing base redeterminations thereafter. The outstanding borrowings under the Credit Facility bear interest based on a pricing grid tied to borrowing base utilization of (a) LIBOR plus an applicable margin that varies from
3.00%
to
4.00%
per annum, or (b) the base rate plus an applicable margin that varies from
2.00%
to
3.00%
per annum. Interest on base rate borrowings is payable quarterly in arrears and interest on LIBOR borrowings is payable every one, two, three or six months, at the election of the Company. Quarterly, the Company pays commitment fees assessed at annual rates of
0.50%
on any available portion of the Credit Facility. The Company has the right to prepay loans under the Credit Facility at any time without a prepayment penalty, other than customary “breakage” costs with respect to LIBOR loans. Upon refinancing of the First Lien Exit Facility,
$50.0 million
maintained in a cash collateral account, as required by the terms of the First Lien Exit Facility, was released to the Company.
The Credit Facility is secured by (i) first-priority mortgages on at least
95%
of the PV-9 valuation of all proved reserves included in the most recently delivered reserve report of the Company, (ii) a first-priority perfected pledge of substantially all of
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
the capital stock owned by each credit party and equity interests in the Royalty Trusts that are owned by a credit party and (iii) a first-priority perfected security interest in substantially all the cash, cash equivalents, deposits, securities and other similar accounts, and other tangible and intangible assets of the credit parties (including but not limited to as-extracted collateral, accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, real property and the proceeds of the foregoing).
The Credit Facility requires the Company to, commencing with the first full quarter ending after the effective date of the refinancing, maintain (i) a maximum consolidated total net leverage ratio, measured as of the end of any fiscal quarter, of no greater than
3.50
to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the end of any fiscal quarter, of no less than
2.25
to 1.00. Such financial covenants are subject to customary cure rights.
The Credit Facility contains customary affirmative and negative covenants, including as to compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, oil and gas engineering reports, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments and other customary covenants.
The Credit Facility includes events of default relating to customary matters, including, among other things, nonpayment of principal, interest or other amounts; violation of covenants; incorrectness of representations and warranties in any material respect; cross-payment default and cross acceleration with respect to indebtedness in an aggregate principal amount of
$25.0 million
or more; bankruptcy; judgments involving a liability of
$25.0 million
or more that are not paid; and ERISA events. Many events of default are subject to customary notice and cure periods.
The Company had
no
amounts outstanding under the Credit Facility at
March 31, 2017
and
$8.0 million
in outstanding letters of credit, which reduce availability under the Credit Facility on a dollar-for-dollar basis.
First Lien Exit Facility.
On the Emergence Date, the Company entered into the First Lien Exit Facility with the lenders party thereto and Royal Bank of Canada, as administrative agent and issuing lender.
The initial borrowing base under the First Lien Exit Facility was
$425.0 million
. The First Lien Exit Facility was set to mature on February 4, 2020. The outstanding borrowings under the First Lien Exit Facility bore interest at a rate equal to, at the option of the Company, either (a) a base rate plus an applicable rate of
3.75%
per annum or (b) LIBOR plus
4.75%
per annum, subject to a
1.00%
LIBOR floor. Interest on base rate borrowings was payable quarterly in arrears and interest on LIBOR borrowings was payable every one, two, three or six months, at the election of the Company. Quarterly, the Company was committed to pay fees assessed at annual rates of
0.50%
on any available portion of the First Lien Exit Facility. The Company had the right to prepay loans under the First Lien Exit Facility at any time without a prepayment penalty, other than customary “breakage” costs with respect to LIBOR loans.
The First Lien Exit Facility contained certain financial covenants and customary affirmative and negative covenants, which the Company was in compliance with through the date it was refinanced.
Convertible Notes.
On the Emergence Date, pursuant to the terms of the Plan, the Company issued approximately
$281.8 million
principal amount of Convertible Notes, which did not bear regular interest and were set to mature and mandatorily convert into shares of common stock in the Successor Company (the “Common Stock”) on October 4, 2020, unless repurchased, redeemed or converted prior to that date. The Convertible Notes were recorded at fair value of
$445.7 million
upon implementation of fresh start accounting. As the associated premium of
$163.9 million
was deemed significant to the principal amount of the Convertible Notes, it was recorded in additional paid in capital in the unaudited condensed consolidated balance sheet at December 31, 2016. The Company’s obligations pursuant to the Convertible Notes were fully and unconditionally guaranteed, jointly and severally, by each of the guarantors of the First Lien Exit Facility.
The Convertible Notes were initially convertible at a conversion rate of
0.05330841
shares of Common Stock per $1.00 principal amount of Convertible Notes, which represented, in the aggregate, approximately
15.0 million
shares of common stock. The conversion rate for the Convertible Notes was subject to customary anti-dilution adjustments.
The Convertible Notes were convertible at the option of the holders at any time up to, and including, the business day immediately preceding the maturity date. Between the Emergence Date and December 31, 2016, approximately
$13.0 million
in
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
aggregate principal amount of the Convertible Notes was converted into approximately
0.7 million
shares of Common Stock following delivery of voluntary conversion notices by the holders of those Convertible Notes. Additionally, during the period from January 1, 2017 to February 9, 2017, approximately
$5.1 million
in aggregate principal amount of the Convertible Notes was converted into approximately
0.3 million
shares of Common Stock following delivery of voluntary conversion notices by the holders of those Convertible Notes. The remaining
$263.7 million
par value of outstanding Convertible Notes mandatorily converted upon the refinancing of the First Lien Exit Facility on February 10, 2017 after the determination by the Successor Company’s board of directors in good faith that: (a) such refinancing provided for terms that are materially more favorable to the Company and (b) the causing of a conversion was not the primary purpose of such refinancing. The Company issued
14.1 million
shares of Common Stock to holders of the remaining outstanding Convertible Notes upon their mandatory conversion.
Building Note.
On the Emergence Date, the Company entered into the Building Note, which had an initial principal amount of
$35.0 million
. The Building Note was recorded at fair value of
$36.6 million
upon implementation of fresh start accounting. Interest is payable on the Building Note at
6%
per annum for the first year following the Emergence Date,
8%
per annum for the second year following the Emergence Date, and
10%
thereafter through maturity. Interest is payable in kind from the Emergence Date through May 11, 2017, the date that is
90
days after the refinancing of the First Lien Exit Facility, and thereafter in cash. The Building Note matures on October 2, 2021 and became prepayable in whole or in part without premium or penalty upon the refinancing of the First Lien Exit Facility. On the Emergence Date, pursuant to the Plan, certain holders of the
8.75%
Senior Notes due 2020,
7.5%
Senior Notes due 2021,
8.125%
Senior Notes due 2022, and
7.5%
Senior Notes due 2023 (collectively, the “Senior Unsecured Notes”) purchased the Building Note for
$26.8 million
in cash, net of certain fees and expenses. Proceeds received from the Building Note were subsequently remitted to unsecured creditors on the Emergence Date in accordance with the Plan.
6
. Derivatives
Commodity Derivatives
The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil and natural gas. The Company seeks to manage this risk through the use of commodity derivative contracts, which allow the Company to limit its exposure to commodity price volatility on a portion of its forecasted oil and natural gas sales. None of the Company’s commodity derivative contracts may be terminated prior to contractual maturity solely as a result of a downgrade in the credit rating of a party to the contract. Cash settlements and valuation gains and losses on commodity derivative contracts are included in gain on derivative contracts in the unaudited condensed consolidated statements of operations. Commodity derivative contracts are settled on a monthly or quarterly basis. At
March 31, 2017
, the Company’s commodity derivative contracts consisted of fixed price swaps under which the Company receives a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume.
The Company recorded gains on commodity derivative contracts of
$34.2 million
and
$2.8 million
for the
three
-month periods ended
March 31, 2017
and
2016
, respectively, which include net cash payments (receipts) upon settlement of
$0.6 million
and
$(25.5) million
, respectively.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Master Netting Agreements and the Right of Offset.
The Company has master netting agreements with all of its commodity derivative counterparties and has presented its derivative assets and liabilities with the same counterparty on a net basis in the consolidated balance sheets. As a result of the netting provisions, the Company's maximum amount of loss under commodity derivative transactions due to credit risk is limited to the net amounts due from its counterparties. As of
March 31, 2017
, the counterparties to the Company’s open commodity derivative contracts consisted of
six
financial institutions, all of which are also lenders under the Company’s Credit Facility. The Company is not required to post additional collateral under its commodity derivative contracts as all of the counterparties to the Company’s commodity derivative contracts share in the collateral supporting the Company’s Credit Facility. The following tables summarize (i) the Company's commodity derivative contracts on a gross basis, (ii) the effects of netting assets and liabilities for which the right of offset exists based on master netting arrangements and (iii) for the Company’s net derivative liability positions, the applicable portion of shared collateral under the Credit Facility as of
March 31, 2017
and the First Lien Exit Facility as of December 31, 2016 (in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts
|
|
Gross Amounts Offset
|
|
Amounts Net of Offset
|
|
Financial Collateral
|
|
Net Amount
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts - current
|
|
$
|
4,392
|
|
|
$
|
(3,180
|
)
|
|
$
|
1,212
|
|
|
$
|
—
|
|
|
$
|
1,212
|
|
|
Derivative contracts - noncurrent
|
|
5,441
|
|
|
—
|
|
|
5,441
|
|
|
—
|
|
|
5,441
|
|
|
Total
|
|
$
|
9,833
|
|
|
$
|
(3,180
|
)
|
|
$
|
6,653
|
|
|
$
|
—
|
|
|
$
|
6,653
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts - current
|
|
$
|
4,725
|
|
|
$
|
(3,180
|
)
|
|
$
|
1,545
|
|
|
$
|
(1,545
|
)
|
|
$
|
—
|
|
|
Total
|
|
$
|
4,725
|
|
|
$
|
(3,180
|
)
|
|
$
|
1,545
|
|
|
$
|
(1,545
|
)
|
|
$
|
—
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts
|
|
Gross Amounts Offset
|
|
Amounts Net of Offset
|
|
Financial Collateral
|
|
Net Amount
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts - current
|
|
$
|
27,538
|
|
|
$
|
—
|
|
|
$
|
27,538
|
|
|
$
|
(27,538
|
)
|
|
$
|
—
|
|
|
Derivative contracts - noncurrent
|
|
2,176
|
|
|
—
|
|
|
2,176
|
|
|
(2,176
|
)
|
|
—
|
|
|
Total
|
|
$
|
29,714
|
|
|
$
|
—
|
|
|
$
|
29,714
|
|
|
$
|
(29,714
|
)
|
|
$
|
—
|
|
At
March 31, 2017
, the Company’s open commodity derivative contracts consisted of the following:
Oil Price Swaps
|
|
|
|
|
|
|
|
|
|
|
|
Notional (MBbls)
|
|
Weighted Average
Fixed Price
|
|
April 2017 - December 2017
|
2,475
|
|
|
$
|
52.24
|
|
|
January 2018 - December 2018
|
1,825
|
|
|
$
|
55.34
|
|
Natural Gas Price Swaps
|
|
|
|
|
|
|
|
|
|
|
|
Notional (MMcf)
|
|
Weighted Average
Fixed Price
|
|
April 2017 - December 2017
|
24,750
|
|
|
$
|
3.20
|
|
|
January 2018 - December 2018
|
5,450
|
|
|
$
|
3.24
|
|
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Fair Value of Derivatives
The following table presents the fair value of the Company’s derivative contracts as of
March 31, 2017
and
December 31, 2016
on a gross basis without regard to same-counterparty netting (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Contract
|
|
Balance Sheet Classification
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Derivative assets
|
|
|
|
|
|
|
|
Oil price swaps
|
|
Derivative contracts-current
|
|
$
|
4,392
|
|
|
$
|
—
|
|
|
Oil price swaps
|
|
Derivative contracts-noncurrent
|
|
4,792
|
|
|
—
|
|
|
Natural gas price swaps
|
|
Derivative contracts-noncurrent
|
|
649
|
|
|
—
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
Oil price swaps
|
|
Derivative contracts-current
|
|
(1,613
|
)
|
|
(13,395
|
)
|
|
Natural gas price swaps
|
|
Derivative contracts-current
|
|
(3,112
|
)
|
|
(14,143
|
)
|
|
Oil price swaps
|
|
Derivative contracts-noncurrent
|
|
—
|
|
|
(2,105
|
)
|
|
Natural gas price swaps
|
|
Derivative contracts-noncurrent
|
|
—
|
|
|
(71
|
)
|
|
Total net derivative contracts
|
|
$
|
5,108
|
|
|
$
|
(29,714
|
)
|
See Note
3
for additional discussion of the fair value measurement of the Company’s derivative contracts.
7
. Commitments and Contingencies
Legal Proceedings.
On October 14, 2016, Lisa West and Stormy Hopson filed a class action complaint in the United States District Court for the Western District of Oklahoma against SandRidge Exploration and Production, LLC, among other defendants. In their complaint, plaintiffs assert various tort claims seeking relief for damages allegedly incurred by the plaintiffs and the proposed class for injury to property and for the purchase of insurance policies allegedly needed by the plaintiffs and the proposed class for seismic activity allegedly caused by the defendants’ operation of wastewater disposal wells. An estimate of reasonably probable losses associated with this action cannot be made at this time. The Company has not established any reserves relating to this action.
In addition to the matters described above, the Company is involved in various lawsuits, claims and proceedings which are being handled and defended by the Company in the ordinary course of business.
Restricted cash - other included on the unaudited condensed consolidated balance sheets at March 31, 2017 and December 31, 2017 is the cash portion of consideration set aside for future settlement of general unsecured claims related to the Chapter 11 proceedings in accordance with the Plan. The corresponding liability for future cash settlements of general unsecured claims is included in accounts payable and accrued expenses on the unaudited condensed consolidated balance sheets.
Risks and Uncertainties.
The Company’s revenue, profitability and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which depend on numerous factors beyond the Company’s control such as overall oil and natural gas production and inventories in relevant markets, economic conditions, the global political environment, regulatory developments and competition from other energy sources. Oil and natural gas prices historically have been volatile, and may be subject to significant fluctuations in the future. The Company enters into commodity derivative arrangements in order to mitigate a portion of the effect of this price volatility on the Company’s cash flows. See Note
6
for the Company’s open oil and natural gas derivative contracts.
The Company historically has depended on cash flows from operating activities and, as necessary, borrowings under its Credit Facility to fund its capital expenditures. Based on its cash balances, cash flows from operating activities and net borrowing availability under the Credit Facility, the Company expects to be able to fund its planned capital expenditures budget, debt service requirements and working capital needs for 2017; however, if oil or natural gas prices decline from current levels, they could have a material adverse effect on the Company’s financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8
. Equity
Common Stock.
On the Emergence Date, the previously issued Predecessor Company common stock was canceled and an aggregate of approximately
18.9 million
shares of Common Stock, par value
$0.001
per share, was issued to the holders of allowed claims, as defined in the Plan, and approximately
0.4 million
shares of Common Stock were reserved for future distributions under the Plan. Additionally, from the Emergence Date through February 9, 2017 voluntary conversions of Convertible Notes resulted in the issuance of approximately
1.0 million
shares of Common Stock. The remaining balance of Convertible Notes converted to
14.1 million
shares of Common Stock upon refinancing the First Lien Exit Facility. See Note
5
for further discussion of the Convertible Notes.
Warrants.
On the Emergence Date, the Company issued approximately
4.9 million
Series A Warrants,
4.5 million
of which were issued immediately upon emergence and
2.1 million
Series B Warrants,
1.9 million
of which were issued immediately upon emergence (the “Warrants”), that were initially exercisable for
one
share of the Common Stock per Warrant at initial exercise prices of
$41.34
and
$42.03
per share, respectively, subject to adjustments pursuant to the terms of the Warrants, to certain holders of general unsecured claims as defined in the Plan. The Warrants are exercisable from the Emergence Date until October 4, 2022. The Warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions.
Predecessor Company Preferred Stock Dividends.
In the first quarter of 2016, prior to the February semi-annual dividend payment date, the Predecessor Company announced the suspension of the semi-annual dividend on its
8.5%
convertible perpetual preferred stock. At
March 31, 2016
, the Company had dividends in arrears of
$11.3 million
and
$10.5 million
on its
8.5%
and
7.0%
convertible perpetual preferred stock, respectively.
Paid and unpaid dividends included in the calculation of loss applicable to the Predecessor Company’s common stockholders and the Predecessor Company’s basic loss per share calculation for the three-month period ended
March 31, 2016
are presented in the unaudited condensed consolidated statement of operations. All outstanding shares of the Predecessor Company's
8.5%
and
7.0%
preferred stock were canceled upon Emergence from Chapter 11. See Note
10
for discussion of the Company’s earnings (loss) per share calculation.
9
. Income Taxes
For each interim reporting period, the Company estimates the effective tax rate expected for the full fiscal year and uses that estimated rate in providing for income taxes on a current year-to-date basis. The provision for income taxes consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Three Months Ended March 31, 2017
|
|
|
Three Months Ended March 31, 2016
|
|
Current
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
|
$
|
—
|
|
|
State
|
3
|
|
|
|
4
|
|
|
Total provision
|
$
|
3
|
|
|
|
$
|
4
|
|
Deferred income taxes are provided to reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company’s deferred tax assets have been reduced by a valuation allowance due to a determination that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence. The Company continues to closely monitor and weigh all available evidence, including both positive and negative, in making its determination whether to maintain a valuation allowance. As a result of the significant weight placed on the Company's cumulative negative earnings position, the Company continued to maintain the full valuation allowance against its net deferred tax asset at
March 31, 2017
. Thus, the Company’s effective tax rate and tax expense for the
three
-month period ended
March 31, 2017
continue to be low.
Internal Revenue Code (“IRC”) Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. As a result of the Chapter 11 reorganization and related transactions the Company experienced an ownership change within the meaning of IRC Section 382
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
on October 4, 2016. The Company analyzed alternatives available within the IRC to taxpayers in Chapter 11 bankruptcy proceedings in order to minimize the impact of the October 4, 2016 ownership change on its tax attributes. Upon filing its 2016 U.S. Federal income tax return, the Company plans to elect an available alternative that does not subject existing tax attributes to an IRC Section 382 limitation. The Company continues to monitor owner shifts that could result in the Company experiencing another ownership change. Should an additional ownership change become likely to occur prior to filing its 2016 U.S. Federal income tax return, the Company will evaluate the remaining available alternative which would likely result in the Company experiencing a limitation that subjects existing tax attributes at emergence to an IRC Section 382 limitation, which could result in some or all of the net operating loss carryforwards expiring unused.
At both
March 31, 2017
and
December 31, 2016
, the Company had a liability of approximately
$0.1 million
for unrecognized tax benefits. The Company expects to reduce the existing liability for unrecognized tax benefits as a result of a lapse in the statute of limitations within the next twelve months.
The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years
2013
to present remain open for federal examination. Additionally, tax years
2005
through
2012
remain subject to examination for the purpose of determining the amount of remaining federal net operating loss and other carryforwards. The number of years open for state tax audits varies, depending on the state, but are generally from
three
to
five
years.
10
. Earnings (Loss) per Share
A discussed in Note
8
, on the Emergence Date, the Predecessor Company’s then-authorized common stock was canceled and the new Common Stock and Warrants were issued.
The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
Weighted Average Shares
|
|
Earnings (Loss) Per Share
|
|
|
(In thousands, except per share amounts)
|
|
Three Months Ended March 31, 2017 (Successor)
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
50,808
|
|
|
26,801
|
|
|
$
|
1.90
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
Restricted stock awards(1)
|
—
|
|
|
—
|
|
|
|
|
Performance share units(1)
|
—
|
|
|
—
|
|
|
|
|
Diluted earnings per share
|
$
|
50,808
|
|
|
26,801
|
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016 (Predecessor)
|
|
|
|
|
|
|
Basic loss per share
|
$
|
(324,107
|
)
|
|
689,784
|
|
|
$
|
(0.47
|
)
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
Restricted stock and units(2)
|
—
|
|
|
—
|
|
|
|
|
Convertible preferred stock(3)
|
—
|
|
|
—
|
|
|
|
|
Convertible senior unsecured notes(4)
|
—
|
|
|
—
|
|
|
|
|
Diluted loss per share
|
$
|
(324,107
|
)
|
|
689,784
|
|
|
$
|
(0.47
|
)
|
____________________
|
|
|
|
(1)
|
No
incremental shares of potentially dilutive restricted stock awards or performance share units were included for the
three
-month period ended
March 31, 2017
as their effect was antidilutive under the treasury stock method.
|
|
|
|
|
(2)
|
No
incremental shares of potentially dilutive restricted stock awards or units were included for the
three
-month period ended
March 31, 2016
as their effect was antidilutive under the treasury stock method.
|
|
|
|
|
(3)
|
Potential common shares related to the Predecessor Company’s outstanding
8.5%
and
7.0%
convertible perpetual preferred stock covering
67.6 million
shares for the
three
-month period ended
March 31, 2016
, were excluded from the computation of loss per share because their effect would have been antidilutive under the if-converted method.
|
|
|
|
|
(4)
|
Potential common shares related to the Predecessor Company’s outstanding
8.125%
and
7.5%
Convertible Senior Unsecured Notes covering
38.5 million
and
19.8 million
shares for the
three
-month period ended
March 31, 2016
, respectively, were excluded from the computation of loss per share because their effect would have been antidilutive under the if-converted method.
|
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11
. Share and Incentive-Based Compensation
Successor Share-Based Compensation
Omnibus Incentive Plan.
Upon the Company’s emergence from bankruptcy, the Predecessor's share-based compensation awards were canceled and pursuant to terms of the Plan, the SandRidge Energy, Inc. 2016 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) became effective.
Persons eligible to receive awards under the Omnibus Incentive Plan include non-employee directors of the Company, employees of the Company or any of its affiliates, and certain consultants and advisors to the Company or any of its affiliates. The types of awards that may be granted under the Omnibus Incentive Plan include stock options, restricted stock, performance awards and other forms of awards granted or denominated in shares of Common Stock, as well as certain cash-based awards. At
March 31, 2017
, the Company had restricted stock awards, performance share units and performance units outstanding under the Omnibus Incentive Plan.
Restricted Stock Awards.
The Successor Company’s restricted stock awards are valued based upon the market value of the Company’s Common Stock on the date of grant. During October 2016, awards for approximately
1.4 million
shares of restricted stock awards were granted under the Omnibus Incentive Plan. These restricted shares will vest over a three-year period. In February 2017, awards for approximately
0.6 million
shares were granted, which will vest over approximately a
2.5
year period. The Successor Company recognized share-based compensation expense related to its restricted stock awards of
$3.6 million
, net of
$0.5 million
capitalized, for the
three
-month period ended
March 31, 2017
. The following table presents a summary of the Successor Company’s unvested restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
|
(In thousands)
|
|
|
|
Unvested restricted shares outstanding at December 31, 2016
|
1,407
|
|
|
$
|
24.32
|
|
|
Granted
|
603
|
|
|
$
|
20.21
|
|
|
Vested
|
(177
|
)
|
|
$
|
24.32
|
|
|
Forfeited / Canceled
|
(55
|
)
|
|
$
|
23.81
|
|
|
Unvested restricted shares outstanding at March 31, 2017
|
1,778
|
|
|
$
|
22.94
|
|
As of
March 31, 2017
, the Successor Company’s unrecognized compensation cost related to unvested restricted stock awards was
$35.2 million
. The remaining weighted-average contractual period over which this compensation cost may be recognized is
2.5 years
. The Successor Company’s restricted stock awards are equity-classified awards.
Performance Share Units.
In February 2017, the Company granted performance share units which vest upon completion of the performance period of January 1, 2017 through June 30, 2019 and will be settled in Common Stock, up to a maximum of approximately
0.4 million
shares of Common Stock, provided the required performance measures are met. The shares are valued based on
one
share of the Company Common Stock per performance share unit as awarded based on the Company performance relative to performance and market conditions. The Company’s performance share units are equity-classified awards. There was no significant activity related to the Company’s outstanding unvested performance share units during the
three
-month period ended
March 31, 2017
.
Successor Incentive-Based Compensation
Performance Units.
In October 2016, the Company granted performance units which will vest over a
three
-year period and will be settled in cash, provided the required performance measures are met. The performance units were issued at a value of
$100
each and the value at vesting will be determined by the annual scorecard final score. The Company’s performance units are liability-classified awards. There was no significant activity related to the Company’s outstanding unvested performance units during the
three
-month period ended
March 31, 2017
.
SANDRIDGE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Predecessor Share-Based Compensation
Restricted Common Stock Awards.
The Predecessor Company’s restricted common stock awards generally vested over a
four
-year period, subject to certain conditions, and were valued based upon the market value of the Company’s common stock on the date of grant. For the
three
-month period ended
March 31, 2016
, the Company recognized share-based compensation expense of
$7.4 million
, net of
$0.6 million
capitalized, which included
$5.3 million
for the accelerated vesting of
1.3 million
restricted common stock awards related to the Predecessor Company’s reduction in workforce during the first quarter of 2016. There was no significant activity related to the Predecessor Company’s then-outstanding performance units and performance share units during the
three
-month period ended
March 31, 2016
. The following table presents a summary of the Predecessor Company’s unvested restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
|
(In thousands)
|
|
|
|
Unvested restricted shares outstanding at December 31, 2015
|
5,626
|
|
|
$
|
4.85
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
Vested
|
(2,279
|
)
|
|
$
|
6.15
|
|
|
Forfeited / Canceled
|
(107
|
)
|
|
$
|
6.25
|
|
|
Unvested restricted shares outstanding at March 31, 2016
|
3,240
|
|
|
$
|
3.89
|
|